Southwest Booze-Coupon Settlement Approved

CHICAGO (CN) - Replacing free-drink coupons Southwest Airlines no longer honors is enough to settle class-action claims, the Seventh Circuit ruled, sidelining claims that the deal is too generous to class counsel.

Under its old policy, Southwest rewarded customers who bought Business Select tickets with free-drink coupons that had no expiration date.

After finding that its flexible policy was hurting its bottom line, however, Southwest announced in August 2010 that Business Select drink coupons had to be redeemed on the day of travel when they were issued.

Adam Levitt and Herbert Malone filed a class action in November 2011 on behalf of all persons with unredeemed Southwest drink coupons for alcoholic beverages obtained with the purchase of Business Select tickets.

The parties soon reached a settlement agreement that entitled class members to a replacement drink voucher for each unredeemed drink coupon. Vouchers expire one year after their date of issuance, and class members may sell the vouchers or give them away if they do not desire to use them.

Southwest has also agreed that, if it issues any drink coupons in the future without an expiration date, it must honor the coupons on any Southwest flight at any time. For all coupons with an expiration date, the airline agreed to include conspicuous language indicating dates for which the coupon is valid to customers.

Levitt and Malone meanwhile would take home incentive awards of $15,000 each, and Southwest agreed not to oppose an attorneys' fee request of up to $3 million, plus expenses of $30,000, subject to court approval.

Two years after U.S. District Judge Matthew Kennelly granted final approval of the settlement, the Seventh Circuit affirmed Thursday.

The ruling sidelines objections that the settlement awards class attorneys $3 million, but does not include any monetary compensation for class members.

"While this argument often has considerable force, it has little force here," Judge David Hamilton wrote for the three-judge panel. "What makes this settlement so distinctive, and what has eased both the district court's and our concerns about the risk of self-dealing by class counsel, is that the class members will receive essentially everything they could have hoped for. As the district court put it, 'the class members are getting back exactly what they had before, an unexpired drink voucher.' It is an exceptional settlement that actually makes the class whole."

The agreement contains "clear-sailing" and "kicker" clauses, which the Ninth Circuit has called "subtle signs" of an unfair settlement, and the Seventh has called signs of a "sell-out."

Southwest agreed not to contest a $3 million fee request (clear-sailing), but any reduction of the requested fee will be to Southwest's benefit, not the class's. The reduction in this case was approximately $1.35 million.

The panel said these clauses were "troublesome," but ultimately did not shake their faith in the fairness of the settlement.

"Like the Ninth Circuit, we have stopped short of holding that clear-sailing and kicker clauses are per se bars to settlement approval," Hamilton wrote. "We again stop short of that per se rule. The possibility of exceptional cases like this one is precisely what persuaded us to allow flexibility that a per se rule would bar. At the risk of undue repetition, this settlement makes the class whole, and the district court carefully scrutinized - and significantly reduced - the fee request.

"Even if the court had rejected the settlement, it is hard to imagine the class receiving any better result after further negotiations or a trial."

The court did, however, make one significant alteration to the agreement. It said that the undisclosed financial relationship between lead class counsel Joseph Siprut and one of the lead plaintiffs, Adam Levitt, required a modification.

Siprut and Levitt are co-counsel in a pending class action in California against Apple, and did not disclose this relationship to Judge Kennelly.

The panel therefore revoked Levitt's $15,000 incentive reward, and reduced Siprut's fee award by the same amount.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit