Consumer Law & Policy Blog

Ninth Circuit En Banc Arbitration Decision

     By Brian Wolfman

    The Ninth Circuit, sitting en banc, has issued opinions in an arbitration case involving a dispute between a franshisor and franchisee.  See Nagrampa v. MailCoups, Inc., No. 03-15955 (Dec. 4, 2006).  The en banc majority held that because the gist of the franchisee's challenge went to the arbitration provision within the franchise contract and not the invalidity or enforceability of the contract as a whole, the federal court, as opposed to an arbitrator, was required to decide whether the arbitration provision was invalid under the Federal Arbitration Act, 9 U.S.C. 2.  The majority then went on to find the arbitration provision unconscionable in many, many ways under California law.  A partial dissent agreed that the question was one for the court, but disagreed that the arbitration provision was unconscionable.  One full dissent maintained that the issue should have gone to an arbitrator, and, in any event, the provision was not unconscionable, while another really full dissent agreed on those points and added that the franchisee had waived any challenge to the arbitration provision.  The opinions are long and boring, and so are only for the well-rested.  TLPJ's Kate Gordon, Leslie Bailey, and (CLP Blog contributor) Paul Bland are among the lawyers in the case.

Counterfeit Check Scam

by Richard Alderman

The latest consumer scam involves an interesting combination of legal issues, cutting across payment systems and consumer law. The scam takes many forms and is very widespread, but basically involves a counterfeit cashier’s check.

Thief gives consumer a large cashier’s check, telling consumer to cash it, keep a part for himself, and send the rest to the thief. It is often used in connection with automobile sales or apartment rentals. For example, thief will appear in town to rent and apartment saying he just moved from another city. [This also is often done by mail from a foreign city] Thief agrees to pay a large deposit with a cashiers check, representing “all the money I took from my account when I closed it to move here.”  Thief asks the landlord to “cash the check to pay for the deposit, keep what he is entitled to, and send me a personal check for the rest.” The same scheme works if the consumer is selling a car or engaging any transaction involving a large sum of money. It also is used in a slightly different form for “work at home” schemes.

Overlooking the Obvious in the Supreme Court's Disappearing Docket?

by Chris Peterson

Today's  New York Times reports that the Supreme Court has granted cert to 40% fewer cases this term than last.  Furthermore, "[t]he number of cases the court decided with signed opinions last term, 69, was the lowest since 1953 and fewer than half the number the court was deciding as recently as the mid-1980s." All this despite Chief Justice Roberts' stated intention to take more cases under his leadership.

The article goes on to speculate on possible causes of the decline. Some Court watchers hypothesize that the Justices are refusing to vote for cert. because they are worried about loosing. Others speculate that because Congress has not passed as many statutes lately, there are fewer circuit splits on statutory interpretation. A former Deputy Solicitor blames the clerks wondering if they refuse to recommend cert because they are afraid of loosing the high court equivalent of "street cred."  The article also quotes Orin Kerr who suggests we might all be better off anyway.

The Justices themselves are apparently at a loss. The Times reports that "[i]n private conversations, the justices themselves insist that nothing so profound is going on, but rather seem mystified at what they perceive as a paucity of cases that meet the court’s standard criteria."

Here's another clue in the mystery of the declining docket: maybe the cases are being arbitrated. Readers of the Consumer Law and Policy Blog are familiar with the chorus of complaints on the increasing use of mandatory, binding arbitration clauses in boilerplate contracts with borrowers, buyers, and employees. A significant bulk of disputes over federal regulation can now be effectively diverted out of the judicial system into a private, secret, profit-seeking, dispute resolution system. Many doctrinal areas we should expect to create a significant amount of appellate litigation--employment discrimination, employee benefits, warranty law, and consumer credit law--are all amenable to arbitration. The country cannot develop circuit splits without stare decisis.

Obviously we will not know until someone comes up with an empirical study showing the effect of arbitration on the volume of cases meeting the Supreme Court's cert. criteria. Coming up with reliable control variables would probably be tough. I am wondering whether anyone out there in the blogosphere has any clever ideas on a way to measure this?

