Feder v. Frank (In re HP Inkjet Printer Litig.)

716 F.3d 1173

In re HP INKJET PRINTER LITIGATION,

Nicklos Ciolino, individually and on behalf of all those similarly situated; Daniel Feder, Plaintiffs–Appellees,

v.Theodore H. Frank; Kimberly Schratwieser, Objectors–Appellants,

v.Hewlett–Packard Company, Defendant–Appellee.

No. 11–16097.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 2012.

Filed May 15, 2013.

Theodore H. Frank (argued), Center for Class Action Fairness LLC, Washington, D.C., for Objectors–Appellants.

Niall P. McCarthy (argued), Justin T. Berger and Eric J. Beuscher, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA; Steven N. Berk, Berk Law PLLC, Washington, D.C., for Plaintiffs–Appellees.

Peter Sullivan, Samuel G. Liversidge (argued), and Christopher Chorba, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Northern District of California, Jeremy D. Fogel, District Judge, Presiding. D.C. No. 5:05–cv–03580–JF.

Before: RONALD M. GOULD, MARSHA S. BERZON, and MILAN D. SMITH, JR., Circuit Judges.

OPINION

M. SMITH, Circuit Judge:

Objectors Kimberly Schratwieser and Theodore Frank (Objectors) appeal the district court's orders granting final approval to a class action settlement between Hewlett–Packard Company (HP) and a nationwide class of consumers who purchased certain HP inkjet printers between September 6, 2001 and September 1, 2010. The district court approved a settlement that provides both coupon and injunctive relief to the class members. The district court also approved an award of attorneys' fees in the amount of $1,500,000 and costs in the amount of $596,990.70.

Objectors argue that the settlement is neither fair, reasonable, nor adequate, as required by Federal Rule of Civil Procedure 23(e)(2) and Section 3 of the Class Action Fairness Act (CAFA), codified at § 28 U.S.C. 1712(e). Objectors contend that the settlement is the product of tacit collusion between class counsel and HP. Objectors also challenge the fee award, arguing it too violates CAFA, and specifically § 1712(a)-(c), which govern the calculation of attorneys' fees in class action cases containing a coupon component. Because we agree that the fees award violates CAFA, we do not address any of Objectors' other contentions. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir.1998) (holding that a class action settlement “must stand or fall in its entirety”); see also In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 945–46 (9th Cir.2011) (noting that vacatur of a fees award necessitates invalidation of a settlement approval order where the parties “expressly negotiated” a potentially unreasonable amount of fees). 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 redemptionvalue of the coupons. § 1712(a). Since the district court awarded fees that were “attributable to” the coupon relief, but failed to first calculate the redemption value of those coupons, we reverse the orders of the district court and remand for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs filed three putative class actions in the Northern District of California alleging that HP engaged in unfair business practices relating to its inkjet printers' use of ink cartridges.¹ Each of the three actions was aggressively litigated, and attorneys for both sides engaged in extensive motions practice and discovery. Ultimately, however, plaintiffs suffered numerous setbacks including dismissal of several claims on the pleadings, denial of nationwide class certification in one of the actions, and a determination by the district judge presiding over all of the lawsuits that the plaintiffs' evidence of injury and causation was “weak.”

In August 2010, more than five years after the first action was filed, the parties agreed to a global settlement. In exchange for the plaintiffs' release of all claims against it, HP agreed to: (1) provide eligible class members with up to $5 million in “e-credits” redeemable for printers and printer supplies on HP's website; (2) make additional disclosures on its website, in its user manuals, or in its software interfaces to explain its business practices to future purchasers of HP printers and ink; (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. The “e-credits”—a euphemism for coupons—expire six months after issuance, are non-transferable, and cannot be used with other discounts or coupons.² By the express terms of the settlement, no coupons may issue until after all appeals are resolved.

On October 1, 2010, the district court consolidated the three putative class actions for settlement, granted preliminary settlement approval, provisionally certified a nationwide settlement class, and directed that the parties provide notice of the settlement. In compliance with the court's order, the parties provided notice via email, publication, and online advertisements, reaching approximately 74 percent of potential class members. Of the millions of class members who received notice, three filed formal objections, 458 submitted informal comments, 810 opted out of the settlement, and 122,000 filed claims.

