FORT LAUDERDALE, Fla. (Legal Newsline) - A federal judge in Florida who in August tentatively approved a class action settlement including $10,000 “incentive fees” to named plaintiffs will now have to decide if final approval is appropriate considering the appellate court immediately above him has since ruled such fees to be illegal.
The settlement between GEICO and lawyers representing Florida drivers provides as much as $31 million to drivers of leased vehicles who claim they should have been paid sales taxes and fees when their cars were totaled. GEICO disagrees its insurance contracts include reimbursement for taxes paid by the leasing companies, but agreed to the settlement after extensive litigation.
The agreement will also pay plaintiff lawyers $8.7 million in fees and $10,000 each to three class representatives.
The approval by U.S. District Judge William P. Dimitrouleas would seem to contradict a recent decision by the U.S. Court of Appeals for the 11th Circuit finding incentive payments are prohibited under 135-year-old U.S. Supreme Court precedent. That decision threatened a routine practice in courts around the country, in which judges approve incentive payments to compensate class representatives for the time and distraction of being directly involved in the litigation, including sitting for depositions by opposing attorneys.
Judge Dimitrouleas issued his preliminary approval Aug. 28, before the 11th Circuit decision came down. In a Sept. 28 filing, however, plaintiff lawyers led by Jacob Phillips of Normand PLLC said the appellate court decision doesn’t apply since it addressed class actions brought under federal law, while the GEICO case involved claims based on Florida law. The 11th Circuit cited a 19th-century Supreme Court decision prohibiting people who represent a class of plaintiffs from receiving most forms of payment other than their legal fees.
Florida law allows incentive payments, plaintiff lawyers argue, citing a 2009 decision by a state appeals court upholding a $10,000 payment because being a class representative “is less an honor than a headache.”
Critics of the practice of paying class representatives say it can give them an incentive to approve settlements that pay their fellow class members little or nothing at all but reward plaintiff lawyers with large fees. In any class action, representative plaintiffs are supposed to monitor the work of attorneys and ensure that settlements are fair to the entire class. Any money paid by the defendant legally belongs to the class until a court determines part of it should be paid to attorneys or for other costs.
The GEICO settlement will probably survive scrutiny because no class members objected, said Ted Frank with the Hamilton Lincoln Institute’s Center for Class Action Fairness, which frequently represents class members who object to settlements they believe are skewed too heavily toward the interests of plaintiff lawyers and defendants. Frank called the issue of incentive payments to be a “red herring,” however.
“It’s not the problem or the source of the problem,” Frank said. “It’s a symptom at best, but they’d be appropriate even in a well-functioning class action system. The bigger issue in a case like this is the attorneys getting $8.7 million on the illusion of class benefit.”
The GEICO settlement provides more than $30 million in potential payments to policyholders who leased vehicles and claimed they are owed the 6% sales tax the leasing company paid when it purchased the cars. The settlement also provides refunds of about $80 in title transfer and other fees and GEICO agreed to pay sales taxes on totaled leased vehicles until it changed its policy language.
As with most claims-made settlements, however, any money not paid in claims will revert to GEICO. Judges rarely require plaintiff lawyers to provide a public accounting of how much money they obtained for their clients, and lawyers rarely volunteer the information.
Before reaching the settlement, GEICO appealed this case to the 11th Circuit. It asked the court to decide the question of whether the judge could certify a class of plaintiffs without a feasible plan on the table for identifying who actually belonged in it.
The question of ascertainability is a frequent issue in class actions, with plaintiff lawyers opposing requirements on the front end to identify who they claim to represent and defendants saying it is unfair to subject them to the expense and uncertainty of litigation when the class members are impossible to identify.