CL&P Blog

U.S. District Court Holds That Rape and Assault Claims Against Haliburton Are Not Subject to Arbitration, but Court Case Stayed While Other Claims Are Arbitrated

by Brian Wolfman

Last December, we blogged here about Haliburton's efforts to force into arbitration a suit brought by a former employee who maintains that she was gang-raped by her Haliburton co-workers in Baghdad. The plaintiff also filed a Title VII sexual harassment claim as to which the EEOC had found cause against Haliburton. Now, in an opinion dated May 9, 2008 in Jones v. Halliburton Company, No. 4:07-cv-2719, the U.S. District Court in Houston has held that the plaintiff's claims related to the rape and assault may be litigated in court, while the Title VII claims must be arbitrated. The court "reluctantly" stayed the case to allow the arbitration to be completed. The court rejected the plaintiff's claims of unconscionability under general state-law contract principles, but held that the arbitration clause requiring arbitration of any claim "related to" the plaintiff's employment with Haliburton did not encompass the claims concerning the rape and assault.

Ninth Circuit Allows Claims of Deceptive Food Marketing to Go Forward

by Brian Wolfman

In Williams v. Gerber Products Company, No. 06-55921 (Apr. 21, 2008), the plaintiff class pleaded common-law misrepresentation and breach of warranty claims, as well as claims under California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq., and California’s Consumer Legal Remedies Act, Cal. Civil Code § 1750 et seq.  The class challenged five features of the packaging used by Gerber to sell its Fruit Juice Snacks, including use of the words “Fruit Juice” alongside pictures of oranges, peaches, strawberries, and cherries. The plaintiffs claimed that this advertising was deceptive because the product contained no fruit juice from any of the fruits pictured on the packaging. The plaintiffs’ other claims were similar — such as their challenge to Gerber’s claim that its product is made “with real fruit juice and other all natural ingredients,” even though the two biggest ingredients are corn syrup and sugar. The district court granted Gerber’s motion to dismiss on the ground that its statements were not likely to deceive a reasonable consumer and that at least one of the statements was non-actionable puffery. The Ninth Circuit reversed. Here’s a key part of the Ninth Circuit’s reasoning:

Third Circuit Ruling On Permissive Class Certification Appeals Under Rule 23(f)

by Brian Wolfman

Federal Rule of Civil Procedure 23(f) says a court of appeals may permit an appeal from a district court order granting or denying class certification if a petition for permission to appeal is filed with the court of appeals within 10 days of entry of the district court’s order. In Gutierrez v. Johnson & Johnson, No. 07-8025 (3d Cir. Apr. 22, 2008), a race discrimination class action, the district court denied class certification, and the plaintiffs moved for reconsideration 30 days later. The district court denied the reconsideration motion, and the plaintiffs petitioned for permission to appeal within 10 days of that denial. The Third Circuit dismissed the Rule 23(f) petition as untimely. The court of appeals noted that regardless of whether Rule 23(f)’s 10-day deadline is “jurisdictional,” it is nevertheless “strict and mandatory” – meaning, presumably, that it will be enforced in virtually every case. The court of appeals dismissed the petition because the plaintiffs did not seek permission to appeal or reconsideration in the district court within 10 days of denial of class certification. I understand the first part of the Third Circuit’s holding. Rule 23(f) says 10 days, and so if you miss the deadline, you’re out of luck. But I don’t understand the second part. The court of appeals said that if the losing party seeks reconsideration within 10 days of the district court’s class certification, then the 10-day time limit disappears and starts anew after the motion for reconsideration is ruled on. Why? What’s a motion for reconsideration anyway? And what’s the origin of the 10-day period for seeking reconsideration? Is it imported from Rule 23(f), which says nothing at all about motions for reconsideration?

Second Circuit: Plaintiffs Have Standing To Pursue Antitrust Case Alleging Collusion By Major Credit Card Companies To Require Arbitation And Ban Consumer Class Actions

by Brian Wolfman

The Second Circuit today issued Ross v. Bank of America, No. 06-04755 (Apr. 25 2008). In this case, the plaintiff credit card holders claimed that the defendant banks conspired in violation of section 1 of the Sherman Antitrust Act to include in their credit card contracts provisions that impose arbitration as the sole method of resolving disputes relating to the credit accounts and purport to ban class actions. The district court held that the plaintiffs lacked Article III standing, principally because the arbitration clauses had not been invoked against the plaintiffs. The Second Circuit reversed. The court held that because the case was based on an antitrust theory (and was not a challenge to the contract provisions themselves), the plaintiffs had suffered an Article III injury. The court noted, among other things, that the conspiracy to require arbitration and ban class actions had undermined the plaintiffs’ choice of contract provisions in the marketplace, and that limitation was a concrete and present injury. As the court of appeals put it, a “card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” The opinion is only 15 pages and is written in plain English. Definitely worth a look.

