Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-02591/USCOURTS-ca7-14-02591-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

IN RE: SOUTHWEST AIRLINES VOUCHER LITIGATION

ADAM J. LEVITT and HERBERT C. MALONE, 

individually and on behalf of all others 

similarly situated, 

Plaintiffs-Appellees/Cross-Appellants,

v. 

SOUTHWEST AIRLINES COMPANY, 

Defendant-Appellee/Cross-Appellee. 

APPEALS OF: 

GREGORY MARKOW and 

ALISON PAUL, 

Objectors-Appellants/Cross-Appellees. 

____________________ 

Appeals from the United States District Court for the 

Northern District of Illinois, Eastern Division. 

No. 11-CV-8176 — Matthew F. Kennelly, Judge. 

____________________ 

ARGUED FEBRUARY 11, 2015 — DECIDED AUGUST 20, 2015 

Case: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
2 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

____________________ 

Before FLAUM, WILLIAMS, and HAMILTON, Circuit Judges. 

HAMILTON, Circuit Judge. These appeals present several 

issues concerning class action litigation and settlements. The 

most general is whether the “coupon settlement” provisions 

of the Class Action Fairness Act, 28 U.S.C. § 1712, allowed 

the district court to award class counsel an attorney fee 

based on the lodestar method rather than the value of the 

redeemed coupons. Our answer to that question is yes. 

In August 2010, Southwest Airlines stopped honoring 

certain in-flight drink vouchers issued to customers who had 

bought “Business Select” fares. Southwest customers Adam 

Levitt and Herbert Malone filed this suit against Southwest 

seeking to represent a class of similarly situated plaintiffs. 

The parties reached a settlement to provide replacement 

drink vouchers to all members of the class, as well as injunctive relief constraining how Southwest could issue vouchers 

in the future. The parties later negotiated an agreement on 

attorney fees for class counsel. 

The district court certified the class and approved the 

class relief components of the settlement but awarded class 

counsel a smaller fee than they had requested. Class members Gregory Markow and Alison Paul objected to the settlement and now appeal its approval. They argue both that 

the district court erred by using the lodestar method and 

that the settlement is unfair to the class because it is too generous to class counsel. Class counsel filed a cross-appeal 

seeking a larger fee. 

We affirm. While the fee aspects of this class settlement 

include two troublesome features—“clear-sailing” and 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 3

“kicker” clauses, both of which are explained and discussed 

below—the dominant feature of the settlement is that it provides class members with essentially complete relief. That 

degree of success on behalf of the class satisfied the district 

court that the class was not short-changed for the benefit of 

class counsel, and it satisfies us as well. 

In one respect, however, we modify the terms of the settlement agreement. The financial and professional relationship between lead class counsel and one of the lead plaintiffs 

created a potential conflict of interest for both given their fiduciary duties to the class. This conflict should have been 

disclosed to the district court but was not. Where another 

lead plaintiff had no conflict and the class received essentially complete relief, however, we see no basis for decertifying 

the class or rejecting the settlement. Instead, we modify the 

settlement as approved to remove the $15,000 incentive 

award for the plaintiff and to reduce the lawyer’s fee by the 

same amount. 

I. Factual and Procedural Background

For several years passengers who bought “Business Select” tickets on Southwest Airlines received vouchers good 

for a free in-flight alcoholic drink. The vouchers did not contain expiration dates. Some customers saved them for future 

use, and Southwest honored them, at least for a while. In 

August 2010, however, Southwest stopped honoring these 

older vouchers, announcing that each voucher was good only on the flight covered by the accompanying ticket. 

Levitt and Malone filed suit against Southwest on behalf 

of a purported class of plaintiffs holding unredeemed Business Select drink vouchers that were suddenly worthless. 

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4 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

The class alleged claims for breach of contract, unjust enrichment, and violations of state consumer fraud laws. The 

district court quickly dismissed the unjust enrichment and 

statutory claims as preempted by the federal Airline Deregulation Act, 49 U.S.C. § 41713. The breach of contract claim 

remained. 

The parties agreed to settle the breach of contract claim. 

The settlement provides for class certification and includes 

three types of relief. First, it requires Southwest to issue replacement coupons to each class member who files a claim 

form. The coupons are transferable and good for one year on 

any Southwest flight. Second, the settlement provides injunctive relief to prevent similar controversies over expiration dates if Southwest issues new coupons in the future. 

Third, the settlement provides for incentive awards to the 

two lead plaintiffs of $15,000 each. 

After reaching this settlement of the merits, the parties 

negotiated the attorney fees for class counsel. These negotiations continued for four months and resulted in Southwest 

agreeing to pay, without objection, court-awarded attorney 

fees of up to $3,000,000 plus expenses of up to $30,000. 

