Consumer Law & Policy Blog

Victoria Secret Trademark Complaint — Another Hosting Company Finks Out

by Paul Alan Levy   

Amid the coverage of the feminist prank web site using Victoria Secret's name on a site promoting the concept of consent-themed underwear instead of underwear that portrays a woman’s readiness for sexual contact as a “sure thing,” I noted that in demanding the takedown of the web site on trademark infringement grounds, Victoria Secret “contacted our server, not us directly.” Apparently, the hosting service precipitously took the site down in response to the trademark holder's complaint, forcing the pranksters to move to a new host.

It would be nice to know which hosting service betrayed its customers instead of standing up for their free speech rights, so that other consumers would be warned not to do business with that ISP.

The Ninth Circuit's En Banc Argument in Kilgore v. Keybank

An 11-judge en banc panel of the Ninth Circuit heard oral argument this week in Kilgore v. Keybank, an important consumer arbitration case. Kilgore presents the question whether the Federal Arbitration Act and the Supreme Court's decision in AT&T v. Concepcion require courts to enforce arbitration clauses even when they would block consumers from pursuing their substantive statutory rights to a public injunction under California consumer-protection laws. The panel, consisting of Chief Judge Kozinski and Judges Pregerson, McKeown, Fletcher, Tallman, Callahan, Milan Smith, Murguia, Christen, Watford, Hurwitz, notably includes four new Obama appointees. Andy Pincus argued for the Chamber and Jim Sturdevant argued for the plaintiffs. You can read detailed accounts of the arguments at the UCL Practitioner blog here and here, read the papers at Public Justice's website, and go here or click on the embedded video below to watch the arguments:

Richard Frankel Paper on Arbitration Clauses

Richard Frankel of Drexel has written The Arbitration Clause as Super Contract.  Here's the abstract:

It is widely acknowledged that the purpose of the Federal Arbitration Act was to place arbitration clauses on “equal footing” with other contracts. Nonetheless,federal and state courts have placed arbitration clauses on a pedestal by creating special interpretive rules for arbitration clauses that do not apply to other contracts. In doing so, they have relied extensively on the Supreme Court’s adoption of a “federal policy favoring arbitration” in the case of Moses H. Cone Memorial Hosp., Inc. v. Mercury Constr. Corp., 463 U.S. 1 (1983).

While many scholars have focused attention on the public policy rationales for and against arbitration, few have explored how arbitration clauses should be interpreted. This article fills that gap and asserts that judicial reliance on the federal policy favoring arbitration unfairly deprives litigants of access to the courts by pushing cases into arbitration that do not belong there and in the process. By creating special rules favoring arbitration that deviate from state contract law, courts are enforcing arbitration agreements in situations where they would not enforce other agreements. This article questions the basis for the federal policy favoring arbitration and identifies several areas in which courts are relying on it to over-enforce arbitration clauses. Because the original purpose of the Federal Arbitration Act was to make arbitration clauses just like other contracts, this article proposes that courts should not rely on a poorly-conceived federal policy favoring arbitration, but instead should apply general contract principles to arbitration clauses. Doing so best ensures that litigants are not unfairly forced into arbitration in situations where they never agreed to it.

Looks Like Senator Warren is Heading to the Banking Committee

Read about it here in a piece by William Alden. We discussed the possibility right after her election. Now it looks like a certainty. An excerpt from Alden's piece:

Elizabeth Warren, the Harvard professor who won a Senate seat in November, is officially on track to join the Senate Banking Committee, after the Democratic Steering Committee approved her assignment on Wednesday. The appointment is subject to approval by the full Democratic caucus and a resolution by the full Senate after it convenes in January. Ms. Warren’s role on the banking committee would give her greater influence over laws and regulations affecting the financial industry. A noted consumer advocate, Ms. Warren had harsh words for Wall Street throughout her campaign, and she is expected to support tougher controls on the industry.

Still More on the Second Circuit's Decision in Caronia

by Brian Wolfman

We have now posted twice (here and here) about the Second Circuit's Caronia decision, in which the court ditched the misdemeanor conviction of a drug company prescription drug representative, saying that his promotion of one of the company's products was protected by the First Amendment. I've posted about the case because it may prove to be an important ruling on the intersection of the First Amendment and health and safety regulation. Some people think the decision sweeps broadly, possibly making it difficult for regulatory agencies to get their jobs done. The dissenting judge in Caronia, Debra Ann Livingston, appears to be in this camp:

By holding ... that Caronia’s conviction must be vacated—and on the theory that whatever the elements of the crime for which he was duly tried, he was in fact convicted for promoting a drug for unapproved uses, in supposed violation of the First Amendment—the majority calls into question the very foundations of our century-old system of drug regulation.

But there are differing views. Here's a long post from the Drug and Device Law blog that sees Caronia as a good, but fairly narrow decision. (The post does takes the view that Caronia's reasoning applies to promotion of medical devices as well as to the promotion of drugs. It also discusses Caronia's implications for federal preemption of state-law damages claims.)

