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Financial Services Law Insights and Observations

11th Circuit: Class action incentive fees are unlawful

Courts Eleventh Circuit TCPA Class Action Settlement U.S. Supreme Court

Courts

On September 17, the U.S. Court of Appeals for the Eleventh Circuit reversed and vacated a district court judgment awarding an “incentive payment” to a TCPA class action representative, concluding it violates a U.S. Supreme Court decision prohibiting such awards. Additionally, the 11th Circuit remanded the case so that the district court could adequately explain its findings on the fees and costs issues. According to the opinion, a consumer initiated a TCPA class action against a collection agency for allegedly calling phone numbers that had originally belonged to consenting debtors but were subsequently reassigned to non-debtors. The action quickly moved to settlement and one class member objected, challenging “the district court’s decision to set the objection deadline before the deadline for class counsel to file their attorneys’-fee petition.” Additionally, among other things, the objector argued that the proposed $6,000 incentive award to the class action representative violates the 1880s Supreme Court decisions in Trustees v. Greenough and Central Railroad & Banking Co. v. Pettus. The district court overruled the class member’s objections.

On appeal, the 11th Circuit concluded that the district court “repeated several errors” that “have become commonplace in everyday class-action practice.” Specifically, the appellate court held that the district court “violated the plain terms of Federal Rule of Civil Procedure 23(h)” by setting the settlement objection date more than two weeks before the date class counsel had to file their attorneys’ fee petition. The appellate court also concluded that the district court violated the Supreme Court’s rule from Greenough and Pettus, which provides that “[a] plaintiff suing on behalf of a class can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses.” The 11th Circuit noted that modern day incentive awards pose even more risks than the concerns from Greenough, promoting “litigation by providing a prize to be won.” Thus, according to the appellate court, although incentive awards may be “commonplace” in class action litigation, they are not lawful and therefore, the district court’s decision must be reversed.

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