Is Google Advertising Violating Longstanding FTC Rules?

by Paul Alan Levy

For some time, Facebook has been serving me an advertisement from Google’s version of Groupon.  The text promotes an offer for a meal at  a well-reviewed DC restaurant: “this special deal from Zaytinya, Washington’s Most Popular Restaurant as voted in Zagat. Buy it now!”

When I click on the ad, I am taken to the home page of Google Offers (for DC of course), but the page is grayed out by a dialog box urging me not to “miss a single Google Offer” by subscribing.  If I click that off and proceed to the home page, I see an ad for “Chef’s winter tasting menu at Zaytinya” but the legend in the lower right hand corner says “too late,” and if I click through to the page for that offer I learn that the offer is “SOLD OUT.”  At the top of the page, I am again reminded, “Don't miss out! Subscribe to get Washington D.C. offers straight to your inbox.”

I assume that Facebook is immune from liability under Section 230, but isn’t Google running afoul of the FTC’s rules by advertising a product that it doesn’t have available to sell, and, in fact, will never again have the ability to sell? 

Contempt Sanctions Imposed on Copyright Troll Evan Stone

by Paul Alan Levy

I have blogged in the past about the depredations of Evan Stone, a Texas lawyer who has made a business out of suing alleged downloaders of adult movies and shaking them down for settlements because, as he told the Texas Lawyer, “You have people that might be OK purchasing music off iTunes but they’re not OK letting their wife know that they are purchasing pornography.”  (Link goes to a paywall).  Stone bragged that he gets money from almost half of the people he sues, and that he has no intention of actually litigating the cases.   A pretty good business model, that.

After he was caught sending out subpoenas while he was still asking the judge’s permission to start taking discovery, Stone was hit with a sanctions order that included a $10,000 fine and an injunction compelling him to let judges in his other cases know about the sanctions order.  Given the amount of time I have spent defending lawyers in sanctions cases over the years, and my work to fix Rule 11 when its use got out of bounds in the 1980's, I take no joy in seeking them, but you have to read the ruling to get the full flavor of why sanctions were appropriate in this case.

Stone has appealed this order, as of course he has every right to do, but during his appeal he got caught again—he took no steps to comply with the injunction, and, after the deadline the judge set for compliance, he moved for a stay.  But even though he had not obtained a stay, he still did not comply.  Any seasoned litigator would understand that this is a no-no—asking for a stay is not tantamount to getting one.

The district judge was not amused.   He denied the stay, found Stone in contempt, imposed a contempt fine, and ordered Stone to pay $22000 in attorney fees to the appointed lawyers for the Does.  Stay tuned for further developments.

CFPB Head Richard Cordray Testifies Before the House

Read this interesting article on Richard Cordray's testimony yesterday before the House Committee on Oversight and Government Reform. Cordray said that in interpreting statutory phrases meant to curb "unfair," "deceptive," or "abusive" practices, the CFBP will not "go[] off in some wild new unexpected direction."

Last Night's GOP Presidential Debate and the Community Reinvestment Act

by Jeff Sovern

During last night's debate, Representative Paul seemed to attribute the foreclosure crisis partly to the Community Reinvestment Act when he said:

Well, the government . . . gave them a mess. They gave them a financial system that literally created this problem. . . . .[T]he Community Reinvestment Act added more fuel to it, you know, forcing banks to make loans that are risky loans.
So the whole bubble was easily seen. The consequences were anticipated. It was all government manufactured.

Except that as Alan White has explained, the CRA was not the cause of the foreclosure crisis.

The candidates also attacked the Dodd-Frank Act. For example, Governor Romney said "Dodd- Frank . . .made it harder for banks to renegotiate mortgages to help people get out."  And Speaker Gingrich chimed in: "If they would repeal [Dodd-Frank] tomorrow morning, you would have a better housing market the next day."  Yes, and more foreclosures in the future.  Sigh.

Is a Big Deal on Homeowner Mortgage Relief on the Horizon?

