The First Circuit recently vacated and remanded a district court’s approval of a proposed class action settlement “because the absence of separate settlement counsel for distinct groups of class members makes it too difficult to determine whether the settlement treated class members equitably.” Murray v. Grocery Deliver E-Servs. USA Inc., — F.4th —, 2022 WL 17729630, at *1 (1st Cir. Dec. 16, 2022). At the same time, the First Circuit declined to follow the Eleventh Circuit’s recent decision banning incentive awards to class representatives.
On October 15, 2021, a district court approved a class action settlement resolving plaintiffs’ claims that defendant HelloFresh violated the Telephone Consumer Protection Act in three different ways. On appeal, an objector argued that the settlement was defective because class members with one type of claim had stronger and more valuable claims than members with the two other claims, so it was inadequate for class members with different claims to be represented by the same counsel during settlement negotiations.
The First Circuit agreed. Because the same counsel represented different groups of plaintiffs whose claims involved “significantly different elements” and faced “very different defenses,” the First Circuit found that the “district court lacked the requisite basis for certifying the settlement class and approving the allocation of the $14 million among class members as fair, reasonable, and adequate.” Id. at *8. The Court explained that if the same counsel represents groups of plaintiffs “with significantly different claims in the context of allocating a lump-sum settlement,” then the district court “lacks structural assurance that the settlement treats each group fairly.” Id. at *4. In Murray, for instance, the class members’ three TCPA claims involved different elements and defenses that were “too significant to leave the equitable apportionment of a common fund to a court’s discretion” without the procedural safeguard of an “arm’s-length negotiation between separately represented groups” to ensure that class counsel was not “selling out” one category of claim for another. Id. at *4–8.
In the process, the Court rejected the objector’s arguments that incentive awards for named plaintiffs are improper. Although the Eleventh Circuit recently made waves for holding that class settlements may not offer incentive awards to class representatives, the First Circuit chose “to follow the collective wisdom of courts over the past several decades that have permitted these sorts of incentive payments, rather than create a categorical rule that refuses to consider the facts of each case.” Id. at *10. The Court also rejected the objector’s argument that incentive awards categorically present a conflict of interest that prevents named plaintiffs from adequately representing the class. See id.
The First Circuit’s decision should remind companies who are negotiating a proposed class settlement to consider whether separate counsel is necessary to represent groups of plaintiffs that have significantly different claims—i.e., claims with materially different elements or defenses. Moreover, although the Court did not address the extent to which a class may be certified for litigation, see id. at *8 n.1, it noted that “much, if not all, of [its] analysis would apply to Rule 23(a)’s adequate representation requirement in the context of class certification for settlement,” id. at *3. Thus, defendants may be able to apply the Court’s reasoning to argue that a class should not be certified under Rule 23(a)(4)’s adequacy requirement if a single class counsel represents plaintiffs who have claims that involve significantly different elements or defenses.