A deepening circuit split: Whether class representatives should be granted incentive awards
Today, it is impossible to guess what law previously considered to be settled will be newly determined to violate historical precedent or the Constitution. In September 2020, the Eleventh Circuit decided in Johnson v. NPAS Solutions, LLC, that class representatives may no longer receive incentive awards as part of a class action’s settlement agreement. Two years later, in August 2022, the court refused to rehear the case en banc. The Johnson decisions upended decades of rulings that acknowledged the legality of giving nominal payments to individuals who elect to represent a class. As other Circuits review the issue, it becomes ever more likely that the Supreme Court will consider it, and perhaps even provide further insight on how to address nineteenth century case law in the context of today’s federal rules of civil procedure.
Incentive awards and their importance
After the Federal Rules of Civil Procedure were amended in 1966, Rule 23 created the modern class action. Subsequently, courts began to allow class representatives to “receive benefits—beyond what the class received—for their efforts in bringing and maintaining lawsuits to vindicate not only their own rights but the rights of other class members.” In another words, Rule 23 opened the door for courts to grant class representatives an incentive award.
As early as 1973, a district court provided “special awards in the aggregate amount of $17,500 to those members of the plaintiff class who were most active in the prosecution of [the] case and who devoted substantial time and expense on behalf of the class.” Since then, courts generally have approved incentive awards. One study of class actions between 2006 and 2011 found that courts approved incentive awards in 93.4% of consumer class actions and 71.3% of all class actions. During that same time period, a study of 1,200 class actions determined that the average incentive award per class representative was $11,697 (or $15,764.76 in 2022 dollars).
Class incentive awards became ubiquitous because of their utility. In consumer class actions, incentive awards are often considered reasonable because class representatives routinely “spend hundreds of hours” assisting with litigation. When “damages per class member tend to be slight,” an incentive award can assist class representatives who otherwise might be reluctant to take on extra responsibilities. Without incentive awards, individuals may be unwilling to represent a class in what could be a worthwhile case. Eliminating incentive awards could, therefore, damage the viability of class actions, which is an important tool particularly for enforcing consumer protection statutes.
Importantly, abolishing class incentive awards specifically impacts antitrust cases. Generally, “[c]lass actions [have been] an important tool for small businesses to combat anticompetitive business practices.” Indeed, some consider class actions to be “the most effective way to hold corporations accountable.” Yet, without incentive awards, these class actions may be less feasible for potential representatives. Small-business class representatives may be unwilling to devote the significant time required for litigation “which otherwise could be devoted to running the business.” Furthermore, these representatives may be reluctant to face the retaliation and reputational harm that occurs “especially in the antitrust context.” Therefore, prohibiting incentive awards could possibly limit the viability of essential antitrust litigation.
The Eleventh Circuit decision
Despite the prevalence and utility of class representative incentive awards, in Johnson v. NPAS Solutions, LLC the Eleventh Circuit decided in 2020 that two Supreme Court cases from the late nineteenth century bar such awards. The Circuit Court panel examined whether the district court erred in approving a settlement agreement granting the class representative, Charles Johnson, a “$6,000 incentive payment, as acknowledgment of his role in prosecuting the case on behalf of the class members.”
The court ruled that the district court had erred because the Supreme Court’s 1881 decision in Trustees v. Greenough, which was reaffirmed four years later in Central Railroad & Banking Company v. Pettus, “prohibit incentive awards like Johnson’s and, more generally . . . the award creates a conflict of interest between Johnson and other class members.”
In Greenough, Francis Vose had sued the trustees of a Florida improvement fund on behalf of himself and other bondholders. Vose argued that the trustees were wasting the fund by selling at nominal prices land earmarked to service the bonds that he and other bondholders held. Ultimately, Vose succeeded in securing the fund after litigating the case for ten years and doing so at significant expense.
On appeal, the Supreme Court addressed whether Vose should receive a reimbursement from the fund for his “personal expenses and personal services,” which in this case included “an allowance of $2,500 a year for ten years of personal services” and reimbursements for “railroad fares and hotel bills.” The Supreme Court ruled that “the Circuit Court had the power” to reimburse “Vose, his reasonable costs, counsel fees, charges, and expenses incurred in the fair prosecution of the suit[.]” However, it concluded that allowances “made for [the] personal services and private expenses of the complainant” were “decidedly objectionable[.]” The Court declared that “[s]uch an allowance has neither reason nor authority for its support[.]”
After relying on Greenough, the Johnson panel noted that Pettus, the 1885 decision, “is significant principally as a reiteration of the dichotomy drawn in Greenough[.]” The Supreme Court did point out in Pettus that “[i]t is clear that, within the principles announced in Trustees v. Greenough, [the complainants] are entitled to be allowed, out of the property thus brought under the control of the court for all expenses properly incurred in the preparation and conduct of the suit[.]”
