Consumer Law & Policy Blog

CL&P Roundup

by Deepak Gupta

Another Class Action Ban Bites the Dust: Yesterday, a Florida appeals court struck down a class action ban in an auto lease agreement. Among other things, the ruling was based on the fact that attorneys' fees under the state's trade practices statute are limited based on the damages awarded: "Precluding class representation for holders of small claims whose attorney’s fees are limited by the amount of their individual damages," the court observed, would "dramatically undermine" the statute's "private enforcement mechanisms."  Relatedly, a detailed new article in Lawyers USA surveys the ongoing battle over class action bans. The piece quotes not one, not two, but three of this blog's contributors--Paul Bland, Ira Rheingold, and Jon Sheldon.

More on Binding Mandatory Arbitration:  Reporter Stephanie Mencimer has a terrific new story in Mother Jones on the evils of mandatory binding arbitration clauses, with a focus on used car sales; she recounts her own family's unsuccesful attempt to buy a used car without submitting to BMA and discusses the legislation pending in Congress.  In a related blog post, she discusses how arbitration has hit one member of the military deployed to Iraq.  In the field of arbitration fora stacked in favor of big business, the National Arbitration Forum is the worst of the worst; on Sunday, one NAF arbitrator posted a comment on this blog (scroll down) responding to a year-old post by Paul Bland discussing NAF bias. Judge for yourself.

"It might just be a good Christmas for books or movies": So says Senator Durbin, in response to questions about shopping for toys this season in the wake of scandals over toy recalls and lax Consumer Product Safety Commission enforcement.  A broad consensus is emerging that something needs to be done about the CPSC. [via US PIRG and Consumerist]

A critical view of cy pres: In yesterday's Times, legal reporter Adam Liptak ran a column with a negative angle on the distribution of cy pres funds to charities.  The column, which leans heavily on the views of NYU prof Sam Issacharoff, discusses these two opinions by Judge Harold Baer of the Southern District of New York--issued before and after reversal by the Second Circuit, respectively.  The question before Judge Baer: When very few class members claim benefits, do you give those class members a share larger than their damages, or do you distribute the funds to related charities?  Liptak is a good reporter, but this column may paint a somewhat unrepresentative picture of the use of cy pres in consumer class actions; look for a response here soon.

Another Class Action Waiver Falls

by Brian Wolfman

The First Circuit today struck down a class action waiver contained in an arbitration agreement as unconscionable under Massachusetts law. In Skirchak v. Dynamics Research Corp, Nos. 06-2136, 06-2180 (Nov. 19, 2007), the court found the class action waiver unconscionable on the particular circumstances of the case -- which involved wage and hour claims.  Although the court noted academic commentary arguing that class action waivers are always unconscionable in small-claims cases, the court declined to rule on that larger question.  Worth a look.

Yesterday's Hearing on Arbitration

by Paul Bland

  Yesterday, Thursday, October 25, 2007, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held its second hearing on H.R. 3010, Rep. Hank Johnson's Arbitration Fairness Act. (This Subcommittee has jurisdiction over the bill.) H.R. 3010 would ban the use of pre-dispute binding mandatory arbitration in consumer, employment, franchise and medical contracts. (The first hearing was held on June 12th. I testified at it, and my testimony and a transcript of the hearing can be found on the Public Justice website.)

Three members of the Subcommittee attended the hearing. The first is Subcommittee Chairwoman Linda T. Sanchez. Rep. Sanchez has not yet co-sponsored the bill, but she spoke very sympathetically towards the situation of consumers and employees who have been treated poorly in mandatory arbitration systems. It also can’t be understated that Rep. Sanchez showed that she has put a lot of time into understanding the details of the issue, and she (along with her staff) have obviously put a great deal of work into interviewing and locating witnesses and giving both sides an opportunity to develop an extensive record. The second is Rep. Johnson, the sponsor of the bill, who is a courtly freshman representative from Georgia and a powerful orator. The third member was Ranking Subcommittee member Chris Cannon, who is a huge and uncritical fan of mandatory arbitration. In the course of carrying the water of the Chamber of Commerce on the issue, Rep. Cannon’s duties apparently include trying to craft personal attacks on anyone who comes forward with an individual story of having been abused by mandatory arbitration.