Second Circuit Rejects Class Certification in "Light" Tobacco Litigation

Last Thursday, the Second Circuit issued McLaughlin v. American Tobacco Company, No. 06-4666 (2d Cir. Apr. 3, 2008), reversing Judge Jack Weinstein's certification of a class including virtually all Americans who had purchased cigarettes labeled as "light" or "lights." Plaintiffs alleged that they were deceived into believing that “light” cigarettes are healthier than “full-flavored” cigarettes. The court of appeals held that the class could not meet Federal Rule of Civil Procedure 23(b)(3)'s requirement that the common questions predominate over the individual questions for a number of reasons, including the need for each plaintiff to show that he or she relied on defendants' deceptions. The court of appeals acknowledged that a district court may partially certify a case on common issues (even where individual questions predominate on other issues) under Rule 23(c)(4), but held that use of that Rule was impermissible in this case because it would not “reduce the range of issues in dispute and promote judicial economy.”

Note that the Supreme Court has granted review in another "light" tobacco case, Altria v. Good, 07-562. That case presents the question whether the plaintiffs' claims are preempted by federal law.

Ninth Circuit: Private Debt Collectors Under Contract With Prosecutors Are Not Shielded by Sovereign Immunity

by Deepak Gupta

Yesterday, the U.S. Court of Appeals for the Ninth Circuit, in an opinion by Judge Marsha Berzon, ruled that American Corrective Counseling Services (ACCS), the nation's largest operator of "check diversion" programs, may not shield itself from a consumer class action over its aggresive debt-collection practices by invoking the doctrine of state sovereign immunity.  (Information about the case, including the briefs and opinion, is available here.)

I've blogged here before about so-called check diversion companies -- private debt collectors that use their contracts with prosecutors to gin out collection demands, on official prosecutor stationary, threatening consumers who have written bad checks with criminal prosecution or jail unless they pay exorbitant collection fees.  Passing a bad check is only a crime where there's knowing and intentional fraud, but these companies demand fees regardless of whether a crime has been committed. It's a lucrative and shady business that essentially criminalizes civil debt collection.

Judge Berzon's opinion is the most thorough and scholarly treatment to date on the question of private entities and sovereign immunity.  In a sweeping rejection of ACCS's arguments, the Ninth Circuit characterized sovereign immunity as “strong medicine” that should be carefully limited, especially in the case of for-profit corporations that are not democratically accountable to the public. Quoting the philosopher Gilbert Ryle, the court called the argument that a private company could enjoy sovereign immunity a “category error,” like “inquiring into the gender of a rock or into which day of the week is reptilian.”

Consumer Groups Sue Justice Department Over Auto Database

by Deepak Gupta

1992, Congress required the federal government to set up a comprehensive national database covering the title-, theft-, and damage- history of used cars, based on data from insurance companies, junk and salvage yards, and all 50 states.  A consumer thinking about buying a used car would be able to instantly check the validity of the car's title and odometer reading and learn whether it had been stolen or severely damaged in the past.  Making that kind of information widely available would dramatically reduce the amount of auto fraud and save consumers from economic loss and physical injury.

But more than fifteen years since Congress first required the federal government to implement the database, the government still hasn't done it!

Yesterday, we filed a lawsuit against the U.S. Department of Justice, asking the federal district court in San Francisco to force the government to do what Congress required it to do. Public Citizen was joined in the suit by two other national consumer groups -- Consumers for Auto Reliability and Safety (CARS) and Consumer Action. You can read our complaint here and find additional information about the case here, here, and here.

Here's what Senator Chuck Schumer (D-NY), the lead sponsor of the original 1992 legislation, said in a statement released yesterday:

"We all know that you can't always judge a book by its cover and the same is true with many used cars that end up at junk and salvage yards. Consumers deserve to know the true origin and condition of the vehicles they are purchasing, including whether that car was once stolen.

It is simple: for sixteen years, the Department of Justice and junk yards have been eschewing their responsibility to consumers, law enforcement, and the public by ignoring their mandate to routinely file the required reports. It is about time that all parties were forced to comply with what I believe is a common sense measure to fight auto theft and to protect the public from fraud. I am encouraged by Public Citizen's efforts on this case, and I hope that this important law will finally be enforced as it should have been from day one."

Mortgage Fraud Enforcement Reportedly Not Keeping Up

by Jeff Sovern

I've been meaning to post for some time a link to this story in the Times, "Officials Say They Are Falling Behind on Mortgage Fraud Cases" which ran on Christmas day.  An excerpt:

The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.

Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. * * * *

Eleventh Circuit Issues Important RESPA Class Action Decision

by Brian Wolfman

The Eleventh Circuit's decision in Busby v. JRHBW Realty, No. 06-15308 (Jan. 17, 2008), is worth reading for two reasons.  First, in Busby, the district court denied class certification, the plaintiff class sought permissive interlocutory review under Federal Rule of Civil Procedure 23(f), the appellate court allowed review, and that court reversed in favor of the class. That scenario has been quite rare.  In the vast majority of Rule 23(f) cases, it has been defendants who have convinced the appellate court to review, and, in many of those cases, certification has been reversed.  Plaintiffs' Rule 23(f) petitions have rarely been granted, let alone led to plaintiff-favorable rulings.

