New legal challenge to the Affordable Care Act

As explained in this New Republic essay by Si Lazarus, a new challenge to the Affordable Care Act is nearly as threatening to its viability as the now-rejected challenge to its constitutionality. Here's an excerpt:

After the Supreme Court upheld the Affordable Care Act last June, Senator Jim DeMint and Representative Michele Bachmann wrote Republican governors, urging them to refuse to establish ACA-prescribed “exchanges”—statewide health insurance markets—for small businesses and individuals not covered by employer-sponsored health plans. At the time, it seemed unlikely that many governors would follow this cut-off-your-nose-to-spite-your-face advice, since the ACA directs the Federal government to step in and run an exchange for states if they opt out. Hence, no real harm to the ACA, just to Republican governors and legislators, who would lose credit for a valuable constituent service. But Tea Partiers have kept up their resist-resist-resist drumbeat, and over half the states have stuck with the refusenik option. ... On May 2, the [resisters] ... filed in the District Court for the District of Columbia a complaint backed by the Competitive Enterprise Institute. [The plaintiff's lawyer Michael] Carvin’s legal argument, which originated with CATO Institute economist Michael Cannon and Western Reserve law professor Jonathan Adler, is that, due to a drafting glitch in the ACA, only state-run exchanges, not federal ones, can provide tax credits and subsidies to enable lower-income individuals to afford ACA-mandated health insurance. Threading the Carvin-Cannon-Adler argument through the intricacies of the ACA and the Internal Revenue Code could make even a seasoned tax lawyer’s head hurt. But the bottom-line is not hard to grasp: If the case makes its way to the Supreme Court, and all five members of the Supreme Court’s conservative bloc buy Carvin’s rationale, the result would, in rejectionist states, subvert the ACA’s central purpose and stiff the very population the law was enacted to benefit. The Obama administration has estimated  that 80 percent of the millions of individuals expected to purchase insurance through exchanges will require some tax subsidies. Without those subsidies, in states with Federally facilitated exchanges, the individual mandate, constitutional though the Court has declared it, simply won’t work.

In sum, the effort to kill the ACA continues. The new court challenge is Halbig v. Sebelius, No. 13-63 (D.D.C.). Here's the Halbig complaint.

"Aggregate Litigation and the Death of Democratic Dispute Resolution"

That's the name of this article by law professor Linda Mullenix. Here's the abstract:

Professor Redish has both anchored the modern class action in American political and constitutional theory, raising serious questions about the legitimacy of this procedural device for resolving aggregate claims. Professor Redish’s major insight is his argument that the courts and litigants have transformed the modern class action from a mere procedural device into a means for controlling and altering substantive law, in ways that he considers to be highly undemocratic.

Others, however, have suggested that the class action is dead. The article surveys accounts of the death of class actions and explains the continued endurance of class litigation ― which, it turns out ― is hard to kill off. The article then documents the changing landscape of aggregate dispute resolution, documenting a significant paradigm shift in the twenty-first century towards increased use of private claims resolution mechanisms. The article focuses on settlement classes, multidistrict litigation procedure, contractual non-class settlements, the quasi class action, and fund approaches to mass claim resolution.

Finally, the article critically evaluates this paradigm shift and concludes that Redish’s critique of class action litigation has even greater relevance in the new world of non-class, aggregate claims resolution: that Professor Redish’s critique applies with even greater force in the non-class universe. With the paradigm shift towards non-class aggregate claims resolution, the arc of history may be bending towards greater injustice ― a shift that is more significant because it is largely unbounded by rules and unmoored from judicial oversight.

"Crowd-Classing Individual Arbitrations in a Post-Class Action Era"

That's the name of this article by law professors Myriam Gilles and Anthony Sebok. Here's the abstract:

Class actions are in decline, while arbitration is ascendant. This raises the question: will plaintiffs’ lawyers skilled in bringing small-value, large-scale litigation – the typical consumer, employment, and antitrust claims that have made up the bulk of class action litigation over the past forty years – hit upon a viable business model which would allow them to arbitrate one-on-one claims efficiently and profitably. The obstacles are tremendous: without some means of recreating the economies of scale and reaping the fees provided by the aggregative device of Rule 23, no rational lawyer would expend the resources to develop and arbitrate individual, small-value claims against well-heeled defendants. But despite these complications, we think there are at least two possible models that might allow for informal aggregation of like claims in at least some subset of cases.

