Consumer Law & Policy Blog

(BREAKING) Bad Supreme Court decision on FLSA collective actions

This morning, in Genesis HealthCare v. Symczyk, the Supreme Court held that defendants in a Fair Labor Standards Act case can defeat the certification of a collective action by making an offer of complete relief to the named plaintiff before she obtains certification for the collective action. According to the court, the offer makes the case moot.

The decision is quite bad for plaintiffs in FLSA cases, which are mainly wage-and-hour cases. The practical effect is that defendants who have violated the rights of a large group of workers (say, by underpaying all of them) can avoid having to compensate everyone by simply "picking off" each individual worker as she files suit. Such a prospect makes obtaining relief for the whole group much harder, if not impossible. Today's decision could have implications for class actions also, which are similar to the special collective actions provided specifically for FLSA claims.

Dustin Zacks Paper on Foreclosure Firms

Dustin A. Zacks of King, Nieves & Zacks PLLC has written Robo-Litigation, 60 Cleveland State Law Review 867 (2013).  Here's the abstract:

The recent housing crisis increased demand for attorneys to process foreclosures through state courts. This increase in demand was coupled with a desire for the fastest and cheapest legal services available. As a result, large foreclosure firms designed to handle an enormous number of foreclosure cases quickly and inexpensively evolved and flourished. During their ascendancy, these firms consistently generated complaints about their conduct, including questions about their ethical decision-making and about the veracity of the pleadings and documents they filed. Scholarly literature on the housing crisis, however, is largely devoid of commentary on ethical issues related to increased foreclosures.

This Article tracks the rise and fall of several notorious high volume foreclosure firms and examines the numerous instances of serious misconduct their attorneys and paralegals perpetrated. The Article accordingly examines the curiously muted reaction from state bar associations, judges, and state legislators.

The Article then proceeds to examine how these foreclosure firms differ in makeup from traditional large law firms. Notable characteristics of these foreclosure firms include lenders and servicers’ relentless demand for increased speed and low costs, lack of firm-specific capital at foreclosure law firms, and a factory-like atmosphere of legal practice. The Article concludes with an examination of three policy options to prevent another surge in attorney misconduct: changing ethical rules, improving ethical education, and increasing state bar association funding and authority.

Med Express and James Amodio bullying a critic

by Paul Alan Levy

Med Express, an Ohio company that sells over eBay, is trying to maintain a perfect seller rating by suing a South Carolina woman who had the audacity to describe a problem she had with one of their deliveries — a photographic accessory that arrived with $1.40 postage due.  The customer found this inconvenient, and notified the company of her concern, stressing that her issue was not the money (she said she would have gladly paid the extra money for shipping up front) but the inconvenience.  Med Express responded by admitting the error, and indeed said that this had been a problem with other postal shipments.  The customer then posted negative feedback on eBay. 

About a month later, Med Express asked the customer to revise the negative feedback, offering to reimburse the postage due — effectively ignoring the customer’s reason for complaining.  When the customer failed to retract the feedback, Med Express escalated by filing a defamation complaint in state court in Medina, Ohio, and, indeed, by moving for a temporary restraining order against eBay.  The trial judge denied a TRO on the ground that damages would be an adequate remedy but, interestingly, set an oral hearing on a preliminary injunction even though the same reason would be sufficient ground to deny that relief as well.

Attorney Fee Award Against Charles Carreon for Abusive Trademark Litigation

by Paul Alan Levy

In a brief opinion issued today, Judge Richard Seeborg of the United States District Court for the Northern District of California awarded Christopher Recouvreur more than $46,000 in attorney fees and expenses for having had to defend himself against a series of wild and baseless threats of suit for trademark infringement by Charles Carreon.   After we were finally able to get service on Carreon and moved for an award of the costs of service, Carreon served a Rule 68 judgment granting the declaratory relief for which we had sued.  We then sought to have fees awarded on the grounds that Carreon had bought threatened trademark claims that had no reasonable basis, thus forcing Recouvreur to seek a declaratory judgment to protect himself against damages claims; that Carreon ducked service and then refused to pay the costs of such service but rather forced us to move to collect those costs; particularly after Carreon demanded the opportunity to conduct discovery over the fee claims, we also argued that his litigation conduct made the case exceptional. 

Judge Seeborg’s Ruling

Judge Seeborg granted our motion in part. 

Study Finds That Predatory Lending Regulation Leads to Lower Interest Rates and No Loss of Credit Availability

by Jeff Sovern

Yesterday, I was on a panel at the Annual Meeting of the American Council on Consumer Interests, along with Dr. Yilan Xu, a professor at the University of Illinois in agricultural and consumer economics.  Dr. Xu's talk concerned a natural experiment in Cleveland, Ohio.  Cleveland had enacted an anti-predatory lending ordinance which was later found invalid by the Ohio courts.  Dr. Xu compared mortgage lending in Cleveland before and after the law was invalidated, and also examined similar lending in the Cleveland suburbs that was not subject to the Cleveland law.  She found that after the law was struck down, lenders in Cleveland made more high-price loans, that those loans were 5% more likely to go into foreclosure, and that there was no evidence of credit expansion.  These findings contrast dramatically with claims that credit regulation will increase the price of credit and reduce its availability. Unfortunately, the paper is not yet available on the web, and so I can't link to it, but this study suggests that in at least some circumstances, consumers can have their cake and eat it too, in that they can have consumer protection, lower interest rates, and no loss of credit availability. 

