Forced Arbitration Isn't Just for Employees of Corporations Anymore. It's Also for Your Housekeeper.

The Virginia Supreme Court has enforced an arbitration agreement against a housekeeper who sought to sue her former boss after he physically assaulted her.

By this point, like it or not (not), consumer and worker advocates expect to find arbitration clauses hidden in virtually all of our form contracts, whether it be for our cell phones, credit cards, online purchases, or mortgages. And we certainly wouldn’t be surprised to find them in the employment contracts of employees working for companies, particularly large ones. But finding an arbitration agreement that’s been foisted on the live-in housekeeper by her individual homeowner-employer is unexpected. In other words, just when you think arbitration unfairness can’t get any worse, it does.

Here, the live-in housekeeper signed a one-page agreement to arbitrate that was presented to her by her employer, a car dealership owner, sometime after she started working, and it contained no other agreement about her pay, hours, or other terms of employment. A few years later, the employer beat the housekeeper after she accepted service of his witness summons in an unrelated case (apparently, he really dislikes being in courts). Her employment ended, and she sued the car dealer.

One extra element of unfairness is that car dealers as a group ran to Congress to get protection for themselves from mandatory arbitration, with respect to their disputes with car manufacturers.  Potentially motivated by the huge sums of money that car dealers contribute to campaigns each year, the Congress passed a law in 2001 that exempted car dealers from the Federal Arbitration Act with respect to their disputes with Ford, GM, Toyota, etc. At the time, the head of the car dealers’ trade association promised Congress that car dealers would support legislation banning car dealers from using arbitration clauses against their own customers. That promise was promptly broken, and today nearly all car dealers force their customers to sign arbitration clauses before they can buy a car. No wonder the homeowner-car dealer here was familiar with the power of arbitration agreements. 

In this case, Schuiling v. Harris, the Virginia Supreme Court sent the dispute to arbitration (decision here). The issue before that court was whether the provision designating the now-unavailable National Arbitration Forum (NAF) was severable, or whether the unavailability of the arbitration forum defeated the agreement altogether. The court reasoned that because the contract had a non-severability clause and because the contract was only about arbitration, it could still be enforced. Implausibly, the court assumed that housekeeper was familiar with the state statute that provided for a court-designated arbitrator in the event the designated arbitrator was unavailable. Right. My colleague Paul Bland has historically blogged extensively about the problems with courts rewriting arbitration clauses that had designated the shut-down-by-state-authorities, corrupt NAF.

Aside from the (large) NAF problem in this case, the fact that an individual homeowner foisted an arbitration agreement on his already employed housekeeper and then successfully used it to get out of a case in which he was alleged to have assaulted her is disconcerting. It’s one thing for me to have to arbitrate my dispute with AT&T over my phone bill—after all, I don’t live with AT&T, and any dispute is likely to be over money. I am almost certainly still getting the short end of the stick, and, as a consumer rights attorney, I sort of expect not to be able to hold AT&T accountable for treating me poorly anymore. It seems very different in kind for an individual homeowner to be able to invoke forced arbitration over his assault of his individual domestic employee—different perhaps because the employer’s power grab is personal, violent, and transparent. Not to mention a million miles away from the policy justifications spouted by arbitration apologists.

I admit, this case makes me a little sick, but what’s even scarier is that the unanimous Virginia court didn’t bat an eyelid.

This post originally appeared on the Public Justice Blog.

U.S. Chamber of Commerce increasingly active in lower courts

...filing pro-business, often anti-consumer briefs. Reuters has the story, which provides as one example a case in which the Chamber "argu[ed] that a landfill operator should not have to pay certain damages to nearby residents for the irritating or offensive odors the facility produced. In August, the court issued a ruling in line with what the Chambers was seeking, which will likely lead to a reduction in the $2.3 million jury verdict against operator Lee County Landfill LLC."

Essay on why low-income people don't have bank accounts

Many low-income people don't have bank accounts and have to pay fees and incur other costs to get access to their money. Lisa Servon at The Atlantic has written"The Real Reason the Poor Go Without Bank Accounts." Read the whole thing and take a look right now at Servon's concluding paragraph:

The banking industry needs to develop different fee and service structures designed to accommodate lower income depositors in much the same way banks currently provide VIP treatment to high-net-worth individuals. A good start would be to limit overdraft fees, and to rethink the use of private databases like ChexSystems that currently keep more than a million low income Americans from being able to open accounts. Tellers need to remember that every customer is more than the number of digits in his account balance and deserves service and respect.

Two Recent Decisions on Class Certification – One Devastating, One Practical

Consumers’ ability to address and seek redress for deceptive practices through private litigation is threatened by a recent decision of the Third Circuit Court of Appeals. In Carrera v. Bayer (like the FTC case discussed in the post below, a case about deceptive practices involving a dietary supplement), the court recently held that, if the defendant does not have purchase records, a consumer class action cannot be certified based on sworn customer affidavits. The court stated the "rigorous analysis" requirement for class certification "appl[ies] to the question of ascertainability," which the court called an "essential prerequisite of a class action." (Where is ascertainability found in Rule 23? It is not.)