Class members Gregory Markow and Alison Paul objected to the settlement and the fee request. Markow argued that 

the settlement violated Federal Rule of Civil Procedure 23(e) 

because the fee award was disproportionate to class relief 

and because the fee settlement included “clear-sailing” and 

“kicker” clauses designed to shield the fee award from challenge. In a typical “clear-sailing” clause, the defendant 

agrees not to oppose a fee award up to a certain amount. A 

“kicker” clause provides that if a court reduces the attorney 

fee sought in a class action, the reduction benefits the deCase: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 5

fendant rather than the class. Markow also argued that the 

attorney fee in this “coupon settlement” had to be based on 

the value of coupons actually redeemed by class members, 

under a provision of the Class Action Fairness Act (CAFA), 

28 U.S.C. § 1712. 

The district court approved the class settlement as fair 

and reasonable, focusing primarily on the fact that the settlement provided essentially complete relief to the class. The 

district court determined that § 1712 applied to the settlement because the vouchers were “coupons” within the 

meaning of that provision, though the usual concerns about 

coupon settlements are minimal here because the class’s 

claim itself is for the value of coupons that already required 

class members to buy plane tickets to use. The court further 

determined that § 1712 permits the use of the lodestar method to determine attorney fees based on coupon relief. The 

court used the lodestar method, with a multiplier of 1.5 for 

good results, to calculate a fee of $1,332,206.25, plus 

$18,522.32 in expenses. On counsel’s Rule 59(e) motion, the 

district court held an evidentiary hearing and increased the 

fee award to $1,649,118 by using higher hourly rates. 

These appeals followed, challenging the fairness of the 

settlement and the fee award. Objector Markow also raises a 

new issue on appeal, challenging approval of the settlement 

on the ground that an undisclosed conflict of interest on the 

part of class counsel and one lead plaintiff should preclude 

class certification. We consider first § 1712 regarding coupon 

settlements, then the overall fairness of the settlement, counsel’s cross-appeal, and finally the conflict-of-interest issue. 

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6 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

II. Fee Awards in Coupon Settlements

When Congress enacted the Class Action Fairness Act, 

one of its targets was abusive “coupon settlements,” where 

defendants and class counsel agree to provide coupons of 

dubious value to class members but to pay class counsel 

with cash. S. Rep. No. 109-14, at 16–20 (2005), as reprinted in

2005 U.S.C.C.A.N. 3, 16–20 (cataloging numerous abusive 

coupon settlements).

The potential for abuse is greatest when the coupons 

have value only if a class member is willing to do business 

again with the defendant who has injured her in some way, 

when the coupons have modest value compared to the new 

purchase for which they must be used, and when the coupons expire soon, are not transferable, and/or cannot be aggregated. See In re HP Inkjet Printer Litig., 716 F.3d 1173, 

1177–79 (9th Cir. 2013) (discussing some of these common 

concerns about coupon settlements); Synfuel Technologies, Inc. 

v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) 

(same), citing Christopher R. Leslie, The Need to Study Coupon 

Settlements in Class Action Litigation, 18 Geo. J. Legal Ethics 

1395, 1396–97 (2005). 

Identifying abusive coupon settlements, however, was 

easier than crafting legislation to prevent them. As one 

scholar observed, CAFA resulted from “years of intense lobbying (on both sides of the aisle by interest groups associated with both plaintiffs and defendants), partisan wrangling, 

and, following two successful filibusters, fragile compromises.” Stephen B. Burbank, The Class Action Fairness Act of 2005 

in Historical Context: A Preliminary View, 156 U. Pa. L. Rev. 

1439, 1441 (2008). Such compromises make it especially important for courts, when told by either side that they have 

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secured a particular favor from Congress, to “ask to see the 

bill of sale.” Chicago Professional Sports Ltd. P’ship v. National 

Basketball Ass’n, 961 F.2d 667, 671 (7th Cir. 1992). With that 

caution in mind, we turn first to whether § 1712 applies to 

this settlement and then to whether the district court had 

discretion to use the lodestar method to decide class counsel’s fee. 

A. A Coupon Settlement

We hold first that § 1712 applies to this settlement. This 

provision applies to class action settlements that provide for 

“a recovery of coupons.” We have rejected a narrow definition of “coupon” by rejecting, for purposes of § 1712, a proposed distinction between “vouchers” (good for an entire 

product) and “coupons” (good for price discounts). Redman 

v. RadioShack Corp., 768 F.3d 622, 636–37 (7th Cir. 2014). Despite the protests of class counsel, the replacement vouchers 

for free drinks on Southwest flights are indeed “coupons” 

and hence this settlement is subject to § 1712. Like the district court, we recognize of course the irony that the subject 

of this class action is the value of coupons given to replace 

coupons. But also like the district court, we allow for that in 

considering whether the settlement is fair and reasonable. 

B. Use of the Lodestar Method

The more difficult issue is whether § 1712 allowed the 

district court to use the lodestar method to calculate the fee 

award for class counsel. Objector Markow contends that 

§ 1712(a) prohibited use of the lodestar method and that the 

only permissible basis for a fee award here would be the value of the new coupons actually redeemed by class members. 

Under this view, use of the lodestar method in a coupon setCase: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
8 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

tlement is not permissible (except to compensate counsel for 

obtaining injunctive relief, which had minimal value here). 

