FTC Seeks Comment on the "Internet of Things"

The FTC yesterday put out a request for comment on the consumer privacy and security issues posed by the "Internet of Things." As the FTC explains:

The ability of everyday devices to communicate with each other and with people is becoming more prevalent and often is referred to as "The Internet of Things." Consumers already are able to use their mobile phones to open their car doors, turn off their home lights, adjust their thermostats, and have their vital signs, such as blood pressure, EKG, and blood sugar levels, remotely monitored by their physicians. In the not too distant future, consumers approaching a grocery store might receive messages from their refrigerator reminding them that they are running out of milk.

Connected devices can communicate with consumers, transmit data back to companies, and compile data for third parties such as researchers, health care providers, or even other consumers, who can measure how their product usage compares with that of their neighbors. The devices can provide important benefits to consumers: they can handle tasks on a consumer’s behalf, improve efficiency, and enable consumers to control elements of their home or work environment from a distance. At the same time, the data collection and sharing that smart devices and greater connectivity enable pose privacy and security risks.

Comments on the privacy and security implications of these developments are due June 1. The FTC has scheduled a public workshop on the topic for November 21, 2013, in Washington, DC.

Langdon on Underwater Mortgages and Eminent Domain

Joel Langdon of Emory has writen The Importance of a Promise: Underwater Mortgages and a Municipal Rescue Attempt Through Eminent Domain, forthcoming in 45 Urb. L. (Summer 2013). Here's the abstract:

Millions of Americans purchased real estate during the housing bubble of the mid 2000s, when prices reflected a constant upward trend, and real estate appeared to be an ideal investment. When the bubble burst, however, the value of real property plummeted, yet homeowners remain obligated to pay their bubble era mortgage amounts. This has created a situation where many Americans must pay creditors significantly more than the current value of the properties for which they borrowed to purchase. When property values plummet in this way foreclosure rates skyrocket and in a cyclical manner, values continue to drop, crime rates rise, and tax bases and consumer markets whither.

State and federal governments have struggled, with minimal success, to address the issue of excessive debt created by the housing bubble as it continues to mire the economy in a slow and lurching recovery. Most efforts to eliminate debt overhang have been based on incentivizing lenders to forgive and restructure debt in various ways. Unfortunately these incentives have generally not been sufficient, and programs have foundered.

This Article examines an alternative plan to address excessive housing debt through the operation of investor funded use of the governmental power of eminent domain to acquire and restructure debt. This Article argues that this plan has the potential to resolve many of the shortcomings of previous efforts to alleviate debt, but that, as conceived, this plan also has many problems. This Article will identify the primary barriers to the operation of such a plan and thereby indicate how to modify the plan to address those barriers.

Henderson Paper on Mortgage Industry Self-Regulation

M. Todd Henderson of Chicago has written Self-Regulation for the Mortgage Industry. Here's the abstract:

This Article proposes an alternative to direct government regulation of mortgage brokers: self-regulation of the mortgage industry that mimics the arguably successful self-regulation of the securities industry that has occurred over the past two centuries. Although not without its problems, self-regulation of securities brokers operates more efficiently than government regulation. For example, self-regulation allows for industry expertise to be deployed at low cost and is built on trust and reciprocity, which reduce enforcement costs. In addition, self-regulation locates power at its smallest point and encourages efficient resolution of disputes by ensuring commensurable regulatory intervention. Most crucially for the mortgage industry, self-regulation is capable of policing behavior that does not rise to the level of fraud but is nevertheless socially undesirable. This Article explores the reasons why self-regulation can be effective, as well as some of its limitations in the context of securities brokers. It then looks at its potential application to mortgage brokers, comparing the self-regulatory approach with the governmental approach taken by the Dodd-Frank Act and the Consumer Financial Protection Bureau. However effective the federal approach to mortgage industry regulation is likely to be, there are aspects of such regulation that would be better administered by the industry itself, subject, of course, to oversight by the government to protect against the cartelization threat.

Why Genesis is a problem

Brian argues, based on Justice Kagan's excellent dissent (which is quite good and worth a read), that Genesis won't have much effect. My view is different.