Relying on Greenough and Pettus, the Johnson panel concluded that “the rule of Greenough, confirmed by Pettus, [is] fairly clear: 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 Eleventh Circuit panel insisted that “the modern-day incentive award for a class representative is roughly analogous to a salary—in Greenough’s terms, payment for ‘personal services.’”
After the Johnson panel rejected the settlement’s $6,000 incentive award, the plaintiffs petitioned the Eleventh Circuit to rehear the case en banc. However, two years later the majority of judges declined to rehear the case.
What other circuits say
Although the Eleventh Circuit held fast to its decision to prohibit incentive awards for class representative “personal services,” other circuits have opted not to follow suit. Before the Eleventh Circuit refused to consider Johnson en banc, the Sixth Circuit in Shane Group, Inc. v. Blue Cross Blue Shield of Michigan considered whether a “payment of so-called ‘service awards’ to certain named plaintiffs amounted to a bounty.” The court, however, approved the award because 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.”
After the Eleventh Circuit denied an en banc rehearing in Johnson, the Second and Ninth Circuit explicitly rejected the notion that incentive awards are entirely precluded in class actions. In Hyland v. Navient Corporation, appellants also argued that service awards were prohibited under Greenough and Pettus, but the Second Circuit responded “we are not persuaded.” The panel concluded that appellants’ arguments were foreclosed by the Second Circuit’s decision in Melito v. Experian Marketing Solutions, Inc., which had ruled that neither Pettus nor Greenough “provide factual settings akin to those” present in the case. And further, the Hyland panel declared, “the District Court offered compelling reasons for compensating the class representatives, including 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.”
Similarly, the Ninth Circuit in In re Apple Device Performance Litigation, rejected the contention that “district courts lack discretion to award any service fees or incentive payments to class representatives.” Considering Greenough and Pettus, as well as relevant Ninth Circuit precedent, the Ninth Circuit concluded that “incentive awards cannot categorically be rejected or approved” and “so long as they are reasonable, they can be awarded.”
As the Circuit split has deepened on whether class representatives may receive incentive awards, it becomes more likely that the Supreme Court will take up the issue. As we wait for that moment, we can only wonder what the Court may consider upon review. Conservative justices may be attracted to the Eleventh Circuit’s concept that “the judiciary has created these awards out of whole cloth and few courts have paused to consider the legal authority for incentive awards.” However, the Supreme Court ultimately may consider that the language in Rule 23 of the Federal Rules of Civil Procedure thwarts this interpretation. Although the Rule does not explicitly grant incentive awards for class representatives, it does give courts free range to grant any proposal that is “fair, reasonable, and adequate” within the parameters of the rule.
Perhaps the Supreme Court will see, as Judge Pryor did in her dissent to the Eleventh Circuit en banc hearing denial, that “[t]he panel majority opinion failed to acknowledge, much less grapple with, its inconsistency with” Rule 23. Greenough did base its decision on a lack of authority to grant an award for “personal services and private expenses,” which Pettus then acknowledged. Nevertheless, that authority may now exist in Rule 23, which gives courts carte blanche to approve any settlement that is “fair, reasonable, and adequate,” as determined by the other limitations of the rule.
Moreover, in reviewing the Johnson decision, the Supreme Court could acknowledge that historically, the precursors to modern class actions have been guided by similar principles to those embedded in Rule 23. As early as 1853, in Smith v. Swormstedt, the Supreme Court upheld what essentially was a class action by recognizing the “well established” rule “that where the parties interested are numerous, and the suit is for an object common to them all, some of the body may maintain a bill on behalf of themselves and of the others . . . representing a common interest.” The Court concluded that “the complainants and those they represent, are entitled to their share of the property” and ordered payment “in respect to all costs in this case, including . . . and in respect of just and necessary expenses, as well of plaintiffs as of defendants in conducting the suit[.]” The Court specified that the expenses must be paid out of the common fund “before apportionment and division[.]” Thus, the Supreme Court may conclude that Smith suggests whether to grant expenses for class representatives has historically always been guided by what is “just and necessary.”
The Johnson decision has already affected class actions in the Eleventh Circuit. In In re Equifax Inc. Customer Data Security Breach Litigation, the court determined that after Johnson, it “must reverse the District Court’s ruling on incentive awards” and remand the case “solely for the limited purpose of vacating those awards.” Another Eleventh Circuit panel did allow a post-Johnson incentive award, but only because no one had expressly objected to the award. If the Supreme Court does soon address the burgeoning circuit split, its opinion may shed light on how federal courts should consider nineteenth-century precedent when evaluating the current rules of civil procedure.
*Erika A. Inwald is an associate in the New York office.
 See e.g., N.Y. State Rifle & Pistol Ass’n, Inc. v. Bruen, 142 S. Ct. 2111, 2122 (2022) (finding that gun safety regulations dating from 1911 were unconstitutional).
 Johnson v. NPAS Sols., LLC, 975 F.3d 1244, 1255 (11th Cir. 2020) (“Johnson I”).
