Consumer Law & Policy Blog

Two New Class Action Articles by Rhonda Wasserman

University of Pittsburgh law professor Rhonda Wasserman writes frequently on class actions. She has just written two more articles -- one concerning the ramifications of the Supreme Court's decision in AT&T v. Concepcion and the other about secret class-action settlements. Abstracts of and links to both articles appear below.

Legal Process in a Box, or What Class Action Waivers Teach Us About Law-making, 44 Loy. U. Chi. L.J. – (2012) (forthcoming), http://ssrn.com/abstract_id=2117463

The Supreme Court’s decision in AT&T Mobility v. Concepcion advanced an agenda found in neither the text nor the legislative history of the Federal Arbitration Act. Concepcion provoked a maelstrom of reactions not only from the press and the academy, but also from Congress, federal agencies and lower courts, as they struggled to interpret, apply, reverse, or cabin the Court’s blockbuster decision. These reactions raise a host of provocative questions about the relationships among the branches of government and between the Supreme Court and the lower courts. Among other questions, Concepcion and its aftermath force us to grapple with the relationship between law and politics, the role of legislative history in statutory interpretation, the meaning of legislative primacy, the influence of federal agencies on the development of the law, and competing conceptions of the relationship between the Supreme Court and the lower courts.

Secret Class Action Settlements, 31 Rev. Litig. __ (2012) (forthcoming), http://ssrn.com/abstract=1988302

This Article analyzes the phenomenon of secret class action settlements. To illustrate the practice, Part I undertakes a case study of a class action lawsuit that recently settled under seal. Part II seeks to ascertain the scope of the practice. Part II.A examines newspaper accounts describing class action settlements from around the country. Part II.B focuses on a single federal judicial district – the Western District of Pennsylvania – and seeks to ascertain the percentage of suits filed as class actions that were settled under seal. Having gained some understanding of the scope of the practice, the Article then seeks to assess it normatively. Part III analyzes the policy debate surrounding secret settlements of civil suits in general, fleshing out the competing policy objectives served by public access to, and confidentiality of, settlement agreements. Finally, Part IV examines the statutory, logistical and policy-based constraints that call into serious question the legality, efficacy and wisdom of secret class action settlements.

David Friedman Explains Bait and Switch Regulation

David Adam Friedman of Willamette has written Explaining 'Bait-and-Switch' Regulation.  Here's the abstract:

'Bait and switch' can describe a range of commercial behaviors common in the everyday marketplace, but virtually ignored in the academic literature. The traditional definition of unlawful bait and switch applies to insincere offers to sell one item in order to induce the buyer to purchase another. Certain sellers have historically employed bait-and-switch tactics, including urban retailers, aluminum siding companies, and supermarkets.

Colloquially, this definition can also cover lawful or other borderline sales tactics, including the use of teaser rates or low introductory pricing, or even 'free offers.' Even common lawful tactics, like the deliberate routing of customers past other retail displays on their way to purchase high-volume or featured items, could be described as involving 'bait' to induce other purchases.

Why are some of these behaviors lawful and others unlawful? In this Article, I examine several different flavors of bait-and-switch tactics, exploring the underlying behaviors behind the tactics and the welfare implications of regulating them. Looking to the literature on commercial custom and norms, I find a pattern showing that bait-and-switch practices that align with custom and norms tend to be lawful, and those that do not, tend to be unlawful. Welfare advancement seemingly plays a distant secondary role in explaining bait-and-switch regulation.

My finding should compel regulators to consider whether the goal of elevating the market atmosphere by banning offensive behavior should trump welfare concerns. Further, my conclusion can also help advocates shape more effective arguments for adjusting trade practice regulation.

Paying The Lawyers' Expenses in Class Actions

by  Brian Wolfman

When a class action settles (or in the unusual case where the plaintiffs win a litigated judgment), the court awards the plaintiffs' lawyers fees and expenses from the class's recovery. That's a good thing because lawyers won't bring cases if they can't get paid. On the expense side, lawyers have to dig into their pockets to pay the costs of the litigation. One thing the lawyers must do is travel. They need to take trips to interview witnesses and experts, gather facts, take discovery, and attend court. And, so, when the plaintiffs win or settle, the class members should reimburse their lawyers for their reasonable travel expenses. The key word here is "reasonable."