Second, the Eleventh Circuit's reversal is interesting on its own terms.  Busby is a class action under the Real Estate Settlement Procedures Act (RESPA).  Section 8(b) of RESPA provides that

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

The Eleventh Circuit held that because all class members were claiming a violation of section 8(b) on the ground that no services were provided for the fee that they were charged in settlement, the predominance requirement of Rule 23(b)(3) had been met.  In so holding, the court distinguished another of its cases holding that class treatment is generally inappropriate in other kinds of RESPA actions.  The Eleventh Circuit's decision also contains an interesting discussion of whether class counsel's allegedly unethical solicitation of the named plaintiff rendered that counsel inadequate under Rule 23(a)(4).

Using Choice-of-Law Clauses to Defeat State Consumer Law Protections

After the California Supreme Court found unconscionable a clause banning class actions in a consumer arbitration contract in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal. Rptr.3d 76, 113 P.3d 1100 (2005), the lower court, on remand, relied on a Delaware choice-of-law clause in the contract, among other things, to conclude that Delaware law applied and that Delaware would enforce the class action waiver, thus rendering the consumer victory at the Supreme Court pyhrric.  See Discover Bank v. Superior Court, 134 Cal. App.4th 886, 36 Cal.Rptr.3d 456 (2005).  William J. Woodward of Temple explores the problem of such choice of law clauses in his article, Constraining Opt-Outs: Shielding Local Law and Those it Protects from Adhesive Choice of Law Clauses, 40 Loyola of Los Angeles L. Rev. 9 (2006) and available at http://ssrn.com/abstract=1003997.  Here's the abstract:

Fifty years ago, the idea that parties could "choose" the law governing their contract was alien to the way most courts viewed their roles. Applicable law depended on complicated conflict of laws rules, administered by judges who would apply the law, not on party choice. Contemporary contracts, by contrast, nearly always specify the law that will govern them. Choice of law clauses reduce uncertainty, contribute to economic welfare and, in most instances, are no longer controversial. But when we move from negotiated contracts to adhesion and mass market contracts, choice of law clauses can become less than benign. A drafter will, of course, choose law that best suits its needs. But the law that best suits the drafter may well be less than ideal for the customer. Not surprisingly, recent cases reveal that mass market drafters often choose the law of a state that offers very limited protection for customers in their dealings with the drafter. Cases show, for example, that drafters choose the law of a state that recognizes adhesive class action waivers over the law of a state that does not. If such a choice of law provision is effective against customers whose law ordinarily protects them from such waivers, the drafter has effectively replaced the law their state crafted to protect its residents with the less-beneficial law the drafter chose. This, of course, raises policy questions and both courts and state legislatures have begun to address them. How can a state "protect" the law it has developed to benefit its residents without jeopardizing the commercial certainty that choice of law provisions provide? After providing an analytic framework for considering the complex issues raised by this amalgam of conflicts and contract law, we proceed to consider solutions both at the state and federal level.

New York State's Human Rights Division Files Landmark Suits Against Sellers of Tax Refund Anticipation Loans

by Brian Wolfman

The New York State Human Rights Division has just filed first-of-their-kind suits against firms that market tax refund anticipation loans (RALs). The suits claim that the firms' RAL businesses illegally target African-American and hispanic consumers and members of the military. The New York Times suggests that the suits are an effort to end the RAL industry. The complaints in the two cases can be found here and here. Read the press release announcing the suit.

I blogged last year about the annual report of the National Consumer Law Center and Consumer Federation of America on RALs. Yesterday, those groups issued a press release concerning their most recent findings.

City of Baltimore Sues Wells Fargo Over Predatory and Discriminatory Mortgage Lending

by Brian Wolfman

Read this Baltimore Sun article about the City of Baltimore's suit alleging that Wells Fargo engaged in predatory and racially discriminatory lending against Baltimore citizens. Baltimore Mayor Sheila Dixon, pictured to the left, is behind the suit.

Baltimore claims that it reviewed foreclosure data and concluded that Wells Fargo was intentionally steering African-American Baltimoreans into subprime loans. Wells Fargo denies the allegations. The City alleges that it has been injured because it has been required to spend more social services funds on its citizens who have been victimized by Wells Fargo's allegedly unlawful conduct. I think you'll find the complaint very interesting. Note in particular page 34 of the complaint - - a full-color map of the city depicting the racial disparities alleged in the complaint. The New York Times has also covered the story.

University of Oregon Takes Legal Stand Against RIAA In Downloading Suits

This story in yesterday's New York Times describes how the University of Oregon is standing up for what it believes are its students' privacy and due process rights by refusing to give up the students' identities in suits by the Recording Industry Association of America. The RIAA suits are going after what it claims is unlawful downloading of copyrighted music. Well worth a read.

