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Date: 08-02-2018

Case Style:

In Re: Southwest Airlines Voucher Litigation

Northern District of Illinois Courthouse - Chicago, Illinois

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Case Number: 17-3541

Judge: Hamilton

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney: Joseph J Siprut, Stephen C. Jarvis, Todd Lawrence McLawhorn and Gregory Wood Jones for Adam J. Levit, et al. (Plaintiff)


Melissa A Holyoak and Kirstin Beth Ives for Gregory Markow (Intervenor)

Defendant's Attorney: Michael William Drumke, Leonard A. Gail, Eli Johnson Kay-Oliphant, Gregg Michael McCormick

Description: 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
No. 17‐3541 3
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
4 No. 17‐3541
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
No. 17‐3541 5
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.
6 No. 17‐3541
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
No. 17‐3541 7
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
8 No. 17‐3541
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
No. 17‐3541 9
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
No. 17‐3541 11
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.

Outcome: 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.

Plaintiff's Experts:

Defendant's Experts:

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