Photo: Dylan Ashe via Wikimedia Commons

A federal appeals court sided with an objector who sought fees in a settlement over drink vouchers on Southwest Airlines—but issued a stern warning to the lawyers to end the case.

The U.S. Court of Appeals for the Seventh Circuit reversed a decision that had rejected fees to Ted Frank, of the Competitive Enterprise Institute's Center for Class Action Fairness, who represented an objector in the settlement.

“Objectors who add value to a class settlement may be compensated for their efforts,” wrote Circuit Judge David Hamilton in Thursday's opinion. No matter how Frank's fees are calculated, he wrote, “this is not a case where an objector ran up a tab with minimal value added.”

Hamilton knows the case well: He wrote a 2015 opinion that cut $15,000 from the $1.65 million fees awarded to plaintiffs attorney Joseph Siprut and reversed a $15,000 incentive payment to attorney Adam Levitt, who was the plaintiff—both for failing to disclose they had served as co-counsel in an unrelated case. Despite that order, Siprut, founding partner of Siprut P.C. in Chicago, made an “astonishing request for supplemental fees” of $1.36 million, Hamilton wrote on Thursday, while Frank agreed to stop challenging the settlement in exchange for triple the number of vouchers for class members.

“Unless the parties expressly agree otherwise, settlement agreements should not be read to bar attorney fees for objectors who have added genuine value,” Hamilton wrote. “It would be inequitable for Markow's lawyer to receive nothing despite negotiating, in exchange for dropping the second appeal, a tripling of relief for the class and a significant cut to Siprut's fees,” referring to Frank's client, Gregory Markow.

But Siprut still would get more fees than he originally sought—a fact that Hamilton called “troubling.” “It is time to end this litigation,” he wrote.

Siprut and Frank did not respond to requests for comment. Southwest Airlines Co. attorney Eli Kay-Oliphant, of Massey & Gail in Chicago, also did not respond to a request for comment.

Levitt, of Chicago's DiCello Levitt & Casey, sued in 2011, when he was then at Grant & Eisenhofer, after Southwest stopped honoring coupons good for $5 alcoholic drinks that had no expiration dates. He brought the class action as the plaintiff on behalf of more than 2 million passengers who purchased business-select tickets.

Plaintiffs lawyers were to get $3 million in fees based on their initial agreement with Southwest. But U.S. District Judge Matthew Kennelly of the Northern District of Illinois approved $1.65 million. After the Seventh Circuit's 2015 ruling, which affirmed the settlement, Siprut sought additional fees.

In a 2016 ruling, Kennelly chastised the fee request as “grossly excessive” and based on vague billing records.

“One is left with the overall impression that the fee position boils down to this: Some of the originally hoped-for $3,000,000 that Southwest agreed not to oppose is still on the table, and plaintiffs' counsel are trying to find a way to get the rest of it.”

(In Thursday's order, Hamilton noted this remark, stating: “We find it difficult to reconcile Siprut's rapacious requests for fees in the district court with our decision in the prior appeal that reduced its already generous fee award as a modest penalty for failing to disclose a potential conflict of interest.)

But Kennelly awarded Siprut $455,000 more—a move that prompted Frank to ask the judge to reconsider. Kennelly granted Frank's motion, but only to send new notices to the class on the increased fee request. Frank appealed to the Seventh Circuit.

The case touched on a key criticism about objector lawyers: Their practice of dropping appeals that challenged class action settlements in exchange for fee payments. So-called “objector blackmail,” usually handled through out-of-court side deals, has become such a problem that the U.S. Judicial Conference's Committee on Rules of Practice and Procedure published proposed amendments to force court approval of such payouts.

But Frank has insisted that he doesn't accept such payouts and, in a separate case before the Seventh Circuit, won a June 26 ruling that would allow him to probe whether lawyers for three other objectors did.

In the Southwest case, Frank cut a deal to drop his appeal in exchange for Siprut cutting his additional fees in half and Southwest tripling the number of vouchers to the class. Months later, Frank filed a motion for $80,000 in fees.

Kennelly held an evidentiary hearing to determine exactly what lawyers discussed in that deal. On Nov. 13, he rejected Frank's fee request because, if granted, it would unravel that deal in which Siprut understood that he would get $200,000 in supplemental fees. Having to pay Frank his fees would lower Siprut's own compensation to $120,000, the judge wrote.

The Seventh Circuit called Frank's “roundabout” way of asking for fees “problematic” since it raised the potential that an objector could “sandbag the settlement by requesting fees later.”

But Frank's fees were never discussed in either the underlying settlement or the agreement he negotiated. The panel disagreed with Siprut that Frank had waived his right to fees.

“Markow's lawyer said only that he did not seek fees as part of the discussions regarding the dismissal of the second appeal,” Hamilton wrote. “He did not say that he never intended to seek fees.”