Defense-side lawyers have been rightly touting the decision as a huge win (see here and here, for example), and an article in Law 360 noted that the Third Circuit has adopted “Unheard-Of Consumer Class Action Hurdle.”

Meanwhile, a recent Seventh Circuit decision took a different approach. In Hughes v. Kore of Indiana Enterprise, Inc., plainitff in the case alleges that two of the defendant’s ATMs lacked a statutorily required notice about fees. The court recognized the importance of class actions when the potential maximum recoveries by of class members are small and identity of every class members cannot be ascertained for sure.

In Hughes, as in Carrera, the class members' names and addresses were unknown, so individual notice would not be possible. The court stated that posted notices about the lawsuit on the two the ATMs, a notice in the local newspaper, and a website would be adequate to inform the class and identify class members. The court noted that many class members would not see the notices, and therefore not know of their right to opt out of the class, but that concern was not a barrier to class certification because no class member "has a damages claim large enough to induce him to opt out and bring an individual suit for damages."

Reversing a district court order denying class certification, Judge Posner, writing for the 3-judge panel, noted that "a class action, like litigation in general, has a deterrent as well as a compensatory objective."

Although the two cases on the surface are discussing different aspects of class certification: in one ascertainability, and in the other, notice, the underlying issues are very much related and the courts' perspectives are strikingly different. The Hughes case now returns to the district court for further proceedings, while the plaintiffs in Carrera have indicated that they plan to file petition for rehearing by the appellate court. 

FTC mails $200,000 in checks to Wal-Greens customers who bought Wal-Born supplements

The FTC reported yesterday 7,979 checks averaging $27.42 each to consumers who bought "Wal-Born" dietary supplements sold by the pharmacy chain Walgreens are now being mailed. The FTC’s press release explains:

In 2010, Walgreens settled FTC charges that it deceptively advertised that the supplements could effectively prevent colds, fight germs, and boost the immune system.

The company touted the similarity of Wal-Born supplements to those sold by Airborne Health, Inc., which settled similar deceptive advertising charges by the FTC in 2008.

The checks, which total $218,750.00, must be cashed within 60 days after they are issued.  The amount consumers receive depends upon the amount of claims they submitted that were approved The redress is capped at $30 per consumer.

Skiba Paper: Tax Rebates and Payday Borrowing

Paige Marta Skiba of Vanderbilt has written Tax Rebates and the Cycle of Payday Borrowing.  Here's the abstract:

I use evidence from a $300 tax rebate to test whether receipt of this cash infusion by payday borrowers affects the likelihood of borrowing, loan sizes, or default behavior. Results from fixed-effects models show that the rebate decreased the probability of taking out a payday loan in the short run. These impacts are most apparent among credit-constrained, infrequent borrowers. Those who take out loans around the time of the rebate borrow amounts similar to their normal borrowing behavior but are more likely to default. Overall, however, the effects are small and short-lived, suggesting a muted response to this cash windfall in payday borrowing and repayment.

FDA regulation of drug promotion and the First Amendment

We posted late last year about a Second Circuit decision that circumscribed the government's authority to criminalize off-label prescription-drug promotion on First Amendment grounds. Now, law professor Christopher Robertson has written "When Truth Cannot Be Presumed: The Regulation of Drug Promotion Under an Expanding First Amendment," which discusses the issue. Here is the abstract:

The Food, Drug, and Cosmetic Act (“FDCA”) requires that, prior to marketing a drug, the manufacturer must prove that it is safe and effective for the manufacturer’s intended uses, as shown on the proposed label. Nonetheless, physicians may prescribe drugs for other “off-label” uses, and often do so, such that a large portion of U.S. healthcare spending is consumed by such unproven uses. Still, manufacturers have not been allowed to promote the unproven uses in advertisements or sales pitches. This regime is now precarious due to an onslaught of scholarly critiques, a series of Supreme Court decisions that enlarge the First Amendment, and a landmark Court of Appeals decision holding that the First Amendment precludes the Food and Drug Administration (“FDA”) from regulating off-label promotional claims. These critiques strike at the very core of the FDCA, calling into doubt the constitutionality of the entire premarket approval regime, as a prior restraint on speech. This Essay makes three critical contributions, and offers a constructive approach to the regulation of drug promotion. First, this Essay reveals how the notion that “truthful” promotional claims enjoy First Amendment protection has been central to these scholarly and judicial critiques. However, those critiques have simply presumed the predicate of truthfulness – that the drugs are safe and effective for the newly intended uses, and further presumed that the FDA is acting paternalistically to protect the public from acting upon the truth. Second, this Essay clarifies that the truth is unknown, and this ignorance is itself the motivation for regulation. The FDCA incentivizes drugmakers to invest in producing that missing knowledge. Third, this Essay highlights the way courts currently use the Daubert doctrine to regulate scientific speech presented in their own courtrooms, noting that it is a prior restraint on speech that has received virtually no First Amendment scrutiny. Going forward, in FDCA enforcement actions, courts should defer to the FDA’s pre-market approval process as the test for the truth of promotional claims, and thus their status under the First Amendment. Accordingly, courts should remain in epistemic equipoise until the drugmaker proves safety and efficacy. Nonetheless, if the courts refuse to defer to the coordinate branches in that established expert regulatory process, the courts should put the burden upon the drugmaker to prove its claims true in court. Even under this fallback position, drugmakers will remain incentivized to produce the epistemic basis to support their claims of safety and efficacy. Thus the FDCA can have a secure place even within an enlarged conception of the First Amendment.