CFPB Announces Proposed Policy for Letting Companies Test Disclosure Programs

by Jeff Sovern

Here.  The idea is that a company can apply to the Bureau for permission to try different disclosures and the disclosures can then be evaluated, and perhaps adopted.  In its statement announcing the proposal, the Bureau says:

When deciding whether or not to grant a company a waiver from current disclosure requirements,
the Bureau proposed policy would evaluate a number of factors including:

 Consumer Understanding: The Bureau will assess how effectively and efficiently the proposed trial will test for potential improvements to consumer understanding about the costs, benefits, and risks of products and services.

 Cost Effectiveness: The Bureau will evaluate how the proposed trial will help develop more cost-effective disclosure rules or policies.

 Minimizing Consumer Risk: The Bureau will evaluate the extent to which the program is designed to mitigate any risk to consumers.

It sounds like a good idea. After all, the companies who deal with consumers directly may know things the Bureau doesn't about how and what to tell consumers.  But I wish that the Bureau included in its evaluation criteria that it will also assess whether consumers use the disclosures.  Disclosures that clearly convey information but are ignored do consumers little good, and we've had far too many of those (does anyone really know the differnce between a full warranty and a limited warranty under the federal Magnuson-Moss Warranty Act, for example?).  Maybe that's implicit in testing for consumer understanding, but I would rather see it made explicit. 

Major CFPB Report on Credit Reporting Agencies

by Jeff Sovern

Here.  Two points from the Executive Summary, though there's quite a bit more than this: 

The NCRAs have created an automated system for handling consumer disputes and forwarding them to data furnishers. Through this automated system – called e-OSCAR – the NCRAs provide furnishers with one or two numeric codes indicating the nature of the consumer’s dispute and in a minority of cases (26%), explanatory text. At present, the NCRAs generally do not forward documentation that consumers submit with mailed disputes or provide a mechanism for consumers to forward supporting documents when filing disputes online or via phone. The NCRAs resolve an average of 15% of trade line disputes internally (without furnisher involvement) and refer the remaining 85% of the disputes they receive from consumers concerning trade lines to data furnishers through e-OSCAR. The furnisher of the disputed data is then required by the FCRA to investigate the dispute and report back to the NCRA.

• The NCRAs’ reliance on furnisher responses as the principal means of resolving disputes is a source of controversy. The NCRAs report that in seeking to maximize accuracy and in resolving disputes, they rely on furnishers meeting their obligations under the FCRA to report information accurately and to respond to disputes appropriately. Consumer advocates have argued that the NCRAs have an obligation to monitor and manage furnisher practices as part of their broader obligation to achieve credit report accuracy.

The first point quoted above from the CFPB Report seems to confirm statements that appear in the National Consumer Law Center's report, Chi Chi Wu, Automated Injustice: How a Mechanized Dispute System Frustrates Consumers Seeking to Fix Errors in Their Credit Reports (2009).  Here is a striking excerpt from the Wu Report, at pp. 18-19, quoting from a 2007 deposition of Equifax’s Vice President of Global Consumer Services:

 Q: What knowledge do you have as to the mechanics of how a DDC Filipino employee would process an Equifax dispute?

[. ..]

A: The electronic image would be displayed on their screen. They would have an ACIS [Automated consumer Interview System] screen that they would use. They would then look at the electronic image. They would read off the identifying information, enter [. . .] that ID information into the system, access that credit report. At that point, they'd be able to determine if they were looking at the correct file. If they were, they'd go further. They'd read the letter, they gain an understanding of the issues at hand, and they'd look at the credit report to see if the credit report at that time reflects that. If it does, they would send those particular items to the data furnisher or furnishers. They would request that an investigation be started.

[. . . .]

Q: Right. But they're not -- they're not going to handle whatever response the creditor may provide?

A: That's correct.

Q: Do DDC employees have telephones on their desk?

A: I do not believe so.

Q: As part of their compliance with Equifax's procedures, do DDC's employees telephone consumers as part of conducting a reinvestigation?

A: They do not.

Q: Do they telephone creditors, the furnishers, as part of conducting a reinvestigation?

A: They do not.

Q: Do they telephone anybody from outside DDC or Equifax as part of conducting a reinvestigation of a consumer dispute?

A: They do not.

Q: What about e-mailing any of those non-Equifax, non-DDC people, creditor, consumer, or third party?

A: They should not be -- they do not e-mail them.

Q: And what about fax machines?

A: [. . .] They do not have fax machines either.

Q: Under what circumstances will a DDC employee forward the consumer's actual dispute letter or documents the consumer provided to the furnisher, the creditor, as part of a reinvestigation?

A: A mechanism does not exist to forward the actual documents.

The Wu Report states that the automated forms also include a place where a clerk can type a line of text and reportedly about 30% of the time the clerk writes something in that line.  Under the Fair Credit Reporting Act, 15 U.S.C. 1681i(a)(1)(A), credit bureaus must conduct a "reasonable reinvestigation" upon receiving notice of a consumer dispute. I sure would not want to defend the reasonableness of the process described above. 

