In Re: Southwest Airlines Voucher Litigation

This is the third appeal regarding

attorney fees to stem from a class action against Southwest

2 No. 17‐3541

Airlines after it stopped honoring in‐flight drink vouchers for

customers who bought “Business Select” fares. We thought

the case was over after the first appeal, In re Southwest Airlines

Voucher Litigation (Southwest I), 799 F.3d 701 (7th Cir. 2015), because

the settlement made the customers whole by giving

them a replacement voucher. At least, it made whole the small

group of customers who submitted claims.

After the appeal, class counsel—Siprut PC—requested additional

fees. The district court awarded them. Markow, the

objector, appealed but dismissed the appeal after Southwest

tripled the relief to the class—by giving two additional vouchers

for every one claimed—to narrow the gap between the

amount of supplemental fees Siprut would receive and the

value of the relief the class would actually receive. The district

court approved that agreement. Objector Markow then

moved for fees and an incentive award. The district court denied

the motion, reasoning that requiring Siprut to pay Markow’s

fees out of Siprut’s supplemental fee award “undoes the

settlement.” In re Southwest Airlines Voucher Litigation (Southwest

II), 2017 WL 5295372, at *5 (N.D. Ill. Nov. 13, 2017). Markow

has appealed. We reverse and remand. Unless the parties

to a class action settlement agreement, including objecting

parties, expressly agree otherwise, settlement agreements

should not be read to bar objectors from requesting fees for

their efforts in adding value to a settlement.

I. Factual and Procedural Background

In the first appeal, we held that 28 U.S.C. § 1712, enacted

as part of the Class Action Fairness Act allowed the district

court to award Siprut an attorney fee based on the lodestar

method rather than the value of the redeemed vouchers.

Southwest I, 799 F.3d at 710. We affirmed the district court’s

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approval of the settlement. Id. at 713. Siprut cross‐appealed,

arguing that the district court abused its discretion by awarding

less in fees for Siprut ($1,649,118) than the amount that

Southwest agreed not to oppose ($3 million). We affirmed but

modified the judgment to reduce one Siprut lawyer’s individual

share of the fee award because he failed to disclose a potential

conflict of interest resulting from the fact that he and

one of the class representatives were co‐counsel in another

pending class action. Id. at 714–16.

Back in the district court, Siprut made an astonishing request

for supplemental fees. For its work on the motion to

amend the fee award and the prior appeal, Siprut essentially

requested the difference between the $3 million Southwest

agreed not to oppose and the amount we affirmed as reduced

in the prior appeal: $1,365,882. Siprut got to that number by

requesting the same 1.5 multiplier for its post‐judgment time

as for the initial fee award and by claiming 572 hours in attorney

time for the motion to amend and more than 970 hours of

attorney time for the appeal—totals that the district court

rightly called “grossly excessive.” The district court also

noted its impression that “some of the originally hoped‐for

$3,000,000 that Southwest agreed not to oppose is still on the

table, and plaintiffs’ counsel are trying to find a way to get the

rest of it.” In re Southwest Airlines Voucher Litigation, 2016 WL

1623191, at *5 (N.D. Ill. Apr. 25, 2016). The district court declined

to award a multiplier for the post‐judgment work but

nevertheless awarded Siprut one‐third of the requested

amount: $455,294 plus expenses. Id.

Markow moved for reconsideration under Rule 59 and, alternatively,

for vacatur of the settlement approval and accompanying

fee orders under Rule 60(b). The district court

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granted the motion for reconsideration and vacated the additional

fee award so that the class would receive notice of and

a chance to object to it. In re Southwest Airlines Voucher Litigation,

2016 WL 3418565, at *2 (N.D. Ill. June 22, 2016). Markow

appealed.

Before the parties even briefed the second appeal on the

merits, they reached a deal. In exchange for Markow dismissing

his appeal, Siprut agreed to take half of the supplemental

fee award ($227,647 plus $3,529.68 in expenses) and Southwest

agreed to triple the relief to the class (two additional

vouchers for every one claimed). Nevertheless, the district

court was also told—apparently for the first time—that the

correct number of vouchers claimed under the original settlement

was less than one third what the parties had told the district

court earlier about the original settlement it had approved.

The district court approved the new settlement.

