Class Actions

JurisdictionUnited States,Federal
Publication year2021
CitationVol. 72 No. 4

Class Actions

Thomas M. Byrne

Stacy McGavin Mohr

[Page 1049]

Class Actions

by Thomas M. Byrne*

and Stacey McGavin Mohr**

A major decision outlawing "incentive" or "service" awards to named class representatives in settlements highlighted the United States Court of Appeals for the Eleventh Circuit's class-action work during 2020. The court became the first court to prohibit such awards, disrupting settlement negotiations across the circuit—if not elsewhere—while challenging courts and litigants to identify the precise scope of the new doctrine. In other cases this year, the court tackled issues related to class settlements, standing, and exceptions to Class Action Fairness Act (CAFA) jurisdiction, and decided what looks to be the beginning of the end of the Florida tobacco-litigation appeals that have come to be known as the "Engle progeny."

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I. Incentive Awards and Other Class-Settlement Considerations

A. Class Representative Incentive Awards: Johnson v. NPAS

In Johnson v. NPAS Solutions, LLC,1 the Eleventh Circuit held that federal law prohibits so-called "incentive payments" to class representatives, even as part of an agreed settlement. The court acknowledged that it was forging a new path, identifying errors that it said "ha[d] become commonplace in everyday class-action practice" and noting that the district court had "handled the class-action settlement here in pretty much exactly the same way that hundreds of courts before it have handled similar settlements."2 But the Eleventh Circuit nevertheless held that the district court had "ignored on-point Supreme Court precedent prohibiting such awards" when it approved a settlement that included a $6,000 incentive payment to the lead plaintiff.3

Johnson was a class action under the Telephone Consumer Protection Act (TCPA).4 The named plaintiff alleged that the defendant (a debt collector) had unlawfully used an automatic telephone-dialing system to call his cell phone without his consent. The case was certified for settlement purposes, and the district court approved the settlement over the objections of a single class member. Among other things, the class member objected to the setting of the objection deadline before the deadline for class counsel to file their fee petition and the $6,000 incentive to be paid to the class representative.5

The Eleventh Circuit vacated the settlement on appeal.6 First, the court concluded that Federal Rule of Civil Procedure "23(h)'s plain language requires a district court to sequence filings such that class counsel file and serve their attorneys'-fee motion before any objection pertaining to fees is due."7 Setting an objection deadline after the class notice goes out, but before the fee petition itself has been filed, is insufficient to give potential objectors full information and ensure that the fee petition "has been tested by the adversarial process."8 That said,

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the court concluded that the specific error in that regard was harmless on the record.9

As for the $6,000 incentive award, the court looked to Supreme Court precedent dating back to the nineteenth century on paying attorneys' fees from a "common fund."10 Under that authority, "[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."11 The Eleventh Circuit reasoned that "modern-day incentive awards present even more pronounced risks" because they "are intended not only to compensate class representatives for their time ([namely,] as a salary), but also to promote litigation by providing a prize to be won ([that is,] as a bounty)."12 Nor could the court "see why paying an incentive award isn't tantamount to giving a 'preferred position' to a class representative 'simply by reason of his status'"—in violation of the general principle that named plaintiffs who choose to sue on behalf of a class "'disclaim[] any right to a preferred position in the settlement'" of their claims.13

The court was similarly unimpressed by the observation that incentive awards are "routine:" "[S]o far as we can tell, that state of affairs is a product of inertia and inattention, not adherence to law . . . . Needless to say, we are not at liberty to sanction a device or practice, however widespread, that is foreclosed by Supreme Court precedent."14

Judge Beverly Martin authored a separate opinion dissenting in part, "disagree[ing] with the majority's decision to take away the incentive award," and noting "the practical effect of requiring named plaintiffs to incur costs well beyond any benefits they receive from their role in leading the class."15 Instead, Judge Martin would have adhered to the "fairness analysis" undertaken by other courts to determine whether a lead plaintiff's incentive award is fair to the class as a whole.16 Judge Martin also expressed concern that the panel majority had departed from the Eleventh Circuit's prior precedent and "take[n] our court out of the mainstream."17

