More on Italian Colors: Justice Scalia's discussion of the "effective vindication" doctrine

I noted earlier that American Express has won American Express v. Italian Colors in the Supreme Court. Here's what Justice Scalia says about the "effective vindication" doctrine -- the doctrine on which the Second Circuit had relied in overriding the class-action ban contained in American Express's arbitration agreement:

As we have described, the exception finds its origin in the desire to prevent “prospective waiver of a party’s right to pursue statutory remedies[.]” ... That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. ... But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. ... . The class-action waiver [in this case] merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938... . Or, to put it differently, the individual suit thatwas considered adequate to assure “effective vindication” of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.

Supreme Court Decides Amex: Class Actions Lose

The Supreme Court today issued its opinion in American Express v. Italian Colors Restaurant. The Court holds, 5-3, in an opinion by Scalia, that an arbitration clause that bans class actions can be enforced under the Federal Arbitration Act even if the expense of individual arbitration makes it impossible to pursue a claim.

House Financial Services Committee Hearing: CFPB Budget Review

by Jeff Sovern

Yesterday, the House Financial Services Committee held a hearing titled CFPB Budget Review.  You can listen to the webcast here.  It seems to be part of the continuing Republican attack on the Bureau.  The American Banker reported on the hearing here (behind a paywall).  The article points out that Republicans were criticial of the Bureau for paying salaries they regard as high, but also complained that top officials were leaving the Bureau.  Apparently they believe that the salaries are higher than they should be, even though they are not high enough to keep people at the Bureau.  As we have noted in the past, the Chair of the Committee, Jeb Hensarling, refused to allow the Bureau's director to testify, but seemed to have not problem with hearing from one of his subordinates.  Ah, politics. 

New York City councilman Dan Garodnick on abusive ticket-industry practices

We posted last month (here and here) about abuses perpetrated by the concert and sports entertainment industry, which often makes it impossible for consumers to buy tickets at face value. Music-industry celebrities are sometimes part of the problem. The office of New York City councilman Dan Garodnick has followed CL&P's coverage of the issue and alterted me to the councilman's recent op-ed on the topic. Read the op-ed here.

Car Companies Trying to Escape Courts

Brian's post below mentions the recent New York Times article about automakers' efforts to avail themselves of their dealers' arbitration agreements with customers, as well as the Ninth Circuit's decision in Kramer v. Toyota rejecting one such effort.

Anyone interested in these subjects might also want to know that Toyota has filed a petition for a writ of certiorari seeking Supreme Court review of the decision in Kramer. It argues that the court should not have decided whether Toyota could invoke the arbitration agreements, but instead should have sent that threshold issue to an arbitrator. The plaintiffs have filed a brief in opposition (disclosure -- I am one of the attorneys on the brief), arguing that the lower court was correct to decide the issue itself and that there is no split of authority on the point. The Supreme Court will decide at its beginning-of-term conference in late September whether to hear the case.

Feeney in Plain English

A commenter on my post about the Massachusetts Supreme Judicial Court's decision in Feeney asked for an explanation in plain English. Here goes.

The court decided that Massachusetts courts will not enforce an arbitration clause that bans class actions when a claim really cannot be pursued without a class action.

For example, if the claim is legally or factually complicated, each individual's damages are so small that it's not economical to try to pursue the claim individually, and the arbitration agreement doesn't allow successful plaintiffs to get attorneys' fees or provide any other incentives that will make individual arbitration a practical way to proceed, then the only way to try to pursue that claim is to combine each small individual claim into a larger class action. In those kinds of cases, an arbitration agreement that says you can't have a class action won't be enforced by the Massachusetts courts.

However, the court in Feeney also decided that it can't strike down a class action ban just because it thinks that it is bad policy to ban class actions or that class actions have practical advantages over individual arbitration. Only when a class action ban effectively means a plaintiff cannot assert a claim is it invalid.

The court decided that the claims in the Feeney case, which were that Dell was illegally collecting small amounts of tax when buyers bought service contracts, could not really be made without a class action, so the class action ban in Dell's arbitration agreement could not be enforced in that case. But in the companion case, Machado, the court decided that the individual claims were big enough that it was possible to pursue the claims without a class action.

