Consumer Law & Policy Blog

Andrew Pincus and Arthur Miller on the Concepcion Decision

A couple days ago, the New York Times published competing letters to the editor from Andrew Pincus and Arthur Miller on the Supreme Court's recent decision in AT&T v. Concepcion. Pincus was AT&T's principal lawyer before the Supreme Court. His letter defends the decision largely on the basis of the particular design of AT&T's arbitration program, which Pincus claims is favorable to consumers even though it bans class actions through a contract of adhesion. Pincus does not address the Supreme Court's reasoning, which may render the states powerless to defeat contractual class action bans regardless of their specific terms, so long as the bans are laundered through mandatory arbitration clauses. Miller, an NYU law professor and class action expert, puts it this way:

This Supreme Court no longer even tries to hide its pro-business orientation. Justice Antonin Scalia’s hostility to class-action lawsuits was betrayed with a lengthy analysis purporting to show that they take longer than cases that are arbitrated individually. He ignored the plain fact that a class action can resolve many hundreds of individual cases all at once and is often an efficient tool for administering justice.

Moving on to the CFPB

Dear Consumer Law & Policy Blog readers,

In September 2006, Jeff Sovern and I decided to start this blog as co-coordinators -- an outgrowth of a discussion we had at Richard Alderman's consumer law conference at the University of Houston Law School.  As we explained in our first post, we had in mind a group blog, with diverse contributors from both practice and academia, covering everything from the latest Supreme Court cases and law review articles to legislative battles, news coverage of consumer law, and more.

For me, running the blog has been a great way to help myself stay on top of the issues, despite a busy litigation practice, and learn what's going on in the wide world of consumer law and policy.  We've covered the foreclosure crisis, the battle over class-action bans in the courts, the enactment of the Dodd-Frank Act, and much much more.  I'm always surprised and pleased when someone at a legal conference comes up to me and tells me that they read the blog every day.

Sadly, today is my last day at Public Citizen and therefore my last day as a co-coordinator of this blog.  Starting Monday, I will be joining the General Counsel's office at the new Consumer Financial Protection Bureau.  I'm looking forward to the challenge of helping to build a new consumer agency from scratch, but sorry that I'll have to leave extracurricular activities like blogging behind.

The blog, however, will go on. Jeff will stay on as coordinator and will be joined by Greg Beck and Brian Wolfman, who already posts up a storm.  I look foward to reading the blog from my post at the CFPB.

So long,

Deepak Gupta

Has Scalia Killed the Class Action?

Daniel Fisher at Forbes responds to Scott's post from yesterday.  In the article, Alan Kaplinsky, who prides himself of being an architect of forced arbitration in consumer contracts, unconvincingly attempts to downplay the devastating impact of Concepcion for consumer justice and civil rights in America.

Another Plan for Privatizing Medicare

In this op-ed, former HHS Secretary Michael Levitt says that Medicare Part A (hospitalization and other in-patient care) and Medicare Part B (doctor services, other outpatient services, home health care, etc.) should be fundamentally changed and structured like the Medicare Part D prescription drug benefit. Under Part D, private companies offer a wide variety of plans to Medicare recipients, with the premiums varying depending on the breadth and depth of coverage. Leavitt claims that Part D is a huge success, with the competition among providers encouraging the use of generic drugs, lowering prescription drug costs for the government, and increasing consumer choice. Two huge questions: What is the minimum coverage that must be offered? And what is the size of the government subsidy that would accompany the privatization plan? Leavitt's op-ed ignores both issues.

States Taking the Lead on Debate Over Genetically Modified Food

We have blogged previously, including here, on whether the federal government should label genetically modified food. The FDA says it lacks power to label foods as genetically modified once it determines that the genetically modified food is not materially different from the regular product. So, the states seem poised to step into the vacuum. As explained in this morning's Washington Post, four states are debating whether to require labeling on genetically modified fish (which is probably a response to the push to obtain FDAA approval for genetically modified salmon) and ten other states are considering labeling to disclose any use of genetically modified food ingredients.

If You Believe Forbes, I've Got an AT&T Cell Phone to Sell You

By Scott L. Nelson

Responding to the New York Times’s powerful critique of the Supreme Court’s AT&T Mobility v. Concepcion decision that lets corporations opt out of class action lawsuits by injured consumers, Forbes Magazine's blog derides the very idea that class actions benefit victims of corporate wrongdoing.