That view was adopted by a divided Ninth Circuit panel 

in HP Inkjet. 716 F.3d at 1183–85. Judge Berzon in dissent argued that § 1712 gives a district court discretion to use the 

lodestar method to calculate attorney fees for both coupon 

and non-coupon relief. Id. at 1187 (Berzon, J., dissenting). In 

Redman, we acknowledged the difference of opinions in the 

Ninth Circuit but did not need to decide the issue. 768 F.3d 

at 635. We must now take sides. 

The proper interpretation of § 1712 is a question of law 

that we review de novo. E.g., Manning v. United States, 546 

F.3d 430, 432 (7th Cir. 2008). In essence, we agree with Judge 

Berzon, as the district court did here. One portion of § 1712, 

if interpreted in isolation, supports the HP Inkjet majority’s 

view. But a broader view of the text and structure of § 1712, 

along with its legislative history and purpose, persuades us 

that § 1712 allows a district court discretion to use the lodestar method to calculate attorney fees even when those fees 

are intended to compensate class counsel for the coupon relief he or she obtained for the class. 

Statutory interpretation begins with the language of the 

statute. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 

251 (2010). Section 1712 provides in relevant part: 

(a) Contingent Fees in Coupon Settlements. If a 

proposed settlement in a class action provides 

for a recovery of coupons to a class member, 

the portion of any attorney’s fee award to class 

counsel that is attributable to the award of the 

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coupons shall be based on the value to class 

members of the coupons that are redeemed. 

(b) Other Attorney's Fee Awards in Coupon Settlements. 

(1) In general. If a proposed settlement in 

a class action provides for a recovery of 

coupons to class members, and a portion of the recovery of the coupons is 

not used to determine the attorney’s fee 

to be paid to class counsel, any attorney’s fee award shall be based upon the 

amount of time class counsel reasonably 

expended working on the action. 

(2) Court approval. Any attorney’s fee 

under this subsection shall be subject to 

approval by the court and shall include 

an appropriate attorney’s fee, if any, for 

obtaining equitable relief, including an 

injunction, if applicable. Nothing in this 

subsection shall be construed to prohibit 

application of a lodestar with a multiplier method of determining attorney’s 

fees. 

(c) Attorney’s Fee Awards Calculated on a Mixed 

Basis in Coupon Settlements. If a proposed settlement in a class action provides for an award 

of coupons to class members and also provides 

for equitable relief, including injunctive relief 

(1) that portion of the attorney’s fee to 

be paid to class counsel that is based 

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10 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

upon a portion of the recovery of the 

coupons shall be calculated in accordance with subsection (a); and 

(2) that portion of the attorney’s fee to 

be paid to class counsel that is not based 

upon a portion of the recovery of the 

coupons shall be calculated in accordance with subsection (b). 

Objector Markow argues that subsection (a) prohibits the 

use of the lodestar method except to the extent a fee award is 

based on injunctive or other non-coupon relief in a settlement. Markow emphasizes the phrase “attributable to.” Invoking dictionary definitions and even a philosophical monograph on John Locke indicating that “attributable to” 

means “caused by,” Markow argues that the entire fee in this 

case was “caused by” the coupons under the settlement, so 

he concludes that the fee award for this settlement must be 

calculated using § 1712(a)’s percentage-of-coupons-used 

method. Under that view, the district court’s use of the lodestar method would have been an error. 

Yet § 1712(a) does not expressly prohibit use of the lodestar method. What the sentence does, unambiguously, is reject the most abusive method for calculating a fee in a coupon settlement: calculating the fee as a percentage of the face 

value of all the coupons issued. A little background makes 

this clear. Under the “common fund” doctrine, an attorney 

who recovers a common fund for the benefit of a class is entitled to a reasonable portion of the fund that is made available

to the class rather than the amount actually claimed by the 

class. See Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980); 

Americana Art China Co. v. Foxfire Printing & Packaging, Inc., 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 11

743 F.3d 243, 247–248 (7th Cir. 2014). Because of low claims 

rates, the difference can be dramatic even where both the 

class recovery and the attorney fee are paid in cash. 

As applied to coupon settlements, this method invites 

abuse. Class counsel and a defendant could agree on a settlement providing class members with coupons, which are 

valuable only if class members are willing to do business 

with the defendant again, and providing counsel with a cash 

payment calculated as a percentage of the face value of all 

coupons made available to class members, regardless of 

whether they are actually used or even likely to be used. (In 

this case, for example, class counsel estimated that the class 

would receive coupons with nominal values totaling $29 

million, and they initially proposed a fee of $7 million, 

which might have seemed reasonable as less than 20% of the 

imaginary common fund that combined actual cash with the 

face value of the available coupons.)1

To protect against such abusive settlements, § 1712(a) requires that any percentage-of-recovery award in a coupon 

settlement be based upon a percentage of the value of the 

 1 For another example, see the pre-CAFA settlement approved in 

Todt v. Ameritech Corp., 763 N.E.2d 389 (Ill. App. 2002), discussed in Sloop 

v. Ameritech Corp., No. EV 95-128-C H/L, 2003 WL 21989997 (S.D. Ind. 

