TCPA Litigation Update — Eleventh Circuit Rejects Incentive Awards, District of New Jersey Court Refuses to Adopt Reasoning

In Johnson v. NPAS Sols., LLC, No. 18-12344 (11th Cir. Sep. 17, 2020), the Eleventh Circuit invalidated the use of incentive awards for named plaintiffs in a TCPA class action as inconsistent with the Federal Rules. This is a significant development that may further stifle the filing of TCPA lawsuits nationwide. Plaintiff attorneys rely on class representatives to bring cases suitable for class treatment. When successful, class representatives stand to make five figures on an incentive award. Now, in at least one Circuit, the practice has been deemed unlawful. If this holding becomes a trend, class representatives will become much harder to come across.

Relying on a pair of Supreme Court cases from the 1880s – Trustees v. Greenough, 105 U.S. 527, 26 L. Ed. 1157 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 5 S. Ct. 387, 28 L. Ed. 915 (1885) – the Johnson Court held, “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.” Although it noted that incentive awards are commonplace in class actions, the Eleventh Circuit found them to be unlawful and reversed the district court’s approval of a $6,000 payment to the class representative.

The Court’s ruling presents a major change in class action litigation. Courts outside the Eleventh Circuit, however, have recently rejected the holding in Johnson, paving the way for a circuit split that could demand Supreme Court review. Somogyi v. Freedom Mortgage Corp., 2020 WL 6146875, *9 (Oct. 20, 2020) (“Until and unless the Supreme Court or Third Circuit bars incentive awards or payments to class plaintiffs, they will be approved by this Court if appropriate under the circumstances. Here the incentive payments to the class plaintiffs is appropriate given their substantial contribution to the successful settlement of the case.”)

Incentive payments are awarded to class representatives in nearly all class action settlements. Since the ruling, the named plaintiff has filed a petition for rehearing en banc that has not yet been decided. We will continue to monitor both the outcome of the petition for rehearing and how the decision is received across the country, as the propriety of incentive awards is sure to be challenged in other circuits.

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