The New York Times reports that "[a]bout one million homeowners facing foreclosure could have their mortgage burden cut by about $20,000 each as part of a long-awaited deal taking shape among state attorneys general, federal officials and the nation’s largest mortgage servicers." President Obama hoped to have a deal he could announce in tonight's State of the Union address, but the Times says that is looking unlikely. We'll see.

CNN.Money: The CFPB's Top Priorities

Here.

Study Suggests Racial Bias in Bankruptcy Filings

An empirical study by professors Robert M. Lawless, Dov Cohen, and Jean Braucher has found that the U.S. bankruptcy system (in particular, lawyers representing debtors) appears biased against African-American debtors. Last Friday, the New York Times reported on the study in an article entitled "Blacks Face Bias in Bankruptcy, Study Suggests." A particular concern is that whites with certain financial characteristics are directed by lawyers toward chapter 7, while similarly situated African-Americans are directed toward chapter 13. The Times explains:

Blacks are about twice as likely as whites to wind up in the more onerous and costly form of consumer bankruptcy as they try to dig out from their debts, a new study has found. The disparity persisted even when the researchers adjusted for income, homeownership, assets and education. The evidence suggested that lawyers were disproportionately steering blacks into a process that was not as good for them financially, in part because of biases, whether conscious or unconscious.The vast majority of debtors file under Chapter 7 of the bankruptcy code, which typically allows them to erase most debts in a matter of months. It tends to have a higher success rate and is less expensive than the alternative, Chapter 13, which requires debtors to dedicate their disposable income to paying back their debts for several years. ... A survey conducted as part of their research found that bankruptcy lawyers were much more likely to steer black debtors into a Chapter 13 than white filers even when they had identical financial situations. The lawyers, the survey found, were also more likely to view blacks as having “good values” when they expressed a preference for Chapter 13.

One of the study's authors, University of Arizona law professor Jean Braucher, says at Credit Slips that the Times article describes the problem, but doesn't really deal with solutions. Her Credit Slips piece discusses possible solutions, noting that her study suggested

(1) that a question about race of the debtor should be included on the form for a bankruptcy petition to make it possible to confirm (or disprove) the finding that African Americans file in chapter 13 at a much higher rate than debtors of other races (about double in the data we have), and (2) that all actors in the bankruptcy system—judges, trustees, attorneys and clients—be educated about the apparent racial disparity and the possibility that subtle racial bias may be producing it.

Those of you anxious to read the entire Lawless/Cohen/Braucher study -- called "Race, Attorney Influence, and Bankruptcy Chapter Choice" -- should look for it in a forthcoming issue of the Journal of Empirical Legal Studies. The SSRN link for the article is currently broken; I'll post the article, when I get it.

UPDATE: Bob Lawless contacted me and provided the SSRN link to the study. And, while I'm updating, here's the abstract:

We report on racially disparate uses of chapter 13 bankruptcy. Currently, approximately 1,500,000 bankruptcy petitions are filed each year, with about 30% of those petitions being chapter 13 cases. Although chapter 13 can offer some legal advantages for persons seeking to protect valuable assets such as a house or automobile, it generally offers less relief and costs more than the primary alternative available to consumers, chapter 7. The chief feature of a chapter 13 bankruptcy case is a plan under which the debtor must devote all of his or her disposable income to creditor repayment over a 3- to 5-year period. Chapter 7, in contrast, requires only that the debtor turn over all nonexempt assets, with over 90% of chapter 7 debtors having no assets to turn over.  This paper reports on two studies, one using data from actual bankruptcy cases and the other involving an experiment with a national random sample of bankruptcy attorneys. Because the court system does not collect racial data on bankruptcy filers, the first study uses data from the Consumer Bankruptcy Project. Even after controlling for financial, demographic, and legal factors that might favor a chapter 13 filing, African Americans are much more likely to file chapter 13, as compared to debtors of other races. The second study reports on an experimental vignette sent to a random sample of consumer bankruptcy attorneys who represented debtors. The attorneys were more likely to recommend chapter 13 when the hypothetical debtors were a couple named “Reggie & Latisha,” who attended an African Methodist Episcopal Church, as compared to a couple named “Todd & Allison,” who attended a United Methodist Church. Also, attorneys viewed “Reggie & Latisha” as having better values and being more competent when they expressed a preference for chapter 13 as compared to “Todd & Allison,” who were seen as having better values and being more competent when they wanted to file chapter 7, giving them a “fresh start.” Previous research and the results from the present experimental vignette study suggest consumer bankruptcy attorneys may be playing a very important, although likely unintentional, role in creating the racial disparity in chapter choice. Together, the two studies raise questions about the fairness of the bankruptcy system.