Leigh Jones of the National Law Journal has penned this story about a federal judge presiding over a class action in Washington state who, Jones reports, slashed the lawyers' outlandish expense requests. Here's an excerpt:

A federal judge in Washington state has publicly disciplined two attorneys from a prominent plaintiffs' firm for claiming unreasonable expenses while handling a securities class action. ... The two attorneys were lead counsel for a plumbers pension fund in a 2007 case against Ambassadors Group Inc., a publicly traded student exchange company in Spokane, Wash. The case settled last year for $7.5 million. The attorneys originally claimed about $223,000 in expenses but revised that figure to $114,137 after Quackenbush questioned the amount, according to an opinion he issued in May. Following that revision, the judge and his staff took a closer look at other expenses claimed by the firm. Some of the more troubling expenses, the judge wrote in May, included a $400 claim for a "pre-mediation" dinner for four that included two $70 bottles of wine and a $60 tip. It is unclear which Robbins Geller attorneys claimed those expenses. [The Robins Geller firm represented the plaintiff class.] Also cited was a $1,676 first-class ticket for an investigator's air travel and another first-class plane ticket costing more than $2,100.

I admire Judge Quackenbush for really digging in. In my experience, sometimes no one cares or pays attention. In one case, I repeatedly asked the court-appointed Special Master (who was in charge of on-going fee and expense recommendations in the case) to limit reimbursement of air travel to regular coach fares. I was rebuffed, even though the first-class flights cost as much $8,000 each (and coach fares could be had for $1,000 or so). I complained that lawyers were getting reimbursed for meals at fancy restaurants -- gourmet meals on the class members' tabs without the class members' knowledge -- when perfectly good meals could be had for far less money. No one cared. In that case (and other class actions in which I've been involved), the lawyers booked rooms at the fanciest hotels in town.

These types of expense requests are just awful. It's fine if people want to stay at swanky hotels and eat at high-end restaurants. I love good food. But it's ridiculous for class members to foot the bill. What's the theory? That the lawyers have to eat and drink like kings and queens to do a good job in court the next morning? Please.

But there's more to it than just the odor created by an occasional National Law Journal article. And I'm not worried just because class members are paying a few thousand here and there for their lawyers' high-class habits (though that's bad).

The problem goes deeper. Class actions are important tools for justice. They have served us well for decades. I've been working on class actions for 25 years, and, in most cases, the lawyers do right by their clients. But, as our readers know, class actions are under fire in the courts and legislatures, generally for the wrong reasons (and precisely because they provide justice to people when individual suits and arbitrations can't). Do we really want to give ammunition to the anti-class-action crowd?

Listen up lawyers! Eat at the local deli. Shop around for a reasonably priced hotel. Fly coach. Or pay for the high life on your own.

Is Tax Reform Possible?

This article by Lori Montgomery explains that the Senate Finance Committee met yesterday to try to eliminate up to 75 tax expenditures -- that is, tax deductions, credits, and other give-aways that spend the people's money through the tax code rather than through direct federal spending. As Montgomery explains, though Senators on both sides of the aisle seemed proud that they decided to chop some tax benefits, they largely failed. Here's an excerpt:

It was supposed to be a first step toward tax reform. But as lawmakers tackled a list of 75 special-interest tax breaks, the special interests repeatedly won. An accelerated write-off for owners of NASCAR tracks: That has to stay. An economic development credit for a StarKist tuna cannery in American Samoa: That stays, too. A rum-tax rebate for Puerto Rico and the U.S. Virgin Islands worth millions of dollars a year to one of the world’s largest distillers: Check. A $2,500 credit for electric motorcycles and other low-speed vehicles: That stays. But “in the spirit of tax reform,” its sponsor, Sen. Ron Wyden (D-Ore.), said he agreed that electric golf carts would no longer be eligible.

Savings from generic drugs exceeded $1.9 billion in 2011

The Generic Pharmaceutical Association has this report today on "Generic Drug Savings in the U.S." The cover boasts "Savings $1 Trillion over 10 Years." The blog Pharmalot read the report before me and noted these findings: In 2011, although nearly 80 percent of 4 billion prescriptions written in the US were for generics, generics accounted for only 27 percent of total drug spending. And the report forecasts that generic use of biologics (for example, blood and tissue products) will reach nearly 87 percent by 2015.

On a related issue, Public Citizen petitioned the Food and Drug Administration last August to amend its labeling regulations to allow generic drug manufacturers to revise drug labeling when they become aware that labeling is inadequate, based on new information about, for example, risks or contraindications. The petition is based in part on the fact that generics gain so much market share so quickly after they come on the market, and yet the manufacturers lack brand-name manufacturers' ability to revise labeling. Bills to effect the same result were introduced in both the Senate and the House last April. The FDA has yet to respond substantively to either Public Citizen's petition or to the bills.

