Levitt v. Southwest Airlines Co.
799 F.3d 701
| 7th Cir. | 2015Background
- Southwest stopped honoring old "Business Select" in‑flight drink vouchers; class sued for breach of contract seeking replacement vouchers and other relief.
- Parties settled: one-for-one replacement transferable drink coupons (valid one year), injunctive relief, and $15,000 incentive awards to two lead plaintiffs; Southwest agreed to pay up to $3,000,000 in attorney fees plus expenses.
- District court certified the class, found the replacement vouchers were "coupons" under CAFA § 1712, and awarded fees using the lodestar method (with a multiplier), later increasing the award after further proceedings.
- Objectors Markow and Paul challenged the settlement as unfair, arguing (inter alia) that § 1712 requires fees tied to the value of redeemed coupons and that the settlement included problematic clear‑sailing and kicker clauses.
- Objector Markow also raised on appeal an undisclosed relationship between lead counsel Siprut and plaintiff Levitt as a potential adequacy/conflict issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of 28 U.S.C. § 1712: method for awarding fees in coupon settlements | Markow: §1712(a) requires fee awards attributable to coupons be based on value of coupons actually redeemed (percentage method); lodestar is impermissible for coupon relief | Court/Southwest/Class counsel: §1712 permits lodestar (or mixed approach) and gives discretion to courts; §1712(b) explicitly contemplates lodestar | Court: §1712 allows district courts to use lodestar (or a mix) to calculate fees in coupon settlements; §1712(a) forbids basing a percentage fee on the face value of all coupons issued but does not bar lodestar |
| Fairness of settlement (fee ratio; clear‑sailing and kicker clauses) | Objectors: cash fee commitment up to $3M plus clear‑sailing/kicker indicates possible sellout and disproportionate benefit to counsel | Def./district court: class received essentially complete relief (one‑for‑one replacement); court scrutinized and reduced fees | Court: settlement approval not an abuse of discretion given class made whole and careful judicial scrutiny, but clear‑sailing/kicker require intense scrutiny and weigh against fairness |
| Class counsel cross‑appeal: sufficiency of fee (seeking more) | Class counsel: district abused discretion by awarding less than the $3M that defendant agreed to pay | District court/Southwest: court must independently scrutinize fee awards in class cases; negotiated cap not dispositive | Court: affirmed district court's lodestar calculation and fee award; no abuse of discretion |
| Adequacy/conflict of interest (undisclosed relationship between counsel and class rep) | Objectors: undisclosed professional/financial relationship between counsel Siprut and rep Levitt creates a conflict requiring decertification or remedy | Def./district court: other lead plaintiff Malone was adequate; issue was not raised below and should be waived | Court: failure to disclose was a material lapse; class representation otherwise adequate here (class made whole), so no decertification; remedy: strip Levitt’s $15,000 incentive and reduce Siprut’s fee by $15,000 |
Key Cases Cited
- Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014) (discusses coupon settlements and need for scrutiny of fee provisions)
- In re HP Inkjet Printer Litig., 716 F.3d 1173 (9th Cir. 2013) (panel held §1712 prohibits lodestar for coupon relief; split decision discussed)
- Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir. 2006) (identifies common abuses in coupon settlements)
- Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) (treats scrutiny of fee negotiations in class settlements)
- Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014) (conflict of interest and adequacy of class representatives)
- Boeing Co. v. Van Gemert, 444 U.S. 472 (U.S. 1980) (common fund doctrine supporting percentage‑of‑recovery fees)