Consumer Law & Policy Blog

Third Circuit Weighs In On Burden Of Proof Under CAFA

by Brian Wolfman

    In Morgan v. Gay, No. 06-4497 (Dec. 15, 2006), the Third Circuit joined a number of other circuits in holding that the party invoking federal jurisdiction under the Class Action Fairness Act bears the burden of proving the Act's jurisdictional prerequisites.  The court went on to affirm the district court's holding that the defendants had not shown that CAFA's $5 million amount-in-controversy requirement had been met, thus upholding the district court's remand to New Jersey state court.  Three additional points:

     First, the placement of the burden seems to have actually made a difference.  As I read the decision, if the burden had been on the plaintiffs to show that less than $5 million was in controversy, the defendants' removal would have been sustained.

    Second, in resolving the burden of proof issue, the court rejected the defendants' reliance on the Senate Committee Report on CAFA.  As have other courts, the Third Circuit spat on the Senate Report because its statements on the burden of proof are completely untethered to CAFA's text, which says nothing at all about the burden of proof.  Although the court mentioned that the Senate Report was not issued until after CAFA was enacted, it did not rely on that fact in rejecting the defendants' use of the report.  That's too bad.  As I have previously noted on this blog, it would be nice if the courts started taking note of this basic impediment to reliance on this supposed legislative history.

    Third, the Third Circuit held that because the plaintiffs had won on the jurisdictional amount point, their recovery on remand in state court would be limited to $5 million.  That limitation strikes me as something to be imposed, if at all, by the state court, not the federal court.

Follow-Up on Profiting From Identity Theft

by Jeff Sovern

Last week I posted a link here to an article in The New York Times about how "the biggest beneficiaries from identity theft have been the three credit bureaus."  The Times today published my letter responding to the article.  Here's the text of the letter: 

Re “Protectors, Too, Gather Profits From ID Theft” (front page, Dec. 12):

Federal law imposes on credit bureaus an obligation to follow reasonable procedures to assure maximum possible accuracy in credit reports.

Yet because, as you report, credit bureaus are the biggest beneficiaries of identity theft, they have an incentive to use systems that enable identity theft so they can profit by selling services to prevent it.

We will not see an end to identity theft until those with the greatest ability to prevent it have an incentive to do so.

A Bit More on Judge Posner's Decision in the Slave Descendants Litigation

by Brian Wolfman

    Steve Gardner's recent post on Judge Posner's decision in In re African-American Slave Descendants Litigation is highly recommended reading.  One additional point that may be of interest:  Near the beginning of the opinion, Judge Posner holds that the multidistrict litigation statute, 28 U.S.C. 1407, allows an MDL transferee court to decide dispositive motions.  So, a transferee court can, for instance, grant summary judgment in thousands of cases transferred to it from around the country.  This ruling may well be consistent with the text of the statute.  But is it good policy?  Is it good for consumer plaintiffs?  More than 7 years ago, in testimony to the House Judiciary Committee, I suggested that Congress might want to rein in such expansive power.  Any thoughts?

New Phishing Scams

by Jeff Sovern

Phishing scams depend on consumers recognizing the name of an institution where they might have an account or that might possibly owe them money so the consumers will be deceived into providing personal information useful to the phishers.  Consequently, I wasn't surprised recently to receive phishing emails purporting to be from Paypal, where I don't have an account, but of course many consumers do.  But now the Office of the Comptroller of the Currency has issued an alert describing what sounds like a phishing scheme using its name.  Probably few consumers have heard of the OCC and so we can hope that their ignorance will prevent them from falling into the trap.  The use of the OCC's name suggests a different level of sophistication by phishers, but is it a higher or lower level?  I wonder what other institutions will be impersonated by phishers--who seem to be identity thieves who pretend to be institutions rather than individuals. 

Upcoming Consumer Law Conference

The ABA Antitrust Law Section will present a Consumer Protection Conference on January 29-30, 2007 at the Georgetown University Law Center in Washington, DC.  Of particular interest to those interested in consumer law may be programs on privacy and information security, advertising to children, and deception.  Speakers include current and former FTC Commissioners, state officials, lawyers in private practice and from public interest organizations, and professors. More information is available here.

Just What You're Hankerin' For: A Bevy of Articles About CAFA

Need some enthralling holiday reading?  Looking for a great stocking stuffer?  You're in luck!  The Loyola of Los Angeles Law Review has published a bunch of articles available here on the Class Action Fairness Act.  After a foreword by Georgene Vairo, here's what you get:

• Removal, Remand, and Other Procedural Issues Under the Class Action Fairness Act of 2005 by Lauren D. Fredricks

• Plaintiffs' Paradise Lost: Diversity of Citizenship and Amount in Controversy Under the Class Action Fairness Act of 2005 by Cameron Fredman

• Once More Into the Breach, Dear Friends: the Case for Congressional Revision of the Mass Actions Provisions in the Class Action Fairness Act of 2005 by S. Amy Spencer

• New Rules for Class-Action Settlements: the Consumer Class Action Bill of Rights by Jennifer Gibson

• The Class Action Fairness Act of 2005: a First Year Retrospective Review by Lonny Sheinkopf Hoffman

Seventh Circuit Allows Slavery-Related UDAP Claims to Go Forward

by Steve Gardner

In an historic opinion issued on December 13, the U.S. Court of Appeals for the Seventh Circuit (Judges Posner, Easterbrook and Manion) allowed claims for violations of state Unfair and Deceptive Acts and Practices (UDAP) laws by descendants of slaves to go forward against companies (or their successors) that provided services, such as transportation, finance, and insurance, to slaveowners, and against at least two of the defendants that were slaveowners themselves. The UDAP claim was based on failures to disclose the connection to slavery, because a descendant of a slave would not knowingly give business to a company that had been a part of the slave trade. 