According to Forbes, class actions are no more than ways for attorneys to get rich at the expense of class members. Forbes points to a consumer class action against a company called DirectBuy, in which, it says, attorneys for the class sold out consumers by agreeing to a settlement that provides nothing at all for half the class, and benefits of very little value to the other half. Says Forbes, “Even the consumer watchdogs at Public Citizen”—that’s us!—“found this one impossible to swallow; they’ve filed an objection.”

Forbes’s example proves the opposite of the point they’re trying to make. Yes, we filed an objection in the DirectBuy case, as we often do when we see a class settlement that isn’t fair. A lot of other class members, as well as state attorneys general, also objected. And what happened? The court refused to approve the settlement.

You see, one of the benefits of class actions is that they can’t be settled unless a judge independently looks them over and decides they are fair to class members. And, more and more over the last 20 years as watchdogs like Public Citizen and others have filed objections to bad settlements, courts have made good on their obligation to protect class members. The result? Coupon settlements that benefit corporate defendants and enrich lawyers while giving little or nothing to class members are, increasingly, a thing of the past.

By contrast, judges aren’t even permitted to ensure fair outcomes when individuals are forced into one-on-one arbitration rather than being allowed to join together in class actions. Courts generally overturn an arbitration result only in the rare case when someone can prove an arbitrator was corrupt or deliberately ignored the law. Aside from that, pretty much whatever the arbitrators say goes.

And—you guessed it—it’s the corporate defendants who, through the take-it-or-leave-it “contracts” we have to sign if we want any of the necessities of modern life (a job, a phone, a car, credit), decide which organizations will conduct the arbitration.

Who would you rather have determining the fairness of the way your claim against your friendly cell-phone company, credit-card provider, used-car dealer, payday lender, or employer is resolved: a life-tenured federal judge who has a legal obligation to protect your interests, or a private “dispute resolution service” picked and paid for by the defendant? Talk about a no-brainer.

The hard truth is that arbitration clauses that prohibit class actions and collusive class action settlements are just two sides of the same coin: They’re both ways corporate defendants try to minimize their liability for wrongdoing.

Class-action bans do that by preventing large numbers of people from suing, and making it harder for those who can file on an individual basis to recover for their injuries. Collusive class settlements allow corporations (when they can find class action lawyers who are willing to play ball with them) to cut off the claims of large numbers of people for a fraction of their real value. That’s why watchdog groups like us oppose both banning class actions and abusing them.

But wait, says Forbes, even after Concepcion courts will only enforce arbitration clauses with class-action bans if they are really fair to consumers, in fact better than class actions. Forbes points to some features of the AT&T arbitration clause at issue in the Concepcion case that would provide a consumer a $7500 bonus plus double attorney fees if she won more in arbitration than the company’s last settlement offer.

But the bonus payment—which it appears no consumer has ever succeeded in obtaining—is a sham. The company can always avoid it by offering the consumer the face value of her individual claim. For the Concepcions, that would be about $30. So if consumers like the Concepcions go to the trouble and expense of getting the legal advice needed to learn that they’ve been defrauded and to figure out how to file a claim, at the end of the day the company will offer them their $30 and avoid paying any bonus or legal fees.

As a result, in the typical consumer case where a lot of people (thousands, hundreds of thousands or even millions) have been ripped off by a company for a small amount of money each, the company will come out way ahead even if thousands of people go to the trouble of filing for arbitration to get their $30 back, because thousands more won’t.

And that “even if” is a pretty big one. The fact is that it’s very unlikely that thousands of people will file arbitrations seeking $30, or $50, or even $100 or $500 each, because it won’t be worth the time of any lawyer to help them—unlike in a class action where the small claims of class members can yield a large enough recovery to compensate both class members and their lawyers. And anyway, as Justice Breyer said in dissent in Concepcion, only a lunatic would arbitrate over $30.

In short, the lesson of Concepcion is that an arbitration agreement that bans class actions doesn’t have to be fair to be enforced; at most, it only has to look fair—to someone who can’t, or won’t, look past the window-dressing. And, indeed, we don’t yet know whether courts applying Concepcion will require class-action bans to have even the fairness fig-leaf that the AT&T contract offered.

So don’t be fooled. If corporations really thought consumers would be as likely to get full redress for mass grievances through individual arbitration as through class actions, why would they fight so hard to avoid class actions and steer all claims into arbitration? Because they want to pay legitimate consumer claims more quickly? Right…

In short, if you believe that individual arbitration is just as likely to lead to effective remedies against corporate wrongdoing as class actions, I’ve got an AT&T cell-phone I’d like to sell you.

