Consumer Law & Policy Blog

Bullying Critics and Suppressing Competition Not Enough to Keep Video Professor in Business

by Paul Alan Levy

Video Professor, notorious for filing lawsuits against message boards and message board posters to suppress criticisms of its sales practices, and for filing spurious trademark actions to prevent effective competition, is apparently teetering on the edge itself.  Video Professor's latest judicial defeat was an unsuccessful suit against Amazon for bidding on the keyword "video professor" and then displaying competitive options on the linked landing page.

Denver's 9News reports that Video Professor is furloughing staff and undergoing reorganization.  Apparently, the money that it spent hiring lawyers to suppress criticism and competition might have been better spent improving its product so that the sleazy sales tactics that were widely reported by its customers and others would not be necessary. 

U.S. PIRG's Financial Reform Legislative Scorecard

U.S. PIRG has issued a handy legislative scorecard that lists all of the likely amendments to the Senate Financial Reform legislation and its position on each.

Poll About Supreme Court Nominee Released

by Brian Wolfman

This story reviews a Washington Post-ABC News poll that shows that a majority of the public thinks prior judicial experience is the single most important qualification for appointment to the Supreme Court. That's understandable, don't you think?  After all, judging and all that goes with it -- like most things -- is probably something that one gets better at with experience. I found the poll's results interesting because recently some politicians have decried the concentration of former appellate judges on the Supreme Court and want one of their own to be the next nominee.

My opinion doesn't matter, but here it is anyway: I'm not against nominating for the Supreme Court a politician (or someone else) with little or no experience on the bench, but the notion that a non-judge will automatically (or even more likely) bring an understanding of the lives of "ordinary Americans" strikes me as strange. Some of the current members of the Supreme Court -- all of whom were federal appellate judges before they were Supreme Court Justices -- tend to vote more often for the consumer or the employee, and some don't.  And it's safe to say that the two Justices who (I believe) spent a higher percentage of their legal careers in government or the private sector than their colleagues -- Chief Justice Roberts and Justice Thomas -- are not Justices whom most readers of this blog would say tend to see things from the consumer's or the employee's perspective.  On the other hand, consumer and employee advocates see Justice Ginsburg (who served 13 years on the federal appellate bench before assuming her current position and was a law professor for 17 years before that) as more likely than either Chief Justice Roberts or Justice Thomas to understand a case from the consumer's or the employee's perspective.

Again, I'm not against a Justice who has a background in politics or otherwise spent most or all of her career in the "real" world. And I am interested in what people have done in their legal lives before becoming judges. Justice Ginsburg was a pioneering women's rights advocate. And we know about Justice Thurgood Marshall's background before becoming a judge and Justice.  And we also know that nearly zero percent of the current federal bench spent significant amounts of their careers as legal services lawyers or public defenders or lawyers for non-profit organizations. The lack of legal diversity on the bench may matter a lot. But is it important to get a Supreme Court justice who doesn't have judicial experience? I doubt it.

The Washington-Post ABC poll is here (see questions 16 through 20).

Jeff Gelles on "Click and Trick"

Here and here. The practice, sometimes called "data pass," refers to a transaction in which a consumer deliberately purchases something on the web and then agrees to a second transaction without realizing it because the consumer's credit card information is provided directly to the second company without the consumer supplying it again.  Visa has agreed to stop participating in such transactions, and Senator Jay Rockefeller plans to propose legislation to bar the practice.

The US News Rankings, Employment Statistics, and Consumer Protection

by Jeff Sovern

In ranking law schools, US News takes into account the percentage of students who are employed at graduation and nine months after graduation. This has led to reports that are interesting, to say the least.  For example, Brian Leiter has pointed out that Duke is the only law school to have reported 100% employment at graduation and and one of only five to report 100% nine months later.  Among other oddities, he also points out that "George Mason University reported 95.9% of its graduates employed at graduation, more than Georgetown and George Washington Universities." 

These reports may well be true. The numbers can be manipulated. For example, a law school may create the illusion of greater employment by hiring its own alums for the first nine months after graduation.  Perhaps more significantly, as far as I can tell, the numbers measure simply employment, and are not limited to jobs for which a JD is required or desirable.  Unless I am mistaken (possible, since I am going just from the methodology description at US News's website), jobs at Starbucks count the same as clerkships.  But of course, not many people go to law school with the hope of working at Starbuck's.  Similarly, probably few go with the hope of working at the law school for nine months. 

