Coupon Settlements Play Continuing Role in Class Litigation After CAFA

Coupon settlements are an effective way of resolving class actions, particularly ones in which individual consumers have very small damages. Yet coupon settlements have sometimes been viewed as a tactic for plaintiffs’ counsel to inflate their own fees at the expense of class members. ¹See Christopher R. Leslie, “The Need to Study Coupon Settlements In Class Action Litigation,” 18 Geo J. Legal Ethics 1395, 1396-97 (2005) (criticizing coupon settlements because they often fail to provide “meaningful compensation” to class members, “fail to disgorge ill-gotten gains from the defendant,” and “may require the class members to do future business with the defendant in order to receive compensation.”), cited and quoted in Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1301-02 (S.D. Fla. 2007); The Class Action Fairness Act of 2005, Senate Report 109-14 (2005) at 30 (provision is “aimed at situations in which plaintiffs’ lawyers negotiate settlements under which class members receive nothing but essentially valueless coupons, while the class counsel receive substantial attorneys’ fees”); Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (Feb. 18, 2005) §2 (“(a) Congress finds … (3) Class members often receive little or no benefit from class actions, and are sometimes harmed, such as where (A) counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value.”). To ensure that coupon settlements are properly reviewed by the courts, and to remove the economic incentive for lawyers to negotiate such settlements at the expense of absent class members, Congress included several provisions in the Class Action Fairness Act of 2005 (“CAFA”), 28 USC §§1332(d), 1453, and 1711, et seq., that regulate coupon settlements. Significantly, however, CAFA did not eliminate coupon settlements or even materially restrict their use. Coupon settlements, if appropriately structured, are still a realistic, acceptable means to resolve class litigation. ²Although CAFA does not define the term “coupon settlement,” the term is typically understood to mean a settlement where the relief constitutes “a discount on another product or service offered by the defendant in the lawsuit.” Fleury v. Richemont North America, Inc., No. C-05-4525EMC, 2008 BL 165301 (N.D. Cal. Aug. 6, 2008).

This article examines coupon settlements after CAFA. ³CAFA changed the law related to class actions on several fronts, including the expansion of diversity jurisdiction, and other limitations and notice requirements related to all settlements, not just coupon settlements. See 28 U.S.C. §§1332, 1453, 1711-15. This article, however, is limited to the CAFA provisions relating to coupon settlements, found in 28 U.S.C. §1712. The first section reviews the substantive provisions of CAFA governing coupon settlements, including rules regarding fairness hearings, expert testimony, cy pres awards, and attorneys’ fees. The second section discusses how courts have evaluated coupon settlements after CAFA, and the third section discusses the courts’ approach to attorneys’ fee awards in such settlements post-CAFA. Finally, this article provides thoughts for securing approval of a coupon settlement post-CAFA.

CAFA Provisions
Related to Coupon Settlements

Hearings and Findings—28 U.S.C. §1712(e)

Federal Rule of Civil Procedure 23(e)(2) requires courts to hold a hearing to review class action settlements to ensure that they are “fair, reasonable, and adequate.” Historically, courts reviewing class action settlements have interpreted Rule 23(e)(2) to require consideration of “the strength of plaintiffs’ case compared to the amount of defendants’ settlement offer, an assessment of the likely complexity, length and expense of the litigation, an evaluation of the amount of opposition to settlement among affected parties, the opinion of competent counsel, and the stage of the proceedings and the amount of discovery completed at the time of settlement.” Isby v. Bayh, 75 F.3d 1191, 1199 (7th Cir. 1996). See also, e.g., Bennett v. Behring Co., 737 F.2d 982, 986 (11th Cir. 1984) (applying similar factors); UAW v. General Motors, 497 F.3d 615, 631 (6th Cir. 2007) (same, plus requiring consideration of the risk of fraud or collusion and the public interest); Hanlon v. Chrysler Corp., 150 F.3d 1011, 1027 (9th Cir. 1998) (also considering the risk of maintaining class certification).

