United States Court of Appeals For the First Circuit

No. 21-1931

GRACE MURRAY; AMANDA ENGEN; STEPHEN BAUER; JEANNE TIPPETT; ROBIN TUBESING; NIKOLE SIMECEK; MICHELLE MCOSKER; JACQUELINE GROFF; HEATHER HALL, on behalf of themselves and all others similarly situated,

Plaintiffs, Appellees,

v.

GROCERY DELIVERY E-SERVICES USA INC., d/b/a HelloFresh

Defendant, Appellee,

SARAH MCDONALD,

Objector, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Lynch, Kayatta, and Gelpí, Circuit Judges.

Eric Alan Isaacson, with whom C. Benjamin Nutley was on brief, for appellant. Stacey Slaughter, with whom Brenda L. Joly, Marcus A. Guith, Robins Kaplan LLP, Anthony I. Paronich, Samuel J. Strauss, and Turke & Strauss LLP were on brief, for appellees Grace Murray, Amanda Engen, Stephen Bauer, Jeanne Tippett, Robin Tubesing, Nikole Simecek, Michelle Mcosker, Jacqueline Groff, and Heather Hall. Shannon Z. Petersen, with whom Karin Dougan Vogel and Sheppard, Mullin, Richter & Hampton LLP were on brief, for appellee Grocery Delivery E-Services USA Inc.

December 16, 2022 KAYATTA, Circuit Judge. We consider in this case a

challenge to the approval of a class-action settlement under

Federal Rule of Civil Procedure 23(e). For reasons we will

explain, we vacate the approval because the absence of separate

settlement counsel for distinct groups of class members makes it

too difficult to determine whether the settlement treated class

members equitably. We also hold that incentive payments to named

class representatives are not prohibited as long as they fit within

the bounds of Rule 23(e).

I.

HelloFresh is a subscription service that ships a recipe

and ingredients for a meal to your doorstep. In 2015, HelloFresh

initiated a so-called "win back" marketing campaign, in which it

used telemarketing contractors to contact former subscribers in an

attempt to win them back as customers. Plaintiffs in this class

action allege that this marketing campaign violated the Telephone

Consumer Protection Act (TCPA) in three different ways: (1) by

using an automated dialer to place marketing calls to some people,

(b)(1)(A); (2) by calling some people listed on the

National Do-Not-Call (NDNC) registry,

(c)(5);

(c)(2); and (3) by calling some people who had

requested that HelloFresh not call them (and therefore were

required to be on HelloFresh's federally mandated internal do-not-

call (IDNC) list),

(c)(5);

(d).

- 3 - We will call those three claims, respectively, the Auto-Dialer

claim, the NDNC claim, and the IDNC claim.

After litigation commenced, HelloFresh entered mediated

settlement discussions with the named plaintiffs. In the

settlement negotiations, plaintiffs' counsel acted jointly on

behalf of all prospective class members possessing one or more of

the three potential claims arising out of HelloFresh's "win back"

campaign. The parties eventually arrived at a proposed settlement

conditioned on court approval. The district court preliminarily

approved the settlement, pursuant to which HelloFresh agreed to

pay $14 million to a settlement class. For purposes of the

settlement only, see Fed. R. Civ. P. 23(e), the district court

certified a single class, with no subclasses, consisting of about

4.8 million customers and former customers defined as follows:

All persons in the United States from September 5, 2015 to December 31, 2019 to whom HelloFresh, either directly or by a vendor of HelloFresh, (a) placed one or more calls on their cellphones via a dialing platform; (b) placed at least two telemarketing calls during any 12-month period where their phone numbers appeared on the NDNCR for at least 31 days before the calls; and/or (c) placed one or more calls after registering the landline, wireless, cell, or mobile telephone number on HelloFresh's Internal Do-Not-Call List.

Email notice to 4.4 million class members and post card

notice to 400,000 class members ensued. Approximately 100,000

class members submitted valid claims, while 270 opted out. Under

- 4 - the settlement as preliminarily approved, each class member who

submitted a valid claim would have received about $89 (net of

proposed counsel fees and expenses).

Three individuals filed objections. One contended that

HelloFresh should pay nothing. Another asserted that class members

were not being paid enough. The third objector -- Sarah McDonald,

appellant here -- filed the most substantial objections. McDonald

explained why she viewed the $14 million payout as too small

compared to potential statutory damages of over $2.4 billion. She

argued that no single lawyer or group of lawyers could adequately

negotiate and recommend a settlement jointly on behalf of three

subgroups having materially different claims. As a result, she

contended, the settlement sold out class members who were on the

NDNC registry -- whose claims she says are the most valuable -- by

placing them on equal footing with members in the other two groups,

whose claims she says are virtually worthless. McDonald also

objected to the use of incentive awards for the named plaintiffs.

