Governmental Privileges for Private Corporations: What's the Stopping Point?

by Deepak Gupta

Consider these questions for a moment:

• Does a private debt collector become an "arm of the state" -- meaning that it enjoys the same sovereign immunity from suit in federal court as the state itself -- when it collects on bad checks under a business partnership with a state prosecutor?    

• Does a major tobacco company constitute a "person acting under [a federal] officer" -- meaning that it enjoys the same ability as a federal official to remove a suit against it from state to federal court -- because the Federal Trade Commission has regulatory authority over the way cigarettes are marketed?

These might seem like outlandish possibilities that are hardly worth discussing . . . were it not for the fact that federal courts have recently answered yes to both questions.   In one case, a district court in Florida dismissed a consumer class action against a private debt collector on the grounds that the company was entitled to state sovereign immunity.  Last week, I filed this brief in the Eleventh Circuit urging the court to reverse the district court's ruling.   In another case, the Eighth Circuit allowed Philip Morris to remove an unfair trade practices suit to federal court under the federal officer removal statute.  (I previously blogged about the case here and here.)  My colleague Scott Nelson has just filed this brief in the Supreme Court urging the Court to reverse the Eighth Circuit's ruling.

Although the two cases involve very different legal doctrines, there are some interesting parallells.  In both cases, the lawyers for private corporate defendants in consumer class actions made long-shot arguments that invoked special privileges ordinarily reserved for the government itself.  And in both cases, they won, allowing them to deprive the consumer plaintiffs of their chosen forum.  Both decisions extend the privileges at issue well beyond the purposes for which they were originally designed-- protecting the autonomy of governmental actors within a federal system.  The federal officer removal statute protects federal officers from potentially hostile state courts, while state sovereign immunity protects the dignity and solvency of the sovereign states by immunizing them from federal legal process.  Under these two decisions, for reasons that are hard to discern and even harder to apply in a principled way, the same privileges would protect private corporations as well.  This is federalism run amok.

Senate Committee Investigates Credit Card Company Practices

The Permanent Subcommittee on Investigations of the U.S. Senate’s Committee on Homeland Security and Governmental Affairs today held a hearing on “Credit Card Practices: Fees, Interest Rates, and Grace Periods.”  The hearing was, the committee promised, ”the first of several Subcommittee hearings that will examine a variety of credit card practices that raise concerns.”  Yahoo news has this lively report on the hearing.  The Senate Committee's website contains all of the testimony at today’s hearing.

Ninth Circuit Issues New CAFA Holding

By Brian Wolfman

In Lowdermilk v. United States Bank National Assoc., No. 06-36085 (3/2/07),the Ninth Circuit has issued a new ruling under the Class Action Fairness Act.  The topic?  What a removing defendant must show to establish CAFA jurisdiction when the plaintiff's state-court complaint claims less than the $5 million jurisdictional amount.  Judge Bybee posed the question and answered it concisely in the first paragraph of his opinion:

In this case we are called upon to resolve a question of first impression: Under the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. 109-2, 119 Stat. 4 (2005), when the plaintiff has pled damages less than the jurisdictional amount,what must the defendant prove in order to remove the case to federal court? We reserved this question in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 683 n.8 (9th Cir. 2006) (per curiam). We answer that the party seeking removal must prove with "legal certainty" that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint. We conclude that the defendant in this case failed to meet this burden, and we affirm the judgment of the district court.

Judge Kleinfeld dissented.  In his view, the complaint was vague and self-contradictory and did not specify the amount in controversy.  When that occurs, he said, a preponderance-of-the-evidence standard -- and not the "legal certainty" test -- applies.  He would have remanded to the district court for a determination of the amount in controversy under the preponderance standard.

Texas Supreme Court: Putting the Squeeze on Class Actions?

by Steve Gardner

  Last Thursday, the Texas Supreme Court drove another nail in the class action coffin.

Justifiably, Texas is now considered by most class action lawyers (on both sides of the aisle) to be the state most hostile to class actions. One judge commented to the author, “I don’t know why anyone would bring a class action in state court in Texas because as far as I can tell, the Texas Supreme Court has abolished class actions — it just hasn’t said so.”

In Citizens Insurance Company of America v. Daccach, --- S.W.3d ----, 2007 WL 623799 (Tex. Mar. 2, 2007), Texas's High Court tightened the class action noose a bit further.  (Citations to the opinion will use Westlaw star system, e.g., “Daccach *8”.)

But, first, some history.  Starting at the beginning of this Millennium, the court has repeatedly applied excessively strict criteria to various aspects of class action litigation, running the gamut from making it almost impossible to bring a class action when reliance might be at issue, Schein v. Stromboe, 102 S.W.3d 675, 695 (Tex. 2002), to requiring a detailed trial plan.  Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000). The court has faulted trial plans that did not contain a rigorous analysis of (1) all causes of action, (2) how those claims will be tried, (3) every controlling substantive issue, (4) whether or how individual issues related to limitations will be determined, (5) how it would dispose of issues of reliance, (6) how it would try damages, both actual and punitive, (7) why individual issues did not predominate, and (8) why a class action is superior to other methods of resolving the dispute. State Farm Mutual Automobile Ins. Co. v. Lopez, 156 S.W.3d 550, 557 (Tex. 2004) [first three points]; Nat’l Western Life Ins. Co. v. Rowe, 164 S.W.3d 389 (Tex. 2005) [remaining points].

