Consumer Law & Policy Blog

Knapp Chapter on Unconscionability

Charles L. Knapp of Hastings has written Unconscionability in American Contract Law: A Twenty-First Century Survey.  Here's the abstract:

The notion that a court tasked with enforcing a private agreement should be allowed  – or even, in some cases, required –  to withhold enforcement because of the unfairness of the agreement is not a new one; scholars have traced it back well beyond the earliest days of the Anglo-American legal system.  In the United States, the current formulation of that idea can be found principally in the doctrine of unconscionability, which has enjoyed since its incorporation into the Uniform Commercial Code a place in the menu of contract law doctrines, even if a somewhat insecure and sometimes disputed one. 

This Chapter summarizes with a few broad strokes the earlier story of modern unconscionability law in the U.S.   It then focuses on the history of that doctrine in American courts over the last two decades, identifying those situations in which it has been most frequently advanced, and those where it has been most likely to succeed.  This also entails exploring the interaction of that doctrine with the federal law favoring enforcement of private contractual agreements to submit future disputes to arbitration.  Finally, the Chapter considers generally the possible future development of unconscionability law, with particular regard to the continued utility of the “procedural/substantive” dichotomy, and the employment of unconscionability as a tool for policing contracts of adhesion.

Applebee's workers to Second Circuit: the Supreme Court's Comcast decision doesn't undermine wage-and-hour class actions

Today Public Citizen filed the opening brief in an appeal on behalf of a putative class of Applebee's workers throughout New York State. The workers sued their employer, T.L. Cannon, owner and operator of 53 Applebee's locations in New York, claiming various wage violations, including that the employer trained its supervisors and managers to manipulate time records to reflect rest breaks that the employees didn't actually take (resulting, obviously, in underpayment of wages).

As we've discussed before, the main legal issue on appeal is whether the district court here erred when it held that the Supreme Court's March 2013 decision in Comcast v. Behrend forecloses certification of a damages class action where damages for each class member have to be calculated individually. As our brief explains, that has never been the law. Moreover, if the district court is affirmed, class action law would be profoundly altered and most wage-and-hour class actions would be in jeopardy, because in most wage cases damages are individualized: workers in the class rarely have worked the exact same hours.

The facts of this case show why issues common to the class predominate over the individualized question of damages: the plaintiffs allege, and have evidence from the mouths of defendants' own restaurant managers to show, that Cannon had a practice of requiring managers and supervisors to "shave time" off employee time records and that Cannon had a policy of not paying other wages required under state law.

So far three other courts of appeals (the Sixth, Seventh, and Ninth) have rejected the district court's position that Comcast forecloses class certification where damages must be measured individually. Let's hope the Second Circuit agrees.

Op-ed on Chief Justice's statement regarding cy pres and other invitations from the Court

Linda Greenhouse had this interesting piece in the New York Times yesterday, about Chief Justice Roberts's "invitation" to cases challenging cy pres awards, as she describes the Chief Justice's statement (at p. 24 of the pdf) last week concerning the denial of the petiton for certiorari in Marek v. Lane--the cert petition about the cy pres settlement with Facebook, over its Beacon program. Greenhouse also talks about the Second Circut's recent order removing Judge Scheindlin from the challenge to New York City's stop-and-frisk policy and statements from other Justices noting issues that they would like to consider.

Google Books Program Upheld as Fair Use

by Paul Alan Levy

The major ruling of the day:  Circuit Judge Denny Chin, sitting as a trial judge because he retained the case after being promoted to the Second Circuit, has granted summary judgment  rejecting the Authors Guild’s copyright claims against Google’s program of scanning books into digital form and both offering the digital copies to libraries as fodder for their own use as well as enabling searches of the books’ text and displaying snippets of the books that are related to the search terms.  Judge Chin took as given that the program involved copyright infringement, but held that the defense of fair use precluded the claims.

The opinions bristles with important rulings about the fair use factors and repeatedly cites amicus briefs from the American Library Association and others and from Digital Humanities and Law Scholars,   whose authors are justifiably proud about their contributions to the victory.  

