Thomas A. Dickerson
Thomas A. Dickerson ()

Although subject to criticism, there are occasions when a non-cash settlement of coupons, in whole or in part, for the purchase of good and services from the defendant may be appropriate. See Thomas A. Dickerson, “Class Actions: The Law of 50 States,” Law Journal Press, Ch. 9 (Non-Cash Settlements) (2017); see also Williamson v. McAfee, 2017 U.S. Dist. LEXIS 15838 (N.D. Cal. 2017) ($11.50 “value certificate”; class could receive $11.50 in cash if completed form); Chambers v. Whirlpool, 2016 U.S. Dist. LEXIS 140839 (C.D. Cal. 2016) (“a full recovery of costs spent on repairs; $200 to $300 in cash for class members who replaced their dishwashers; $100 or a 30 percent rebate on the purchase of a new dishwasher; for class members who experienced an overheating event in the future; a rebate of 10 to 15 percent on the purchase of a new dishwasher to all class members); Redman v. Radioshack, 768 F.3d 622 (7th Cir. 20154) ($10.00 coupon; if purchase item costing less than $10.00 no change; transferable and cash convertible).

The reasons for allowing coupon settlements include: (1) recovery of de minimus damages (which makes the cost of distribution of each individual’s cash award higher than that individual’s claim); (2) the inability to identify class members; (3) the defendant’s inability to pay cash to the class; or (4) it makes good business sense from the standpoint of both the consumer and defendant. Since coupon settlements are generally worth less to consumer than cash, they must be carefully examined for adequacy. Yet coupon settlements are justified because they solve manageability problems, may reflect the defendant’s financial instability and require a defendant to disgorge improperly obtained monies. The courts must be particularly careful and make certain that a proposed coupon settlement is nearly as good as a cash settlement as possible.

As noted by Justice Richard Posner in Redman: “The judge asked to approve the settlement of a class action is not to assume the passive role that is appropriate when there is genuine adverseness between the parties … . Critically the judge must assess the value of the settlement of the class and the reasonable of the agreed upon attorneys’ fees for class counsel.”

Transferability and Cash Convertibility. Coupons, typically, require the purchase of specific goods and services, which the class member may not want. The coupons should be convertible into cash either by redemption or by being transferable to persons or entities, such as coupon brokers, who are willing to pay cash for them. Cash convertibility, even at a discount, would be acceptable. Coupon settlements that limit transferability to family members and provide no cash convertibility (see Gray v. Bevs. & More, 2015 Cal. Super. LEXIS 14251 (Cal. Super. 2015) ($1.00 coupons; no cash value; not transferable)), no cash sales and no redemption through travel agents (see In re Domestic Air Trans. Antitrust Litig., 144 F.R.D. 421 (N.D. Ga. 1992)), may be problematic, at best.

Redemption Rates and Tracking. In evaluating the merits of a coupon settlement, an appropriate means of measuring true value is to estimate the actual redemption rate of the offered coupon. Coupon settlements are particularly attractive for defendants because the average redemption rates for food and beverage coupons has consistently been between 2 percent and 6 percent. See Weinstein, “The Love/Hate Dynamics: Coupons Issued by Manufacturers,” 71 Progressive Grocer 117 (May 1992). A coupon settlement should require post-settlement tracking of the redemption rate of the coupons. See Gray, 2015 Cal. Super. LEXIS 14251 (“Lead Class Counsel is to file a report with the Court identifying whether, and when, the benefits were distributed to the class and identifying the amount of the redemptions of discount coupons by the members of the class.”). Better yet, there should be a 100 percent redemption of the offered coupons or credits. A 100 percent redemption rate of the offered coupons means that the coupons must be transferable, cash convertible and the defendant must continue to issue coupons until the greed-upon cash face value of the settlement is reached. For example in Feldman v. Quick Quality Restaurants, N.Y.L.J., July 22, 1983, p. 12, col. 4 (N.Y. Sup.), the settlement provided for the issuance of food coupons with a minimum $0.50 value. The defendants were required to continue issuing and distributing to consumers until the agreed upon face value of the settlement was reached.