Finally, she contended that class counsel were getting too much of

the pie, that the settlement should add restrictions on

HelloFresh's future use of phone calls, and that class counsel

failed to support their claim for litigation expenses.

On the first day of the final approval hearing on May 11,

2021, the district court gave McDonald's counsel and plaintiffs'

counsel time to discuss each of McDonald's objections. After

- 5 - argument, the court stated that the objections were "most

respectfully taken into account" and that it had not yet determined

how they would "work their way into the Court's final order." The

court independently asked counsel to brief whether the settlement

protected the class from being subject to "an anticonsumer

mandatory arbitration clause."

At a follow-up hearing on June 9, 2021, the court

rejected the settlement because of the arbitration issue. It

explained that it would approve the settlement if HelloFresh would

not require the arbitration of any future claim by any class

member, to ensure that "HelloFresh will not, in the future, use a

consumer mandatory arbitration clause as a cover." The court did

not express any concerns about the amount of the settlement fund.

The parties then submitted an amended settlement

agreement that addressed the court's arbitration concerns. Under

the amendment, HelloFresh agreed that it would not seek to compel

arbitration of future TCPA claims that class members might bring.

On the final day of the hearing, September 29, 2021, the district

court began by stating that each class member submitting a claim

should receive more of the settlement award -- $100 rather than

$89. This was in line with one of McDonald's concerns. The

district court explained that this change would reduce class

counsel's share from about 33% to about 25.5%. After HelloFresh

and class counsel agreed to the adjustment, the district court

- 6 - approved the settlement as "fair, adequate, and reasonable."

Although the court explained that it had "noted and indeed in

slight measure t[ook] into account [the] objections," it did not

provide detailed reasoning for rejecting most of the objections.

The court decided to "adopt [the settlement agreement] with a

payout to each claimant of $100 and the attorneys' fees," and it

entered an order and judgment on October 15, 2021, certifying the

proposed class for purposes of a settlement and approving the

proposed settlement.

McDonald timely appealed the approval of the settlement.

II.

The "approval or rejection of a class-action settlement

is entrusted to the district court's informed discretion" and is

accordingly reviewed "for abuse of that discretion -- a

multifaceted standard under which we scrutinize embedded legal

issues de novo and factual findings for clear error." Cohen v.

Brown Univ.,

(1st Cir. 2021) (citing Robinson v.

Nat'l Student Clearinghouse,

(1st Cir. 2021)).

McDonald's principal argument below and on appeal rests

on the contention that persons like her who signed up on the NDNC

registry had materially stronger and more valuable claims than

other class members without NDNC claims. Therefore, she reasons,

it was inadequate for these groups to be represented by the same

counsel in determining whether and to what extent their shares of

- 7 - the settlement proceeds should differ. And she contends that this

unfair process led to an inequitable result in which all class

members received equal shares, even though some had more valuable

claims. McDonald also raises a separate argument that the

inclusion of incentive awards for the class representatives

rendered the settlement defective. We discuss these arguments in

turn.

A.

We analyze adequacy of representation through the lens

of Rule 23(e) for the purposes of this appeal, although much, if

not all, of our analysis would apply to Rule 23(a)'s adequate

representation requirement in the context of class certification

for settlement. See Cohen,

(stating that, because

Rule 23(e)(2)(A) "overlaps with other requirements imposed by

Rule 23, we look to case law glossing the stipulation that 'the

representative parties will fairly and adequately protect the

interests of the class'" in Rule 23(a)(4) (internal citation

omitted)).

Rule 23(e) requires district courts to consider certain

factors in determining whether a proposed settlement is "fair,

reasonable, and adequate." Fed. R. Civ. P. 23(e)(2). These

factors include procedural checks: that "the class representatives

and class counsel have adequately represented the class" and that

"the proposal was negotiated at arm's length." Fed. R. Civ.

- 8 - P. 23(e)(2)(A)–(B). They also include substantive checks: that

"the relief provided for the class is adequate" and that "the

proposal treats class members equitably relative to each other."