This appears to be a case of first impression where a claim seeking damages arising out of slavery has made it past a motion to dismiss. It is significant for that alone, but beyond that, it will permit the plaintiffs to find out exactly what these modern companies knew about their involvement in slavery and the degree to which these companies hid that fact from the public.

Not a Political Question

At the district level, U.S. District Judge Charles R. Norgle had dismissed all claims in July 2005. Judge Norgle primarily focused on the issue of whether this was a “political question” and found that it was, precluding review by a court, but went on to find that the plaintiffs did not have standing to bring the claims.

On appeal, the Court of Appeals was careful not to extend political question jurisprudence unnecessarily: The court found that the political question doctrine did not bar this lawsuit. As Judge Posner's opinion explained, the “political-question doctrine bars the federal courts from adjudicating disputes that the Constitution has been interpreted to entrust to other branches of the federal government.” The court concluded that “A case that sought reparations for the wrong of slavery would encounter similar obstacles, but the plaintiffs have been careful to cast the litigation as a quest for conventional legal relief. All they are asking the federal judiciary to do is to apply state law (plus the one federal statute, 42 U.S.C. § 1982) to the defendants’ conduct.” Thus the court firmly and quickly rejected the district court’s holding on political question, and moved on to the issue of standing.

On most claims, which looked back to evils that had occurred over a century ago, the court determined that most of the current plaintiffs did not have standing to seek redress for those wrongs.

The UDAP Claim: Concealment of a Material Fact

However, the court then focused on “a claim, rather buried in the complaint but not forfeited, that in violation of state fraud or consumer protection law members of the plaintiff classes have bought products or services from some of the defendants that they would not have bought had the defendants not concealed their involvement in slavery.”

CPSC Undertakes Rulemaking Proposing Ban on Lead in Kids' Jewelry

    Brian Wolfman

    The US PIRG consumer blog reports that the Consumer Product Safety Commission has voted 3-to-0 to begin a rulemaking proposing a ban on lead in kids' jewelry.  This step is very encouraging not only because of the dangers that lead can pose, but also because it illustrates the power of consumer activism.  The danger of lead in kids' jewelry was highlighted in PIRG's "Trouble in Toyland" report, which I blogged about earlier here.  Moreover, as PIRG reports, the CPSC's action arose specifically from a petition filed by the Sierra Club requesting the ban.  It often takes outside pressure -- and lots of it, for years and years -- to make the agencies act.  As explained here, my organization, Public Citizen, worked for nearly 30 years before it convinced the CPSC to ban another lead hazard, lead-wicked candles.  Consumer advocacy is for marathoners, not sprinters!

Profiting From Identity Theft

by Jeff Sovern

Three years ago, I published an article, The Jewel of Their Souls: Preventing Identity Theft Through Loss Allocation Rules, 64 U. Pitt. L. Rev. 343 (2003), in which I wrote that:

[C]redit bureaus may actually have disincentives to take steps to prevent identity theft . . . . If they can develop mechanisms to reduce the incidence of identity theft, they can market those mechanisms separately for an additional fee.  If, on the other hand, they make those mechanisms available without extra charge, they give up potential income.

Now The New York Times, in an article headlined "Protectors, Too, Gather Profits From ID Theft", reports that "the biggest beneficiaries from identity theft have been the three credit bureaus"  and that the credit-monitoring services sold by the big three credit bureaus are nearly a billion-dollar business.  The article notes that industry groups have also offered "stiff resistance" to legislation that could cut down on identity theft, like credit freeze laws.  Of course if such legislation stops identity theft, consumers will no longer require credit-monitoring services.

Three years ago I argued that if we want to eliminate identity theft, we should "give those who have the greatest power to prevent identity theft and the most knowledge about systems for granting credit the incentive to prevent identity theft" by making them "liable for the losses caused when they report the transactions of identity thieves as the transactions of consumer victims. . . ."  Sadly, nothing has happened since to cause me to change my view.

Anti-Pretexting Bill Passes Senate, Expected to Become Law

    By Brian Wolfman

    Over at U.S. PIRG's Consumer Blog, Ed Mierzwinski explains that last night the U.S. Senate agreed to a bill earlier passed unanimously by the House that criminalizes pretexting for the purpose of obtaining the phone records of a private individual.  Ed points out both that "pretexting" is a euphemism for lying and that the bill, which is expected to be signed by the President, is weaker than legislation favored by consumer advocates.  The bill does not preempt state law, however, as did some versions of the legislation.  The legislation may not be enforced vigorously, as it does not create an express private right of action.  A House Judiciary Committee Report on the legislation appears here.