Last year, in denying a petition for rehearing in Johnson v. NPAS Solutions, 43 F.4th 1138 (11th Cir. 2022), the U.S. Court of Appeals for the Eleventh Circuit confirmed that class representative incentive awards are prohibited as a matter of law. Although the Eleventh Circuit stands alone in its hardline position on incentive awards, a recent panel decision of the Second Circuit suggests that other circuits may be receptive to adopting Johnson’s reasoning under the right circumstances. Indeed, in a recent class action before the U.S. District Court for the District of Columbia, the Department of Justice challenged the amounts of requested incentive awards for 36 class representatives. Although the department stopped short of asserting that incentive awards are categorically prohibited, it relied on Johnson to argue that requests for such awards should be viewed “with skepticism.”

Moreover, although Johnson prohibits incentive awards, several district courts within the Eleventh Circuit have continued to approve monetary awards to class representatives as part of class-action settlements. In some cases, those awards have been characterized as “general release” payments, while others have held that Johnson is inapplicable in diversity jurisdiction actions where state law permits incentive awards. The Eleventh Circuit has not yet assessed whether payments to class representatives under these circumstances run afoul of Johnson.

A Review of ‘Johnson’

In March 2017, Charles Johnson filed 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 Pennsylvania. Later that year, the district court preliminarily approved a $1.432 million settlement and allowed Johnson to move the court for a $6,000 incentive award. See Johnson, No. 9:17-cv-80393 (S.D. Fla. Dec. 4, 2017). Class member Jenna Dickenson objected, 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 order.

Dickenson appealed, and the majority of a three-judge panel of the Eleventh Circuit held 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). Writing for the majority, Judge Kevin Newsom deemed the awards rejected in Greenough and Pettus to be “roughly analogous to incentive awards in class-action settlements.” Newsom reasoned that “modern-day incentive awards” are barred under Greenough and Pettus because such awards “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).”

Dickenson petitioned the Eleventh Circuit for rehearing, seeking review of the attorney fees awarded under the settlement. Six amicus briefs were filed, one of which argued that the panel’s decision “risks eliminating large swaths of small-value claim class actions in the Eleventh Circuit” and 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, 2022, a 7-4 majority of the Eleventh Circuit denied the petition for rehearing. The Supreme Court denied Johnson’s petition for writ of certiorari on April 17, 2023.

Post-’Johnson’ Decisions of District Courts in the Eleventh Circuit

During the pendency of the petition for rehearing in Johnson, district courts in the Eleventh Circuit took varying approaches to addressing requests for incentive awards as part of class-action settlements.

For example, the U.S. District Court for the Northern District of Georgia declined to follow Johnson in two decisions, finding that incentive awards do “not constitute either a salary or a bounty” and that class representatives are deserving of such awards because they undertake “considerable risk of alienation and harm to their reputations for seeking to enforce their rights” and those of the class. See Henderson v. Emory University, No. 16-cv-2920 (N.D. Ga. Nov. 4, 2020); Pledger v. Reliance Trust, No. 15-cv-4444 (N.D. Ga. Mar. 8, 2021).

Conversely, other courts held that Johnson was binding and disallowed incentive awards. See Benitez v. FGO Delivers, No. 21-cv-221 (M.D. Fla. Feb. 17, 2022); Parker v. Stoneledge Furniture, No. 21-cv-740 (M.D Fla. Feb. 17, 2022). Since the denial of the petition for rehearing, several courts have followed suit. See Mosley v. Lozano Insurance Adjusters, No. 19-cv-379 (M.D. Fla. June 6, 2023); Malespin v. Longeveron, No. 21-cv-23303 (S.D. Fla. Mar. 31, 2023); In re Johnson & Johnson Aerosol Sunscreen Marketing Sales Practice, No. 21-md-3015 (S.D. Fla. Feb. 28, 2023).

Other district courts in the Eleventh Circuit avoided the outright rejection of requests for incentive awards by deferring ruling on such requests pending the disposition of the petition. Since the Eleventh Circuit’s denial of the petition, these courts have taken different approaches to addressing requests for incentive awards.

Rejection of Incentive Awards

Some district courts simply adhered to Johnson, finding it categorically prohibited incentive awards. For example, in Belin v. Health Ins. Innovations, No. 19-61430 (S.D. Fla.), class counsel requested that $56,250 be paid to the class representatives as incentive awards, and that amount was paid into escrow pending the disposition of the Johnson petition. Following the denial of the petition, the court ordered the settlement administrator to disburse the $56,250 to the participating settlement class members.