Fed. R. Civ. P. 23(e)(2)(C)–(D); see Cohen, 16 F.4th at 943–44

(noting that "[t]he Advisory Committee explained that the first

two factors are 'procedural' in nature," while "the latter two

factors guide 'a "substantive" review'").

We train our attention in the first instance on the

procedural checks because they provide assurance that the

settlement resulted from a process likely to achieve a fair

outcome, thereby providing "an important foundation for

scrutinizing the substance of the proposed settlement." Fed. R.

Civ. P. 23(e)(2)(A)–(B) advisory committee's note to 2018

amendments. In particular, the adequate representation inquiry

"'serves to uncover conflicts of interest between named parties

and the class they seek to represent.' Such conflicts undermine

the indispensable 'structural assurance of fair and adequate

representation for the diverse groups and individuals affected' by

the class-action litigation or settlement." Cohen,

(quoting Amchem Prods., Inc. v. Windsor,

(1997)).

In the class settlement context, conflicts sometimes

arise because there is a common fund -- i.e., an aggregate proposed

settlement amount covering all claims -- that must be allocated

- 9 - among class members. In these zero-sum circumstances, a benefit

to one group of class members (in the form of a larger portion of

the common fund) comes at the detriment of the other class members

(who receive a smaller portion as a result). This presents a

concern that the class representatives or class counsel may "have

sold out some of the class members" by allocating some of their

fair share to other class members. 4 William B. Rubenstein,

Newberg and Rubenstein on Class Actions § 13:56 (6th ed., June

2022 update). Therefore, adequate representation in the

settlement context sometimes requires separate representation for

groups of class members with differing interests.

Not all conflicts require separate representation,

however. "The standard . . . is not 'perfect symmetry of interest'

among the class." Cohen,

(quoting Matamoros v.

Starbucks Corp.,

(1st Cir. 2012)). Rather,

because "[t]he perfect is sometimes the enemy of the good," only

those conflicts that "are fundamental to the suit and . . . go to

the heart of the litigation" breach the adequacy-of-representation

standard.

at 945–46 (quoting Matamoros,

).

"Put another way, . . . the intra-class conflict must be so

substantial as to overbalance the common interests of the class

members as a whole." Matamoros,

. On the other

hand, "intra-class conflict is unacceptable when it presents an

- 10 - actual and substantial risk of skewing available relief in favor

of some subset of class members." Cohen,

.

Whether potential differences in claim value give rise

to conflicts requiring separate representation turns on the nature

of the differences between the claims. Class actions in which all

class members have materially common claims are unlikely to require

separate representation. See, e.g., Hanlon v. Chrysler Corp.,

(9th Cir. 1998). In such cases, any differences

in claim value would likely be subject to objective calculation,

or so obviously miniscule that the transactional costs of debating

them would outweigh any resulting incremental increases in

fairness. Therefore, such differences would be unlikely to

"overbalance the common interests of the class members as a whole"

in obtaining the largest settlement possible without running up

transaction costs. Matamoros,

.

By contrast, if "easily identifiable categories of

claimants," Ortiz v. Fibreboard Corp.,

(1999),

have significantly different claims, or if their claims are subject

to significantly different defenses, the lack of separate

representation "presents an actual and substantial risk of skewing

available relief in favor of some subset of class members," Cohen,

. Significant differences in contested claims or

defenses have the potential to cause significant differences in

claim value, which should be reflected in any fair settlement.

- 11 - See, e.g., Principles of the L. of Aggregate Litig. § 3.05 cmt. b

(Am. L. Inst. 2010) ("[A]n agreement that gives the same monetary

remedy to all members of the class, despite significant differences

in the nature of their claims . . ., may not be fair and

reasonable."). Therefore, any such significant differences should

factor into negotiations regarding allocation of the settlement

among groups of class members. And if each group of similarly

situated class members participates in those negotiations through

counsel owing allegiance only to that group, the court has some

structural assurance that a negotiated agreement accounts for any

differences between the claims.

That structural assurance is absent when a single lawyer

represents groups with significantly different claims in the

context of allocating a lump-sum settlement. It is unreasonable

to expect such a lawyer to properly advocate for each such group

because giving one group a larger piece of the pie necessarily

reduces the amount available to a different group. Id. § 2.07

cmt. d ("Structural conflicts also might arise from easily

identifiable differences in the claims to be aggregated, such that

a common lawyer could not reasonably advance the interests of all

claimants."). Such a lawyer would be limited in advancing the

best arguments in favor of one claim relative to another because

of the lawyer's duties to class members holding the latter claim.

