Consumer Law & Policy Blog

Second Circuit: classwide measure of damages not required for class certification

In a case we've discussed before about the wage/hour claims of a class of Applebee's workers, the Second Circuit today delivered an important victory today for class-action plaintiffs. The court held that the Supreme Court's 2013 decision in Comcast v. Behrend does not foreclose the certification of a class action where the plaintiffs' damages must be calculated individually. Rather, the individualized nature of damages is just one factor courts should examine.

This principle is especially important for wage/hour classes -- in which it is practically inevitable that damages will be individualized because workers work different hours at different rates of pay -- but it has helpful ramifications for all class actions by avoiding an unduly narrow standard for certification. (For instance, 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 Second Circuit summarized its opinion this way:

Because the district court concluded damages were not capable of measurement on a classwide basis—and only because the district court concluded damages were not capable of measurement on a classwide basis—the district court refused to certify Plaintiffs’ spread-of-hours and rest-break claims. That holding was not required by Comcast, was contrary to the law of this Circuit—left undisturbed by Comcast—that individualized damages determinations alone cannot preclude certification under Rule 23(b)(3), and cannot support the district court’s denial of Plaintiffs’ motion for certification. (citation omitted)

The substantive allegations in the case are that the defendant company -- a franchise operator with more than 50 Applebee's restaurants across New York State -- shaved time off plaintiffs' time cards for breaks they did not take and denied them wages mandated by New York law. Now the plaintiffs will have a chance to seek class certification on remand under the proper standard.

Public Citizen, working with co-counsel at Thomas & Solomon LLP of Rochester, N.Y., and O’Hara, O’Connell & Ciotoli of Fayetteville, N.Y., represented the plaintiffs on appeal.

With this decision, the Second Circuit joins the First, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits in reading Comcast narrowly.

You can read today's decision, Roach v. T.L. Cannon, here.

FTC issues summary of its work enforcing FDCPA

The Federal Trade Commission announced its annual summary of activity enforcing the Fair Debt Collection Practices Act:

Over the past year, the Federal Trade Commission has continued its vigorous work on behalf of U.S. consumers suffering from unlawful debt collection practices, including bringing law enforcement actions against abusive and fraudulent operations, conducting education and public outreach initiatives, and implementing research and policy programs.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) is required to submit annual reports to Congress on the Fair Debt Collection Practices Act (FDCPA). Since the CFPB and FTC jointly enforce the Act, the FTC’s summary of its own recent work on debt collection issues assists the CFPB in preparing the report to Congress.

The FTC reports that its work over the past year focused on: "1) egregious debt collection practices, including 'phantom debt collection'; 2) security of consumer data in the buying and selling of debts; and 3) protection of limited-English-proficiency consumers from illegal debt collection practices."

CFPB issues report and consumer advisory on reverse mortgages

Yesterday, the Consumer Financial Protection Bureau released "a report highlighting the top complaints for reverse mortgages. According to the report, consumers are frustrated with their loan terms, servicer runarounds, and foreclosure problems. To help consumers who already have a reverse mortgage, the CFPB [also issued] an advisory with tips on how to plan ahead to protect loved ones from financial hardship brought on by a reverse mortgage." Read the CFPB press release, with links to the report and the advisory.

Times: Consumer Protection Agency Seeks Limits on Payday Lenders

Here.  An excerpt:

At the center of the regulations being considered, the people familiar with the matter said, is a requirement that lenders assess whether borrowers can repay loans — interest and principal — at the end of a two-week period by examining their income, other debts and their payment history.

Few people can, the data suggest, leaving borrowers to either roll over their loans, heaping on more fees, or take out new ones altogether. The bureau found that during a 12-month period, borrowers took out a median of 10 loans. Borrowers paid median fees of $458. The median amount borrowed was $350. And more than 80 percent of loans were rolled over or renewed within two weeks.

NY Post: Next subprime bubble to burst: auto loans

Here.

"You are a big Red Bully"

A beer enthusiast blog carries a great open letter from a small microbrew company called Old Ox Brewery, responding to a trademark opposition claiming that because an ox and a bull are both bovines, indeed an ox is a castrated bull, consumers could be confused about whether Red Bull is somehow associated with Old Ox. 

We can only interpret your actions as one thing—bullying. You are a big Red Bully. Just like that mean kid from grade school pushing everyone down on the playground and giving us post-gym class wedgies. You are giving us one hell of a corporate wedgie. We don’t appreciate it and we sure as hell don’t deserve it.

Another challenge to debtors' prison practice, this time in Ferguson

Two weeks ago, we told you about a lawsuit challenging a Georgia county's practice of imprisoning individuals who could not pay court fees.