Foreclosures over the Holidays

by Deepak Gupta

Last month, I mentioned a case in which Public Citizen, together with Baltimore-based Civil Justice Inc., is challenging the constitutionality of mortgage foreclosure notice procedures in Maryland.  This morning, the Washington Post ran a very moving profile of our client, Joyce Griffin. The story recounts how Joyce, a first-generation homeowner, saved up her whole life to buy a house, was tricked into a predatory refinanced mortgage with the now-defunct Ameriquest, and never learned until it was too late that her home was put up for sale at a foreclosure auction on the courhouse steps.  She first found out that she had lost her house when she and her young daughter returned home one day and found a handwritten note that had been tacked onto the front door by the investor who bought the house.  The lawyers that conducted the foreclosure proceedings never tried to personally serve Ms. Griffin (the procedure that would have been followed in virtually any other civil proceeding, even an action to collect a very small debt), never posted the house, and did nothing when the certified-mail notices they sent were returned undelivered.   I'll be presenting oral argument in Ms. Griffin's case in the Maryland Court of Appeals in Annapolis on January 8. 

A Self-Inflicted "Crisis"

by Barry Boughton, Public Citizen 

When NY’s Superintendent of Insurance announced a 14 percent across-the-board rate hike for medical liability insurance on July 1, 2007, doctors raised a hue and cry that the increase threatened a crisis in access to care because doctors could no longer afford to practice in New York and would be leaving the state or otherwise restricting their medical practices. As in the past, doctors again blamed the premium increases on skyrocketing claims and lottery awards and demanded tort reforms that would cripple meritorious malpractice claims by the victims of medical negligence.

Today Public Citizen released a report that exposes these claims of the doctors as full blown, deliberate and obvious exaggeration: A Self-Inflicted “Crisis:” New York’s Medical Malpractice Troubles Caused by Flawed State Rate Setting and Raid on Rainy Day Fund. These same claims have been made by doctors during each of the three cycles of rising premiums that have occurred over the past thirty-plus years. Our report shows that rising malpractice premiums are not the result of any escalation in the frequency or severity in malpractice payments. The increase has nothing to do with patients, lawyers, judges, or our courts. It reflects an insurance problem.

Public Citizen’s analysis of the best available New York data demonstrates that the number of malpractice payments made on behalf of doctors in 2006 was at its lowest point since 1991. The total amount of malpractice payments for doctors, adjusted for inflation, was near or below fifteen year average in three of the past five years.

Another Class Action Waiver Falls

by Brian Wolfman

The First Circuit today struck down a class action waiver contained in an arbitration agreement as unconscionable under Massachusetts law. In Skirchak v. Dynamics Research Corp, Nos. 06-2136, 06-2180 (Nov. 19, 2007), the court found the class action waiver unconscionable on the particular circumstances of the case -- which involved wage and hour claims.  Although the court noted academic commentary arguing that class action waivers are always unconscionable in small-claims cases, the court declined to rule on that larger question.  Worth a look.

Consumer Class Action Filed Against "Free File Alliance"

The Free File Alliance program is a partnership between the Internal Revenue Service and about 20 tax preparation software companies, including an affiliate of the mammoth tax preparer H & R Block. The Alliance is supposed to facilitate the free electronic filing of tax returns. A consumer class action filed last Tuesday in federal court in Philadelphia alleges that the Alliance has, in fact, charged fees to millions of U.S. taxpayers in excess of the amounts permitted by federal law. See 31 U.S.C. 9701. An article in the Kansas City Star describes the suit. Read the complaint here.

Introducing the Appellate Assistance Project for Consumer Attorneys

by Daniel Mosteller

For lawyers who didn't make it to the NCLC conference last week or who didn't see the fliers at the conference, I wanted to let you know about a new initiative to assist consumer lawyers with appeals related to all areas of consumer law: The Appellate Assistance Project for Consumer Attorneys.

Five consumer organization -- AARP Foundation, the Center for Responsible Lending, the National Association of Consumer Advocates, the National Consumer Law Center, and Public Citizen -- have teamed up to marshal their wide-ranging consumer law expertise to offer free nationwide assistance with appeals related to all areas of consumer law.  We are eager to work with consumer attorneys to assist with any aspect of the appellate process in any court -- from determining whether to take an appeal, to writing an effective brief, to preparing for oral arguments.  We aim to tailor our assistance to the needs and desires of the lawyers who work with us, whether they are veterans of the appellate process who just need some help arranging a moot or they are facing their first appeal of a consumer law case and want more substantial assistance.  In other words, no request is too small or too big for to be considered.

Lawyers interested in taking advantage of our assistance can submit a request on our website at http://www.responsiblelending.org/caap/.  And those with further questions can contact me at 202-349-1863 or daniel.mosteller@responsiblelending.org.

