A US appeals court has questioned the legality of “service awards” for class-action plaintiffs who play significant roles in litigation. The ruling is expected to add to the uncertainty surrounding these standard but divisive payments. The decision comes as the U.S. Supreme Court considers whether the awards are lawful. The New York-based 2nd U.S. Circuit Court of Appeals upheld a $5.6bn settlement for antitrust claims against Visa and Mastercard over specific fees they impose on retail merchants. However, the three-judge panel ordered a lower court to re-examine $900,000 in awards for the eight lead plaintiffs. These court-approved payments are meant to compensate plaintiffs for the time and labor they spent helping their lawyers resolve lawsuits. But the payments can reduce the settlement funds available for class members and can be significantly more than what other class members, on average, will receive in a settlement.
In writing the panel’s opinion, Judge Dennis Jacobs stated that service awards were “likely impermissible under Supreme Court precedent,” adding that the “calculation of such an award is standardless.” The ruling has divided federal appellate courts, with most circuits allowing incentive payments to lead plaintiffs. However, the Atlanta-based 11th Circuit has said that such awards are flatly prohibited by a pair of Supreme Court rulings that date back to the 19th century.
Two Supreme Court petitions, one filed in October and the other in January, have asked the justices to resolve the appellate split. The plaintiffs’ lawyer, Ashley Keller of Keller Postman, has said, “The 2nd Circuit’s decision reconfirms that the Supreme Court should grant the petition to resolve a sharp disagreement on this important question”. Keller filed the October Supreme Court petition challenging the 11th Circuit’s ruling that incentive fees are impermissible.
The lawyers who objected to the $6,000 service award in the 11th Circuit case, a class-action settlement over robo-calls, also opposed the payments that were part of the negotiated settlement in the antitrust litigation against Visa and Mastercard. The attorneys, C. Benjamin Nutley in California and John Davis in Tampa have not yet responded to the ruling.
The second Supreme Court petition, which challenges a 2nd Circuit decision affirming an incentive award in a student loan servicing class action, was filed by Eric Isaacson, who frequently represents class action objectors and pioneers the theory endorsed by Jacobs in Wednesday’s payment card opinion. Isaacson told Reuters that he plans to cite the new 2nd Circuit decision in a reply brief to the justices next week.
The 2nd Circuit panel faulted a trial judge’s consideration of the time plaintiffs spent on legislative activities that did not directly involve the litigation.
The legality of “service awards” for class-action plaintiffs is a hotly debated topic among federal appellate courts, with most circuits allowing such payments to lead plaintiffs. At the same time, the Atlanta-based 11th Circuit has ruled against them. The recent ruling by the 2nd U.S. Circuit Court of Appeals has added to the uncertainty surrounding these standard but divisive payments. The decision will likely prompt the U.S. Supreme Court to take up the issue, as two petitions have already been filed seeking a resolution to the appellate split. As the legal community waits for the high court’s decision, the debate over the fairness and appropriateness of service awards for class-action plaintiffs continues.