Too often,  in a consumer-based class action lawsuit, class members receive a  worthless “coupon” to purchase the defendant’s products.

And nothing changes.

This was the ignominious conclusion of an eight-year-old class action lawsuit against Hewlett Packard Company, which allegedly cheated consumers with respect to the sale of ink cartridges from 2001 to 2010.

 However, an appellate panel from the U.S. District Court of Appeals for the Ninth Circuit on Wednesday rejected the settlement in In re: HP Inkjet Printer Litigation and sent it back to the lower court for reconsideration.

 In the ”global” settlement approved by a federal judge  in 2011 the class members received “e-coupons” worth $2.00 to $6.00 toward HP printers and printer supplies and so-called “injunctive relief” that essentially requires HP to provide accurate notice of its products to consumers in the future. The court also awarded attorneys’ fees of $1.5 million and costs of about $600,000. 

Issue Attorney Fees

 The issue on appeal was not the mild slap on the wrist suffered by HP for allegedly cheating consumers for almost a decade  but the attorney fees.

The three judge appeals panel, with one member dissenting, ruled that the Class Action Fairness Act prevents a district court from awarding attorneys’ fees to class counsel that are “attributable to” an award of coupons without first considering the redemption value of the coupons.

 “Attorney’s fees are never ‘attributable to’ an attorney’s work on the action. They are ‘attributable to’ the relief obtained for the class,” ruled the panel.

The dissent argued the majority was misinterpreting the law by making a class action lawsuit the equivalent of a “contingency” case, where the attorneys get a percentage of the monetary judgment.

The Problem with “e-coupons”

The  “e-coupons” were good only at HP.com, expired six months after issuance, were non-transferable and could not be used with other discounts or coupons.  The record included evidence that prices charged at HP.com  are higher than those charged by other retailers. For instance, the same HP “Combo Pack Ink Cartridge” sells for $42.99 on HP.com while selling for $36.99 on Amazon.com.

Of potentially millions of class members, three filed formal objections to the settlement, 458 submitted informal comments, 810 opted out of the settlement, and 122,000 filed claims.

The attorneys  asserted they racked up $7.1 million in fees and costs, representing 17,000 work hours but they only asked the court for $2.9 million, recognizing the limited nature of the settlement.

The appeals court said it did not mean to rule out the use of  coupons in settlements. For example, the court said, coupons may be appropriate if the defendant is in financial distress or the customer has a history of repeat business with the defendant.

What the Case was About

 The  tortured history of this case raises questions about whether consumer class action lawsuits as currently configured are an effective method for policing the consumer marketplace. International corporations like Hewlett Packard  have pockets that are the equivalent of an abyss to fight these lawsuits.

The allegations at the core of the case are serious and, if true, cost consumers millions  of dollars. The settlement includes plaintiffs from three separate lawsuits that were combined by the court:

• The first  action was filed on June 16, 2005, and alleged that HP misled consumers into believing that replacement of an ink cartridge was necessary when the cartridge was not empty, and was capable of additional printing.

•  The second action was filed on May 22, 2006, and alleged that HP failed to disclose that its color printers use color ink to print black and white text and images, a process known in the printing industry as “underprinting.”

• The third action was filed on January 17, 2007, and alleged that HP concealed that certain of its ink cartridges contained an “expiration date,” after which time the cartridges would no longer work regardless of how much ink remained in the cartridge.

 The lower court judge determined that the settlement provided class members “meaningful benefits on a much shorter time frame than otherwise possible.”

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