The Seventh Circuit affirmed a class action coupon settlement involving “clear sailing” and “kicker” clauses and a fee award based on the lodestar analysis rather than the value of the redeemed coupons, and notwithstanding a potential conflict of interest concerning the class, class counsel (Joseph Siprut), and one of the two representative plaintiffs (Adam Levitt, an attorney who served as co-counsel with Siprut in another class action). The plaintiffs asserted breach of contract claims based on Southwest Airlines’ refusal to honor drink vouchers during flights other than those for which the vouchers were issued. The parties reached a settlement in which Southwest would provide each class member replacement vouchers that were transferrable and valid for one year, as well as injunctive relief regarding Southwest’s future use of vouchers. The parties also agreed that Southwest would not dispute class counsels’ request for up to $3 million in fees, a “clear sailing” clause, and that any reduction in fees would benefit Southwest instead of the class, a “kicker” clause.

Despite objections, the district court approved the settlement, finding that it provided the class complete relief. However, the court performed a lodestar analysis and determined that counsel should be awarded $1,649,118 in fees, rather than the $3 million agreed to in the settlement. Class objectors appealed, arguing that counsels’ fees should have been based on the value of redeemed coupons instead of a lodestar analysis, and, further, that the “clear sailing” and “kicker” clauses, and the undisclosed conflict of interest, which was argued for the first time on appeal, rendered the settlement unfair. Class counsel cross-appealed, claiming that the court should have awarded the full $3 million in fees.

The Seventh Circuit began by analyzing whether 28 U.S.C. § 1712 — Coupon Settlements — allows the use of a lodestar analysis to determine class counsels’ fee award. Noting disagreement with the Ninth Circuit’s opinion in In re HP Inkjet Printer Litigation, the court found that a complete reading of the statute and its legislative history supports the application of the lodestar analysis to determine class counsels’ fees in a coupon settlement. Given that the settlement “actually ma[de] the class whole,” the court determined that the ratio of class relief to attorneys’ fees was of “little force here.” Likewise, the court ruled that, based on the class’s benefit from the settlement, neither the “clear-sailing” nor “kicker” clauses, which generally weigh against a finding of fairness, rendered the settlement unfair. Regarding the potential conflict of interest, the court concluded that, given the “degree of success for the class in the settlement,” the class was adequately represented by the named plaintiff without a conflict. The court, however, ordered that Levitt not receive a $15,000 incentive award and that Siprut have his fee correspondingly reduced by $15,000. The court also rejected class counsels’ argument, finding that the district court did not abuse its discretion in its award of $1,649,118 through application of the lodestar analysis.

In re Southwest Airlines Voucher Litigation, Nos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495 (7th Cir. Aug. 20, 2015)