Knapp on the Duty to Read

Charles L. Knapp of Hastings has written Is There a 'Duty to Read'? in Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical 315 (Jean Braucher, John Kidwell, & William C. Whitford eds.  2013).  Here's the abstract:

The notion that there is in general contract law a “duty to read” persists in the decisions of American courts.  This chapter explores the question of what it may mean today to say that there is a “duty to read,” and concludes by suggesting what role (if any) that doctrine should play in our present-day law of contract. 

The chapter begins by examining various ways in which the “duty to read” is commonly articulated, and compares it to other contract law concepts: the “duty to bargain in good faith” and the “duty to mitigate damages.” It points out that, like the “duty to mitigate,” the “duty to read” (DTR) is not technically a “duty” but rather a limitation on a party’s ability to assert what would otherwise be available claims or defenses under the rules of contract law. Sometimes described as a “conclusive presumption,” the DTR is in practice more of a rebuttable presumption – a “presumption of knowing assent” – permitting the adhering/signing party to overcome in some situations the legal fiction that she has in fact read and understood whatever written agreement she has signed onto. 

The chapter next considers a variety of ways in which the DTR may be countered or overcome.  These include:  interpretation (often “against the drafter”); lack of “true assent” for some reason (such as forgery, lack of authority, or duress);  mistake, either mutual or unilateral; fraudulent misrepresentation (or wrongful nondisclosure) of either the nature or contents of the writing, or fraud in the inducement; and other doctrines such as reasonable expectations or unconscionability.  The chapter also notes and evaluates policy arguments for the DTR rule, such as  the law’s desire to insulate a written agreement from later challenge (similar to the justification for the parol evidence rule); application of the estoppel principle to protect a drafter who has relied on the other party’s representations of knowing assent; and the view that adherence to an agreement can properly be seen as a sort of “blanket assent” to its contents.

Having sketched the legal background of the DTR, the chapter then proceeds to examine a selection of some two dozen cases, all later than 2005, which discuss and in some cases rely on the DTR rule.  In many of these cases the adhering party was indeed prevented by the DTR from defending against enforcement. In some, however, one of the defenses described above proved successful.

Finally, after thus enumerating the ways in which the DTR should not be applied, the chapter concludes by asking:  If the DTR is seen as essentially a “rebuttable presumption of knowing assent,” what role should that principle play in protecting a written agreement from attack of one kind or another?  Assuming we trust judges and juries to perform responsibly and fairly their respective fact-finding tasks, it seems all that remains is a probably noncontroversial proposition: One who knowingly and voluntarily assents to a contract whose terms are contained in a given writing should be held legally responsible for her actions by being held to those terms, in the absence of fraud, mistake, or other excusing cause.

California Supreme Court addresses impact of Concepcion and Italian Colors

by Deepak Gupta

In a 70-page opinion by Justice Goodwin Liu, the California Supreme Court on Thursday issued its eagerly anticipated decision in Sonic-Calabasas v. Moreno. Addressing the impact of both AT&T Mobility v. Concepcion and American Express v. Italian Colors for the first time, the court makes clear that unconscionability -- focused on whether a contract is unfairly one-sided -- remains a viable defense to individual arbitration agreements in California. Both the majority opinion and dissent are long and dense; what follows are just some initial impressions. (Moreno is not a putative class action and the decision has little to say about class-action waivers.)

In an earlier 4-3 ruling in this case, just two months before Concepcion, the California high court had held "as a categorical rule" that it was "contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, a dispute resolution forum established by the Legislature to assist employees in recovering wages owed." In short order, the U.S. Supreme Court granted, vacated, and remanded that decision following Concepcion. 