One hybrid model would seek a judicial liability judgment upon which serial, individual arbitrations could later rely. This judgment could take a number of different forms – whether a declaratory class action judgment or a decision rendered in a public enforcement action – so long as it has preclusive force that can be leveraged in subsequent arbitration hearings. A second, complementary model envisions “arbitration entrepreneurs” (either lawyers or non-lawyers) purchasing legally-identical, individual claims which our legal capitalists believe to have value in the arbitral forum. Upon procuring as many discrete claims as the market will bear, the arbitration entrepreneur would seek to resolve the hundreds or even thousands of claims she has amassed in a single arbitral session. With one arbitration entrepreneur as the lawful owner of a multitude of claims, this form of aggregation implicates neither the prohibition against class arbitration nor the contractual definition of “a claim” subject to arbitration.

The hybrid model and the claims-buying model may work independently or synergistically, depending on the case, the form that the public declaration of liability takes, and the incentives of the lawyers and entrepreneurs involved. For example, in the appropriate case, claims-buying entrepreneurs may determine that a (b)(2) declaratory judgment class action creates more and better opportunities to bundle and capture claims than market forces alone. Similarly, lawyers who obtain a judgment under the hybrid approach may determine that the best way to monetize this victory is to buy up many claims for collective arbitration. Indeed, these models present a host of possibilities, and an equal number of potential challenges; this paper is but a first step in describing and analyzing the benefits and costs of these approaches.

Does a consumer lack standing to sue for injunctive relief in misrepresentation case when he knows the truth about the product?

Rebecca Tushnet’s 43(b) blog reports today on the recent district court decision in Mason v. Nature's Innovation, Inc. (S.D. Cal.). The plaintiff sued the manufacturer of a skin care product for injunctive relief, alleging claims under California consumer statutes and warranty claims based on misrepresentations on the product’s label and website. The court found that the plaintiff lacked standing to seek injunctive relief because his knowledge that the statements were untrue meant that he was not in danger of future injury. Tushnet’s blog has more detail and discussion.

Supreme Court grants review in Airline Deregulation Act preemption case

[Note: This item was posted a few minutes after the another posting on the case. It contains some additional information on the case. HT on the overlap to Andrew Kaufman.]

The Supreme Court yesterday granted cert in Northwest, Inc. v. Ginsberg, a case about whether the Airline Deregulation Act's preemption provision, 49 U.S.C. 41713(b), preempts a consumer's state-law damages claim -- a claim alleging a breach of the implied covenant of good faith and fair dealing -- regarding his removal from an airline's frequent-flyer program. The Supreme Court has addressed the ADA's preemption provision in two cases. (It has also twice addressed a related preemption provision in a trucking deregulation statute, including this Term in the Dan's City case. The petition in Northwest v. Ginsberg had been held pending the decision in Dan's City, which came down on May 13, 2013.)

The Supreme Court generally grants a case on the petitioner's question presented, as it did in Northwest v. Ginsberg. But the parties' different views about the legal question often come through in their questions presented. Below, I have set out the airline's question presented first, followed by the consumer's question presented.

Northwest's question presented

The Airline Deregulation Act of 1978 (“ADA”) includes a preemption provision providing that States “may not enact or enforce a law, regulation or other provision having the force and effect of law related to a price, route, or service of an air carrier.” 49 U.S.C. § 41713(b). Respondent was a participant in Northwest Airlines’ frequent flyer program, which by its terms permitted Northwest to remove participants from the program in Northwest’s “sole judgment.” After respondent was removed from the frequent flyer program, he filed suit against Northwest alleging, inter alia, that Northwest breached both its contractual obligations and an implied covenant of good faith and fair dealing under Minnesota law when it exercised its discretion to terminate respondent’s membership in the program. Although the district court dismissed the contract claim for failure to state a claim and the implied covenant of good faith claim as preempted by the ADA, the Ninth Circuit reversed as to the implied covenant claim, finding such claims categorically unrelated to a price, route or service under a line of Ninth Circuit cases that have been recognized by other Circuits as inconsistent with this Court’s precedents, especially American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995).