Time Limits, Redemption Methods and Stacking. Equally important in measuring the actual value of a coupon settlement is the time during which redemption must take place and the manner in which the coupons must be redeemed. As for duration of coupon redemption, the longer the time period, the better. Redemption periods of three years, two years, one year, even six months have been found to be acceptable. See In re Domestic Air Trans. Antitrust Litig. (two to three years); Redman (six months); Gray (six months). As for method of redemption, the consumer should not be required to reveal his or her intention to use the coupon or credit until the parties agree on the price. Coupons settlements should permit the aggregation of coupons, otherwise known as stacking. See Gray (stacking permitted); Redman (three coupons may be stacked).

Public Policy Considerations. Coupon settlements that run counter to public policy should be rejected. For example, in In re Mass. Smokeless Tobacco Litig., 2008 Mass. Super. LEXIS 126 (Mass. Super. 2008), the court rejected a smokeless tobacco coupon settlement noting that “the proposed coupon settlement was little more than a $2.58 million marketing program that benefited class members only if they continued to use the products, who continued use would significantly increase their risk of mouth cancer and gum disease.”

The Problem of Attorney Fees. Coupon settlements also raise issues of evaluating class counsel’s request for an award of legal fees, costs and incentive awards of class plaintiffs. Typically, when there is a monetary settlement, the court may use either the percentage method or the lodestar method in determining the appropriate fee. However, in coupon settlements, a fee award may not be appropriate when it is based upon an estimated settlement redemption value, which itself is based upon an estimated redemption rate. To avoid this problem, the court may wish to base a fee award on claims actually made (see Feder v. Frank (In re HP Inkjet Printer Litig.), 716 F.3d 1173 (9th Cir. 2013) (Under 1712 of CAFA a district court may not award attorney fees to class counsel that are “attributable to” an award of coupons without first considering the redemption value of the coupons.”)), or require class counsel to accept a portion of their fees in the same non-cash consideration in the settlement. For example, in Aburine v. Northwest Airlines, No. 3-89-402 at *4 (D. Minn. 16. 1001), class counsel accepted cash and $200,000 in non-transferable credit for travel.

Basing Fees on Actual Value. As noted by Judge Posner in Redman, 768 F.3d 622:

The ratio that is relevant to assessing the reasonableness of the attorneys’ fee that the parties agreed to is the ratio of (1) the fee and (2) the fee plus what the class members received. At most they received $830,000. That translates into a ratio of attorneys’ fees to the sum of those fees plus the face value of the coupons of 1 to 1.83, which equates to a contingent fee of 55% … . Computed in a responsible fashion by substituting actual for face value, the ratio would been even higher because 83,000 $10 coupons are not worth $830,000 to the recipients. Anyone who buys an item at RadioShack that costs less than $10 will lose part of the value of the coupons because he won’t be entitled to change. Anyone who stacks three coupons to buy an item that costs $25 will lose $5. Anyone who fails to use the coupon within six months of receiving it will lose its entire value … . No attempt was made … to estimate the actual value of the nominal $830,000 worth of coupons … .This case illustrates why Congress was concerned that class members can be shortchanged in coupon settlements.”

The Ideal Coupon Settlement. In In re Southeast Airlines Voucher Litigation, 799 F.3d 701, 706 (7th Cir. 2015), the court approved an ideal coupon settlement wherein the coupon value was 100 percent. “This is not a case where coupons of dubious value will be provided to compensate for a loss of cash. The class lost the value of drink coupons. The settlement provides replacement drink coupons, on a one-for-one basis. The claims process is easy and the replacement coupons will remain valid for one year … . Every replacement coupon can be used only by a customer who buys a plane ticket … . Serendipitous or not, such essentially complete relief for the class is the model of an adequate settlement.”