 

Michelle Singletary (and Richard Cordray) on Mandatory Consumer Arbitration

In yesterday's Washington Post, Michelle Singletary uses the Supreme Court's recent decision in Compucredit v. Greenwood (which we mentioned and linked to here) as a springboard to discuss the debate over pre-dispute mandatory arbitration clauses in consumer contracts. She reminds us that the Dodd-Frank financial reform legislation requires the new Consumer Financial Protection Bureau to study arbitration. Based on that study, the CFPB can, by regulation, ban or limit arbitration in matters within the CFPB's authority. Singletary quotes Richard Cordray, the new recess-appointed head of the CFPB, who says that “[w]e understand the importance of this issue, and we’ll be moving forward as required by Congress.”

Health Care in the United States

104 professors of health care law have filed this Supreme Court amicus brief in the case challenging the constitutionality of the Affordable Care Act now before the Court. Former Reagan Administration Solicitor General Charles Fried, who thinks the Commerce Clause challenge to the individual mandate is nonsense, is lead counsel on the brief. The 104 professors have differing views on health care reform (and presumably differing views on the wisdom of the Act). Some favor significant government involvement, while others favor market-based solutions. What is interesting about the brief is that it compiles in one place a great deal of information on the enormity of the health care economy, the near ubiquity of the health care system in the lives of Americans, and the huge costs imposed on others by those who are not insured. When you get done with the brief, you tend to think that the mandate involves "commerce," even though the brief does not directly address that question. The brief is very well done and worth a look.

News Article on Debt Buyers

Here, from the Frederick News-Post.  An excerpt:

Debt buyers bank on the likelihood that some people will pay up without a fight or fail to defend themselves in court, Holland said. And because the debt is so cheap, the agencies risk little by purchasing it.

Companies buy massive spreadsheets of names, account numbers and alleged debt amounts, he said. Often, no supporting documentation exists to show the person owes the money, and the thread of ownership tangles until even attorneys have trouble making sense of it.

Many consumers have no memory or record of the original debt, so the calls from creditors hit them out of the blue.

This can be dangerous. In the chaos of the industry, the same debt can be sold to several people, [Maryland law professor Peter A.] Holland said.

"They don't realize that proof is lacking, and the danger there is that they end up paying it to the wrong person. And then they have no protection if the right person comes forward and sues them," he said.

Times Article on Disclosure Generally, Including Consumer Disclosures

You can read it at http://www.nytimes.com/2012/01/22/sunday-review/hard-truths-about-disclosure.html?pagewanted=1

Adam Zimmerman on the "Privatized Attorney General" as Replacement for the Class Action

Here. I should note that Adam is a colleague of mine.

Ron Paul Should Know Better Than to Sue Anonymous Speakers for Political Speech

by Paul Alan Levy

In a remarkably dishonest filing yesterday in support of a new lawsuit, Republican presidential candidate Ron Paul has asked the federal district court in San Francisco to order expedited discovery to identify an anonymous videographer who advocated his election through a video pillorying opposing candidate Jon Huntsman for his connections to China.

In a complaint filed a few days ago, Paul alleged that the video both infringed his trademark and defamed him by improperly implying that he was behind the campaign video.  The complaint seeks damages and injunctive relief, not just compelling removal of the video, but preventing the defendants from ever using Paul’s name in any material in the future, regardless of whether the use implies Paul’s endorsement (relief paragraph 6).  This complaint is utter nonsense, in several respects.

Radio's Academic Minute: 100 Seconds on Mortgage Disclosures

Here.

