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.

Photo of Stephen Rees Stephen Rees

Stephen Rees is an associate in the firm’s Washington, DC office and member of the Litigation and Investigations Practice Group. He has handled litigation matters involving a range of issues, including antitrust, product liability, ERISA, insurance, breach of contract, and tort claims.

Stephen…

Stephen Rees is an associate in the firm’s Washington, DC office and member of the Litigation and Investigations Practice Group. He has handled litigation matters involving a range of issues, including antitrust, product liability, ERISA, insurance, breach of contract, and tort claims.

Stephen has experience in all stages of litigation, including:

  • dispositive motions;
  • fact and expert discovery;
  • class certification;
  • summary judgment;
  • mediation; and
  • arbitration

Stephen has first-chaired fact witness depositions and has drafted dispositive motions in both federal and state court for clients. In addition, he maintains an active pro bono practice, with an emphasis on immigration-related impact litigation and criminal law matters.

Stephen is a member of the Bar of Illinois. District of Columbia bar application pending; supervised by principals of the firm.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.