More on the Guidance on Subprime Mortgage Lending

by Jeff Sovern

Over the weekend, Brian Wolfman blogged about the proposed Interagency Guidance on Subprime Mortgage Lending.  The draft Guidance, which is proposed by the Fed, OCC, OTS, FDIC, and the National Credit Union Administration, can be found here.  The Guidance implies that the Agencies have concluded that the Truth in Lending Act (TILA) is not functioning satisfactorily in at least two respects with repect to certain subprime loans (particularly certain adjustable-rate mortgages): the content of TILA's disclosures and its requirement that  disclosures be provided no later than consummation.  Thus, the Guidance states with repect to these loans that "communications with consumers, including advertisements, oral statements, and promotional materials should provide clear and balanced information about the relative benefits and risks of the products. This information should be provided in a timely manner to assist consumers in the product selection process, not just upon submission of an application or at consummation of the loan." 

Maxed Out: "A Horror Movie for Our Times"

By Brian Wolfman

In today's Washington Post, Michele Singletary reviews the new, critically acclaimed movie "Maxed Out" and its companion book "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders."  Deepak Gupta previously discussed the movie in detail on this blog.  The movie opens in Washington, D.C., and in other markets around the country this coming Friday.  A list of openings can be found here.  As the Post puts it, this movie is "A Horror Movie for Our Times."

More Stringent Federal Guidelines on Sub-Prime Mortgage Lending?

Just a follow-up to Chris Peterson's Boston Globe op-ed concerning predatory mortage lending posted earlier today on this blog:  According to today's Washington Post, the Federal Reserve and four other federal agencies (presumably agencies involved in some fashion in mortgage lending) are proposing a new guidance that would impose stricter guidelines on sub-prime mortgage lending.

Cleaning Up a Consumer Lending Mess

By Christopher Peterson

WHEN THE CEO of HSBC, one of the world's largest banks, and legal aid attorneys who represent poverty-stricken Americans find something to agree on, it is no small event. Recently, CEO Michael Geoghegan explained that massive losses in HSBC's home mortgage lending business were caused by the mistake of "going for volume." The nation's legal aid attorneys have a different description. They call it predatory lending.

Continue reading Boston Globe Op-ed   ...

Consumer Protection, Bush Style

By Brian Wolfman

    President Bush has nominated Michael Baroody to chair the Consumer Product Safety Commission.  Baroody is a longtime executive with the National Association of Manufacturers.  Hmmm.

  Here's what tomorrow's edition of Congress Daily has to say about it:

    The White House announced Thursday that President Bush intends to nominate Michael Baroody, a longtime executive at the National Association of Manufacturers, as chairman of the Consumer Product Safety Commission. Baroody, who serves as the association's executive vice president, has worked for the group since 1990 except for a period in 1993-94 when he ran a Republican-affiliated group.

     He has been heavily involved in NAM's lobbying, policy and political operations. NAM President John Engler praised Baroody for his skills as a consensus builder, and for his efforts to promote policies that make manufacturers competitive.

     "Mike Baroody has spent a lifetime in Washington serving in a variety of professional venues and has distinguished himself at every turn for his good sense, good judgment and good humor," Engler said.

     Baroody previously worked as a White House aide when Ronald Reagan was president and then as an assistant Labor secretary. His nomination goes to the Senate Commerce Committee and requires confirmation by the Democratic-controlled Senate.

    So, will Baroody get through the Senate?  (Note:  A little while back, there were rumors that the Administration would put Baroody in through a recess appointment.  Either the rumors were false or the Admnistration changed its mind.)

Fourth Circuit on Fees for TILA Litigation

by Allison Zieve

Last week, the Fourth Circuit issued a decision upholding an award of attorney fees in a Truth in Lending Act (TILA) case, Nigh v. Koons Buick. Two aspects of the decision are noteworthy.

First, although Mr. Nigh won the case, the amount of damages that he had originally been awarded ($24,192) was reduced by the Supreme Court in 2004. The Court held that TILA capped damages at $1,000.  On remand, the district court had affirmed its prior attorney fee award and also awarded Mr. Nigh attorney fees for work done on the successful appeal and the unsuccessful trip to the Supreme Court.  In its February 21 decision, the Fourth Circuit upheld the fee award in its entirety. The appellate court explained that TILA requires a fee award to an person who brings a "successful action" and that Mr. Nigh’s action was successful (he proved a TILA violation). Although the fee covered work for parts of the case as to which Mr. Nigh was unsuccessful, the appellate court held that the district court did not abuse its discretion and that the amount of the award was reasonable.

Second, the court strongly rejected Koons Buick’s argument that Mr. Nigh’s degree of success—as measured by $1,000 in statutory damages—did not merit a full fee award. The court wrote that Mr. Nigh had received not minimal damages, but the statutory maximum. "Koons contention that this recovery is somehow de minimis betrays a profound misunderstanding of either the expression or the facts of the case."  Nicely put.

[Disclosure: I was co-counsel for Mr. Nigh in the Supreme Court proceedings but have not been involved in the fee proceedings on remand.]