On January 28, 2011, the district court held a fairness hearing at which Objectors appeared. During the hearing, the district judge noted that the underlying actions had been litigated heavily and that there were several motions “where the Court had an opportunity to evaluate the strength of the claims.” Based on its previous evaluation, the court concluded that “[t]he claims are not particularly strong” and weighed in favor of settlement.

On March 29, 2011, the district court granted final settlement approval and certified a nationwide settlement class. The court determined that the settlement was fair, reasonable, and adequate because: (1) “the settlement was arrived at as a result of arms-length, non-collusive negotiations”; (2) due to the complexity, expenses, and duration of the litigation, class members would receive “meaningful benefits on a much shorter time frame than otherwise possible”; (3) class counsel supported the settlement; (4) there was “no reason to believe that the posture of any of the cases would improve through further litigation”; and (5) the number of class members disapproving of the settlement is “miniscule by any measure.”

The court also issued a separate ruling on class counsels' request for fees and expenses. Although the plaintiffs submitted bills for over $7 million in fees and expenses, class counsel requested only the portion of its lodestar HP agreed to pay—$2.3 million in fees and roughly $600,000 in costs. Citing its independent duty to determine the reasonableness of any fees award, the court meaningfully reduced the proposed award. The court held that the lodestar method was applicable under section 1712(b)(1) of CAFA and that the “key consideration” in determining the appropriate fees is reasonableness in light of the results actually achieved. Analyzing those results, the court acknowledged that while the e-credits were worth significantly less than their face value, the injunctive relief would confer some benefit on class members, although nothing close to the $16–41 million estimated by plaintiffs.³ The court estimated the “ultimate value” of the settlement to the class at roughly $1.5 million. Recognizing that it would be improper to award fees that outstrip the calculated class benefit, the court ordered HP to pay a reduced lodestar amount of $1.5 million and $596,990.70 in costs. Objectors timely appealed both the Approval and Fees Orders.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction under 28 U.S.C. § 1291. We review a district court's award of fees and costs to class counsel, and its method of calculation, for abuse of discretion. In re Bluetooth, 654 F.3d at 940 (citing Lobatz v. U.S. W. Cellular of Cal., Inc., 222 F.3d 1142, 1148–49 (9th Cir.2000)).

DISCUSSION

Congress passed CAFA “primarily to curb perceived abuses of the class action device.” Tanoh v. Dow Chem. Co., 561 F.3d 945, 952 (9th Cir.2009). One such perceived abuse is the coupon settlement, where defendants pay aggrieved class members in coupons or vouchers but pay class counsel in cash. See generally Sarah S. Vance, A Primer on the Class Action Fairness Act of 2005, 80 Tul. L. Rev. 1617, 1632–33 (2006); Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 Law & Contemp. Probs. 97, 102, 107–12 (1997). Congress was rightfullyconcerned with such settlements: by decoupling the interests of the class and its counsel, coupon settlements may incentivize lawyers to “negotiate settlements under which class members receive nothing but essentially valueless coupons, while the class counsel receive substantial attorney's fees.” ⁴S. Rep. 109–14, at 29–30 (2005); see also Christopher R. Leslie, A Market–Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation, 49 UCLA L. Rev. 991, 991 (2002) (“Because class counsel are paid in cash, the attorneys have insufficient interest in ensuring that the settlement coupons confer value on the class.”).

Section 1712 codifies Congress's effort to regulate coupon settlements. That regulation takes two forms. The first invites increased judicial scrutiny of coupon settlements generally. § 1712(e); see also Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653–54 (7th Cir.2006); True v. Am. Honda Motor Co., 749 F.Supp.2d 1052, 1069 (C.D.Cal.2010); S. Rep. No. 109–14, at 27 (stating that CAFA “requires greater scrutiny of coupon settlements”). The second involves a series of specific rules that govern the award of attorneys' fees in coupon class actions. § 1712(a)-(d); see also Vance, supra, at 1632–33. Our...