A Comment on an American Tort Reform Association CPA Roundtable Event

by Jeff Sovern

Back in April, the American Tort Reform Association had a roundtable discussion about UDAP statutes with FTC Commissioner (and former George Mason professor) Joshua Wright, Joanna Shepherd-Bailey of Emory, Peter Holland of Maryland Law School, and Cary Silverman of Shook Hardy & Bacon. You can watch it here. Given the host, you can probably imagine that the speakers, other than Peter, were not sympathetic to UDAP statutes.  I wanted to address two of the arguments.

Professor Shepherd-Bailey argued that UDAPS statutes provide for multiple incentives to consumers, in the form of statutory damages, treble damages, and attorney's fees, and seemed to call for elimination of some of those incentives on the ground that fewer were needed. From a theoretical law-and-economics perspective, the statutes may indeed appear to provide for more incentives than needed.  But as a practical matter, that seems not to be the case.  An extensive literature, sparked by Best & Andreasen's classic article, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 Law & Soc. Rev. 701(1977), demonstrates that very few consumers do anything about defective products, much less sue.  Accordingly, existing incentives seem inadequate in the real world, rather than excessive. Sometimes, theory can lead people astray.

Second, one of the speakers (I'm not sure who as I listened to the roundtable while driving), argued that private claims under UDAP statutes should be limited because public agencies can enforce the statute.  Public agencies can and do enforce UDAP statutes, but are not able sufficiently to deter unfair and deceptive practices.  Sometimes that's because they lack resources (of course, industry often supports legislators who want to starve regulators of funds, as with the CFPB).  Other times, regulators don't get the job done because their focus is elsewhere or they are captured by the entities they are supposed to regulate. Here are two examples: while Congress gave the Federal Reserve the power to act against unfair and deceptive mortgages practices back in 1994--well before the subprime disaster--the Fed did not use that power until after the Great Recession hit years later. And while the Office of the Comptroller of the Currency was supposed to ensure the safety and soundness of national banks, when states enacted laws to prevent predatory lending, the OCC ruled that those laws were preempted as to its client banks.  The result of those actions, along with plenty of others, was that national banks made bad mortgage loans and needed bailouts.  Not a great argument for letting the agencies protect us by themselves. Don't get me wrong: agencies have an important role to play in protecting consumers, but so do private litigants.

Disclosure: My law school recently received a grant from the American Association for Justice for me and others to conduct research, though the research is not about private UDAP claims.

Subprime Mortgage Lending is Back

So says the Times. Not so much as before the Great Recession, and they're called non-qualified mortgages now, and maybe you can't get so-called "liar's loans" or negative amortization loans, but those with weak credit ratings can get mortgages again.

Fed Up -- the movie about sugar's relationship to the obesity epidemic

We posted yesterday about the New York Court of Appeals' decision invalidating the New York City Board of Health's ban on the sale of large sugary drinks. The Board of Health targeted sugar because it believed that the best science shows that excessive sugar consumption is at the root of the obesity epidemic. There's a new documentary on the topic, narrated by Katie Couric, called Fed Up. To watch the trailer, click here or on the embedded video below.

 

 

Court awards $306,750 in damages for KlearGear's misconduct

For those of you who have been following the saga of Palmer v. KlearGear (see here for a summary), a big development this week: On Wednesday afternoon in Salt Lake City, after hearing testimony from the plaintiffs John and Jen Palmer about the damages they suffered as a result of their ordeal, the judge awarded $102,250 in compensatory damages and $204,500 in punitive damages, for a total of $306,750. That was the number we were asking for on the Palmers' behalf, based on our evidence and the willful and outrageous nature of KlearGear's misconduct in abusing the credit reporting system to ruin John Palmer's credit because Jen wrote an online review expressing a critical opinion of the company.

At the hearing, our clients gave moving testimony, and the judge, after listening closely, asked a few questions of counsel before announcing the award from the bench.

In an interview with the reporter who first broke the story of the Palmers' difficulties as a result of KlearGear's misconduct, the Palmers expressed relief that John’s credit has been restored and said they hoped no one else would have to go through what they did.

Collecting the judgment against KlearGear (which, as you'll recall, failed to appear in court or answer the complaint) could be complicated, but for now, it's gratifying to see the judicial system stand up for consumers whom corporations have punished for expressing their opinion.

 

Drahozal on FAA Preemption After Concepcion

Christopher R. Drahozal of Kansas has written FAA Preemption after Concepcion, 35 Berkeley Journal of Employment and Labor Law 153 (2014, Forthcoming). Here is the abstract:

AT&T Mobility LLC v. Concepcion is an important case for its holding that the FAA preempts application of state unconscionability doctrine to invalidate an arbitration clause with a class arbitration waiver. But in a number of respects, the effect of Concepcion has been overstated, including its effect on application of state unconscionability doctrine to arbitration clauses. Concepcion does not preempt all or even most state unconscionability doctrine as applied to arbitration agreements. Properly construed, Concepcion preempts state unconscionability doctrine only when that doctrine conditions enforcement of arbitration agreements on procedures inconsistent with “fundamental attributes of arbitration” of the sort illustrated in Concepcion itself ― such as the use of juries, court-monitored discovery, evidentiary rules, and, of course, class arbitration. If, however, the Supreme Court were to construe Concepcion more broadly (or eliminate application of unconscionability to invalidate arbitration clauses altogether), courts would retain some residual authority to police the fairness of arbitration clauses, but only by finding a dispute resolution process not to be arbitration at all.

