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9th Cir. Rejects ‘Coupon Settlement’ and Other Challenges to Class Counsel Fee Award

The U.S. Court of Appeals for the Ninth Circuit recently rejected several challenges to an attorney’s fee award in connection with a class action settlement.

In so ruling, the Ninth Circuit held that the class action settlement was not a coupon settlement, and the trial court did not err in concluding that the settlement was not subject to the restrictions on the award of attorney’s fees to class counsel imposed on such settlements by the federal Class Action Fairness Act.

In addition, the Ninth Circuit held that the trial court did not abuse its discretion in calculating the class counsel’s fee award.

A copy of the opinion in Byron McKnight, et al v. Uber Technologies, Inc., et al is available at:  Link to Opinion.

A class of plaintiffs brought breach of contract and consumer law claims against a rideshare company alleging the company misrepresented the safety measures, background checks, and other efforts it took to provide safety for its customers.

The trial court certified a class of approximately 22.4 million members and approved a settlement that provided both monetary and injunctive relief. The plaintiffs had requested $8.125 million in fees — i.e., 25% of the face value of the settlement fund and a 4.4 multiplier on their lodestar of $1,961,905. The trial court held that CAFA attorney fee restrictions did not apply. 

The trial court, applying the percentage-of-fund method, granted fees but reduced the award to $5,689,440, which was approximately 17.5% of the face value of the fund and 2.9 times the lodestar. Three objectors appealed the fee award.

Under CAFA, 28 U.S.C. § 1712, the courts must apply “heightened scrutiny” when approving settlement agreements awarding coupon relief. In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 949 (9th Cir. 2015). In addition, the courts must apply “a series of specific rules” to attorney fee awards in coupon settlements under § 1712(a)–(c). In re HP Inkjet Printer Litig., 716 F.3d 1173, 1178 (9th Cir. 2013).

Where a settlement awards both coupon and non-coupon relief, such as monetary or injunctive relief, “the total fee award . . . is the sum of: (i) ‘a reasonable contingency fee based on the actual redemption value of the coupons’” and “(ii) ‘a reasonable lodestar amount to compensate class counsel for any non-coupon relief obtained.’” Chambers v. Whirlpool Corp., 980 F.3d 645, 659, 660 (9th Cir. 2020) (quoting HP Inkjet, 716 F.3d at 1184–85).

However, Section 1712 only applies if the settlement is a “coupon settlement.” Online DVD, 779 F.3d at 950. Courts apply the three factors identified in Online DVD to determine whether a particular instance of class relief is a coupon: “(1) whether class members have ‘to hand over more of their own money before they can take advantage of’ a credit, (2) whether the credit is valid only ‘for select products or services,’ and (3) how much flexibility the credit provides, including whether it expires or is freely transferrable.” Easysaver, 906 F.3d at 755 (quoting Online DVD, 779 F.3d at 951).

Regarding the first Online DVD factor, the Ninth Circuit determined that the class payouts in this case were based on the number of “Safe Rides Fees” that each individual class member incurred. The average award was approximately $1.07, with the largest single award estimated at $135.40, but a majority of class members receiving $0.35 or less. Although most class members’ settlement awards were too small to purchase a ride without paying more out of pocket, the Court held that this factor weighed against defining the credits as coupons because class members could claim their reward up-front in cash and also passively receive cash if they did not use their credit.

However, the Ninth Circuit also concluded that the second Online DVD factor weighed in favor of holding the credits as coupons because the credits were only valid for that particular rideshare company’s services. See Chambers, 980 F.3d at 660.

Nevertheless, the Ninth Circuit decided that the third Online DVD factor favored holding that the settlement at issue here was not a coupon settlement. This is because, upon one year’s expiration, the credits became cash without requiring further action by the class member. In the Court’s view, the reversionary cash payment provided a flexible alternative to using the credits and structuring the payment in this fashion saved administrative expense.

Because two of the three Online DVD factors favored characterizing the settlement as a non-coupon settlement, the Ninth Circuit held that the trial court did not err in concluding that the settlement was not a coupon settlement within the meaning of CAFA.

Additionally, the Ninth Circuit held that the trial court did not abuse its discretion in calculating the class counsel’s fee award. See In re Hyundai & Kia Fuel Economy Litigation, 926 F.3d 539, 556 (2019) (en banc) (defining standard of review).

Specifically, the Ninth Circuit held that the trial court did not err in awarding fees for hours spent pursuing unsuccessful settlements. Although a court should not award fees for “hours that are excessive, redundant, or otherwise unnecessary,” Hensley v. Eckerhart, 461 U.S. 424, 434–35 (1983), the Ninth Circuit noted that a trial court is not precluded from compensating attorneys for time spent negotiating unsuccessful settlements, so long as the fees are not “excessive, redundant, or otherwise unnecessary.” Here, the second, and final, settlement merely amended the first, so the Court reasoned that the hours spent negotiating the first settlement were not redundant or unnecessary.

Accordingly, the Ninth Circuit concluded that the trial court correctly concluded that the settlement here was not a coupon settlement within the meaning of CAFA and did not abuse its discretion in making the fee award. Therefore, the Court affirmed the trial court’s ruling.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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