Appeals Court Rules Incentive Awards in Class-Action Suits Are Forbidden

The Eleventh Circuit Court of Appeals ruled yesterday in a Telephone Consumer Protection Act case against a debt collector that incentive payments for the named plaintiff in a class-action lawsuit are illegal under Supreme Court precedent dating back more than 130 years.

A copy of the ruling in the case of Johnson v. NPAS Solutions can be accessed by clicking here.

The plaintiff filed a class-action lawsuit against the defendant, alleging it violated the TCPA by using an automated telephone dialing system to contact him on his cell phone without his consent. Eight months after the suit was filed, the parties reached a settlement, in which the defendant would pay $1.4 million. Of that total, $6,000 would go to the named plaintiff, 30% would go to the plaintiff’s attorneys, and the rest would go to members of the class who did not opt out of the settlement. The court set a date for individuals to opt out of the settlement and then set a date — 18 days later — for the parties to submit their motion for final approval of the settlement, a response to any objections, and the petition for attorney’s fees and costs.

Only one individual — Jenna Dickenson — objected to the settlement, which was ultimately approved, and she was the one who appealed the ruling to the Eleventh Circuit.

By scheduling the deadline to file the attorney’s fee petition 18 days after the class member’s objections were due, Dickenson argued that she was inhibited from objecting to the fee request, which violates due process, a claim the Eleventh Circuit agreed with, but ultimately determined the error was not harmful.

Next, the Court turned to the incentive award. Looking at a pair of cases from the late 1800s, it decided that the incentive award for a class representative is analogous to a salary or reimbursement for expenses, which is prohibited under those two cases, and compared the incentive award to a “bounty” for promoting litigation.

“Although it’s true that such awards are commonplace in modern class action litigation, that doesn’t make them lawful, and it doesn’t free us to ignore Supreme Court precedent forbidding them,” the Appeals Court wrote in its ruling.

In its ruling, the Court reversed the District Court’s approval of the $6,000 incentive award and remanded the case back to the lower court so it could “adequately explain its fee award to class counsel, its denial of Dickenson’s objections, and its approval of the settlement.”

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