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The Johnson panel opinions, however, may not be the end of the matter. The named plaintiff and the objector both filed petitions for rehearing en banc, with the plaintiff arguing that the majority's opinion "effects a sea change in class-action practice" and "opens a conflict with every other circuit."18 In addition, the plaintiffs petition has been supported by six separate amicus briefs, submitted on behalf of over forty legal and advocacy organizations and individuals, including the current author of Newberg on Class Actions,19 the treatise cited in the Johnson majority opinion.20

Meanwhile, district courts have struggled with Johnson's implications for approval of class settlements, including many that were negotiated and filed before the opinion was published. Some courts have disallowed such awards before final approval of the settlement.21 In other cases, courts have distinguished Johnson and allowed payments, on the basis that the class claim arose under state law,22 for example, or that the payment was not really an incentive award.23 In what seems the most pragmatic approach, courts have deferred ruling on requested incentive awards, approving other aspects of the settlement but retaining jurisdiction to consider that issue pending the outcome of Johnson.24

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B. Counsel's Duties to the Class Representative and the Class: Oppenheim

In another decision involving a TCPA class settlement, Medical & Chiropractic Clinic, Inc. v. Oppenheim,25 the Eleventh Circuit held that counsel for a proposed class does not owe the named class representatives a heightened fiduciary duty relative to other class members. This decision marked the court's return to an unseemly and protracted controversy stemming from TCPA claims against the Tampa Bay Buccaneers.26 In the earlier case, Technology Training Associates v. Buccaneers Ltd. Partnership,27 the court had reversed a district court's decision not to allow a class member to intervene in a class action in which a settlement had been proposed.

Tech Training and Oppenheim both arose from a struggle between competing would-be class counsel over a $20 million settlement with the Buccaneers. Before either case was filed, there had been another putative class action bringing TCPA claims against the Buccaneers, in which the parties (including plaintiff Medical & Chiropractic Clinic) had reached an impasse in mediated settlement negotiations. One of the plaintiffs' lawyers (Mr. Oppenheim) then left for another firm, and that firm soon filed another putative class action raising the same TCPA claims against the Buccaneers, this time with Tech Training as the named plaintiff. Within two months, a settlement was reached and preliminarily approved by the court in the Tech Training case. The ensuing appeal permitted Medical & Chiropractic Clinic, represented by Oppenheim's now-rival counsel, to intervene and object to the settlement.28 On

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remand, the objection was upheld, and the Tech Training class was decertified.29

But Medical & Chiropractic Clinic did more than thwart the settlement. It also filed a separate action in state court, alleging claims for breach of fiduciary duty against Oppenheim and his new law firm.30 The case was removed to federal district court, which granted summary judgment for the defendants, finding that Oppenheim did not owe an individual fiduciary duty to the class representative in the first case. Alternatively, the court held that plaintiff had failed to show a breach of any fiduciary duty that might exist or prove damages. The plaintiff appealed.31

On appeal, the Eleventh Circuit first noted that the parties agreed that putative class counsel owed fiduciary duties to the class as a whole.32 But the plaintiff contended that Oppenheim owed a heightened fiduciary duty to the putative class representative, distinct from the duty owed to the class. The court rejected this argument.33 While noting that counsel in class actions have different ethical duties to their clients than in ordinary cases, one "cardinal rule" defines the scope of counsel's ethical obligations: "class counsel owes a duty to the class as a whole and not to any individual member of the class."34

The court also characterized the filing of the case in state court as a thinly veiled attempt to make an end run around the ongoing proceedings in the Tech Training case.35 As the court put it, "[t]here is only one gatekeeper under Rule 23 and it was wholly inappropriate for [the plaintiff] and its counsel to go to state court in an attempt to employ another one."36 The plaintiff "crossed a line" by attempting to litigate their objections in another court.37

This second ground for the court's holding could—and probably should—have been the only basis for the court's affirmance. The state court action was plainly a collateral attack against aspiring class counsel filed...

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