Cf. Model Rules of Pro. Conduct r. 1.7(a)(2) (Am. Bar Ass'n 1983)

- 12 - (stating that a conflict of interest exists if "there is a

significant risk that the representation of one or more clients

will be materially limited by the lawyer's responsibilities to

another client"). Therefore, if groups of class members with

significantly different claims do not have separate representation

in determining how the settlement should be split, the court lacks

structural assurance that the settlement treats each group fairly.

See In re Literary Works in Elec. Databases Copyright Litig.,

(2d Cir. 2011) ("[H]ow can the value of any subgroup

of claims be properly assessed without independent counsel

pressing its most compelling case?").

For example, in Literary Works, the Second Circuit

considered a settlement of $18 million divided among class members

holding three different categories of claims under the Copyright

Act.

. Depending on the status and timing of

registration of the works at issue, the claims were (A) eligible

for statutory damages and attorneys' fees; (B) eligible only for

actual damages and profits of the infringer; or (C) potentially

eligible for actual damages and profits of the infringer (depending

on whether the works were registered).

The Second Circuit

held that this breakdown required separately represented

subclasses because "[t]he selling out of one category of claim for

another [was] not improbable."

. Accordingly, "[o]nly

the creation of subclasses, and the advocacy of an attorney

- 13 - representing each subclass, [could] ensure that the interests of

that particular subgroup [were] in fact adequately represented."

Superficially, it might seem that all class members in

this case share a common claim: they all allege that a

telemarketing campaign conducted by HelloFresh violated the TCPA,

. The TCPA, however, does not create a single cause

of action. Rather, it authorizes suit and recovery for a variety

of quite different acts.

For example, NDNC claims are based on one prong of the

TCPA and its implementing regulations applying only to telephone

calls made to residential telephone subscribers who are on a

national do-not-call list.

(c)(5);

(c)(2). The elements of such a claim are: (1) a

residential telephone subscriber (2) received more than one

telephonic solicitation (3) by or on behalf of the same entity

(4) during a twelve-month period (5) to a number that the

subscriber registered on the NDNC registry.

(c)(5);

(c)(2). By contrast, an Auto-Dialer claim

arises under a different section of the TCPA, and only if: (1) at

least one call is made (2) using an automatic telephone dialing

system (3) without consent of the called party and not for

emergency purposes (4) to a number assigned to certain types of

telephone services.

(b)(1)(A)(iii).

- 14 - Yet a third type of claim, the IDNC claim, arises if

(1) a residential telephone subscriber (2) receives more than one

call for telemarketing purposes (3) by or on behalf of the same

entity (4) during a twelve-month period (5) within five years of

asking the entity not to call them.

(c)(5);

(d). While the elements of this claim are similar

albeit not identical to those of the NDNC claim, there is an

"established business relationship" defense to NDNC claims that

does not apply to IDNC claims.

(f)(5), (15).

Each of these three types of claims is represented among

the class members, and some class members have multiple types of

claims. In addition, HelloFresh has raised a smattering of

defenses to these claims. Two of its defenses apply to all three

categories of claims: that HelloFresh is not liable because the

calls were made by third-party vendors, and that an arbitration

clause and a class-action waiver in HelloFresh's terms and

conditions preclude class certification. The rest apply to fewer

than all three categories. HelloFresh's argument that the machine

that made the calls was not an "automatic telephone dialing system"

applies only to the Auto-Dialer claims. Its argument that its

calls were not "telephone solicitations" because it had an

"established business relationship" with its former customers, see

(f)(5), (15), applies only to the NDNC claims.

Its argument that cell phone users are not "residential telephone

- 15 - subscribers" applies to the NDNC and IDNC claims. Its arguments

that proving the NDNC and IDNC claims requires individualized,

fact-intensive inquiries unsuitable for class certification apply,

respectively, to the NDNC and IDNC claims. Its argument that it

took required steps to ensure compliance with the NDNC and IDNC

rules and that any calls in violation of those rules were in error

applies to the NDNC and IDNC claims, under different regulatory

provisions. See

(c)(2)(i), (d).

Moreover, some of those defenses apply differently (or

with different force) even among class members within each category

of claim. For example, as HelloFresh acknowledges, its arbitration

and class-action waiver defense arguably applies more strongly to

class members who signed up for HelloFresh after it added those

provisions to its terms and conditions in February 2017 than to

those who signed up before. As another example, HelloFresh's

contention that cell phone users do not qualify as "residential

telephone subscribers" applies only to class members who received

calls on cell phones -- not those who received calls on landlines.

