Seventh Circuit Provides Guidance On Fairness Of Class Action Settlement Agreements And Fee Awards

In In Re Southwest Airlines Voucher Litigation, Case No. 13-3264 (7th Cir. Aug. 20, 2015), the U.S. Court of Appeals for the Seventh Circuit upheld a fee award to class counsel in a class action that resulted in a "coupon settlement" - a settlement in which the defendant agrees to issue coupons to the class members. In upholding the fee award, the Seventh Circuit also discussed the propriety of a number of settlement provisions and practices that are frequently at issue in class action settlement negotiations. While not a workplace class action, this decision should be of interest to any employers who are involved in class action litigation because it provides guidance about how courts in the Seventh Circuit and beyond will view certain class action settlement provisions and practices.

Case Background

Southwest Airlines issued vouchers to its "Business Select" passengers that could be redeemed for one free in-flight alcoholic beverage. Some passengers saved their beverage vouchers so they could use them on later flights. In August 2010, Southwest Airlines announced that these vouchers could only be used on the flight covered by the "Business Select" ticket. The plaintiffs filed a class action against Southwest Airlines for breach of contract, unjust enrichment, and violations of state consumer fraud laws.

The district court dismissed the unjust enrichment and consumer fraud claims as being preempted by the Airline Deregulation Act. The parties subsequently agreed to settle the remaining breach of contract claim on a class-wide basis. Under the terms of the settlement, Southwest Airlines agreed to provide all class members with a voucher that was good for one free in-flight alcoholic beverage and further agreed to pay class counsel $3 million in attorneys' fees. The parties also agreed on a "clear-sailing" clause that provided that Southwest Airlines would not object to the attorneys' fee request up to the agreed-to amount, and further agreed to a "kicker" clause, which provided that, if the district court were to reduce the fee award, the reduction would benefit Southwest Airlines rather than the class. The parties also agreed on limited injunctive relief that would constrain how Southwest could issue vouchers in the future.

Several class members objected to the class settlement, focusing primarily on the fee award. They argued that the settlement was a "coupon settlement" within the meaning of the Class Action Fairness Act ("CAFA"), and...