 Johnson v. NPAS Sols., LLC, 43 F.4th 1138, 1146 (11th Cir. 2022) (“Johnson II”) (denying motion to hear the case en banc).
 See Johnson II, 43 F.4th at 1145.
 Bryan v. Pittsburgh Plate Glass Co., 59 F.R.D. 616, 617 (W.D. Pa. June 12, 1973), aff’d, 494 F.2d 799 (3d Cir. 1974).
 Johnson II, 43 F.4th at 1141 n.6 (citing Newberg and Rubenstein on Class Actions § 17:7 (6th ed., June 2022 update)).
 Id. at 1148 n.17 (citing Newberg § 17:8); see also United States Bureau of Labor Statistics, CPI Inflation Calculator, https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11697&year1=201101&year2=202209. It is also worth noting that the median award per plaintiff in 2021 dollars fell right between $6,450-$6,680, suggesting there are some cases “with extremely high rewards driving the average much higher than the median.” See Newberg § 17:8.
 Johnson II, 43 F.4th at 1151 (cleaned up).
 Id. (citing Espenscheid v. DirectSat USA, LLC, 688 F.3d 872, 876 (7th Cir. 2012)).
 Id. at 1151-52 (citing Jason Jarvis, A New Approach to Plaintiff Incentive Fees in Class Action Lawsuits, 115 Nw. U. L. Rev. 919, 928 (2020)).
 Id. at 1152.
 Id. (citing Brian T. Fitzpatrick, The Conservative Case for Class Actions 3, 22-28 (2019)).
 See Johnson I, 975 F.3d at 1260.
 Id. at 1251. The total settlement equaled $1,423,000 and 9,543 class members submitted claims, meaning redistributing Johnson’s $6,000 incentive award “would increase each person’s take by only $0.63.” Id. at 1250-51, 1260 n.11.
 105 U.S. 527 (1881).
 113 U.S. 116 (1885).
 Johnson I, 975 F.3d at 1255.
 Id. at 1256 (citing 105 U.S. at 528).
 Id. (citing Greenough, 105 U.S. at 528-29).
 Id. (citing Greenough, 105 U.S. at 529-30).
 Id. (citing Greenough, 105 U.S. at 530). In today’s dollars, Vose’s request would equal more than $1.4 million. Johnson II, 43 F.4th at 1143.
 Greenough, 105 U.S. at 537.
 Johnson I, 975 F.3d at 1257 (citing id.).
 Id. (citing Greenough, 105 U.S. at 538).
 Id. (citing 113 U.S. at 122).
 Pettus, 113 U.S. at 124.
 Johnson I, 975 F.3d at 1257.
 Judge Pryor wrote a lengthy dissent, which was joined by three other judges. See Johnson II, 43 F.4th at 1139-53.
 833 F. App’x 430, 431 (6th Cir. 2021).
 48 F.4th 110, 123 (2d Cir. 2022).
 Id. at 124; see also Melito, 923 F.3d 85, 96 (2d Cir. 2019).
 Hyland, 48 F.4th at 124 (cleaned up).
 50 F.4th 769, 785 (9th Cir. 2022).
 Id. at 786-87.
 U.S. Sup. Ct. R. 10a (explaining that in granting a writ of certiorari, the Court may consider whether “a United States court of appeals has entered a decision in conflict with the decision of another United States court of appeals on the same important matter”). See also Mata v. Lynch, 576 U.S. 143, 151 (2015) (acknowledging that if one circuit thinks differently than another, “that creates the kind of split of authority we typically think we need to resolve”).
 Johnson I, 975 F.3d at 1259 (citing William B. Rubenstein, 5 Newberg on Class Actions §17:4 (5th ed. 2020)).
 Fed. R. Civ. P. 23(e)(2).
 Johnson II, 43 F.4th at 1150.
 See Greenough, 105 U.S. at 537; Pettus, 113 U.S. at 122.
 See Fed. R. Civ. P. 23(e)(2).
 57 U.S. 288, 302 (1853). The opinion also includes other principles which now guide modern class actions. The Court explains that the representative rule follows when (1) the question is one of common or general interest; (2) the parties form a voluntary association and are presumed to represent the interest of the whole; and (3) the parties are very numerous, making it impracticable to bring individual claims before the court. See id.
 Id. at 309, 313 (emphasis added).
 Id. at 313.
 See id. at 313. It is also worth noting that because neither the Court in Greenough nor Pettus acknowledges this historical context, the Supreme Court may decide—as Melito concludes—that the holding in Greenough might be cabined to a specific “factual setting.” See Melito, 923 F.3d at 96.
 999 F.3d 1247, 1257 (11th Cir. 2021). Hausfeld LLP represents the plaintiffs in Equifax.
 In re Checking Acct. Overdraft Litig., No. 20-13367, 2022 WL 472057, at *5 n.1 (11th Cir. Feb. 16, 2022).