Second Circuit tosses suit against Fed for AIG takeover

A succinct summary of today's opinion in Starr Int'l v. Fed. Reserve Bank of N.Y.:

This suit challenges the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY’s governing statutes and regulations, we hold that in this suit, state fiduciary duty law (including the state law cause of action for aiding and abetting breaches of state law fiduciary duty) is preempted by federal common law.

 

Tenth Circuit rejects "one-sidedness" as defense to arbitration clause

Even as the Supreme Court has aggressively wielded the Federal Arbitration Act to preempt state-law contract rules that prevent arbitration, state courts have still been able to use traditional contract doctrines to invalidate arbitration agreements that are unfairly "one-sided" -- for instance, where an agreement provides that a business gets to bring its claims in court but the consumer must bring her claims in arbitration.

In a decision that could have far-reaching implications, the Tenth Circuit rejected that reasoning yesterday in THI of New Mexico v. Patton, holding impermissible (and therefore preempted) under the FAA the New Mexico state courts' position that a business-goes-to-court-but-consumer-goes-to-arbitration agreement is unfairly one-sided. Because the FAA requires courts to treat arbitration as equal to litigation, reasoned the Tenth Circuit, courts cannot assume that consumers are being treated unfairly by being forced to arbitrate their claims even though the business who drafted the arbitration agreement chose to retain its own access to courts. That view, according the Tenth Cicuit, is premised on the notion that arbitration is inferior -- a view that contravenes the FAA. (One wonders: if arbitration is so great, why would a business force only its prospective opponents to go there, while reserving its own right to go to court?)

If this reasoning is picked up in other courts, consumer advocates will have lost a critical tool in challenging arbitration agreements.

Paper on the Ethics of Payment Mechanisms

James Angel of Georgetown's Finance Department and Douglas M. McCabe of Georgetown's Management Department have written The Ethics of Payments: Paper, Plastic, or Bitcoin?  Here is the abstract:

Individuals and businesses make billions of payments every day in various forms. Payers have choices about what forms of payment they will make, and payees also have some flexibility on what they will accept. Different forms of payment involve different costs and benefits for both the payer and the payee.  Can it be unethical to use a particular form of payment? Can a payment system like bitcoin be “evil,” as charged by Krugman (2013)?  Or does it provide a means for a more trustworthy means of payment? What are the ethical implications of paying workers with one form of payment, such as a fee-laden payroll card, over another? What are the ethical implications of choosing a payment tool, such as a rewards credit card, that imposes higher costs on the merchant?  The differential nature of bargaining power between the users and operators of the dominant payment networks also raise ethical questions regarding the fairness of charges in such asymmetric power situations.  A payment system, like any tool, is not “evil” by itself; it is the use that matters.

In significant victory for tenants, California appellate court interprets Protecting Tenants Against Foreclosure Act to do just that

Last week in Nativi v. Deutsche Bank, the California Court of Appeal applied the federal Protecting Tenants Against Foreclosure Act of 2009 (PTFA) to revive two renters' state-law claims against the bank that bought the property they were renting.

Rosario Nativi and her son Jose Perez had been living in their home in Sunnyvale, California, for several years under a series of rental agreements, when ownership changed hands because of a foreclosure. Deutsche Bank, the new owner, evicted Rosario and Jose, threw their belongings into the backyard and destroyed them, and refused to let them back into their home (enlisting the police to help keep Rosario and Jose out). Rosario and Jose sued, asserting (among other things) wrongful eviction and related state-law torts. The trial court granted summary judgment to the bank, concluding that the foreclosure sale extinguished the lease with the prior owner, and with it, the rights of Rosario and Jose as tenants.

In last week's decision, the appellate court reversed, holding that the PTFA "causes a bona fide lease for a term to survive foreclosure through the end of the lease term subject to the limited authority of the immediate successor in interest to terminate the lease, with proper notice, upon sale to a purchaser who intends to occupy the unit as a primary residence." As a result, when a bank acquires a property through foreclosure, it does so subject to the terms of the tenants' lease from the prior owner. 

 

The door revolves

William Alden explains that Shiela Bair, former Chair and board member of the Federal Deposit Insurance Corporation, has joined the board of the Spanish bank Banco Santander. She left the FDIC in 2011 and said the next year in her book about the financial crisis that “I would like to see financial regulation be viewed as a lifelong career choice – similar to the Foreign Service – rather than a revolving door to a better-paying job in the private sector. ... There should be a lifetime ban on regulators working for financial institutions they have regulated.” Santander is headquartered in Spain, but according to Alden, "has extensive operations in the United States, with $50 billion in deposits and 705 branches. That division is supervised by the F.D.I.C. in a back-up capacity. The company also owns a bank in Puerto Rico that is regulated by the F.D.I.C. and local authorities."