The question presented is:

Did the court of appeals err by holding, in conflict with the decisions of other Circuits, that respondent’s implied covenant of good faith and fair dealing claim was not preempted under the ADA because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent flyer program (the precise context of Wolens) and manifestly enlarged the terms of the parties’ voluntary undertakings, which allowed termination in Northwest’s sole discretion.

Ginsburg's question presented

Rabbi S. Binyomin Ginsberg is a long-standing and frequent Northwest passenger who, in 2005, earned the highest level of membership benefits in Northwest’s “WorldPerks” customer loyalty program. In 2008, Northwest abruptly revoked his status in the program. Rabbi Ginsberg filed suit alleging, as relevant here, that Northwest breached the implied covenant of good faith and fair dealing in terminating his WorldPerks membership status. The question presented is:

Did the court of appeals correctly hold that Rabbi Ginsberg’s contract claim based on the implied covenant of good faith and fair dealing is not preempted by the Airline Deregulation Act’s preemption provision, 49 U.S.C. § 41713(b), which provides that States “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier”?

Supreme Court to consider whether lawsuit over termination of frequent flyer benefits is preempted

Yesterday, the U.S. Supreme Court granted a petition for certiorari in Northwest, Inc. v. Ginsberg, which will give the Court yet another opportunity to address the preemptive scope of a federal statute.

In 2005, Rabbi S. Binyomin Ginsberg, a long-time customer of Northwest Airlines, earned the highest level of membership benefits in Northwest’s customer loyalty program. In 2008, Northwest abruptly terminated his membership in the program. Rabbi Ginsberg filed suit, alleging, among other things, that termination of his membership status was a breach of the implied covenant of good faith and fair dealing.

The district court held that his claim was preempted by a provision of the Airline Deregulation Act (ADA) that preempts state laws relating to air carrier prices, routes, or services. The Ninth Circuit reversed and Northwest petitioned for certiorari.

When it hears argument in the case next fall, the Court will consider whether claims for breach of the implied covenant of good faith and fair dealing are preempted by the ADA, or whether they fall outside the scope of the statute’s preemption because a frequent flier program is not a “service” within the meaning of the ADA and/or because the ADA does not preempt common law claims.

In addition, the case gives the Court a chance to elaborate on its 1995 opinion in in American Airlines, Inc. v. Wolens, which held that although the ADA’s preemption provision bars state-imposed regulation of air carriers, it “allows room for court enforcement of contract terms set by the parties themselves.” The outcome of the case, then, may turn on whether the Court views the covenant of good faith and fair dealing claim as a contract claim, as the court of appeals did, or as based on state law external to the contract, as the district court did.

Disclosure: Public Citizen Litigation Group lawyer represents respondent Ginsberg before the Supreme Court, with my colleague Adina Rosenbaum serving as lead counsel.

Ninth Circuit refuses to enforce arbitration agreement in consumer class action against non-signatory defendant

by Brian Wolfman

For a long time, the case law under the Federal Arbitration Act (FAA) has been bad for plaintiffs who want to be in court rather than in arbitration. And it's been getting worse in recent years. Class-action bans laundered through adhesive arbitration clauses are strictly enforced, even when they are unconscionable under generally applicable state-law contract principles. And even when an arbitration clause says nothing about class actions, the FAA generally bans class actions in arbitration.

These judge-made rules have emboldened class-action defendants. They just love forcing class-action plaintiffs into individual arbitrations, which, given the the costs of individual arbitrations, generally will mean that they won't have to face off against the plaintiff class at all. So, defendants want to take advantage of arbitration clauses even when they are not parties to them.

