“In settlement with Southwest Airlines, lawyers got cash, plaintiffs got drink coupons.”

“A federal appeals court has upheld a settlement in which Southwest Airlines passengers got free drink vouchers but lawyers who sued the airline got $1.65 million in cash.” [AP “Big Story”]

6 Comments

  • In this particular case, coupons seem to be reasonable because the harm alleged was that the plaintiffs had coupons which they had expected to be able to use on future flights but which the airline had, ex post facto, decided could not be. Any plaintiff who would not have another opportunity to fly the same airline again would not have had the chance to use the coupons under the original conditions and therefore suffered no loss when the airline changed the conditions. Getting new coupons as “compensation” is equivalent to having obtained an order for specific performance.

    What I don’t understand is how it ever became acceptable in cases which do not have this rather specific set of facts for compensation to take the form of coupons. If John Doe drives recklessly and injures Mary Roe, no court would allow him to provide her with coupons for services at his business rather than cash. Why are class action suits any different?

    • “Why are class action suits any different?”

      Because most of them are either without merit or the damage to individual class members is actually so low that coupons are the only economical form of payment. Even distributing cash to the class members would cost more than what their claims are worth.

      • Why is it more economical to issue coupons than to send checks? The costs for postage, envelopes, etc. should be the same.

        • 1. The check itself is made of higher quality paper and inks, which means the check itself costs more than the coupons.

          2. Do you want to know why banks used to charge for check usage?
          Because there are costs associated with processing a check and making sure that the check get’s back to the issuing bank and the money gets to the redeeming bank.
          The fact that banks have chose to eat those costs does not mean that they have gone away.
          The fact is, that the processing of a check for a few cents is a net economic loss. Issue thousands of checks and the losses add up. The fact that an entity that is not a party to the lawsuit is eating those costs does not mean that they don’t exist.

  • Case is: IN RE SOUTHWEST AIRLINES VOUCHER LITIGATION

    There is something inherently wrong about a coupon settlement when the case is all about… drink coupons.

    Where the court went wrong is applying the Lodestar principle, instead of the Bombay Star principle, which holds that in such cases attorneys fees must be in the provided in the form of G&T or Martinis.

    Unmentioned in the AP article:

    In one respect, however, we modify the terms of the settlement agreement. The financial and professional relationship between lead class counsel and one of the lead plaintiffs created a potential conflict of interest for both given their fiduciary duties to the class. This conflict should have been disclosed to the district court but was not. Where another lead plaintiff had no conflict and the class received essentially complete relief, however, we see no basis for decertifying the class or rejecting the settlement. Instead, we modify the settlement as approved to remove the $15,000 incentive award for the plaintiff and to reduce the lawyer’s fee by the same amount.

    Under the Bombay Star principle, fees would be further reduced by a restriction to Bathtub gin (extensive circuit precedent on this)

  • While I am generally opposed to coupon settlements, and also a frequent flier (and stock owner) of Southwest Airlines (LUV) – I feel this is one of the rare cases where a coupon is an appropriate remedy. Not only for the reason Bill advances above (i.e. you had a coupon, you get a coupon), but also because said coupons had no cash value AND cash can’t be used to buy drinks on Southwest flights. Coupon or credit card only.

    Given counsel’s lack of candor re: one of the lead plaintiffs, and what seems to be a relatively straightforward contract case, I’d have been inclined to strike their fees further (perhaps by applying a lodestar!), but that’s a quibble. I wonder whether the lead plaintiff whose incentive was stricken has a claim against his counsel, on whose advice he relied in recommending acceptance of the settlement – but I suspect some variety of the doctrine of “unclean hands” protects plaintiff counsel here. That’s a moral hazard for the court to struggle with, I have no easy answer.