CAFA requires courts to hold a hearing and issue written findings in order to ensure that a coupon settlement is “fair, reasonable, and adequate for class members.” 28 U.S.C. §1712(e). Although this language is based on identical language in Rule 23(e)(2), several courts have interpreted CAFA as requiring heightened judicial scrutiny of coupon settlements, ⁴See, e.g., True v. Amer. Honda Motor Co.,
749 F. Supp. 2d 1052, 1069 (C.D. Cal. 2010) (even though the language is identical, “several courts have interpreted section 1712(e) as imposing a heightened level of scrutiny in reviewing [coupon] settlements”); Figueroa, 517 F. Supp. 2d at 1320-21 (“the undersigned interprets the statutory directive to imply the application of a greater level of scrutiny to the existing criteria than existed pre-CAFA”); Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 654 (7th Cir. 2006) (expressing, in dicta, that with CAFA, “Congress required heightened judicial scrutiny of coupon-based settlements”). But see Radosti v. Envision EMI, LLC, 717 F. Supp. 2d 37, 55 (D.D.C. 2010) (rejecting state Attorneys’ General argument that CAFA requires heightened scrutiny of coupon settlements: “[T]he judicial scrutiny called for by § 1712(e) is indistinct from the scrutiny required by Rule 23(e). …”). even while still considering the factors that have historically been considered under Rule 23(e). See, infra, Section II.

Expert Testimony—28 U.S.C. §1712(d)

Section 1712(d) of CAFA provides that a court “may, in its discretion upon the motion of a party, receive expert testimony from a witness qualified to provide information on the actual value to the class members of the coupons that are redeemed.” 28 U.S.C. §1712(d). Such testimony can assist the court in determining the fairness of the proposed settlement and the proper contingency fee. Senate Report, supra fn. 1, at 31. ⁵It is unclear whether the Court may, sua sponte, ask for expert testimony on the valuation of the coupons where neither of the parties has requested it. The language appears to require the motion of one of the parties, but it does not appear that any courts have addressed this issue.

Cy Pres Distribution—28 U.S.C. 1712(e)

Cy pres (or “next best use”) is a distribution method in which the court attempts to distribute monetary or in-kind contributions to the “next best” recipients, typically a charitable organization. ⁶See 3 Newberg on Class Actions § 10:17 (4th ed. Dec. 2008); Fogie v. Thorn America, Inc., No. 3-94-359-MJD, 2001 BL 1858 (D. Minn. Mar. 9, 2001). Sometimes a cy pres award may be the only appropriate form of monetary relief because direct payments to the members of the putative class may be impractical. ⁷See, e.g., Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1305 (9th Cir. 1990) (recognizing that “[f]ederal courts have frequently approved [cy pres awards] in the settlement of class actions where the proof of individual claims would be burdensome or the distribution of damages costly”); Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir. 2004) (cy pres award “prevent[s] the defendant from walking away from the litigation scot-free because of the infeasibility of distributing the proceeds of the settlement.”). Cy pres awards are also awarded where, based on the particular facts of the case, a separate or minimum payment outside of the distribution to the class members may be appropriate. In either event, courts have held that distributing unclaimed funds to a charitable organization in the form of a cy pres award confers a benefit to the class. ⁸See, e.g., re Mexico Money Transfer Litig., 267 F.3d 743, 746 (7th Cir. 2001) (upholding approval of settlement including cy pres provision requiring defendants to pay about $4.6 million to organizations that assist the Mexican-American community). And all things being equal, a meaningful cy pres provision may increase the likelihood of settlement approval. See, e.g., Radosti v. Envision EMI, LLC, 717 F. Supp. 2d 37 (D.D.C. 2010) (approving coupon settlement that provided for cy pres distribution of more than $3 million in scholarships for youth educational conferences); In re Tyson Foods, Inc. Chicken Raised Without Antibiotics Consumer Litig., No. RDB-08-1982, 2010 BL 114091 (D. Md. May 11, 2010) (approving coupon settlement that included cy pres donations of food products to foodbanks).

