Consumer Law & Policy Blog

Wal-Mart Uses Digital Millennium Copyright Act Against Consumer Blog

by Greg Beck

A while ago I wrote about how companies use the takedown provisions of the Digital Millennium Copyright Act to demand removal of their Black Friday sales prices from the Internet.  The DMCA gives Internet service providers a strong incentive to comply with demands to remove information that a company would rather not have online.  Yesterday, Wal-Mart used the DMCA against the Consumerist blog, demanding removal of an internal Wal-Mart PowerPoint presentation sent in by one of the blog's readers.  The presentation classifies Wal-Mart shoppers into categories that are either "More Loyal to WM" or "Less Loyal to WM."  Among those classified as "less loyal" are fourteen percent of the population Wal-Mart classifies as "Conscientious Objectors."  On advice of counsel, the Consumerist has complied with Wal-Mart's demand, but not before the Associated Press covered the story and Wal-Mart admitted that the slide show was authentic.   

Do Companies Ignore Consumer Complaints?

Over at U.S. PIRG's consumer blog, Ed Mierzwinski explains why he thinks companies ignore legitimate consumer complaints.  Two main reasons:  Consumers don't have effective redress in court because of mandatory arbitration, and the regulatory agencies are not doing their jobs policing improper corporate practices.  Ed suggests that someday consumers may harness the power of the Internet to fight back.

Identity Theft Incentives

by Jeff Sovern

I have previously blogged here and here about how credit bureaus lack sufficient incentives to prevent identity theft.  But what about lenders?  I had argued in an article, The Jewel of Their Souls: Preventing Identity Theft Through Loss Allocation Rules, 64 U. Pitt. L. Rev. 343 (2003), that lenders too have insufficient incentives to make it harder to commit identity theft.  Tomorrow's New York Times Magazine has a column by Stephen J. Dubner and Steven D. Levitt, the authors of the best-seller Freakonomics, that takes the position that banks, as well as consumers, and the police "aren't sufficiently incentivized to stop identity theft . . . ."  (Some information about the column can be found on the Freakonomics Blog).  The column paraphrases Sgt. Robert Beradi, head of the Los Angeles County Sheriff Department's ID Theft Task Force, as explaining that the credit industry "is reluctant to add even an ounce of friction to a consumer's purchase" and "identity theft is seen as simply the cost of doing business."  The column argues that the merchants who take credit cards--and are charged back when a particular item charge turns out to have been incurred by an identity thief--are the entities with the greatest incentive to stop identity theft.  The authors also cite a study that I, at least, had previously been unaware of, titled "Why Phishing Works", by Rachna Dhamija, J. D. Tygar, & Marti Hearst, all of Berkeley or Harvard, that chillingly found that "many users cannot distinguish a legitimate website from a spoofed website. In our study, the best phishing site was able to fool more than 90% of participants" and "we were able to fool even our most careful and knowledgeable users."

"Maxed Out" Opens in Theaters Today

by Deepak Gupta

If you haven't yet seen Maxed Out, the terrific new documentary about consumer credit and debt issues by director James Scurlock, now's your chance. Tonight, Maxed Out opens in select theaters in New York, Los Angeles, San Francisco, Dallas, Washington DC, Seattle, and Austin. A second batch of cities, including Chicago, Boston, and Minneapolis, gets added next week.

I've previously blogged about the movie here. As I've already discussed, the coalition Americans for Fairness in Lending is using the movie to help frame an exciting new public policy campaign; the group organized a special screening on Capitol Hill and a forum discussion accompanied by the movie in New York earlier this week. You can get lots of details, including theater locations, reviews, and information about the companion book, at the movie's website.

Press play to view the trailer:

UPDATE: Today's Washington Post ran a very favorable review of the movie by Ann Hornaday. She concludes that this "is a film all high school seniors should see. And their parents. And their siblings, neighbors, best friends and acquaintances. You should see it, too. And spread the word."

