On December 16, 2022, the U.S. Court of Appeals for the First Circuit made two important findings in a class-action settlement case. 

First, the Court vacated the district court’s settlement approval finding that the absence of separate counsel for distinct groups of class members made it too difficult to determine whether the settlement treated class members equitably. 

Second, the Court held that incentive payments to named class representatives were not prohibited so long as they fit within the bounds of Rule 23(e).

This case, Murray v. Grocery Delivery E-Servs. USA Inc., No. 21-1931, 2022 WL 17729630 (1st Cir. Dec. 16, 2022), concerned alleged violations of the Telephone Consumer Protection Act resulting in a proposed settlement.

Upon review of this settlement, the First Circuit held that when “easily identifiable categories of claimants . . . have significantly different claims, or . . .  defenses, the lack of separate representation presents an actual and substantial risk of skewing available relief in favor of some class members.”  In Murray, each claim “authorizes suit and recovery for a variety of quite different acts,” and different defenses apply to each claim.  The First Circuit found that these differences were significant and therefore required separate representation to adequately protect the claimant’s interests.

Moreover, the lump-sum nature of the settlement, the First Circuit expressed, was fraught with potential danger: “[i]t is unreasonable to expect . . . a lawyer to properly advocate for each [sub]group because giving one group a larger piece of the pie necessarily reduces the amount available to a different group.”

The First Circuit also followed the lead of other Courts of Appeal in allowing incentive awards for named plaintiffs in Rule 23 class actions.  The First Circuit rejected the “contention that incentive payments are categorically improper.”  This deepens the circuit split seen between the Sixth Circuit and Eleventh Circuit, which was discussed in the article written on January 15, 2021.

This case is an important reminder to adhere during class settlement negotiations to the procedural and substantive checks considered under Rule 23(e) to ensure that a proposed class settlement is approved.