So here comes the consumer protection angle: US News should limit the jobs it counts in two ways: first, it should exclude jobs at the law school itself (either directly or indirectly to prevent imaginative ways around that restriction), and second, it should limit the jobs that count to those for which a JD is required or desirable.  That way, the rankings will reflect more accurately the value the law school adds to students' employment prospects as of graduation and nine months afterwards and eliminate an avenue for manipulating the figures.  To be sure, some people graduate from a law school and are perfectly happy with a non-law job, but probably few go into law school with that expectation, and perhaps the numbers of such students are similar across law schools (if that is a real issue, perhaps US News could include a separate list of those numbers, as it does for diversity, for example, or include them in the rankings with a lower weighting).

Rent-an-Arbitrator

by Deepak Gupta

It's been a pretty busy week for arbitration issues at the Supreme Court.  Yesterday, the Court heard oral argument in Rent-a-Center v. Jackson, a potentially very important arbitration case that I've discussed here before. (Disclosure: We're co-counsel for respondents, along with Public Justice and the Hardy Law Firm of Reno, Nevada.) 

The question in Rent-a-Center is whether companies that draft forced arbitration clauses can delegate unconscionability challenges -- challenges by consumers and workers to the fairness of the arbitration clause itself -- to the arbitrator rather than the court.  If the Supreme Court answers yes, it could mean that the company's hand-picked arbitrator gets to decide whether it's fair for the company to hand pick the arbitrator. You can read the transcript here. All of the briefs are available here.

Justice Scalia's questions yesterday showed that he has little empathy for those who find themselves in the position of signing extremely one-sided arbitration agreements because of unequal bargaining power, often as a precondition of employment or the receipt of essential goods and services. Here's what he said:

JUSTICE SCALIA: you can be a stupid person who voluntarily signs an unconscionable contract. Now, the courts may protect you because you are stupid, but you haven't been coerced.

That's an actual quotation from the argument, not a caricature. I suppose this means that, in Justice Scalia's world, a person who takes a low-wage job as a dishwasher, say, or as a line worker at a chicken processing plant, because it's the only job he or she can get, is simply "stupid" if they sign an employment contract containing various unconscionably one-sided terms.

Thankfully, several other Justices (including Justices Breyer, Sotomayor, Stevens, Ginsburg, and Kennedy, and possibly even Chief Justice Roberts) seemed less sanguine about the prospects of leaving all unconscionability challenges to the arbitrator. Much of the questioning focused on whether the challenge to be decided goes to the whole agreement or only to specific provisions in the agreement, and there was much confusion on that point throughout the argument. I wonder whether these questions stem more from the Justices' unfamiliarity with how state-law unconscionability doctrine works than anything else. Perhaps an amicus brief of contract-law professors could have cleared things up.  The reality is that there's not much distinction between the two types of challenges; you challenge the whole clause as unconscionable and it's up to the court whether to sever the bad provisions or not (if they are in fact logically severable).

Here's a sampling of some of the more interesting coverage of the case:

• Tony Mauro's report on the argument at the National Law Journal quotes my prediction that this will be a "watershed" case if the badguys win, and highlights two amicus briefs that were mentioned during the argument, including the brief of prominent professional arbitrators supporting Mr. Jackson.

• Marcia Coyle, also of the NLJ, situates Rent-a-Center among the end-of-term blockbuster cases.

• Dahlia Lithwick at Slate offers her as-always colorful commentary on the argument (including some links to interesting articles on the debate over forced arbitration), but I think she may be misreading the Justices' votes based on some of yesterday's advocacy missteps.  My reading of the argument is that the case is actually much closer that she suggests.

• Elizabeth Wydra of the Constitutional Accountability Center has an excellent blog post on the arguments. She focuses on the same quotation from Justice Scalia that I mention above. She concludes: "If ever there were an oral argument that drove home the need to have a Supreme Court that understands, as President Obama and others have put it lately, how the law affects 'ordinary Americans'—this was it.