Justice Kagan effectively skewers the majority opinion for its failure to address the crucial threshold premise that underlies its decision: i.e., that an unaccepted Rule 68 offer moots an individual claim. And Justice Kagan debunks that premise itself.

But her arguments, while persuasive, do not govern the circuits that have already decided (wrongly) that a Rule 68 offer does moot the individual plaintiff's claim. As the majority notes (at note 4), this group includes at least the Third Circuit, from which this case arose, and the Seventh Circuit. The majority also notes that at least two other circuits, the Second and the Sixth, permit a district court to enter judgment on an unaccepted Rule 68 offer, thus effectively forcing the plaintiff to accept it. Until these courts of appeals reverse themselves en banc or the Supreme Court overrules them, collective actions in Delaware, Pennsylvania, New Jersey, New York, Connecticut, Vermont, Ohio, Michigan, Kentucky, Tennessee, Illinois, Indiana, and Wisconsin are subject to being undercut by Rule 68 offers that "pick off" the named plaintiff. Class action plaintiffs could be subject to this treatment as well, despite the majority's general statement that the two contexts are different. I understand why it's a powerful rhetorical device for Justice Kagan to argue that today's decision is meaningless, and how that argument supports the dissenters' broader point that the majority once again (following on the heels of the Comcast decision) reaches out to decide the wrong question. But the view that this decision is, in Justice Kagan's words, "the most one-off of one-offs" is not correct.

Brian and I do agree on this: the dissent will be a useful persuasive tool for plaintiffs in jurisdictions where the law is unsettled. Let's hope the others eventually come around to Justice Kagan's view as well, so that the Genesis case doesn't matter for too long.

More on the Genesis HealthCare decision: Read Justice Kagan's dissent!

by Brian Wolfman

Scott posted earlier on today's Supreme Court decision in the Genesis HealthCare. I want to dissent from the idea that the decision is necessarily "quite bad" for people seeking to vindicate their rights under the Fair Labor Standard Act (FLSA). Today's ruling is premised on the assumption that an unaccepted offer from the defendant to the plaintiff of "complete relief" on the plaintiff's individual claim mooted that claim. (The Court made this assumption because, the Court says, the plaintiff conceded the point below and did not contest it until its Supreme Court merits brief.) With that premise in mind, the Court then holds that the entire FLSA collective action is moot.

But as Justice Kagan's punchy and powerful dissent shows, the premise is dead wrong: an unaccepted offer does not moot the plaintiff's individual claim. Justice Kagan's dissent, I believe, could have considerable sway in the lower courts (some of which have already decided the individual mootness question and some of which have not). If Justice Kagan's view ultimately holds, the Genesis decision may have little practical effect (as her dissent argues). After all, if the lead plaintiff's claim is not moot, then the representative action will remain alive.

(BREAKING) Bad Supreme Court decision on FLSA collective actions

This morning, in Genesis HealthCare v. Symczyk, the Supreme Court held that defendants in a Fair Labor Standards Act case can defeat the certification of a collective action by making an offer of complete relief to the named plaintiff before she obtains certification for the collective action. According to the court, the offer makes the case moot.

The decision is quite bad for plaintiffs in FLSA cases, which are mainly wage-and-hour cases. The practical effect is that defendants who have violated the rights of a large group of workers (say, by underpaying all of them) can avoid having to compensate everyone by simply "picking off" each individual worker as she files suit. Such a prospect makes obtaining relief for the whole group much harder, if not impossible. Today's decision could have implications for class actions also, which are similar to the special collective actions provided specifically for FLSA claims.

Dustin Zacks Paper on Foreclosure Firms

Dustin A. Zacks of King, Nieves & Zacks PLLC has written Robo-Litigation, 60 Cleveland State Law Review 867 (2013).  Here's the abstract:

The recent housing crisis increased demand for attorneys to process foreclosures through state courts. This increase in demand was coupled with a desire for the fastest and cheapest legal services available. As a result, large foreclosure firms designed to handle an enormous number of foreclosure cases quickly and inexpensively evolved and flourished. During their ascendancy, these firms consistently generated complaints about their conduct, including questions about their ethical decision-making and about the veracity of the pleadings and documents they filed. Scholarly literature on the housing crisis, however, is largely devoid of commentary on ethical issues related to increased foreclosures.