CAFA recognizes that, under certain circumstances, a cy pres award may be appropriate to supplement a coupon settlement. CAFA expressly authorizes a court to “require that a proposed settlement agreement provide for the distribution of a portion of the value of unclaimed coupons to 1 or more charitable or governmental organizations, as agreed to by the parties.” 28 U.S.C. §1712(e).

Attorneys’ Fees—CAFA §1712(b), (c)

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,” Senate Report, supra fn. 1, at 14, frequently because only a small percentage of coupons are actually redeemed by class members. Id. at 30. CAFA therefore sharply curtails the ability of attorneys to tie their fee awards to the nominal value of the coupons available to the settlement class. CAFA limits attorneys’ fees in coupon settlements as follows:

• When Coupons Provide Sole Basis of Relief: If the attorneys’ fee award is contingent upon recovery to the class, “the portion of any attorneys’ fee award to class counsel that is attributable to the award of coupons shall be based on the value to class members of the coupons that are redeemed,” not the face value of the coupons issued. ⁹See also Radosti, 760 F. Supp. 2d at 78 (awarding attorneys’ fees amounting to “just under 33% of the value of the coupons redeemed by the class members.”)

• Required Use of Lodestar/Multiplier: If the attorneys’ fee award is not based on the recovery to the class, “any attorney’s fee award shall be based upon the amount of time class counsel reasonably expended working on the action.” 28 U.S.C. § 1712(b)(1). The lodestar may, however, be augmented by a reasonable multiplier. Id. at §1712(b)(2) (“[n]othing in this subsection shall be construed to prohibit application of a lodestar with a multiplier method of determining attorney’s fees.”). ¹⁰Note that, although not expressly required by the language of the statute, the Senate Report states that the lodestar/multiplier method of calculating attorneys’ fees is available when a settlement is “based in part on coupon relief.” Senate Report, supra fn. 1, at 30 (emphasis added). While this comment arguably could be used to allow the lodestar/multiplier method only when there is a non-coupon component, post-CAFA courts have used a lodestar/multiplier method of fee calculation even where the settlement did not have any cash relief for class members. See, e.g., Fleury v. Richemont N. Amer., Inc., No. C-05-4525-EMC, 2008 BL 165301 (N.D. Cal. July 3, 2008); Perez v. Asurion Corp., No. 06-20734, 2007 BL 261936 (S.D. Fla. Aug. 8, 2007).

• Coupons and Injunctive Relief: If a proposed settlement provides for coupons and for equitable or injunctive relief (an agreement to withdraw or alter advertising, e.g.), attorneys’ fees may be based in part on the value of the coupons redeemed and in part on the lodestar method. Id. at §1712(c).

• Cy Pres: If a proposed settlement includes a cy pres provision, the distribution of any such proceeds “shall not be used to calculate attorneys’ fees.” 28 U.S.C. § 1712(e). Nevertheless, courts may consider the cy pres distribution in deciding the overall reasonableness of an attorneys’ fee award, even though they may not be using the cy pres distribution to “calculate” the fee. See, e.g., Radosti v. Envision EMI, LLC, 760 F. Supp. 2d 73, 79 (D.D.C. 2011) (“The reasonableness of the fee award is bolstered by the fact that Class Counsel also obtained equitable relief in the form of the cy pres fund.”).

Treatment of Coupon Settlements After CAFA

Both federal and state courts have taken differing approaches to evaluation and approval of the use of coupon settlements in class actions post-CAFA.

Federal Court Approaches

No Change:

Post-CAFA, several courts evaluating coupon-based class action settlements have expressly noted that the CAFA requirements for evaluating coupon settlements are no higher than the traditional Rule 23(e) requirements of fairness, reasonableness, and adequacy, or, alternatively, have not expressly considered the issue. For instance, in approving a settlement involving vouchers for educational youth conferences, and in the face of a brief from 22 state Attorneys General asking for heightened scrutiny in light of CAFA, the court in Radosti v. Envision EMI, LLC, 717 F. Supp. 2d 37 (D.D.C. 2010), stated that “the judicial scrutiny called for by §1712(e) is indistinct from the scrutiny required by Rule 23(e).” Id at 55. Although the court recognized that coupon settlements “pose a particular risk of unfairness and unreasonableness,” the court went on to apply the traditional Rule 23(e) factors, and finally approved the settlement. Id. at 56-64.