• Laurel Newby focuses on the Justice Breyer's odd "Joe Bananas" hypothetical.

• The ContractsProf Blog has had running coverage of the case over the past several weeks, including an online roundtable of scholars.

• Public Citizen President Rob Weissman had this op-ed on the case, which has run in several newspapers. At the Huffington Post, similar sentiments were expressed by Nan Aron of the Alliance for Justice and Anthony Tarricone of AAJ.

• Stanford law student Aaron Tang at SCOTUSblog offered this preview of the parties' arguments.

Supreme Court Decides Stolt-Nielsen: No Class Arbitration Where Clause is "Silent"

by Deepak Gupta

The opinions are here. The vote is 5-3. Justice Alito delivered the opinion of the Court, joined by Justices Roberts, Scalia, Kennedy, and Thomas.  Justice Ginsburg filed a dissenting opinion, joined by Justices Stevens and Breyer. Justice Sotomayor was recused.

The Court today holds that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act. The arbitration panel, in the Court's view, "exceeded its powers" under Section 10(a)(4) of the Act by imposing its own "policy choice" allowing a class action instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law.

The Court relies heavily on the basic principle that, under the FAA, arbitration “is a matter of consent, not coercion,” and that arbitration agreements must be "enforced according to their terms." (quoting the Volt case). It follows, the Court holds, that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. An implicit agreement to authorize class action arbitration is not a term that the arbitrator may infer solely from the fact of an agreement to arbitrate. The differences between simple bilateral and complex class action arbitration are too great for such a presumption. 

All of this, supposedly, is based on the FAA and is what Congress intended when it passed the Act in 1924. If you like, you can think of it as a special clear-statement rule of federal common law -- a rule that elevates hostility to class actions above ordinary principles of contract interpretation, not to mention statutory limits on judicial review.

We had filed a brief arguing that this case was not ripe for judicial review, both as a prudential matter and as a matter of the Federal Arbitration Act, which limits judicial review of arbitral decisions to final "awards."  The arbitral panel had decided only a preliminary issue of clause construction, had not even certified a class, and issued no "award." Justice Ginsburg's dissent echoes those arguments. She would have dismissed the case as improvidently granted.

Even if Stolt-Nielsen had a plea ripe for judicial review, Justice Ginsburg goes on to say, the Court should have rejected it on the merits. She stresses that the parties jointly "asked the arbitrators to decide whether the arbitration clause in their shipping contracts permitted class proceedings. The panel did just what it was commissioned to do. It construed the broad arbitration clause and ruled,expressly and only, that the clause permitted class arbitration. The Court acts without warrant in allowing Stolt-Nielsen essentially to repudiate its submission of the contract-construction issue to the arbitration panel, and togain, in place of the arbitrators’ judgment, this Court’s de novo determination."

Stolt's implications for the larger debate over forced arbitration in consumer and employment cases are troubling -- especially for the ongoing fight over class-action bans. But the impact of the decision is unclear at this point, and will have to be worked out by the lower courts.

Although today's decision will undoubtedly affect consumers and workers, the Stolt case itself involved claims brought by a group of large businesses, who alleged that a handful of shipping companies had engaged in a global price-fixing conspiracy. One major question that will have to be addressed is how the decision will apply in cases where consumers' claims are especially small and a class action is the only realistic means of redress. The decision also does not address the fairness defenses that are available to consumers under general state contract law and the savings clause of FAA section 2.

Foreclosure Stories and Goldman Sachs

The Wall Street Journal has an excellent piece telling the stories of several foreclosed homeowners whose mortgages were included in the infamous Abacus deal that has Goldman Sachs in hot water.  The SEC charge is that Goldman sold investors a CDO based on other securities based on these mortgages, without mentioning that hedge fund magnate John Paulson had cherry-picked the mortgage pools for the CDO looking for those most likely to end in default and foreclosure, so he could bet against them.  The Goldman pitchbook for the Abacus CDO is an interesting exercise in omission by misdirection.

