Two years ago, in Johnson v. NPAS Solutions, LLC, the Eleventh Circuit upended decades’ worth of precedent by categorically forbidding incentive payments to class representatives in class action settlements. In the past month, however, the Second and Ninth Circuits have rejected the Eleventh Circuit’s NPAS decision, concluding that there is no automatic bar of incentive awards to lead plaintiffs in class actions. This clear circuit split could prompt the Supreme Court to intervene.

How did we get here?

Let’s back up. Followers of class action jurisprudence may recall the 11th Circuit’s September 2020 decision in Johnson v. NPAS Solutions, LLC, that reversed approval of a class action settlement because of a $6,000 incentive award to the class representative, among other reasons. No matter that such incentive payments had been the norm for basically the entirety of modern class action procedure.

Instead, the Eleventh Circuit relied on two Supreme Court decisions from the 1880s, Trustees v. Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885). Those cases held that a plaintiff who successfully litigates to create a common fund for the benefit of the plaintiff and others cannot recover any kind of personal salary. If a plaintiff is prohibited from receiving a salary for creating a common fund, the 11th Circuit reasoned, then a class representative must also be prohibited from receiving an incentive payment for obtaining a class action recovery.

What has happened recently?

In August of this year, the Eleventh Circuit denied a petition for en banc review of NPAS. Judge Jill Pryor dissented and argued that the elimination of incentive awards “will have a very real and detrimental impact on class actions in this circuit, an impact that will be felt by the most vulnerable plaintiffs such as consumers and small businesses.”

Even before the Eleventh Circuit’s en banc decision, the Sixth Circuit in a per curiam decision rejected the argument that “service awards” to class representatives “amounted to a[n improper] bounty,” without mentioning NPAS or distinguishing Greenough and Pettus. Then, in the past month, the Second and Ninth Circuits have weighed in and created a clear circuit split.

First, in Hyland v. Navient Corp., without addressing NPAS, the Second Circuit concluded that Greenough and Pettus do not prohibit incentive awards. The Second Circuit followed its 2019 decision in Melito v. Experian Marketing Solutions, Inc., which predated NPAS by over a year, and which had concluded that Greenough and Pettus, decided decades before the adoption of Rule 23, were simply inapposite, because they did not involve class settlements and involved far greater service awards than are typically at issue for class representatives.

Then last week, in In re Apple Inc. Device Performance Litigation, the Ninth Circuit expressly rejected the Eleventh Circuit’s decision in NPAS. The Ninth Circuit reasoned that Greenough and Pettus do not categorically bar lead plaintiffs who obtain a recovery on behalf of themselves and others from receiving incentive awards, but instead simply bar incentive awards that are unreasonable or excessive. As the Ninth Circuit noted, the disapproved payment in Greenough was facially excessive: “a 10-year allowance for ‘personal services,’ equivalent today to approximately $76,000 per year, as well as ‘personal expenditures’ on ‘railroad fares and hotel bills’ worth approximately $458,000 today.” The million-plus dollar incentive in Greenough (in today’s dollars) is “a far cry” from the four figure incentive payments typically at issue in class action settlements.

What’s next?

We have a few takeaways in light of this deepening circuit split on the permissiveness of incentive awards:

  • First, the split may soon be resolved by the Supreme Court. Now that the Eleventh Circuit has denied the en banc petition in NPAS, a cert petition to the Supreme Court will likely be filed. And given the clear circuit split, the Supreme Court may very well take up this issue. The availability of incentive awards is an important question of law and the circuit split features courts with categorically opposing positions.
  • In the meantime, we expect that parties will continue to seek incentive awards for class representatives everywhere but the Eleventh Circuit. To date, apparently no circuit has followed NPAS, while the Second, Sixth, and Ninth Circuits have either expressly or implicitly rejected NPAS’s reasoning. Even in circuits that have not yet weighed in, we would expect parties to rely on historical precedent and continue to seek incentive awards.
  • Finally, even in the Eleventh Circuit, parties may still attempt to secure incentive awards for class representatives. The rationale of NPAS is that incentive awards create an impermissible conflict between the class representative and the absent class members. Nevertheless, in June of this year, the Eleventh Circuit declined to vacate an incentive award to the class representative where the objector did not object to that incentive award. See In re Checking Account Overdraft Litig. (11th Cir. 2022). And notably, Judge Newsom, who authored NPAS, was on the panel in In re Checking Account Overdraft Litigation. Given In re Checking Account, a conditional request for an incentive award, conditioned upon either NPAS being vacated by the Supreme Court or the unanimous approval of class members as evidenced by the failure of any class member to object to the incentive award, could be permissible. Plus, even if not permissible, an incentive award would not necessarily derail the entire settlement. Instead, the Eleventh Circuit has remanded for vacatur of incentive awards without reversing settlement approval. See In re Equifax, 999 F.3d 1247, 1281–82 (11th Cir. 2021).

