Consumer Law & Policy Blog

Instagram's Binding Arbitration Clause Could Be the Worst Ever: It Seeks to Kill Off All Representative Actions

by Brian Wolfman

Earlier this year, we told you (here, here, and here) about eBay's terrible new arbitration clause that bars its customers, both sellers and buyers, from participating in class actions against the company. The new clause came with a cynical twist: eBay allowed its customers to opt out of the clause within a tight deadline if they sent a snail-mail letter to the company containing a bunch of specific information. The right to opt out was all corporate double-speak from eBay. If eBay really wanted to give its customers a choice, it would have let them choose an arbitral or judicial forum when their disputes with eBay arose. At the least, eBay could have allowed its customers to opt out via an email reply to the company's email announcing the new policy, rather than by snail mail. But eBay just wanted to give its arbitration clause the aura of consent when, in fact, it was driving the clause down its customers' throats.

Now, as The Consumerist explains here, the photo-sharing company Instagram is following in eBay's footsteps -- with a pre-dispute binding arbitration clause and a class-action ban, along with a largely illusory opt-out provision. (The Consumerist is trying to organize an opt-out campaign against eBay, just as Public Citizen did against eBay.)

But the Instagram aribtration clause is even worse than eBay's. As The Consumerist notes, Instagram's clause bans its customers' participation in an Attorney General's (or other public official's) representative action, such as an action brought under the California Business and Professions Code. After banning class actions, the Instagram provision goes on to say:

You also agree not to participate in claims brought in a private attorney general or representative capacity, or consolidated claims involving another person’s account, if Instagram is a party to the proceeding. [emphasis added]

Many state high courts, I believe, would think of this ban on participation in all representative actions (and the way it is being extracted from consumers) as unconscionable and, thus, unenforceable. Instagram's ban strikes me as a serious affront to state consumer enforcement policies around the country. Would the U.S. Supreme Court require the ban's enforcement under the Federal Arbitration Act even if a state supreme court found it unconscionable? Perhaps we'll find out.

The Obama Judiciary

Consumer advocates generally believe that federal judges nominated by President Obama are more likely to decide cases favorably to consumers than are judges nominated by the President's recent Republican predecessors. So, how has the President fared with his nominations?

Bob Barnes of the Washington Post has penned this article that discusses the President's judicial nominations. Barnes's article notes that (1) there are more federal judicial vacancies now than when President Obama took office in 2009; (2) the delay in filling vacancies is the fault of the Senate in not acting promptly on the President's nominations and the fault of the President in not making nominations promptly; and (3) the President has not had any of his nominees to the D.C. Circuit confirmed, even though there are three vacancies on that court (and there soon will be a fourth).

Barnes's piece relies heavily on a study by Brookings Instiution scholar Russell Wheeler that looked in detail at the nomination and confirmation process during the President's firm term.

Food Safety for the Holiday Season Eating Orgy

The Consumer Federation of America provides tips for safe holiday food use and preparation here.

Freer on Recent (and Future?) Supreme Court Class Action Cases

Richard D. Freer of Emory has written The Supreme Court and the Class Action: Where We Are and Where We Might Be Going.  Here's the abstract:

In 2010 and 2011, the Supreme Court decided five class action cases. In 2012, it has agreed to hear four more. This piece summarizes what the Court has done and where it appears to be going concerning aggregate litigation. The goal of this piece is more practical than theoretical: to place all nine cases in context and draw preliminary conclusions about the impact these cases have had and will have --not only on class action practice, but in other areas, including the Erie Doctrine, waivers of class arbitration, anti-suit injunctions, the binding effect of judgments on class members, enforcement of Rule 10b-5, and the apparent efforts of defendants to front-load litigation by demanding greater consideration of merits-based facts (and qualification of experts) at the class certification stage.

The cases dealing with waivers of class arbitration implicate the role of the civil suit in law enforcement. If small (usually consumer) claims cannot be pursued on an aggregate basis, they may never be vindicated; individuals and lawyers will not find it economically feasible to do so. Yet the Court appears unwilling to recognize a public-policy exception to the primacy of contract. Thus, if the underlying contract waives aggregate litigation or arbitration, apparently this will not be trumped by the concern that the relevant law (often consumer protection laws) will not be enforced through civil litigation.

 

 

More on Bork

Paul Levy gave us his perspective on Robert Bork last week. Historian Stanley Kutler, known for his works on Richard Nixon, now gives us his. Kutler thinks little of Bork's judicial philosophy of original intent (finding it at odds with what history tells us about the Founders' intent), but he thinks history has treated Bork unfairly regarding his role in one of Watergate's key events: the Saturday Night Massacre.