Justice Liu's new opinion carefully explains both the reach and the limits of Concepcion and Italian Colors, holding that the Federal Arbitration Act preempts the categorical state-law rule announced in the court's earlier opinion, but fully preserves defenses available under generally applicable state contract law, including unconscionability, so long as state law doesn't discriminate against arbitration or mandate procedures "inconsistent with the fundamental attributes of arbitration." The opinion emphasizes that the unconscionability defense turns on whether the contract is "unfairly one-sided" and that a trial court's assessment of the defense may require consideration of evidence about the specific arbitral scheme at issue -- evidence that, here, will have to be considered for the first time on remand.

The vote was 5-2 to remand for further proceedings on the plaintiff's unconscionability defense, with a concurring opinion by Justice Corrigan and a concurring and dissenting opinion by Justice Chin. Justice Chin's dissent takes issue with many aspects of the majority's decision. As a procedural matter, he says, the court shouldn't have even considered the unconscionability defense because the plaintiff forfeited it. But the central thrust of the dissent is to accuse the court of adopting a "vague" and "unworkable" test for unconscionability that, in his view, is prempted under both Concepcion and Italian Colors. Justices Corrigan, Chin, and Baxter would limit unconscionability to the 19th-century "shocks the conscience" test rather than the modern one-sidedness test. 

Interestingly, the concurrence and dissent characterize California's generally applicable one-sidedness inquiry as too vague and insufficiently deferential to arbitration. But the whole point of the FAA is that state court's aren't supposed to modify the state's common law of contracts to account for the fact that an arbitration agreement is at issue. Short of parroting the indeterminate "shocks the conscience" standard, it's quite unclear what an unsconsionability defense would look like under the dissenters' approach.

Predicatably, defense lawyers are already criticizing Justice Liu's opinion for preserving even the limited, generally applicable unconscionability defense outlined in the opinion. But they seem to acknowledge that the case would be a poor candidate for Supreme Court review at this stage: "It is unclear if there is a suitable federal basis for the U.S. Supreme Court to take up the case," one defense firm observes, "nor is it clear that the defendant will even seek review in advance of a ruling upon remand that the arbitration agreement is, in fact, unconscionable."

Huge deal in the works between federal government and JP Morgan over mortgage securities fraud

As Sari Horwitz and Danielle Douglas report,

JP Morgan, the nation’s largest bank, has reached a tentative agreement with the Justice Department to pay a record $13 billion to resolve allegations that it knowingly sold faulty mortgage securities that contributed to the financial crisis, a person familiar with the talks said Saturday. If finalized, the deal would be the largest penalty ever paid by a single company, representing a tremendous win for the government after years of public criticism over its struggle to hold Wall Street accountable for its crisis-era misdeeds. It would also leave JPMorgan and its executives still at risk of criminal prosecution, a humbling concession.

 

Paper on the Telephone Consumer Protection Act and Changing Technology

Daniel B. Heidtke, Jessica Stewart and Spencer Weber Waller, all of Loyola of Chicago's School of Law and its Institute for Consumer Antitrust Studies have written The Telephone Consumer Protection Act of 1991: Adapting Consumer Protection to Changing Technology.  Here is the abstract:

In the late 1980’s, spurred on by advances in technology, the telemarketing industry began aggressively seeking out consumers in the hundreds of thousands.  Companies began using machines that automatically dialed consumers and delivered prerecorded messages (“robocalls”).  Marketers also took advantage of another new and increasingly available piece of technology known as the facsimile machine (“fax machine”).  With the fax machine, marketers could now send tens of thousands of unsolicited advertisements (“junk fax”) each week to consumers across the nation.

Consumers and businesses became overwhelmed with unsolicited telemarketing calls and advertisements. Calls for action grew louder.  States enacted laws, but could not reach the interstate practices of telemarketers. After reviewing and debating ten different pieces of legislation, Congress enacted the Telephone Consumer Protection Act of 1991 (“TCPA”).

The primary focus of this report is the Telephone Consumer Protection Act of 1991.  The TCPA was born out of abusive telemarketing practices, made more intrusive by advances in technology.  Originally, the TCPA imposed restrictions on the use of telephones for unsolicited advertising by telephone and fax.   The TCPA has since been expanded and adapted by administrative rule, judicial interpretation, and congressional amendment.

