CL&P Blog

Benoliel & Becher paper on form contracts that allow firms to end contracts without explanation

Uri Benoliel of Ramat Gan Law School and Shmuel I. Becher of Victoria University of Wellington have written Termination Without Explanation Contracts. Here is the abstract:

Firms routinely terminate their contractual relationship with consumers. During 2019-2020, for example, Facebook terminated 5.4 billion accounts that were supposedly fake; WhatsApp announced that it is terminating 2 million user accounts per month for apparently spreading fake news; and Discord, an online communication platform, terminated 5.2 million user accounts for allegedly publishing spam and exploitative content.

Terminating accounts that facilitate and promote fake profiles, fake news, spam, hatred, improper content or cheating makes sense. However, past incidents and consumer complaints indicate that firms often terminate their relationship with consumers without explanation, which is socially undesirable. First, if firms fail to explain to consumers the cause for termination, a hasty, unfounded, and erroneous termination is more likely to occur. Second, erroneous contract termination, fueled by lack of explanation, may generate significant costs to consumers. These may include the loss of sunk investments, emotional costs, and switching costs. Third, termination without explanation may be based on discriminatory, yet non-transparent factors. Such terminations may disproportionately target and harm vulnerable consumers, while eroding imperative societal values.

Given these risks and costs, this Article marks the first attempt to systematically and empirically study the phenomenon we dub "termination without explanation contracts"; i.e., consumer agreements that allow firms to terminate their contract without disclosing the reason for termination. In doing so, the Article examines the contractual termination mechanisms of 500 sign-in-wrap contracts of the most popular websites in the United States. The results of our study show, inter alia, that the vast majority of these contracts are non-transparent termination without explanation contracts. We therefore propose to impose a duty to explain on firms. We also present a transparency index that captures key aggravating factors and can help tackle the issue from a holistic approach.

Phony IP claims advanced to block Medicare pricing transparency

by Paul Alan Levy

A couple of months ago, South Carolina lawyer B. Craig Killough advanced vague intellectual property claims in objecting to a blog post by a California health policy expert who commented on some aspects of the pricing policies being followed by Palmetto GBA, one of the companies retained by the federal Centers on Medicare and Medicaid Services to process Medicare claims by health providers in several states. Responding to Killough’s demand letter, blog author Bruce Quinn initially took down both the specific billing codes, replacing them with hyperlinks to the demand letter, and also removed his hyperlink to the underlying spreadsheet showing the full range of billing codes and reimbursement prices, which had been obtained from CMS and from Palmetto itself under the Freedom of Information Act. Feeling its oats, Palmetto appears to have been encouraged by Quinn’s apparent retreat to reach out to CMS to get it to send Quinn a letter seeking to  "claw back" the FOIA disclosures.

But Killough ducked both emails and phone calls seeking to elicit an explanation for his intellectual property claims. Unlike Killough, a FOIA staffer at CMS was at least courteous enough to respond to inquiry, but was unwilling to be specific about the basis for seeking return of the FOIA disclosures. Consequently, we have now pushed back against both demands, first explaining to Killough why its Palmetto''s claims are nonsensical, and then telling CMS that Quinn is not willing to give back the document that was released to him under the FOIA.

Quinn observed that Killough’s demand letter and the subsequent coverage of the demand (here, subject to paywall, and here) had brought his blog post far more page views than it had originally received. Once Quinn restores the link to the spreadsheet itself, Palmetto’s botched demand letter is likely to prove far more counterproductive to its claimed interests.