Another Concepcion Paper, This Time From Harvard

David Korn and David Rosenberg of Harvard have written Concepcion's Pro-Defendant Biasing of the Arbitration Process: The Class Counsel Solution.  Here's the abstract:

By mandating that numerous plaintiffs litigate their common question claims separately in individual arbitrations rather than jointly in class action arbitrations, the Supreme Court in AT&T Mobility LLC v. Concepcion created a potent structural and systemic bias in favor of defendants. The bias arises from the parties’ divergent stakes in the outcome of the common question litigation in individual arbitrations: each plaintiff will only invest to maximize the value of his or her own claim, but the defendant has an incentive to protect its entire exposure, and thus will have a classwide incentive to invest more in contesting common questions. This investment advantage enables the defendant to wield superior litigation power against each plaintiff, skewing the outcome of individual arbitrations in its favor and frequently rendering claims not worth filing in the first place. Concepcion perpetuates the bias by precluding the use of a class arbitration solution. We propose that courts neutralize the Concepcion bias by appointing class counsel to represent each plaintiff in individual arbitrations. Without offending Concepcion’s prescriptions for maintaining the efficiency of arbitral procedures, in particular the general bar against class arbitration without express contractual authorization, the class counsel solution equalizes the parties’ investment incentives to transform individual arbitrations into a socially useful legal system for promoting the deterrence, compensation, and other public policy objectives of federal and state substantive law.

 

 

 

Foreclosure Crisis Update

The crisis tally so far: about 4.7 million completed foreclosure sales from July 1 2007 through 2012 (extrapolating the 4th quarter), and more than 12 million foreclosure starts.  Adding short sales brings the total home losses to well above 5 million.  If we define the shadow inventory as mortgages presently more than 90 days delinquent or in the foreclosure process already, another 3 to 3.5 million homes are at risk, although the success of modifications will determine how many of those end in home losses.

The trends are all in the right direction, but the rate of recovery is still agonizingly slow. Beware of charts that start on or after January 1, 2007.  To return to normal foreclosure levels, we need to see all these rates return to something like early 2006 levels.  For example, the third quarter 2012 foreclosure numbers are the best since 2008, but still 2.5 to 4 times what they were in 2006.  The foreclosure inventory is still 4% of first lien residential mortgages, down from its 4.6% peak in 2009 but still way above its 1% level in 2006.

For the mortgage bubble to burst (as contrasted with the home value bubble) total mortgage debt needs to come down from its $11 trillion peak, but as of September 30 residential mortgage debt has just dipped below $10 trillion.  

The combined effect of plummeting home prices and downward-inching mortgage debt is pictured in the chart.  Trillions of dollars of home equity wealth were wiped out in the first years of the crisis, and the recent gains, touted by HUD in the chart title, are dwarfed in comparison.  

The bright spot in the third quarter data is the continued upward trend in principal reduction modifications.  OCC reports that a stunning 75% of modifications made by banks on mortgages in their own portfolios included principal reduction.  For Fannie and Freddie mortgages, on the other hand, principal reductions, at 0%, showed no change.

New book about boilerplate contracts

Earlier this month, Professor Margaret Jane Radin put out a new book called Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law. Publisher Princetion University Press describes Professor's Radin's argument as follows:

Margaret Jane Radin examines attempts to justify the use of boilerplate provisions by claiming either that recipients freely consent to them or that economic efficiency demands them, and she finds these justifications wanting. She argues, moreover, that our courts, legislatures, and regulatory agencies have fallen short in their evaluation and oversight of the use of boilerplate clauses. To improve legal evaluation of boilerplate, Radin offers a new analytical framework, one that takes into account the nature of the rights affected, the quality of the recipient's consent, and the extent of the use of these terms. Radin goes on to offer possibilities for new methods of boilerplate evaluation and control, among them the bold suggestion that tort law rather than contract law provides a preferable analysis for some boilerplate schemes. She concludes by discussing positive steps that NGOs, legislators, regulators, courts, and scholars could take to bring about better practices.

The Wall Street Journal reviewed the book yesterday and discussed some of boilerplate's implications for the legal system.

EPA's Greenhouse Gas Rules Survive En Banc Review Process in D.C. Circuit

We told you last June that a panel of the D.C. Circuit had largely upheld the Environmental Protection Agency's greenhouse gas rules issued after the Supreme Court's decision in Massachusetts v. EPA demanded regulatory action on greenhouse gases. The panel's 82-page opinion, written by Judge Per Curiam (Sentelle, Rogers, and Tatel), was pretty comprehensive. Yesterday (nearly six month later), by a 6-to-2 vote, the full D.C. Circuit denied a request for en banc review that had been sought by various business interests. The court issued 52 pages of opinions, mainly penned by the dissenters (Judges Brown and Kavanaugh), although the original panel judges wrote a short opinion saying why they think the dissenters are wrong.

Jenna Greene has written this story on the en banc denial.

More on Intervention in Class Actions by Non-Class Members

We posted yesterday about a recent decision of the U.S. Court of Appeals for the Third Circuit that authorized non-class members to intervene for the purpose of objecting to a district court's certification and settlement of a class action that might affect their interests. Class action lawyer Rob Bramson has made an interesting comment on the Third Circuit's ruling. He says that

Another context when this might arise is where there are [partially] overlapping classes, with the class representative in one case proposing a settlement while the class representative in the other case thinks that it's a raw deal for that portion of the (proposed) settling class who qualify under both class definitions. The problem for that second class representative is the general rule that only "class members" can object to a proposed settlement. So th[at] person must choose between opting out and continuing on with his/her own class case (while sacrificing the right to object) or to risk losing the ability to act as class representative in the other case by objecting rather than opting out of the settling one.

Rob points out that the Third Circuit's ruling -- allowing "non-party intervention for objection purposes" --  would solve the problem he has identified. If readers know of cases addressing Rob's concern (or related concerns), please pass them along.