As a third example, HelloFresh's "established business

relationship" argument does not apply to NDNC class members who

terminated their subscriptions at least eighteen months before

receiving the calls.

(f)(5).

Thus, the district court was confronted with a matrix of

claims having different elements and confronting different arrays

- 16 - of defenses. And at least some of these differences are

significant in the sense that they go to "the heart of the

litigation." Cohen,

(quoting Matamoros,

). Simply put, some subgroups of the class could easily

lose even as others win.

Of course, sometimes differences in elements or defenses

that appear significant on their face may be rendered insignificant

in the context of a particular set of facts. For example, class

members with an NDNC claim must prove they are on the NDNC list,

while class members with an IDNC claim must prove they are on

HelloFresh's internal do-not-call list. Although these are

different elements, they may not be significant enough to require

separate representation given the lack of any evidence that

HelloFresh failed to honor its obligation to keep an internal list

and the possibility that it would be precluded from gaining any

litigation advantage by failing to do so. As a second example,

HelloFresh's argument that cell phone users are not "residential

telephone subscribers" runs headlong into the FCC's express

statements to the contrary. 18 FCC Rcd. 14014, 14039–40 (2003);

see, e.g., Hodgin v. Parker Waichman LLP, No. 3:14-CV-733,

, at *3 (W.D. Ky. Sept. 30, 2015) ("[T]he FCC has been

clear in interpreting 'residential subscriber' to include cell

phones."). So we do not hold that it would be an abuse of

- 17 - discretion to find that cell phone users and landline users could

be adequately represented by the same representatives and counsel.

On the other hand, some of the differences are, even in

context, too significant to leave the equitable apportionment of

a common fund to a court's discretion uninformed by arm's-length

negotiation between separately represented groups. Most glaring

is the example provided by the Auto-Dialer claim with its unique

element requiring plaintiffs to prove that an "automatic telephone

dialing system" was used. It seems clear that the Auto-Dialer

claims are incompatible with the Supreme Court's opinion in

Facebook, Inc. v. Duguid,

(2021), because the

devices used to make HelloFresh's calls did not "have the capacity

either to store a telephone number using a random or sequential

generator or to produce a telephone number using a random or

sequential number generator,"

. McDonald argues as

much; HelloFresh concedes that "McDonald's position is consistent

with HelloFresh's"; and plaintiffs' only rejoinder is that perhaps

HelloFresh's contractors did use random or sequential number

generators. But the record is devoid of support for this

speculation, despite plaintiffs' assertion that they have a "clear

view of the strength and weaknesses" of their claims after engaging

"in significant discovery" that produced "over 20,000 pages of

documents." So we think it hardly clear-cut that counsel

- 18 - representing class members with non-Auto Dialer claims would not

argue that those persons should receive more of the $14 million.

Plaintiffs nevertheless contend that Duguid is largely

irrelevant to our inquiry because the parties in this case agreed

on the class settlement before Duguid was decided. Hence,

plaintiffs argue, one could not have relied on Duguid as a basis

for thinking that the Auto-Dialer claims had no settlement value.

But the unanimous result in Duguid was hardly a surprise. The

Supreme Court granted certiorari and held a reasonably

foreshadowing oral argument long before settlement negotiations in

this case commenced. Facebook, Inc. v. Duguid,

(2020) (granting certiorari on July 9, 2020); Transcript of Oral

Argument, Facebook, Inc. v. Duguid,

(2021) (No. 19-

511) (oral argument held on December 8, 2020). In addition, the

timeline of events suggests that the actual decision in Duguid had

very little, if any, impact on HelloFresh's valuation of the

claims. Before Duguid was decided, HelloFresh was willing to pay

$14 million to settle a basket of claims containing many Auto-

Dialer claims. After Duguid was decided, the court's initial

refusal to approve the settlement without a further concession by

HelloFresh gave the company a chance to walk away from the deal or

renegotiate a lower sum. Yet it was still willing to pay

$14 million to settle the same basket of claims. That suggests

- 19 - that HelloFresh's valuation of the Auto-Dialer claims was roughly

constant before and after the Duguid decision came down.

Other significant differences among class members result

from the way the class is defined. As HelloFresh points out, there

is no viable NDNC claim for individuals with whom HelloFresh had

an "established business relationship" at the time of the calls

-- i.e., individuals who made a "purchase or transaction" with

HelloFresh in the eighteen months preceding the calls and did not

ask HelloFresh not to call them.