Southwest distributed the vouchers and paid Siprut.

Markow then moved for $80,000 in attorney fees and an

incentive award of $1,000 to come out of the more than $1.8

million attorney fee award to Siprut. Markow describes his

request as “a fraction of his lodestar and less than 5% of class

counsel’s total award.” The district court denied the motion.

Southwest II, 2017 WL 5295372, at *5. Markow has appealed

that denial.

II. Analysis

We review attorney fee awards in class actions for abuse

of discretion. Birchmeier v. Caribbean Cruise Line, Inc., — F.3d

—, —, 2018 WL 3545146, at *3 (7th Cir. July 24, 2018), citing

Silverman v. Motorola Solutions, Inc., 739 F.3d 956, 958 (7th Cir.

2013). The deferential standard of review stems from the fact

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that “[d]istrict courts are far better suited than appellate

courts to assess a reasonable fee in light of the case’s history.”

Harman v. Lyphomed, Inc., 945 F.2d 969, 973 (7th Cir. 1991). A

district court abuses its discretion when it “reaches an erroneous

conclusion of law, fails to explain a reduction or reaches a

conclusion that no evidence in the record supports as rational,”

id., and “we review a district court’s legal analysis and

methodology de novo,” Anderson v. AB Painting & Sandblasting

Inc., 578 F.3d 542, 544 (7th Cir. 2009), citing Jaffee v. Redmond,

142 F.3d 409, 412–13 (7th Cir. 1998), and Montgomery v.

Aetna Plywood, Inc., 231 F.3d 399, 408 (7th Cir. 2000). When the

facts are undisputed (as here, where neither party argues that

the agreement is ambiguous), contract interpretation is a legal

question. Bodum USA, Inc. v. La Cafetiere, Inc., 621 F.3d 624, 631

(7th Cir. 2010), citing PSI Energy, Inc. v. Exxon Coal USA, Inc.,

17 F.3d 969, 971 (7th Cir. 1994).

The underlying settlement agreement and the agreement

to settle the second appeal (reflected in the joint status reports)

are silent on the issue of objector’s fees. Given that silence,

we look to the law. See Fed. R. Civ. P. 23(h) (“the court

may award reasonable attorney’s fees and nontaxable costs

that are authorized by law or by the parties’ agreement”) (emphasis

added). Objectors who add value to a class settlement

may be compensated for their efforts. Unless the parties expressly

agree otherwise, settlement agreements should not be

read to bar attorney fees for objectors who have added genuine

value. Because the equitable common‐fund doctrine applies,

Markow’s counsel should receive fees for improving the

settlement.

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A. Settlement Agreement and Status Reports

The original settlement agreement says nothing about objector

fees. It defined the term “Attorneys’ Fees and Expenses”

to mean funds “awarded to Class Counsel by the Court, for distribution

to Class Counsel.” Dkt. 88 at 2, ¶C (emphasis added).

It also set a ceiling and a floor for fees that Southwest would

pay, with court approval, and implied that the parties would

continue to negotiate. The agreement also provided that

Southwest would not pay any amounts not provided for in

the agreement and that Southwest had the right to terminate

the settlement if the district court ordered it to pay any additional

amounts. Eventually, the parties agreed that Southwest

would pay up to $3 million in fees and $30,000 in costs. Southwest

argues that awarding Markow fees out of the amount

already paid to Siprut would undo the underlying settlement

agreement. That is incorrect. Southwest will not have to pay

anything more than it already has: Markow’s fees will come

out of the amount Southwest has already paid to Siprut.

The joint status reports leading up to the settlement of the

second appeal are similarly silent. Other than evidence that

Markow’s lawyers said they would not take fees in exchange

for the dismissing the appeal, no witness testified at the evidentiary

hearing that the parties discussed an attorney fee

award for Markow in the discussions leading up to the filing

of the status reports. See Southwest II, 2017 WL 5295372, at *3–

4 (summarizing hearing evidence). Because those reports are

silent, the district court made a legal error by reading them to

bar Markow’s request.

The final status report represented that “Class Counsel

will receive … $227,647.00” in supplemental fees. That statement

does not bar Markow from filing his own fee motion to

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recover out of the total amount set aside for Siprut. And it

does not mean that Markow agreed to take nothing. Siprut

argues that Markow waived his claim to fees. But he did not.

