A New Approach to Plaintiff Incentive Fees in Class Action Lawsuits

Jason Jarvis | November 15, 2020

Because modern litigation is time-intensive and expensive, a consumer has no monetary incentive to sue over a low-value claim—even when the defendant has clearly violated that consumer’s legal rights. But the defendant may have harmed many consumers in the same way, causing significant cumulative damage. By permitting the aggregation of numerous small claims, class action lawsuits provide a monetary incentive for lawyers and plaintiffs to pursue otherwise low-value suits. Often, an important part of this incentive is the “incentive fee,” an additional payment awarded to the named plaintiffs as compensation for the time they spend and risks they assume in representing the class. But such fees have the potential to create dangerous conflicts of interest—named plaintiffs may be “bought off” with a large incentive fee to give their approval to an otherwise unfair settlement. To avoid this problem, courts must review and approve requests for incentive fees. Unfortunately, courts do not adequately evaluate the dangers of incentive awards and balance these dangers against the justifications for such awards. This Note proposes a new test to better guide courts in assessing the propriety of incentive fees. Specifically, courts should look at (1) the amount of time and effort that the plaintiff expended in pursuing the litigation; (2) risks that the named plaintiff faced in bringing and advancing the litigation; and (3) evidence of conflicts of interest that might prejudice the class.