The National Highway Transportation Safety Administration Unable to Properly Assess Safety of New, High-Tech Vehicles

As explained in this LA Times article, a study done by the National Research Council at the request of the National Highway Traffic Safety Administrator (NHTSA, the federal agency in charge of passenger car safety) has concluded that NHTSA does not currently have the technical know-how to properly review the safety of today's high-tech vehicles. Here's the beginning of the article:

The nation's top auto safety regulator is ill-equipped to detect problems with high-tech electronics that are increasingly commonplace in today's cars, a new government study has concluded. Calling such shortcomings "troubling," the report called on the National Highway Traffic Safety Administration to review its technical capabilities and appoint an advisory panel to help it evaluate potentially serious risks associated with systems such as adaptive cruise control. Despite those findings, the National Research Council found in a 162-page report that NHTSA's decision to close its investigation of sudden acceleration in Toyota Motor Corp. vehicles was appropriate, and backed its conclusion that there was no evidence that an electronic defect caused the dangerous problem. Nonetheless, the proliferation of computerized devices poses new challenges for NHTSA, and "the agency needs to plan for the future of electronics in vehicles," said Louis J. Lanzerotti, a physics professor at the New Jersey Institute of Technology and chairman of the committee that authored the report.

Jenzabar Persists in Trademark Bullying

by Paul Alan Levy

Jenzabar, a Boston-based educational software company run by the chairman of the Massachusetts Republican Party, continues in its efforts to abuse trademark law to punish the makers of a documentary film that shows one of the company's founders making brash statements as a student, hoping for a bloodbath that would spur a popular uprising in China, that she has since come to regret.  Instead of suing over the accuracy of the film, Jenzabar complains about a page on the film-related web site from which, it fears, customers might learn what the filmmakers have republished from the Boston Globe about Jenzabar itself. 

I blogged about the case several times a couple of years ago (for example, here and here), while the summary judgment motion was pending.   Jenzabar’s claim was that by putting its name in the keyword meta tags and title tag of a page about Jenzabar, the documentarists were unfairly bringing Jenzabar’s prospective customers to a web page where they might read "lies about Jenzabar" and hence decide not to do business with it. 

Although we made a number of technical trademark arguments about the lawsuit, the most troubling thing about the suit was that, in the end, what Jenzabar wanted to prevent was customer access to criticism, and trademark law is not supposed to prevent criticism.  In the end, the Massachusetts Superior Court granted summary judgment dismissing the trademark claims, while postponing a decision on whether Jenzabar would have to reimburse Long Bow’s hundreds of thousands of dollars in attorney fees, pending a decision on Jenzabar’s appeal.

We filed our brief today in response to Jenzabar’s appeal, pointing out the many ways in which its lawsuit was flawed from the get-go.  But one more oddity has been added to the case – after Jenzabar complained that the descriptive snippet that Google was including in the search results was what might deceive customers looking for information about Jenzabar, Long Bow added a description meta tag referring to Jenzabar’s effort to censor the site.   Google's search result snippet now reads: “Jenzabar has tried to censor this web page because it carries critical information about the software company that Chai Ling started with her husband.”  But Jenzabar still claims that because the search result appears in the first set of Google results, it is still an “infringing use” because its customers might be deceived.  Will its lawyer be able to argue that with a straight face?

The expense of defending the lawsuit came close to putting the documentarists out of business.  A very nice amicus brief from the Berkman Center's newly-renamed Digital Media Law Project points out the danger posed by subjecting expressive uses to the trademark laws, given how expensive it is to pay for hundreds of hours of legal work, not to speaking of hiring the expert witnesses and conduct the consumer surveys that have become the typical meat of a trademark case.