Choosing Between Judicial and Arbitral Fora in Class Actions

by Mike Quirk

This is a response to Roger Mandel's post from earlier this week, "Arbitration: Should it Sought Rather Than Fought?", and is the third in a series of posts on arbitration and class actions.

Roger has provided an important and provocative analysis that we practitioners who represent consumers must give serious consideration. In light of the data Roger has gathered and analyzed, consumer class action lawyers must give serious consideration to the pros and cons of the judicial and arbitral fora before proceeding with particular cases.

What follows is meant as a critique not of Roger's analysis, but of the actual arbitral system he describes. This arbitral system for deciding when cases may or may not proceed as class actions raises serious questions of sensibility, legitimacy, and ultimately sustainability.

1. Sensibility

The first step in this process is a "clause construction phase," where the arbitrator decides if a clause allows for class arbitration. But, as described, the case only gets to the arbitrator for this determination if the ARBITRATION SERVICE has already determined that the clause is silent concerning class actions (which it is not in the vast majority of cases where companies now expressly ban class claims). Putting aside the appropriateness of the service making this pre-threshold determination, what is an arbitrator to do in "interpreting" a provision already found to be silent on the subject at issue?

More fundamentally, what is the sense of looking to a contract to determine what procedures will govern a dispute? Can any of us imagine a court or other competent decision-maker deciding class certification, discovery rights, or rights to present testimony by looking to a private contract rather than neutral and generally applicable rules? It is an indisputable fact that consumer arbitration clauses are written by businesses. Having already allowed the business party to pick the forum, why would we let the party to a dispute write the rules by which the dispute is going to be resolved?

Consumer Groups File Amicus Brief in Important National Bank Act Preemption Case

     The National Consumer Law Center, the Consumer Federation of America, the Center for Responsible Lending, AARP, Consumers Union, the National Association of Consumer Advocates, Public Citizen, and other consumer groups have filed an amicus brief in an important preemption case pending before the U.S. Court of Appeals for the Second Circuit.  Pacific Capital Bank v. Connecticut, No. 06-4149cv, presents the question whether the states may regulate loan brokers who market tax refund anticipation loans (RALs) to low-income consumers, or, rather, as the district court held, such state regulation is preempted by the National Bank Act.  The brief, written principally by NCLC's Chi Chi Wu, explains that National Bank Act preemption does not apply to non-bank entities, such as loan brokers.

Times Reports Bad News for Consumers: More Spam and HIgher Interest Rates on Subprime Loans

Today's New York Times has two articles relevant to consumer law.  The first article reports on an increase in the amount of spam getting through spam filters; at the moment, in the seesaw battle between the senders and blockers of spam, it appears that the senders are winning.  It will hardly come as a surprise that the federal CANSPAM statute has not solved the problem.  The second article describes the problems caused subprime borrowers by the rise in interest rates.

The Movie Industry Killed California's Pretexting Legislation

by Greg Beck

According to Wired Magazine, a "tough California bill that would have prohibited companies and individuals from using deceptive 'pretexting' ruses to steal private information about consumers was killed after determined lobbying by the motion picture industry." 

S.B. 1666 would have barred the practice of using false representations to obtain private customer data, going far beyond phone records to cover any sort of personal information kept in business records.  It would also have provided a civil cause of action, including a provision for attorneys' fees and statutory damages of $500 per violation (or $3000 per violation in willful cases).

After passing the California Senate 30-0, Wired reports that the bill met last-minute resistance from the Motion Picture Association of America and was voted down 33-27 in the assembly.  Apparently, the MPAA was worried that the bill would hamstring its investigations into movie piracy.

The California legislature instead passed S.B. 202, which creates criminal liability for the acquisition of telephone records through pretexting but does not cover other forms of personal information.  It also does not include a civil remedy.

