Consumer Law & Policy Blog

Hawaii Supreme Court Says No Arbitration Without Meaningful Consent

By Paul Bland, On Twitter  @PblandBland

 

This is a case with very painful facts – according to the complaint, a Kaiser patient went in to see his doctor and was told he had a particular type of cancer that his doctor wasn’t familiar with, but would do “internet research” about, that he might die within a month or so from the cancer.  Then the doctor proposed surgery.  The patient decided to go to another hospital (Duke) to get a second opinion (you can see why that would have seemed like a really good idea), and discovered he had a different type of cancer which should be treated a different way.  (Duke’s treatment worked.)  Kaiser refused to cover the costs of the treatment at Duke, saying it was “elective, non-emergency, non-urgent care.”  (Query about what illness would be more “urgent” than one that might kill you in a month.  The guy sued Kaiser, which (naturally) tried to force him into arbitration.

Kaiser's arbitration clause, by the way, like so many of them, would have required the plaintiff to pay substantial costs to arbitrate his case, has sharp limitations on the plaintiff's ability to take discovery, and has onerous secrecy provisions. 

The trial court enforced the arbitration clause, but the Hawaii Supreme Court reversed, finding in a great opinion that there had been no mutual assent or meeting of the minds.  The court noted that the burden was on Kaiser, as the party moving to compel arbitration, to demonstrate that the patient had assented to arbitration.  The court held that to form an agreement to arbitrate, a contract must be unambiguous as to the intent of the parties to submit disputes to arbitration.

The court points to a variety of useful facts in finding that there was not assent:  the enrollment form referenced “terms and conditions,” but the group agreement had no section with that title; there was no signature line for an applicant to acknowledge having read or received the documents; that there was no evidence that the agreement was ever provided to the HMO member; the arbitration clause was substantially amended but the changes were not included in communications to the HMO members in a “Summary of Important Changes.”  Basically, Kaiser's argument amounts to this:  the patient could have found it if he's pestered his employer for every piece of paper related to his health plan and read through it.  And the Court found this unpersuasive -- no real person would have had meaningful, realistic notice that they were supposedly giving up these important rights.

Having lost on consent, Kaiser then offered a grab bag of arguments for how the court might enforce the arbitration clause even where the member didn't agree to it.  So Kaiser argued that the HMO member’s employer was his “agent” for the purpose of agreeing to arbitration; that he was a third party beneficiary of a contract between his employer and Kaiser that provided for arbitration; that he was estopped from pointing out that he’d never agreed.  The Court rejects each of these arguments for a variety of legal reasons; none of these technicalities was sufficient to supplant the idea that arbitration is supposed to be a matter of consent, for people who agree to it.

The bottom line is that “In this case, the Enrollment Form that Michael signed did not reference the arbitration agreement and the record does not establish that Michael was otherwise informed of the existence of the arbitration agreement, much less that he assented to it.

 

Congratulations to Matt Winter of Davis Levin Livingston in Honolulu for this fantastic achievement.  This is one of the best decisions I’ve seen all year.

Do small-claims class actions deter corporate illegality?

That's the question addressed by law professor Linda Simard in her article A View from Within the Fortune 500: An Empirical Study of Negative Value Class Actions and Deterrence. Here is the abstract:

This paper takes a look inside the Fortune 500 to analyze the deterrent effect of negative value class actions. The study focuses on the relationship between litigation maturity and deterrence by testing three inter-related hypotheses: (1) Future liability is easier to anticipate when there is a well-developed record of the factual and legal issues from previous litigation than when there is no track record from previous litigation; (2) Corporations who have been held liable for particular conduct will successfully change their conduct to avoid future litigation regarding similar conduct; (3) Corporations who are informed about lawsuits filed against their competitors and who rely upon this information in making their own business decisions will successfully change their conduct to avoid subsequent similar litigation. The study presents compelling evidence to advance our understanding of deterrence and to answer the question that has plagued negative value class actions for nearly half a century: when, if ever, does the social utility of these actions outweigh their cost?