Other federal courts considering coupon settlements post-CAFA have implicitly assumed that the standards are the same. See, e.g, In re Tyson Foods, Inc., No. RDB-08-1982, 2010 BL 114091 (D. Md, May 11, 2010) (finally approving use of coupons for Tyson food products to settle false advertising class action, with no discussion of CAFA); David v. American Suzuki Motor Corp., No. 08-CV-22278, 2010 BL 319814 (S.D. Fla. Apr. 15, 2010) (approving settlement with coupon component without using any heightened scrutiny or reliance on CAFA); Date v. Sony Electronics Inc.,, No. 07-15474., 2009 BL 55647 (E.D. Mich. Feb. 20, 2009) (rejecting class action settlement that gave “e-credits” to plaintiffs to put toward Sony merchandise, with no reference to CAFA); Curiale v. Lenox Group Inc., No. 07-1432, 2008 BL 255475 (E.D. Pa. Nov. 14, 2008) (preliminarily approving use of coupons to settle class action alleging violations of Fair and Accurate Credit Transaction Act, with no discussion of CAFA); Fleury v. Richemont N. Amer., Inc., No. C-05-4525, Doc. 278 (July 3, 2008) (finally approving class settlement in antitrust case involving watchmaker defendant, considering only Rule 23).

Heightened Scrutiny:

Other federal courts have interpreted CAFA to require a “heightened scrutiny” of coupon settlements. For instance, in Figueroa v. Sharper Image Co., 517 F. Supp. 2d 1292 (S.D. Fla. 2007), the Southern District of Florida refused to approve a proposed coupon settlement after applying CAFA. Plaintiffs claimed that Sharper Image falsely advertised the attributes of certain of its air purifier products. Id. at 1294. The proposed settlement provided class members with a $19 merchandise credit that could only be used at Sharper Image retail stores. Id. at 1294-95. While recognizing that the CAFA language requiring a coupon settlement to be “fair, reasonable, and adequate” was no different from Rule 23(e), the court nonetheless determined that it must apply a “greater level of scrutiny to the existing criteria than existed pre-CAFA” to achieve Congress’s goal of making coupon settlements more fair. Id. at 1321. Ultimately, the Court rejected the proposed settlement on various grounds, including the high number of objectors (including 35 state attorneys general) and the lack of interest by class members. Id. at 1328-29.

In True v. American Honda Motor Co., 749 F. Supp. 2d 1052 (C.D. Calif. 2010), the court recognized that, despite the language identical to Rule 23(e), “several courts have interpreted section 1712(e) as imposing a heightened level of scrutiny in reviewing [coupon] settlements.” Id. at 1069. The True court even went so far as to state that “such settlements are generally disfavored.” Id. Not surprisingly, the court went on to reject the proposed settlement, which provided for cash rebates for Honda hybrid vehicle owners who chose to trade in their hybrid vehicles and purchase a different Honda vehicle. The Court stated that, when determining the fairness of a coupon settlement, it should “consider, among other things, the real monetary value and likely utilization rate of the coupons provided by the settlement.” Id. at 1073 (citing Senate Report, supra fn. 1, at 31). The Court determined that the expert testimony presented by plaintiffs regarding the value of the coupons was flawed because, inter alia, many class members disappointed in the performance of their Honda vehicles would be unlikely to purchase another Honda vehicle (a requirement for obtaining a rebate) and the expert had valued the rebates at their full face value. Id. at 1073-74. The Court recognized that “[c]ourts have generally rejected the idea that the face value of coupons or rebates should be used for settlement valuation purposes,” and that “compensation in kind is worth less than cash of the same nominal value.” Id. (citing Acosta v. Trans Union, LLC, 243 F.R.D. 377, 390 (C.D. Cal. 2007) (quoting In re Mexican Money Transfer Litig., 267 F.3d 743, 748 (7th Cir. 2001)).

