Under the coupon settlement provision of the Class Action Fairness Act (CAFA), do attorneys’ fees always have to be based on the value of the coupons redeemed, or can they be based on a lodestar calculation?  The Ninth Circuit recently addressed this question and held, in a 2-1 decision, that any award of fees “attributable to” an award of coupons must take into consideration the value of redeemed coupons.  In re HP Inkjet Printer Litigation, No. 11-16097, 2013 U.S. App. LEXIS 9744 (9th Cir. May 15, 2013).  The majority concluded that lodestar fees would be appropriate only to compensate for non-coupon relief, such as injunctive relief.  A lengthy dissent would have concluded that CAFA permits the use of a lodestar calculation in any case involving a coupon settlement.

This case involved allegations that HP engaged in unfair business practices with respect to ink cartridges for inkjet printers.  The settlement called for HP to provide up to $5 million in “e-credits” for purchases of printers and supplies on its website.  In addition, HP agreed to injunctive relief requiring it to make certain disclosures regarding its business practices.  Under the terms of the settlement, the “e-credits” would not be issued until the settlement was finalized, after appeal, but 122,000 of the millions of class members claimed the “e-credits.”  The district court estimated the value of the settlement to the class at $1.5 million, and awarded attorneys’ fees of $1.5 million and costs of approximately $600,000.  (Notably, the opinion did not comment on the fact that the plaintiffs’ attorneys were awarded essentially the same amount as the entire value of the relief the class received, as calculated by the district court.)  Three class members filed objections, including one filed by Ted Frank of the Center for Class Action Fairness, who argued the appeal (it appears he objected for himself as a class member and also on behalf of another class member). 

The debate between the majority and dissent focused largely on 28 U.S.C. § 1712(a), which provides that:

If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.  (Emphasis added.)

The majority focused primarily on the words “any” and “attributable to,” concluding, based on dictionary definitions, that “an attorneys’ fees award is ‘attributable to’ an award of coupons where the attorneys’ fees award is a ‘consequence’ of the award of coupons.”  Id. at *22.  The majority also reasoned that, where all of the relief is coupons, “the portion of any attorneys’ fees award that is attributable to the award of the coupons must be one hundred percent.”  Id. at *24.  The majority also found support for its interpretation in the other provisions of § 1712, and in the legislative history.  The majority ultimately suggested that the parties erred in providing for the coupons to be issued after the entry of a final judgment, which prevented the district court from taking into consideration the value of the redeemed coupons.  The court suggested that fee awards be bifurcated so that the fee award would not be finalized until the coupons had been redeemed.  Id. at *38-39 & n.19.

Judge Berzon, dissenting, focused on the word “portion,” and would have held that if no “portion” of the fee award is “calculated as a percentage of the coupon value,” a district court would be free to rely entirely on a lodestar calculation.  Id. at *61-65 (Berzon, J., dissenting).  Judge Berzon also found support for her interpretation in the text of § 1712 as a whole, and in the legislative history.

This kind of issue rarely arises in insurance class actions, but might potentially come into play if a settlement offered class members “coupons” towards future purchases of insurance.  The Ninth Circuit noted that “coupon settlements may be appropriate . . . where class members have repeat-business relationships with the defendant,” id. at *11 n.4, which is typically true for insurance.  It seems to me that one way to potentially avoid the problem that arose in this case, if you are negotiating this kind of settlement, is to have the attorneys’ fee award determined in a separate proceeding, after the class has received all of the relief.  This has the benefit of further distancing the plaintiffs’ attorneys’ personal incentives from the negotiation of the class benefits.  They would have to negotiate the deal for the class, while only being able to guess at how that might impact their own fees.  A ceiling probably could still be placed on fees, but the ultimate award would have to take into account the ultimate value of what the class received.

Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.