On Wednesday, August 3, 2022, the Eleventh Circuit confirmed the groundbreaking decision that incentive payments given to a named plaintiff in a class action are improper by denying a petition for rehearing en banc that had been pending for almost 22 months.  See Johnson v. NPAS Solutions, LLC, No. 18-12344, “Slip Op.” (11th Cir. Aug. 3, 2022).

On September 17, 2020, a split panel on the Eleventh Circuit held a named plaintiff in a class action lawsuit could not recover an incentive award under Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885).  See Johnson v. NPAS Sols., LLC, 975 F.3d 1244, 1260 (11th Cir. 2020).  The panel held that the incentive award “constitute[d] a salary, a bounty, or both,” which is prohibited by Greenough and Pettus.  Id. at 1259.  Therefore, it found that although such incentive awards “are commonplace in modern class-action litigation,” they are unlawful.  Id. at 1260.

On October 22, 2020, a petition for rehearing en banc was filed.  After almost two years, the Eleventh Circuit has denied the petition leaving in place its controversial decision.  Judge Jill Pryor authored a scathing dissent, with Judges Charles Wilson, Adalberto Jordan, and Robin Rosenbaum joining.  Judge Jill Pryor noted how this holding “broke with decisions from this and every other circuit allowing these awards when properly approved under the strictures of Rule 23.”  Slip Op. at 1 (Pryor, J., dissenting).  She cited twelve federal district cases where the court declined to follow Johnson since its holding in September 2020.  Id. at 2 n.2 (collecting cases).

Judge Pryor argued that Greenough and Pettus, which predated Federal Rule of Civil Procedure Rule 23, had no application to modern class action litigation.  Id. at 7-26.  She further argued that the Eleventh Circuit’s holding “threatens the very viability of class actions in this circuit.”  Id. at 3.

There is a strong possibility that plaintiffs will seek Supreme Court review of this decision.  First, there is a circuit split on this issue.  The Second Circuit’s Melito v. Experian Marketing Solutions, Inc., 923 F.3d 85 (2019), also examined Greenough and Pettus and came to a different conclusion.  The Sixth Circuit has agreed with the Second Circuit. See Shane Grp. Inc. v. Blue Cross Blue Shield of Mich., 833 Fed. App’x 430 (6th Cir. 2021) (per curiam).  Second, as discussed in the original blog post on the Johnson 2020 decision, potential objectors to class action settlements will continue to raise this issue across various federal courts—which could exacerbate the existing circuit split.  Lastly, the effect of Johnson will alter class action litigation, especially when involving small value claims.  Until the panel decision in 2020, incentive awards were not only a regular component of class action settlements, but often a driving factor in convincing individuals to participate as named plaintiffs.  With those incentives gone, there is likely to be a dip in small value class action claims.

Ultimately, class action litigators in all jurisdictions should pay attention to this developing issue.