Will the Supreme Court Take Up Due Process Limits on Consumer Fraud Class Actions?

by Deepak Gupta

We'll probably learn the answer tomorrow morning, at 10:00 am, when the Court issues its order list from the March 18 conference.  I think there's a good chance that the Court will decide to grant Philip Morris USA v. Jackson, a major tobacco case, known in the Louisiana courts below as Scott v. Philip Morris. (The electronic docket is here.) 

This is a big one. The tobacco companies' petition -- signed by a formidable trio of Alan Untereiner, Paul Clement and Miguel Estrada -- presents the question whether the Due Process Clause "prevents states from employing the class-action device to eliminate fundamental substantive and procedural protections that would otherwise apply to the adjudication of class members' individual claims."  Specifically, the case is about whether litigating a class action despite individual reliance issues can violate due process. Reliance is a hotly contested issue in consumer fraud class actions, though it's not usually framed in constitutional terms.

There's good reason to think that the Justices will be interested in this petition. Apart from the Court's intense interest in all things class action this term (see, e.g., Wal-Mart v. Dukes, AT&T v. Concepcion, Smith v. Bayer), there's the fact that Justice Scalia, back in September, issued a must-read in-chambers opinion granting Philip Morris's request for a stay. Not only did his opinion predict that it was "reasonably probable" that four Justices would vote to grant cert, he also told the petitioners' lawyers which issue to argue in their petition:

Joe Nocera Criticizes the Republicans Who Attack Elizabeth Warren

by Jeff Sovern

Here.  An excerpt:

And thus the real purpose of the hearing: to allow the Republicans who now run the House to box Ms. Warren about the ears. The big banks loathe Ms. Warren, who has made a career out of pointing out all the ways they gouge financial consumers — and whose primary goal is to make such gouging more difficult. So, naturally, the Republicans loathe her too. That she might someday run this bureau terrifies the banks. So, naturally, it terrifies the Republicans.

That's to be expected.  But here's another excerpt that illustrates a problem that could have been avoided:

It’s not just the House Republicans either. Already the Office of the Comptroller of the Currency has reverted to form, becoming once again a captive of the banks it is supposed to regulate. (It has strenuously opposed the efforts of the A.G.’s to penalize the banks and reform the mortgage modification process, for instance.) The banks themselves act as if they have a God-given right to the profit they made precrisis, and owe the country nothing for the trouble they’ve put us all through. The Justice Department has essentially given up trying to make anyone accountable for the crisis.

It's a shame that the Obama admininstration has not nominated someone to head the OCC.  Someone who could stand up to the banks when appropriate.  The directorship has been vacant for quite a while now. I wonder why it's taking so long to fill it.

Baseline Scenario Asks Who's Afraid of Elizabeth Warren?

Here.  Excerpt:

The next big political battle in Washington – after the budget debate is declared “over” – will likely feature the Consumer Financial Protection Bureau, in particular the fight to determine whether Elizabeth Warren can become as the agency’s first official head.

Elizabeth Warren Defends the CFPB at House Financial Services Committee Hearing

Elections change things. The House Financial Services Committee held a hearing today on the new Consumer Financial Protection Bureau, which is under fire from House Republicans even before it has taken an official act. (Its doors do not open until July 21.) Elizabeth Warren -- who is working to structure the new bureau from her post at the Treasury Department -- testified. Read Warren's written testimony and look at a webcast of the hearing, which can be accessed from this page. The New York Times has a story on the hearing here.

American Express Merchants Win The Latest Round

by Steve Berk

Power can take several forms.  It can be as overt and raw as Libyan leader Muammar Gaddafi bombing his own people, or it can be as subtle as controlling the agenda of a Board meeting so that the interests of shareholders are not just ignored but substantially defeated by the power of the agenda.

The mighty American Express (2010 Q4 revenues exceeding $7 billion) has dominated its merchants -- millions of businesses large and small -- by a very nuanced form of power: a simple contract provision.  Not the entire contract, simply one provision; a line or two, buried deep in the fine print, prohibiting merchants from bringing a class action claim against American Express in Court or before an arbitrator.  Any claim, large or small.

So what?  Doesn't sound like that big a deal. Well it is. It is one of those subtle forms of power that are "game changers".  Without the right to file a class action (in any forum) merchants are rendered defenseless to the whims of American Express.  For example AmEx can: (1) raise rates; (2) issue bogus chargebacks to customers, leaving the merchant without compensation for good or services sold; (3) refuse to honor valid charges; and (4) tack on unearned or even unlawful fees.

Preemption After the Dodd-Frank Wall Street Reform Act

Today's issue of American Banker has an alarming article entitled "Preemption After Dodd-Frank May Not Be as Weak As You've Heard."  According to the article, "a growing number of preemption experts" (all on the industry side) are arguing that the conventional wisdom on federal preemption of state banking laws — that it's been rolled back — is "dead wrong."  Here's the text:

For eight months after the enactment of the Dodd-Frank Act, it has been conventional wisdom that federal preemption of state banking laws was rolled back at least somewhat, dealing the Office of the Comptroller of the Currency and national banks a significant blow.

