In re HP Laserjet and the question of injunctive relief

On February 14, there was an hour-long fairness hearing before Judge Guilford in the Central District of California, and anyone who practices in federal court in California knows how rare hour-long arguments are. One certainly appreciates the attention paid to the case. The Laserjet settlement was pretty much identical to the Inkjet settlement (with the twist that the lead plaintiff in Laserjet filed an objection accusing his attorneys, Kabateck Brown Kellner, of fraud). The Court gave the opportunity for additional briefing, and Tuesday we provided this brief with a short summary on the question of injunctive relief and answering some of the Court's questions.

The return of the $0 Costco fuel settlement

You will recall that a class action is pending in Kansas over gasoline retailers' failure to disclose the laws of physics to customers, i.e., gasoline, like all other liquids, expands in higher temperatures. Since a "gallon" is a measure of volume rather than power, someone buying gasoline when it's warm is getting less mileage than someone who buys the same volume of gasoline when it's cool. To some extent, the retailers are being hoist by their own petard, because they pulled the same class-action nonsense on wholesalers, but it's still socially wasteful litigation that benefits no one but the lawyers; when I argued at a fairness hearing in Kansas City last April, I had several dozen witnesses, likely each billing an average of over $400/hour. Costco decided to get the uncertainty off of its books, and agreed to pay the lawyers to go away. But the class members, the ones putatively injured by Costco's conduct, got nothing. The plaintiffs had the chutzpah to claim that Costco's agreement to "temperature-adjust" their fuel sales was a benefit to consumers, but that's clearly not so. If Costco's average "gallon" happens to increase in size a cubic inch or two, that doesn't mean that consumers are getting free gas any more than it would mean that consumers would get free eggs if the government suddenly mandated that a "dozen" was now equal to eighteen.

The court threw out the settlement on a technicality, and the parties are now back with an amended settlement that fixes the technicality, but still doesn't do anything for the class. So my clients renewed their objection to the settlement. Last time around, we challenged the quack economic report that plaintiffs submitted that claimed changing the size of a gallon would magically result in consumers getting tens of millions of dollars of free gasoline; the other side protested that I was just a mere lawyer who wasn't qualified to use big words like "cross-subsidization." Over the last few months, I've discussed this case with several economists, many of whom fell over laughing as I described the testimony of Dr. Andrew Safir; the distinguished Dr. David Henderson was kind enough to charge us a reduced rate to provide a simple rebuttal on short notice this time around.

When is injunctive relief a benefit to the class? So many plaintiffs' lawyers seem confused about this issue: they forget that they represent clients, and the injunctive relief needs to benefit their clients if one is to count it towards determining the fairness of the settlement. Few courts consider the issue because few objectors raise it, but the ones that do consider it consistently distinguish between retrospective injunctive relief (say, a recall that fixes an automobile or a computer) and prospective injunctive relief (a company agrees to change its business practices). Even when there is consumer fraud, prospective injunctive relief doesn't benefit consumers unless they engage in new business with the vendor. And even then, the consumers will not benefit if the vendor simply raises its prices to account for the new costs in the change in business practices.

Merger lawsuits

I'm quoted in a Reuters story about merger lawsuits and their quick settlements:

Settlements often come fast, and plaintiffs' lawyers share in the spoils -- $500,000 in a typical lawsuit, Advisen said.

"The real problem, I think, is in cases where lawyers win a few extra sentences of disclosure and walk away with $1 million of fees," said Ted Frank, who founded the Center for Class Action Fairness and often challenges proposed settlements.

Lawyers and researchers say the proliferation of lawsuits reflects increased competition among firms.

"There are some bottom feeders on the plaintiffs' side," said Adam Savett, a director at the Claims Compensation Bureau LLC, which monitors class-action claims for investors. "Their modus operandi is throw up a lot of stuff on the wall and try to get a quick settlement, and move on."

REARRANGING DECK CHAIRS

Typically, an individual or institutional investor sues a target company or its directors, seeking class-action status and alleging a breach of fiduciary duty to shareholders.

...

"Defense lawyers benefit from this game," Travis Laster, a vice chancellor in Delaware Chancery Court, said at a December hearing. "They get to bill hours without any meaningful reputational risk from a loss. They then get to get a cheap settlement for their client. Disclosures are cheap."

Frank, of the Center for Class Action Fairness, said it was up to judges to decide if these settlements have much benefit.

"Judges should consider whether these provisions actually create value for shareholders," he said, "or amount to a rearranging of the deck chairs to create the illusion of value to justify attorneys' fees."

Oral argument in the Bluetooth case

The audio file of Monday's oral argument in the Ninth Circuit in the Bluetooth case is now on line. The panel consisted of circuit Judges Hawkins and Fisher and N.D. Ohio district court Judge Zouhary.

Briefing:

• Opening brief
• Plaintiff-appellees' brief
• Defendant-appellees' brief
• Reply brief