The non‐profit Center for Class Action Fairness “does not

seek to obtain payments for withdrawing objections and appeals

to settlement approvals,” so Markow’s lawyer told

Siprut that “Markow and his attorneys are not asking for any

payment to themselves as part of these discussions.” Dkt. 374‐1

at 2 (emphasis added). Markow’s lawyer said only that he did

not seek fees as part of the discussions regarding the dismissal

of the second appeal. He did not say that he never intended

to seek fees.

To avoid these problems, the parties should have addressed

objector’s fees up front as part of the comprehensive

settlement negotiations. That they failed to do so does not

doom Markow’s fee request. The roundabout order of operations

Markow chose is problematic: it raises the potential for

an objector to agree to fees for Siprut, to say nothing about

objector’s fees, and then to sandbag the settlement by requesting

fees later. But settlement agreements work both ways, and

the parties never expressly agreed to bar Markow’s request.

B. Common‐Fund Doctrine

Background contractual and equitable principles fill the

gap left by the parties’ agreements. The first of those principles

is that, because of the skewed incentives in some class

action settlements, objectors who bring those incentives back

into balance by increasing a settlement’s benefit to a class may

be compensated for their efforts. See, e.g., Kaufman v. American

Express Travel Related Services Co., 877 F.3d 276, 287–88 (7th Cir.

2017) (affirming attorney fee award for intervenors who contributed

to settlement approval); Eubank v. Pella Corp., 753 F.3d

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718, 720 (7th Cir. 2014) (noting that objectors who improve settlement

“will receive a cash award that can be substantial”),

citing In re Trans Union Corp. Privacy Litigation, 629 F.3d 741

(7th Cir. 2011) (increasing class counsel’s fee award out of relief

awarded to class); Reynolds v. Beneficial Nat’l Bank, 288 F.3d

277, 288 (7th Cir. 2002) (objectors’ lawyers may be entitled to

“reasonable professional fee” where they “render valuable albeit

not bargained‐for services in circumstances in which high

transaction costs prevent negotiation and voluntary agreement”),

citing Gaskill v. Gordon, 160 F.3d 361, 363 (7th Cir.

1998), In re Continental Illinois Securities Litigation, 962 F.2d 566,

568, 571 (7th Cir. 1992), and Saul Levmore, Explaining Restitution,

71 Va. L. Rev. 65, 66 (1985). “The principles of restitution

that authorize such a result also require, however, that the objectors

produce an improvement in the settlement worth more

than the fee they are seeking; otherwise they have rendered

no benefit to the class.” Reynolds, 288 F.3d at 288, citing Class

Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1308 (9th Cir.

1994) (per curiam), and additional cases; see also Vollmer v.

Selden, 350 F.3d 656, 660 (7th Cir. 2003) (distinguishing between

intervenors who raise value of settlement and those

who “cause expensive delay in the hope of getting paid to go

away”).

This recognition is consistent with a second principle: the

common‐fund doctrine. That doctrine provides that “a litigant

or a lawyer who recovers a common fund for the benefit

of persons other than himself or his client is entitled to a reasonable

attorney’s fee from the fund as a whole.” US Airways,

Inc. v. McCutchen, 569 U.S. 88, 96 (2013), quoting Boeing Co. v.

Van Gemert, 444 U.S. 472, 478 (1980); accord, Wal‐Mart Stores,

Inc. Associates’ Health & Welfare Plan v. Wells, 213 F.3d 398, 402

(7th Cir. 2000), citing Boeing, 444 U.S. 472, and additional

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cases. Fee awards for class counsel are part of a constructive

common fund because they are a benefit to the class. See Pearson

v. NBTY, Inc., 772 F.3d 778, 781 (7th Cir. 2014) (“value of

the settlement” is “defined as the sum of the awards to the

class and to its lawyers”); see also Redman v. RadioShack Corp.,

768 F.3d 622, 630 (7th Cir. 2014) (“relevant” ratio for “assessing

the reasonableness of the attorneys’ fee” in coupon class action

settlement “is the ratio of (1) the fee to (2) the fee plus

what the class members received”); In re General Motors Corp.