Tort liability and Covid-19

Law prof Betsy Grey and law student Samantha Orwoll have written Tort Immunity in the Pandemic. Here is the abstract:

A fundamental premise of our common law tort system is that the risk of liability will help deter unsafe behavior. Yet, as we continue to battle the COVID-19 pandemic, proposals abound to shield businesses from tort liability. Politicians have even conditioned fiscal-stimulus for our ailing economy on passage of tort liability shields. This essay examines the pros and cons of such shields, and concludes that their questionable benefits do not justify loss of the deterrent value of tort liability. Although businesses would surely prefer to avoid lawsuits, those that act reasonably--even without tort immunity--face little risk of damage judgments and would be hard prey for plaintiff personal-injury lawyers. To be found negligent, businesses would need to flaunt such basic precautions as social distancing, gloves, masks and disinfecting measures. Presumably, we should not encourage such behavior by removing the tort system’s incentives to operate safely. And even if a business arguably could have done more to keep their customers and employees safe, plaintiffs would still have the tall burden of establishing causation--that they caught the disease because of the defendant’s neglect as opposed to other sources. Beyond all that, businesses already enjoy the protection of workers’ compensation laws, and strong defenses like regulatory compliance. On the other side of the equation, creating immunity shields may signal to employees and customers that they return to work or patronize business at their own peril--creating an anxiety that undermines the trust and confidence we want to instill to restart of our economy. Finally, other systems, such as insurance and government compensation funds, can be used to encourage businesses to reopen and stay open.

FTC Commissioner Chopra & Samuel Levine: why the FTC should resurrect its penalty offense authority

FTC Commissioner Rohit Chopra and his attorney-advisor Samuel A.A. Levine have wiritten The Case for Resurrecting the FTC Act’s Penalty Offense Authority. Here is the abstract:

This article details why the Federal Trade Commission should resurrect one of the key authorities it abandoned in the 1980s: Section 5(m)(1)(B) of the FTC Act, the Penalty Offense Authority. The Penalty Offense Authority is a unique tool in commercial regulation. Typically, first-time offenses involving unfair or deceptive practices do not lead to civil penalties. However, if the Commission formally condemns these practices in a cease-and-desist order, they can become what we call “Penalty Offenses.” Other parties that commit these offenses with knowledge that they have been condemned by the Commission face financial penalties that can add up to a multiple of their illegal profits, rather than a fraction.

Using this authority, the Commission can substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms. This would dramatically improve the FTC’s effectiveness relative to our current approach, which relies almost entirely on another authority, Section 13(b). Section 13(b) does not allow the Commission to seek penalties against wrongdoers, and it is now under threat in the Supreme Court.

We demonstrate in this article that in a number of key areas, including urgent concerns like online disinformation, the Commission can deploy the Penalty Offense Authority immediately. This can increase deterrence, since firms will pay a significant price for engaging in unfair or deceptive practices previously condemned by the Commission. We also outline how the Commission can deploy this authority to combat emerging harms, including illegal targeted marketing and deceptive data harvesting.

We close with a call for a broader rethinking of the Commission’s approach to combatting corporate misconduct. By inventorying its existing tools and deploying them strategically, the Commission can begin to turn the page on its checkered record and regain the public’s confidence.

The continuing role of state courts in the age of CAFA

That's the topic of The (Surprisingly) Prevalent Role of States in an Era of Federalized Class Actions by law prof Linda Mullenix. Here is the abstract:

In enacting the Class Action Fairness Act of 2005, Congress intended to expand access to federal courts for interstate class actions by creating minimal diversity and removal jurisdiction. Congress stated that a purpose of CAFA was to “restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.”

Despite CAFA, states have retained a role in addressing complex litigation aided by Supreme Court decisions recognizing the independent role of state courts in enforcing local legal norms.

Peacock Terms of Use include arbitration clause and cake recipe

by Jeff Sovern

Here. Which one do you think consumers are more likely to read? To understand? (HT: ContractsProf Blog)

Consumer law mask

Widman article examines whether state agencies changed their UDAP enforcement in the age of Trump

Amy Widman of Rutgers has written Protecting Consumer Protection: Filling the Federal Enforcement Gap, 69 Buffalo Law Review __ (2021) (Forthcoming). Here is the abstract: 

Since 2014, when a first-of-its-kind empirical study looked at how public enforcers use their authority under UDAP laws, the enforcement landscape has changed. Most notably, the Trump Administration has weakened enforcement on the federal level. In the wake of this political shift, many state enforcers rushed to fill the gap left by weak federal enforcement. At the same time, the state enforcers themselves experienced changes both internal (including changes to budgets and stated policy priorities) and external (electoral changes regarding state Attorneys General, changes to statutory authority, and other changes governing the enforcer’s authority).