Another Ninth Circuit CAFA Decision

By Brian Wolfman

The day before yesterday, in Progressive West Insurance Company v. Preciado, No. 06-17367 (Mar. 6, 2007), the Ninth Circuit again ordered a class action remanded to state court on the ground that it did not meet the jurisdictional requirements of the Class Action Fairness Act. [I blogged yesterday about a March 2 Ninth Circuit ruling finding CAFA jurisdiction lacking.]

Here’s what happened in Progressive.  An insurance company sued one of its customers in state court for breach of contract, claiming reimbursement for medical expenses that it had paid on the customer’s behalf.  On February 17, 2005, the day before CAFA’s effective date, the customer filed a cross-claim (the equivalent of a federal counterclaim) on behalf of the “general public.”  The cross-claim alleged that the practice of seeking such reimbursements was an unfair business practice under California’s unfair competition law, Cal. Bus. & Prof. Code 17200 et seq.  The state court held that the customer had failed to make the class action allegations required to sustain an unfair competition claim on behalf of the general public.  See id. sec. 17203.  But the state court gave the customer leave to amend to add class action allegations.  The customer did so, but (obviously) after CAFA’s effective date.  The insurance company then removed the case to federal district court under CAFA.  The district court held that it lacked jurisdiction.

The Ninth Circuit affirmed for two independent reasons.  First, the court held that the case had been commenced before CAFA’s effective date and that the amended cross-claim related back to the original filing date as a matter of California law.  Therefore, CAFA did not apply.  Second, the court held that only a defendant, not a counterclaim defendant (that is, a plaintiff against whom a counterclaim is asserted), can remove a case under CAFA.  CAFA’s removal provision, the court explained, adopts the procedures of the general federal removal statute, 28 U.S.C. 1446(a), which applies only to “defendants.”

EU Considering Consumer Class Actions

by Deepak Gupta

Over the past few years, Europe has been moving, ever so slowly, towards adopting some kind of version of the American-style class action device.  The debates in Europe are an interesting mirror of the debates over class actions in the United States, reflecting a desire to promote efficiency while avoiding the potential for abuse.

Although a proposal in France to permit class actions was recently shelved, the Financial Times is reporting that the European Union's consumer affairs commissioner will announce next week that the EU is considering a new form of "collective redress" against providers of faulty goods or services. 

Governmental Privileges for Private Corporations: What's the Stopping Point?

by Deepak Gupta

Consider these questions for a moment:

• Does a private debt collector become an "arm of the state" -- meaning that it enjoys the same sovereign immunity from suit in federal court as the state itself -- when it collects on bad checks under a business partnership with a state prosecutor?    

• Does a major tobacco company constitute a "person acting under [a federal] officer" -- meaning that it enjoys the same ability as a federal official to remove a suit against it from state to federal court -- because the Federal Trade Commission has regulatory authority over the way cigarettes are marketed?

These might seem like outlandish possibilities that are hardly worth discussing . . . were it not for the fact that federal courts have recently answered yes to both questions.   In one case, a district court in Florida dismissed a consumer class action against a private debt collector on the grounds that the company was entitled to state sovereign immunity.  Last week, I filed this brief in the Eleventh Circuit urging the court to reverse the district court's ruling.   In another case, the Eighth Circuit allowed Philip Morris to remove an unfair trade practices suit to federal court under the federal officer removal statute.  (I previously blogged about the case here and here.)  My colleague Scott Nelson has just filed this brief in the Supreme Court urging the Court to reverse the Eighth Circuit's ruling.

