Earlier this month, in Johnson v. NPAS Solutions, No. 18-12344, — F.4th —-, (11th Cir. Aug. 3, 2022), the U.S. Court of Appeals for the Eleventh Circuit denied a petition for rehearing of a three-judge panel’s majority decision holding that class representative incentive awards are prohibited under U.S. Supreme Court precedent.

In denying the petition, the Eleventh Circuit confirmed that incentive awards are prohibited as a matter of law in connection with class-action settlements filed in the federal district courts of Alabama, Florida and Georgia. Although the Eleventh Circuit is the only circuit to have prohibited incentive awards, some district courts in other circuits have noted that Johnson is worthy of closer examination, perhaps opening the door to other circuits adopting Johnson.

At the same time, district courts within the Eleventh Circuit have wrestled with deciding whether to outright deny requests for incentive awards, with many deferring ruling on such requests pending the Eleventh Circuit’s decision on the petition for rehearing in Johnson. The denial of the petition now leaves those district courts with little, if any, latitude and may very well lead to an appeal to the Supreme Court or action by the Advisory Committee on Civil Rules or Congress, as suggested by Judge Jill Pryor in a dissenting opinion.

The Panel’s Decision

In March 2017, Charles Johnson initiated a putative class action under the Telephone Consumer Protection Act against NPAS Solutions, LLC in the U.S. District Court for the Southern District of Florida. Later that year, after the parties reached a $1.432 million settlement, the district court preliminarily approved the settlement and allowed Johnson to “petition the court to receive an amount not to exceed $6,000 as acknowledgment of his role in prosecuting this case on behalf of the class members.” See Johnson, No. 9:17-cv-80393 (S.D. Fla. Dec. 4, 2017). Class member Jenna Dickenson then objected to the settlement, arguing in part that Supreme Court precedent precluded the incentive award. The district court overruled that objection and approved the $6,000 incentive award in a May 2018 final order and Judgment.

Dickenson appealed, and, in a Sept. 17, 2020, decision, the majority of a three-judge panel concluded that, in approving the incentive award, the district court “ignored on-point Supreme Court precedent prohibiting such awards.” Specifically, the panel held that incentive awards are barred under Trustees v. Greenough, 105 U.S. 527 (1881), and Central Railroad & Banking v. Pettus, 113 U.S. 116 (1885).

As noted by Pryor in her dissenting opinion, “in Greenough and Pettus, decided long before modern class actions were born, the Supreme Court applied equitable trust principles in the absence of any authority for compensating creditors who through litigation benefitted a common fund.” The plaintiff in Greenough was a bondholder who requested attorney fees, litigation expenses, and fees for his personal services and travel expenses in connection with a lawsuit to preserve assets securing bonds that he and others owned. The district court awarded him attorney fees as well as “an allowance of $2,500 a year for ten years” for his “peculiar and great personal service” and nearly $10,000 in interest and $15,000 for travel expenses. Notably, the award of a personal salary for 10 years and travel expenses totaled “more than $1.4 million in today’s dollars.”

On appeal, the Supreme Court vacated the award for payments that amounted to a salary and compensation for travel expenses, explaining that it could “find no authority whatever” supporting the approval of such expenses. The c ourt reasoned that allowing such an award would “present too great a temptation to parties to intermeddle in the management of valuable property or funds.” The Supreme Court’s later decision in Pettus “merely repeated this language from Greenough.”

Writing for the majority of the panel in Johnson, Judge Kevin Newsom deemed the award rejected by the Supreme Court in Greenough to be “roughly analogous” to incentive awards in class-action settlements. Newsom reasoned that “modern-day incentive awards” are barred under Greenough because such awards constitute “part salary and part bounty” in that they “compensate class representatives for their time (i.e., as a salary)” and also “promote litigation by providing a prize to be won (i.e., as a bounty).”

The Petition for Rehearing

In October 2020, Dickenson petitioned the Eleventh Circuit for rehearing, seeking review of the attorney fees awarded under the settlement. Six amicus briefs were filed, including one by Prof. William Rubenstein, the current author of “Newberg on Class Actions,” and one by 26 other law school professors. The group of professors argued that the Johnson panel decision “risks eliminating large swaths of small-value claim class actions in the Eleventh Circuit,” and Rubenstein noted that the decision disregards the 2018 amendments to Rule 23 of the Federal Rules of Civil Procedure, which require courts to ensure that a class-action settlement “treats class members equitable relative to each other.”