The Court was also skeptical of plaintiffs’ expert’s 14% projected rebate redemption rate, given that the rate had been less than 2% in other similar cases. Id. at 1074-75 (citing White v. Gen. Motors Corp., 835 So.2d 892, 896-97 (La. Ct. App. 2002)). Ultimately, the court found the cash rebates to be of little value, found that very few would actually be redeemed, and also took into consideration the objections of 26 state Attorneys General in refusing to approve of the settlement. Id. at 1082. See also Sobel v. Hertz Corp., No. 3:06-cv-00545-LRH-RAM, 2011 BL 168887 (D. Nev. June 27, 2011) (“Coupons are inherently worth less than cash, particularly where as here the coupons have no cash value, transferability is substantially restricted, and redemption rates can vary widely and may be particularly low in cases involving low-value coupons.”)

State Court Approaches

Even though state courts are not required to look to CAFA or even to Rule 23 in determining whether to approve or reject a coupon settlement, litigators in state courts should be aware that at least some state courts look to CAFA’s coupon settlement provisions for guidance. For instance, in In re Massachusetts Smokeless Tobacco Litigation, , No. 035038BLS1, 2008 BL 106204 (Mass. Super. Ct. Apr. 09, 2008), the court considered a settlement that offered $1.50 and $6.00 coupons for the purchase of smokeless tobacco to class members in a suit alleging antitrust violations by a smokeless tobacco manufacturer. The court refused to preliminarily approve the settlement, principally on the grounds that (1) the same coupons were available to the general public; (2) by its own estimates, only 40 percent of the coupons would be claimed, and of those, only 50 percent would be redeemed; (3) the coupons encouraged class members to purchase products from the very company they alleged to be committing unfair practices; and (4) the settlement encouraged use of a product that posed a danger to health. In making such findings, the court explained that “coupon settlements pose special issues that require courts to use greater care in evaluating such settlements.” Id. Although the court noted that CAFA did not control in state courts, the court wrote that its passage did reflect “how ‘mainstream’ the concern with coupon settlements has become.” Id.
¹¹Taking a different view, at least one state court has referenced CAFA as evidence that coupons “are an accepted part of class action settlements, and have even been incorporated into federal class action legislation.” Bayhylle v. Jiffy Lube Int’l, Inc., 146 P.3d 856, 860 (Okla. Ct. Civ. App. 2006).

Treatment of Attorneys’ Fees After CAFA

Even courts that do not appear to be considering CAFA in evaluating the fairness or adequacy of a class settlement do, in fact, consider CAFA in evaluating a requested attorneys’ fee award. However, it appears that the majority of cases determining this issue have not had to conduct any type of significant analysis regarding the value of coupons being redeemed under §1712(a), because class counsel often seek attorneys’ fees based on a lodestar-with-multiplier calculation under §1712(b). See, e.g. Fleury v. Richemont North America, Inc., , No. C-05-4525 EMC, (Docket No. 231), 2008 BL 165301 (N.D. Cal. Aug. 06, 2008) (rejecting class counsel’s request to use a percentage of the settlement fund because of the difficulty in valuing a coupon settlement, and instead using lodestar method); In re HP Power Plug & Graphic Card Litigation, , No. C-06-02254 RMW, 2008 BL 314446 (N.D. Cal. July 08, 2008) (awarding class counsel fees under lodestar method because coupons provided as part of the settlement were “incidental to the main relief of the repair of the affected graphics card or power plug” that was at the heart of the action). ¹²For additional examples of post-CAFA cases in which class counsel request, and the court awards, attorneys’ fees using a lodestar/multiplier method, see Yeagley v. Wells Fargo & Co., 365 F. App’x 886 (9th Cir. 2010); Perez v. Asurion Corp., No. 06-20734, 2007 BL 261936 (S.D. Fla. Aug. 8, 2007).