CFPB issues consumer advisory on data breaches (such as the Target data breach)

We've covered the Target data breach and posted pieces (here, for instance) suggesting what consumers can do to mitigate the risks from that breach and others like it. Now, the Consumer Financial Protection Bureau has issued a consumer advisory of its own on the topic. The agency has also issued a press release, which I'm reproducing in full below (including after the jump):

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) published a consumer advisory to help consumers protect themselves in the wake of the recent breaches of payment card and other data. The advisory also contains information on where to get help if consumers suspect their information has been compromised.

“Consumer financial products often involve significant amounts of consumer data,” said CFPB Director Richard Cordray. “In light of recent data breaches, we want to be sure that consumers know how to protect themselves and where to turn if they do suspect fraud.”

The consumer advisory can be found at: http://files.consumerfinance.gov/f/201401_cfpb_consumer-advisory_card-security.pdf

Payment cards such as credit, debit, and prepaid cards are among the most commonly used consumer financial products. Over 70 percent of Americans have at least one credit card. Debit cards are now used for more consumer purchases than credit cards, and prepaid card use is continuing to grow. In recent months, data breaches have apparently exposed millions of payment card accounts to potential fraud. In addition, millions of consumers’ names, phone numbers, emails, and addresses also appear to have been stolen separately from card information.

Today’s consumer advisory includes steps consumers can take to protect themselves from data theft:

Call for Papers: Legal and Ethical Issues in Predictive Data (Including Consumer Protection Issues)

RESEARCH COLLOQUIUM: CALL FOR PAPERS

LEGAL AND ETHICAL ISSUES IN PREDICTIVE DATA ANALYTICS

June 19 & 20, 2014

Blacksburg, Va.

Abstract Submission Deadline: March 3, 2014

A research colloquium, “Legal and Ethical Issues in Predictive Data Analytics,” hosted by Professor Janine Hiller of Virginia Tech and co-organized by Professor Tonia Hap Murphy of the University of Notre Dame, is sponsored by the Center for Business Intelligence and Analytics in the Pamplin College of Business, Virginia Tech. Topics include privacy and data security and consumer protection: price discrimination, targeting.

Up to four invitations for research presentation slots will be extended based on this call for papers. In order to receive consideration, researchers are invited to submit an abstract by March 3, 2014.

Continued below the fold.

Employers oppose opening up OSHA's workplace injury/illness database

OSHA has proposed making public workplace illness and injury reports, but employers are opposed and have asked their lawyers to try to nix the proposal. Read Jenna Greene's article here.

HIV drug pricing case leads to significant gay rights decision

An antitrust dispute between two pharmaceutical companies over the licensing and pricing of HIV drugs was the setting for a significant ruling from the Ninth Circuit this week regarding discrimination against gay jurors. Applying heightened scrutiny to LGBT jurors, the court held that using a peremptory strike to dismiss a gay juror violates the constitution. That the subject-matter of the case -- the pricing of HIV medication -- related to a subject of controversy within the gay community did not excuse striking a gay juror, the court explained; rather, "[t]he potential for relying on impermissible stereotypes in the process of selecting jurors was 'particularly acute'" as a result.

Ninth Circuit rejects attempt to limit credit card fees based on protections for companies against punitive damages

[Update: David and I were clearly on the same page this morning -- by the time I finished writing this post, he had already just posted on the same case. I'll leave my thoughts up as a complement to his.]

In an opinion sympathetic in tone to the problems of ordinary consumers but ultimately unable to apply the law to help them, the Ninth Circuit this week rejected a creative argument to protect consumers from exorbitant credit card overdraft and late fees using the due-process protections that shield corporations from large punitive damage awards. The opinion and Judge Reinhardt's "reluctant" concurrence are worth a read -- the former as an example to rebut the conservative charge that roving liberal "activist" judges habitually disregard the law in favor of their own policy preferences, and the latter for a primer on how the Supreme Court has been "activist" in the other direction, helping corporations avoid large punitive damages awards based on questionable constitutional analysis.

Judge Reinhardt concludes:

The judiciary is just beginning to explore the principles that the Court has offered in justification of its new constitutional rule and the time for an expansion of its punitive damages jurisprudence may not yet have arrived. I believe, however, that in the end the principles of fairness and equality will dictate that consumers are entitled to (at least) the same constitutional rights as corporations.