We will continue to monitor this issue as it develops.

Biometric class actions have proliferated in recent years — and with more states eyeing comprehensive data privacy legislation, companies that use biometric data should plan for the surge to grow.

With rare exceptions, these cases end either in settlement or via a successful dispositive motion. In this post, we will discuss some of the trends we have observed from reviewing 15 settlements of class actions brought under Illinois’s Biometric Information Privacy Act (BIPA), 740 Ill. Comp. Stat. Ann. 40 et seq. (Illinois is currently the only state that authorizes a private right of action for violation of biometric information privacy laws). Part II will examine some successful (and unsuccessful) dispositive motions filed by companies facing BIPA claims.

Highlights of BIPA Settlements:

  • Average recovery of $440 per class member
  • Class sizes vary widely from 724 members to 15.37 million members
  • Slightly over half of the settlements feature injunctive relief
  • Majority of settlements utilized a claims process
  • Almost no settlements allowed unclaimed funds to revert to the defendant

The Big Question: How Much Money Are Companies Paying?

Damages in BIPA class actions add up quickly because the statute authorizes a penalty for each violation in the amount of $1,000 (for negligent violations) or $5,000 (for intentional violations), as well as attorneys’ fees and costs (740 Ill. Comp. Stat. Ann. 14/20). The availability of large statutory damages, plus the headlines about Facebook’s payment of $650 million to settle users’ claims that its facial recognition technology violated BIPA, is enough to make any user of biometric data nervous (see In re Facebook Biometric Info. Privacy Litig., No. 3:15-cv-03747 (N.D. Cal.)). But even though the gross amount of Facebook’s $650 million settlement should inspire some caution, it only tells part of the story. The other critical piece of information is the class size because this number will give much better information about the value of each class member’s claim. The Facebook class included about 15.37 million class members. The parties estimated that each class member stood to recover a maximum of $342.

Thus, while headlines emphasize the total amount of the Facebook settlement, the per-class-member recovery in that settlement is lower than the average recovery of around $440 per class member. Though this is the average, we observed a fairly large range of potential recoveries, from just $21 per class member in Phillips v. BioLife Plasma, LLC, No. 2020 CH 05758 (Ill. Cir. Ct.) (though this was for one of two subclasses; the members of the other subclass each received an estimated $205) to $1,000 per class member in Wickens v. Thyssenkrupp Crankshaft Co., LLC, No. 1:19-cv-06100 (N.D. Ill.).  A pattern emerges: on average, individual class members recovered more in smaller classes. For instance, in Wickens, there were only about 724 class members, far fewer than the roughly 15 million members in the Facebook class. One caution: Facebook may be an outlier in terms of size; the next largest class had roughly 1.11 million members (see Rosenbach v. Six Flags Entm’t Corp., No. 16 CH 13 (Ill. Cir. Ct.)).

Despite the variability in class sizes and recovery, attorneys’ fees constituted between 33% and 35% of the settlement fund in all cases but the Facebook class action (in which the court found that one-third of the $650 million fund was excessive and instead awarded $97.5 million). The fact that fee awards consistently amount to around one-third of the settlement fund suggests that attorneys’ fees may have been a driving factor in the cases with smaller class sizes but higher individual class member recoveries.

Finally, most of the settlements structured payment in similar ways. Twelve of the 15 settlements instituted a claims process for at least certain categories of class members, and 13 of the settlement funds were non-reversionary, which means all unclaimed settlement funds were either paid to a cy pres recipient or distributed to the class members who previously submitted claim forms. Further, all but one of these settlements required the defendant to pay the full amount of the settlement fund, rather than permitting the defendant to fund the settlement in phases and fund the next phase only if claims exceeded the amount of the prior phase. The Six Flags settlement did allow for a phased funding approach, but the settlement agreement noted that this approach was due to the severe economic hit Six Flags took during COVID-19. Thus, companies settling a BIPA class action should generally expect to pay the entire amount of the settlement fund, either to class members or to a cy pres recipient.

