In early 2023, the District of Maine was the first district court to apply and interpret a recent and notable First Circuit ruling that should be top-of-mind for class action attorneys and litigants seeking approval of settlements for cases brought on behalf of multiple plaintiff classes and including class representative incentive awards.

That notable First Circuit class action decision from December 2022 was Murray v. Grocery Delivery E-Services USA, Inc., 55 F.4th 340 (1st Cir. 2022), in which the appellate court considered a challenge to the approval of a class action settlement under Federal Rule 23(e).

The First Circuit Scrutinizes Multi-Class Settlements and Deepens the Circuit-Court Divide on Incentive Awards

In Murray, with a 31-page opinion written by Judge Kayatta, the First Circuit vacated the district court’s approval of the proposed settlement and remanded for further proceedings. The case is particularly noteworthy for its determination that members of different classes required separate counsel to protect their divergent interests. Those divergent interests were created by different value claims provided under applicable statute providing for recovery that were not proportionally accounted for in a common fund settlement.

Instead, the settlement proposed in Murray would have provided equal compensation across all class members. This settlement structure created a conflict among the subclasses, which the First Circuit determined should have been represented by separate counsel.

The First Circuit also held that incentive payments to named class representatives were not prohibited if they fit within the bounds of Rule 23(e). This holding was consistent with the 9th Circuit’s recent ruling in September 2022 that deepened a circuit split on the question, with the 11th Circuit holding in 2020 that Supreme Court precedent barred such service awards for lead plaintiffs.

Murray raises significant and important layers of consideration for parties seeking approval of class action settlements involving multiple proposed classes.

District of Maine Requests Briefing on Murray to Assess a Proposed Class Action Settlement

The District of Maine had the distinction of being the first district court within the First Circuit to consider and apply Murray on a motion for final approval of a class settlement. In Purinton v. Moody’s Co-Worker Owned, Inc., 2:20-cv-00296-JAW (D. Me. Jan. 12, 2023), the parties jointly moved for final approval of a settlement that involved subclasses and included an incentive award for the three named plaintiffs that totaled a combined $45,000.

That settlement proposed to resolve an employment class action against a vehicle repair business. Plaintiff employees did not record 15-minute rest breaks as hours worked on their time sheets under a written employment policy maintained by Moody’s authorizing hourly employees to take two unpaid 15-minute breaks during the day.

Plaintiffs had filed a class action on behalf of non-exempt, hourly employees of Moody’s alleging unpaid wages and overtime. Following fact and expert discovery concerning liability and damages, and multiple mediation and settlement conferences, the parties reached a court-supervised proposed settlement of the putative class action claims for unpaid wages. The court-approved notice of the proposed settlement was sent to the 274 class members, none of whom objected and only one of whom submitted an opt-out request.

The court found the settlement was fair and reasonable based on the factors listed in Rule 23(e)(2). The district court also asked the parties to brief the First Circuit’s recent ruling in Murray and the parties submitted a joint brief explaining their view that the Murray decision did not limit, but rather confirmed, the court’s ability to approve the settlement. The court agreed with the parties’ analysis that the proposed settlement did not suffer from any of the fatal flaws presented in the recent First Circuit case because: “(1) no ‘definitive’ defense applies to the claims of either subclass; (2) the record shows that a large majority of the class members belong to both subclasses; and (3) counsel has articulated a ‘clear-cut’ explanation for the relative value of the claims.”

For these reasons, the district court determined the settlement “fairly apportions payment equitably among the class members.” The court therefore certified the class action under Rule 23(b)(3) for the purposes of settlement and granted the motion for final approval, including the incentive award to the class representatives.

Going forward, attorneys and litigants in the First Circuit should be careful to avoid the pitfalls presented in Murray and follow the example in Purinton that paved a smoother path to final settlement approval under Rule 23.