Consumer Law & Policy Blog

Michael Hiltzik on the limits of the puffery defense

Read Wells Fargo says its promises to restore consumer trust were just ‘puffery.’ But now they look like lies by Michael Hiltzik. Here's an excerpt that sets the theme:

If you’ve ever wondered how businesses can get away with making transparently false or deceptive claims about themselves or their products — “The Best Tasting Juice in America,” Wrigley’s gum is “for whiter teeth, no matter what,” etc., etc. — the answer is an all-purpose legal dodge known as the “puffery” defense. Simply put, judges and regulators have ruled that when a business makes a claim that is either vague or so obviously inflated that people simply won’t believe it, that’s “puffery,” and not actionable in court. Wells Fargo, which is struggling to rebuild its reputation for integrity after a string of scandals involving consumer rip-offs, is testing the limits of the “puffery” defense. In a legal filing last week aimed at getting a shareholder lawsuit dismissed, the company asserted that statements that the bank was working to “restore trust” among its customers and “trying to be more transparent” about its scandals — statements made by its chief executive, Tim Sloan — were, well, just puffery.

Ann Burkhart Article: How to Fix Foreclosure

Ann M. Burkhart of Minnesota has written Fixing Foreclosure, 36 Yale Law & Policy Review (2018). Here is the abstract:

Since the American Revolution, mortgage foreclosures have consisted of a public auction of the mortgaged property. Judges and state legislators at the time believed that an auction was the best way to obtain a fair price for the land. Though that belief soon proved to be mistaken, the sale method remains unchanged.

Before the real estate and mortgage markets crashed in 2007, only two significant empirical studies of foreclosure sales existed, and they involved small numbers of foreclosures. Because the crash resulted in millions of home foreclosures, it has provided a rich data source. As a result, economists, social scientists, and others have produced a wealth of empirical studies on foreclosure sales and their effects both before and after the crash. Three lines of research now clearly establish that foreclosure by public auction is seriously flawed. These studies first prove that, in this country, even a voluntary real estate auction normally produces a lower sale price than a private sale. A second line of studies shows that foreclosure usually is harmful not just for the land owner, but also for the lender, neighboring property owners, and the community. The third line of studies proves that property sells for more when, rather than foreclosing after default, a lender allows a private sale of the property. These studies make a very powerful case for foreclosure reform.

Fortunately, an established and effective method for selling foreclosed land already exists — listing it for sale with a real estate agent. Currently, the lender conducts a foreclosure, frequently purchases at the sale, and then lists the property for sale with a real estate agent. This process is time consuming, expensive, and harmful. Initially listing the property for sale with a real estate agent, rather than first auctioning it, eliminates these problems, and the success of the process has been proven. England, Ireland, Wales, and some Canadian provinces use this method very effectively, and it could readily be implemented in the United States.

Watson Paper on History of and Problems with Federal Student Loans

Camilla E. Watson of Georgia has written Federal Financing of Higher Education at a Crossroads: The Evolution of the Student Loan Debt Crisis and the Reauthorization of the Higher Education Act of 1965. Here is the abstract:

Currently, there are 44.2 million Americans holding student loan debt collectively totaling $1.5 trillion. This massive debt has a profound effect, not only on the lives of the debtors, but also on the national economy because it prevents the debtors from buying homes and cars and creating new businesses. This debt is also speculated to be a likely trigger for the next housing bubble because student loans, like the subprime mortgage loans underlying the 2008 financial crisis, are securitized and sold to investors. But many of those with student loans struggle to find jobs that will enable them to pay off their debt. In some cases, they leave school before graduating because they perceive their debt as too overwhelming. When that happens, their lack of a degree exacerbates their struggle to find decent jobs. Moreover, fear of undertaking substantial debt leads some individuals to forego higher education altogether, thereby often condemning them to a lifetime of low-paying jobs. This article traces the development of federal student loans and examines the numerous problems comprising the student loan debt crisis, among them the high cost of postsecondary education, the crisis-level amount of debt undertaken by students, the difficulties of repayment, and the fraud and abuse perpetrated by proprietary institutions and predatory lenders. It attributes these problems to Congress, which it argues has both acted, and failed to act, due to misjudgments, as well as, at least sometimes an indifference, sometimes bordering on an animus, to students in need. This article also critiques proposed legislation to reform federal funding of higher education and questions whether the mistakes of the past will soon be repeated in the pending reauthorization of the Higher Education Act of 1965.