Third Circuit Issues CAFA Decision

Yesterday, the Third Circuit issued a decision concerning the Class Action Fairness Act in Frederico v. Home Depot, No. 06-2266, __ F.3d __, 2007 WL 3310553 (Nov. 9, 2007). In Frederico, the plaintiff argued that certain fees imposed by Home Depot for the alleged late return of its rental trucks violated New Jersey law. The CAFA questions were whether the putative plaintiff class sought more than $5 million - - the amount necessary under 28 U.S.C. 1332(d)(2) to establish federal jurisdiction - - and what the standard is for proving the jurisdictional amount when, as in Frederico, the complaint does not explicitly limit the amount being sought to $5 million or less.

On the latter question, to make a long story short, here's what the court held: "[W]here the plaintiff has not specifically averred in the complaint that the amount in controversy is less than the jurisdictional minimum[,] the case must be remanded [only] if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount."  Slip op. 18. The court distinguished its ruling from its prior decision in Morgan v. Gay, 471 F.3d 469 (3d Cir. 2006), where the complaint had expressly limited the value of the claim to $5 million. There, "the proponent of the federal subject matter jurisdiction [generally, in CAFA cases, the removing defendant] is held to a higher burden; that is, the proponent of jurisdiction must show, to a legal certainty, that the amount in controversy exceeds the statutory threshold."  Slip op. 15.  [We have previously blogged about that ruling in Morgan v. Gay here, and another ruling in Morgan v. Gay, concerning CAFA's appeal filing deadline, here.]

For what it's worth, the court then found that there was way more than $5 million in controversy, id. at 18-24, and affirmed dismissal on the merits, holding that the plaintiff had not stated a claim under New Jersey law. Id. 25-38. It appears that the class was never certified and that therefore only the named plaintiff and not the (putative) class is bound by the court's ruling on the merits.

Eleventh Circuit: Debt Collectors Masquerading as Prosecutors Don't Get Sovereign Immunity

by Deepak Gupta

A front-page article in the San Jose Mercury News earlier this week and a recent AP story both reported on a practice I've previously blogged about here: private debt collectors that rent out a prosecutor's name and authority, which they use to threaten consumers who have written bad checks with criminal prosecution and jail unless they pay exorbitant collection fees.  The threats are made without regard to the facts of the case (in the vast majority of cases, there's no criminal intent), and the revenues are split with the prosecutors.  Assuming they're subject to suit, these companies' practices violate virtually every section of the Fair Debt Collection Practices Act. 

The threshold question, however, is whether these companies are above the law.  They have argued that they're entitled to blanket immunity from suit--that they get derivative sovereign immunity by virtue of their contractual relationship with the government.  In one case, a Florida federal district court bought that argument, extending the doctrine of state sovereign immunity far beyond previously existing law.  In a second case, a California federal district court disagreed.  In separate appeals, Public Citizen's Consumer Justice Project has been defending the California decision and urging reversal of the Florida decision.

Yesterday, the U.S. Court of Appeals for the Eleventh Circuit (a notably conservative court on immunity issues, and the only federal appeals court ever to have sustained a state sovereign immunity defense by any private corporation) reversed the Florida district court and rejected the immunity defense raised by a company called American Corrective Counseling Services (ACCS).  In its decision, the appeals court found that attorneys in the prosecutors’ offices do not review cases before ACCS threatens consumers with prosecution, and that the prosecutors exercise virtually no control over ACCS.  Sovereign immunity, the court said, “has never been held to apply simply because an independent contractor performs some government function.”

The decision has potentially far-reaching implications for holding all sorts of government contractors--from private prisons to Blackwater--accountable in the federal courts.  And both in its analysis of the Eleventh Amendment issue and its characterization of the program itself, the decision in many ways provides a roadmap for arguing that these types of debt collectors should be held liable under both state and federal consumer protection law.   [press release]  [case info and briefs]

Reckless Disregard of What?

by David Arkush

Readers may recall that in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (2007), previously discussed here and here, the Supreme Court held that the language "willfully fails to comply with any requirement imposed under this subchapter," 15 U.S.C. § 1681n(a), encompasses not just knowing, but also reckless violations of the Fair Credit Reporting Act (FCRA).

To my surprise, the September 28th issue of the Class Action Litigation Report (BNA) contains an attempt to read this as a pro-defense ruling that creates a consumer harm requirement. The "Analysis & Perspective" piece argues that, after Safeco, a defendant is not liable for statutory violations unless it "subjected the consumer to 'an unjustifiably high risk of harm that is either known or so obvious that it should be known.'" (emphasis added). This interpretation would allow defendants to escape liability for statutory violations in numerous cases. But it's dead wrong.

Supreme Court Hears Argument in Stoneridge Securities Case

The Supreme Court heard argument Tuesday in the much-anticipated federal securities case, Stoneridge Investment Partners v. Scientific-Atlanta.  The case may help draw the dividing line between aiding and abetting a violation of the federal securities laws, which does not give rise to a private suit under those laws, and a primary violation, which, of course, does.  The question presented, more formally stated, is whether claims for deceptive conduct under Section 10(b) of the Securities Exchange Act of 1934 are barred by the Court's decision in Central Bank v. First International Bank (which rejected aiding-and-abetting liability), when the defendant engaged in fraudulent transactions designed to inflate a corporation's financial statements, but made no public statements concerning those transactions.