On Aug. 3, a 7-4 majority of the Eleventh Circuit denied the petition for rehearing. Pryor’s dissenting opinion emphasized that the panel decision “broke with decisions from this and every other circuit allowing these awards when properly approved under the strictures of Rule 23” and “threatens the very viability of class actions in this circuit.” In a brief concurring statement, Newsom, stated that he was “content to let the panel opinion speak for itself.”

District Court Decisions During the Pendency of the Petition for Rehearing

During the 22 months in which the petition for rehearing was pending in the Eleventh Circuit, district courts in nearly every circuit addressed arguments regarding the Johnson panel decision in assessing requests for incentive awards. District courts outside the Eleventh Circuit largely outright rejected Johnson:

• Grace v. Apple, No. 17-cv-00551, (N.D. Cal. Mar. 31, 2021) (approving two $7,500 incentive awards and rejecting defendant’s contention that such awards were prohibited under Greenough and Pettus, finding that Johnson’s “reading of old Supreme Court decisions” was “novel” and contravened Ninth Circuit precedent).
• Halcom v. Genworth Life Insurance, No. 3:21-cv-19 (E.D. Va. June 28, 2022) (acknowledging that incentive awards are “not without controversy” but approving $15,000 incentive awards because “courts in the Fourth Circuit have approved incentive payments as high as $25,000 when the movant has shown the award to be merited by effort or risk undertaken by the named plaintiff”).
• In re Lithium Ion Batteries Antitrust Litigation, No. 13-md-02420, (N.D. Cal. Dec. 10, 2020) (approving incentive awards of $8,500 for each of 21 individual class representatives and $23,500 for each of two governmental entity class representatives and expressly declining to follow Johnson).
• Izor v. Abacus Data Systems, No. 19-cv-01057, (N.D. Cal. Dec. 21, 2020) (approving $2,500 incentive award and rejecting objector’s reliance on Johnson because it “is not binding and is contrary to Ninth Circuit precedent”).
• Knox v. John Varvatos Enterprises, 520 F. Supp. 3d 331 (S.D.N.Y. 2021) (approving $20,000 incentive award and noting that the Second Circuit held in Melito v. Experian Marketing Solutions, 923 F.3d 85 (2d Cir. 2019), that Greenough and Pettus do not prohibit incentive awards).
• Somogyi v. Freedom Mortgage, 495 F. Supp. 3d 337, 353-54 (D.N.J. 2020) (rejecting Johnson and approving three $5,000 incentive awards because “[t]here is substantial precedent from this Circuit supporting approval of incentive awards”).
• Vogt v. State Farm Life Insurance, No. 2:16-cv-04170, (W.D. Mo. Jan. 25, 2021) (approving $15,000 incentive award and finding that, although Johnson expressed concern that “incentive awards may lead named plaintiffs to expect a bounty for bringing suit or to compromise the interest of the class for personal gain,” there was “no indication that expectation of an incentive award led Mr. Vogt in this case to compromise the interest of the class for his personal gain”).
• Wickens v. Thyssenkrupp Crankshaft, No. 1:19-cv-6100, (N.D. Ill. Jan. 26, 2021) (approving $7,500 incentive award and declining to follow Johnson).
• Wood v. Saroj & Manju Investments Philadelphia, No. 19-2820 (E.D. Pa. Dec. 28, 2020) (preliminarily approving settlement, including $2,500 service award, and declining to follow Johnson).

Indeed, in two decisions issued before the denial of the petition for rehearing, even district courts within the Eleventh Circuit declined to follow Johnson and approved incentive awards.

First, in Henderson v. Emory University, No. 16-cv-2920 (N.D. Ga. Nov. 4, 2020), the U.S. District Court for the Northern District of Georgia approved incentive awards, finding them “not of the type prohibited in” Greenough and Pettus. The court reasoned that an incentive award “does not constitute either a salary or a bounty” and that the class representatives “were integral to achieving the settlement which in turn benefits the entire class.” A few months later, the Northern District of Georgia again declined to follow Johnson in approving five incentive awards, each in the amount of $25,000. In Pledger v. Reliance Trust, No. 1:15-cv-4444, (N.D. Ga. Mar. 8, 2021). the court held that, “unlike Greenough and Pettus, the class representatives in this case were not promised a ‘bonus’ or ‘salary,’ but undertook a considerable risk of alienation and harm to their reputations for seeking to enforce their rights” and those of the class.

