Protecting Awards for Named Plaintiffs; Other Class Action Practice Tips

This article provides practical steps to respond to an Eleventh Circuit ruling challenging extra recoveries for class action named plaintiffs—a ruling that could otherwise have serious consequences for the prosecution of consumer class actions. The article also includes other class action practice tips.

The article explains how the Supreme Court’s Ramirez ruling should breathe new life into state court class actions, with advice on pursuing such state court class actions. The article describes invaluable class action practice tools from some of today’s most successful consumer class action practitioners, including free written submissions from past Consumer Class Action Symposiums and detailed analyses found in NCLC’s Consumer Class Actions.  Co-counseling opportunities are explained.

Responding to Eleventh Circuit Denial of Extra Recovery for Named Plaintiffs

For the proper prosecution of a class action, the class counsel often must ask much of a class representative—without such participation the class action may not be successful.  Class action settlements typically provide that the representative recover a service award in addition to their share of the class recovery. 

Nevertheless, an increasing number of objectors or even courts on their own are challenging preliminary proposed settlements that include such a service award as making the named plaintiff an inadequate representative for the class. A spur to these objections is an Eleventh Circuit panel ruling that such service awards are akin to a bounty and are absolutely precluded.  See Johnson v. NPAS Sols., L.L.C., 975 F.3d 1244 (11th Cir. 2020), motion for reconsideration en banc denied at 43 F.4th 1138 (11th Cir. 2022).

As explained by an Eleventh Circuit judge in dissent of the denial for en banc reconsideration: “As it stands, the panel majority’s opinion threatens the very viability of class actions in this circuit. This is particularly so in small-dollar-value class actions, where incentive awards help to 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.” 43 F.4th 1138, 1140 (11th Cir. 2022).

Even in courts not absolutely banning service awards, objectors may still claim that a proposed service award in a particular case makes the named plaintiff unrepresentative, putting the whole settlement at risk.  This article sets out steps class counsel can take from the very start of a class action to counter such objections.  The article also explains why Johnson should have a limited impact.

Drafting the Retainer Agreement

Protecting a service award starts with drafting the retainer agreement between class counsel and the class representative.  There should be no disconnect between the interests of the class representatives and the class. The retainer agreement should not promise class representatives an award proportional to the class recovery. See, e.g., Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 960 (9th Cir. 2009). The retainer should not specify that an extra award will only be provided to those class representatives who approve the class settlement. See Eubank v. Pella Corp., 753 F.3d 718, 723 (7th Cir. 2014).  Nor should class counsel in the retainer or otherwise promise that the class representative will receive an award. A sample retainer agreement is found in NCLC’s Consumer Class Actions Appx. E.1.

Named Plaintiff’s Extra Award Justified on Grounds Other than Service

A class representative is not only willing to step forward and put the class’s interests first, but is willing to do so publicly.  Putting one’s name on a lawsuit is public information, and it is picked up by credit reporting agencies. Potential employers, landlords, and others can see this information, which can adversely impact the class representative’s ability to obtain or advance in employment, obtain new housing, and the like. The Second Circuit explained in Shahriar v. Smith & Wollensky Rest. Grp., Inc., 659 F.3d 234, 244 (2d Cir. 2011), that a potential class representative “fearful of retaliation or of being ‘blackballed’ in his or her industry may choose not to assert his or her [statutory] rights.”

There is always a risk that a class objector will challenge a settlement that includes a service award to the named plaintiff, arguing that the extra payment is evidence the class representative is not looking out for the interests of the class, but only for themselves.  But such objections are inapplicable to the extent that the extra award for the named plaintiff resolves the named plaintiff’s additional claims not applicable to the rest of the class.

From the very beginning of the case, and certainly in the initial complaint and in the settlement, class counsel should make it clear that the named plaintiff has such additional claims, that the settlement encompasses such claims, that part of the settlement amount includes compensation for those claims, and that the settlement amount is reasonable considering the amount originally sought for those additional claims.

Another ground for additional recovery for the named plaintiff arises where the named plaintiff gives up more in the settlement than the rest of the class.  For example, a class representative may provide a general release, whereas class members are only releasing the claims in the complaint. If this is the case, again the settlement document should link the named plaintiff’s recovery to this broader release.

Keeping Detailed Records of the Class Representative’s Expenses and Time

In many cases, the extra award for named plaintiffs is not tied to their additional claims or broader release, but to the extra service they provide to the case.  In that situation, the additional recovery should be described not as a bounty or incentive, but as compensation for the named plaintiff’s time and expenses in service to the class. The recovery is more in the nature of an attorney fee award for services rendered than an extra damages award. 

As such, class counsel from the beginning of the case should document the extent of the named plaintiff’s service, with accurate expense and time records. See Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., 825 F.3d 299 (6th Cir. 2016) (reversing and remanding class settlement; noting its concern that approved service awards might be bounties and that court could not evaluate this without documentation of hours).

 The time records should include all expenses (including travel) and all time of the named plaintiff to:

• Confer with counsel about the case’s background or settlement issues, or otherwise give assistance or advice to class counsel;
• Review records in the case;
• Respond to written discovery;
• Participate in the defendant’s deposition of the named plaintiff;
• Testify at any pre-trial hearing or trial; or
• Perform any other tasks associated with the prosecution of the litigation.