Aug. 14, 2003). A settlement provided class members with discounts on 

certain telephone services—services they might or might not have wanted—and prepaid calling cards good only for nearly obsolete pay telephones, and even then good only for local toll (“intraLATA”) calls. In 

valuing these discounts and nearly useless coupons, the Illinois courts 

used their full face values. All the cash in the Todt settlement went to the 

lawyers. Sloop, 2003 WL 21989997, at *2–3. 

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12 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

coupons actually redeemed by class members, not the nominal value of the coupons merely available to the class. 

Subsection (a) does not, however, prohibit the use of the 

lodestar method for coupon settlements that do not provide 

injunctive relief. The Ninth Circuit majority in HP Inkjet

reached the opposite conclusion because, like Markow, it 

thought that the term “attributable to” clearly means 

“caused by.” We do not share their sense that the words 

“attributable to,” and the words of subsection (a) more generally, have such a plain meaning. The phrase can also be 

understood as providing a choice: if any portion of the fee is 

attributed to the coupon benefits, then that portion of the fee 

must be based on the coupons used, but that is not the only 

method available. Taken on its own, subsection (a) is ambiguous on this point. It can be fairly read as the HP Inkjet

majority read it, but that is not the only possibility. 

The meaning of subsection (a) becomes clearer, however, when we look at how it fits together with the other fee 

provisions in subsections (b) and (c). Section 1712 provides 

a good example of the need to construe statutory language 

in context and with a view to its place in the overall statutory scheme. E.g., King v. Burwell, 576 U.S. —, 135 S. Ct. 2480 

(2015); Scherr v. Marriott Int’l, Inc., 703 F.3d 1069, 1077 (7th 

Cir. 2013). In context, the meaning of subsection (a) becomes clearer and the Ninth Circuit’s reading becomes less 

persuasive. 

Subsection (b)(1) both contemplates and allows the possibility that “a portion of the recovery of the coupons” will 

not be used to determine the fee for class counsel, and that 

instead the lodestar method will be used: 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 13

If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney’s fee 

to be paid to class counsel, any attorney’s fee 

award shall be based upon the amount of time 

class counsel reasonably expended working on 

the action. 

(Emphases added.) (The “amount of time class counsel reasonably expended working on the action” refers to the lodestar method.) The only alternative to the percentage of recovery method is provided by § 1712(b)(1), which quite 

clearly authorizes the use of the lodestar method to calculate 

attorney fees in coupon settlements. 

This view of subsections (a) and (b) is the same described 

in the key Senate committee report on the bill that became 

CAFA. After summarizing the abuses of coupon settlements, 

the committee explained: 

In order to address such inequities, Section 

1712(a) states that in class action settlements in 

which it is proposed that an attorney fee award 

be based solely on the purported value of the 

coupons awarded to class members, the fee 

award should be based on the demonstrated 

value of coupons actually redeemed by the 

class members. Thus, if a settlement agreement 

promises the issuance of $5 million in coupons 

to the putative class members, but only 1/5 of 

potential class members actually redeem the 

coupons at issue, then the lawyer’s contingenCase: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
14 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

cy fee should be based on a recovery of $1 million—not a recovery of $5 million. 

In some cases, the proponents of a class settlement involving coupons may decline to 

propose that attorney’s fees be based on the 

value of the coupon-based relief provided by 

the settlement. Instead, the settlement proponents may propose that counsel fees be based 

upon the amount of time class counsel reasonably expended working on the action. Section 

1712(b) confirms the appropriateness of determining attorneys' fees on this basis in connection with 

a settlement based in part on coupon relief. As is 

stated on its face, nothing in this section should 

be construed to prohibit using the “lodestar 

with multiplier” method of calculating attorney’s fees. 

S. Rep. No. 109-14, at 30, as reprinted in 2005 U.S.C.C.A.N. 3, 

at 30 (emphases added). 

Subsections (a) and (b) thus fit together to force a choice 

between the lodestar method and a percentage of coupons 

redeemed. See HP Inkjet, 716 F.3d at 1192–93 (Berzon, J., dissenting). The one choice prohibited by subsection (a) is using 

a percentage-of-recovery method based on the face value of 

all coupons merely available to the class. 

Subsection 1712(c), entitled “attorney’s fee awards calculated on a mixed basis in coupon settlements,” further clarifies the relationship between (a) and (b). Subsection (c) provides: 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 15

If a proposed settlement in a class action provides for an award of coupons to class members and also provides for equitable relief, including injunctive relief 

(1) that portion of the attorney’s fee to 

be paid to class counsel that is based 

upon a portion of the recovery of the 

coupons shall be calculated in accordance with subsection (a); and 

(2) that portion of the attorney’s fee to 

be paid to class counsel that is not based 

upon a portion of the recovery of the 

coupons shall be calculated in accordance with subsection (b). 

