Opinion ID: 2828914
Heading Depth: 1
Heading Rank: 2

Heading: Fee Awards in Coupon Settlements

Text: 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 Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 7 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.
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.
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 set- 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