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

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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.

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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 . . . .”).