Consumer Law & Policy Blog

How Should Businesses Deal with Online Criticism?

by Paul Alan Levy  

I often write in this space about baseless lawsuits brought by businesses to suppress criticism, although at the same time I have acknowledged that, sometimes, litigation may be a sound response to baseless attacks that are having a genuine untoward impact on reputation.

In this interesting blog post on a web site devoted to search engine issues, spurred by Dietz v. Perez, about which I have blogged here, Neg Norton thinks through some of the options that a business owner needs to consider in deciding how to respond to criticism on Yelp or a similar forum discussing the dangers as well as the benefits of bringing suit.   He offers "five tips to consider when responding to negative online reviews, which take into account lessons learned from Dietz’s approach."

Dietz's lawyer has been telling the media about the calls he is getting from prospective new clients who want to bring lawsuits, emulating Dietz; I wonder if he is giving them cautionary advice or just signing them up to litigate?

The Supreme Court's Mootness Ruling in Already v. Nike

This week, the Supreme Court decided Already v. Nike. There, in a trademark suit instituted by Nike, Already counterclaimed that Nike's trademark on its "Air Force 1" sneakers is invalid. Applying the Court's standard for when a once justificiable case becomes moot under Article III's case-or-controversy requirement -- “a defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U. S. 167, 190 (2000) -- the Court held that Already's counterclaim was moot. (For a fun and potentially useful application of the Friends of the Earth standard, see City of Erie v. Pap's A.M.)

Assuring that a case is justiciable at the outset and remains justificable throughout is often a big challenge for consumer, environmental, and civil rights plaintiffs (as well as to the Alreadys of the world). Rochelle Broboff of the Constitutional Accountability Center has penned a short piece explaining that although Already held that the dispute there had become moot, language in the Court's decision (and in a four-Justice conurrence) may be useful to plaintiffs in a range of public-interest cases. Rochelle's piece is reproduced below.

=======

The Supreme Court’s decision today dismissing a trademark dispute as moot has language that could be helpful in numerous contexts, including environmental cases, public benefits, employment, etc.  In a unanimous opinion written by Chief Justice Roberts, the Court emphasized the heavy burden on the party alleging mootness to prove that the allegedly illegal activity cannot recur.  In a concurrence, Justice Kennedy, joined by Justices Thomas, Alito, and Sotomayor, suggested that courts “proceed with caution before ruling” that a claim is moot due to voluntary cessation.  Already LLC v. Nike, Inc., No. 11-982, 2013 WL 85300 (Jan. 9, 2013). 

 Nike sued Already for a trademark violation and Already countersued challenging the validity of Nike’s trademark.  Nike then issued a “Covenant Not to Sue” and moved to dismiss the claim and counterclaim.  Already opposed dismissal of its counterclaim, contending Nike had not proven that the counterclaim is moot.  The district court dismissed the counterclaim, and the Second Circuit affirmed.  The Supreme Court also affirmed. 

 The Court stated: “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off, repeating this cycle until he achieves all his unlawful ends.” (Citations omitted.)  The Court noted that the party alleging mootness bears a heavy burden to show that the allegedly wrongful behavior could not reasonably be expected to recur.  Because Nike’s covenant was “unconditional and irrevocable,” the Court held that the burden was met.  The Court noted that the lower courts in the case did not “expressly invoke the voluntary cessation standard,” but nevertheless their analysis addressed the same questions.  The Solicitor General had recommended a remand, but the Court found that unnecessary, based on “uncontested findings” of the district court, affirmed by the Second Circuit.

 Concurring, Justice Kennedy noted that the district court and court of appeals wrongly placed the burden on Already to show that a justiciable controversy remained.  Kennedy emphasized that the burden is on the party asserting mootness.  He explained: “In the cir­cumstances here, then, Nike must demonstrate that the covenant not to sue is of sufficient breadth and force that Already can have no reasonable anticipation of a future trademark infringement claim from Nike.”  Kennedy cautioned lower courts to give careful consideration to whether the use of a covenant not to sue has truly mooted a case, since even the initiation of a suit can harm a competitor by forcing disclosure of future business plans or the expenditure of funds in the litigation.