There will be much discussion of the fair use rulings in the days and years to come; the plaintiffs have already announced that they will appeal.  But the decision highlights an important point about the judicial process.  Judge Chin’s decision on the merits is much more beneficial to the public than the original proposed settlement of the Google Books litigation would have been. Unlike that settlement, which could have ensconced Google as the only search engine entitled to digitize books without the consent of their authors, this ruling provides a road map that allows any other entity to follow in Google’s path.  Judge Chin’s ruling reminds us of a point effectively made by Owen Fiss thirty years ago in his seminal article Against Settlement:    that the main job of a federal judge is not to supervise settlements, and especially not to bully parties into settling their cases. The judge’s job is to decide cases, so that every member of the public, not only the parties, can benefit from the public resources that go into the judicial system.

After Mount Holly: What's Next?

by Deepak Gupta

Jeff and Brian have already posted on the news of a final settlement in Mount Holly. Although we've known all along that a settlement was likely, this is still big news.

Let's put this in perspective: For the second time in just two years, an eleventh-hour settlement before oral argument has denied the conservatives on the Supreme Court the opportunity to do away with disparate-impact claims under the Fair Housing Act (and by extension, the Equal Credit Opportunity Act). The settlement in the previous case, Magner v. Gallagher, provoked heated controversy on Capitol Hill, with allegations by Republicans that the Justice Department's Civil Rights Division exerted undue pressure on the municipal defendant. This settlement may be viewed in a similar light in some quarters.

As I remarked to Bloomberg last week, when news of the deal first came to light, the Mount Holly settlement amounts to a temporary stay of execution for a critically important civil-rights enforcement tool. 11 of the 11 circuits that have considered the question have concluded that disparate-impact claims are indeed cognizable under the FHA. In light of that unanimity, and the federal government's longstanding position, the Court's decision to grant certiorari on the question twice in two years cannot bode well for disparate impact. That's why civil rights and consumer advocates were so eager for a settlement.

So what happens now?  First, I think we can expect a replacement vehicle to land on the doorstep of One First Street within short order. The D.C. Circuit -- the only regional circuit that has not yet weighed in on whether disparate impact is cognizable under the FHA, and a court with influential conservatives -- is the logical place to bring that challenge. That's presumably why two insurance trade groups, represented by veteran Supreme Court advocate Kannon Shanmugam of Williams & Connolly, have already filed a lawsuit in federal district court in Washington, directly challenging the HUD rule. (Kannon also wrote an amicus brief for insurance groups in Mount Holly, so you can get a preview of how he'll brief the case here.)

As I noted in a previous post, the insurance groups claim not only that the rule is contrary to the FHA but also that it is reverse-preempted under the McCarran-Ferguson Act because (as applied to insurance companies) it impermissibly regulates the "business of insurance," a province of state regulation. If the court adopts the far narrower McCarran-Ferguson reverse-preemption theory, the case could cease to be a vehicle for a broader challenge to disparate impact. But I doubt that the financial services industry will allow that to happen. I've already heard talk that groups representing the mortgage industry and others affected by disparate impact liability are considering intervening in the case to prevent that soft landing. Either way, a replacement vehicle will be available soon enough. And a case brought by industry and designed as a test case won't be removed from the docket with a settlement.

What about the practical implications going forward?  That will be the subject of a webinar next Wednesday, November 20 that I'll be jointly presenting with the industry-side law firm Ballard Spahr. Among other things, we'll discuss the use of disparate-impact evidence by regulators to support "pattern and practice" intentional discrimination claims -- a trend that can be expected to accelerate as agencies brace for the impact of a Supreme Court decision.

Debate with Senator Vitter on the CFPB & Consumer Law in New Orleans

by Deepak Gupta

If you'll be in New Orleans tomorrow (Friday, Nov. 15),  I hope you'll drop by the Hyatt French Quarter for the Louisiana Bar's consumer law seminar. Among other things, Professor Dalie Jimenez of the University of Connecticut (a former CFPB colleague) will discuss her research on debt buyers.

At 4pm, you can watch me debate U.S. Senator David Vitter on a range of hot topics surrounding the creation and role of the CFPB. Our debate will be moderated by Judge Douglas Dodd of the U.S. Bankrtupcy Court. It should be fun. Details here.

More on settlement of Mt. Holly case

Jeff posted earlier about settlement of the Mt. Holly case shortly before argument in the Supreme Court. The case presented the question whether disparate impact claims may be brought under the Fair Housing Act, which prohibits housing discrimination (or, on the other hand, whether plaintiffs must show intentional discrimination to prevail under the Act).

