The Ninth Circuit in Maree v. Deutsche Lufthansa A.G., No. 23-55795, 2025 WL 2268254 (9th Cir. Aug. 8, 2025) recently vacated and remanded a district court’s approval of a class action settlement because it found class counsel’s fees likely represented a disproportionate amount of the settlement fund. The settlement at issue sought to resolve two class actions filed against Lufthansa based on an alleged failure to provide timely refunds to customers for cancelling flights during the COVID-19 pandemic.
The settlement, which was negotiated prior to class certification, operated under a claims-made structure. Claimants to whom Lufthansa had already issued refunds would be given the option of a $10 cash payment or a $45 flight voucher, which was valid for two years. All other claimants would receive a refund plus an interest payment of 1% of the refunded amount, with total payments capped at $3.5 million. Importantly, this $3.5 million cap included $875,000 to be paid as attorneys’ fees. This would be 25% of the cap if enough claims were received to reach the cap amount, but a higher percentage if claims did not reach that level.
Noting that settlements negotiated prior to class certification “must withstand an even higher level of scrutiny for evidence of collusion or other conflicts of interest than is ordinarily required under Rule 23(e),” the Ninth Circuit found that the district court did not sufficiently scrutinize the settlement using the factors set forth in In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir. 2011). The Bluetooth factors require a district court approving a settlement to consider: (1) whether class counsel would receive a disproportionate distribution of the settlement; (2) whether the parties negotiated a clear sailing arrangement; and (3) whether the parties created a reverter that would return unclaimed funds to the defendant. Only the first factor was implicated in this case.
The Ninth Circuit observed that, while 25% of the settlement fund is typically the benchmark for a “reasonable fee award,” the $3.5 million cap would likely never be reached and was therefore an inappropriate benchmark for a proposed $875,000 fee. The court pointed to how the $3.5 million settlement value was likely inflated because Lufthansa was already providing refunds to class members on request and therefore the value of the settlement should not account for these amounts. Moreover, the flight vouchers should have been scrutinized using the factors articulated in In re Easysaver Rewards Litig., 906 F.3d 747, 755 (9th Cir. 2018), for determining the “actual value” of coupons: (1) whether class members have to pay more of their own money to take advantage of the credit; (2) whether the credit is valid only for select products and services; and (3) how much flexibility the credit provides, including whether it expires or is freely transferrable. The Ninth Circuit found the flight vouchers implicated each of these factors, and yet the district court had failed to consider them.
The Ninth Circuit’s holding in this case underscores the importance of framing fee awards as a percentage of the actual, realized value to the class and reflects an increased scrutiny of class settlements where attorneys’ compensation potentially outpaces class member recovery.