A U.S. appeals court on Wednesday questioned the lawfulness of "service" awards for class-action plaintiffs who play key roles in litigation, adding to uncertainty about these common but divisive payments as the U.S. Supreme Court considers whether to take up the issue of their legality.
The New York-based 2nd U.S. Circuit Court of Appeals upheld a $5.6 billion settlement resolving antitrust claims against Visa Inc and MasterCard Inc over certain fees they impose on retail merchants. But the three-judge panel ordered a lower court to re-examine one part of the pact: $900,000 in awards for the eight lead plaintiffs.
Such court-approved payments are meant to compensate plaintiffs for the time and labor they expended in helping their lawyers resolve lawsuits. But the payments cut into settlement funds — reducing how much money is available for class members — and can be substantially more than what other class members on average will receive in a settlement.
"Service awards are likely impermissible under Supreme Court precedent," Circuit Judge Dennis Jacobs wrote in Wednesday's ruling for the panel, including Judges Pierre Leval and Michael Park. Jacobs said the "calculation of such an award is standardless."
Federal appellate courts are divided over service awards, with most of the circuits allowing incentive payments to lead plaintiffs. That list includes the 2nd Circuit, notwithstanding Wednesday's opinion in the credit card case. But the Atlanta-based 11th Circuit has said that such awards are flatly prohibited by a pair of Supreme Court rulings that date back to the 19th century.
Two pending Supreme Court petitions, one filed in October and the other in January, have asked the justices to resolve the appellate split.
"The 2nd Circuit's decision reconfirms that the Supreme Court should grant [the] petition in order to resolve a sharp disagreement on this important question," said plaintiffs' lawyer Ashley Keller of Keller Postman, who filed the October Supreme Court petition challenging the 11th Circuit's ruling that incentive fees are impermissible.
The lawyers who objected to the $6,000 service award in the 11th Circuit case, a class action settlement over robo-calls, also opposed the payments that were part of the negotiated settlement in the antitrust litigation against Visa and MasterCard.
Those attorneys, C. Benjamin Nutley in California and John Davis in Tampa, did not immediately respond to a message seeking comment.
The second Supreme Court petition, which challenges a 2nd Circuit decision affirming an incentive award in a student loan servicing class action, was filed by Eric Isaacson, who frequently represents class action objectors and pioneered the theory endorsed by Jacobs in Wednesday's payment card opinion.
Isaacson told Reuters that he plans to cite the new 2nd Circuit decision in a reply brief to the justices next week.
The 2nd Circuit panel faulted a trial judge's consideration of the time plaintiffs spent on legislative activities that did not directly involve the litigation.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2nd U.S. Circuit Court of Appeals, No. 20-339.