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Consumer Class Actions May Founder Due to Eleventh Circuit Split

Aug. 9, 2022, 4:12 PM

A majority of the Eleventh Circuit voted not to revisit a 2020 opinion prohibiting incentive awards for class representatives, solidifying a new circuit split over whether a pair of 19th century Supreme Court cases have always barred the payments.

“By holding that incentive awards are unlawful per se, the majority opinion broke with decisions from this and every other circuit allowing these awards when properly approved under the strictures of Rule 23,” Judge Jill Pryor said in a dissent from rehearing the case, joined by Judges Charles R. Wilson, Adalberto Jordan, and Robin S. Rosenbaum.

“The stakes are high,” Pryor said.

That is particularly true for class actions involving low per-classmember damages, where the awards may “encourage potential plaintiffs to serve as class representatives despite having to take on significant additional responsibilities while receiving the same modest recovery as other class members,” Pryor said.

Brian Fitzpatrick put the problem this way in an email to Bloomberg Law: “Who will be left to shoulder the burden of class representation for the same $50 every other class member will get?”

“Only a lunatic or a fanatic sues for $30,” Fitzpatrick said, referencing a quote by the Seventh Circuit’s now-retired Judge Richard Posner.

Fitzpatrick, who submitted an amicus brief in favor of rehearing, teaches law at Vanderbilt Law School.

He is also the author of The Conservative Case for Class Actions, which is cited in Pryor’s dissent for the proposition that class actions are “the most effective way to hold corporations accountable.”

19th Century Reasoning

The US Court of Appeals for the Eleventh Circuit denied the nearly two-year-old petition for rehearing en banc in Johnson v. NPAS Solutions LLC on Aug. 3.

The lawsuit involves claims under the Telephone Consumer Protection Act, with class members estimated to recover $80 each from the $1.4 million settlement.

The class representative’s incentive award, as approved by the district court, would have been $6,000.

The panel majority relied on Greenough and Pettustwo Supreme Court cases from the late 1800s—in rejecting the incentive award.

But Trustees v. Greenough applied trust and equity principles to what the majority itself admitted were only “roughly analogous” to class representative payments, and Central Railroad & Banking Co. v. Pettus dealt with compensation to attorneys, not a plaintiff, Pryor said.

“If the panel majority opinion was wrong that Greenough and Pettus compel its holding, then it far over-reached,” Pryor said.

As it stands, the majority’s opinion “threatens the very viability of class actions in this circuit,” she said.

It’s customary for the judge who wrote a panel’s decision to defend it in the face of an en banc dissent, but Judge Kevin C. Newsom didn’t.

Newsom said that under the circumstances, he was “content” to let the September 2020 ruling speak for itself. According to Newsom, the parties and the bar have waited long enough for the court’s decision on the petition.

The sudden urgency aside, Newsom’s decision not to provide a response addressing the dissent’s concerns is surprising given the proposition’s significance and novelty.

Although the majority opinion attributes courts’ long-term misunderstanding of the law to inattention and inertia, “I find it difficult to believe that for decades we and all our sister circuits have missed what the panel majority saw as a bright line drawn by the Supreme Court,” Pryor said.

Pryor said it seems like “more than a stretch” to hold that those opinions, both of which long predate the modern Rule 23 class actions, prohibit incentive awards altogether.

A Practical Matter

D. Matthew Allen, head of the national class actions practice at Carlton Fields PA, told Bloomberg Law that despite the controversy around the decision, the practical effect has so far been “minimal.”

Allen, based in Tampa, Fla., said that plaintiffs are still bringing class actions “even without the prospect of a ‘bounty’ at the end of the case,” and that parties are still settling class actions when appropriate “despite the lack of incentive fees to plaintiffs.”

Incentive payments weren’t common until the 1980s and 1990s, long after the advent of the modern class action rule, so perhaps they aren’t necessary, Allen said.

Allen’s experience could be a function of his focus on antitrust law and complex business disputes with relatively larger per-member recoveries. And the court’s decision is only recently final.

“I suspect there was enough uncertainty about whether the decision would stick that lawyers were able to convince representative plaintiffs to go forward in the meantime,” Fitzpatrick, the Vanderbilt professor, said.

And there is still the possibility of a Supreme Court appeal.

“We may not be able to observe clear effects for a while, but I don’t know how it can’t have a chilling effect at least in consumer cases,” Fitzpatrick said.

This feature was adapted from this week’s Bloomberg Law—Litigation newsletter. Bloomberg Law subscribers may sign up here.

To contact the reporter on this story: Holly Barker in Washington at hbarker@bloombergindustry.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com