Rochelle Bobroff

Director, Access to Courts Program

 Constitutional Accountability Center | 1200 18^th Street NW, Suite 501| Washington, DC 20036

O: 202.296.6889 EXT. 302 | F: 202.296.6895  | www.theusconstitution.org  | Rochelle@theusconstitution.org

 

 

Ninth Circuit Holds "Parallel" Failure to Warn Claim Not Preempted by Medical Device Amendments

In an en banc ruling released today, the U.S. Court of Appeals for the Ninth Circuit held that the federal Medical Device Amendments do not preempt a patient's tort claim alleging that that manufacturer violated its state-law duty to warn of dangers when it did not report "adverse events" to the FDA, as required by federal law. The en banc court's unanimous opinion in Stengel v. Medtronic overturned a panel opinion holding the claim preempted. The opinion follows an earlier decision of the Fifth Circuit, Hughes v. Boston Scientific, in holding that plaintiffs can go forward with failure to warn claims when a manufacturer has failed to inform the FDA of newly discovered dangers posed by its devices after they have received FDA approval. 

The plaintiff, Stengel, alleges he was rendered a paraplegic when a Medtronic pain-medication pump and catheter that had been surgically implanted in him malfunctioned. The device was a Class III device that had received premarket approval from the FDA under the Medical Device Amendments. After receiving approval, however, Medtronic failed to inform the FDA of information it received about incidents in which the device failed, as manufacturers are required to do by regulation and under the terms of their premarket approvals. The FDA later learned of the adverse events, and the device was recalled, but too late to protect Stengel.

Stengel sued, claiming among other things that in failing to report adverse events to the FDA, Medtronic had also violated its Arizona common-law duty to warn users of its products by providing information to third parties who can be relied on to pass the warnings on to affected users. Relying on the Supreme Court's decision in Riegel v. Medtronic, which held many claims directed at Class III devices to be preempted by the FDA's premarket approval, Medtronic contended that the claim was preempted.

The Ninth Circuit, however, held that under both Riegel and the Supreme Court's earlier decision in Medtronic v. Lohr, the claim was not preempted because the state-law requirement at issue "paralleled" federal requirements and thus was not different from or in addition to any federal requirement. The Ninth Circuit also rejected Medtronic's argument that another Supreme Court decision, Buckman v. Plaintiffs' Legal Committee, which held claims based on "fraud on the FDA" to be preempted, applied to the plaintiff's claims. The court ruled that Buckman does not apply where an established common-law duty parallels federal requirements under the Medical Device Amendments.

Medical device manufacturers have been arguing that failure-to-warn claims are either barred by Riegel or Buckman, with little or no space between the two for claims to avoid preemption. The Ninth Circuit's decision, like the earlier decision of the Fifth Circuit in Hughes, is a welcome refutation of that theory, and enables plaintiffs who suffer as a result of manufacturers' concealment of adverse events the possibility of a remedy.

Paper Proposes Solution to Class Arbitration Problem

Emanwel J. Turnbull has written Opting Out of the Procedural Morass: A Solution to the Class Arbitration Problem, forthcoming in the Widener L. Rev. Here's the abstract:

American class actions are internationally regarded as a procedural form to avoid and widely criticized in the United States. They have been narrowed and restricted by U.S. statutes and case law. Plaintiffs' lawyers in consumer class actions are  portrayed as greedy and fraudulent, while businesses are increasingly acting to avoid class actions through mandatory pre-dispute arbitration clauses. Even class arbitration is criticized as leading to a “procedural morass.”

This Article proposes that parties and arbitral fora opt out of the American procedural morass (and the attendant long-running disputes about American class actions) by adopting an English procedural rule for aggregation. This Article performs the necessary investigation into the legal contexts of England and America and adjusts the transplant rule to best fit its new home.