There were two panels. On the first panel:

Laura MacCleery, Director of Public Citizen's Congress Watch Division, who spoke about Public Citizen's report summarizing more than 34,000 arbitrations handled by the National Arbitration Forum in California, and who also spoke in some detail about the problem of arbitration clauses that ban class actions. I have written in several forums that our law firm’s experience (interviewing hundreds of consumers, and dozens of consumer lawyers, strongly supports the conclusions of Public Citizen’s groundbreaking report). Laura spoke with fervor and energy, and was very articulate. Rep. Cannon tried to get her to admit that Public Citizen’s report is very limited in scope, but Laura pointed out (correctly) that it covered EVERY SINGLE case that the National Arbitration Forum reported handling in California over a period of several years.

CL&P Roundup

by Deepak Gupta

• Chair of Product Safety Agency Says Beefing Up Her Agency Would "Harm" Americans:  In the wake of growing public concern over the number of unsafe toys and other products on the market, the chair of the Consumer Product Safety Commission, Nancy Nord, has told Congress that a Senate safety bill--which would more than double her anemic agency budget and expand its authority--would "put the American people at greater risk."  [U.S. PIRG Consumer Blog] [Washington Post].
• Postgame Coverage of the Arbitration Hearing:  For those of you who didn't get to attend or watch yesterday's hearing on binding mandatory arbitration, we plan to bring you the next best thing: Paul Bland of Public Justice will be posting his own expert observations on the proceedings.  In the meantime, here's some coverage from around the web: How Arbitration Steals Your Day in Court [MSNBC] and Liveblogging the House Judiciary Subcommitee Hearing [Consumerist].
• FTC Workshop on Privacy and Advertising:  On November 1st and 2nd, the Federal Trade Commission is holding a two-day workshop to address consumer protection issues raised by the tracking of consumers' activities online in connection with online advertising/behavioral advertising.  The agenda is available here.  Those who are interested but cannot attend can watch a live webcast here.
• Numbers Won't Be Dropped from the Do-Not-Call List (At Least For Now): The FTC has announced that it's not going to drop numbers from the do-not-call list, at least pending a final Congressional or agency decision on whether to make registration permanent.  Because of an internal scrubbing program that removes reassigned or disconnected numbers, there's no need to drop the numbers on the list.

View Live Webcast of Today's Hearing on Arbitration

View a live webcast of this afternoon's House Judiciary Committee hearing on the Arbitration Fairness Act, which started around 2:30pm, at this link.

Update: As of 2:59pm, the members are completing their opening statements and introductions and the witnesses are about to begin their statements.  The first round of witnesses is Laura McCleery, Governor Roy Barnes, Ken Conner, and the Richard Naimark of the AAA.

Congressional Hearing on Arbitration Fairness Act Tomorrow

by Deepak Gupta

We've blogged before about the proposed Arbitration Fairness Act, federal legislation that would end the scourge of pre-dispute mandatory binding arbitration clauses in consumer, employment, and franchise contracts.

Tomorrow, at 2pm, the U.S. House Judiciary Committee, Subcommittee on Commercial and Administrative Law,  will hold a hearing on the legislation.  The Committee is chaired by Rep. Linda Sanchez of California.

The witnesses tomorrow include Laura MacCleery, the director of Public Citizen's lobbying arm, Congress Watch, who will testify about the evils of mandatory binding arbitration in consumer disputes and the ways in which arbitral fora are used as assembly-line debt collection mills, thereby avoiding the protections that consumers would otherwise be afforded under federal law. As we've already mentioned here, Public Citizen recently released a report detailing how arbitration of disputes between consumers and credit card companies overwhelmingly favor the companies. The report, The Arbitration Trap: How Credit Card Companies Ensnare Consumers, is a detailed study of predatory practices in California, the only state that requires arbitration firms to publicly disclose information.

Tomorrow's lineup also includes:

• Richard Naimark, a VP at the American Arbitration Association, one of the big arbitration companies
• former Georgia Governor Roy Barnes, who now represents consumers as a trial lawyer
• Ken Conner, a conservative Republican trial lawyer who represents victims of nursing home abuse
• Cathy Ventrell-Monsees, representing the National Employment Lawyers Association
• Peter Rutledge, America's only pro-mandatory-binding-arbitration law professor.  (That's an exaggeration, of course.  But here's Rutledge's forthcoming law review article explaining why getting rid of mandatory arbitration would, in his view, actually harm consumers)
• Theodore Eppenstein, a lawyer who specializes in securities fraud cases

More on the Arbitration Trap

We recently posted here about a new report by Public Citizen's Congress Watch: The Arbitration Trap: How Credit Card Companies Ensnare Consumers.  Analyzing statistics on National Arbitration Forum cases in California, the report demonstrates that arbitrators rule for credit card companies and against their consumers in 94 to 97 percent of the cases.   

