In Vassalle v. Clawson, the Sixth Circuit entered an unusual opinion reversing a district court order approving a $5.2 million class settlement.  Although generally appellate courts are deferential to district court orders approving class settlements, the Sixth Circuit felt compelled to unravel this particular settlement.  Largely motivating the Court’s decision was the fact that the named class representatives in a Fair Debt Collection Practices Act case all had their individual debts wiped out and received incentive payments of $2,000 each.  The rest of the class, by contrast, was to receive payments of about $10 each without any effect on their debt.  In the Court’s eyes, such a settlement gave preferential treatment to the named plaintiffs while only perfunctory relief to the unnamed class members.  The Court was careful not to find incentive payments to class representatives to be per se improper but it nevertheless found the disparity between the relief to the unnamed members and the named members sufficient to trigger reversal.

After invalidating the class settlement, the Court turned to the propriety of certification of a nationwide settlement class.  In this regard, the Court found that the named representatives were not adequate under Rule 23 nor was the class action vehicle superior.  The adequacy discussion largely tracked the Court’s earlier analysis based on the disparity between the named representatives and the unnamed class members.  The Court found that the class reps had no interest in vigorously prosecuting certain interests of the unnamed representatives, because they received complete relief.  In addition, the Court found the class representatives to have antagonistic interests to the unnamed members.  With respect to superiority, the Court found that the class members could have collected damages under state law that would exceed the value of the monetary relief under the settlement, and that factor militated against the class vehicle.  In addition to that point, the Court placed weight on the fact that the unnamed class members had an interest in individually controlling the defense of state court judgment against them.

The Court’s opinion leaves a fair amount of work for the district court to sort out on remand.  But this also provides a cautionary tale for cases of class settlement.  It is certainly not unusual for the named representatives to request some type of incentive award, and courts are generally deferential to that.  But this decision suggests that that deference has limits in that even awards that may not facially appear generous (such as $2000) can threaten to unravel the entire settlement.