Subsection (c) actually controls in this case since this settlement provides for both an award of coupons and modest 

equitable relief. Subsection (c) allows a combination of percentage-of-coupons-used and lodestar, but it does not require that any portion of the fee be based on the percentage 

of coupons used. Subsection (c) allows the district court the 

same discretion to use lodestar for the entire award that is 

permitted under (b). In coupon settlements that include 

some non-coupon relief, therefore, § 1712 allows three approaches to calculating attorney fees. First, a court may rely 

solely on the percentage-of-recovery method as permitted in 

subsection (a). Second, a court may rely solely on the lodestar method as permitted in subsection (b). Third, a court 

may use a combination of the approaches as provided in 

subsection (c). 

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16 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

One basic tool in statutory interpretation is the canon 

against surplusage. E.g., Marx v. General Revenue Corp., 568 

U.S. —, 133 S. Ct. 1166, 1178 (2013). We believe it weighs in 

favor of giving the district court discretion to use the lodestar method here. 

Under Markow’s approach, also adopted by the Ninth 

Circuit majority in HP Inkjet, subsection (c) seems to become 

surplusage. If subsection (a) requires use of percentage-ofcoupons-used for any fee award based on coupons, and if 

subsection (b) requires use of lodestar for non-coupon relief, 

as Markow argues, that leaves nothing for subsection (c) to 

do other than repeat subsection (a) and (b). “[T]he canon 

against surplusage is strongest when an interpretation 

would render superfluous another part of the same statutory 

scheme.” Marx, 133 S. Ct. at 1178. 

The approach we adopt, also taken by the district court 

and by Judge Berzon in HP Inkjet, gives all three subsections 

different roles to play. Subsection (a) prohibits basing a percentage-of-recovery fee on the face value of all coupons 

made available. Subsection (b) says that lodestar is the only 

permissible alternative to percentage-of-coupons-used. And 

subsection (c) allows, though does not require, a blend of the 

two methods when a coupon settlement also provides some 

equitable or cash relief.2

We hold that § 1712 permits a district court to use the 

lodestar method to calculate attorney fees to compensate 

 2 The HP Inkjet majority charged the dissent with turning subsection 

(a) into surplusage, 716 F.3d at 1183, but that charge failed to take into 

account subsection (a)’s prohibition on the use of the face value of all 

available coupons to determine a percentage-of-recovery fee. 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 17

class counsel for the coupon relief obtained for the class. 

When a district court considers using the lodestar method in 

this manner, it will need to bear in mind the potential for 

abuse posed by coupon settlements and should evaluate critically the claims of success on behalf of a class receiving 

coupons, as Judge Kennelly did here.3

III. The Fairness of the Settlement

The district court approved this settlement after finding 

it fair and reasonable for the class. On appeal we review that 

approval for an abuse of discretion, though we have said 

many times that we expect district courts to scrutinize such 

settlements carefully in light of the conflicts of interest inherent in class litigation. See, e.g., Synfuel Techs., Inc. v. DHL 

Express (USA), Inc., 463 F.3d 646, 652–53 (7th Cir. 2006). We 

begin by addressing two issues raised by the structure of the 

settlement and then turn to counsel’s cross-appeal on the 

amount of attorney fees. We find no abuse of discretion in 

the district court’s handling of these matters. 

A. The Structure of the Settlement

No party disputes the adequacy of class relief. This is not 

a case where coupons of dubious value will be provided to 

compensate for a loss of cash. The class lost the value of 

drink coupons. The settlement provides replacement drink 

coupons, on a one-for-one basis. The claims process is easy, 

and the replacement coupons will remain valid for one year. 

There is also a happy alignment of interests between class 

 3 Because this opinion creates a circuit split on the interpretation of 

28 U.S.C. § 1712, we have circulated it to all active judges under Circuit 

Rule 40(e), and no judge in active service has voted to rehear the case en 

banc. 

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18 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

members and Southwest. Southwest has no incentive to insist on a stringent claims process. Every replacement coupon 

can be used only by a customer who buys a plane ticket. 

Southwest should benefit from every one that is actually 

used. Such benefits for a defendant under a coupon settlement are usually a reason for caution if not skepticism. This 

case is different, though, because Southwest would have received the same benefits from the old coupons. 

Serendipitous or not, such essentially complete relief for 

the class is the model of an adequate settlement. The class 

members will receive everything they reasonably could have 

hoped for. While some replacement coupons might never be 

used, the same could be said of the original coupons. Nevertheless, the objectors argue the settlement is unfair in two 

ways. The first focuses on the ratio of class relief to attorney 

fees in this case. The second focuses on the clear-sailing and 

kicker clauses in the fee agreement. 

 1. The Ratio of Class Relief to Attorney Fees 

The objectors argue first that Southwest’s willingness to 

pay up to $3,000,000 in cash to class counsel—after agreeing 

on coupon relief for the class members—shows that the negotiated class settlement short-changed the class by leaving 

money on the table. Much of that value, argue the objectors, 

should have gone to the class. 