ND Cal issues procedural guidance for class-action settlements

The U.S. District Court for the Northern District of California has issued "Procedural Guidance for Class Action Settlements."

The guidance addresses items to include in a motion for preliminary approval, suggestions for class notice, and attorney fees. Among other things, the guidelines instruct lawyers to file an accounting of the distribution to the class and attorneys.

In light of the pending Supreme Court case Frank v. Gaos, which challenges the notion of cy pres awards, it is interesting to see this guidance, which reflects a common-sense approach to cy pres:

If the settlement contemplates a cy pres award, the parties should identify their chosen cy pres recipients, if any, and how those recipients are related to the subject matter of the lawsuit and the class members. The parties should also identify any relationship they or their counsel have with the proposed cy pres recipients. In general, unused funds allocated to attorneys’ fees, incentive awards, settlement administration fees and payments to class members should be distributed to the class pro rata or awarded to cy pres recipients.

The Guidance is here.

Many class actions are filed in ND Cal. It will be interesting to see whether other courts follow suit in issuing guidance.

"Trump Administration Spares Corporate Wrongdoers Billions in Penalties"

The New York Times reports:

Across the corporate landscape, the Trump administration has presided over a sharp decline in financial penalties against banks and big companies accused of malfeasance, according to analyses of government data and interviews with more than 60 former and current federal officials. The approach mirrors the administration’s aggressive deregulatory agenda throughout the federal government.

The New York Times and outside experts tallied enforcement activity at the S.E.C. and the Justice Department, the two most powerful agencies policing the corporate and financial sectors. Comparing cases filed during the first 20 months of the Trump presidency with the final 20 months of the Obama administration, the review found:

• A 62 percent drop in penalties imposed and illicit profits ordered returned by the S.E.C., to $1.9 billion under the Trump administration from $5 billion under the Obama administration;

• A 72 percent decline in corporate penalties from the Justice Department’s criminal prosecutions, to $3.93 billion from $14.15 billion, and a similar percent drop in civil penalties against financial institutions, to $7.4 billion;

• A lighter touch toward the banking industry, with the S.E.C. ordering banks to pay $1.7 billion during the Obama period, nearly four times as much as in the Trump era, and Mr. Trump’s Justice Department bringing 17 such cases, compared with 71.

The full article is here.

Is there a duty to reconsider a report after its subject claims it is false?

by Paul Alan Levy

A recent trial court decision from New York addresses a question about which I have long held a tentative opinion, albeit without having known of any direct precedent to back up my view: When speaker states facts in an online publication that are not subject to defamation liability when made (because the speaker lacked sufficient reason to suspect falsity to meet standards of negligence or actual malice), but after publication the person criticized tells the speaker that the accusations are false, can the speaker be held liable for failure to remove or retract the critical speech? It has long been my assumption that such a duty to retract is fundamentally at odds with the single publication rule, under which the act of defamation is complete at the time of first publication, and with the rule that the speaker’s mens rea is judged at that time of first publication (so, for example, evidence of truth that is obtained after publication cannot be used to support summary judgment on lack of actual malice).

The issue comes up for lawyers who represent or advise consumers who criticize businesses or political figures but then face a demand for removal, when the consumer receives an ultimatum saying that the alternative to removal is a motion for a preliminary injunction compelling removal. Should the client be advised to take down the allegedly defamatory matter while counsel evaluates the case (my general inclination is to say no, and that’s what I advise in my CLE course about online free speech litigation). But an 2011 blog post by Eugene Volokh  takes the position, based on an excerpt from the Restatement of Torts as well as a handful of decisions, that such a duty exists. I have been dubious, but Professor Volokh has a habit of being right in this area of the law.