CFPB orders Chase and JPMorgan Chase to reform their practices and to refund illegal credit-card charges

Yesterday, the Consumer Financial Protection Bureau (CFPB) issued this order requiring Chase Bank and JPMorgan Chase Bank to refund around $321 million to consumers who were charged on their credit cards for add-on services that they did not receive. That's right, the CFPB found that these banks charged for things that their customers just did not get. As explained in the the agency's press release, consumers

• Were charged for services they did not receive: Consumers were charged fees as soon as they enrolled in these add-on products, which include “identity theft protection” and “fraud monitoring.” Monthly fees ranged from $7.99 to $11.99 even though the promised services were not performed. In some cases, consumers paid for these services for several years without receiving all of the promised benefits.

• Unfairly incurred charges for interest and fees: The unfair monthly fees that customers were charged sometimes resulted in customers exceeding their credit card account limits, which lead to additional fees for the customers. Some consumers also paid interest charges on the fees for services that were never received.

• Failed to receive product benefits: Consumers were under the impression that their credit was being monitored for fraud and identity theft, when, in fact, these services were either not being performed at all, or were only partially performed.

Yesterday's order requires the banks to

• End unfair billing practices: Consumers will no longer be billed for these products if they are not receiving the promised benefits. Chase also must take steps, subject to the Bureau’s approval, to ensure these unlawful acts do not occur in the future.

• Complete repayment, plus interest, to more than two million consumers: Chase must pay a full refund, approximately $309 million, to more than two million consumers who enrolled in the credit monitoring product and were charged for services that were not received. In addition to the amount paid for the product, Chase must refund interest and any over-the-limit fees resulting from the charge for the product.

• Conveniently repay consumers: If the consumers are still Chase customers, they received a credit to their accounts. If they are no longer a Chase credit card holder, they received checks in the mail. Consumers were not required to take any action to receive their credit or check. Most consumers should have received refunds by November 30, 2012.

• Submit to an independent audit: Chase has engaged an independent auditor to help ensure the refunds have been provided in compliance with the terms as set forth in the CFPB’s order.

• Improve oversight of third-party vendors: The CFPB is also requiring that Chase strengthen its management of third-party vendors who manage these identity protection products.

• Pay a $20 million penalty: Chase will make a $20 million penalty payment to the CFPB’s Civil Penalty Fund.

The agency's "explainer" tells the banks' customers how they will get (or have already gotten) their refunds: "Chase customers are not required to take any action to receive their refund. Chase provided the refunds to the victims as an account credit or as a check in the mail." That's different from what is done in some "claims-made" class-action settlements, where class members must go through a convoluted and unnecessary claims process (even where the defendant could have sent the relief directly to the customer-class members or credited existing accounts).

Kar Comments on Boilerplate

Robin Bradley Kar of Illinois has written The Challenge of Boilerplate, forthcoming in Jotwell.  Here's the abstract:

Although Margaret Jane Radin is perhaps best known for her work in property theory, she has recently been focusing her formidable intellect on questions of contract. Boilerplate reflects her first book length treatment of these topics, and there is much to like about this book. This review focuses on one contribution that the book makes to normative jurisprudence, which is to clarify the centrality, pervasiveness (and perhaps even inescapability) of a specific problem for modern contract theory. The problem involves what I like to call a generalized lack of theory-to-world fit: if Radin’s arguments are valid, then a very broad range of modern contract theories are addressing the wrong subject matter, given the way that contracts increasingly work in the modern world. 

The challenge that boilerplate thus poses to a broad range of normative contract theories -- including economic theories -- is much deeper than typically recognized.

Cass Sunstein et al.: Disclosure: Psychology Changes Everything

George Loewenstein of Carnegie Mellon University - Department of Social and Decision Sciences ("CMU"), Cass R. Sunstein of Harvard Law School, and Russell Golman, also of CMU, have written Disclosure: Psychology Changes Everything.  Here's the abstract:

We review literature examining the effects of laws and regulations that require public disclosure of information. These requirements are most sensibly imposed in situations characterized by misaligned incentives and asymmetric information between, for example, a buyer and seller or an advisor and advisee. We review the economic literature relevant to such disclosure, and then discuss how different psychological factors complicate, and in some cases radically change, the economic predictions. For example, limited attention, motivated attention, and biased assessments of probability on the part of information recipients can significantly diminish, or even reverse, the intended effects of disclosure requirements. In many cases disclosure does not much affect the recipients of the information, but does significantly affect the behavior of the providers, sometimes for the better and sometimes for the worse. We review research suggesting that simplified disclosure, standardized disclosure, vivid disclosure, and social comparison information can all be used to enhance the effectiveness of disclosure policies.