‘General Release’ Payments to Class Representatives

In an arguable workaround of Johnson’s prohibition against incentive awards, class counsel in several cases have requested “general release” payments for class representatives as opposed to incentive awards. For example, in Turner v. Rosen Hotels & Resorts, No. 21-cv-161 (M.D. Fla. Aug. 2, 2022), class counsel characterized a requested $7,500 payment to the class representative as a “general release” payment made in consideration for the release of his claims. Class counsel, however, ultimately withdrew the request after the court requested additional briefing on whether such a payment was permissible under Johnson.

In Thomas v. JSTC, No. 19-cv-1528, (M.D. Fla. Apr. 28, 2022), class counsel characterized requested $10,000 payments to class representatives as general release payments that were negotiated and supported by consideration separate from the class settlement. The court, however, was “not convinced these actions were not taken solely to create a workaround of the Johnson prohibition” and voided the requested payments. Thomas is currently on appeal in the Eleventh Circuit, where the appellant has argued that Johnson is inapplicable to general release agreements because it did not concern courts’ authority to void private agreements between contracting parties that would not be drawn from a settlement fund.

Contrary to Thomas, the court in Baja v. Costco Wholesale, No. 21-cv-61210 (S.D. Fla. Dec. 20, 2022), approved a class settlement that included a $10,000 general release payment for the class representative. After requesting briefing as to whether such payments violated Johnson, the court concluded that they do not constitute prohibited incentive awards because they are supported by separate consideration.

Permitting Incentive Awards in Diversity Jurisdiction Actions

Several district courts in the Eleventh Circuit also have permitted incentive awards where class claims arise under state law as opposed to a federal cause of action like in Johnson. These courts have reasoned that Johnson is inapplicable in diversity jurisdiction actions where the underlying claims arise under state law that permits incentive awards in class actions. See Venerus v. Avis Budget Car Rental, No. 13-cv-921 (M.D. Fla. May 25, 2023); Mitchell v. Allstate Vehicle and Property Insurance, No. 21-cv-347 (S.D. Ala. Aug. 3, 2023); South v. Progressive Select Insurance, Nos. 19-cv-21760, 19-cv-21761 (S.D. Fla. Mar. 21, 2023).

Outside the Eleventh Circuit

Recent decisions in federal district courts outside the Eleventh Circuit have declined to follow Johnson and hold that incentive awards are appropriate. See Shane Group v. Blue Cross Blue Shield of Michigan, 833 F. App’x 430 (6th Cir. 2021); In re Apple Device Performance Litigation, 50 F.4th 769 (9th Cir. 2022); Murray v. Grocery Delivery E-Services USA, 55 F.4th 340 (1st Cir. 2022).

Recently, though, a panel decision of the Second Circuit found Johnson’s reasoning compelling. In Fikes Wholesale v. HSBC Bank, 62 F.4th 704 (2d Cir. 2023), objectors challenged proposed $900,000 incentive awards to class representatives. The panel agreed with Johnson that incentive awards are likely impermissible under Greenough. However, the panel concluded that it was bound by prior Second Circuit decisions approving such awards. In a concurring opinion, Judge Dennis Jacobs noted that the named plaintiffs “are getting a total of $900,000 as a kind of tip,” which is “$900,000 more than permitted under Supreme Court authority.” He further noted that “we now find ourselves on the wrong side of a circuit split” and that “perhaps class actions that plaintiffs lack incentive to bring are class actions that need not be brought.”

Further, the Department of Justice recently opposed a request for incentive awards of $5,000 each for 36 plaintiffs in a multidistrict class action, In re U.S. Office of Personnel Management Data Security Breach Litigation, No. 15-mc-01394 (D.D.C. Sept. 9, 2022). There, the Department pointed to Johnson’s prohibition against incentive awards but stopped short of asserting that such awards are “categorically precluded” in the District of Columbia. Rather, the department argued that the court should “view the request for such awards with skepticism.” The department also argued that the incentive awards were inflated because the named plaintiffs were not subject to any formal discovery and not required to sit for depositions or attend any hearings. Although the district court seemingly sided against adopting Johnson, it reduced the requested incentive awards to $1,000 each.

What Lies Ahead

Although other circuits have not joined the Eleventh Circuit’s position on incentive awards, the Second Circuit’s recent decision in Fikes indicates that a court outside the Eleventh Circuit may ultimately be receptive to, and perhaps adopt, Johnson’s reasoning on incentive awards. At a minimum, arguments like those recently advanced by the Department of Justice in Office of Personnel Management suggest that litigants will continue to cite Johnson in opposing requests for incentive awards.

Furthermore, the Eleventh Circuit likely will soon have another opportunity to express its view on incentive awards, as some district courts within that circuit have continued to permit incentive awards to class representatives in diversity jurisdiction actions while others have allowed class representatives to receive “general release” payments. Awarding such payments may very well run afoul of Johnson’s prohibition against incentive awards.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.