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HP Printer Settlement Voided Because Coupon Settlements Are Awful

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By William Peacock, Esq. on May 20, 2013 4:19 PM

You know what stinks about class-action settlements? Sometimes, the payout for the consumer is absolutely meaningless. This Hewlett-Packard settlement is a perfect example. Consumers sued because HP supposedly misled them about their cartridges' true ink levels (causing premature replacement), hid expiration dates, and engaged in a few other practices that made their wallets sad from 2001 to 2010.

Maybe they were right. Maybe not. They lost a number of pretrial motions, including one of three separate class certifications. The District Court pointed out the weakness of the evidence before accepting the settlement here, despite a handful of objectors (including the great class-action dissenter: Ted Frank).

What was the objection? As always, it was excessive attorneys' fees.

The Class Action Fairness Act was supposed to fix this whole excessive fee nonsense by tying the attorneys’ payout to the value of the awards to individual plaintiffs. It makes sense, except, as Judge Milan Smith noted, it’s a “poorly drafted” law. Poorly drafted or not, it did make one thing clear(ish): attorneys fees must be reasonably tied to the value of the settlement (maybe).

Why the ambiguity? Lodestar fees.

For percentage fees, the provision makes sense. Lawyers shouldn’t get 70 percent of the tab, while consumers all get shiny coupons for a few bucks off of a new cartridge. But Lodestar fees are a little different. These hourly rates, plus costs, are allegedly based on the time attorneys actually spent on the case (and lawyers never inflate bills).

Then again, despite their hard work, “Plaintiffs attorneys don’t get paid simply for working; they get paid for obtaining results.”

Lodestar or not, the majority felt that the fees must be tied to the value of the class members’ payouts. In this case, the payouts were hilariously useless (or “illusory,” as the court politely noted). Consumers in the three prospective classes would get up to $5 million in coupons, known as “e-credits,” for future purchases from HP’s website, each worth $2 to $6, and only valid for six months. The court also noted that HP’s prices are typically higher than other sites, such as Amazon.

Like we said … useless.

The Ninth ordered the case remanded for reconsideration of the settlement, as the lower court should have taken a closer look at the value of the coupons, including the expected redemption rate, in deciding on the fairness of the Lodestar award.

Dissenting Judge Marsha Berzon, meanwhile, argued that the CAFA doesn’t impose such a rigid redeemed-coupon value rule, especially when the Lodestar method is employed. The lower court already took the benefit to the class in mind when lowering the fees from the proposed $2.9 million (hourly rates and fees combined) to $1.5 million.

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