There are now some articles floating around the web explaining the terms of the settlement. Here's an excerpt from an AP story:

Officials in a southern New Jersey town approved a legal settlement today to end a high-profile housing discrimination case, just weeks before the U.S. Supreme Court was to hear arguments on it. Under the agreement with Mount Holly township, a group of residents of the Mount Holly Gardens neighborhood will be able to get homes in a new development or money if they choose to move elsewhere. The deal halts one of the most anticipated Supreme Court cases of the terms. It was to be heard next month. Lawyers in the case say settlement talks had been in the works since before the high court agreed to take it on. The lawsuit grew out of opposition to a plan announced in 2002 in the community, 20 miles east of Philadelphia. The town wanted to raze the 329 modest brick homes in the aging Mount Holly Gardens, long a center of blight and crime, to make way for new houses, apartment buildings and stores.

Are state parens patriae suits "mass actions" under the Class Action Fairness Act?

Last week, the Supreme Court heard oral argument in Mississippi ex rel. Hood v. AU Optronics Corp., which presents the question whether a state’s parens patriae suit may be removed as a “mass action” under the Class Action Fairness Act when the state is the sole plaintiff, the claims arise under state law, and the state attorney general possesses statutory and common-law authority to assert all claims in the complaint. (That's the question as stated by Mississippi, which opposes removal under CAFA.)

Law professor Linda Mullenix has written Clash of the Sovereigns I: The Class Action Fairness Act and State Parens Patriae Actions, which discusses the issues in the case at some length. Here is the abstract (which itself is so extensive that it provides a nice overview of the case):

This article canvasses the issues and significance of the appeal in State of Mississippi, Jim Hood AG v. AU Optronics Corp., to be heard by the Supreme Court in November 2013. The Mississippi Attorney General instituted an action under Mississippi antitrust and consumer protection statutes against liquid crystal display panel manufacturers. After the defendants removed the litigation to federal court under the Class Action Fairness Act (“CAFA”), the Fifth Circuit held that the litigation was properly removable. This appeal concerns whether state parens patriae actions are an exception to CAFA removal provisions and therefore the litigation must be remanded to Mississippi state court.

CAFA defines a mass action as any action that joins the monetary claims of 100 or more persons to be tried jointly on the grounds that the plaintiffs’ claims involve common questions of law or fact. 28 U.S.C. § 1332(d)(11)(B)(i). However, each plaintiff in a mass action must satisfy the $75,000 amount in controversy requirement that exists for regular diversity plaintiffs. Mass actions do not include claims that the defendant joins; actions where all claims are asserted on behalf of the general public pursuant to a state statute authorizing the action; or claims that are consolidated or coordinated solely for pre-trial proceedings. 28 U.S.C. § 1332(d)(11)(B)(ii). If a mass action is removed to federal court, it cannot be transferred to a multidistrict litigation court unless a majority of the plaintiffs request the transfer to the MDL forum. 28 U.S.C. § 1332(d)(11)(C).

The effects of the Supreme Court's rules on summary judgment and pleading requirements on case outcomes

Lawyers for consumers and other plaintiffs have long complained that the Supreme Court's cases making summary judgment and dismissal easier to obtain have had adverse effects on their clients. That's not surprising. (For instance, it is the plaintiff who will be on the losing end of a successful motion to dismiss.) Now, law professors Kevin Clermont and Theodore Eisenberg have published an empirical study, Plaintiphobia in the Supreme Court, which concludes that the Supreme Court's rulings have in fact hurt plaintiffs. Here is the abstract:

Through the years debate has raged over whether the Supreme Court’s summary judgment trilogy and Twombly-Iqbal pleading decisions had significant practical effects. To address that question, this article introduces a new empirical measure: the difference between the pretrial-adjudication judgment rates for the defendant and for the plaintiff. Plotting that rates’ difference over time suggests that the cases on summary judgment and pleading, which were far and away the two most major alterations of pretrial disposition during the last three decades, had a markedly anti-plaintiff impact.

Mt. Holly Disparate Impact Case Settles

So reports Carter Dougherty of Bloomberg. No link available yet. The case, which the Supreme Court would have heard arguments in next month, presented the issue of whether the disparate impact test can be used in FHA cases .