Another Paper on Discrimination in Mortgage Markets

R. Glenn Hubbard

 of Columbia Business School and the National Bureau of Economic Research (NBER), Darius Palia of Rutgers Business School, and

Wei Yu

 of California State Polytechnic University, Pomona have written Analysis of Discrimination in Prime and Subprime Mortgage Markets.  Here's the abstract:

This paper examines evidence of lending discrimination in prime and subprime mortgage markets in New Jersey. Existing single-equation studies of race-based discrimination in mortgage lending assume race is uncorrelated with the disturbance term in the loan denial regression. At the individual loan-level, we show that race is correlated with both observable and unobservable risk variables, leading to biased coefficient estimates. To mitigate this problem, we specify a system of equations and use a full information maximum likelihood (FIML) method that does not need to identify instrumental variables for system identification. We find that minorities are less likely to be rejected than whites in the subprime market. The individual loan-level FIML results are robust to using two-stage least squares when we examine discrimination at the neighborhood-level. We also find that the reduction in rejection rates to minority neighborhoods from 1996 to 2008 cannot be fully justified by risk, suggesting a relaxation of lending standards to minority neighborhoods. Using the methodology of Mian and Sufi [2009], we also find evidence for strong credit supply effects.

 

Mary Spector Study of Debt Collection Litigation

Mary Spector of SMU has written Debts, Defaults and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts, 6 Virginia law and Business Review 257 (2011).  Here's the abstract:

This Article explores consumer collection litigation through original research from more than five hundred cases filed in the Dallas County courts. It analyzes the data within the context of the modern debt collection industry, paying special attention to the role of debt buyers and to the peculiar legal issues their involvement raises. After explaining the methodology and mechanics used to gather and analyze the data, the Article discusses the data collected, identifying and analyzing the most significant findings and placing them within a larger legal landscape. While the research confirms anecdotal reports of litigation abuse in consumer collection cases, it also reveals some surprising patterns. For example, the research indicates that consumer default was not the most common outcome and that minimal effort by consumers often considerably helped to protect their rights and favorably to conclude the litigation. The Article concludes by discussing some of the implications for the judicial system and by suggesting additional areas of research that would increase understanding of the challenges the litigation presents for parties, their lawyers, and the courts.

The Arbitration Fairness Act

Just days after the Supreme Court's 8-1 decision in Compucredit v. Greenwood -- holding that the Federal Arbitration Act (FAA) trumps court access for consumers under the Credit Repair Organizations Act -- David Lazarus of the LA Times says that it is high time for Congress to pass the Arbitration Fairness Act. That Act would restore court access for consumers and employees in the wake of a series cases of Supreme Court cases interpreting the FAA that effectively eliminate consumers' ability to obtain remedies for violations of substantive law.

New and Interesting Affordable Care Act Analyses

I. Glenn Cohen, an assistant professor at Harvard Law School, has generated two interesting items on the challenges to the Affordable Care Act. First, he has written this opinion piece for the New England Journal of Medicine arguing that the provisions of the Act expanding the reach of the Medicaid program are constitutional.

Cohen also sat for this interview in which he describes, clearly and with sophistication, each of the challenges to the Affordable Care Act now before the Supreme Court. It's very good and definitely worth a listen.

Oren Bar-Gill on Consumer Protection and Behavioral Economics

Oren Bar-Gill of NYU has written Competition and Consumer Protection: A Behavioral Economics Account, forthcoming in SWEDISH COMPETITION AUTHORITY, THE PROS AND CONS OF CONSUMER PROTECTION. Here's the abstract:

 

 Do the benefits of competition extend to a world with imperfectly rational consumers? I argue that sellers, operating in a competitive market, will design their products, contracts and pricing schemes in response to consumer misconception, resulting in both efficiency losses and harm to consumers. Under certain conditions, competition provides incentives for sellers to educate consumers and reduce misconception, but these mistake-correction forces are limited. The existence of biased demand, generated by imperfectly rational consumers, creates a market failure – a behavioral market failure. Mandated disclosure, deliberately designed for imperfectly rational consumers, or for sophisticated intermediaries that advise imperfectly rational consumers, can help.

 

 

Diane Thompson on Home Loan Modifications

Diane Thompson of the National Consumer Law Center has written this piece in the Washington Law Review on why mortgage servicer incentives discourage home loan modifications. Here is the abstract:

Despite record losses to investors, homeowners, and surrounding communities, the foreclosure crisis continues to swell. Many commentators have urged an increase in the number of loan modifications as a solution to the foreclosure crisis. The Obama Administration created a program specifically designed to encourage modifications. Yet, the number of foreclosures continues to outpace modifications.

