Plaintiff Incentive Awards Ruled Unlawful in TCPA Class Action Lawsuit

The Telephone Consumer Protection Act (TCPA), which was enacted in 1991, was originally designed to offer consumers relief from unwanted calls. However, attorneys seized on the opportunity to aggregate these smaller claims into class action lawsuits resulting in large settlements. Despite most TCPA class actions settling for amounts in the millions, class members in TCPA lawsuits typically receive between $6-$75, meaning most of the settlement going to attorneys and the named plaintiff(s). These significant monetary incentives have created career litigants, considered the boogeyman of TCPA cases, who are experts at bringing TCPA suits and are often named in several TCPA class actions at once.

Recently, the norm of large incentive awards for named plaintiffs was challenged in the 11th Circuit. Johnson v. NPAS Solutions LLC started out as a standard TCPA class action with the plaintiff claiming that the defendant made unsolicited automated telephone calls to many phone numbers. The case settled for $1.4 million, of that $429,600 went to attorneys and $6,000 to the named plaintiff as an incentive award. The balance of the settlement was to be disbursed for a payout of $8 to each class member. When the class received notice on preliminary approval, one member objected to the attorney’s fees and the named plaintiff’s incentive award.

After being dismissed by the district court, both objections were appealed to the U.S. Court of Appeals for the 11th Circuit. The Court of Appeals referenced two Supreme Court cases in coming to its decision, Trustees v. Greenough (1882) and Central Railroad & Banking Co. v. Pettus (1885), which both establish restrictions to the types of awards attorneys and litigants can receive. Essentially, Greenough ruled (and was confirmed by Pettus three years later) that a plaintiff suing on behalf of a class could be reimbursed through a common fund for attorney’s fees and expenses, but not for personal expenses. The court opined that the $6,000 awarded to Johnson was analogous to a “salary” or “bounty”, which they classified as a personal expense. The commentary concluded that while such incentives are common in class actions that does not make them lawful and the Supreme Court precedent forbidding these incentives cannot be ignored. Thus, the Court of Appeals upheld the attorney’s fees but reversed the named plaintiff’s award of $6,000. It is unknown if a further appeal has been filed for this decision.

As it stands, the Johnson decision brings into question the lawfulness of incentives to named plaintiffs in class action lawsuits, which are a key motivator for plaintiffs filing TCPA lawsuits. If the ruling gains acceptance in other courts, we will likely see a decrease in the number of claims filed.

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