Senate Democrats Plan Crackdown on Credit Card Practices

The following excerpt is from an article published on November 30 in CQ Today and is reprinted by permission:

Senate Democrats Plan Crackdown on Credit Card Practices

    A leading Democrat said today he will push to curb “abusive” practices of credit card issuers when his party takes control of Congress next year.

    “Education . . . I’m afraid, isn’t going to be enough,” said Sen. Carl Levin, D-Mich., stressing the need for new legislation and regulation in a speech at the Center for American Progress. “Without that club, without that stick, we’re not going to see reforms coming.”

    Levin pledged to hold hearings on the issue early next year as chairman of the Senate Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations. He said he expects Sen. Christopher J. Dodd, D-Conn., who will chair the Senate Banking panel, to introduce legislation, though the timing remains unclear. Levin said he hoped to cosponsor Dodd’s bill.

    Levin took aim at what he described as unfair and confusing practices by credit card issuers, practices he said are used to reap “extraordinary” profits. And he said these fees, interest rate and disclosure practices take advantage of low- and middle-class American families.

    “They’re the brunt of those excesses,” he said.

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Supreme Court Refuses To Take Up Tobacco Company's Invitation To Remake The Doctrine of General Jurisdiction

    The U.S. Supreme Court today denied review in R.J. Reynolds v. Tuazon, No. 05-1525.  As Deepak Gupta explained in an earlier post linking to the cert. stage briefs, Reynolds was asking the Court to adopt a radical new view of general jurisdiction.  Under that view, a defendant's "sales-related" contacts with the forum state, no matter how extensive, could never support general jurisdiction as a matter of due process.  The Court's denial seems like good news for consumer plaintiffs.

Arbitration: Should It Be Sought Rather Than Fought?

by Roger L. Mandel

Mr. Mandel is an attorney at Stanley, Mandel and Iola of Dallas, Texas. CL&P invited him to discuss the following original and provocative proposal, which he presented at a panel on class actions & arbitration at the NCLC Class Action Symposium in Miami last month. This post is the second in a series based on that panel; in the first post, Mike Quirk discussed judicial decisions striking down class arbitration bans.

Plaintiffs’ class action lawyers have long fought tooth and nail against mandatory arbitration clauses. Today, in some instances they may be advised to file arbitrations rather than fight the arbitration clauses in court.

Class Arbitration Rules

Many arbitration clauses specify or allow use of the American Arbitration Association (“AAA”) or JAMS as arbitration providers. Both of those providers have specifically enacted class arbitration rules, which are available on their websites, www.adr.org and www.jamsadr.com, respectively. Both sets of rules provide for a three-step process in class arbitration:

1. A clause construction phase during which the arbitrator decides whether the arbitration clause in question allows for class arbitration;

2. If the arbitrator finds that class arbitration is allowable under the arbitration clause, a class certification phase pursuant to standards identical to Federal Rule of Civil Procedure 23; and

3. Decision on the merits of either the classwide or individual claims.

At the end of both phase 1 and phase 2, the arbitrator enters interim awards and is required to stay the proceedings for thirty (30) days to allow either party to appeal the interim award in court. If an interim award is appealed, the arbitration remains stayed during the pendency of the appeal.

In addition to its class action rules, AAA has a class arbitration policy. Under that policy, it will place on its class arbitration docket any claim involving an arbitration clause that is silent as to class arbitration. It will refuse, however, to place on its class arbitration docket a case that contains an explicit class arbitration ban. JAMS does not have such a policy and will place on its class arbitration docket any claim that is filed as a class action, regardless of the contents of the arbitration clause.

Both providers maintain special national panels of class action arbitrators. Based on my review of those panels, most plaintiffs’ lawyers would prefer the JAMS panel, although there are a number of acceptable choices on the AAA panel.

Running the Numbers: The Role of the Arbitrator's Incentives

AAA maintains on its website its entire class arbitration docket, which is extensive. It posts the claims (complaints) and all of the interim and final awards entered by the arbitrators. This allows research into trends in AAA class arbitration.