More on the Second Circuit's First Amendment Ruling in Caronia

Last week, we posted about the Caronia decision from the U.S. Court of Appeals for the Second Circuit and David Lazarus's critique of the decision in the LA Times. Recall that, in Caronia, the court threw out a misdemeanor conviction of a drug company prescription drug rep on First Amendment grounds. The Times has now printed a letter to the editor by consumer advocate and First Amendment expert Ted Mermin (pictured to the right). The letter criticizes recent Supreme Court commercial speech rulings that formed the basis for Caronia. Here is the unedited version of Mermin's letter:

Thanks to David Lazarus for his recent column about the Court of Appeals' decision finding it unconstitutional to criminalize the promotion of off-label uses of prescription drugs. The Second Circuit's opinion is deeply troubling but it is not, unfortunately, surprising. Instead, it is the product of a string of decisions by the United States Supreme Court providing increasing constitutional protection to commercial advertising.  
 
There is nothing inevitable about giving "commercial speech" -- that is, advertising -- the same constitutional protection as political or artistic or religious speech. Before the 1970s, commercial speech was considered entirely outside the scope of the First Amendment. And even after the Supreme Court extended limited protection to advertising (because advertising for birth control or abortion services or even lawyers contained information that consumers might find helpful), it carefully distinguished the robust protection provided to core, noncommercial speech.
 
A look at recent Supreme Court cases, and the lower court decisions interpreting them, makes those times seem long ago. In the next year, the Supreme Court may decide not only that drug makers can advertise wholly untested uses of their products, but also that the federal government cannot restrict tobacco advertising or require effective warnings on cigarette packages. Why?  Because a majority of the Court apparently doesn’t see a clear distinction, for First Amendment purposes, between commercial advertising and political or religious speech.

Unlike the Justices, most people don't have any problem with the distinction.  Generally, consumers think it's a pretty good idea to give the government more leeway to regulate advertisements for potentially harmful products than the speech of political leaders or preachers.  But as long as the Court is driven by abstraction rather than experience, the wisdom of the average consumer will be excluded from judicial decisions that deeply affect our health and our safety.  
 
And that is a supreme shame.

Ted Mermin

In Fourth Circuit filing, Public Citizen challenges sealing in case against CPSC

We've blogged previously about Public Citizen's fight for consumers and against court secrecy in the "Company Doe" case. As you'll recall, this is a case that was litigated before the district court in secret, with secret facts, secret proceedings and a secret plaintiff. A company sued the Consumer Product Safety Commission to keep a complaint about one of the company's product out of the terrific product safety database the CPSC created to help consumers learn about product hazards, pursuant to the Consumer Product Safety Information Act. When it filed its suit, the company also moved to seal the case and proceed under a pseudonym. A year later, the district court granted the seal and pseudonym, along with summary judgment for the company; as it turns out, the court had been holding hearings with no public knowledge or participation for months. The court's 73-page redacted decision contains large blocks of blacked-out text that at times make it nearly unreadable. (Sample analysis from the opinion: “[T]he report states that [REDACTED]. But the report does not indicate how [REDACTED] is connected to [REDACTED].”) Public Citizen, along with our allies Consumer Federation of America and Consumers Union, intervened to pursue the public right of access and get the seal lifted.

Today we filed our opening appellate brief in the Fourth Circuit -- but it wasn't an easy road to get there. Initially, the CPSC had also appealed but last week decided to drop that appeal. In response, Company Doe filed an eleventh-hour motion with the court of appeals to have the case stayed so that it could return to district court and engage in procedural wrangling there. We called Doe's delaying tactics for what they were, and the court of appeals denied the stay one day later.

We're heartened the case is going forward. This case is critical for both the public's right of access to court proceedings and the effectiveness of the CPSC database -- if any company can delay the posting of an unfavorable report to the database by suing the CPSC and then getting to court to shield the company from adverse publicity by sealing the case, more secret litigation will ensue and entries could be kept out of the database for years.

Engel & Mccoy on Preemption After Dodd-Frank

Kathleen C. Engel of Suffolk Patricia A. McCoy of Connecticut have written Federal Preemption and Consumer Financial Protection: Past and Future, 3 Banking & Financial Services Policy Report 25 (2012).  Here is the abstract:

Many states and cities filled the void by passing anti-predatory lending laws of their own. Lenders, worried about potential liability, quickly organized a full-scale attack on the state and local initiatives. Their most potent strategy lay in challenging the laws and ordinances under federal preemption rules for national banks and federal savings associations that precluded states from enforcing their anti-predatory lending laws.

The Dodd-Frank Act curtailed the preemption rules by establishing that state consumer financial
laws can only be preempted if they discriminate against state-chartered depository institutions relative to, or prevent or significantly interfere with the powers of, national banks or federal savings associations.

Dodd-Frank's preemption standards became effective on July 21, 2011, at which point the U.S. Office of the Comptroller of the Currency (OCC) should have conformed its preemption rulings to the new law. Instead, on that date, the OCC issued a new rule that preempted broad swaths of existing state laws using its old preemption precedents, bypassing the Dodd-Frank procedures along the way. We contend that the OCC's actions are not consistent with Congress's intent and predict that there will be legal challenges to the substance of the OCC's new preemption rule and to the process the OCC employed when adopting the rule.