The original purpose of the TCPA was to regulate certain uses of technology that are abusive, invasive, and potentially dangerous. The TCPA effectively regulates these abuses by prohibiting certain technologies altogether, rather than focusing specifically on the content of the messages being delivered. The expansion of the TCPA into areas outside of telemarketing and new technologies over the years is consistent with its original purpose.

Private parties are largely responsible for the enforcement of the TCPA, and have done so primarily through the class action mechanism. While this has drawn some criticism because of the provision of high statutory damages, the threat of class action has provided a significant deterrent to violators.  Historically the government has only enforced the TCPA to a limited extent, yet the statute has been relatively successful in reducing the conduct it was enacted to regulate.

Technology is again rapidly changing and a number of trends are emerging. The number of entities that are operating in intentional disregard of the TCPA are growing, and they are using technology to help evade detection and enforcement. According to the FTC, about 59% of phone spam cannot be traced or blocked because the phone calls are routed through “a web of automatic dialers, caller ID spoofing and voice-over-Internet protocols.”  Although the traditional scheme of TCPA enforcement, with its strong reliance on the private right of action, has been successful in the past, two main issues are becoming clear. The private right of action is limited in both incentivizing lawsuits against, and deterring the actions of, intentional violators; and FCC enforcement is limited by its slow process.

In order for the TCPA to stay relevant over twenty years later, certain modifications and improvements can be made. We recommend improving government enforcement efforts and increasing the uniformity of interpreting the statute. The FTC's recent contest for a technical solution to robocalls is commendable, and should be followed with respect to other types of media currently exposed to unsolicited commercial messages such as text messages and e-mail.

In order for the TCPA to continue to remain relevant going forward, this report recommends:

1. Increase government enforcement of the TCPA by providing State Attorney Generals with a larger incentive to bring TCPA cases, and empowering the FTC to bring suit under the TCPA;

2. Increase uniformity of application of the TCPA by encouraging more frequent and quicker FCC rule making procedures;

3. Continue to protect cell phones by requiring prior express consent for any communication (call or text) made to a cell phone;

4. Place a time limit on the Junk Fax Established Business Relationship;

5. Create incentives for fax broadcasting companies to determine whether the faxes they are sending on behalf of clients are in violation of the TCPA;

6. Rebuff efforts to remove or otherwise modify the private right of action; and

7. Place additional restrictions on entities that enable caller ID manipulation.

More from the Times on Medical Debt

Yesterday I blogged about a Times report on medical debt.  Today the Times published an editorial, Alarming Abuses of Medical Credit Cards, as well as some letters on the matter. 

CFPB Dodges Challenge to Its Constitutionality

Yesterday, Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia dismissed an action that claimed that the structure of the Consumer Financial Protection Bureau and the enforcement powers granted it violate separation-of-powers principles. The decision, in a case called Morgan Drexen v. CFPB, is here. The dismissal was on procedural grounds that essentially kicked the claims of unconstitutionality to another district court for decision in the context of a CFPB enforcement action.

The case was brought by a company that feared an imminent CFPB enforcement action, as well as one of the company's customers who was not a target. (The company says it provides contract paralegal services, and the customer is an attorney who uses those services.) Shortly after the lawsuit was filed in DC, the CFPB did bring an enforcement action in a federal court in California.

Relying heavily on a 1987 decision of the DC Circuit dismissing Michael Deaver's separation-of-powers challenge to the independent counsel statute, Judge Kollar-Kotelly held that neither injunctive nor declaratory relief on the plaintiffs' constitutional claims would be inappropriate, because the company could raise those claims defensively in the CFPB's action in California. As for the individual plaintiff, Judge Kollar-Kotelly ruled that she lacked standing because she was not a subject of enforcement by the CFPB, and her assertion that she had standing because CFPB's demands for information from the company might have exposed privileged information didn't stand up under the circumstances.

