Opinion ID: 2711586
Heading Depth: 1
Heading Rank: 5

Heading: motion for class incentive award

Text: Strawn asks this court to award him $5,000 as an incentive fee for serving as the class representative in this case, such award to be paid from the punitive damages award. Farmers opposes the request. Strawn’s motion to award a class incentive fee duplicates similar motions that Strawn filed in the trial court and the Court of Appeals. The trial court awarded Strawn $20,000 as an incentive fee; Farmers did not challenge that award on appeal, so the validity of that award was not presented to either the Court of Appeals or this court. The Court of Appeals, however, denied Strawn’s motion requesting a $5,000 incentive award on appeal. Strawn, 233 Or App at 423-24 (so explaining). Strawn has petitioned this court for review of that ruling, and that petition has been held for this case. Incentive fees are intended to address a cost burden that class actions disproportionately impose on the class representative. Every class action must have one or more named representatives (see, e.g., FRCP 23(a); ORCP 32 A), and those representatives incur costs—monetary and otherwise—that the other members of the class do not. Those costs may include spending time learning about the case; being subject to the time, expense, and intrusiveness of discovery; and in some types of cases, such as employment discrimination actions, facing potential retaliation or loss of reputation. Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 UCLA L Rev 1303, 1305 (2006). “In some cases—consumer class actions, where the typical class-member recovery is low, being an example—a class member may even experience a net loss from acting as class champion because the small recoveries normally gained from the case are not enough to cover the increased costs of serving as the named plaintiff.” Id. at 1305-06. Cite as 353 Or 210 (2013) 243 Those costs may lead to what is sometimes termed a “free rider” problem, in which all the class members hope that someone else will assume the burden of serving as class representative. Id. at 1306. The costs also give the class representative an incentive to minimize his or her participation “because the named plaintiff gains only a fraction of the value added by his or her efforts on behalf of the class.” Id. To address those problems, courts across the nation have awarded incentive fees to class representatives in roughly 28 percent of all successful class actions. Id. at 1307. Generally, the awarded incentive fees represent only a small fraction of the sum recovered by the class—on average, 0.16 percent of the class recovery, with a median incentive fee of only 0.02 percent of the class recovery. Id. at 1308. “The average award per class representative was $15,992 and the median award per class representative was $4,357.” Id. Yet the award of incentive fees to the class representative is not without controversy. There are even problems justifying the award conceptually. Writing for the Seventh Circuit Court of Appeals, Judge Richard A. Posner has noted: “The basis for an award of fees in a common-fund case is, as we said, restitutionary, and the law of restitution (excepting salvage in admiralty) generally confines the right to restitution to professionals, such as doctors and lawyers. 2 George E. Palmer, The Law of Restitution, ch. 10 (1978). If you dive into a lake and save a drowning person, you are entitled to no fee. The named plaintiff is not a professional; he is, at most, a public-spirited member of the class.” Matter of Continental Illinois Securities Litigation, 962 F2d 566, 571 (7th Cir 1992). Judge Posner went on to explain, however, that courts generally had not followed that reasoning: “Yet the usual formulations of the common-fund doctrine describe the plaintiff rather than his lawyer as the person entitled to be compensated for the expenses he has incurred in conferring a benefit on the (other) beneficiaries of the common fund. The principal expense is the attorney’s fee, 244 Strawn v. Farmers Ins. Co. but there can be others, provided they are not personal. Since without a named plaintiff there can be no class action, such compensation as may be necessary to induce him to participate in the suit could be thought the equivalent of the lawyers’ nonlegal but essential case-specific expenses, such as long-distance phone calls, which are reimbursable.” Id. (citations omitted). In the context of approving settlement agreements, courts have often expressed concern that granting extra benefits to the class representatives may encourage improper behavior. As one court explained: “Although it is laudable that plaintiff undertook to prosecute this litigation, the court perceives no circumstances warranting a special award. A class representative is a fiduciary to the class. If class representatives expect routinely to receive special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard.” Weseley v. Spear, Leeds & Kellogg, 711 F Supp 713, 720 (EDNY 1989).28 Those concerns, however, are limited to the settlement context; they do not come into play when (as here) the parties litigated the case to a final decision. In this case, we are persuaded that Strawn should be awarded an incentive fee from the punitive damages award. The incentive fee that Strawn received from the trial court does not account for the risk he undertook on appeal. By serving as class representative through the appeal and review process, Strawn incurred a substantial risk of being required to pay Farmers’s costs, even if large portions of the 28 See also Holmes v. Continental Can Co., 706 F2d 1144, 1148 (11th Cir 1983) (“Settlements entailing disproportionately greater benefits to named parties are proper only when the totality of circumstances combine to dispel the cloud of collusion which such a settlement suggests.” (Internal quotation marks and citation omitted).); Shelton v. Pargo, Inc., 582 F2d 1298, 1315 (4th Cir 1978) (trial court evaluating pre-certification settlement of class action must focus on possibility of collusion between class representative and defendant; in doing so, trial court should “conduct a careful inquiry into the terms of the settlement, particularly the amount paid the plaintiff in purported compromise of his individual claim and the compensation to be received by plaintiff’s counsel, in order to insure that, under the guise of compromising the plaintiff’s individual claim, the parties have not compromised the class claim to the pecuniary advantage of the plaintiff and/or his attorney”). Cite as 353 Or 210 (2013) 245 award were upheld on appeal. See ORAP 13.05(3) (costs may be awarded to party who obtains substantial modification of judgment on appeal). Strawn has estimated—and our own review suggests—that those costs could have exceeded $20,000. That risk was not shared with the rest of the class; because Strawn is the only named plaintiff, he was the principal person who could be required to pay those costs. See ORCP 32 M(1)(b) (“If under an applicable provision of law a defendant    is entitled to attorney fees, costs, or disbursements from a plaintiff class, only representative parties and those members of the class who have appeared individually are liable for those amounts.”). At the same time, Strawn’s personal share of the judgment against Farmers was only $1,450.64, plus the $20,000 incentive fee approved by the trial court.29 In other words, Strawn put himself at distinct risk among the class of being subject to a cost award that could easily have eliminated his entire recovery in the action, and that could have been more than 30 times greater than his actual damages, even if he was largely successful in defending the verdict and the other class members mostly retained the benefit of the judgment.30 Under those circumstances, we conclude that it would be unjust for the class members to retain the benefit of Strawn’s defense of the judgment on appeal and review without compensating him for the personal risk that he undertook on their behalf. Accordingly, we award Strawn a $5,000 incentive fee, payable from the punitive damages award.