The Sixth Circuit has never held either way on the propriety of making incentive payments to class representatives in class action settlements. The closest the Court has come to approving the practice (at least in some circumstances) is a passing remark in the 2003 decision Hadix v. Johnson that “there may be circumstances where incentive awards are appropriate.” More recently, however, the Sixth Circuit has expressed some skepticism.
Last year, we reported here (and here) on In re Dry Max Pampers Litigation, where the Sixth Circuit rejected a class action settlement that provided no monetary relief to the unnamed class yet awarded $2.73 Million to class counsel in attorney’s fees. But the opinion also included an interesting discussion of incentive awards in which the Court quipped: “to the extent that incentive awards are common, they are like dandelions on an unmowed lawn—present more by inattention than by design.” The Sixth Circuit did not have occasion to issue a formal rule on incentive awards in In re Dry Max Pampers Litigation; however, the Court observed that the justification for incentive payments is strongest where class representatives receive only a fraction of their likely damages and thus have reason to care about the mechanisms governing the remainder of settlement recovery. In contrast, the argument for incentive payments is most dubious where class representatives are made whole (or more than whole) and thus have no incentive to care about the remainder of recovery.
Even without a formal rule, In re Dry Max Pampers Litigation appears to be having some effect on incentive awards and class action settlements. Earlier this year, in Michel v. WM Healthcare Solutions, Inc., the Southern District Ohio reduced an incentive award from $10,000 to $3,000, citing In re Dry Max Pampers Litigation and commenting that “the best approach to approving any amount of an incentive award is a conservative one.” Noting the Sixth Circuit’s observation that incentive awards are most defensible where the incentive is only a fraction of the recipient’s likely damages, the District Court lowered the incentive award to a point below what it considered to be the likely damages for one of the class representatives.
The law governing incentive payments in the Sixth Circuit is still unclear. However, to the extent that incentive awards are “like dandelions on an unmowed lawn,” those dandelions are starting to get cut. It remains for the Sixth Circuit to determine if they can persist at all and, if so, under what circumstances.