July 23, 2013 Top Story

Court Finds CAFA Ambiguous, but Clear, on Attorney Fees

Divided Ninth Circuit limits attorney fees to a percentage of value of redeemed coupons

Kelso L. Anderson

Class action counsel in Class Action Fairness Act (CAFA) “coupon cases” are entitled to attorney fees based only on a percentage-of-recovery value of the coupons redeemed by class members, according to the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit). The appellate court found CAFA’s text ambiguous, but a divided panel nonetheless reversed the district court’s award and concluded that Congress clearly meant to limit attorney fees in coupon cases to a portion of the value of coupons redeemed by class members. In re Inkjet Printer Litigation.

Lodestar Fees

In re HP Inkjet involved three class action lawsuits filed in the U.S.  District Court for the Northern District of California against Hewlett Packard Company (HP) by consumers who purchased certain HP inkjet printers over a nine-year period. The consumers alleged unfair business practices connected to HP’s inkjet printers’ use of ink cartridges. The lawsuits were resolved when the parties agreed to a global settlement with HP in which, among other things, HP agreed to provide class members with over $5 million in “e-credits,” or coupons redeemable for printers and printer supplies on HP’s website, as well as injunctive relief—business disclosures by HP.

Millions of potential class members received notice of the settlement, and 122,000 filed claims to redeem coupons valued at $2, $5, and $6. Despite submitting bills to the court for over $7 million in fees and costs, attorneys for the class members (class counsel) requested fees in the amount of hours worked, or lodestar amount, that HP agreed to pay as part of the settlement: $2.3 million in fees and $600,000 in costs.

The district court approved the coupon settlement and injunctive relief, and it approved the award of attorney fees under the lodestar method, pursuant to 28 U.S.C. § 1712(b)(1). The district court, however, reduced the fee request to $1.5 million in fees and $596,990.70 in costs, because class counsel’s fees would otherwise outweigh the class benefit, contrary to CAFA’s spirit. The “key consideration” in awarding class counsel’s fees, said the district court, was the reasonableness of the request in light of the results achieved. Pursuant to 28 U.S.C. § 1712(e) and Federal Rule of Civil Procedure 23(h), several class members objected to the district court’s award of attorney fees and appealed to the Ninth Circuit.

Statutory Ambiguity and Clarity

Reasoning that the district court improperly awarded the amount of attorney fees under 28 U.S.C. § 1712, the Ninth Circuit emphasized Congress’s express statutory intent in enacting CAFA was to curb “abuses of the class action device.” The appellate court also noted that, when class members get paid in coupons and class counsel gets paid in cash, the potential exists for abuse because of class counsel’s fees outsizing the benefit to the class in a lawsuit.

The appellate court referenced §§ 1712(a)–(c) to conclude that, when read alone, the plain meaning of each subsection was ambiguous, but read together the subsections were clear because they confirmed Congress’s intent in enacting CAFA. Accepting the imprecision of the language in each subsection, the appellate court read §§ 1712(a)–(c) together as a fiat, requiring attorney fees under a percentage-of-value of redeemed coupons or lodestar method, but the latter relief only where coupons were a part of the relief awarded to class members.

Coupon Settlement Generally

“Coupon settlements in federal cases have become rare after CAFA,” posits Greg C. Cook, Birmingham, AL, former cochair of the ABA Section of Litigation’s Class Actions & Derivative Suits Committee and editor of the forthcoming ABA book, “Class Action Fairness Act: Law and Strategy.” “The holding seems surprising because many commentators had read the CAFA attorney fee provisions as providing alternative measures for attorney fees when coupons were involved; that is, a percentage of those coupons actually redeemed or a lodestar calculation,” Cook emphasizes.

Contrary Reading

The dissenting opinion offered a different view and interpreted §§ 1712(a)–(c) to permit courts to award attorney fees in coupon settlement cases eitherunder the lodestar or percentage-of-value of redeemed coupons method. The dissent agreed with the majority that CAFA and its attorney fee provisions were “poorly drafted,” but would affirm the district court’s award of attorney fees as “reasonable” based on class counsel’s achievement of coupon and injunctive relief for the class. According to the dissent, Congress, in §§ 1712(a)–(c), meant to legislate options on “how” attorney fees are awarded and not “which method” a court must use in coupon relief cases—a perspective shared in a paper presented recently at the 2013 ABA Section of Litigation Annual Conference.

“The dissent’s criticisms of the practical effects of the decision are valid,” says Thomas J. Donlon, Stamford, CT, cochair of the Section of Litigation’s Appellate Practice Committee. “This [decision] will not be popular among attorneys who, understandably, want their fees recovered as soon as possible.” Because of the resourcefulness of some attorneys who practice in this area of law, Section leaders expressed little worry. “Class action lawyers are creative and the decision will not make plaintiff’s class action lawyers turn away from certain [coupon] cases,” opines Louis F. Burke, New York, cochair of the Section’s Class Action & Derivative Suits Committee.

Kelso L. Anderson is an associate editor for Litigation News.

Keywords: CAFA, class action, attorney fees, 28 U.S.C. § 1712

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