 

The U.S. Supreme Court is considering similar issues in the American Express case, where a decision is expected in the next 10 days. If the Supreme Court rejects the kind of reasoning employed in Feeney, Feeney could become a dead letter. If not, Feeney may be extremely important.

Supreme Court Grants Cert on Disparate Impact Test

by Jeff Sovern

The Supreme Court today granted cert in Mount Holly v. Mount Holly Gardens Citizens in Action, which raises the issue of whether courts can use the disparate impact test in federal Fair Housing Act (FHA) cases. Because the language of the FHA is similar to that of the Equal Credit Opportunity Act (ECOA), the Court's decision is also likely to have an impact on whether the disparate impact test can be used in ECOA cases.  ECOA bars discrimination in lending to consumers.  Under the disparate impact test, courts can find discrimination when the discrimination is unintentional, as long as the conduct has a discriminatory effect, though under some circumstances, lenders can continue to engage in even discriminatory conduct.  You can read more about the case in the SCOTUS blog, Bloomberg, the LA Times, the Associated Press, and the Ballard Spahr web site. I had previously explained why I think it is desirable for courts to use the disparate impact test here. 

One thing that is strking about the case is that the circuit courts are not split on this issue. The Courts of Appeals to address the issue and the relevant administrative agency all bless the use of the disparate impact test.  It is difficult to see why four justices would have voted to take the case under those circumstances unless they harbored significant doubt about the validity of the test. 

Car companies trying to escape liability by escaping the court system

This article by Christopher Jensen explains that the big automakers are trying to use aribtration clauses in consumers' contracts with auto dealers to escape liability in court in class actions and with respect to individual claims under state "lemon laws." I posted in February about a Ninth Circuit ruling rejecting an effort by Toyota to take advantage of arbitration clauses in consumer-dealer contracts. That ruling, Kramer v. Toyota Motor Corporation, can be read here.

Supreme Court Rules Against Pharmaceuticals "Pay for Delay"

Consumer advocates have long been outraged by the phenomenon of "pay for delay" in the prescription drug business, whereby brand-name drug companies pay off potential generic competitors to stay out of the market. In return for the payments, the generics drop their challenges to the brand name companies' patents, and the brand name and generic companies essentially split the monopoly profits earned by the brand name drug. Today the Supreme Court ruled that these kinds of arrangements are subject to challenge under the antitrust laws, overruling decisions of a number of lower courts that had held these anticompetitive deals immune from antitrust challenge.

Under today's ruling in FTC v. Actavis, pay-for-delay deals will not necessarily be found illegal. The Court did not hold them illegal per se, or even presumptively illegal. Instead, it said that challengers have to prove they are antitrust violations under what is called the "rule of reason" test, meaning that their anticompetitive impact outweighs any pro-competitive benefits. But the majority's opinion made clear that these deals can have significant anticompetitive effects and that the reasons given by some lower courts for upholding them (such as the policy of encouraging settlement of legal disputes) don't hold water.

This looks like a victory for consumers, though there will likely be a lot more litigation before any one of these deals actually is held to be unlawful. Even so, companies may be less likely to enter into them now that the Court has held they can be the subject of antitrust challenges, which if nothing else involve substantial legal expenses that will eat into the monopolists' profits.

Consumer Protection – Wyoming Style

From Dee Pridgen:

The Wyoming State Attorney General’s office recently completed its first major in-state enforcement action in recent history against the Sharps Rifle Company. The company was manufacturing a collector's item replica pistol.  Sharps took deposits and payments from customers for the pistols, but never delivered the product due to technical difficulties in the production process.  The company refused to give any refunds.  When the company assets were sold, the new owner refused to take responsibility for the consumer deposits.   A few months after the AG’s office started the investigation, however, an investor bought out the company and agreed to refund all the consumers who made deposits.  The total amount of consumer restitution was $140,000.  Good way to make consumer protection popular out in the Wild West!  In re Sharps Rifle Co., Inc., Case No. 2012-11, Assurance of Voluntary Compliance.