HP Can Keep Worthless Coupons?

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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SLAPP Down: Trump University

Trump you're firedA federal appeals court this week taught Trump University and its founder,  Donald “You’re Fired” Trump, an important lesson about bullying.

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit in California reinstated a motion to strike a defamation claim filed by Trump University against a former student, Tarla Makaeff,  in a class action lawsuit that accuses Trump University of being an elaborate scam.

Makaeff said the defamation claim violated California’s Anti-SLAPP (Strategic Lawsuits Against Public Participation) statute and was intended to deter her from pursuing her right to free speech. SLAPP refers to lawsuits that masquerade as ordinary lawsuits  but are intended to deter ordinary people from exercising their political or legal rights or to punish them for doing so.

The appeals court also revered a lower court ruling that held Trump University is not a public figure. The appeals court said Trump University, is a “limited public figure” that is subject to a heightened burden of proof in a defamation case.  Trump University must show by clear and convincing evidence that Makaeff’s alleged defamatory statements were made with “actual malice”  –  with knowledge of their falsity or reckless disregard for the truth.

This ruling makes it very unlikely that the university can prevail in the defamation claim.

Trump, a real estate magnate who stars in the TV show, The Apprentice, founded Trump University as a private, for-profit entity, to teach his “insider success secrets.”    Makaeff  attended university seminars that encouraged members of the public to participate in the market for foreclosed properties, which had grown substantially in the wake of the 2007 financial and mortgage crisis.  After paying more than $5,000 to the university, Makaeff, in 2009, began accusing the university in letters and Internet postings of deceptive business practices.

Makaeff said she  wrote her bank and the Better Business Bureau and posted statements on the Internet  “to alert other consumers of my opinions and experience with Trump University,” and to “inform other consumers of my opinion that Trump University did not deliver what it  promised.”   

The appellate panel said Trump University became a “limited purpose public figure” when it conducted an aggressive advertising campaign in which it made controversial claims about its products and services. This campaign included online, social media, local and national newspaper, and radio advertisements for free introductory seminars. Furthermore, Donald Trump denied the university engaged in the practices that were the subject of Makaeff’s alleged discriminatory statements in the forward of  his book, Wealth Building 101.

The appeals court  panel said it had “little difficulty” concluding that a public controversy existed over Trump University’s educational and business practices when Makaeff made her statements about them.  “ By 2007 and 2008, disgruntled Trump University customers were posting complaints on public Internet message boards,”  the panel notes.

“To be clear: Trump University is not a public figure because Donald Trump is famous and controversial … Trump University is a limited public figure because a public debate existed regarding its aggressively advertised educational practices,” the court ruled.  “[H]aving traded heavily on the name and fame of its founder and chairman, Trump University was in no position to complain if the public’s interest in Trump fueled the flames of the legitimate controversy that its business practices engendered.