Linda Greenhouse at the New York Times reports here that the Justices appeared skeptical of the plaintiff's claim.  Make your own guess about where the Court is headed in the case by reading the oral argument transcript from Tuesday's argument.  Readers can also consult the Oyez Project for a concise discussion of the case and access to the briefs filed by the parties.

One quirky thing about the case:  When the Supreme Court agreed to hear the case, only 7 of the 9 Justices participated.  Chief Justice John Roberts and Associate Justice Stephen Breyer had recused, possibly because they owned stock in one of the parties (often the reason for a recusal).  But less than 3 weeks before oral argument, the Chief unrecused.  How often does that happen?

Recusals for Anti-Plaintiff Bias?

In a wrongful death action in the Texas Supreme Court, plaintiffs recently moved for recusal of four justices for anti-plaintiff bias.  Relying heavily this paper by David A. Anderson at University of Texas (Austin), the plaintiffs argue that bias is evident from a couple of factors:  First, defendants won 87% of tort cases in the Texas Supreme Court in 2004 and 2005, a fact that Anderson argues cannot be explained by (1) the court's having left plaintiff victories in the courts of appeals undisturbed; (2) the correction of rogue courts of appeals; or (3) the implementation of tort reform legislation.  Second, defendants prevailed on 18 of 22 petitions alleging that there was "no evidence" to support a jury verdict, notwithstanding that in 17 of those cases the jury, the trial judge, and the court of appeals all found evidence supporting liability.

These are cogent arguments that tort plaintiffs don't get a fair shake in the Texas Supreme Court.  But assuming this motion will not secure the recusal of any justice, what might it accomplish?

Recent Third Circuit Fair Credit Reporting Act Case

Take a look at Whitfield v. Radian Guaranty, No. 05-5017 (3d cir. Aug. 30, 2007), a recent Third Circuit decision construing the Fair Credit Reporting Act.  In this case, the Whitfields financed a home purchase through Countrywide Home Mortgage. After the loan documents were signed, Countrywide arranged for Radian to provide mortgage insurance. The premiums would be paid by Countrywide to Radian out of proceeds Countrywide would receive from the Whitfields.  Radian based the price of the insurance in part on Mr. Whitfield’s credit score, which had been obtained by Countrywide (not Radian).  Radian conceded that if the credit score had been higher, the insurance premium would have been lower.  As was its custom, Radian did not provide the Whitfields with an adverse action notice under FCRA.  (A notice would have alerted the Whitfields to the fact that the premium was based in part on adverse information in the credit report and allowed them to challenge inaccuracies in the report; such a challenge, in turn, might have led to an improved credit score and a lower insurance premium.)

The main question in the case was whether Radian had a duty to provide an adverse action notice even though it did not have a contractual relationship with the Whitfields.  Relying on both FCRA’s text and purpose, Judge Dolores Sloviter agreed with the Whitfields that FCRA requires a notice despite the absence of privity.  Judge Sloviter’s opinion indicates that prior authority on this issue was scant but consumer-favorable.

Plaintiffs' Supreme Court Brief Filed in Important Federal Preemption Case

As CL&P blog readers may recall, on June 25, the Supreme Court agreed to hear an important federal preemption case involving a man allegedly injured by a defective medical device.  The case presents the question whether state-law damages suits seeking recovery for injuries caused by medical devices that received FDA pre-market approval are preempted by the Medical Device Amendments to the Food, Drug, and Cosmetic Act.  The plaintiffs recently filed their opening brief on the merits.  We have blogged about the case on five prior occasions, including in this post, which links to several other posts.  Public Citizen Litigation Group, lead counsel in the case, has collected other relevant materials here.

CL&P Roundup

• The Defense Perspective on the Rise in Class Arbitration:  An interesting new article by two big-firm defense lawyers in Metropolitan Corporate Counsel warns that the drafters of mandatory binding arbitration clauses should be careful what they wish for: "The pervasiveness of arbitration agreements that are silent on the issue of class proceedings . . . ensures that class arbitrations will occur with increased frequency, possibly resulting in large monetary awards or coerced settlement, and with little or no opportunities to obtain meaningful judicial or appellate review.  The widespread availability of class arbitration proceedings has eroded many of the traditional benefits of arbitration, making it a potentially time-consuming, expensive, and unpredictable process, and placing the continued popularity of arbitration as the 'preferred' method of dispute resolution at a critical and decisive point." 

• Two New Decisions Striking Class Arb Waivers.  Adding itself to the growing list of federal circuits, and distinguishing its own prior precedent, this week the Eleventh Circuit issued a great decision striking down a class action waiver in a case in which the plaintiff could not recover attorney's fees.  And the California Supreme Court, extending its landmark Discover Bank ruling considerably, issued a 4-3 ruling last week holding that class action bans may be unenforceable in the context of wage-and-hour claims and that a clause may be procedurally unconscionable even when the contract includes a 30-day "opt-out" provision.  The Eleventh Circuit decision is discussed in depth by Scott Nelson in the post below.