However, parties should be aware that, even when a court uses a lodestar approach, it may still evaluate the reasonableness of fees considered in light of the benefit actually conferred on the class (e.g., the coupons redeemed). For instance, in In re HP Inkjet Printer Litigation, No. 5:05-cv-3580 JF., 2011 BL 123556 (N.D. Cal. Mar. 29, 2011), the court reduced a fee request—based on the lodestar method—by about $800,000 so that the final fee award was not higher than the value of the coupons redeemed: “[W]hile this case was extensively litigated over several years, the Court still has serious questions as to whether consumers actually incurred significant injury from HP’s actions. To allow an award of attorneys’ fees to outstrip the benefit to consumers in such cases would undermine the importance of focusing the efforts of class-action counsel on issues that most affect consumers.” Id.

Similarly, in True, class counsel sought $2,950,000 in attorneys’ fees, based on the lodestar method, which the defendant did not oppose. 749 F. Supp. 2d at 1062. Although the court did not definitively reach the issue of the attorneys’ fee award, the Court did note that, although the lodestar method was permitted under CAFA, it was “inappropriate where, as here, the benefit achieved for the class is small and the lodestar award large.” Id. at 1077-78 (“While the lodestar method of awarding fees is permissible under CAFA, the Court has the discretion to use either a percentage or lodestar method in awarding fees, and is particularly wary of using the lodestar method here… . [T]here is no certainty that class members will receive any cash payments or rebates at all, but class counsel will receive a three million dollar payment regardless of whether one or 10,000 class members file valid claims.”).

In conclusion, courts appear to be more likely to award counsel fees based on the lodestar method rather than a percentage of the settlement, and are particularly receptive to lodestar calculations where the main value of the settlement is not based on coupons. ¹³See, e.g., In re HP Power Plug Graphic Card Litigation, No. C-06-02254 RMW, 2008 BL 314446 (N.D. Cal. July 8, 2008) (“It appears that the coupons provided as part of the settlement are incidental to the main relief of the repair of the affected graphics card or power plug. The court agrees that the main value of the settlement is the provision of a repair option, not the provision of a coupon and finds using ‘a lodestar with a multiplier method’ to be appropriate for determining attorney’s fees for plaintiffs’ counsel in this case.”). Finally, it is important to note that, while using the lodestar method often avoids the possibility that the Court may choose to “defer some portion of the fee award until actual payouts to class members are known,” Fed. R. Civ. P. 23(h), 2003 Advisory Committee Notes, at least one court using the lodestar method has deferred the decision about the multiplier until “after it has a sense of the actual results obtained by the settlement.” Fleury, 2008 BL 165301.

Improving Chances of Court
Approval of Coupon Settlement

Although the Figueroa and True courts denied approval of coupon settlements after CAFA, other courts, such as the Radosti court, are willing to approve such settlements if they have undisputed value and adequately compensate class members for their alleged damages. Several more recent examples also reflect the viability of coupon settlements, even after CAFA.

In In Re Tyson Foods, Inc., the District of Maryland approved a settlement fund that provided $5 million in cash and coupons to members of the settlement class to resolve false advertising claims. No. RBD-08-1982, 2010 BL 114091 (D. Md. May 11, 2010). Class members who provided information about where and when the products were purchased could receive $10 in cash, and those with proof of purchase could receive up to $50 in cash. Id. Class members who simply affirmed that they purchased any of the products at issue could obtain a coupon for $5 off any Tyson product. Id. If the total amount of valid claims (in addition to any administrative expenses) equaled less than $5 million, the defendant would make up the difference in food bank donations. Id. The Tyson court awarded attorneys’ fees of three million dollars, based on the lodestar method, but with some reduction. Id.