The Ninth Circuit faced that situation in Rajagopalan v. Noteworld, LLC, a class-action involving debt settlement services and payment processing on those services. The plaintiffs sued the payment processing company, but not the debt settlement company, whose contract with the plaintiffs included an arbitration clause. The payment processing company tried to take advantage of the arbitration clause in the debt settlement company's contract with the plaintiffs under state-law third-party beneficiary and equitable estoppel theories, both of which the 9th circuit rejected yesterday.

Third Circuit issues important decision about Class Action Fairness Act's "mass action" provision

by Brian Wolfman

Last Friday's Third Circuit ruling in Abraham v. St. Croix Rennaisance Group considered whether the Class Action Fairness Act (CAFA) provides federal "mass action" jurisdiction over a suit against a plant that continuously exposed nearby residents to toxic chemicals over an extended period.

First, some background. CAFA provides jurisdiction in federal district court (originally and by removal) for most minimally diverse class actions and for so-called "mass actions." Under CAFA, a mass action is

any civil action (except a civil action within the scope of section 1711(2)) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).

But there are exceptions to the definition of "mass action," one of which is for local controversies. That exception involves cases in which

all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.

With that background in mind, take a look at this key passage from the Third Circuit's opinion, which describes the facts and the holding:

The complaint alleges circumstances that persisted over a fixed period of time–specifically, from 2002, when SCRG acquired the former alumina refinery, to the present. These circumstances included: (1) the presence throughout the former refinery site of the red mud and the various hazardous substances that were buried therein; (2) the plaintiffs’ continual exposure to the red mud and its particulates as a result of erosion by wind and water; and (3) the persistent failure of SCRG to contain or abate the hazardous substances and to remediate the premises. In short, the condition of the site during the period of SCRG’s ownership provided a source for the ongoing emission of the red mud and the hazardous substances and the subsequent dispersion onto the plaintiffs’ persons and their property. We believe that these circumstances, which the District Court characterized as the “continuous release of toxic substances from a single facility located in the Virgin Islands,” constituted “an event or occurrence” for purposes of the mass-action exclusion. [citation omitted]

Kudos to CL&P contributor Leah Nicholls, who briefed and argued the appeal for the plaintiffs.

 

Politico: What if Senate continues to block Richard Cordray at CFPB?

Here.  An excerpt:

As a recess appointee, Cordray can stay in the job only through the end of this  year. But even that timetable will likely not be of much significance. After  Cordray departs, the agency will be run by the next in line and there is little  reason to think the bureau’s agenda would change at that point.

* * *

“We are still going to have a CFPB,” said John Socknat, a partner with the law  firm Ballard Spahr. “It’s going to continue to have very broad powers, and there  are going to be regulations that [financial institutions] are going to have to  deal with. The validity of Cordray’s appointment is not going to undo all of the  regulations that have been issued.”

Mortgage fraud settlement money not getting to consumers

We have covered extensively the large mortgage fraud settlements brokered by the federal government under which major mortgage servicers were, among other things, supposed to pay money directly to consumers harmed in the mortgage meltdown. Go, for instance, here, here, here, and here.

Now, Danielle Douglas, reports that it's taking a long time for the money to be paid out. Here's an excerpt:

Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis of government data. When the settlements were announced, with great fanfare, government officials hailed them as the long-promised reckoning with the financial industry. Regulators found that some banks had saddled borrowers with unaffordable mortgages or assigned higher rates to minorities even when they qualified for a better deal. Some banks were accused of having employees “robo-sign” foreclosure documents without reading them or having proper documentation. ... In 2011, Wells Fargo agreed to compensate up to 10,000 borrowers after the Federal Reserve found the bank was steering them into subprime loans even though they qualified for better mortgages. But no borrowers have received money yet. Last year, Bank of America agreed to pay some borrowers between $1,000 and $5,000 for what the Justice Department called lending discrimination. The agency said the bank illegally asked some would-be home buyers who relied on disability income to provide a doctor’s letter verifying the severity of their ailment. But it’s still unclear how many people will ultimately be paid. There isn’t a full list of the victims.