In most cases this would be a powerful argument. Separating the negotiations over class relief and attorney fees 

does not remove the possibility that counsel will negotiate 

for their own benefit at the expense of the class. “In other 

words, the negotiation of class counsel’s attorneys’ fees is 

not exempt from the truism that there is no such thing as a 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 19

free lunch.” Staton v. Boeing Co., 327 F.3d 938, 964 (9th Cir. 

2003). 

Judicial scrutiny of class action fee awards and class settlements more generally is based on the assumption that 

class counsel behave as economically rational actors who 

seek to serve their own interests first and foremost, particularly in classes certified under Rule 23(b)(3) that seek primarily monetary relief. See Eubank v. Pella Corp., 753 F.3d 718, 

719–20 (7th Cir. 2014). While that assumption may not hold 

in all cases, conflicts of interest are inherent in class action 

suits. Redman v. RadioShack Corp., 768 F.3d 622, 629 (7th Cir. 

2014). 

These conflicts come to the fore when attorney fees for 

class counsel are the issue. “The defendant ... is interested 

only in the bottom line: how much the settlement will cost 

him.” Id. We assume class counsel, on the other hand, “is interested primarily in the size of the attorneys’ fees provided 

for in the settlement.” Id. For these actors, but not for class 

members, the ideal settlement may be a moderate sum favorable to the defendant but disbursed mostly to class counsel. 

While this argument often has considerable force, it has 

little force here. What makes this settlement so distinctive, 

and what has eased both the district court’s and our concerns about the risk of self-dealing by class counsel, is that 

the class members will receive essentially everything they 

could have hoped for. As the district court put it, “the class 

members are getting back exactly what they had before, an 

unexpired drink voucher.” In re Southwest Airlines Voucher 

Litig., No. 11 C 8176, 2013 WL 5497275, at *4 (N.D. Ill. Oct. 3, 

2013). It is an exceptional settlement that actually makes the 

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20 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

class whole. When counsel come away from the negotiating 

table with everything the client could hope for, they should 

be compensated accordingly. That is what happened in this 

case. No class members have legitimate or even plausible 

claims to more than they will receive under the settlement. 

Objectors argue, though, that the class was not actually 

made whole since it did not recover for its unjust enrichment 

and statutory claims. As noted, these claims were dismissed 

early in the litigation because they are preempted by the Airline Deregulation Act, 49 U.S.C. § 41713, a principle which is 

well established by Supreme Court decisions. See Northwest, 

Inc. v. Ginsberg, 572 U.S. —, 134 S. Ct. 1422, 1426 (2014) (statelaw claim for breach of covenant of good faith and fair dealing was preempted); American Airlines, Inc. v. Wolens, 513 

U.S. 219, 221–22 (1995) (consumer fraud claims were 

preempted, but breach of contract claims were not); Morales 

v. Trans World Airlines, Inc., 504 U.S. 374, 391 (1992) (general 

consumer protection statutory claims were preempted as 

applied to airline fare advertisements). Class members could 

not reasonably have hoped to recover for these meritless 

claims, and the district court appropriately gave them no 

weight in evaluating the fairness of the settlement. 

 2. Clear-Sailing and Kicker Clauses

The settlement agreement between Southwest and the 

class also includes so-called “clear-sailing” and “kicker” 

clauses. Southwest agreed not to contest a fee request not 

exceeding $3 million (clear-sailing), and any reduction from 

the requested fee (roughly $1.35 million in this case) benefits 

Southwest rather than the class (the kicker). The Ninth Circuit has called these clauses “subtle signs” of settlement unCase: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 21

fairness. In re Bluetooth Headset Products Liab. Litig., 654 F.3d 

935, 947 (9th Cir. 2011). 

We have used stronger language lately, expressing deep 

skepticism about such clauses, which seem to benefit only 

class counsel and can be signs of a sell-out. See Redman, 768 

F.3d at 637; Pearson v. NBTY, Inc., 772 F.3d 778, 786–87 (7th 

Cir. 2014). Clear-sailing and kicker clauses weigh substantially against the fairness of a settlement and call for “intense 

critical scrutiny by the district court.” Redman, 768 F.3d at 

637. 

Like the Ninth Circuit, however, we have stopped short 

of holding that clear-sailing and kicker clauses are per se bars 

to settlement approval. We again stop short of that per se

rule. The possibility of exceptional cases like this one is precisely what persuaded us to allow flexibility that a per se rule 

would bar. At the risk of undue repetition, this settlement 

makes the class whole, and the district court carefully scrutinized—and significantly reduced—the fee request. Even if 

the court had rejected the settlement, it is hard to imagine 

the class receiving any better result after further negotiations 

or a trial. The district court therefore did not abuse its discretion by approving the settlement as fair and reasonable. 

B. The Cross-Appeal by Class Counsel 

Southwest Airlines was willing to pay a fee of up to 

$3,000,000 without objection. Class counsel argue that the 

district court abused its discretion by awarding the lower 

amount of $1.65 million rather than deferring to the amount 

agreed in the negotiations between Southwest and class 

counsel. Judicial deference to the results of private negotiations is undoubtedly appropriate for many settlements, but 

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not for class action settlements, including their attorney fee 

terms. “That the defendant in form agrees to pay the fees independently of any monetary award or injunctive relief provided to the class in the agreement does not detract from the 

need carefully to scrutinize the fee award.” Staton, 327 F.3d 

at 964; see also Eubank, 753 F.3d at 719–20. 