Although the two cases involve very different legal doctrines, there are some interesting parallells.  In both cases, the lawyers for private corporate defendants in consumer class actions made long-shot arguments that invoked special privileges ordinarily reserved for the government itself.  And in both cases, they won, allowing them to deprive the consumer plaintiffs of their chosen forum.  Both decisions extend the privileges at issue well beyond the purposes for which they were originally designed-- protecting the autonomy of governmental actors within a federal system.  The federal officer removal statute protects federal officers from potentially hostile state courts, while state sovereign immunity protects the dignity and solvency of the sovereign states by immunizing them from federal legal process.  Under these two decisions, for reasons that are hard to discern and even harder to apply in a principled way, the same privileges would protect private corporations as well.  This is federalism run amok.

Senate Committee Investigates Credit Card Company Practices

The Permanent Subcommittee on Investigations of the U.S. Senate’s Committee on Homeland Security and Governmental Affairs today held a hearing on “Credit Card Practices: Fees, Interest Rates, and Grace Periods.”  The hearing was, the committee promised, ”the first of several Subcommittee hearings that will examine a variety of credit card practices that raise concerns.”  Yahoo news has this lively report on the hearing.  The Senate Committee's website contains all of the testimony at today’s hearing.

Ninth Circuit Issues New CAFA Holding

By Brian Wolfman

In Lowdermilk v. United States Bank National Assoc., No. 06-36085 (3/2/07),the Ninth Circuit has issued a new ruling under the Class Action Fairness Act.  The topic?  What a removing defendant must show to establish CAFA jurisdiction when the plaintiff's state-court complaint claims less than the $5 million jurisdictional amount.  Judge Bybee posed the question and answered it concisely in the first paragraph of his opinion:

In this case we are called upon to resolve a question of first impression: Under the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. 109-2, 119 Stat. 4 (2005), when the plaintiff has pled damages less than the jurisdictional amount,what must the defendant prove in order to remove the case to federal court? We reserved this question in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 683 n.8 (9th Cir. 2006) (per curiam). We answer that the party seeking removal must prove with "legal certainty" that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint. We conclude that the defendant in this case failed to meet this burden, and we affirm the judgment of the district court.

Judge Kleinfeld dissented.  In his view, the complaint was vague and self-contradictory and did not specify the amount in controversy.  When that occurs, he said, a preponderance-of-the-evidence standard -- and not the "legal certainty" test -- applies.  He would have remanded to the district court for a determination of the amount in controversy under the preponderance standard.

Texas Supreme Court: Putting the Squeeze on Class Actions?

by Steve Gardner

  Last Thursday, the Texas Supreme Court drove another nail in the class action coffin.

Justifiably, Texas is now considered by most class action lawyers (on both sides of the aisle) to be the state most hostile to class actions. One judge commented to the author, “I don’t know why anyone would bring a class action in state court in Texas because as far as I can tell, the Texas Supreme Court has abolished class actions — it just hasn’t said so.”

In Citizens Insurance Company of America v. Daccach, --- S.W.3d ----, 2007 WL 623799 (Tex. Mar. 2, 2007), Texas's High Court tightened the class action noose a bit further.  (Citations to the opinion will use Westlaw star system, e.g., “Daccach *8”.)

But, first, some history.  Starting at the beginning of this Millennium, the court has repeatedly applied excessively strict criteria to various aspects of class action litigation, running the gamut from making it almost impossible to bring a class action when reliance might be at issue, Schein v. Stromboe, 102 S.W.3d 675, 695 (Tex. 2002), to requiring a detailed trial plan.  Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000). The court has faulted trial plans that did not contain a rigorous analysis of (1) all causes of action, (2) how those claims will be tried, (3) every controlling substantive issue, (4) whether or how individual issues related to limitations will be determined, (5) how it would dispose of issues of reliance, (6) how it would try damages, both actual and punitive, (7) why individual issues did not predominate, and (8) why a class action is superior to other methods of resolving the dispute. State Farm Mutual Automobile Ins. Co. v. Lopez, 156 S.W.3d 550, 557 (Tex. 2004) [first three points]; Nat’l Western Life Ins. Co. v. Rowe, 164 S.W.3d 389 (Tex. 2005) [remaining points].