Update: the paper is now available here. 

Petition to appeal denial of class cert tests scope of Comcast

Today, Public Citizen, working with co-counsel at Thomas & Solomon LLP of Rochester, N.Y., and O’Hara, O’Connell & Ciotoli of Fayetteville, N.Y., filed a petition to appeal the class certification denial in Roach v. T.L. Cannon Corp., a wage-and-hour class action. The appeal will be among the first to test the scope of the Supreme Court's recent decision in Comcast v. Behrend, which we've discussed previously on the blog here and here.

Plaintiffs are employees at Applebee’s restaurants who were not paid wages to which they were entitled under state and federal law. In 2010, Plaintiffs sued the company that owned and operated the restaurants and sought to proceed in a class action. Even though the plaintiffs presented evidence that defendants’ uniform policies and practices – such as a policy of docking employees for rest breaks they had not taken – led to the wage law violations, the district court denied class certification two weeks ago, ruling that after Comcast, a class action cannot be maintained whenever monetary relief must be calculated on an individual basis for each member of the class.

On behalf of the plaintiffs, Public Citizen filed a petition today for permission to appeal to the Second Circuit under Rule 23(f). Our petition argues that the district court’s rule, if accepted, would dramatically reduce the availability of class actions, because there are many types of cases in which each member of the plaintiff class is entitled to a different amount of damages. Examples are easy to think of: for instance, in many employment cases, the employer is alleged to have withheld overtime but the amount of overtime that each employee worked (and therefore the amount owed to each) differs. Damages could also vary among consumers injured to different degrees by the same product defect, or employees who suffered different types of harm as a result of a single discriminatory employment practice. The district court’s decision reads the Comcast decision too broadly, the petition argues, and conflicts with the widespread and long-standing view of the courts of appeals that a class action for damages may sometimes be maintained based on a common theory of liability notwithstanding the need for individualized damages calculations. Not surprisingly, pleas to read Comcast broadly are already cropping up in defendants' briefs around the country. Let's hope we can stem the tide.

Our press release is here.

Groups urge retailers to phase out sale of 100s of chemicals

A group of organizations including the Union of Concerned Scientists, Breast Cancer Fund, and Safer Chemicals, Healthy Families yesterday sent a letter to major retailers asking them to phase out the use of more than 100 chemicals used in hundreds of products, including wrinkle-free clothes, shampoos, sofa cushions, and food packaging. The retailers include Walmart, Kroger’s, Safeway, Home Depot, and Best Buy. USAToday has the story. The website of Safer, Chemicals, Healthy Families has details about the chemicals and their letter campaign.

The constitutionality of Spending Clause legislation after the Supreme Court's health care ruling

by Brian Wolfman

A good bit of important congressional legislation is justified under the Constitution's so-called Spending Clause. Key programs in the environmental, education, and public benefits areas, for instance, are Spending Clause programs. The idea of much of this legislation, put simply, is that the legislation offers money to states to implement joint federal-state programs, and, if a state decides to participate, it is bound to conditions imposed by legislation if those conditions are clearly expressed in the legislation's text.

But there are limits to the Spending Clause power beyond the clarity requirement. Coercion of a state is also unacceptable. In its recent health care ruling, National Federation of Independent Business v. Sebelius (NFIB), the Supreme Court held (7-2) that the Affordable Care Act's medicaid expansion unconsitutionally coerced the states to accept the expansion and thus offended the Spending Clause. Some observers think that the Court's Spending Clause holding calls into question the constitutionality of a fair amount of existing Spending Clause legislation and takes off the table some federal-state programs that otherwise might have been enacted in the future.

As we had noted shortly after the Supreme Court's ruling, law professor Sam Bagenstos has taken a fairly narrow view of the ruling. He has now published his views in an article, The Anti-leveraging Principle and the Spending Clause After NFIB, 101 Geo. L. J. 861 (2013). Here is the abstract:

This Article offers an initial assessment of the Supreme Court’s Spending Clause holding in National Federation of Independent Business v. Sebelius (NFIB), which addressed the constitutional challenge to the Affordable Care Act. As Justice Ginsburg pointed out, NFIB marks “the first time ever” that the Court has held that a spending condition unconstitutionally coerced the states. The implications of that holding are potentially massive, and some of the language in the decision, if read broadly, would seriously threaten the constitutionality of a broad swath of federal spending legislation.