The district judge carefully applied the lodestar method, 

as described above. In doing so the judge accommodated the 

most reasonable points raised by class counsel and increased 

the initial fee award. The court did not abuse its discretion in 

awarding $1.65 million using the lodestar method.4

 4 We cannot help noting our disappointment with class counsel’s 

briefing in one respect that should remind both counsel and the court of 

the need to check quotations and citations. For deceptive use of an ellipsis, this was a classic. Counsel cited Staton, 327 F.3d at 964, to support 

their argument that we should defer to the results of their fee negotiations with Southwest. That citation included the following parenthetical 

quotation: 

(where ‘defendant in form agrees to pay the fees independently of any monetary award or injunctive relief 

provided to the class Y the court need not inquire into 

the reasonableness of the fees even at the high end with 

precisely the same level of scrutiny as when the fee 

amount is litigated’; the issue is whether the fee is facially fair and reasonable). 

Corrected Principal and Response Br. of Plaintiffs-Appellees at 15. 

The ellipsis put together parts of two sentences—separated by no 

fewer than 1,150 words!—to reverse the true meaning. The first sentence, 

quoted in full, says exactly the opposite of what class counsel claimed: 

“That the defendant in form agrees to pay the fees independently of any 

monetary award or injunctive relief provided to the class in the agreement does not detract from the need carefully to scrutinize the fee award.” 327 

F.3d at 964 (emphasis added). The material counsel quoted after the ellipCase: 14-2591 Document: 51 Filed: 08/20/2015 Pages: 28
Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 23

IV. Adequacy of Class Representation and Potential Conflicts of 

Interest

Finally, the objectors assert that the settlement class 

should not have been certified because one of the four Rule 

23(a) requirements for class certification—“the representative parties will fairly and adequately protect the interests of 

the class”—was not satisfied. Fed. R. Civ. P. 23(a)(4). Joseph 

Siprut, lead class counsel in this case, and Adam Levitt, one 

of two class representatives, are co-counsel in a pending 

class action in California, Hodges v. Apple, Inc., No. 14-15106 

(9th Cir. filed Jan. 21, 2014). Siprut and Levitt did not disclose this relationship to the district court, and the Rule 

23(a)(4) issue thus was not presented there. 

The objectors urge us to take up this issue for the first 

time on appeal. Class counsel deferred to Southwest to address the issue. Southwest argued that any conflict as to 

Levitt does not matter because plaintiff Malone adequately 

represented the class, and that the objectors waived their objection to Levitt’s conflict of interest because they should 

 

sis appears more than two published pages after the phrase before the 

ellipsis. And in context the later phrase again bore a very different meaning: 

And, since the proper amount of fees is often open to 

dispute and the parties are compromising precisely to 

avoid litigation, the court need not inquire into the reasonableness of the fees even at the high end with precisely the same level of scrutiny as when the fee amount 

is litigated. But here, there was no such inquiry at all. 

327 F.3d at 966. Finally the brief’s assertion that the Ninth Circuit said 

the issue was whether the fee is “facially” fair and reasonable is baseless. 

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24 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

have used Pacer or Google to discover the relationship between Siprut and Levitt before this appeal. 

As a general rule, we have a strong aversion to considering issues on appeal that were not raised in the district court, 

at least if the issue does not control subject-matter or appellate jurisdiction. The general rule helps ensure orderly and 

fair process so that litigants are not “surprised on appeal by 

final decision there of issues upon which they have had no 

opportunity to introduce evidence.” Niedert v. Rieger, 200 

F.3d 522, 527 (7th Cir. 1999), quoting Hormel v. Helvering, 312 

U.S. 552, 556 (1941). While we have discretion to decide issues of law not argued in the district court, see Dechert v. Cadle Co., 441 F.3d 474, 476 (7th Cir. 2006), that discretion 

should be used sparingly. 

The conflict of interest issue here presents a rare instance 

where it makes sense for us to consider an issue not raised in 

the district court, so we reject the waiver argument. Siprut 

and Levitt should have disclosed their relationship to the 

district court. Class members were not obliged, on penalty of 

waiver, to search on their own for a conflict of interest on the 

part of a class representative. 

In most cases, class members can expect a defendant like 

Southwest Airlines to test the adequacy of a class representative, with the district court as a backstop to protect them. In 

this case, however, class counsel and class representatives 

reached the settlement with Southwest before class certification, so Southwest lost its incentive to challenge the adequacy of class representation. In addition, class members like the 

objectors should be able to expect class counsel and class 

representatives to disclose such prior professional, financial, 

personal, or other relationships between class counsel and a 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 25

class representative that could reasonably be thought relevant to the ability of the representative to act on behalf of the 

class, if need be by disagreeing with class counsel. See Eubank v. Pella Corp., 753 F.3d 718, 721–22 (7th Cir. 2014) (rejecting class representative who was father and father-in-law of 

class counsel); Susman v. Lincoln American Corp., 561 F.2d 86, 

90, 95 (7th Cir. 1977) (rejecting class representative who was 

member of class counsel’s law firm and another who was 

brother of class counsel). 

