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It’s been almost two years since a divided panel of the Eleventh Circuit held that incentive payments (a/k/a service awards) in class action settlements are unlawful, a startling and controversial result given the ubiquity of such provisions and the majority’s reliance on 19th century Supreme Court precedents that had nothing to do with class actions. Since then, no other circuits have followed the Eleventh Circuit’s approach, and some have continued to uphold the previously uncontroversial terms.

In this blog, I reported on the surprising decision, and on one of the subsequent federal appellate decisions that went the other way, here and here. Personally, I had expected the court to accept en banc review and reverse the panel’s outlier of a decision. Yet the court surprised me a second time by denying en banc review, thereby allowing the decision to stand. While there is not much to see in the denial order, the strong dissenting opinion

Federal Rule of Civil Procedure 23(e)(2) requires courts to subject proposed class action settlements to scrutiny to ensure that they are fair, reasonable, and adequate. In some recent decisions, the Ninth Circuit has reversed district court approvals of class action settlements, finding that the district courts did not sufficiently exercise that function. I had the privilege of discussing two of these cases and their practical significance for class action lawyers with Adam Polk, co-chair of the American Bar Association’s Class Actions and Derivative Suits Committee, in the committee’s “Common Questions” podcast. Our first conversation concerned the case of Kim v. Allison and a proposed settlement concerning the Tinder dating app. Our second conversation, which has not yet been published, concerned an even more recent decision involving a franchisor of massage services. A link to our conversation in the Tinder case can be found here.

I have written before about one of the peculiar characteristics of a class action settlement; namely, that once a class action settlement is reached, the interests of the named plaintiffs and the defendant in obtaining settlement approval are aligned, which makes the court’s role as fiduciary to the members of the class all the more important. That lack of adversity is present in class counsel’s fee petition as well. A defendant is generally indifferent to the amount of fees to be awarded to class counsel, because the fee award often represents nothing more than an amount to be allocated to class counsel out of a larger sum that the defendant has already agreed to pay. Class members, on the other hand, often have a real stake in the amount of the fee award, because the larger the attorneys’ slice of the settlement pie, the less pie remains for distribution to the class. At the time the fee petition is presented, therefore, class counsels’ interests conflict with

Class action settlements are complicated affairs. They can take months or even years to negotiate, followed by months to send notice and obtain trial court approval, and months or years longer if an approval order is appealed. The agreements memorializing class action settlements are often dozens of pages long or longer. They sometimes involve claims processes run by third-party vendors who are hired to manage years of complex data. Objections can require extensive briefing and at times result in evidentiary hearings. Between the attorneys’ fees incurred in the settlement process as well as costs of administration, class action settlements often result in expenditures of hundreds of thousands of dollars if not more.

So why do parties and their lawyers on both sides subject themselves to such a burdensome, time-consuming and expensive process? When you cut through all the posturing and all of the carefully crafted details of the written agreement and court submissions, what are the core terms at the heart of the settlement?

Every

For years, class action settlements typically have included incentive payments to named plaintiffs. The payments usually represent a very small percentage of the overall settlement payout, and are designed to compensate named plaintiffs for their time and trouble in service to the class. By way of a simple hypothetical, a million dollar settlement might include an incentive payment of $5,000 to a named plaintiff, in addition to that person’s share of the payment to the class. Class counsel invariably request incentive payments as a component of the overall settlement, defendants generally agree to them, class members rarely object to them, and courts typically approve them. Because incentive awards tend to be such a small percentage of the settlement,  usually dwarfed by the fees and costs class counsel request, the settling parties and the court spend very little time on them. After all, the thinking goes, named plaintiffs did have to do some work in representing the class, so it is only fair that they get compensated.

Unless,