This Article tracks the rise and fall of several notorious high volume foreclosure firms and examines the numerous instances of serious misconduct their attorneys and paralegals perpetrated. The Article accordingly examines the curiously muted reaction from state bar associations, judges, and state legislators.

The Article then proceeds to examine how these foreclosure firms differ in makeup from traditional large law firms. Notable characteristics of these foreclosure firms include lenders and servicers’ relentless demand for increased speed and low costs, lack of firm-specific capital at foreclosure law firms, and a factory-like atmosphere of legal practice. The Article concludes with an examination of three policy options to prevent another surge in attorney misconduct: changing ethical rules, improving ethical education, and increasing state bar association funding and authority.

Med Express and James Amodio bullying a critic

by Paul Alan Levy

Med Express, an Ohio company that sells over eBay, is trying to maintain a perfect seller rating by suing a South Carolina woman who had the audacity to describe a problem she had with one of their deliveries — a photographic accessory that arrived with $1.40 postage due.  The customer found this inconvenient, and notified the company of her concern, stressing that her issue was not the money (she said she would have gladly paid the extra money for shipping up front) but the inconvenience.  Med Express responded by admitting the error, and indeed said that this had been a problem with other postal shipments.  The customer then posted negative feedback on eBay. 

About a month later, Med Express asked the customer to revise the negative feedback, offering to reimburse the postage due — effectively ignoring the customer’s reason for complaining.  When the customer failed to retract the feedback, Med Express escalated by filing a defamation complaint in state court in Medina, Ohio, and, indeed, by moving for a temporary restraining order against eBay.  The trial judge denied a TRO on the ground that damages would be an adequate remedy but, interestingly, set an oral hearing on a preliminary injunction even though the same reason would be sufficient ground to deny that relief as well.

Attorney Fee Award Against Charles Carreon for Abusive Trademark Litigation

by Paul Alan Levy

In a brief opinion issued today, Judge Richard Seeborg of the United States District Court for the Northern District of California awarded Christopher Recouvreur more than $46,000 in attorney fees and expenses for having had to defend himself against a series of wild and baseless threats of suit for trademark infringement by Charles Carreon.   After we were finally able to get service on Carreon and moved for an award of the costs of service, Carreon served a Rule 68 judgment granting the declaratory relief for which we had sued.  We then sought to have fees awarded on the grounds that Carreon had bought threatened trademark claims that had no reasonable basis, thus forcing Recouvreur to seek a declaratory judgment to protect himself against damages claims; that Carreon ducked service and then refused to pay the costs of such service but rather forced us to move to collect those costs; particularly after Carreon demanded the opportunity to conduct discovery over the fee claims, we also argued that his litigation conduct made the case exceptional. 

Judge Seeborg’s Ruling

Judge Seeborg granted our motion in part. 

Study Finds That Predatory Lending Regulation Leads to Lower Interest Rates and No Loss of Credit Availability

by Jeff Sovern

Yesterday, I was on a panel at the Annual Meeting of the American Council on Consumer Interests, along with Dr. Yilan Xu, a professor at the University of Illinois in agricultural and consumer economics.  Dr. Xu's talk concerned a natural experiment in Cleveland, Ohio.  Cleveland had enacted an anti-predatory lending ordinance which was later found invalid by the Ohio courts.  Dr. Xu compared mortgage lending in Cleveland before and after the law was invalidated, and also examined similar lending in the Cleveland suburbs that was not subject to the Cleveland law.  She found that after the law was struck down, lenders in Cleveland made more high-price loans, that those loans were 5% more likely to go into foreclosure, and that there was no evidence of credit expansion.  These findings contrast dramatically with claims that credit regulation will increase the price of credit and reduce its availability. Unfortunately, the paper is not yet available on the web, and so I can't link to it, but this study suggests that in at least some circumstances, consumers can have their cake and eat it too, in that they can have consumer protection, lower interest rates, and no loss of credit availability. 

Update: the paper is now available here.