The past few years have been eventful when it comes to class-action incentive awards.  As 2022 comes to an end, it is a good time to take stock of the state of the circuit split on incentive awards—in anticipation of what 2023 may bring.

As the Best in Class blog reported in Class-Action Incentive Awards Under Siege?,  the Eleventh Circuit, in Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020), took a stand on incentive awards, holding they are prohibited under Supreme Court caselaw dating back over a century.  Two years later, not only does the Eleventh Circuit still stand alone with its stark line in the sand, but the Second, Sixth, and Ninth Circuits have explicitly distinguished themselves from Johnson.­  However, while every circuit to have weighed in has disavowed Johnson, the Department of Justice, in opposing an incentive award in a recent data-breach class action, has recently embraced it. 

A Refresher on Johnson

In Johnson, the Eleventh Circuit relied on two nineteenth-century Supreme Court cases— Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885)—to hold that incentive awards are prohibited.  The Eleventh Circuit explained 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 Court reasoned that incentive awards are “roughly analogous” to a salary, and therefore prohibited under Supreme Court precedent. 

The Eleventh Circuit attributed other circuits’ allowance of incentive awards to “inertia and inattention, not adherence to law.”

This year has seen additional activity in Johnson.  In August the Eleventh Circuit denied objector Jenna Dickenson’s petition for en banc review.  In November 2022, plaintiff class representative, Charles Johnson, filed a petition for writ of certiorari with the Supreme Court, which remains pending. 

Activity in Other Circuits

In the meantime, other circuits have also had the opportunity to weigh in on Johnson—and the Eleventh Circuit’s claims of inertia and inattention.  While inertia may still be holding, every other circuit to have given the issue some attention has rejected Johnson’s reasoning.

Sixth Circuit.  In Shane Group Inc., et al. v. Blue Cross Blue Shield of Michigan, a pro se serial objector, who challenged an incentive award, unsuccessfully sought a $150,000 payoff to drop his objections.  833 Fed. App’x 430 (6th Cir. 2021).  The Sixth Circuit rejected the objector’s argument that service awards “amount to a bounty,” holding that the payments were appropriate and correlated to the substantial amount of time that the plaintiffs spent producing documents and advancing the case.    

Second Circuit.  In Hyland v. Navient Corporation, objectors argued that Greenough and Pettus prohibited service awards, and that “[a] class representative cannot claim reimbursement from a common-fund settlement for his or her own service on behalf of the class.”  48 F.4th 110 (2d Cir. 2022).  The Second Circuit disagreed, noting compelling reasons for compensating the class representatives, which included that they “opened their lives to scrutiny,” “laid bare their financial circumstances, their career choices, and their personal histories,” “suffered personal attacks,” and were ‘subjected to vitriol.”

Ninth Circuit.  The most recent circuit opinion on incentive awards is In re Apple Inc. Device Performance Litigation, 50 F.4th 769 (9th Cir. 2022)—a multidistrict class action where the United States District Court for the Northern District of California approved a $310 million class-action settlement.

The Ninth Circuit vacated the district court’s orders approving the settlement because the district court incorrectly applied a presumption that the settlement was fair and reasonable.  The proposed settlement contained service awards at issue, which were either $3,500 or $1,500 for each of the named plaintiffs, with the larger amount for the nine named, deposed plaintiffs.  Objectors contended that district courts lacked discretion to award any service fees or incentive payments to class representatives.

Despite vacating and remanding, the Ninth Circuit disagreed with the objectors.  It explicitly noted that Supreme Court precedent does not foreclose incentive payments to class representatives, specifically discussing the same nineteenth-century cases the Eleventh Circuit discussed in Johnson—Greenough and Pettus.  The Ninth Circuit summarized its precedent, noting “we have previously considered this nineteenth century caselaw in the context of incentive awards and found nothing discordant.” 

Referencing the same concepts of quasi-contract and restitution mentioned in Greenough and Pettus, the Ninth Circuit focused on whether the incentive awards were “reasonable” under the circumstances.  Those circumstances included the named plaintiffs’ actions taken to protect the interests of the class, the degree to which the class had benefited from those actions, the plaintiffs’ time and effort expended in pursuing the litigation, and any financial or reputational risks the plaintiffs faced.  The Ninth Circuit concluded its section on incentive awards by stating:  “The point is that incentive awards cannot categorically be rejected or approved . . . So long as they are reasonable, they can be awarded.”

The Department of Justice Weighs In

While all other circuits may be in agreement against Johnson’s anti-incentive-award sentiments, the Department of Justice recently has taken a stand in favor.  The DOJ laid down this stake in a recent D.C. district court case, addressing class claims arising out of a data security breach.

In In re Office of Personnel Management Data Security Breach Litigation, No. 1:15-mc-01394-ABJ (D.D.C. Oct. 26, 2022), the United States District Court for the District of Columbia approved a settlement of $63 million after seven years of litigation.  In this case, class counsel sought $5,000 individual service awards for 36 plaintiffs for their “valuable contributions to the settlement” and their risk of “adverse consequences by filing suit following the theft of their sensitive personal information.” 

The DOJ pushed back.  It argued against the incentive awards because the named plaintiffs “were not subject to ‘intrusive discovery’ … and were not required to sit for depositions, or to attend court hearings or mediation sessions.”  The DOJ also noted, among other things, that the plaintiffs claimed no expenses in prosecuting the suit and did not indicate any risks for bringing the suit.

The district court, seemingly siding against Johnson, recently approved the settlement, including a service award in the amount of $1,000.00 to each of the 36 named plaintiffs. 

Conclusion

A circuit split has emerged on incentive awards—one that may see further activity this year with a potential D.C. Circuit appeal In re Office of Personnel Management and/or Supreme Court review in Johnson.  Until then, named plaintiffs outside the Eleventh Circuit will likely continue requesting incentive awards. 

What does that mean for class-action defendants?  If defendants are considering settling a case and class counsel wants to include an incentive award in the settlement, be mindful of factors such as whether the plaintiffs truly have a reputational or financial risk and the extent of their participation in depositions and discovery. 

**Ellis & Winters’s Best in Class Blog covers developments in class actions in courts across the United States, focusing on insights for class-action defense.**