(f)(5), (15).

This is especially pertinent in the context of this case, which

centers on HelloFresh's campaign to "win back" former subscribers.

It seems obvious that the NDNC claims of class members who received

HelloFresh's calls within eighteen months after terminating their

subscriptions (if those claims exist at all) are significantly

weaker than the NDNC claims of those who terminated their

subscriptions at least eighteen months before receiving the calls.

But the class is defined to include both of these groups, and the

settlement treats them no differently.

Similarly, the TCPA requires that an individual must

have received "more than one telephone call within any 12-month

period" to bring an IDNC claim.

(c)(5). But the

IDNC group comprises individuals who received "one or more calls,"

and the settlement does not distinguish between those who received

- 20 - only one call and those who received multiple calls, despite the

clear difference in claim value.

These significant differences between the claims of the

various class members land this case quite far from Cohen, which

involved a settlement regarding the gender ratios of Brown

University's athletes. In Cohen, we rejected objectors' arguments

that an intra-class conflict between women's sports teams -- some

of which had been demoted from varsity to club status, and others

of which had retained varsity status -- required separate

representation.

. Unlike here, the class members

possessed the same claim with the same elements (the ratio of

women's varsity athletes as compared to men's athletes was low

enough to violate Title IX). And, unlike here, compromising the

remedy that could result from successful litigation (a requirement

that Brown adjust the ratio of women's to men's varsity athletes)

posed no significant potential for conflict. The most significant

potential conflict among class members concerned which teams Brown

might elevate or demote -- a decision which no class members could

claim to be able to dictate, and which was not within the purview

of the settlement.

("Under the Joint Agreement, every varsity

team, regardless of gender, played at Brown's pleasure . . . .").

So, for that reason, we found that "[t]he record simply does not

suggest any reason to believe that the class representatives'

negotiations were apt to be skewed in favor of reinstating certain

- 21 - teams by jettisoning others."

By contrast, here the class

members possess claims having significantly different elements and

facing significantly different defenses. And each group has a

legal basis for demanding more of the lump sum -- an issue squarely

posed by the proposed settlement -- because each group has a claim

for monetary damages (at least in theory) against HelloFresh.

At oral argument, counsel for HelloFresh contended that

because the groups of class members "overlapped," their interests

were more or less the same. Imagine, for example, that every class

member with an Auto-Dialer claim also had an NDNC claim. In that

scenario, the alleged worthlessness of the Auto-Dialer claims in

light of Duguid would not be a good reason to depart from the

common per-person payment of $100 called for by the proposed

settlement. So we asked counsel to submit letters pointing us to

this overlap. Letters were filed, but none supported the claim of

any relevant overlap. They purportedly showed that eight of the

nine named plaintiffs had all three types of claims. But they

provided no evidence that this ratio extended to the rest of the

class. HelloFresh also pointed out that less than 10% of class

members with an NDNC claim had landlines, suggesting that over 90%

of those class members used cell phones and also have an Auto-

Dialer claim. But this is the wrong type of overlap; the relevant

inquiry is how many class members with an (allegedly worthless)

- 22 - Auto-Dialer claim also have an (allegedly more valuable) NDNC

claim, not the other way around.

HelloFresh and plaintiffs finally contend that because

each of the three types of claims faces significant obstacles,

their values are roughly equal. That is, they argue that the

defenses HelloFresh raised to the NDNC and IDNC claims are on par

with the Duguid defense to the Auto-Dialer claims. But we do not

think HelloFresh's other defenses are as definitive as the Duguid

defense, which essentially extinguishes the value of the Auto-

Dialer claims. Plus, HelloFresh's continued willingness to pay

$14 million to settle the entire bundle of claims runs counter to

the notion that they are all as weak as the Auto-Dialer claims

appear to be on the record as it now stands.

In any event, plaintiffs' and HelloFresh's attempts to

convince us that the significantly different claims nevertheless

have the same value largely miss the point. In theory, in the

absence of arm's-length negotiations by separately counseled

representatives, a district court could try on its own to value

each category of the significantly different claims as discounted

by the risks posed by the significantly different defenses

applicable to each claim. This is what plaintiffs and HelloFresh

ask us to do. But we do not think that Rule 23 is intended to

work in this manner -- at least beyond requiring the district court

to determine whether it is clear-cut that the differences would

- 23 - likely have no material effect on settlement value. As described

above, Rule 23(e) imposes procedural requirements, including that

the settlement was the product of "arm's length" negotiation by

individuals "adequately represent[ing] the class," Fed. R. Civ.