The report has gotten a good amount of attention in the past week, including an NPR Marketplace story by Helen Palmer that interviews Public Citizen president Joan Claybrook and law professor Elizabeth Warren, and lots of newspaper stories around the country.   Elizabeth Warren herself wrote a nice piece about the report, and the implications of the larger legislative battle, at TPM Cafe.

As we reported this summer, a comprehensive bill known as the Arbitration Fairness Act (H.R. 3010 and S. 1782) has been introduced in Congress; the proposed legislation would essentially gid rid of mandatory binding arbitration in consumer, employment, franchise, and civil rights disputes.  On the House side, the bill is gaining co-sponsors, including moderate and Republican members.  The legislation is also steadily attracting more news coverage -- though certainly not as much as it should be.  The Consumerists' coverage is also worth checking out.

Finally, co-blogger Richard Alderman has written law review article concluding that the Arbitration Fairness Act, or something along those lines, is the only realistic way out of the current morass -- The Future of Consumer Law in the United States: Hello Arbitration, Bye-Bye Courts, So Long Consumer Protection.

Public Citizen Report Documents Arbitration Abuses

Public Citizen's Watchdog Blog discusses a new report concluding that arbitrators rule for business between 94 and 97 percent of the time. From the blog:

In a nutshell, [binding mandatory arbitration] is a private, corporate-dominated secret “court” that overwhelmingly rules against consumers. In this world, merely by signing your name on the dotted line, you have forfeited your right to a trial by jury. If someone steals your identity and runs out to buy a $4,000 plasma TV – and the credit card company wants YOU to pay for it – the dispute will automatically bypass the public civil justice system. Instead, it goes straight to an arbitrator who may have heard thousands of cases for that same credit card company.

View the report here.

Working Paper on Buckeye Arbitration Case

Timothy S. Hall of the University of Louisville - Louis D. Brandeis School of Law has authored "Judicial Policing in Consumer Contracting after Buckeye Check Cashing." Here's the abstract:

The Supreme Court's 2005 decision in Buckeye Check Cashing v. Cardegna explicitly extended the Court's separability doctrine from commercial contracting to consumer contracting. This Article will discuss the conflicts between the traditional judicial role in policing the bargaining process and the imposition of mandatory arbitration through separability. The Article further discusses questions left open after Buckeye regarding the appropriate scope of the Court's embrace of mandatory arbitration in the consumer context. While this Article does not argue, as some have done, for abolition of binding pre-dispute arbitration clauses in the consumer context, it does argue that common-law doctrines designed to ensure fairness and freedom of assent in consumer contracting should be entrusted to those best able to apply them and implement their underlying policies — the courts.

You can download it here.

CL&P Roundup

• The Defense Perspective on the Rise in Class Arbitration:  An interesting new article by two big-firm defense lawyers in Metropolitan Corporate Counsel warns that the drafters of mandatory binding arbitration clauses should be careful what they wish for: "The pervasiveness of arbitration agreements that are silent on the issue of class proceedings . . . ensures that class arbitrations will occur with increased frequency, possibly resulting in large monetary awards or coerced settlement, and with little or no opportunities to obtain meaningful judicial or appellate review.  The widespread availability of class arbitration proceedings has eroded many of the traditional benefits of arbitration, making it a potentially time-consuming, expensive, and unpredictable process, and placing the continued popularity of arbitration as the 'preferred' method of dispute resolution at a critical and decisive point." 

• Two New Decisions Striking Class Arb Waivers.  Adding itself to the growing list of federal circuits, and distinguishing its own prior precedent, this week the Eleventh Circuit issued a great decision striking down a class action waiver in a case in which the plaintiff could not recover attorney's fees.  And the California Supreme Court, extending its landmark Discover Bank ruling considerably, issued a 4-3 ruling last week holding that class action bans may be unenforceable in the context of wage-and-hour claims and that a clause may be procedurally unconscionable even when the contract includes a 30-day "opt-out" provision.  The Eleventh Circuit decision is discussed in depth by Scott Nelson in the post below.

• Judge Young Speaks Out on the Value of Jury Trials:   Federal district judge William Young of Boston recently delivered a spirited speech to the Florida Bar on the role of the jury in American democracy.   Judge Young explains that the American jury system is "dying" because of a combination of, among other things, extravagant federal preemption defenses, mandatory binding arbitration, an increase in the use of summary judgment to prevent cases from going to trial.  No news there, perhaps, but it's rare to hear a sitting federal judge speak the truth about these things, and as candidly as Judge Young does.  It's worth a read.