What Other Relief Is Included in the Settlements?

All of the settlements in our sample included monetary relief, but nine of the 15 settlements also contained prospective injunctive relief. The prospective relief in each settlement agreement looked similar, with defendants agreeing to (1) make improved disclosures regarding the collection and use of biometric data; (2) draft and provide written policies on the collection and retention procedures for biometric data; (3) obtain a written release to collect individuals’ biometric data; and (4) destroy biometric data in accordance with applicable law. The presence of prospective relief in a settlement agreement did not appear to have a significant impact on the monetary amount of the settlement — in other words, the presence of injunctive relief did not correlate with low recoveries per class member.

A future post will analyze some successful dispositive motions in BIPA cases to identify trends and emerging defenses.

Financial Negligence Claim Reversed in Mississippi Supreme CourtIn Gloria Baker, et al. v. Raymond James & Associates Inc., et al., the Mississippi Supreme Court on March 4 reinstated a trial court ruling that Mississippi’s latent-injury discovery-rule exception to the catch-all, three-year limitations period did not apply where the lay plaintiffs, though inexperienced and unsophisticated investors, received monthly account statements showing “substantial losses” on their managed retirement investments. Bradley was part of the team that assisted Raymond James in this signal victory.

The plaintiffs filed suit in 2017, alleging, among other things, a negligence claim against their financial advisor and the advisor’s then-employer Morgan Keegan (now Raymond James). The advisor invested the plaintiffs’ retirement assets from 2002 to 2013. During those years, the plaintiffs received monthly account statements showing substantial losses. The defendants moved for summary judgment based on the three-year statute of limitations, arguing the cause of action accrued at the latest in 2008, when each plaintiff had received written confirmation that one of each of their “investments had sustained a 90 percent loss.” The plaintiffs asserted that their losses were latent injuries. In Mississippi, a latent injury tolls the limitations period if the injury is inherently undiscoverable in nature or when it is unrealistic to expect a layman to perceive the injury. The trial court rejected the latent-injury theory and entered summary judgment in favor of Raymond James and the other defendants. The court concluded that “[t]o discover their injuries, Plaintiffs simply had to glance at their account statements, which would have alerted them to the substantial losses about which they now complain.” The court emphasized that it “does not require advanced degrees or financial backgrounds to realize that those statements showed investment activity inconsistent with their objectives.”

The Mississippi Court of Appeals reversed the trial court, finding that a genuine issue of material fact existed as to whether the plaintiffs’ injury was latent considering the complexity of financial investment, the plaintiffs’ financial inexperience, the fact that the plaintiffs at all times received a monthly retirement check, and the advisor’s reassurance when the plaintiffs questioned him about their losses. Judge David McCarty dissented, joined by Presiding Judge Jack Wilson and Judge Sean Tindell, and wrote “[i]f someone plunges a knife into your belly and you start to bleed, you know you have been injured. Each month, the retirees were jabbed by the clearly shown losses in their accounts… [T]hey knew… it was not getting better—no matter what [their advisor] told them.” Judge McCarty concluded, “the wound was apparent.”

After agreeing to hear the case, the Mississippi Supreme Court reversed the Court of Appeals and reinstated the trial court’s judgment. The court agreed with the reasoning in both the trial court’s ruling and Judge McCarty’s dissent. The court also distinguished Bennett v. Hill Boren P.C., 52 So. 3d 364 (Miss. 2011), in which the court found a latent injury in legal malpractice due to active concealment. The plaintiffs relied on Bennett to recast their negligence claim as a claim for “stockbroker malpractice,” a claim not recognized in Mississippi. Regardless of how the plaintiffs labeled their claim, the court held that the financial advisor’s repeated assurances that their investments were okay “is not—by itself—evidence of any active concealment” where their monthly account statements indicated that the financial advisor made “bad or risky investments… not in line with their investment growth objectives.”

The court’s decision is important for two key reasons. First, the decision reaffirms the importance of financial institutions providing clear, monthly account statements to their clients — a good paper trail is crucial to establishing a limitations defense, particularly when a plaintiff relies on alleged oral representations by a defendant, and can be an important part of any defense on the merits as well. Second, the decision acts as a barrier to countless stale financial-negligence claims that could have been resurrected had the Mississippi Court of Appeals’ decision stood.