P. 23(e)(2)(A)–(B), that are designed to provide "structural

assurance of fair and adequate representation" before the

settlement reaches the court for approval. Cohen,

(quoting Amchem,

). And this "structural assurance"

includes negotiations among counsel for each group of class members

with materially differing interests as to how the proposed

settlement amount should be divided among those groups -- including

negotiations regarding the impact of significant differences on

the relative values of the claims. Said differently, ensuring

that claims marked by significantly different elements or defenses

receive appropriate relative weight in a class settlement should

be done in the first instance through negotiations between

counseled representatives of the different groups of class

members, not by the district court, unless the appropriate relative

weight is clear-cut. See Literary Works,

("We

know that Category C claims are worth less than the registered

claims, but not by how much. Nor can we know this, in the absence

of independent representation."). This procedural safeguard

"serve[s] to inhibit appraisals of the chancellor's foot kind

-- class certifications dependent upon the court's gestalt

- 24 - judgment or overarching impression of the settlement's fairness."

Amchem,

.

To summarize, we find that the class as certified

consists of class members with claims having significantly

different elements and facing some very different defenses.

Furthermore, we cannot say that the relative values of all of those

different claims are sufficiently clear-cut so as to enable a court

to approve a proposed apportionment of a common fund among the

claimants in the absence of any informed arm's-length negotiation.

Given these findings, the district court lacked the requisite basis

for certifying the settlement class and approving the allocation

of the $14 million among class members as fair, reasonable, and

adequate.1

None of this is to say that a settlement like the

proposed settlement cannot be approved. Arms-length negotiators

might assess the differences in claim value as too insignificant

to warrant the delay, expenses, and risk of foregoing a global

settlement. Such a conclusion put forward collectively by counsel

for each distinct group would provide a structural assurance of

adequacy and fairness that is now missing. And the district court

1 We do not address in this opinion a subject not raised by the parties -- the extent to which a class or classes may be certified for litigation rather than settlement. Nor do we opine on the precise number of subclasses that would need to be represented in concluding a lump-sum settlement of the present multi-claim class.

- 25 - would have a significantly more developed record upon which it can

exercise its discretion under Rule 23(e).

B.

McDonald also challenges the incentive awards the

settlement provides for the named plaintiffs. The district court

approved awards between $2,000 and $10,000 apiece for the named

plaintiffs. McDonald argues that the Supreme Court banned such

payments in two 19th-century decisions and that, in this case, the

incentive awards make the named plaintiffs inadequate

representatives of the class. Neither contention is availing.

Because this issue will undoubtedly arise in the course of any

attempt to negotiate a new settlement on remand, we address it

now.

1.

We begin by considering whether the Supreme Court has

already rejected incentive awards for named plaintiffs in Rule 23

class actions. It has not.

The Supreme Court did hold, well before the advent of

Rule 23, that a court cannot allow a "creditor, suing on behalf of

himself and other creditors" to recover "personal services and

private expenses" out of a common fund. Internal Imp. Fund Trs.

v. Greenough,

(1881); see also Cent. R.R. &

Banking Co. v. Pettus,

(1885). McDonald argues

that we should apply these late-19th-century cases regarding

- 26 - creditor lawsuits over mismanagement of a fund to modern-day class

actions under Rule 23, thereby categorically prohibiting incentive

awards for class representatives.

McDonald faces an uphill battle. Courts have blessed

incentive payments for named plaintiffs in class actions for nearly

a half century, despite Greenough and Pettus. See 5 Rubenstein,

supra, at §§ 17:2, 17:4 (describing the history of modern incentive

awards and explaining that Greenough "seems distant in both time

and fact"). Two of our sister circuits have distinguished

Greenough and declined to categorically prohibit incentive

payments. Melito v. Experian Mktg. Sols., Inc.,

(2d Cir. 2019); In re Cont'l Ill. Sec. Litig.,

, 571–

72 (7th Cir. 1992).

The Eleventh Circuit (in somewhat of an about-face) did

recently bite on the Greenough argument. Johnson v. NPAS Sols.,

LLC,

(11th Cir. 2020); but see Muransky v.

Godiva Chocolatier, Inc.,

(11th Cir. 2019),

reh'g granted by, vacated by,

(11th Cir. 2019)

(rejecting the same argument). It stated that class-action

incentive awards were "roughly analogous" to the payments for

personal services in Greenough. Johnson,

.