Later, the service award can use as a justification the total dollar amount of the recorded expenses and the total number of hours expended times an hourly rate. The Ninth Circuit and district courts in the Northern District of California generally consider $50 to $75 per hour a reasonable hourly rate. See Wilson v. Tesla, Inc., 833 Fed. Appx. 59, 62 (9th Cir. 2020).

Other Factors Justifying the Service Award

It is just as important to document additional grounds for a service award beyond dollar expenses and time devoted to the case.  Has the named plaintiff assumed any risks taking on class representation, including risks of liability for the defendant’s costs or attorney fees, such as where an offer of judgment is rejected. 

Did the named plaintiff turn down a pre-certification individual settlement offer for more than that person would reasonably expect to recover after certification (i.e., defendant’s attempt to buy off the plaintiff)?  Such a refusal to be bought off shows plaintiffs' willingness to sacrifice their own financial best interests to benefit the class members. Their selfless commitment to responsibly representing the interests of the absent class members should be recognized.

Has the defendant retaliated in any way against the named plaintiff or was there a risk of other adverse extra-judicial action by defendant.  Has defense counsel embarrassed or harassed the named plaintiff? Did the named plaintiff have to turn over their private financial records for review?  Did class representation involve any notoriety or personal difficulties for the class representative. Was the named plaintiff required to stay in touch and involved over an overly long litigation?

Negotiating the Service Award

Class counsel should follow a strict sequence in negotiating the class settlement to avoid any appearance of impropriety regarding either the service award or the attorney fee award.  First the settlement should be resolved for the class as a whole.  Only then should the extra award for the named plaintiff be negotiated.

The negotiated size of the award should not only be reasonable based on the named plaintiff’s expenses and time, but the size of the award should be justified when compared with the size of recoveries for the other individuals in the class.  Only after the class recovery and the service award are resolved should the attorney fee award be negotiated.

The same order should be taken in discussing a proposed settlement with the class representatives. Class counsel should first present the other settlement terms to the representatives and obtain their consent to these prior to any discussion of the possibility and amount of the service award that counsel will request from the court. Counsel should also make it clear that the possibility of an award should not impact upon the representative’s decision whether to approve the proposed settlement and that, in any event, whether to approve an award and the amount thereof are in the discretion of the court.

Challenging the Impact of Johnson in Other Circuits and in State Court

The Eleventh Circuit ruling in Johnson finds a conflict of interest for named plaintiffs to ever receive a “bonus.”  It viewed named plaintiffs, like class counsel, as having fiduciary responsibilities to the class, and every dollar they receive is taken from class members.  Johnson principally relies on two nineteenth century Supreme Court cases regarding creditor lawsuits over mismanagement of a fund to modern-day class actions under Rule 23.  As a result, Johnson categorically prohibits incentive awards for class representatives.

Those two nineteenth century Supreme Court cases (well before the advent of Rule 23) held that a court cannot allow a “creditor, suing on behalf of himself and other creditors” to recover “personal services and private expenses” out of a common fund. Internal Imp. Fund Trs. v. Greenough, 105 U.S. 527, 537 (1881). See also Cent. R.R. & Banking Co. v. Pettus, 113 U.S. 116, 122 (1885).

The First, Second, Seventh, and Ninth Circuits though have considered these nineteenth century cases and specifically rejected their applicability to the question of service awards for class representatives, the two most recent of these decisions being issued in September 2022 and December 2022.  See Murray v. Grocery Delivery E-Services USA Inc., 55 F.4th 340 (1st Cir. Dec. 16, 2022); In re Apple Inc. Device Performance Litigation, 50 F.4th 769 (9th Cir. Sept. 28, 2022); Melito v. Experian Mktg. Sols., Inc., 923 F.3d 85, 96 (2d Cir. 2019); In re Cont’l Ill. Sec. Litig., 962 F.2d 566, 571–572 (7th Cir. 1992). See also Shane Grp. Inc v. Blue Cross Blue Shield of Michigan, 833 Fed. Appx. 430, 431 (6th Cir. 2021)  (rejecting a service award as a bounty and finding the  “payments correlate to the substantial amount of time that the named plaintiffs actually spent producing documents and otherwise advancing the litigation of the case”).

The Johnson panel does not even consider another Eleventh Circuit decision a year earlier that reaches the opposite result from Johnson. See Muransky v. Godiva Chocolatier, Inc., 922 F.3d 1175, 1196 (11th Cir. 2019), vacated on other grounds on reh'g en banc, 979 F.3d 917 (11th Cir. 2020).  Moreover, both the Johnson panel opinion and the denial for a rehearing en banc were met with vigorous dissents. The latter dissent was joined by four Eleventh Circuit judges who argued that the Johnson majority opinion was wrong. See Johnson v. NPAS Sols., L.L.C., 43 F.4th 1138 at 1140 (11th Cir. 2022).