This article presents findings from a follow-up study examining the public UDAP enforcement landscape in 2018. The principal finding from 2018 is that states employed substantially the same strategies toward UDAP enforcement as they did in 2014. This finding validates the central observation of both years’ studies of state UDAP enforcement: states can be characterized by distinct strategies of consumer protection enforcement.

This information alone offers insight into the remarkable stability of state UDAP enforcement, even across varied strategies and a changing landscape. Other findings also begin to shed light on how states might react to extreme changes in enforcement on the federal level. For example, even though six states have made public statements backed by concrete actions to attempt to fill an enforcement gap left by the absence of federal action, state enforcement case volume was up among all states. Public compensation, however, was down among all types of enforcement actions in 2018.

Finally, comparisons of enforcement case volumes and strategy across states that experienced other changes over the time period -- changes in leadership and statutory authority, for example -- mirrored the overall trend of an increase in enforcement coupled with a general strategic stability. Strategies as a whole do not seem closely aligned with partisan politics.

This study creates a needed point of comparison to the 2014 data, allowing stakeholders to ask deeper questions about how public enforcers should wield their discretion and authority to resolve consumer protection cases. With debt levels in America at an all-time high, and federal enforcement of consumer law at an all-time low, research-based action is urgently needed to sharpen our understanding of the role and potential effectiveness of institutions tasked with protecting consumers from fraudulent lending schemes and oppressive debt collection strategies as well as the myriad other types of consumer scams that lead Americans toward more debt. The data here give state officials and state-based reformers the information needed to maximize enforcement in a way that makes consumers’ lives better. 

New York adopts strong anti-SLAPP statute

by Paul Alan Levy

With a signature last week from Governor Cuomo, New York has become the latest state to enact a strong anti-SLAPP law.   Addressing flaws that came to the fore in our recent defense of Richard Robbins, the new statute considerably broadens the scope of speech covered by anti-SLAPP protections, and, requires a stay of discovery upon the filing of an anti-SLAPP motion, provides for the consideration of affidavits as well as pleadings in assessing whether there is “a substantial basis in law” for actions directed at protected speech, and requires, rather than simply permitting, awards of attorney fees when an anti-SLAPP motion is granted.

Unlike the anti-SLAPP laws in most states with such broad coverage, the New York statute does not contain exceptions for lawsuits aimed at commercial speech, suits filed in the public interest, or suits filed on behalf of state or local governments. It remains to be seen whether such amendments prove to be needed to prevent the application of the statute to cases far removed from the sort of oppressive lawsuits at which the sponsors were aiming, as enactment of such exceptions proved necessary in California after its pioneering anti-SLAPP law was enacted without those safeguards.

Do We Have To Tax Student Debt Forgiveness?

Student debt forgiveness is gaining traction among Democrats, with Senate Minority Leader Chuck Schumer calling on Joe Biden to forgive $50,000 of student debt via executive action during the first 100 days of his Presidency — that is, to adopt Senator Warren's plan from the primary.

Last night, Jason Furman—one of President Obama's top economists—tweeted that he opposed student debt forgiveness largely because debt forgiveness could be taxable income, undermining its goals. But, as others pointed out, Biden's Treasury Department would have authority over whether or not debt cancellation would be taxable income. Treasury has already provided a safe harbor for student loans that are cancelled through lawsuits or borrower defense to repayment (like when students were defrauded by predatory, for-profit colleges). You can read a paper by Georgetown Law Professor John R. Brooks arguing that Treasury has the statutory authority to exclude student debt cancellation from taxable income here.