Ciolino v. Frank

When calculating attorneys' fees in class-action lawsuits, fees must be based on the redeemable value of any coupons awarded to class members, and the lodestar method of attorneys' fees calculation may be used for the portion of a settlement agreement that awards equitable relief.

Class members sued Hewlett-Packard (“HP”) for unfair business practices regarding the amount of ink remaining in HP printer cartridges, leading consumers to discard ink cartridges when the cartridges were still capable of printing. HP agreed to award class members “e-credit” coupons, make disclosures on its website regarding and user manuals explaining the business practices, and pay attorneys’ fees and costs. HP agreed to pay class members $1.5 million, in addition to $596,990.70 in costs. The district court calculated attorneys’ fees based on the lodestar method under 28 U.S.C. § 1712(b)(1), but reduced attorneys’ fees to $1.5 million. Objectors Kimberly Schratwieser and Theodore Frank appealed the district court’s calculation of attorneys’ fees. Under the Class Action Fairness Act (“CAFA”), when a settlement involves coupons, attorneys’ fees must be calculated based on the redemption value of the coupons. However, the settlement agreement provided that the coupons could not be redeemed until after the settlement was final, leading the district court to provide a rough estimate of the value of the coupons. The Ninth Circuit reviewed legislative history of CAFA to determine that the district court abused its discretion in calculating attorneys’ fees under § 1712(a)–(c). Legislative history revealed that Congress intended attorneys’ fees to be tied to the interests of the class members to discourage settlements which award only low-value coupons to class members but substantial attorneys’ fees. Where coupons are awarded, attorneys’ fees must be attributable to the redeemed value of the coupons to the class, rather than the value of the attorneys’ work on the case. The court may consider the value of the equitable relief in granting attorneys’ fees, and attorneys’ fees based on equitable relief may be calculated according to the lodestar method. REVERSED, VACATED, and REMANDED.