In March 2011, the U.S. District Court for the Northern District of California finally approved a coupon settlement involving claims against Hewlett-Packard (“HP”) asserting that various disclosures made to consumers about its printers were false and misleading. In re HP Inkjet Printer Litigation, No. 5:05-cv-3580 JF, 2011 BL 123556 (N.D. Cal. Mar. 29, 2011). In settling the case, HP agreed to add disclosures on its website regarding its products and to provide up to $6.00 to each class member in “e-credits” toward the purchase of HP printers or related products. Plaintiffs’ counsel sought $2.9 million in attorneys’ fees. By the time the final approval hearing was held, more than $1.4 million in e-credits had been approved for distribution. Even while recognizing that “several courts have read §1712(e) as imposing a heightened level of scrutiny,” the court went on to approve the settlement. While the court expressed concern about the e-credits because they could only be used by class members who continue to use HP printers, and while the court also doubted the true value of the injunctive relief provided for in the settlement, the court found that, if the case went to trial, the class members would have significant challenges with respect to proof of actual confusion of consumers, and also relied on the small number of objections and the large number of claims filed. Id.

Conclusion

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. All things being equal, courts are more inclined to approve coupon settlements when:

• There are few or no restrictions on the use of such coupons. Coupons that are freely transferrable and have a long redemption period tend to be more favorable.

• The coupon is not limited to a good or service that is rarely purchased. Coupons that cover goods or services purchased frequently (e.g., food, cleaning products, etc.) are likely to have more value that a product purchased only every few years (e.g., a car or truck).

• The coupon does not require the purchase of the challenged product. Courts tend to be skeptical of coupons that require a class member to purchase the very product being challenged in the lawsuit. While it is entirely appropriate in many circumstances to offer a coupon for the product or service being challenged, ¹⁴Where there is no reasonable basis for assuming that a product may be inherently defective or dangerous, it may make sense to offer a coupon directed at the product—after all, the class member may need or want the product. For example, it is frequently the case that a lawsuit challenges only one of several features or functions of a product, or challenges a practice that ended before the lawsuit was even filed. Likewise, the settlement itself could remove the feature or function of the product that gave rise to the lawsuit. In such circumstances, a court should not assume that the coupon directed at the product or service at issue is necessarily improper. it may be preferable to offer a coupon that can be redeemed for several goods or services.

• The value of the coupon is reasonable in light of the overall cost. The nominal value of the coupon should bear some reasonable relationship both to the overall price of the good or service and the reasonable expectation of the consumer. For example, a coupon for 50 cents or a $1 off a bottle of shampoo is likely to have more value to a consumer than a coupon for $200 off the price of a car or truck.

• The claims process is not overly complicated. Coupon settlements with simple claim forms and procedures may encourage redemption.

• The settlement is a hybrid. Courts are also more likely to approve hybrid settlements that include a cash component (perhaps for those with a certain level of proof) or in-kind compensation, in addition to coupons. This component could be in the form of direct consideration to the settlement class member or in the form of a cy pres award.

• A cash payout is impractical or impossible. Sometimes a cash payment is simply impractical. This occurs where the maximum recovery by the class as a whole is capped (by statute, e.g.) at a relatively small amount compared to the overall size of the class. And it may even be the case in some circumstances that the financial strain of offering a cash payout would be debilitating and could make the company insolvent. ¹⁵See, e.g., Radosti, 717 F. Supp. 2d at 60 (considering the defendant’s ability to pay a judgment if forced to provide a cash refund when deciding whether to approve a coupon settlement).

While incorporating the features set forth above should increase the chances of a coupon settlement being approved, it may not be practical or even possible to apply each one based on the facts at hand. In those situations, it is important to articulate for the court why a particular feature of a coupon is necessary, and parties should consider supporting their argument with a declaration or expert testimony.

In conclusion, while some litigators believed that CAFA would be the end of coupon settlements, ¹⁶See, e.g., David F. Herr, Annotated Manual for Complex Litigation, §21.66, “’Coupon Settlements,’” Author’s Comments (4th ed. 2010) (“The Class Action Fairness Act of 2005 … significantly restricts the use of coupon settlements, or at least the attractiveness of them to class counsel … .”). parties continue to negotiate and courts continue to approve coupon settlements as long as they provide value to class members.