CL&P Blog

New Jersey Supreme Court Allows Mass-Marketing Fraud Class Action

Yesterday, the New Jersey Supreme Court handed down a unanimous 50-page opinion reversing the denial of certification in a mass marketing consumer fraud case.

 

The case involves a dietary supplement known as Relacore -- a pill marketed as causing stress and weight reduction.  According to its advertisting, Relacore attacks the "stress-to-belly-fat cycle."  The complaint alleges that there's no basis to believe the pill delivers any of its claimed benefits.  The trial court and intermediate appellate court both held that class certification was inappropriate because the mass marketing for Relacore took a variety of forms -- sometimes it was advertised as a weight-loss product and sometimes as a stress-reduction product -- and because there was no way of knowing which consumer relied on which claims, individual issues would necessarily predominate.

 

Public Citizen wrote an amicus brief, joined by other consumer groups.  We argued that the lower courts' decision would mean that companies that commit fraud in multiple ways would be better off than companies that make only one false claim.  We argued that pills like Relacore are what economists call "credence goods" -- you don't know anything about them until someone tells you something about them.  Nobody grabs pills off the shelf randomly, so people must have decided to buy the pills in reliance on advertising. 

 

The opinion quotes at length from our argument about "credence goods" and makes that concept central to its predominance analysis. It also relies heavily on our argument that making multiple false claims shouldn't put deceptive advertisers in a better position that those that make a single false claim:

NY Times: "Warren Seeks to Reassure Bankers on Protection Agency"

Here.  Excerpts from her remarks, as reported in the Times:

“First, in the weeks and months ahead, I’m going to listen more than I’m going to talk, and I’m going to keep my door open,”

“And second, I am committed to helping build a consumer credit structure that works — works for families, works for the financial services industry, and works for the American economy.”

“We have a chance to take a step back to ask: What vision should drive this agency? What test should be used to determine when the agency should act, when it should not, and which tools it should use when it does take action? What is the central aim of financial services regulation?”

“I come to Washington as a genuine believer in markets and a genuine believer that the purpose of regulating the consumer credit market is to make that market work for buyers and sellers alike: a level playing field where the best products at the best prices win,”

“Where I come from, nobody calls fine print, hidden fees and surprise penalties ‘negotiated contract terms’ or ‘innovations,’ ” 

“On a polite day, my brothers in Oklahoma call that kind of stuff ‘garbage.’ They don’t care if it is there because regulators required it, because the companies’ lawyers were trying to ward off lawsuits, or because it was a good place to hide another new fee. They simply see a world in which the financial institutions they do business with are not on their side.”

Understanding The Financial Reform Legislation

This (somewhat) interactive site helps explain the new financial reform legislation.

Class-Action Bans in the Supreme Court: Respondents' Brief in AT&T v. Concepcion

by Deepak Gupta

Today we filed our merits brief for the respondents in the U.S. Supreme Court in AT&T v. Concepcion.  The question in Concepcion is whether companies can use the fine print of take-it-or-leave-it contracts to strip consumers and employees of the opportunity to bring or participate in a class action.  Companies accomplish this by embedding class-action bans in mandatory arbtiration clauses, thereby precluding classwide proceedings in any forum (court or arbitration).  Thus, the case isn't really about arbitration at all; it's about whether stronger parties can use contracts of adhesion to exempt themselves from accountability for systemic wrongdoing.

In our brief, we argue that the Federal Arbitration Act does not trump state-law rulings holding that class-action bans, where they would have the effect of exculpating the defendant from liability, are unconscionable and unenforceable.  The amicus briefs on our side are due next Wednesday, October 6.

In related news, those of you in the Washington area may be interested in attending an event hosted by the American Constitution Society on October 19 at noon, at the National Press Club, at which participants will discuss the case.  I won't be speaking, nor will my opposing counsel.  But you'll get to hear what I expect will be some spirited debate between Paul Bland, Nina Pillard, Alan Kaplinsky, and Steve Ware. Lunch will be served. 

You can read more about the Concepcion case, including all of the briefs filed so far, here.

A Disappointing Development at Google

by Paul Alan Levy

Last month, Google announced a change in the way search results would be displayed:  multiple search results will now be displayed from the single domain receiving the most clicks from search engine users.  In the example given on Google's blog, the search string "exhibitions at amnh" now produces seven results from the official web site of the American Museum of Natural History; in the past, there would have been only two hits from that page.  Consequently, the official web site of the entity owning the name can now receive so many entries on the first page of results that other web site owners are forced off the crucial first page of results.  Or, to take another example offered by one of my clients, a seller of Avery compatible labels who has had to fend off threats of trademark litigation in which Avery complains about his use of its name to identify the characteristics of the labels he sells, Avery itself now dominates the first page of search, reducing his opportunity to capture the attention of buyers with his lower-priced labels.

