Cruz-Alvarez and Stamps Explain Eleventh Circuit Decision on Class Action Incentive Fees

Shook Partner Frank Cruz-Alvarez and Associate Britta Stamps have authored "11th Circuit Points to 19th Century Precedents to Deprive Settling Class Representatives of Their 'Salary'” for the Washington Legal Foundation's Legal Pulse. "Despite decades of commonplace practices in class action settlements, the U.S. Court of Appeals for the Eleventh Circuit drew a line in the sand and said no more," they explain.

"Both class counsel and defense counsel have grown accustomed to incentive fees—often amounting to a few thousand dollars, such as the $6,000 incentive fee at issue here—being awarded to named plaintiffs in class action settlements.  But what is the basis for such awards? The Eleventh Circuit traces them all the way back to the 1880s," Cruz-Alvarez and Stamps write, providing a history of decisions that limited the awards a plaintiff can receive from a common fund as part of the resolution of a class action. "Considering the evolution of the incentive award, the Eleventh Circuit recognized: 'the modern-day incentive award for a class representative is roughly analogous to a salary,' that also 'promote[s] litigation by providing a prize to be won.' As part-salary and part-bounty, then, the Eleventh Circuit struck down the concept of modern-day incentive awards."

"In sum, the Eleventh Circuit’s emphasis on precedent from the 1880’s to undo a concept that has become common practice is quite curious in today’s political climate," Cruz-Alvarez and Stamps conclude. "For class action practitioners, the dissent makes clear that the door is not completely shut to payments of some form to class representatives. How such a payment might make it to the named plaintiff is an open question, but it certainly cannot be under the term 'incentive award.' Creative attorneys will figure out ways to create payments to named plaintiffs, so defendants should be vigilant about the details of any payments made to named plaintiffs going forward."