Margaret Lemos on State Attorney General Representative Suits

Margaret H. Lemos of Duke has written Aggregate Litigation Goes Public: Representative Suits by State Attorneys General, 126 Harvard Law Review (2012).  Here's the abstract: 

State attorneys general represent their citizens in aggregate litigation that bears a striking resemblance to the much-maligned damages class action. Yet, while class actions are subject to a raft of procedural rules designed to protect absent class members, equivalent suits in the public sphere are largely free from constraint. The procedural disconnect between the two categories of aggregate litigation reflects a widespread assumption that attorneys general will adequately represent the interests of the state’s citizens, obviating any need for case-specific mechanisms for assuring the loyalty of lawyer to client.

This Article challenges the presumption of adequate public representation. By conflating consent of the governed with consent of the client, the conventional wisdom ignores the important differences between political and adjudicative representation. Class-action scholars have produced mountains of commentary detailing the agency costs of aggregate litigation, including substantial conflicts between the interests of class counsel and the members of the plaintiff class. I show that the same risks are present in state suits. Attorneys general may not be driven by the pursuit of attorney’s fees, but their status as political representatives means that they must negotiate between the interests of the public at large and those of the individuals they purport to represent in an adjudicative capacity. The potential for conflicted representation would not be troubling if citizens could easily monitor and control the work of the attorney general, but, as in the class context, they cannot. If anything, the costs of monitoring and control are higher in the public sphere because the only way to “fire” the attorney general is to vote her out of office — hardly a viable solution when the attorney general’s political responsiveness is the source of the conflict. Thus, far from solving the problems that scholars have emphasized in the class-action context, the fact that the attorney general is an elected or appointed official should provide cause for heightened concern. That concern assumes a constitutional character when state litigation stands as a bar to subsequent private claims for damages or other monetary relief. In order to protect the due-process rights of the individuals whose interests are at stake in public aggregate litigation, courts must either ramp up the procedural requirements for state suits, or — better — hold that public suits cannot bind private claimants.

Federal Trade Commission Proposes to Expand Its Rules to Protect Kids' Online Privacy

In an expansion of pending rules proposed in September 2011, the Federal Trade Commission yesterday proposed rules to further protect kids' on-line privacy under the Children's Online Privacy Protection Act. As Cecilia Kang explains in this article, the FTC has proposed "online privacy rules that would make it harder for advertisers and social networks to collect information about children without permission from parents. The FTC said its proposed rules would require ad networks, social networks and other third-party partners of Web sites to ask parents for permission to collect information about users 12 years old or younger."

Read the FTC's original proposed rule from last September, the proposal issued yesterday, and the FTC's webpage explaining the new proposal and linking to a varierty of relevant information.

Eric Voigt on Voluntary Refund Policies as an Alternative to Class Actions

 

Eric Voigt

 of Faulkner University, Jones School of Law has written A Company's Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action, 31 Review of Litigation 617 (University of Texas) 2012. Here's the abstract:

Consumer product companies are establishing internal programs where they are voluntarily compensating consumers for damages caused by their products. When a company implements a refund program in response to a threatened or pending class action, may federal courts rely solely on the voluntary refunds in denying class certification? The short answer is yes.

This Article analyzes Rule 23(b)(3) of the Federal Rules of Civil Procedure and the requirement that a class action be "superior to other available methods for fairly and efficiently adjudicating the controversy." The Article argues that courts must compare the superiority of a class action not only to judicial procedures but also to a company's voluntary refund program. This Article also contends that a court must deny class certification when a reimbursement policy is fair and efficient. These arguments are strongly supported by the Advisory Committee Notes to the 1966 amendment to Rule 23, commentary by two former members of the Committee, the original purpose of the superiority requirement, and courts' and commentators' initial interpretations of the 1966 amendment. Last, the Article discusses what features a refund program must have to be a fair and efficient alternative to a class action.

Surprisingly, no federal court or scholar has analyzed the history or purpose of Rule 23(b)(3) as it applies to voluntary refund programs. Further, the relevancy of a refund program to the denial of class certification has been addressed in only one article (which took an opposing view) and by only a few courts.

 

The health care decision, coercion, and clean air

As lawyers, scholars and policymakers continue to ponder the implications of the health care decision, including its ominous Spending Clause ruling, this thoughtful post discusses how a revitalized concept of coercion could jeopardize federal environmental laws like the Clean Air Act that establish cooperative federal-state arrangements like Medicaid does.

Michael Graetz on Romney's Taxes

This op-ed by tax law professor Michael Graetz is the most sophisticated speculation that I've seen on what Mitt Romney may be hiding by not releasing many of his tax returns. Among other things, Graetz explains why Romney's federal gift tax returns (as well as his income tax returns) may be revealing. In this regard, Graetz says that Romney likely should have, but may not have, filed gift tax returns, and he explains why non-filing can be a serious problem. Graetz also speculates that, to minimize his gift-tax liability, Romney may have greatly understated the value of assets he gave to a $100 million trust set up for his five sons.