 
Much of the commentary has focused on the impact on commercial web site creators, such as competitors and resellers (like our client).  Cynics have speculated that Google has made this change deliberately to force competitors and resellers who hope to attract traffic from persons interested in a given item to buy keyword advertising to ensure that their pages appear near the top of the first page of results, instead to simply relying on effective search engine optimization techniques that produce no revenue for Google.   They point out that the change wasn't needed to enable search engine users to see more pages from the brand name owner's official web site, because Google had a specialized tool, the "more results from" link provided with search results from sites with multiple relevant links.
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But that concern is even more serious for those who want their commentary about brand name owners to appear on the first page of search results, because Google does not allow critics to place a brand name in the text of keyword advertisements, and in any event consumer critics generally can't afford keyword advertising to promote their web sites.  By ramping up the search results from brand name owners, Google may have more impact suppressing information about criticism than all of the frivolous litigation brought against critics.  That is unfortunate.

Chase joins GMAC/Ally in Robo-signer Scandal

The Wall Street Journal reports today that JP Morgan Chase is suspending 56,000 pending foreclosures in order to review court documents signed improperly, in other words by robo-signers.  See also the Huffpo story here.  The growing scandal is getting wide play in the media, the blogosphere, and even in Congress.  Also today, Fitch Ratings issued a release saying they are asking all mortgage servicers whether they have a robo-signer problem. 

Connecticut and California AGs Freeze Ally Financial's "Defective" Mortgage Foreclosure Program

Last week, CL&P blogger Alan White explained that Ally Financial was halting some of its foreclosure business in 23 states because of unspecified "defects" in its program.  Now, we learn in this article in today's Washington Post that the Connecticut and California AGs have frozen Ally's foreclosure activities. The article explains that other AG's are also investigating. Here's an excerpt:

Attorneys general in Connecticut and California ordered Ally Financial's GMAC mortgage unit to freeze all foreclosures within their borders, joining a growing list of states investigating whether the firm and other lenders improperly kicked people out of their homes.Connecticut Attorney General Richard Blumenthal on Monday accused Ally of using "defective foreclosure documents" in its filings and said he ordered the moratorium "to forestall horrendous, illegal harm against homeowners." California Attorney General Edmund G. Brown Jr. on Friday called Ally's document review process a "sham. "In Illinois, Attorney General Lisa Madigan said she "wants to see Ally stop the filing of foreclosures in Illinois as well until this situation can be remedied," a spokeswoman said. Iowa, North Carolina and Texas have also opened criminal and civil investigations into Ally's lending practices as well as those at other large mortgage companies, officials said.

Attack on Arbitration Fairness Act

by Jeff Sovern

Former Ninth Circuit Judge and Secretary of Education Shirley M. Hufstedler and Former Eighth Circuit Judge, FBI Director, and CIA Director William H. Webster have co-authored a piece in the National Law Journal, Arbitration Under Siege, criticizing the proposed Arbitration Fairness Act, and calling instead for codification of fairness standards.  The authors write: "Astonishingly, such legislation [referring to the AFA] would effectively abolish arbitration as a viable alternative for such disputes."  What astonishes me about the essay is that it never mentions pre-dispute arbitration clauses, or distinguishes them from agreements to arbitrate after the dispute has arisen.  Nor does it justify the statement that the legislation would "effectively abolish arbitration as a viable alternative for such disputes."  It also doesn't bother to mention class actions or how predispute arbitration clauses eliminate class actions or how class actions are the only effective way to vindicate some consumer claims.  But other than that, it's a great piece.  (HT: Norm Silber of Hofstra)

Hospital Consolidation, Another Impediment To Health Care Cost Containment

As this article explains, a wave of hospital mergers is underway, giving hospitals increased bargaining power with insurers, in turn likely causing health care costs to increase.

HAMP report: Banks not doing the Job

The taxpayer is being ill-served by the banks we bailed out, the same banks that signed contracts with Treasury to modify eligible mortgages and prevent foreclosures.  The August report on the HAMP program confirms that a homeowner’s chances of negotiating an alternative to foreclosure depend mightily on which company services their mortgage.  On a number of performance measures, Bank of America is falling woefully short of even the poor performance of servicers as a whole.

 For example, roughly half a million homeowners had temporary HAMP modifications canceled, for missing payments, or more likely, due to lost paperwork.  Of those unfortunate families, about 45% overall have been offered an alternative modification option outside of HAMP.  Bank of America, however, offered alternative modifications to fewer than 25% of this group.   Chase, in contrast, offered alternate mods to 60% of the HAMP cancellation victims.

 Similarly, another 600,000 homeowners were rejected for even a temporary HAMP modification.   Of that group, 31% overall were offered alternative modifications, but BofA made such offers to fewer than 12%. 

 BofA has also mastered the art of false hopes.   It has converted only 26% of trial modifications to permanent ones, while servicers as a whole have achieved a rate of over 50% (still terrible, but it’s all relative.)   Over half of BofA’s trial modifications are more than six months old, despite the fact that they are supposed to convert to permanent or be canceled after three months. 

 Bank of America services the former Countrywide portfolio, plagued by predatory loan originations and servicing errors.  If anything, BofA should be working harder than other servicers to prevent foreclosures.  While HAMP certainly has design flaws that hamper its ability to turn around the foreclosure crisis, servicer performance is a serious issue, and some banks are either unwilling or unable to honor their program contracts.