Now, another lawsuit has been filed in the same vein. The location happens to be Ferguson, Mo., which in 2013 "collected $2.6 million in court fines and fees, mainly on traffic violations and other low-level municipal offenses. That was the city's second-largest source of income, or about 21 percent of its total budget," according to NPR.

Listen to the whole story here.

Paper on Food and Beverage Marketing to Youth

Andrew Cheyne, Pamela Mejia, Laura Nixon, and Lori Dorfman, all of the Berkeley Media Studies Group, have written Food and Beverage Marketing to Youth, Current Obesity Reports, September 2014. Here's the abstract:

After nearly a decade of concern over the role of food and beverage marketing to youth in the childhood obesity epidemic, American children and adolescents — especially those from communities of color — are still immersed in advertising and marketing environments that primarily pro- mote unhealthy foods and beverages. Despite some positive steps, the evidence shows that the food and beverage industry self-regulation alone is not likely to significantly reduce marketing of unhealthy foods and beverages to youth. A variety of research is needed to monitor industry marketing of unhealthy products to young people, and identify the most promising approaches to improve children’s food marketing environments. The continued presence of unhealthy marketing toward children despite years of industry self-regulation suggests it is time for stronger action by policymakers to protect young people from harmful marketing practices.

Ronald Mann on Whether Payday Loan Defaults Matter

Ronald J. Mann of Columbia has written Do Defaults on Payday Loans Matter?  Here's the abstract:

This essay examines the effect on a borrower’s financial health of failure to repay a payday loan. Recent regulatory initiatives suggest an inclination to add an “ability to pay” requirement to payday-loan underwriting that would be fundamentally inconsistent with the nature of the product. Because the premise of that regulation would be that borrowers suffer harm when they fail to repay such a loan, it is timely to examine the after-effects of such a default empirically. This essay examines that question using a dataset that combines payday borrowing histories with credit bureau information.

The essay uses a difference-in-difference approach, comparing the credit-score change over time of those who default to the credit score change over the same period of those who do not default. The essay presents three principal findings. First, credit score changes for borrowers who default on payday loans differ immaterially from changes for borrowers who do not default on payday loans. Second, the fall in the year of the default plainly overstates the net effect of the default, because the credit scores of those who default on payday loans experience disproportionately large increases for at least two years after the year of the default. Third, the payday loan default cannot be regarded as the cause of the borrower’s financial distress; borrowers who default on payday loans have experienced disproportionately large drops in their credit scores for at least two years before their default.

Pretzel logic in Arkansas

Yesterday, a federal court in Arkansas issued an opinion that misinterprets federal food labeling law, preemption law, and the use of logic. The case is Craig v. Twinings North America, Inc. Download Opinion Craig v. Twinings Doc 29.

Twinings claimed that its tea was a “natural source” of antioxidants. The plaintiff alleged (but I have not confirmed) that there were not enough antioxidants in the tea to qualify for a “source” claim under the FDCA (the product must have at least 10% of the daily value or RDI). 

The court went through intellectual backflips to find preemption.

The court decided that “natural source” was not a source claim at all, rejecting an FDA opinion that “finest source” was a source claim. The court reasoned that “finest” implied an amount but “natural” did not. This misses the boat, for a few reasons. First, the word “source” is there either way. And if the antioxidants were in the tea so minimally as not to meet the very minimal 10% requirement, the claim is deceptive anyway. Second, a source is a source (of course, of course). Third, how in the world does “finest” imply amount? If the FDA letter had been about a “mostest source,” that logic might have had legs.

Regardless, that’s what the court decided to decide, from which it then decided that Twinings had not violated federal law and, completely casting aside the limited NLEA express preemption rules, the court then held that allowing Arkansas law to stop a practice that wasn’t barred by federal law would conflict with the FDCA.

That killed the case, but the court went on to discuss Arkansas UDAP law. Plaintiff pleaded both that she would not have bought the tea at all if she’d known the truth, and that Twinings charged a price premium.

The court held that neither established damages under Arkansas law because the Plaintiff “paid for tea and received tea.”

I don’t know Arkansas UDAP law, so I don’t know if the court correctly summarized it (extrapolating from its interpretation of federal law, the odds are against that), but many states do use this logic. It’s completely incorrect in every way—economically and behaviorally. If consumers were only shopping for a generic product, then all products would be generic. Marketing is all about selling the sizzle as well as the steak. Nonetheless, this is the law in some states.

Another reason California courts get it right. As the California Supreme Court held in the Kwikset case (where a company sold a lock claiming it was “Made in the USA,” but it wasn’t), there are many factors that go into a purchasing decision.

Consumers should be able to rely on the sizzle and not just the steak.

In Arkansas, consumers will only get the steak, if that.