U.S. 9th Circut Court Voids HP Inkjet Printer Settlement

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Date: Thursday May 16, 2013 08:50:58 am
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    U.S. 9th Circut Court Voids HP Inkjet Printer Settlement

    By Jonathan Stempel
    A divided federal appeals court on Wednesday voided a class action settlement between Hewlett-Packard Co and millions of consumers who bought its inkjet printers over nearly a decade, saying the fees awarded to the consumers’ lawyers must be recalculated.

    The decision by the 9th U.S. Circuit Court of Appeals in San Francisco could discourage class action settlements involving "coupons" rather than cash, saying Congress intended that class action lawyers not be awarded fees "grossly disproportionate" to relief obtained by the people they represent.

    In the HP case, Circuit Judge Milan Smith wrote for a 2-1 majority that fees should take into account the value of coupons actually being redeemed, not the total coupon relief offered. The 9th Circuit returned the case to U.S. District Judge Jeremy Fogel in San Jose, California, for further proceedings.

    The settlement was intended to resolve claims that consumers who bought HP printers between September 2001 and September 2010 were misled into spending too much on or misusing ink cartridges.

    HP agreed to provide up to $5 million of coupons, known as "e-credits," for future printers and printer supplies on its website, and to improve disclosures. Lawyers for the consumers were awarded $1.5 million of fees and $597,000 of costs.

    About 122,000 of the millions of class members filed claims before Fogel granted final settlement approval in March 2011.

    But the accord drew objections from people including Ted Frank, a longtime advocate against high legal fees.

    They said the settlement was the product of collusion between lawyers for HP and consumers, and violated portions of the federal Class Action Fairness Act that govern fees in settlements that have coupon components.

    DISSENT

    While acknowledging that CAFA was "poorly drafted," Smith said the law was clear that legal fees should be attributable to the value of coupons that are actually used.

    He said it is not enough that plaintiffs’ lawyers work hard, or even achieve victory, to justify higher payouts.

    "By tying attorney compensation to the actual value of the coupon relief, Congress aimed to prevent class counsel form walking away from a case with a windfall, while class members walk away with nothing," Smith wrote, in an opinion joined by Circuit Judge Ronald Gould.

    "Although a class counsel’s hard work on an action is presumably a necessary condition to obtaining attorney’s fees, it is never a sufficient condition," he continued. "Plaintiffs attorneys don’t get paid simply for working; they get paid for obtaining results."

    Smith said Fogel erred by making a "rough estimate of the ultimate value" of the settlement when setting legal fees.

    Circuit Judge Marsha Berzon dissented. She said the majority erred in demanding that a court "must award fees as a percentage of the coupons actually redeemed," rather than taking into account the time reasonably spent by lawyers on the matter.

    In a phone interview, Frank said he was reviewing the decision but that "we’re obviously pleased to get a victory."

    Niall McCarthy, a partner at Cotchett, Pitre & McCarthy representing the consumers, said in an email the decision "does not in any way criticize the fairness of the settlement to class members or the amount of attorneys’ fees. We view this decision as procedural and not substantive."

    Samuel Liversidge, a partner at Gibson, Dunn & Crutcher representing HP, did not immediately respond to a request for comment.

    The case is In re HP Inkjet Printer Litigation, 9th U.S. Circuit Court of Appeals, No. 11-16097.

    For plaintiffs: Niall McCarthy of Cotchett, Pitre & McCarthy.

    For HP: Samuel Liversidge of Gibson, Dunn & Crutcher.

    For Center for Class Action Fairness: Ted Frank. 

    (Correction: This story has been updated to more accurately reflect the court’s ruling that the lawyers’ fees must be recalculated, rather than that they were too high.)

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