Notwithstanding some of the Court’s language, this Article contends that the case is not best read as rendering federal spending conditions unconstitutional simply because they are attached to large amounts of federal money, change the terms of participation in entrenched cooperative programs, or tie together separate programs into a package deal. Rather, Chief Justice Roberts’s pivotal opinion is best read as adopting an “anti-leveraging principle” that will find coercion only where all three of these conditions are present at the same time. The anti-leveraging principle both makes the most sense of what the Chief Justice actually said in NFIB and does a better job of accommodating the relevant constitutional values than do plausible alternative readings of the case. Although that principle threatens the constitutionality of far fewer conditional- spending laws than do those alternative readings, it raises challenging ques- tions about the constitutionality of certain spending conditions. And it gives states an important new tool in negotiations with federal administrators.

HT to Constitutional Accountabilty Center

State-court class-action abuse: myth or reality?

by Brian Wolfman

The Class Action Fairness Act of 2005 (CAFA) was sold to Congress in large part on the argument that state courts were abusing the class action--for instance, by certifying class actions that should not have been certified--and harming the interests of law abiding corporations that do business nationally. CAFA sought to remedy this alleged problem by bringing most class actions that involve parties from more than one state into federal court.

The Supreme Court issued its first CAFA decision recently in Standard Fire Insurance v. Knowles, which held that a named plaintiff's stipulation that the plaintiff class is seeking less than CAFA's minumum jurisdictional amount ($5 million) does not preclude a federal district court from assuming jurisdiction under the Act. (For more on Knowles go here.) The briefing of the defendant and its amici in Knowles sought to take advantage of CAFA as anti-state-court-abuse legislation. For instance, one of the early headings in the defendant's Supreme Court opening merits brief reads: "CAFA Expanded Federal Diversity Jurisdiction To Address Precisely The Class Action Abuses Exemplified By This Case."

But was the claim of CAFA's prononents of state-court class-action abuse accurate generally? That's the topic of a new law review article by Patricia Moore entitled "Confronting the Myth of 'State Court Class Action Abuses' Through an Understanding of Heuristics and a Plea for More Statistics." Here is the abstract:

The Supreme Court heard five cases involving class actions this term. One of these cases, Standard Fire Insurance Company v. Knowles, brought the Class Action Fairness Act to the Court for the first time. Petitioner insurance company and its numerous business-interest amici repeatedly claimed before the Court that "state court class action abuses" should justify removal of the case (which was based on state law and filed in state court) to federal court.

The charge of "state court class action abuses" echoes the same rhetoric that CAFA's supporters used in their ultimately successful efforts to pass the legislation. Hyperbolic assertions of a "flood of state court class actions" in which plaintiffs' lawyers were "abusing" the limits of diversity jurisdiction to keep cases in state court, and state courts were "abusing" the class action device by granting "drive-by" class certifications, fill the pages of CAFA's legislative history.

Unfortunately for the quality of the debate, then and now, no current data and very little past data about class actions are readily and publicly available, for federal or state courts. In other words, courts in the United States offer no data on such basic questions as the number of cases filed as class actions, the percentage of cases designated as class actions that are eventually certified as such, or the ultimate disposition of such cases.

To be sure, the herculean efforts of the Federal Judicial Center, the California Office of Court Research, and private academic researchers have resulted in the compilation of databases that provided partial answers to some of these questions. But these limited efforts are well beyond the resources and skill available to the public, the press, and even to most policy-makers and the Court.

What does the lack of baseline data on class actions mean? A wealth of psychological research has shown that human cognition and judgment are subject to a variety of heuristics and biases. For example, the mantra of "state court class action abuses" has a "priming effect" making it easier to see or imagine such "abuses." Further, the mind automatically attempts to create a coherent story out of the information it has, even if that information is incomplete or invalid. This manifests itself in many ways, including the "anchoring effect," the "availability heuristic," and the "representativeness heuristic," which are exploited by those spreading the myth of "state court class action abuses." Even if a person knew the base rate of class action filings or dispositions, for example, the "representativeness heuristic" would make it difficult to avoid making judgments about class actions based on negative stereotypical anecdotes. Without such base rates available at all, it will be almost impossible. One can only hope that the Court will resist the lure of class action mythology as it considers the five class action cases pending this term.

More on OMB power over consumer health and safety regulations

A recent post explained that many federal agency health and safety regulations must be sent for review to the Office of Management Budget (OMB), where they can be delayed or die at OMB's Office of Information and Regulatory Affairs (OIRA).

Sometimes regulations emerge from OIRA looking different from what they looked like when they arrived. The Center for Effective Government has just issued this report that focuses on OIRA's recent watering-down of an important food safety rule, but goes on to discuss OIRA's enormous power more generally. Here's a summary:

Recently disclosed documents show that the Office of Information and Regulatory Affairs (OIRA) weakened a proposed Food and Drug Administration (FDA) food safety rule. During the regulatory review process, OIRA removed important safety testing requirements from the "preventative controls" rule, which were intended to prevent foodborne pathogens from entering the food supply. Unfortunately, this is nothing new. OIRA has a long track record of changing the draft rules it reviews, often weakening them to appease regulated entities. In this case, the public was made aware of the rule revisions only because FDA followed the requirement to disclose changes made during OIRA review.