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Attorney: Coupon settlements persist in post-CAFA world

By Kyla Asbury | Nov 12, 2014

CHICAGO (Legal Newsline) - In the wake of 2005's Class Action Fairness Act, class action settlements that provide coupons to class members have surprisingly survived, a Sidley Austin attorney recently said.

Kara McCall, a partner with Sidley Austin who works in its Chicago office, said when CAFA went into effect, a lot of people felt coupon settlements were dead.

"In some instances they were the same, and in some instances they were different," McCall said. "After a few years, we wanted to see how they were doing and we discovered they certainly were not dead."

McCall authored a paper with Michael W. Davis and Caroline L. Schiff of Sidley Austin titled "Coupon Settlements Play Continuing Role in Class Litigations After CAFA."

McCall said coupon settlements are often at a higher value than if the company paid a cash settlement.

"A coupon settlement is still judged the sale as a regular cash settlement," McCall said. "The court will still make sure that the settlement is fair, reasonable and adequate and will look at the attorneys fees and all that is involved with that settlement before approving or denying it."

McCall said coupon settlements are effective and because of CAFA, they are regulated so that class members receive a fair settlement.

There are criticisms to coupon settlements, such as some believing they are a way for plaintiffs attorneys to inflate their own fees at the expense of the class members. However, CAFA removes the economic incentive for attorneys to negotiate such settlements at the expense of absent class members, according to McCall's paper.

In coupon settlements, federal courts must hold a hearing and make specific findings that the coupon settlement is fair, reasonable and adequate and that the class members' interests are represented.

According to McCall's paper, based on the case law both before and after CAFA was enacted, there are several features of a coupon settlement that parties should keep in mind when drafting such a settlement.

She says courts are more inclined to approve coupon settlements when:

-There are few or no restrictions on the use of such coupons;

-The coupon is not limited to a good or service that is rarely purchased;

-The coupon does not require the purchase of the challenged product;

-The value of the coupon is reasonable in light of the overall cost; 

-The claims process is not overly complicated; 

-A cash payout is impractical or impossible.

"As long as class members are receiving a fair settlement, coupon settlements can be a great value to the class members," McCall said.

Congress enacted CAFA in part because of a growing concern that the attorneys receive excessive attorneys' fees with little or no recovery for the class members themselves.

CAFA sharply limits the ability of attorneys to tie their fee awards to the nominal value of the coupons available to the settlement class, according to McCall's paper.

CAFA limits attorneys fees in coupon settlements when coupons provide the sole basis of relief or if the attorneys fees awarded are not based on the recovery to the class.

If a proposed settlement includes a cy pres provision, the distribution of any such proceeds "shall not be used to calculate attorneys' fees, McCall's paper states.

David Martinez, a partner at Robins, Kaplan, Miller & Ciresi, wrote an article in 2009 stating that since CAFA was enacted, attorneys fees in coupon settlements have been regulated by providing that any portion of fees attributable to the award of the coupons "shall be based on the value to class members of the coupons that are redeemed" rather than the theoretical value of the coupons available for redemption.

Martinez went on to say that redemption rates can be affected by various factors, including the eligibility and use restrictions associated with the coupons and the transaction costs involved in redeeming them.

Because valuation can be complex, CAFA provides that the court "may receive expert testimony...on the actual value to the class members of the coupons that are redeemed," according to Martinez's article.

According to a class action plaintiffs lawyer, settlements that result in plaintiffs receiving coupons are better results than class members receiving nothing and cash-strapped defendants being bankrupted.

Abbas Kazerounian of Kazerouni Law Group said in a lot of situations, a coupon or gift certificate is the best decision.

"The purpose of a class action is not to bankrupt the company," Kazerounian said. "They need to be held accountable, but the defendant must survive."

Kazerounian said in some cases, a company is not financially stable enough to give a complete cash settlement and will give coupons and gift certificates so that it can settle the lawsuit without going bankrupt and closing down.

"In some cases, a $100 gift certificate is all the company can afford, and you would rather the class members receive that than nothing at all," Kazerounian said. "It's very case-specific. Not all settlements are the same."

Kazerounian said not every case is a slam dunk, and that if a company is offering a coupon as its settlement, that is better than nothing at all.

"If you've got a class action in which you have a 70 or 80 percent chance of losing, that gift certificate is better than losing and not receiving anything at all," he said.

From Legal Newsline: Kyla Asbury can be reached at

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