Hockett: Foreclosure Prevention and Mitigation Options

Robert C. Hockett of Cornell has written Post-Bubble Foreclosure-Prevention and -Mitigation Options in Seattle.  Here's the abstract:

This paper, commissioned by the Seattle City Council, takes the measure of Seattle's post-bubble negative equity and foreclosure problems, estimates numbers of underwater loans that have benefitted by existing federal, state and local programs, and recommends several options that the City has not yet explored but ought to consider.  For underwater but not yet defaulted loans, these include 'lease swap' arrangements of a kind advocated by the author since 2011 and public-private eminent domain partnerships of the kind advocated by the author since the housing bust began.  For already foreclosed properties, the author recommends a variation on the 'land bank' approach being pioneered in several other U.S. cities.

CFPB Report: Credit CARD ACT "REDUCED PENALTY FEES AND MADE CREDIT CARD COSTS CLEARER"

The Report is here. From the press release:

• Total cost of credit declined: The CFPB found that the total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.    

• Overlimit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional overlimit fee. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, the CARD Act essentially eliminated overlimit fees as a source of cost to consumers and revenue to issuers. The report found that consumers paid about $2.5 billion less in overlimit fees than they paid in 2008.  

• Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms.  As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.    

• Responsible access to credit remains available:  As the financial crisis hit, creditors faced losses and as a result, implemented more restrictive credit standards. While the amount of available credit card credit has generally decreased since the financial crisis began, there is still $2 trillion of unused credit for consumers with credit cards in the marketplace. One factor affecting credit availability is a notable drop in the number of consumers who receive unsolicited credit limit increases on their accounts. Now that consumers have to ask for their credit limit to be raised rather than having it happen automatically, these increases are happening less frequently.   

• Young consumers are better protected from credit cards they cannot afford: Before the CARD Act, it was often too easy for young consumers to rack up unmanageable credit card debt and damage their credit rating. Now, consumers under the age of 21 cannot get a credit card unless they can demonstrate an independent ability to repay the debt or unless they have a cosigner over 21. The report found that the percent of young adults ages 18-20 that have at least one credit card account has dropped by half. 

The industry had vigoroulsy opposed the statute claiming that it would produce higher credit costs.  I hope people remember how that prediction turned out the next time the industry trots out that argument.

Strandburg Paper on Online Privacy's Market Failure

Katherine J. Strandburg of NYU has written Free Fall:  the Online Market's Consumer Preference Disconnect, University of Chicago Law Forum (2013).  Here's the abstract:

Do Internet users “pay” for online products and services with personal data? The common analogy between online data collection for behaviorally targeted advertising and payment for purchases is seriously misleading. There is no functioning market based on exchanges of personal information for access to online products and services. In a functioning market, payment of a given price signals consumer demand for particular goods and services, transmitting consumer preferences to producers. Data collection serves as “payment” in that critical sense only if its transfer from users to collectors adequately signals user preferences for online goods and services.  It does not.  Indeed, for reasons explored in this article, the behavioral advertising business model leads to a failed online market and erects barriers to entry for no-data-collection alternatives.  The market failure is due in part to the intertwined nature of personal information and involves collective action problems that cannot be solved by consent-based approaches to single transactions.  Those collective action problems, in turn, erect barriers to entry for online businesses employing paid or contextual advertising business models. As a result of these factors, the online market is likely to be stuck in a failed state in which products and services are tailored to advertiser preferences for data extraction, rather than to consumer preferences.

How does the federal government shutdown affect consumers?

Guest post by Daniel Colbert (2L, Georgetown Law)

How does the shutdown affect consumers?

The short answer is that the shutdown likely won’t hurt consumers as much as it will hurt government employees, Head Start students, and panda-cam enthusiasts, but, still, it will put a significant damper on the government’s ability to protect consumers. Here are some details about how the shutdown will affect consumer agencies:

First, some good news. The Consumer Financial Protection Bureau is not subject to the appropriations process, so it will remain open, along with the Federal Reserve, the FDIC, and the OCC. The SEC is funded by Congressional appropriations, but it has enough funds carried over from the previous year to remain fully open for a few weeks. USDA meat and grain inspections will continue. And, of course, the healthcare exchanges created by the Affordable Care Act will begin to open today, completely unaffected by the shutdown. (The insurance purchase in those exchanges will become effective on January 1, 2014.)