 

Times Article on Medical Debt

by Jeff Sovern

The Times published an article on medical debt earlier this week, Patients Mired in Costly Credit From Doctors.  The gist of the article was that doctors establish relationships with lenders which then give credit to patients so that patients can obtain medical treatment.  That sounds innocent, and even helpful, to patients who might not otherwise be able to finance needed treatment.  But there are problems.  Doctors recommending lenders may think more about the fact if patients can't obtain financing, the doctors will lost business than of their patients' best interests.  Consequently, doctors may suggest lenders who lend on poor terms.   Another problem, not really discussed in the article, is that the trust patients feel for their doctors may cause patients to follow doctors' recommendations for a lender without comparison shopping, especially at times of vulnerability.  That may result in patients opting for bad deals and undermines the federal Truth in Lending Act which is designed to facilitate comparison shopping. My own view is that lawmakers should oblige doctors recommending lenders to use the same high standards they use in recommending treatment. If doctors bank on that trust, it should be warranted

The right (or not) to anonymous speech

The Supreme Court has protected the right under the First Amendment to anonymous speech, except when it hasn't (as when it has upheld campaign contribution disclsoure laws, where the interest in anonymity was overriden by other important social goals). In Does 'The Freedom of the Press' Include a Right to Anonymity? The Original Understanding Robert Natelson

examines legal and historical evidence to determine whether, as some have argued, the original legal force of the First Amendment’s "freedom of the press" included a per se right to anonymous authorship. The Article concludes that, except in cases in which the press had been abused, it did. Thus, from an originalist point of view, Supreme Court cases such as Buckley v. Valeo and Citizens United v. Federal Election Commission, which upheld statutes requiring disclosure of donors to political advertising, were erroneously decided.

New York's highest court agrees to hear Mayor Bloomberg's appeal on large soda ban

We have covered extensively (for instance, here, here, and here) the ban on the sale of large, sugary drinks by New York City's health department. A state-law-based challenge to the ban by merchants and others succeeded in a New York trial court and an intermediate court of appeals. Yesterday, however, New York's highest court (the New York Court of Appeals) agreed to hear Mayor Bloomberg's appeal. The mayor says that's good news, and he expects the high court to uphold the ban.

Richards on the Constitutionality of Data Privacy Law

Neil M. Richards of Wash U. has written Why Data Privacy Law Is (Mostly) Constitutional, forthcoming in his book, Intellectual Privacy, Oxford University Press (2014).  Here's the abstract:

This essay argues that privacy critics arguing that most privacy rules create constitutional problems overstate their case.  Since the New Deal, American law has rested on the wise judgment that, by and large, commercial regulation should be made on the basis of economic and social policy rather than blunt constitutional rules.  This has become one of the basic principles of American Constitutional law.   Although some observers have suggested that the Supreme Court’s recent decision in Sorrell v. IMS Health (2011) changes this state of affairs, such readings are incorrect.  Sorrell involved a challenge to a poorly-drafted Vermont law that discriminated on both content and viewpoint.  Such a law would have been unconstitutional if it had regulated even unprotected speech.  As the Sorrell Court made clear, the real problem with the Vermont law at issue was that it didn’t regulate enough, unlike the “more coherent policy” of the undoubtedly constitutional federal Health Insurance Portability and Accountability Act of 1996.

Data privacy law should thus rarely be thought as implicating serious constitutional difficulties, which is a good thing.  As we move into the digital age, in which more and more of our society is affected or constituted by data flows, we face a similar threat.  If “data” were somehow “speech,” virtually every economic law would become clouded by constitutional doubt.  Economic or commercial policy affecting data flows (which is to say all economic or social policy) would become almost impossible.  This might be a valid policy choice, but it is not one that the First Amendment commands.  Any radical suggestions to the contrary are unsupported by our Constitutional law.  In a democratic society, the basic contours of information policy must ultimately be up to the people and their policymaking representatives, and not to unelected judges.  We should decide policy on that basis, rather than on odd readings of the First Amendment.