One foundation of class action law is that the class representative has an obligation to represent the interests of the 

class in dealings with both the defendant and class counsel. 

E.g., Crawford v. Equifax Payment Servs., 201 F.3d 877, 880, 882 

(7th Cir. 2000). Class representatives need to be capable of 

saying no if they believe counsel are failing to act in the best 

interests of the class. Accordingly, one purpose of the adequacy inquiry under Rule 23(a)(4) is “to uncover conflicts of 

interest between named parties and the class they seek to 

represent.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 

625 (1997); see also Phillips Petroleum Co. v. Shutts, 472 U.S. 

797, 812 (1985) (adequacy of representation is essential to 

protect due process rights of absent class members); General 

Telephone Co. of Northwest, Inc. v. EEOC, 446 U.S. 318, 331 

(1980) (“the adequate-representation requirement is typically 

construed to foreclose the class action where there is a conflict of interest between the named plaintiff and the members of the putative class”); London v. Wal-Mart Stores, Inc., 

340 F.3d 1246, 1255 (11th Cir. 2003) (rejecting proposed class 

representative who was close friend and former stockbroker 

of class counsel; relationship “casts doubt on [representative’s] ability to place the interests of the class above that of 

class counsel”). 

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The adequacy of class representatives is an issue that can 

be examined throughout the litigation. Susman, 561 F.2d at 

89–90 (“Basic consideration of fairness require[s] that a court 

undertake a stringent and continuing examination of the adequacy of representation by the named class representatives 

at all stages of the litigation where absent members will be 

bound by the court’s judgment.”), quoting National Ass’n of 

Regional Medical Programs v. Mathews, 551 F.2d 340, 344–45 

(D.C. Cir. 1976). In these appeals, the issue has been aired 

adequately for us to address it, and we think the best course 

is simply to resolve it without further delay. 

This class has been represented adequately, at least by 

plaintiff Malone. We base this conclusion on the recurring 

theme of this opinion, the unusual degree of success for the 

class in the settlement. A remand for decertification or further exploration of the issue would not benefit the class but 

would only delay it from receiving full compensation under 

this settlement. The class has been made whole and class 

counsel have earned their fees by achieving that result for 

the class, so the settlement approval should be affirmed. The 

failure to disclose the relationship by Siprut and Levitt 

should be addressed in another way. 

Siprut and Levitt both know they are fiduciaries for the 

class. They should have known to disclose their relationship 

and the potential conflict it posed. See Eubank, 753 F.3d at 

723 (“Class representatives are ... fiduciaries of the class 

members, and fiduciaries are not allowed to have conflicts of 

interest without the informed consent of their beneficiaries”). The professional and financial relationship between 

Siprut and Levitt should have been disclosed to the district 

court. See, e.g., Jaroslawicz v. Safety Kleen Corp., 151 F.R.D. 

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Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 27

324, 328 (N.D. Ill. 1993) (denying class certification where 

named plaintiff served as co-counsel with class counsel in 

numerous other cases). 

In affirming a district court decision denying class certification we have implicitly rejected the proposition that “a 

showing of actual danger of conflict of interest rather than 

the mere possibility of a conflict of interest is required to 

support a finding that a fiduciary will not adequately represent the interest of others.” Susman, 561 F.2d at 89. In that 

same case we also “decline[d] to adopt a per se analysis” of 

conflicts of interest in this context. Id. at 93–94. 

We think it is clear that Siprut and Levitt were laboring 

under at least a potential conflict of interest that should have 

been disclosed to the district court and other interested parties. The fact that Siprut’s relationship with Levitt was divulged during a deposition does not suffice. District judges 

do not and could not read full transcripts of every deposition taken in every case on their dockets, even if all such 

depositions were filed with the court, which most are not. 

The standard here is not constructive disclosure, but clear 

and direct disclosure to the district judge. 

If there were indications that the class had been adversely affected by this failure to disclose, the consequences 

would be more severe. See Eubank, 753 F.3d at 729 (lamenting “eight largely wasted years” of litigation and how much 

more still needed to be done in part due to the need to replace the lead plaintiffs). Our message to the class action bar 

is short and simple: when in doubt, disclose. In this rare 

case, however, where the class is receiving full compensation 

under the settlement agreement, a more modest response is 

appropriate. 

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28 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 

Plaintiff Levitt should not receive a $15,000 incentive 

award. His failure to disclose was an important failure in 

protecting the interests of the class. For the same reason, 

Siprut’s fee should be reduced by the same amount. 

Accordingly, we modify the district court’s judgment to 

eliminate the $15,000 incentive award for plaintiff Levitt and 

to reduce the fee award by $15,000, which should be taken 

from Siprut’s individual share of the fee award. As modified, the judgment of the district court is AFFIRMED. 

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