In In re: HP Inkjet Printer Litigation, Case No. C05-3580-JF, 2013 WL 1986396 (9th Cir. May 15, 2013), the Ninth Circuit recently held that attorney fee awards in class settlements involving coupons must be “attributable to” the value of the coupons awarded to class members. How does this holding affect the settlement between Hewlett-Packard and a nationwide class of consumers who purchased certain HP inkjet printers?

This litigation started out as three putative class-action lawsuits (Ciolino v. HP, Rich v. HP, and Blennis v. HP), which were consolidated into one suit (In re: HP Inkjet Printer Litigation). The class alleged that Hewlett-Packard engaged in unfair business practices relating to its inkjet printers’ use of ink cartridges. In August of 2010, more than five years after the first action was filed, the parties agreed to a global settlement. In the settlement, HP agreed to:

  1. Provide eligible class members with up to $5 million in “e-credits” (coupons) redeemable on HP’s website;
  2. Make additional disclosures on its website, in its user manuals, or in software interfaces;
  3. Pay up to $950,000 for class notice and settlement administration costs; and
  4. Pay up to $2,900,000 in attorneys’ fees and expenses.

Of the millions of potential class members, three filed formal objections to the settlement. The Objectors argued that the settlement was not fair, reasonable, or adequate, as required by CAFA. In layman’s terms, the Objectors were upset that their attorneys were being paid millions, while they got coupons.

The issue on appeal was not whether receiving coupons as compensation was fair, but rather, whether class counsels’ compensation in relation to the value of the coupons was acceptable. Under CAFA, 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. Here, the district court failed to calculate the redemption value of the coupons. As such, the court awarded compensation that was not “attributable to” the coupon relief. The Ninth Circuit reversed the orders granting settlement approval. The case has been remanded to the district court, which now must recalculate the amount of class counsels’ attorneys’ fees and costs, taking into account the value of the coupons.