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 that therefore the fee award needed to be a percentage of the value of the vouchers actually redeemed by class members. As such, they contended that class counsel sought inflated fees to the detriment of the class. They further argued that the settlement agreement was unfair because it contained the “clear-sailing” and “kicker” clauses, which manifested the lack of a fair and adequate settlement.
The district court agreed that the CAFA applied, but held that attorneys’ fees nonetheless could be calculated using the lodestar method of determining attorneys’ fees. Under this method, fees are calculated by multiplying the hours spent on litigation by a reasonable hourly rate and then adjusting the award based on various factors, such as whether the work was taken on a contingency basis and...