Chemerinksy: Supreme Court rulings making it harder and harder to maintain suits against government officials

Read this piece by law professor and dean Erwin Chemerinsky.

New York's highest court throws out New York City's ban on the sale of large sugary drinks

The New York Court of Appeals -- New York's highest court -- today threw out the New York City Board of Health's ban on the sale of large sugary drinks. The ban was a significant component of former NYC Mayor Michael Bloomberg's fight against obesity. Read the court's 4-2 decision and Michael Grynbaum's article about it. The first paragraph of Judge Piggot's majority opinion summarizes why the court did what it did:

We hold that the New York City Board of Health, in adopting the "Sugary Drinks Portion Cap Rule", exceeded the scope of its regulatory authority. By choosing among competing policy goals, without any legislative delegation or guidance, the Board engaged in law-making and thus infringed upon the legislative jurisdiction of the City Council of New York.

We have covered the ban extensively. Go, for instance, here, here, here, and here.

 

Auto safety and other consumer groups petition the FTC to take action against CarMax for claiming its used cars are safe, but failing to fix safety recalls before marketing them

Eleven auto safety and other consumer groups have petitioned the Federal Trade Commission (FTC), asking the agency to take enforcement action against the major national used-car seller CarMax. The groups say that CarMax claims its cars go through a rigorous safety inspection but that, in fact, CarMax does not fix defects that are the subject of regulatory safety recalls. The petitioners include Consumers for Auto Reliability and Safety, the Center for Auto Safety, Consumer Federation of American, Consumers Union, the National Association of Consumer Advocates, the National Consumer Law Center, and U.S. PIRG. The beginning of the groups' petition provides a nice summary:

The non-profit consumer organizations listed above submit this petition, seeking enforcement action by the Federal Trade Commission, to curb CarMax's deceptive advertising and sales practices, which endanger the lives of their customers, their families, other passengers, and everyone who shares the roads. CarMax is the nation's largest retailer of used vehicles. According to CarMax, it has sold more than 4 million cars. CarMax advertises on its website, on television, in newspapers, and at its dealerships that each of the used vehicles it offers for sale are “CarMax Quality Certified” and has undergone a rigorous, “125+ point inspection.” However, CarMax fails to ensure that safety recalls are performed prior to selling used cars to consumers. The New York Times recently reported that “CarMax, the nation's largest seller of used cars, offers a “Certified Quality Inspection,” which does not include fixing [safety] recalls."

Here is what the groups ask the FTC to do:

[I]nvestigate CarMax's advertising and sales practices and take all appropriate and necessary action in order to curb CarMax from selling unsafe, recalled used cars to the public. In addition to any other remedies or penalties that may be appropriate, we also urge the FTC to:

[1] Obtain VIN-specific information regarding the safety recall status of vehicles CarMax has already sold to the public, and release that information to the public

[2] Notify the owners of vehicles sold by CarMax that had safety recalls pending at the time of sale

[3] Enjoin CarMax from engaging in such irresponsible and reckless practices in the future

Read the groups' press release, the New York Times article discussed in the petition, and an article by LA Times reporter Jerry Hirsch.

Auto recalls hit all-time high for a year

As Jerry Hirsch explains, the number of vehicles recalled this year for safety problems has reached an all-time high (breaking the previous high established in 2004). It's June.

Arbitration in the Supreme Court and error correction

Law professor Christopher Drahozal has written Error Correction and the Supreme Court's Arbitration Docket. Here is the abstract:

Supreme Court Justices from William Taft to Stephen Breyer have repeated the maxim that the “Supreme Court is not a court of error correction.” When it comes to arbitration law, however, a number of the Court’s cases do little more than correct errors by lower courts. So why has error correction played such a significant role in the Court’s arbitration docket? One important factor is ongoing resistance to the Court’s arbitration decisions in the lower courts, to which a number of the Court’s error correcting decisions are a direct response. Another is that cases involving standards rather than rules necessarily require fact-based determinations, and the nature of the Court’s case selection process can result in the Court reviewing cases with one-sided facts that make little law. But, in addition, the generalist legal background of Supreme Court Justices (and their law clerks) leads them to overlook important nuances in the facts of arbitration cases before the Court on certiorari. These nuances give rise to several simple steps the Court could take to avoid some of its more limited decisions, including: (1) reviewing state court cases only when the issue presented does not also arise in cases in federal courts; (2) avoiding cases arising out of post-dispute arbitration agreements; and (3) choosing cases with typical arbitration clauses, not atypical ones.