Nature of the beast: recurrent ethical issues confronting attorneys attempting to settle Florida class actions.

• Author: McCoy, Mac R.
• Position: Trial Lawyers Forum

Florida's class action rule, Fla. R. Civ. P. 1.220, provides a procedural device akin to joinder whereby a named plaintiff acting in a representative capacity on behalf of a defined group of similarly situated individuals--each of whom may have only a nominal amount of individual damages--pursues common claims against one or more defendants in order to obtain relief for all members of the class.

It is a recognized tenet of class action jurisprudence that "[t]he policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights." (1) A class action attempts to resolve this problem by "aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor." (2) Bringing a lawsuit as a putative class action significantly ups the ante for all parties involved, including courts, because "[t]he granting of class certification considerably expands the dimensions of the lawsuit, and commits the court and the parties to much additional labor over and above that entailed in an ordinary private lawsuit." (3)

Ethics issues are among the dimensions that expand considerably in class action litigation. The potentially high stakes nature of class action litigation combined with the unique procedural framework governing it give rise to significant ethical quandaries that do not nec essarily occur outside the class action context. These quandaries stem directly from the unique features o f t h e class action d e vi c e its elf, including 1) the fiduciary nature of the named plaintiff's representative role and class counsel's role vis-a-vis absent class members; 2) class counsel's desire to maximize payment of contingent attorneys' fees from the defendant; and 3) the defendant's desire to minimize the risk of future litigation after settlement.

This article discusses three specific ethical issues that arise with some frequency in class action settlements: 1) incentive awards to named plaintiffs above and beyond their recovery of individual damages; 2) class counsel's negotiation of attorneys' fees in class action settlements; and 3) settlement agreements purporting to limit class counsel's future representation of new plaintiffs against the settling defendant.

Incentive Awards for Named Plaintiffs

It has become increasingly common for class action settlements to include additional monetary payments to the named plaintiff(s), commonly referred to as "incentive awards" or "incentive agreements." These payments are often many times the value of the named plaintiff's individual damages claim. For e xample, a named plaintiff may have an individual damages claim of $7 or less, but the incentive award he or she proposes to receive as a component of a settlement may be as high as $5,000. (4) The unnamed class members do not receive or share in any part of incentive awards. Thus, these payments may appear facially inconsistent with the class representative's obligation to represent adequately the interests of the entire class, without seeking to maximize his or her own economic gain at the expense of other class members. Additionally, these payments to the named plaintiffs may appear inconsistent with class counsel's fiduciary obligation to represent adequately the interests of all members of the class and to advise the named plaintiff with regard to his or her own fiduciary obligations to the entire class. Nevertheless, Florida law appears to permit incentive payments to class representatives under certain circumstances, subject to review and approval by the trial court.

Florida's Third District confronted the issue of incentive awards in a pair of consumer class actions involving insurance, but it reached very different conclusions as to the propriety of the incentive awards approved by the trial courts in each case.

In Grosso v. Fidelity National Title Insurance Company, 983 So. 2d 1165 (Fla. App. 2008), the named plaintiff brought a putative class action against a title insurer, alleging that the defendant had overcharged class members for title insurance premiums. (5) Before the trial court had an opportunity to rule on class certification, the parties entered into a settlement agreement that p r ovi d ed fo r a $ 5,00 0 i n c en ti v e award to the named plaintiff. (6) The amount of the incentive award greatly exceeded the dollar value of the named plaintiff's individual damages claim and was in fact approximately one hundred times greater than the amounts each of the other class members would receive under the proposed settlement. (7) The trial court approved the settlement agreement after a fairness hearing and certified a settlement class over the objections of certain class members. (8) The objecting class members appealed, challenging, among other things, the fairness of the settlement and the named plaintiff's adequacy to represent them. (9)

The Third District held that because the parties had sought class certification and approval of their settlement agreement simultaneously, the trial court was required to "apply heightened scrutiny and take a more active role as a guardian of the interests of the absent class members." (10) The court underscored the danger that class counsel's and class representatives' fiduciary responsibilities may become compromised when a class is certified for settlement purposes because of the potential for collusion, buy-offs, and other possible abuses. (11) Finding that the trial court had failed to...