Other district courts within the Eleventh Circuit were hesitant to outright prohibit incentive awards pending the Eleventh Circuit’s disposition of the petition for rehearing in Johnson. Several courts deferred ruling on requests for incentive awards and ordered that the funds be paid into escrow pending the disposition of the petition. See Turner v. Rosen Hotels & Resorts, No. 6:21-cv-161, (M.D. Fla. Aug. 2, 2022); Venerus v. Avis Budget Car Rental, No. 6:13-cv-921, (M.D. Fla. July 5, 2022); Thomas v. JSTC, No. 6:19-cv-1528, (M.D. Fla. Apr. 28, 2022); Belin v. Health Insurance Innovations, No. 19-61430, (S.D. Fla. Apr. 15, 2022); Smith v. Costa Del Mar, No. 3:18-cv-1011, (M.D. Fla. Jan. 27, 2022).

Given the denial of the petition for rehearing in Johnson, it is now all but certain that those courts will decline to approve the requested incentive awards. Indeed, several district courts in the Eleventh Circuit refused to award incentive awards even before the denial of the petition for rehearing. For example, in Rosado v. Barry University, No. 1:20-CV-21813 (S.D. Fla. Sept. 7, 2021), the Southern District of Florida approved a $2.4 million settlement to resolve a proposed class action seeking tuition refunds after in-person classes were canceled in spring 2020 because of the COVID-19 pandemic.

The court approved an award of attorneys’ fees in the amount of $800,000 but refused a $5,000 incentive award for the class representative in light of Johnson. See also In re Equifax Inc. Customer Data Security Breach Litigation, 993 F.3d 1247 (11th Cir. 2021) (“As in NPAS Solutions, we must reverse the district court’s ruling on the incentive awards alone and remand this case to the district court solely for the limited purpose of vacating those awards.”); Benitez v. FGO Delivers, No. 8:21-cv-0221, (M.D. Fla. Feb. 17, 2022) (holding that “this court cannot approve incentive awards, salaries, or bounties to a named plaintiff” and denying incentive award); Parker v. Stoneledge Furniture, No. 8:21-cv-00740, (M.D. Fla. Feb. 17, 2022) (preliminary approving settlement but holding that “no service award will be approved for the class representative”).

What Lies Ahead

Although the Eleventh Circuit is the only circuit to prohibit incentive awards, some district courts in other circuits have suggested that the propriety of incentive awards is deserving of further review. For example, the District of Colorado recently noted that it found “much of the reasoning in Johnson persuasive, particularly to the extent it rejects ‘incentive’ payments that function as a ‘bounty’ for suing.” See Hunter v. CC Gaming, No. 19-cv-01979, (D. Colo. Dec. 16, 2020). Nevertheless, the court approved $2,730.79 incentive awards because they “appear to be allowable under” Tenth Circuit precedent.

Recent decisions of the Northern District of California and the Southern District of New York also suggest that Johnson raises an issue deserving of closer examination. See In re Apple Inc. Device Performance Litigation, No. 5:18-md-02827, (N.D. Cal. Mar. 17, 2021) (approving incentive awards but noting that “Johnson raises a valid issue” as to whether incentive awards are appropriate); Hart v. BHH, No. 15-cv-4804, (S.D.N.Y. Sept. 22, 2020) (approving incentive awards but noting that “this issue is deserving of congressional attention”).

Given the Eleventh Circuit’s refusal to review the panel decision in Johnson, the decision may “have a very real and detrimental impact on class actions in this circuit.” Perhaps, as Pryor suggested in her dissenting opinion, the Supreme Court may “overrule or clarify Greenough and Pettus” or Congress will enact a statute explicitly authorizing incentive awards. In the interim, objectors to class-action settlements will likely continue to challenge incentive awards pending in other circuits in hopes that another circuit will adopt the reasoning of Johnson and prohibit incentive awards.

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