You need to read Johnson v. NPAS Solutions, LLC. This recent decision from the 11th Circuit fundamentally changes the rules of obtaining approval for class action settlements.
Johnson’s introduction emphasizes that the 11th Circuit is shaking up the way class actions are settled and that the court knows it: “The class-action settlement that underlies this appeal is just like so many others that have come before it. And in a way, that’s exactly the problem. We find that, in approving the settlement here, the district court repeated several errors that, while clear to us, have become commonplace in everyday class-action practice.” In the pages that follow, the 2-to-1 majority opinion categorically forbids class-representative incentive payments, establishes a mandatory sequence for fee petitions, and reinforces standards regarding the approving court’s findings and conclusions.
Johnson looks like an ordinary TCPA class settlement. After the complaint, some motion practice, and a little discovery, the parties proposed a nationwide class settlement offering just under $1.5 million to about 180,000 class members on a claims-made basis. Fewer than 10,000 class members submitted claims, but the claims rate was a respectable 5.3%. The settlement provided a $6,000 incentive award to the class representative. Class counsel were to receive 30% of the settlement fund available to the class, but, critically, their fee petition was not due until after the objection deadline passed. Nobody opted out, but there was one objector. The district court overruled her objections, and she appealed. The 11th Circuit went with her on three issues (we address them in order, but the second is the most important).
The 11th Circuit interpreted Federal Rule of Civil Procedure 23(h) to require class counsel to submit the fee petition before any objection to fees is due. It is not enough, the court ruled, that the class notice included details about what the fee petition would ultimately request. The objectors have the right to object to the petition itself. In this regard, the court noted that a degree of adversity sneaks between the class and the lawyers representing it, as the lawyers’ interest to maximize fees conflicts with the class’ interest to maximize recovery to the class.
While the court set a bright-line rule requiring fee petitions to come before an objection deadline, it found that the district court’s failure to sequence the deadlines in this manner resulted in harmless error. The objector relied on the notice to substantiate her objection, and the ultimate fee petition aligned with the notice. Moreover, the objector appeared at the final approval hearing to challenge the substance of the fee petition. She made no new arguments at the hearing and made no new arguments on appeal. Thus, the error was harmless.
No More Class Representative Incentive Payments
If you had “Court of Appeals prohibits class representative incentive payments by relying on Supreme Court cases from 1882 and 1885” on your 2020 bingo card, come forward and collect your prize. The 11th Circuit has apparently categorically barred them for over 100 years.
The cases on which it relied are Trustees v. Greenough, 105 U.S. 527 (1882) and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885). They establish a general rule that a plaintiff who successfully litigates to create a common fund for the benefit of the plaintiff and others can recover an attorney’s fee from the fund — but may not recover any kind of personal salary.
While these Supreme Court cases are not class-action cases, they are cases where one plaintiff’s work benefits others beyond the named plaintiff, which the 11th Circuit found was close enough to be controlling. It held that the prohibition on salaries for successful plaintiffs barred incentive payments for class representatives, which served much the same purpose: “Incentive awards are intended not only to compensate class representatives for their time (i.e., as a salary), but also to promote litigation by providing a prize to be won (i.e., as a bounty).” The court found incentive awards to be “part salary and part[ ] bounty;” but “[w]hether [the] incentive award constitutes a salary, a bounty, or both, we think it clear that Supreme Court precedent prohibits it.”
The court had no qualms about barring these common payments, noting “so far as we can tell, the [ubiquity of incentive payments] is a product of inertia and inattention, not adherence to law.”
Lastly, the 11th Circuit reiterated the long-standing requirements that district courts make detailed findings when addressing such matters as the fairness and adequacy of a settlement, the approval of fees, and the disposition of objections. It is not enough merely to dispose of the issues. The 11th Circuit requires a record that substantiates the reasons for the district court’s decision to exercise its discretion to approve a settlement or fee petition.