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Johnson Stands (For Now): Eleventh Circuit Keeps Its Ban on Class Rep Incentive Awards

For decades, Plaintiffs and defendants have fought bitterly over most aspects of class-action law.  One issue, however, had managed to escape serious contention: the propriety of paying “incentive awards” (also known as “service awards”) to class representatives.  Broadly speaking, such awards are sums paid to named plaintiffs—above and beyond what they receive as ordinary class members—to compensate them for the time, effort, and inconvenience their role may require.  According to one academic study, these awards are generally modest, averaging 0.16% of the class-wide recovery, with a median of 0.02%. Incentive awards became widespread in the 1980s and 1990s, and are now near-ubiquitous, especially in the consumer class action domain where we focus.  See 1 William B. Rubenstein, Newberg and Rubenstein on Class Actions § 17:7 (6th ed., June 2022 update) (noting that courts approved incentive awards in 93.4% of consumer class actions between 2006 and 2011).

In September 2020, however, the Eleventh Circuit sent a modest tremor through the class-action world with its panel opinion in Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020).  Johnson unsettled decades of class-action practice by holding that incentive awards to class representatives are categorically “prohibit[ed].”  Unsurprisingly, en banc review was requested, and numerous amici (including Harvard Law School professor and class-action-treatise author William B. Rubinstein) voiced their support for reconsideration.  But earlier this month—after almost two years of silence—a majority of the Eleventh Circuit declined to rehear the case.  This unexpected development greatly increases the odds of Supreme Court review.

The Panel Decision

The saga began with Charles Johnson’s dislike of NPAS Solutions’ persistent debt-collection robocalls.  He brought suit on behalf of himself and a putative class of similarly situated individuals, alleging violations of the Telephone Consumer Protection Act.  NPAS later agreed to a settlement with Johnson and the putative class; among other things, the settlement allocated $6,000 to Johnson for the service he had rendered as class representative.  A lone class member objected, contending that two Supreme Court cases from the late 1800s—Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885)—barred Johnson’s incentive award.  The district court disagreed, finding the settlement—incentive payment and all—“fundamentally fair, reasonable, adequate, and in the best interest of the class members.”  The objector appealed.

In a surprise to many, a panel of the Eleventh Circuit agreed that those two Supreme Court decisions flatly bar incentive awards like Johnson’s.  See Johnson, 975 F.3d at 1244, 1258-59.  The panel majority read Greenough and Pettus to stand for the rule that, although a plaintiff litigating on behalf of absent persons “can be reimbursed [out of the recovery] for attorneys’ fees and expenses incurred in carrying on the litigation,” such a plaintiff can never “be paid a salary” out of that recovery.  Id. at 1257.  “It seems to us,” the majority reasoned, “that the modern-day incentive award for a class representative is roughly analogous” to the “salary” deemed verboten in Greenough and PettusId.  The majority further analogized incentive awards to an improper “bounty” that serves “to promote litigation by providing a prize to be won.”  Id. at 258. While the majority acknowledged that incentive awards are “fairly typical in class actions,” it attributed that ubiquity to mere “inertia and inattention,” rather than the inapplicability of Greenough and Pettus to the modern class-action context.  Id. at 1259.

In dissent, Judge Beverly B. Martin noted that the majority’s decision avoided analysis of any modern authority, and instead relied solely on “decisions from the 1880s that do not reflect the current views of the Supreme Court or other circuits.” Id. at 1269.  Judge Martin also charged that the panel’s holding flew in the face of the Eleventh Circuit’s own precedent, which recognized that incentive awards may be approved upon a judge’s finding that they are “fair” and do not unduly favor the class representative.  Id. at 1267-68.  Judge Martin cautioned that the panel’s decision had taken the Eleventh Circuit “out of the mainstream,” and warned that if it stands, “potential plaintiffs [would] be less willing to take on the role of class representative in the future,” as they would be “requir[ed] ... to incur costs well beyond any benefits they receive from their role in leading the class.”  Id. at 1264-65, 1268.

The Denial of Rehearing

That was all in 2020.  Johnson swiftly filed a petition for rehearing en banc regarding his incentive award.  A coalition of amici curiae—including dozens of law professors and over a dozen advocacy organizations—strenuously registered their objections to the panel’s decision.  The mandate was withheld, but the Eleventh Circuit then went silent for 21 months.  Finally, on August 3, 2022, the court announced—in another surprising development—that there would be no rehearing after all, and that the panel decision would stand.  No reason was given for the unusually long delay in deciding not to rehear the case.  And rather than offer a substantive “concurral” defending the panel’s majority opinion, its author, Judge Kevin C. Newsom, stated that he was “content to let [that] opinion speak for itself.”  Johnson, 2022 WL 3083717, at *1.

Judge Jill A. Pryor, along with Judges Wilson, Jordan, and Rosenbaum, was not so content.  Arguing that “the panel majority’s opinion threatens the very viability of class actions in this circuit,” Judge Pryor and her colleagues issued a lengthy “dissental.”  Id. at *2.  It emphasized, among other things, the panel majority’s failure to grapple with historical developments “in the 140 years between [Greenough and Pettus] and this [case].”  Id. at *5.  These developments included the demise of the federal common law regime under which those cases were decided, the advent of Rule 23, and the fact that incentive awards have become commonplace without any sign of disapproval from the Supreme Court, Congress, or the Advisory Committee on Civil Rules.  Id. at *6-10.  Like Judge Martin’s panel dissent, Judge Pryor’s dissental noted that the Eleventh Circuit’s decision has created a split with "every other federal court in the country.”  Id. at *11.  Similarly, it argued that the panel opinion was likely to “threaten[] the viability of consumer class actions” and impede small businesses from challenging anticompetitive behavior by large corporations.  Id. at *11-12.

What Comes Next?

Despite the denial of rehearing, the panel opinion in Johnson is unlikely to be the last word on the matter.  Whichever side is right on the merits, the dissenters are certainly correct that the Eleventh Circuit is now outside of the judicial mainstream.  Indeed, while the Eleventh Circuit was deciding whether to grant en banc rehearing, the Sixth Circuit rejected as “meritless” the argument that “so-called ‘service awards’ to certain named plaintiffs” were improper, finding that “those payments correlate[d] to the substantial amount of time that the named plaintiffs actually spent ... advancing the litigation of the case” and were therefore legitimate.  Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., 833 F. App’x 430, 431 (6th Cir. 2021).

Now that the Eleventh Circuit has dug in its heels, the Supreme Court seems very likely to turn its attention to this issue.  That said, no other circuit has had the opportunity to weigh in on Johnson’s reasoning since the full Eleventh Circuit reaffirmed it.  The high court may prefer to let the issue percolate a bit further in the circuit courts—and to see if the Johnson dissenters’ dire predictions start coming true—before stepping in.  In the meantime, if they have the desire, Congress or the Federal Judicial Conference’s Advisory Committee on Civil Rules could clarify the confusion by expressly addressing incentive awards via rule amendment or statute.

Suffice it to say, this is one issue that we at Misbranded will be watching closely.