The proposed arbitral rule is simpler and more flexible, and therefore more suitable, than the existing arbitral rules adapted from Federal Rule of Civil Procedure. Perhaps more importantly, this new rule does not carry the cultural baggage of the American class action. Where consumers and businesses are vehemently opposed, this new approach to aggregation can bring compromise and co-operation. If adopted, this rule can relieve the consumer-business tensions and breathe new life into the arbitral forum as a setting in which many consumers can obtain a fair hearing of a dispute, even if they need to do so together.

 

 

CardHub Article on Doctors Steering Patients to Lenders

Here. 

More on the CFPB's New Mortgage Rules

We just told you about the Consumer Financial Protection Bureau's new rules to curtail high-risk consumer mortgages. The CFPB has just issued this informative press release, a fact sheet on the new rules, and a summary of the ability-to-repay and qualified mortgage rule.

Here are the key attributes of the ability-to-repay rule:

• Financial information has to be supplied and verified: Lenders must look at a consumer’s financial information. A lender generally must document: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors.
• A borrower has to have sufficient assets or income to pay back the loan: Lenders must evaluate and conclude that the borrower can repay the loan. For example, lenders may look at the consumer’s debt-to-income ratio – their total monthly debt divided by their total monthly gross income. Knowing how much money a consumer earns and is expected to earn, and knowing how much they already owe, helps a lender determine how much more debt a consumer can take on.
• Teaser rates can no longer mask the true cost of a mortgage: Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

Here are the key attributes of a "qualified mortage":

• No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, consumers end up paying a lot more than planned.
• No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases. In the lead up to the crisis, too many consumers took on risky loans that they didn’t understand. They didn’t realize their debt or payments could increase, or that they weren’t building any equity in the home.
• Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford. Before the crisis, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgage considering all their financial obligations. For a temporary, transitional period, loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards − such as that they are eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) − will be considered Qualified Mortgages.

CFPB to Issue Rules to Curtail High-Risk Mortgages

The Consumer Financial Protection Bureau thinks that people should not take on mortgages that they cannot afford. As explained in this Washington Post article, the CFPB today will issue new rules to protect consumers from high-risk mortgage borrowing. Among other things, the rules will define a "qualified mortgage" and say that a consumer cannot obtain a qualified mortgage if her debt burden exceeds 43% of her income. We will update this post with the rules themselves as soon as we have them.

Second Circuit Holds That a State's Parens Patriae Action Is Not Removable as a "Class Action" Under the Class Action Fairness Act

Consistent with rulings of other circuits, the Second Circuit held today, in Purdue Pharma v. Commonwealth of Kentucky, that a state's parens patriae action is not removable from state court to federal court as a "class action" under the Class Action Fairness Act. (A parens patriae action is one in which the state or other government pursues relief in court on behalf of its citizens.) Therefore, the court of appeals held, the district court properly had properly remanded Kentucky's parens patriae action to the state court from which it had been removed.

FTC Settles Complaint Alleging Mortgage Assistance Scam that Targeted Spanish-Speaking U.S. Homeowners

The FTC announced this morning that it has settled charges it brought against related companies that allegedly peddled fake mortgage assistance relief to financially distressed Spanish-speaking homeowners in the U.S. In July 2012, the FTC filed a complaint alleging that the defendants, operating from the Dominican Republic, with violating the FTC Act and the Mortgage Assistance Relief Services Rule. According to the complaint, the defendants promised to dramatically lower homeowners’ monthly mortgage payments in exchange for a large fee, collected more than $2 million in fees in three years, but failed to provide homeowners with the promised services. A U.S. district court stopped the operation in July. The FTC settlement bans the defendants from marketing any mortgage assistance relief products or services, and it prohibits the defendants from making misleading claims about any product, service, plan, or program that they market or advertise.

FTC Settles Claims Against Dietary Supplement Manufacturer

In 2010, the FTC charged Iovate Health Sciences U.S.A. and two affiliated Canadian companies with deceptively advertising that supplements called Accelis, nanoSLIM, Cold MD, Germ MD, and Allergy MD could help consumers lose weight or could treat and prevent colds, flu, and allergies. In settling with the FTC, Iovate agreed to pay $5.5 million for consumer refunds. Information about the refund program is available from the FTC.