But a growing number of preemption experts are arguing that is dead wrong, saying the regulatory reform law left preemption largely untouched despite the addition of ambiguous language that consumer advocates and others see as weakening it.

"The substance of the federal preemption analysis hasn't changed at all," said Robert Cook, a partner at Hudson Cook.

He is hardly alone. Howard Cayne, a partner at Arnold & Porter, has given speeches to fellow lawyers entitled "Reports of the Death of National Bank Preemption Have Been Greatly Exaggerated."

Campaign Contributions and the Vote to Cut the CFPB's Budget

by Jeff Sovern

As we noted a couple of weeks ago, the House of Representatives voted to cut the Consumer Financial Protection Bureau's budget.  I was curious about the relationship of campaign contributions to the vote, so I asked my research assistant, Edmund Witter, to look into it. Using data from the Center for Responsive Politics, Edmund concluded that the average representative who voted to reduce the Bureau's funding received $186,723 from the financial, insurance, and real estate industries; those who voted to preserve its funding received $159,138, for a difference of $27,585.  Reminds me of the old saw about how we have the best Congress money can buy.

You Have to Admire the Cleverness of the Deception

by Jeff Sovern

   The letters arrive every January and February with "Important Tax Information Enclosed" written on the envelopes.  W-2s and 1099s.  The one I'm looking at bears the return address "Processing Headquarters."  Only it's not a tax form.  When you open it up, it includes what looks like a check in the amount of $2,750.00.  At the top of the apparent check appear the words "This document has a blue background and microprinting."  But the "check" contains some small print: "Not a check."   The letter explains that the addressee has "been selected to receive a special tax related incentive of up to $2,750 . . .  ."  Unfortunately, the only "designated site" for the tax incentive program is a particular car dealership.  So much for the Processing Center return address.  The dealership promises to match the addressee's tax return check or W-2 up to $2,750 when the addressee buys a car. 

Now here's an interesting question: just how special is this offer?  Any employee who earned at least $2,750 in 2010 should have received a W-2 reflecting that fact.  The self-employed might feel left out, except that if they file a tax return of at least $2,750, they can still qualify.  Oh and by the way, this solicitation was the product of pre-screening, meaning that the dealer has to make a "firm offer."  I wonder if the requirement that the consumer submit the required documents prevents this from being a "firm offer."  Why do I feel this offers another argument about the wisdom of Congress in largely excluding car dealers from the Consumer Financial Protection Bureau's jurisdiction? 

Conference on The Future of Arbitration (March 17th and 18th at GWU)

On March 17th and 18th, Alan Morrison and Roger Trangsrud of George Washington University Law School are hosting a conference on "The Future of Arbitration." 

I'll be speaking (on class-action bans), along with co-bloggers Brian Wolfman and Paul Bland. If you're based in D.C., or if you're in town for the Consumer Assembly, I hope you'll attend. Here's a description of the program:

Over the past several decades, the Federal Arbitration Act (FAA) has been increasingly used by businesses to divert claims from the courts into the arbitral forum that they consider more favorable to them, which in many cases means that, as a practical matter, the claims will never be brought.  In almost every case, the Supreme Court has upheld the position of the person arguing that unwilling parties who signed agreements containing a mandatory pre-dispute arbitration provision can be required to pursue their claims in arbitration. 

Since the enforceability of such agreements is governed by the FAA, Congress can amend the FAA if it believes that those decisions produce undesirable results. The purpose of this conference is to debate the key policy questions surrounding various aspects of arbitration. The program will not be about what the FAA now permits and requires, but what it should permit and require.

A list of panel discussions and times is below the jump.  All sessions will be held in the Jacob Burns Moot Courtroom.

Consumer Assembly 2011 (March 17th and 18th in Washington)

Since 1967, the Consumer Federation of America's Consumer Assembly has served as the consumer movement's principal meeting where consumer issues are reviewed, policy reforms are discussed, and new initiatives are presented.

Consumer Assembly 2011 will be held at the Embassy Suites Convention Center Hotel, 900 10th Street, NW, Washington, DC.The conference will begin at 8:30 a.m. on Thursday, March 17th and conclude at 12:15 p.m. on Friday, March 18th. All those with an interest in consumer issues are invited to attend.

Consumer Assembly 2011 will have two new features:

• A special emphasis on consumer protection, financial services, and health and safety. For each of these subjects, there will be at least two roundtable discussions and at least one general session. ·
• The roundtables will feature comments from a broader array of experts drawn from the consumer movement, academia, government, and business.

General sessions will feature both keynote speakers and panel discussions of issues of broad consumer interest.  You can find additional information at the conference website.  The schedule is below the jump.