Supreme Court Declines To Hear Challenge To Validity Of Incentive Awards

• Published date: 08 May 2023
• Subject Matter: Litigation, Mediation & Arbitration, Class Actions, Trials & Appeals & Compensation, Civil Law
• Law Firm: Mayer Brown
• Author: Mr Kevin Ranlett, Archis Parasharami and Daniel E. Jones

A common feature in class action settlements is an incentive (or service) award for each named plaintiff'an extra payment above and beyond what they would receive as ordinary class members that is in theory designed to compensate them for the work of being a named plaintiff. A circuit split has developed over whether incentive awards are permissible in federal class action lawsuits. But the Supreme Court's guidance on whether these awards are improper will have to await another day, because the Court recently denied the petitions for review in Johnson v. Dickenson, No. 22-389, and Dickenson v. Johnson, No. 22-517.

The Eleventh Circuit's decision

The certiorari petitions arose out of a case in which a panel of the Eleventh Circuit held that longstanding Supreme Court precedent governing trusts forbids incentive payments. See Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020), reh'g denied, 43 F.4th 1138 (2022). In the trust line of cases, the Supreme Court had ruled that trust assets could be used to pay the trustee's attorneys but not for the trustee's own time and private personal expenses. See Centr. R.R. & Banking Co. v. Pettus, 113 U.S. 116 (1885); Trustees v. Greenough, 105 U.S. 527 (1882). The Eleventh Circuit panel analogized the named plaintiff in a class action to the trustee and deemed an incentive payment to be akin to a forbidden reimbursement for the trustee's time and private expenses. Even worse, the panel explained, an incentive award "not only . . . compensate[s] class representatives for their time (i.e., as a salary), but also . . . promote[s] litigation by providing a prize to be won (i.e., as a bounty)." Johnson, 975 F.3d at 1258. The panel thus ruled that the incentive award was improper, and remanded the case to the district court for reconsideration of the settlement and fee award (which also had been challenged on other grounds by an objector).

The circuit split

The Eleventh Circuit's decision conflicts with decisions by the First, Second, and Ninth Circuits, each of which considered and rejected the argument that Pettus and Greenough forbid incentive awards in class settlements. See Murray v. Grocery Delivery E-Servs. USA Inc., 55 F.4th 340 (1st Cir. 2022); In re Apple Inc. Device Performance Litig., 50 F.4th 769 (9th Cir. 2022); Melito v. Experian Mtkg. Sols., Inc., 923 F.3d 85 (2d Cir. 2019). Moreover, an untold number of courts of appeals decisions have affirmed orders approving class settlements with incentive...