One reason foreclosures outpace modifications is that the mortgage-modification decision maker’s incentives generally favor a foreclosure over a modification. The decision maker is not the investor or the lender, but a separate entity, the servicer. The servicer’s main function is to collect and process payments from homeowners, and servicers do not necessarily have any ownership interest in the loan. Servicers, unlike investors, generally recover all their hard costs after a foreclosure, even if the home sells for less than the mortgage loan balance. Servicers may even make money from foreclosures through charging borrowers and investors fees that are ultimately recouped from the loan pool.

Existing regulatory guidance could be improved to facilitate modifications. Investors need increased transparency to hold servicers accountable for failing to make modifications when it is in the investors’ best interests to make modifications. Fundamentally, servicers must be required to make modifications when doing so would benefit the trust as a whole.

Chamber of Commerce Won't Sue to Challenge Cordray Recess Appointment

Here.  They may sue later, however.  Or others might.  Or a challenge to the NLRB recess appointments made at the same time may decide the question.

New NCLC Practice Tools

By Jon Sheldon

1. NCLC Released 4 Revised Editions in December (subscribers have received them by now, others can order them at www.nclc.org/shop or 617-542-9595):

• Consumer Arbitration Agreements (6th ed.)
• Automobile Fraud (4th ed.)
• Access to Utility Service (5th ed)
• Consumer Law Pleadings (Website and 2011 Index Guide)

2. NCLC also released 6 Supplements in December (same ordering information):

• Consumer Bankruptcy Law and Practice 2011 Supp.
• Truth in Lending 2011 Supp.
• Fair Credit Reporting 2011 Supp.
• Unfair and Deceptive Acts and Practices 2011 Supp.
• Student Loan Law 2011 Supp.
• Repossessions 2011 Supp.

3. Fair Credit Reporting Supp. Addendum: Those who have already received or just ordered the December, 2011 Supplement to NCLC'sFair Credit Reporting should print out a 4 page addendum to section 7.2.3, Permissible Use in Connection with Credit. Please go to www.nclc.org/fcr2011.  [Subscribers can also receive a hard copy in the mail by contacting publications@nclc.org.]  Anyone ordering the Supplement now automatically receives the addendum as part of their Supplement package.

4. NCLC REPORTS Nov./Dec. Issues: 
Bankruptcy & Foreclosures Ed.: New bankruptcy rules and forms respond to servicing and mortgage claim documentation issues, available for free at www.nclc.org/form10

Consumer Credit & Usury Ed.: Top 10 ways to defeat the BFP defenses in foreclosure rescue fraud cases; the deadline to enforce TILA rescission

Deceptive Practices & Warranties Ed.: Pursuing class actions despite arbitration clauses; new federal program and California law revolutionize car purchasers;12 tips on utility disconnections

Debt Collection & Repossessions Ed.: sanctions for denying collector had insurance; FDCPA limits on leaving messages for consumers; robo-calling bill killed; TCPA decisions; thousands of collection actions stayed; libel claim against a creditor

5. NCLC Webinar Series continues: Jan. 26 at 2PM: "Understanding the Impact of Car Ownership Programs” and February 8^th at 2PM: “So What Is Lobbying and What Can I do as a Non-Profit/Legal Aid Program?” Contact jhiemenz@nclc.org for this and future webinars. Go to www.nclc.org/conferences-training/webinars.html for FREE downloads of over 50 past webinars.

6. REGISTER NOW: Fair Debt Collection Practices Training Conference is in New Orleans, Feb. 23-24,2012. Go here to register and reserve your hotel room at: www.nclc.org/conferences-training/fair-debt-collection-practices-conference.html Get up to speed on your first debt collection abuse cases and proceed to more in-depth sessions on developing fair debt collection cases and a fair debt collection law practice. Faculty includes the top Fair Debt Collections Lawyers from across the country. CLE credit.

Department of Justice's Office of Legal Counsel Says President Obama's Recent Recess Appointments Were Legal

Read OLC's opinion here.