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In re HP Inkjet Litigation (9th Cir. 2013)

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One of the targets of the Class Action Fairness Act was coupon settlements, the problematic class-action settlement device where the attorneys would receive millions, and the class members would receive coupons of little or no value that were often indistinguishable from what the defendant would use to market itself to non-class members anyway. Under 28 U.S.C § 1712(a), if a court is to value coupons in a coupon settlement, it has to use the value of the "redeemed" coupons, not some hypothetical valuation.

The coupons issued by HP in the HP Inkjet Litigation case were especially appalling: a few dollars only good at HP.com, and not stackable with other coupons. HP looked to make money on the coupons, because they would receive full retail price (minus a few dollars) for things like paper and ink cartridges instead of wholesale price if consumers purchased the goods (often at lower prices) at Staples or Amazon. The Center for Class Action Fairness objected to a settlement that looked to pay the attorneys $2.9 million, but the class only worthless coupons. The district court approved the settlement, while reducing the Rule 23(h) award to $2.1 million, even though class members only claimed about 30% of the coupons available: the $800,000 and remainder of the coupon "fund" reverted to HP. We appealed the district court's failure to follow § 1712(a). As Larry Schonbrun recently complained in the American Thinker, many courts had been evading CAFA's requirement by looking at a provision that permitted the use of lodestar for non-coupon relief.

In a split 2-1 decision that was the first published appellate decision to interpret § 1712, the Ninth Circuit agreed. We were especially pleased by the following language endorsing a principle that has motivated many Center objections:

Of course, one might argue that the fees award in this hypothetical case is "attributable to" the work of class counsel on the action, rather than the coupons. But one would be mistaken. Attorney's fees are never "attributable to" an attorney's work on the action. They are "attributable to" the relief obtained for the class. See Class Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1308 (9th Cir. 1994). An attorney who works incredibly hard, but obtains nothing for the class, is not entitled to fees calculated by any method.
For although class counsel's hard work on an action is presumably a necessary condition to obtaining attorney's
fees, it is never a sufficient condition. Plaintiffs attorneys don't get paid simply for working; they get paid for obtaining results. Because it is the class relief that is both a necessary and a sufficient condition to an award of attorney's fees, it follows that an attorney's fees award can only be "attributable to," or the consequence of, the class relief, not the attorney's hard work.

The dissent, however, which was willing to read the "redeemed" requirement right out of the statute, and affirm a settlement approval where the attorneys recovered more than even the face value of the coupons, shows how difficult it is to legislate reform.

More: Trask; law.com (upgrading me from "gadfly" to "class action titan"); Reuters; Zieve; Jacobson/Monaghan; Bashman; Law360 ($).

A big victory for the Center, its third appellate victory this year. (The Center is not affiliated with the Manhattan Institute.)

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.