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In re Southwest Airlines Voucher Litigation

United States District Court, Seventh Circuit

October 3, 2013

In re: SOUTHWEST AIRLINES VOUCHER LITIGATION

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

The Court previously approved a class-wide settlement in this action. See In re Southwest Airlines Voucher Litig., No. 11 C 8176, 2013 WL 4510197 (N.D. Ill. Aug. 26, 2013). This decision concerns plaintiffs' petition for an award of attorney's fees and costs. Familiarity with the settlement approval decision is assumed.

Background

The plaintiffs, Adam Levitt and Herbert Malone, sued Southwest Airlines Co. on behalf of a class of similarly situated Southwest customers. Their lawsuit concerned drink vouchers that Southwest had provided to travelers who purchased premium-priced "Business Select" tickets. Each voucher was good for a single alcoholic drink that would cost $5 if paid for in cash. The vouchers did not have an expiration date. On August 1, 2010, Southwest stopped honoring the vouchers. In their complaint, plaintiffs quoted Southwest's chief executive officer as saying that the airline had decided to stop honoring the vouchers because there were too many outstanding and this had the potential to affect the airline's bottom line. In other words, plaintiffs essentially alleged that Southwest had reneged on its contracts with its Business Select customers because it had decided, after the fact, that it had made a bad deal.

Plaintiffs filed this suit in federal court pursuant to the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d)(2). They alleged in their complaint that Southwest committed a breach of contract, was unjustly enriched, and violated various state consumer protection laws. In March 2012, the Court granted Southwest's motion to dismiss as to three of plaintiffs' four claims. This left standing only plaintiffs' breach of contract claim.

The parties then engaged in discovery. Both sides served and responded to interrogatories and requests for production of documents. Southwest took the depositions of Levitt and Malone, and plaintiffs' counsel took the depositions of various Southwest employees.

The parties then entered into settlement negotiations. They engaged in a two-day mediation session with retired Judge Wayne Andersen and reached an agreement to settle the claims of the plaintiff class. As indicated earlier, the Court recently approved the settlement. It defines the settlement class as including all Southwest customers who purchased a drink voucher through the purchase of a Business Select ticket before August 1, 2010 but did not redeem the voucher. The settlement allows each class member to submit a proof of claim form and supporting documentation in order to receive one replacement drink voucher for each unredeemed drink voucher. Each replacement voucher expires one year after its date of issuance.

In addition to compensating class members directly, the settlement includes provisions that amount to injunctive relief against Southwest. Specifically, the settlement includes the following requirements. First, if Southwest issues any drink vouchers following the settlement that do not include an expiration date, it must honor those vouchers on any Southwest flight at any time. This would essentially prevent Southwest from repeating what it is alleged to have done with the vouchers at issue in this case. Second, Southwest must honor the expiration dates printed on post-settlement drink vouchers and may not retroactively invalidate them. Third, if Southwest issues drink vouchers and limits their use to the date of the flight for which the ticket was issued, it must include conspicuous language on the vouchers stating this.

Finally, the settlement of the class members' claims includes payment by Southwest of $15, 000 incentive awards to the two named plaintiffs, Levitt and Malone.

After negotiating the proposed settlement of the class members' claims, plaintiffs and Southwest separately negotiated regarding attorney's fees for class counsel, again with the assistance of retired Judge Andersen. It is undisputed that there was no negotiation regarding attorney's fees until after the parties had reached agreement on settlement of the class members' claims. By the time of the Court's preliminary approval of the settlement, plaintiffs and Southwest had reached an agreement that, subject to court approval, Southwest would pay class counsel fees of no less than $1, 750, 000 and no more than $7, 000, 000 and would reimburse counsel's costs and expenses up to $30, 000. The notice of the proposed settlement that was sent to class members referenced this agreement.

Following the Court's preliminary approval of the settlement, the parties continued their negotiations regarding attorney's fees, again with the assistance of Judge Andersen. Southwest ultimately agreed not to oppose a fee request of up to $3, 000, 000 plus out of pocket expenses of up to $30, 000. Plaintiffs' counsel have now petitioned for an award of fees and expenses in those amounts.

Discussion

Plaintiffs' counsel justify their requested fee award by its relationship to the overall value of the settlement. They say that each replacement voucher is worth five dollars, the price of a premium or alcoholic beverage on a Southwest flight for a passenger who does not have a voucher. Analysis conducted by Southwest suggests that no more than half of the vouchers that it originally distributed were redeemed. Using this fifty percent figure, at least 5, 800, 000 vouchers were not redeemed. This would make the face value of the replacement vouchers at least $29, 000, 000.

Plaintiffs' counsel cite the Seventh Circuit's endorsement of the percentage-of-recovery method as the best way to calculate attorney's fees in a class action. See Gaskill v. Gordon, 160 F.3d 361, 362 (7th Cir. 1998) ("When a class suit produces a fund for the class, it is commonplace to award the lawyers for the class a percentage of the fund, in recognition of the fact that most suits for damages in this country are handled on the plaintiff's side on a contingent-fee basis.") (citations omitted). Valued this way, the proposed fee award would be just a little over ten percent of the claimed value of the settlement. This, plaintiffs argue, is well below the benchmark of twenty-five percent suggested in the Gaskill decision for settlements that involve multimillion dollar amounts. See id.