• Judge Young Speaks Out on the Value of Jury Trials:   Federal district judge William Young of Boston recently delivered a spirited speech to the Florida Bar on the role of the jury in American democracy.   Judge Young explains that the American jury system is "dying" because of a combination of, among other things, extravagant federal preemption defenses, mandatory binding arbitration, an increase in the use of summary judgment to prevent cases from going to trial.  No news there, perhaps, but it's rare to hear a sitting federal judge speak the truth about these things, and as candidly as Judge Young does.  It's worth a read.

Merck's Strategy in Vioxx Suits Working?

Today's New York Times has this article on the litigation over Vioxx, the painkiller made by Merck that was withdrawn from the market because of its association with strokes, heart attacks, and other cardiac problems. The article discusses Merck's litigation strategy: litigate each of the 45,000 lawsuits against the company individually, and don't pay a dime until a case is final and no longer appealable in any way. Merck's strategy differs from other mass-tort defendants who have sought relatively early mass settlements or bankruptcy solutions.  To date, Merck has not paid a single judgment, and, according to a source cited in the Times, original estimates of Merck's aggregate Vioxx liability at around $25 million are now at $5 billion. The article points out that at the current pace many Vioxx plaintiffs will be dead before their cases are tried.

David Adam Friedman Article on Reinventing Consumer Protection

Here's the abstract:

Consumer fraud presents a continual puzzle. We have significant enforcement and education mechanisms, yet we continue to endure ever-evolving consumer fraud. I contend that the incidence of consumer fraud can be reduced through creative, efficient, non-traditional instruments of deterrence.

This article proposes a plan for re-approaching consumer protection through selection of a protected group and a concentrated reallocation of resources. Specifically, I argue that enhancing sanctions for a vulnerable, reluctant-to-report consumer group will shift fraud perpetrators toward targets that are better able to defend themselves. Additionally, fraud perpetrators will have to operate with extra caution in their schemes to ensure that they will not inadvertently ensnare a member of the protected class. This measure would accomplish further protection of the selected group and moderately increase deterrence throughout the rest of the economy.

However, I argue that this measure should be supplemented with another initiative. If we create a group consisting of randomly selected consumers and provide the members of that group with significant extra protection through higher sanctions and concentrated consumer education, fraud incidence will drop even more significantly. The concealed nature of the randomly protected consumer creates a general aura of deterrence. In this environment, fraud perpetrators never know whether a potential victim carries specially protected status - this elevates the risk of detection and the expected sanction for all consumers.

Group protection enables enforcement to achieve deterrence without having to provide incremental, expensive protection to the entire population. Understanding how the perpetrators and consumers make decisions about engaging in transactions is the key to unlocking efficient methods, like those described, for achieving the objective of efficiently reducing incidence of consumer fraud.

The article is scheduled to appear in the Fall 2007 of the DePaul Law Review. Professor Friedman is on the faculty at Willamette University College of Law.  You can download the article at http://ssrn.com/abstract=984082.

Ninth Circuit Denies Rehearing in Exxon Valdez Oil Spill Litigation

We have previously blogged here, here, and here about the Ninth Circuit's December 2006 decision halving the punitive damages award in the Exxon Valdez oil spill litigation to $2.5 billion and Exxon's effort to obtain en banc rehearing.  Last week, 5 months after rehearing was sought, the Ninth Circuit denied the petition over two dissents, one arguing that punitive damages were not available at all under relevant maritime law principles and the other maintaining that the punitive damages award, even as reduced by the Ninth Circuit panel, was constitutionally excessive.  The en banc opinions are here.  It's on to the Supreme Court, presumably - - almost 2 decades after the Exxon Valdez ran aground.

Interesting Class Action Settlement Ruling from North Carolina

by Nick Pace

Nick Pace, a researcher at the RAND Institute for Civil Justice, kindly agreed to post his thoughts on a recent class action settlement decision.

I thought CL&P blog readers might find interesting the recent opinion in a North Carolina state court class action, Moody v. Sears, N.C. Superior Court, 02-CVS-4892 (May 7, 2007).  The opinion contains an fascinating discussion of the judge's role in overseeing consumer class action settlements. 

The decision by Judge Ben Tennille (Special Superior Court Judge for Complex Business Cases) came in the context of a class action against Sears for selling more expensive "four wheel" alignments to folks with rear wheel drives (they're only needed for four wheel or front wheel drive vehicles; I believe that a local repair shop here in L.A. once burned me on that little trick as well).  A nationwide class action was filed in Illinois four days after the N.C.-only suit was initiated.  Ultimately, a nationwide settlement, approved by a Cook County judge in December 2004, was supposed to provide the estimated class of 1,500,000 customers with either a $10 refund or a $4 coupon depending on the date of the alignment.  Sears also agreed to pay class counsel about $1 million in cash and $50,000 in coupons.  Notice of the settlement was effected through publication in 25 newspapers across the country as well as Parade and USA Weekend magazines.  Consumers learning of the settlement called or wrote in for a claim form.  All in all, this was a fairly standard notice and claiming plan.