Now for the bad news. The FDA will continue to issue high-risk recalls, but routine inspections will be suspended. FDA reviews of new drugs will also be delayed. The USDA will need to delay some major crop reports, which typically affect the price of corn, soybeans, wheat, and cotton. The Federal Housing Administration will also cease underwriting and approving loans to first-time homebuyers and low-to-moderate income borrowers. The Federal Trade Commission has already replaced its website with a static splash page informing consumers that they cannot file complaints or sign up for the Do Not Call list, and that FOIA requests will not be processed. The FTC will continue to review antitrust matters, but with a smaller staff than usual. The Department of Justice will furlough about 15% of its employees and will seek to postpone civil litigation to the extent possible (though criminal prosecutions will be deemed “essential”). Notably, the DOJ has already asked for a stay in its antitrust suit over the merger of US Airways and American Airlines, though it has said that antitrust actions will continue even if no delays are granted.

Thomas Cooley Law School Loses Libel Suit -- Among Other Reasons, Charges Against It Are True

by Paul Alan Levy

One of the worst things that can happen to libel plaintiffs is to lose the suit in a way that confirms the veracity of the charges made publicly against it.  This is what recently happened to Thomas Cooley law School.  Past articles here have discussed its efforts to identify a former student who created the "Thomas Cooley Law School Scam" blog; but this week, a federal judge unceremoniously dumped the school's law suit against a law firm that made similar accusations.  Part of the reasoning was that the law school is a public figure, and part was that the accusations were non-actionable hyperbole.  But the court also dismissed the claim that "Cooley grossly inflates its graduates' mean reported salaries" was defamatory based on the doctrine of substantial truth.

Banks in the courts: a change in judicial tone

I found this NYT commentary from this past weekend interesting: looking at a few recent cases pitting government regulators or homeowners against major banks, the article observes, "District court judges are not generally known as flamethrowers, but some seem to be losing patience with the banks."

Reuters Column: "3rd Circuit is trying to kill consumer class actions"

by Deepak Gupta

Legal reporter Alison Frankel of Reuters has a new column highlighting the effort to seek full-court rehearing of the Third Circuit's troubling decision in Carrera v. Bayer, which holds that plaintiffs must show, before they can certify a class, how they will identify and prove the class membership of consumers who purchased the defendant's product.  The opinion further holds that the traditional methods -- requiring consumer affidavits and employing established screening procedures by class action adminsitrators, for example -- aren't good enough. The defendant, the court reasons, has a substantial property interest, protected by the Due Process Clause of the Fourteenth Amendment, in avoiding a collateral attack. Allison Zieve and Brian Wolfman have both recently blogged about the case here and here.

I wasn't involved in this appeal before the panel decision came down but was recently asked to prepare the plaintiffs' petition for rehearing en banc, which we filed last Friday. Amicus briefs in support of the petition are due by the end of this week.

Even before the rehearing petition, the panel's opinion in Carrera had attracted an unusual amount of commentary, including some specifically calling for en banc rehearing. Frankel's column situates the case within the context of a broader debate in the appellate courts over the future of class actions. She also points out why the panel's decision, if left standing, will be so dangerous for the fate of consumer class actions. Plaintiffs, she explains:

usually satisfy the ascertainability requirement for certification by defining the class in a way that sets appropriate limits on membership – not by setting forth a process of identifying individual claimants. That usually comes later, when class notices are being formulated and damages are being determined. Considering that consumers rarely save receipts or packages to prove their purchases and that there’s scant record-keeping on the purchase of low-cost, unregulated products, the 3rd Circuit decision could make consumer class actions involving these items uncertifiable.

Frankel also unpacks the panel's due-process logic:

It doesn’t matter, according to the appeals court, that under Florida law, Bayer’s potential damages don’t depend on who’s a member of the class. What if some Florida purchasers later asserted that fake claimants diluted their recovery so their interests weren’t adequately represented by the name plaintiff in the class? “They could then bring a new action against Bayer and, perhaps, apply the principles of issue preclusion to prevent Bayer from re-litigating whether it is liable,” the 3rd Circuit said. “Bayer has a substantial interest in ensuring this does not happen.”

The class brief also pointed out the utter unlikeliness of the chain of events the 3rd Circuit posited in its consideration of Bayer’s due process rights. There have been only a handful of collateral attacks on class action judgments in the history of the vehicle, the brief said (quoting my coverage of one of the extremely rare such attacks). 

The bottom line: "Should consumer class actions be gutted on the off chance that an absent class member with a claim for a few bucks might surface with allegations of inadequate representation?"