As a result, at a minimum, Johnson should not be followed in the First, Second, Seventh, and Ninth Circuits.  The arguments for not following it in other circuits are clearly set out for class litigators in the Murray and Apple Device opinions and in the two dissenting opinions in Johnson.  There is even a question as to the viability of Johnson in the Eleventh Circuit because of the opinion in Muransky.  And, of course, Johnson is not binding on state courts, even states within the Eleventh Circuit.  State class action rules do not strictly follow Rule 23.  See NCLC’s Consumer Class Actions Appx. C for state class action rules and procedures.

Ramirez  Should Breathe New Life into State Court Class Actions

Class action defendants generally prefer forcing class actions into federal court, as evidenced by their aggressive congressional lobbying resulting in the Class Action Fairness Act (CAFA).  But the Supreme Court’s Ramirez decision sharply limits Article III case or controversy standing for federal court consumer class cases but does not apply to state court standing requirements.  This will breathe new life into consumer practitioners’ ability to file and keep class actions in state court.

While a defendant, pursuant to CAFA or on other grounds, can often remove a class action filed in state court to federal court, a federal court that finds no Article III standing will remand the case to state court.  What will be determinative as to the class action’s viability then will be whether a state’s law on state court standing is more liberal than that for federal court.  A state-by-state analysis of state court standing requirements in consumer cases is detailed at NCLC’s Consumer Class Actions Appx. G. 

For comparison, NCLC has analyzed federal court Article III standing requirements not only as it relates to class action certification in NCLC’s Consumer Class Action § 10.3.3.2, but also as to Article III standing requirements as they apply to different claims under specific federal statutes.  See, for example, NCLC’s Fair Debt Collection § 11.15 (FDCPA); NCLC’s Fair Credit Reporting § 11.3 (FCRA); NCLC’s Federal Deception Law § 7.4 (TCPA); NCLC’s Truth in Lending § 11.2.4 (TILA); NCLC’s Consumer Banking and Payments Law § 5.17.6 (EFTA).

Bringing a class action in state court is an available strategy not only for cases alleging state law violations, but also for cases alleging federal claims, since their removal to federal court will be remanded to state court if no Article III standing is found.  Bringing a case initially in state court also gives the class two chances at proving standing—first in federal court on removal and second in state court on remand—unless of course the defendant does not seek removal. However, this strategy should be reserved for strong, appealing cases, especially in state courts that are not particularly familiar with consumer class actions.  Bringing a class action in state court based on highly technical statutory violations with no injury to class members runs the risk not only of dismissal by the state court, but also of creating bad state court standing precedent. 

A state court class action will need to be brought pursuant to state class action rules and other state court procedures, not pursuant to the federal Rule 23.  A thorough analysis of each state’s class action rules and procedures is found in NCLC’s Consumer Class Actions Appx. C.

Free Access to Consumer Class Action Symposium Materials

For the first time, NCLC has made available at no charge written submissions from NCLC’s Consumer Class Action Symposiums—over 100 fully searchable documents submitted by some of the most experienced and successful consumer class action attorneys from around the country, for sessions and workshops from 2019–2021. 

Because these materials were submitted on the understanding that symposium attendance was limited to those representing consumers, access is limited to NACA members, legal aid attorneys, and attendees at a recent vetted NCLC conference.  Users meeting any one of these qualifications can log on to the NCLC Digital Library with an existing account or create a free account to access the materials, as well as materials from NCLC’s Consumer Rights Litigation Conference, NCLC's Fair Debt Collection Conference, and NCLC's Mortgage Conference. The 2022 conference materials will be published later this year.

Be on the lookout this summer for registration information for a 2023 Class Action Symposium, held in conjunction with the 2023 Consumer Rights Litigation Conference.  This is a must for all consumer class action practitioners.

The Definitive Consumer Class Actions Practice Tool

NCLC’s Consumer Class Actions is now in its Tenth Edition and is available with a subscription. The digital version of the Tenth Edition includes even more recent updates, and over 300 sample pleadings, practice tools, and other bonus material.

Highly practical, NCLC’s Consumer Class Actions is written by NCLC’s experts and by sixteen contributing authors who are all experienced and successful consumer class action practitioners from around the country. NCLC’s Consumer Class Actions covers the latest in consumer class action practice ideas including:

• Case selection;
• Class definition;
• Jurisdiction;
• Protecting the rights of the planned class;
• Class discovery;
• The named plaintiff's deposition;
• Defendant's delaying tactics;
• The class motions and briefs;
• Settlement terms and objections to settlement;
• Appeals;
• Attorney fees.

The NCLC Litigation Project

NCLC represents consumers in cutting-edge litigation that seeks to reform the rules of the marketplace. NCLC is interested in cases that will have a far-reaching impact and that can benefit from our unique legal and policy expertise. To maximize NCLC’s limited resources we help bring together strong litigation teams made up of private lawyers, legal aid, and nonprofit groups.

More on co-counseling opportunities with NCLC’s litigation project and the project’s guidelines is found here.  That page also includes links to an index of the project’s open cases, amicus briefs filed by NCLC and our partners on behalf of NCLC’s low-income clients, as well as a number of class litigation tools.

We thank Seth Lesser, a. founding partner of Klafter Lesser LLP, for his assistance in drafting this article.