Sixth Circuit slashes punitives in FCRA case

by Deepak Gupta 

Yesterday, the Sixth Circuit issued an opinion slashing a jury's punitive damages award in a Fair Credit Reporting Act case.  Bach v. First Union Nat'l Bank, No. 06-3660 (6th Cir. May 15, 2007).  The jury had awarded an elderly widow $400,000 in actuals plus $2,628,600 in punitives against a bank.  The district court, after an initial appeal and remand, ordered reduction of the $2,628,600 to $2,228,600.  In the second appeal, the Sixth Circuit held that the district court's subtraction of $400,000, although it "eliminated any concern regarding the potential duplication of compensatory damages and ultimately achieved a lesser ratio, of 5.57," was still not good enough because that the bank's actions were not reprehensible enough to justify the large punitive award--the only reprehensibility factor was the vulnerability of the victim.   So this time the Sixth Circuit took matters into its own hands and ordered the district court to cut the award down to no more than $400,000--the same amount as the actuals.

Times Articles on Certified Cars and Arbitration

Yesterday's New York Times had at least two articles that bear on consumer law issues.  The first, available here, reported on litigation and legislation involving certified cars.  The second described how Senators Leahy and Finegold have written to the S.E.C. to ask that it ban mandatory arbitration in claims brought by investors.  Many of the arguments for banning mandatory arbitration in the investor context apply with at least equal force to the consumer context.   

Fifth Circuit Issues Decision On CAFA's "Local Controversy" Provision

By Brian Wolfman

   

Last week, in Preston v. Tenet Healthsystem Memorial Medical Center, Inc., No. 07-30132, 07-30160 (Apr. 25, 2007), the Fifth Circuit issued a decision concerning the “local controversy” provision of the Class Action Fairness Act, 28 U.S.C. 1332(d)(4).  CAFA devotees ought to look at this one.  It’s actually readable: only 17 pages and in plain English.

    In the original class action complaint filed in Louisiana state court, the plaintiffs alleged injuries and deaths caused by unreasonably dangerous conditions at defendants’ medical facilities during Hurricane Katrina.  The defendants removed under CAFA, but the district court remanded under the local controversy provision.  The Fifth Circuit reversed, holding that the plaintiffs had failed to show that at least two-thirds of the proposed class members were domiciled in Louisiana when the class action was filed.  Under the local controversy provision, the district court “shall decline to exercise jurisdiction” if “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed” and several other facts are present.

Watson v. Philip Morris Argued in the Supreme Court

Watson v. Philip Morris was argued today in the U.S. Supreme Court.  That's the case in which the 8th Circuit said, believe it or not, that Philip Morris could remove a class action challenging the marketing of "light" tobacco products from state to federal court because the tobacco giant was "acting under" a "federal officer" within the meaning of the federal officer removal statute, 28 U.S.C. 1442(a)(1).  Why, you ask?  Because, according to the 8th Circuit, the company's production and promotion of light cigarettes was heavily regulated by the FTC. We blogged about the case before, including here, here and here.

Now, read the transcript from today's argument.

What happens when lenders don't care if they are repaid?

by Christopher Peterson

In today's Wall Street Journal, Ted Frank, with the American Enterprise Institute, argues that the current meltdown in the subprime mortgage market justifies neither legislative nor judicial reform. In his view the market is currently adjusting to the problems in mortgage origination.  Everything will work out if we just leave the markets alone because "lenders have every incentive to lend only to those who can repay."

I disagree.  The current legal system creates the incentive for loan brokers and originators to (1)take large commissions and closing costs, (2) pass off bad loans to the secondary market, (3) distribute the revenue from lots of closings to management and employees, (4) wait for the bankruptcy code's preference window to close, then (5) declare bankruptcy when the secondary market tries to exert its recourse options.

Mr. Frank’s analysis ignores the agency costs of front line players in the industry, and it conflates the profitability of loan originating companies with the profits kept by the management of those companies.  While there is nothing inherently wrong with securitization of mortgage loans, or other financial assets, we must accept the reality that the current system of funding subprime mortgages does not preserve the traditional mortgage market’s underwriting incentives.  Instability and predatory lending will persist as long as the secondary market, and in particular, the investment banks that package mortgage backed securities can pass off bad loans to investors without fear of liability.

More on Punitive Damages in Exxon Valdez Litigation

We previously blogged here about the Ninth Circuit's ruling cutting in half (to $2.5 billion) the punitive damages award in the Exxon Valdez oil spill litigation, and here about Exxon's petition for rehearing en banc.  We've recently been sent the