Levitt v. Southwest Airlines Co.

799 F.3d 701
CourtCourt of Appeals for the Seventh Circuit
DecidedAugust 20, 2015
DocketNos. 13-3264, 13-3462, 14-2591, 14-2602 and 14-2495
StatusPublished
Cited by67 cases

This text of 799 F.3d 701 (Levitt v. Southwest Airlines Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Levitt v. Southwest Airlines Co., 799 F.3d 701 (7th Cir. 2015).

Opinion

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 “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 [705]*705worthless. 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 defendant 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.

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 [706]*706members 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).

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799 F.3d 701, Counsel Stack Legal Research, https://law.counselstack.com/opinion/levitt-v-southwest-airlines-co-ca7-2015.