Extreme Couponing: Reforming the Method of Calculating Attorneys' Fees in Class Action Coupon Settlements

Author:Neil Connolly
Position::J.D. Candidate, The University of Iowa College of Law, 2017; B.S. Bradley University, 2014
Pages:1335-1359
SUMMARY

The class action device is an important tool for injured consumers. It allows hundreds of consumers to aggregate their injuries and enables them to litigate their claims. However, the system is vulnerable to abuse. One form of alleged abuse is the class action coupon settlement. In many coupon settlements, the members of the class receive valueless coupons, while the class's attorney is paid... (see full summary)

 
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N2_CONNOLLY (DO NOT DELETE) 2/22/2017 11:31 AM
1335
Extreme Couponing: Reforming the
Method of Calculating Attorneys’ Fees in
Class Action Coupon Settlements
Neil Connolly*
ABSTRACT: The class action device is an important tool for injured
consumers. It allows hundreds of consumers to aggregate their injuries and
enables them to litigate their claims. However, the system is vulnerable to
abuse. One form of alleged abuse is the class action coupon settlement. In
many coupon settlements, the members of the class receive valueless coupons,
while the class’s attorney is paid millions. Congress sought to eliminate this
practice by enacting section 1712 of the Class Actions Fairness Act (“CAFA”),
which attempts to regulate how attorneys’ fees are calculated in a coupon
settlement. Unfortunately, section 1712 was poorly drafted, which has led to
opposing interpretations from the Seventh and Ninth Circuits. This Note
argues that the Seventh Circuit correctly interpreted the current version of
section 1712 of CAFA, but that Congress should rewrite section 1712 in
accordance with the Ninth Circuit’s interpretation, to better protect future
class members in coupon settlements.
I. INTRODUCTION ........................................................................... 1336
II. CLASS ACTIONS AND COUPON SETTLEMENTS: HISTORY,
BENEFITS, DISADVANTAGES, AND FAILED REFORM ...................... 1337
A. HISTORY OF CLASS ACTIONS AND COUPON SETTLEMENTS ........ 1337
B. THE NEED FOR CLASS ACTIONS .............................................. 1339
1. The Aggregation Principle ......................................... 1339
2. Private Enforcement of the Law Through Class
Actions.......................................................................... 1340
C. COUPON SETTLEMENTS: COMPENSATION, ABUSE, AND ATTEMPTED
REFORM ................................................................................ 1342
1. Lawyer’s Cash Compensation: Percentage-of-Recovery
vs. the Lodestar Standard ........................................... 1343
*J.D. Candidate, The University of Iowa College of Law, 2017; B.S. Bradley University,
2014. I would like to thank the Iowa Law Review editorial board for all of their work on t his Note,
and my girlfriend, Kim, my friends, and family for their continued support.
N2_CONNOLLY (DO NOT DELETE) 2/22/2017 11:31 AM
1336 IOWA LAW REVIEW [Vol. 102:1335
i. The Lodestar Standard ............................................ 1343
ii. Percentage-of-Recovery Method ................................ 1344
2. Reasoning Behind the Class Actions Fairness Act of
2005 ............................................................................. 1345
3. The Failed Congressional Solution: 28 U.S.C.
§ 1712........................................................................... 1346
III. ANALYZING THE OPPOSING INTERPRETATIONS OF SECTION
1712 ........................................................................................... 1348
A. THE NINTH CIRCUIT APPROACH: IN RE HP INKJET PRINTER
LITIGATION .......................................................................... 1348
B. THE SEVENTH CIRCUIT APPROACH: IN RE SOUTHWEST AIRLINES
VOUCHER LITIGATION ........................................................... 1351
C. THE INTERPRETATION THAT BETTER PROTECTS THE MEMBERS
OF THE CLASS ........................................................................ 1353
1. The Canon Against Surplusage ................................ 1354
2. The Legislative History Debate ................................ 1354
3. Better Protection of the Class ................................... 1355
IV. REWRITING SECTION 1712 TO BETTER PROTECT THE CLASS ..... 1355
A. THE NEW AND IMPROVED: 28 U.S.C. § 1712 COUPON
SETTLEMENTS ....................................................................... 1355
1. New Subsection Titles ............................................... 1356
2. Alignment of Interests: Class and Class Counsel .... 1356
3. Coupon Restrictions.................................................. 1358
4. Eliminating the Mixed Settlement Subsection ....... 1359
V. CONCLUSION .............................................................................. 1359
I. INTRODUCTION
On August 20, 2015, in In re Southwest Airlines Voucher Litigation, the
Seventh Circuit created a clear circuit split when the court decided that the
lodestar method can be used to ascertain attorneys’ fees in a coupon
settlement under the Class Action Fairness Act of 2005 (“CAFA”).1 This
holding is contrary to the Ninth Circuit’s approach in In re HP Inkjet Printer
Litigation, which held that the lodestar standard was prohibited in class action
1. In re Sw. Airlines Voucher Litig., 799 F.3d 701, 710 (7th Cir. 2015) (“We hold that
§ 1712 permits a district court to use the lodestar method to calculate attorney fees to compensate
class counsel for the coupon relief obtained for the class. When a district court considers using
the lodestar method in this manner, it will need to bear in mind the potential for abuse posed by
coupon settlements and should evaluate critically the claims of success on behalf of a class
receiving coupons . . . .”).

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