Pick‐Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768,

821 (3d Cir. 1995) (“private agreements to structure artificially

separate fee and settlement arrangements cannot transform

what is in economic reality a common fund situation into a

statutory fee shifting case”).

The common‐fund doctrine applies as a default rule unless

the parties draft their settlement agreement to depart

from it. Cf., e.g., US Airways, 569 U.S. at 101–05 (permitting

ERISA plan participant to raise common‐fund doctrine as equitable

defense to plan administrator’s reimbursement action

where language from summary plan description was silent on

allocation of attorney fees). “Contracts are enacted against a

background of common‐sense understandings and legal principles

that the parties may not have bothered to incorporate

expressly but that operate as default rules to govern in the absence

of a clear expression of the parties’ contrary intent.” Id.

at 102 (cleaned up), quoting Wal‐Mart Stores, 213 F.3d at 402,

and citing 11 R. Lord, Williston on Contracts § 31:7 (4th ed.

2012), and Restatement (Second) of Contracts § 221 (1979).

Because these parties did not address objector’s fees, we

“interpolate” the common‐fund doctrine “to avoid wreaking

unintended consequences,” Wal‐Mart Stores, 213 F.3d at 402,

10 No. 17‐3541

like the one that would result here. It would be inequitable for

Markow’s lawyer to receive nothing despite negotiating, in

exchange for dropping the second appeal, a tripling of relief

for the class and a significant cut to Siprut’s fees. Markow’s

$80,000 fee request is a modest 10% of the market value of the

additional vouchers, $825,630. The request is even more modest

if it is calculated based on the higher $5 face value of the

vouchers. Either calculation shows that this is not a case

where an objector ran up a tab with minimal value added.

E.g., Mirfasihi v. Fleet Mortgage Corp., 551 F.3d 682, 687–688 (7th

Cir. 2008) (denying objector’s “preposterous” request for 40

times the fees awarded by district court because “improvement

that the objectors produced in this case, minus the detriment

caused by their courtroom antics, barely justified the

modest fee that the judge awarded them”).

Despite this remand, our message is clear: we expect this

case to end “so that the tail can stop wagging the dog.” Estate

of Enoch v. Tienor, 570 F.3d 821, 823 (7th Cir. 2009). Other than

the award of fees to Markow, there will be no more fees in this

case: Siprut represented to us at oral argument that they will

not seek more fees after this appeal. That is wise. We find it

difficult to reconcile Siprut’s rapacious requests for fees in the

district court with our decision in the prior appeal that reduced

its already generous fee award as a modest penalty for

failing to disclose a potential conflict of interest. After that appeal,

the extraordinarily inflated value of the settlement came

to light (the actual number of vouchers claimed was less than

a third of what the district court was told), and Southwest tripled

the relief to the class despite our belief that the class

could have done no better. Based on these unexpected developments,

we would have been inclined to reverse any award

of supplemental fees in the second appeal—especially given

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hours that the district court called “grossly excessive.” But we

have no jurisdiction to address the supplemental fee award

because Markow dismissed that appeal. “No matter the outcome

of this appeal, class counsel will receive more than the

$1.65 million fee award that this Court decided to reduce as a

penalty for class counsel’s failure to disclose his business relationship

with one of the two named plaintiffs.” Reply Br. at 1.

That is troubling.

We could expand our jurisdiction by taking the extraordinary

step of recalling our mandate from the earlier appeal.

E.g., Patterson v. Crabb, 904 F.2d 1179, 1180 (7th Cir. 1990) (noting

appellate court’s inherent authority to recall mandate

“only in exceptional circumstances”), citing Johnson v. Bechtel

Associates Prof’l Corp., 801 F.2d 412, 416 (D.C. Cir. 1986) (per

curiam), American Iron & Steel Institute v. EPA, 560 F.2d 589,

593–95 (3d Cir. 1977), Zipfel v. Halliburton Co., 861 F.2d 565, 567

(9th Cir. 1988), and 16 Wright & Miller, Federal Practice and

Procedure § 3938 (1977). We decline to do so because Southwest

has distributed the vouchers and paid Siprut. It is time

to end this litigation.

We REVERSE the denial of Markow’s motion for fees and

an incentive award and REMAND for entry of a judgment

granting Markow’s request, payable from Siprut.