Plaintiffs' counsel also argue that the proposed award is appropriate if one uses the so-called "lodestar" method of multiplying a reasonable hourly rate for the lawyers' services by the number of hours reasonably expended, see, e.g., Gastineau v. Wright, 592 F.3d 747, 748 (7th Cir. 2010), and then applying a multiplier. Plaintiffs' lead counsel Joseph Siprut has submitted an affidavit that provides the following breakdown of time and proposed hourly rates:

• Joseph Siprut: 928 hours at $585 per hour
• James McClintick: 551.9 hours at $325 per hour
• Aleksandra Vold: 1005.7 hours at $325 per hour
• Gregg Barbakoff: 388.4 hours at $225 per hour
• Kristina Pearson: 25.2 hours at $150 per hour

These figures total 2, 899.2 hours. This includes 222 hours that Siprut estimated would be spent after submission of the fee petition to prosecute the case to its conclusion.

Based on these figures, the base lodestar figure, calculated as proposed by plaintiffs' counsel, is $1, 140, 270. A risk multiplier of 2.63, plaintiffs' counsel argue, would result in the requested $3 million award. They contend that this would be within the range of risk multipliers approved in this circuit. See Harman v. Lyphomed, Inc., 945 F.2d 969, 975 (7th Cir. 1991) ("Multipliers anywhere between one and four have been approved.") (citation omitted).

A number of those who have objected to the settlement contend that the requested attorney's fee award is disproportionate to the value of the benefits the settlement provides to class members. None of them address the attorneys' hours or proposed hourly rates in detail.

Certain objectors contend that that the drink vouchers offered in the proposed settlement amount to "coupons." As a result, they contend, any award of attorney's fees is subject to CAFA's provisions applicable to class action settlements that "provide for a recovery of coupons." See 28 U.S.C. § 1712(a)-(c).

1. Whether CAFA's "coupon" provisions apply

The first question is whether the proposed settlement "provide[s] for a recovery of coupons" within the meaning of CAFA. "While CAFA does not expressly define what a coupon is, the legislative history suggests that a coupon is a discount on another product or service offered by the defendant in the lawsuit." Fleury v. Richemont North America, Inc., No. C-05-4525, 2008 WL 3287154, at *2 (N.D. Cal. Aug. 6, 2008). Courts have also indicated that a key characteristic of a coupon is that it "force[s] future business with the defendant." Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 654 (7th Cir. 2005); see also Yeagley v. Wells Fargo & Co., No. C-05-3403, 2008 WL 171083, at *8 (N.D. Cal. Jan. 18, 2008) (noting that the settlement benefit of a free credit report "is unlike a coupon in that it does not require a class member to do business with [defendant] and entitles the class member to a whole product... rather than merely a discount.").

The proposed settlement provides class members with a drink voucher redeemable for a free alcoholic drink on any Southwest flight, as a replacement for any unredeemed voucher. To redeem a replacement voucher, a class member will be required to fly on a Southwest flight. In some situations, class members may have existing reservations for flights on which they can redeem the replacement vouchers. It is likely, however, that in many or most situations, a class member will have to purchase a new ticket in order to use a replacement voucher. Either way, use of the replacement voucher provided by the settlement requires the recipient to do business with Southwest again.[1] For these reasons, the Court concludes that the replacement vouchers are "coupons" within the meaning of CAFA.

The Court acknowledges, as it noted in addressing the question of settlement approval, that this settlement differs from most other coupon-based settlements. Here the class members are getting back exactly what they had before, an unexpired drink voucher. Thus the settlement, unlike most coupon-type settlements, does not involve substituting a coupon for some other pecuniary loss. CAFA, however, does not distinguish between settlements in which a coupon is provided to compensate for a lost coupon and those in which a coupon is provided to compensate for some other loss. Rather, the statute treats all settlements involving coupons in the same way. Given the plain language of the statute, the Court concludes that the replacement voucher aspect of the settlement involves "a recovery of coupons" within the meaning of CAFA. Thus CAFA's attorney's fee provisions relating to coupon settlements apply.

2. Application of CAFA, 28 U.S.C. § 1712

As indicated earlier, certain objectors argue that because the settlement is a coupon settlement, CAFA, specifically, 28 U.S.C. § 1712(a), requires any attorney's fee award to be based on the value of the coupons redeemed. These objectors therefore contend that an attorney's fee award at this point is premature and that any award of fees must await the conclusion of the period for redeeming the replacement drink vouchers.

The Court agrees with the objectors that CAFA's attorney's fee provisions preclude an attorney's fee award based on the value of the unredeemed replacement coupons. The Court also concludes, however, that contrary to the objectors' contentions, CAFA ...


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