13 Bankers vs 13 Consumer Advocates

by Jeff Sovern

I've been listening to the audio version of Simon Johnson and James Kwak's excellent book, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.  The book describes how financial institutions used their power, beginning in the eighties, to persuade Congress to repeal banking regulations and to resist new regulation, leading to the financial crisis, and how they continue to use that power to oppose regulation (which will presumably lead a a future financial crisis).  At one point, the authors include a list of bankers in the Obama Administration as evidence of the influence that bankers wield in the Administration (the book has a similar list for the Bush Administration).  So I began to wonder: how many consumer advocates have positions in the Obama Administration? (the 13 bankers in the title of the book and the headline above refers not to the number of bankers in the Administration but to the number of bankers in a meeting opposing regulation of derivatives back in the nineties)  Are there more bankers or consumer advocates in the Obama Administration?  My definitions of both consumer advocate and the Administration are loose, as my list will demonstrate.  I would include Elizabeth Warren even though she isn't technically a member of the Administration, because she has played a key role in the CFPA proposal.  MIchael Barr in Treasury has pushed strongly for consumer protection legislation.  Though the FTC isn't, strictly speaking, part of the Administration, I would include Julie Brill because the president nominated her to the Commission (but I'm not sure if David Vladeck should be included because he's appointed by the FTC itself).  That's the list I could come up with off the top of my head.  Who am I leaving out?

UPDATE: Larry Kirsch has pointed out that Eric Stein, formerly of the Center for Responsible Lending, is at DOT.

The President's Speech Today

by Jeff Sovern

I was lucky enough to be invited to attend President Obama's speech at Cooper Union today on financial reform, thanks to the thoughtfullness of Norm Silber of Hofstra.  Here's what the President said about the CFPA:

[T]his plan would enact the strongest consumer financial protections ever. This is absolutely necessary. Because this financial crisis wasn't just the result of decisions made in the executive suites on Wall Street; it was also the result of decisions made around kitchen tables across America, by folks taking on mortgages and credit cards and auto loans. And while it's true that many Americans took on financial obligations they knew - or should have known - they could not afford, millions of others were, frankly, duped. They were misled by deceptive terms and conditions, buried deep in the fine print.

And while a few companies made out like bandits by exploiting their customers, our entire economy suffered. Millions of people have lost homes - and tens of millions more have lost value in their homes. Just about every sector of our economy has felt the pain, whether you're paving driveways in Arizona or selling houses in Ohio, doing home repairs in California or using your home equity to start a small business in Florida.

That's why we need to give consumers more protection and power in our financial system. This is not about stifling competition or innovation. Just the opposite: with a dedicated agency setting ground rules and looking out for ordinary people in our financial system, we'll empower consumers with clear and concise information when making financial decisions. Instead of competing to offer confusing products, companies will compete the old-fashioned way: by offering better products. That will mean more choices for consumers, more opportunities for businesses, and more stability in our financial system. And unless your business model depends on bilking people, there is little to fear from these new rules.

The President also spoke about the opposition to the bill.  Another excerpt:

We've seen battalions of financial industry lobbyists descending on Capitol Hill, as firms spend millions to influence the outcome of this debate. We've seen misleading arguments and attacks designed not to improve the bill but to weaken or kill it. And we've seen a bipartisan process buckle under the weight of these withering forces, even as we have produced a proposal that is by all accounts a common-sense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector.

But I believe we can and must put this kind of cynical politics aside.

Later the President quoted from a Time magazine report on bankers' reaction after passage of a reform bill:

 "Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed ... would rivet upon their institutions what they considered a monstrous system... Such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level." That appeared in Time Magazine - in June of 1933. The system that caused so much concern and consternation? The Federal Deposit Insurance Corporation - the FDIC - an institution that has successfully secured the deposits of generations of Americans.

Those last two quotes connect to the President's response to claims that the bill will lead to future bailouts.  Here's what he said about that:

[W]hat is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate. In fact, the system as it stands is what led to a series of massive, costly taxpayer bailouts. Only with reform can we avoid a similar outcome in the future. A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth.

Nevertheless, on the way home, I heard Sean Hannity on the radio describing the bill as a bailout bill.  And that in turn connects to what the President said about the CFPA, already quoted above: "unless your business model depends on bilking people, there is little to fear from these new rules."  Unless your advocacy model depends on misrepresenting the facts, there is little to oppose in this bill.