Ninth Circuit Court of Appeals rules the Class Action Fairness Act requires that coupon settlements be based on their ultimate redemption value

This month, the U.S. Court of Appeals for the Ninth Circuit in San Francisco ruled under the 2005 Class Action Fairness Act (CAFA) that a district court must re-evaluate attorney fees awarded in In re HP Inkjet Printer Litigation, 9th U.S. Circuit Court of Appeals, No. 11-16097. The court returned the case to U.S. District Judge Jeremy Fogel in San Jose, directing him to "take into account the value of coupons actually being redeemed" instead of determining a lodestar fee based on the combined value of the coupons and the injunctive relief, Reuters reports. 

Writing for the 2-1 majority, Circuit Judge Milan Smith said that while CAFA was "poorly drafted," subsection 1712(a) makes clear that "when a settlement provides for coupon relief, either in whole or in part, any attorney’s fee 'that is attributable to the award of coupons' must be calculated using the redemption value of the coupons." Stating that coupon settlements are difficult to calculate, the appellate court agreed that the district court was afforded the discretion to calculate fees in those cases "on a percentage-of-recovery basis...or on a lodestar basis." However, the appellate court ruled that "the district court abused its discretion" when it estimated the value of the settlement and then "awarded fees in exchange for obtaining coupon relief without considering the redemption value of the coupons."

As opposed to the typical coupon settlement in which "the defendants automatically send coupons to all eligible class members," HP's coupons (e-credits) required class members to apply online before the settlement approval. In addition, the court noted evidence that, the "only retailer that will accept the settlement coupons," charged higher prices than those charged by other retailers such as Amazon, indicating a reduction in the value of the coupons themselves.

The plaintiffs submitted bills for over $7 million in fees and expenses, but class counsel "requested only the portion of its lodestar HP agreed to pay – $2.3 million in fees and roughly $600,000 in costs." Recognizing that the coupons were worth significantly less than their face value, the district court estimated the "ultimate value" of the settlement at roughly $1.5 million. The lodestar amount was then reduced to $1.5 million and $596,990.70 so as to prevent the award fees from outstripping the calculated class benefit. The district court considered the fee reasonable "in light of the benefit conferred on the class by both the e-credits and the injunctive relief."  Although Smith acknowledged that Fogel had "meaningfully reduced the proposed award," he held that under CAFA, Fogel was required to determine the value of the coupons and a reasonable contingency award for them, and to use that to determine a reasonable hourly "lodestar" amount for noncoupon relief.

For more, read the decision.

Class Action Fairness Act