Class action filed against AT&T over data plans

This morning's Today show on NBC reported a class action lawsuit filed against AT&T for "systematically overcharging" on its data plans. In light of Concepcion, I am curious how this will continue as a class action in the courts.

Los Angeles Times: Congress Should Overrule Concepcion

The Los Angeles Times this morning runs the following editorial on AT&T v. Concepcion.  In recent weeks, similar editorials have appeared in the New York Times, San Francisco Chronicle, and Sacramento Bee, among other places.

Editorial: Carving out class-action exceptions

Because a recent Supreme Court decision on a class-action suit involved a federal statute, not the Constitution, Congress can — and should — overrule the court.

May 17, 2011

In a case that began with a disgruntled cellphone customer, the U.S. Supreme Court has made it harder for groups of consumers or employees to band together to seek damages from corporations. Because the decision involved a federal statute, not the Constitution, Congress can — and should — overrule the court.

Almost a decade ago, Vincent and Liza Concepcion entered into a sales contract with AT&T Mobility that contained an arbitration clause forbidding a customer to join with others in a class-action lawsuit against the company. The Concepcions, who were aggrieved because they were charged $30.22 in sales tax on a supposedly free phone, brought a class-action suit against AT&T anyway two years later. Class actions allow many people who suffer the same harm to join as a "class" to seek compensation.

At first glance, the Concepcions would seem to have no legitimate complaint. After all, they had voluntarily signed a sales contract limiting them to standalone complaints. But the California Supreme Court has held that some contracts barring class actions are "unconscionable" and thus unenforceable. The U.S. 9th Circuit Court of Appeals decided that the AT&T contracts were unconscionable because, among other things, consumers couldn't negotiate them with AT&T; they were take-it-or-leave-it documents offered by a party with superior bargaining power.

The Federal Arbitration Act allows arbitration agreements to be disregarded if state law allows it. But Justice Antonin Scalia wrote that that exception didn't apply to the Concepcions' dispute because breaking their contract with AT&T would frustrate the purpose of the arbitration act.

Underlying this legal debate about the interplay of state and federal law is a real-world concern: that consumers not be exploited by vastly more powerful merchants. Class actions allow injured consumers in California and other states who might not bring an action on their own to combine their claims and receive greater damages. (Opponents of class actions say the principal beneficiaries of such lawsuits are lawyers.)

With its narrow reading of the federal arbitration act, the court has put such remedies out of reach for many consumers. Fortunately, Congress can overrule the decision by amending the act to allow states to declare some arbitration agreements unconscionable. Sen. Al Franken (D-Minn.) is preparing to introduce legislation that would go further by banning binding "pre-dispute" arbitration clauses in consumer, employment and civil rights contracts. It's not clear that such a drastic remedy is necessary, but at a minimum consumers should be spared the roadblocks that were thrown in the way of the Concepcions.

More on Credit Bureau VIPs: Senator Blumenthal Writes to Equifax, Experian, and TransUnion

Yesterday we blogged about the Times article that credit bureaus give special treatment to VIPs.  Today  Senator Blumenthal asked the credit bureaus to confirm or deny the Times claim that VIPS reporting errors errors are treated differently than other consumers.  He also posed the following queries:

• Please describe your process for resolving consumer disputes.
• Does your company maintain a V.I.P. list of consumers who receive special consideration, or are all consumers treated equally?
• If your company does offer a V.I.P. list, how do the services offered to these consumers differ from the services offered to the majority of consumers?
• If your company does offer a V.I.P. list, how does your company determine whether a consumer should receive preferential treatment?
• If your company does offer a V.I.P. list, are consumers on that list aware of placement on such list?
• What percentage of your company’s reports contain potential errors? What percentage contain serious errors?
• On average, how long does it take your company to resolve an error once a consumer has disputed an item on the consumer’s credit report? If your company maintains a V.I.P. list, please list the average time for a consumer on that list, as well.

The responses should make for interesting reading.

Jeff Gelles Column: Republicans trying to derail financial overhaul

Here.  An excerpt:

[Y]ou may get some gratification by watching as the "losers" are foreclosed on and evicted - the sentiment behind Rick Santelli's founding declaration of the tea party. But you'd be mistaken for seeing that as a useful response to what went wrong.

Sadly, that's apparently why some key Republicans fear Warren so profoundly: Because her prescription - smart, evidenced-based regulation that will allow consumers to understand financial products and protect them from needless risks - might actually work.