In re: HP Inkjet Printer Litigation: Ninth Circuit Issues Decision on Attorney Fees In Coupon Class Action Settlements

In re: HP Inkjet Printer Litigation, ___ F.3d ___ (9th Cir. 5/15/13), addresses attorney fee awards in coupon settlements under the Class Action Fairness Act (CAFA). 28 U.S.C. Sec. 1712(a)-(c).  

Plaintiffs sued HP for alleged unfair business practices relating to the use of ink cartridges in its inkjet printers. After years of litigation, the parties reached a global settlement, with HP agreeing to: provide class members up to $5 million worth of coupons; make additional disclosures on its website and in other materials; pay up to $950,000 for class notice and settlement administration costs; and pay up to $2,900,000 in attorneys’ fees and expenses. 

The district court approved the settlement.  It estimated the settlement's "ultimate value" to the class at $1.5 million, held that class counsel's fees should not exceed this figure, and awarded $1.5 million in fees and $600,000 in costs.  The objectors appealed, and the Ninth Circuit reversed, holding as follows: 

First, section 1712(a) provides that “the portion of any attorney’s 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.” Attorneys’ fees are "attributable to" an award of coupons where "the [singular] award of the coupons is the condition precedent to the award of attorneys’ fees."  Slip op. at 16-20.  

Second, under section 1712(b), "if class counsel wants to be paid 'any' fees, and the 'recovery of the coupons is not used to determine' those fees, the entirety of the payment 'shall be' calculated 'based upon the amount of time class counsel reasonably expended working on the action,' i.e., using the lodestar method. Section 1712(b)(2) further confirms that a court may, in its discretion, apply an appropriate multiplier to any lodestar amount it awards under subsection (b)(1) for obtaining non-coupon relief."  Slip op. at 20-22.  

Third, section 1712(c) controls when the settlement includes both coupon and equitable relief, and the district court sets attorneys’ fees based on the value of the entire settlement, rather than solely on the basis of injunctive relief. In that case, 

the district court must perform two separate calculations to fully compensate class counsel. First, under subsection (a), the court must determine a reasonable contingency fee based on the actual redemption value of the coupons awarded. Second, under subsection (b), the court must determine a reasonable lodestar amount to compensate class counsel for any non-coupon relief obtained. This lodestar amount can be further adjusted upwards or downwards using an appropriate multiplier. § 1712(b)(2). In the end, the total amount of fees awarded under subsection (c) will be the sum of the amounts calculated under subsections (a) and (b).

Slip op. at 22-26.  

In the present case, the district court erred in awarding attorney fees based on its estimate of the "ultimate value" of the settlement.

The district court awarded lodestar fees based on its supposition that the “ultimate value” of this settlement is $1.5 million. This $1.5 million figure included the court’s valuation of both the injunctive and coupon relief. But § 1712(a) and (c) required the district court to calculate the redemption value of the coupons before awarding any attorneys’ fees that were “attributable to” the coupon relief. Hence, the district court abused its discretion where it made a rough estimate of the ultimate value of this settlement, and then awarded fees in exchange for obtaining coupon relief without considering the redemption value of the coupons.  

We note, however, that the responsibility for this error lies principally with the parties. Because the settlement agreement specifies that no coupons may issue until after entry of a final judgment, it would have been impossible for the district court to calculate the redemption value of the coupons as required by § 1712(a). By structuring the settlement in this way, the parties essentially invited the error here. Of course, had the settlement been structured so that the redemption value of the coupons was ascertainable before final settlement approval, plaintiffs’ attorneys would have been entitled to seek compensation for both the coupon and the injunctive relief obtained for the class. See § 1712(c). Because the parties did not do so, however, we are required to reverse. 

Slip op. at 27-28. The Court concluded:  

Under § 1712 of CAFA, a district court may not award attorneys’ fees to class counsel that are “attributable to” an award of coupons without first considering the redemption value of the coupons. A district court may, however, award lodestar fees to compensate class counsel for any non-coupon relief they obtain, such as injunctive relief. Because the attorneys’ fees award in this case violates § 1712, we reverse and remand to the district court for further proceedings consistent with this opinion. 

The opinion is available here.