Ninth Circuit Affirms That Class Action Settlement Was Not a "Coupon Settlement"

The U.S. Court of Appeals for the Ninth Circuit in McKnight v. Hinojosa, No. 21-16623, 2022 WL 17333820 (9th Cir. Nov. 30, 2022) considered whether the proposed class action settlement was a "coupon settlement" and therefore subject to the restrictions on the award of attorneys' fees to class counsel imposed by the Class Action Fairness Act (CAFA). 28 U.S.C. Section 1712. Congress enacted CAFA in part out of "concern about settlements when class members receive little or no value, including settlements in which counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value." CAFA, Pub. L. No. 109-2, § 2, 119 Stat. 4 (2005). Section 1712 only applies if the settlement is a "coupon settlement" and addresses this concern in two ways. First, under § 1712(e), courts must apply "heightened scrutiny" when approving settlement agreements awarding coupon relief. Id. at 949. Second, courts must apply "a series of specific rules" to attorneys' fees awards in coupon settlements under § 1712(a)–(c). In re HP Inkjet Printer Litig., 716 F.3d 1173, 1178 (9th Cir. 2013).

The Ninth Circuit affirmed the district court's judgment awarding attorneys' fees by holding that the parties' settlement was not a coupon settlement and affirmed the district court's application of the percentage-of-fund method, reducing the requested award of $8.125 million to $5,689,440, representing 17.5% of the value of the fund and 2.9 times the lodestar, which represents the value of the work performed based on the number of hours reasonable spent and reasonable hourly rates for that work.

Case Background

In McKnight v. Hinojosa, the Ninth Circuit heard the consolidated appeal of the Plaintiff-Appellees who represented a class that brought breach of contract and consumer law claims against Uber Technologies Inc. and Raiser LLC (Uber) alleging the misrepresentation of "Safe Rides Fees" and the safety measures, background checks and other efforts taken to provide safety for customers.

The parties reached an initial settlement in 2016, and the district court approved a revised settlement in August 2019 (the Settlement). The district court then approved and certified a settlement class of approximately 22.4 million members. The class included anyone who used Uber ridesharing services in the United States between Jan. 1, 2013, and Jan. 31, 2016, and was charged a Safe Rides Fee. The Settlement provided both monetary and injunctive relief, including $32.5 million into a "non-reversionary settlement fund" with class members receiving $0.25 each for the first Safe Ride Fee and $0.05 for each subsequent fee, with the average class member receiving $1.07. Settlement funds were to be paid in three stages: first, through the submission of a claim form and payments through cash, PayPal or eCheck; second as credits to the Uber account; and third, after one year, Uber would make a one-time attempt to remit any unused credit to the class member's payment account with Uber. For injunctive relief, the Settlement prohibited Uber from charging a Safe Rides Fee and limited representations that Uber can make as to its driver background check policies and the safety of its services.

The district court approved the settlement and reasoned the CAFA's attorney fee restrictions applicable to coupon settlements did not apply. Accordingly, the district court applied the percentage-of-fund method, granting fees but reducing the award because the settlement amount fell near the bottom of the "range of possible approval" and because on a lodestar cross-check, "even the reduced fee award granted a healthy multiplier of the fees actually incurred." Three objectors appealed by contending the district court erred by not applying CAFA's attorney fee provisions and abused its discretion when calculating the award. The Ninth Circuit affirmed.

Ninth Circuit's Decision

On appeal, the Ninth Circuit addressed the applicability of CAFA's coupon provisions to the class action settlement agreement. The court applied the three factors identified in In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 950-951 (9th Cir. 2015) to determine whether a particular instance of class relief qualifies as a coupon settlement including: "(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."

Applying the first of these factors, the court reasoned the class payouts provided the number of "Safe Rides Fees" incurred by each class member valued at approximately $1.07. The court reasoned the first factor weighed against defining the credits as coupons because class members could claim their reward upfront in cash and also receive cash if they do not use their credit. The second Online DVD factor weighed in favor of construing the Settlement as a coupon settlement because the credit is valid for Uber services. The court determined the third factor weighed against holding the Settlement was a coupon settlement because, while the credits were not transferable and expire after one year, the credits still become cash without requiring further action and there were no blackout dates. However, relying on precedent, the court reasoned no one factor was dispositive.

Ultimately, the Ninth Circuit reasoned that the district court did not err in concluding that the Settlement was not a coupon settlement because two of the three Online DVD factors favored characterizing the Settlement as a non-coupon settlement within the meaning of the CAFA. The court acknowledged that the amounts to be distributed were "modest, even minuscule, " but did not find this dispositive. The Ninth Circuit noted the amount paid in settlement is properly the subject of a fairness hearing — unless the amount is disproportionate to the actual value but is still not determinative of whether the Settlement is a coupon settlement or not. As such, the Court affirmed the district court's attorneys' fees award and held that the district court did not err in awarding fees for hours spent pursuing unsuccessful settlements. Since the final Settlement only amended the first settlement, the hours spent in negotiation were not held to be redundant or unnecessary. Thus, the Court held it was reasonable in comparison with other awards to reduce the fee award below the 25 percent benchmark because of the modest degree of success and because awarding the 25 percent benchmark would have overcompensated class counsel compared to their lodestar.

Attorneys' Fees and Additional Clarification

CAFA's attorney fee restrictions were reduced from the requested $8.125 million in fees (25% of the face value of the fund and a 4.14 multiplier on the lodestar of $1,961,905) to $5,689,440, or 15.5% of the face value of the fund and 2.9 times the lodestar.

The Ninth Circuit held that the district court did not abuse its discretion in calculating the fee award: "While recognizing that 25% of the fund is a 'presumptively reasonable amount,' the district court reduced the award because the Settlement amount fell near the bottom of the 'range of possible approval,' and because on a lodestar cross-check, even the reduced fee award granted a healthy multiplier on the fees actually incurred."

It is important to analyze class action fee awards for their reasonableness by reviewing the standards outlined by the Ninth Circuit's decision. For further questions about the Ninth Circuit opinion, please contact the authors.

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