We do not think the situations sufficiently analogous.

In Greenough, a creditor's lawsuit against trustees in charge of

managing a common fund, the Supreme Court's concern was that "[i]t

- 27 - would present too great a temptation to parties to intermeddle in

the management of valuable property or funds in which they have

only the interest of creditors, and that perhaps only to a small

amount, if they could calculate upon the allowance of a salary for

their time and of having all their private expenses paid."

Greenough,

. Said differently, the Court was

concerned that such awards would induce creditors to interfere

with the management of funds that had already been entrusted to

trustees charged with fiduciary duties to act in the best interests

of the creditors.

That is a different rationale than the one McDonald

attributes to Greenough: "ensuring that named plaintiffs will

actually represent the interests of the class in whose name they

sue." Greenough was concerned with a creditor's relationship vis-

à-vis the trustees, not the other creditors. Moreover, Rule 23(e)

ensures that incentive payments will not result in unfair

settlements by requiring that any settlement be "fair, reasonable,

and adequate," taking into account whether "the class

representatives . . . have adequately represented the class" and

whether "the proposal treats class members equitably relative to

each other." Fed. R. Civ. P. 23(e)(2); see Johnson, 975 F.3d at

1266–67 (Martin, J., dissenting). And courts routinely enforce

this requirement with regard to incentive payments specifically.

See, e.g., Continental Illinois, 962 F.2d at 571–72 (upholding

- 28 - denial of $10,000 award to named plaintiff); Schneider v. Chipotle

Mexican Grill, Inc.,

, 602–03 (N.D. Cal. 2020)

(denying request for incentive awards under circumstances of

case); In re Puerto Rican Cabotage Antitrust Litig.,

(D.P.R. 2011) (reducing incentive award from amount

requested to reflect named plaintiffs' actual participation).

In addition, whereas in Greenough the Court wished to

prevent "intermeddl[ing]" with fund management, Rule 23 is

designed to encourage claimants with small claims to vindicate

their rights and hold unlawful behavior to account. See Smilow v.

Sw. Bell Mobile Sys., Inc.,

(1st Cir. 2003) ("The

core purpose of Rule 23(b)(3) is to vindicate the claims of

consumers and other groups of people whose individual claims would

be too small to warrant litigation."); Bais Yaakov of Spring Valley

v. ACT, Inc.,

(1st Cir. 2015) (noting that, through

class actions, "Congress has chosen to empower citizens as private

attorneys general to pursue claims for well-defined statutory

damages"). But Rule 23 class actions still require named

plaintiffs to bear the brunt of litigation (document collection,

depositions, trial testimony, etc.), which is a burden that could

guarantee a net loss for the named plaintiffs unless somehow fairly

shifted to those whose interests they advance. See Continental

Illinois,

. In this important respect, incentive

payments remove an impediment to bringing meritorious class

- 29 - actions and fit snugly into the requirement of Rule 23(e)(2)(D)

that the settlement "treats class members equitably relative to

each other."

Accordingly, we choose to follow the collective wisdom

of courts over the past several decades that have permitted these

sorts of incentive payments, rather than create a categorical rule

that refuses to consider the facts of each case.

2.

McDonald also claims that the presence of incentive

payments in this case created a conflict of interest that rendered

the named plaintiffs inadequate representatives of the class. This

contention is unavailing. McDonald presents little, if any, case-

specific analysis for concluding that the form or substance of the

incentive payments called for by the proposed settlement prevented

the named plaintiffs from adequately representing the class.

Instead, her argument relies primarily on a presumption that

incentive awards inherently cause class representatives to sell

out the class. For all the reasons already described, we reject

McDonald's contention that incentive payments are categorically

improper. And we otherwise see no basis in the record to conclude

that the district court abused its discretion in entertaining the

approval of incentive payments in this case.

We also note that McDonald's argument might be said to

apply similarly to attorneys' fees, yet McDonald does not suggest

- 30 - that the payment of a fee to class counsel out of the settlement

proceeds raises a conflict that categorically bars such payments.

In either instance, a categorical prohibition on payments to those

who make a class recovery possible would likely work to the

disadvantage of those who might have otherwise benefited by a class

recovery.

III.

For the foregoing reasons, we vacate the district

court's approval of the proposed settlement and remand for further

proceedings consistent with this opinion. Costs are taxed in favor

of the appellant Sarah McDonald and against appellees, jointly and

severally.

- 31 -