The 12 Most Popular Tax Scams

By Brian Wolfman

    In today's Washington Post, Michele Singletary discusses her "Dirty Dozen": the 12 most popular scams that tax preparers try to sell to taxpayers hoping for a big (but illegal) federal tax refund.  At the end of the day, either the rest of us are the victims (if the IRS does not catch the cheaters) or the taxpayer gets socked with a big liability, including the unpaid taxes, interest, civil monetary penalties, and even criminal sanctions.  The top scam this year, Singletary explains, relates to a new law entitling millions of taxpayers to a credit for an improperly collected 3% federal telecommunications excise tax.  The credit is a flat $30 to $60, unless the taxpayer has records showing that he or she actually paid more in excise tax.  The scam artists are urging taxpayers to inflate the credit, and, Singletary claims, some taxpayers, at the insistence of tax preparers, have sought credits in the total amount of their phone bills rather than just the 3% excise tax.

More on Payday Loans: The Industry PR Folks Strike Back

    Check out this article in today's Washington Post by Michelle Singletary - - "Payday Loans: Costly Cash."  Among other things, the article discusses a new ad campaign by the Community Financial Services Association of America, the trade group for the payday loan industry.  Consumer advocates portray the campaign as part of an effort to stop state and federal legislation to curb the industry.  The industry responds that its ads are a charitable "effort to encourage consumers to use payday advances in a responsible manner."  I wonder whether the industry's shareholders are ticked off that their money is being spent to help consumers act responsibly rather than to turn profits.

Ralph Nader: The Movie

    The documentary on the life of Ralph Nader -- An Unreasonable Man -- is opening in cities around the country over the next couple months.  To see a schedule of openings and a raft of information on the movie, go the movie's website.

New Ninth Circuit CAFA Ruling on Burden of Proof

By Brian Wolfman

In Serrano v. 100 Connect, Inc., No. 06-17366 (Feb. 22, 2007), the Ninth Circuit has held that in assessing whether a federal district court should or must decline jurisdiction under the "exceptions" to jurisdiction of the Class Action Fairness Act, the burden is on the party resisting a federal forum to show that jurisdiction is lacking. Three other circuits had earlier come to the same conclusion.

As I discussed in an an earlier post, under CAFA, some cases just don’t meet CAFA’s basic jurisdictional requirements: $5 million in controversy, 100 class members, and minimal diversity. 28 U.S.C. 1332(d)(2), (d)(5)(B). Then there are 28 U.S.C. 1332(d)(3) and (d)(4), the supposed "exceptions" to jurisdiction.  Both have been called exceptions because they allow for remand or dismissal even where the basic prerequisites have been met.  Under (d)(3), the court "may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction" based on an evaluation of six factors.  Subsection (d)(4) sets out circumstances in which a district court "shall decline" to exercise jurisdiction. The circumstances in which this category is triggered are complicated and not worth exploring in detail here, but they focus on controversies that are highly localized. To me, the (d)(4) category does not comprise an "exception" to CAFA; it’s just a further, albeit unusual, limit on jurisdiction akin to the $5 million, 100-class-member, and minimal diversity limits.

AAA Breaks Its Promise Not to Hear Pre-Dispute Arbitrations in Health Care Cases

by Paul Bland

Although most people haven’t heard of it, they have a big stake in the integrity and honesty of the American Arbitration Association (“AAA”). The reason is simple: it’s rapidly gaining more and more power over Americans. More and more big corporations insist that their customers and employees sign mandatory arbitration agreements taking away their right to go to court as a condition of getting goods or services or as a condition of getting or keeping a job. And of the private corporations that are increasingly replacing the American civil justice system, the AAA is the most prominent and largest.

To allay the concerns expressed by many consumers, employees, legislatures and courts, the AAA has repeatedly promised that Americans need not worry about the growing power of arbitrators, because the AAA will purportedly exercise great restraint in the exercise of its power. Alas, talk is cheap.

In a number of public statements over the last four years, the AAA has solemnly promised the public, the media and legislators that notwithstanding any contract agreements to the contrary, it would not handle pre-dispute binding arbitrations in cases brought by medical patients against health care institutions. But, I have just learned of a serious instance where the AAA has quietly broken that widely trumpeted promise. Apparently, the AAA is administering arbitrations in medical cases when it feels like doing so.

More on First Amendment Challenge to New York Lawyer Advertising Rules

By Brian Wolfman 

This earlier post describes the lawsuit by an upstate New York law firm and Public Citizen to strike down new New York lawyer advertising restrictions on First Amendment grounds.  That post discusses the various constitutional problems with the rules - - which restrict both commercial and non-commercial speech - - and links to earlier posts concerning the rules.  The plaintiffs have now filed their brief in support of a preliminary injunction, which details the new restrictions and the plaintiffs' First Amendment arguments.   

On the Relevance of Door-to-Door Sale Regulation

by Jeff Sovern

As my co-authors and I worked on our forthcoming casebook, one of the issues we faced was whether door-to-door sales regulations are still relevant and consequently worth covering in the book.   Door-to-door sales were more common in the pre-spam, pre-telemarketing era.  In the end we decided to include materials on door-to-door sales for several reasons, including that such sales still occur; the material permits a general discussion of cooling-off period rules (cooling off periods are the law's principal response to door-to-door sales); it sets up the study of spam and telemarketing rules (e.g., should spam and telemarketing sales be subject to cooling off periods?); and because we thought the reduction in telemarketing generated by the "Do Not Call" list might lead to a resurgence of door-to-door sales.  Today's New York Times has a painful article about youthful door-to-door sellers of magazines which confirms not only that such sales still occur but also suggests that the "Do Not Call" list has indeed increased door-to-door selling.  The article focuses on how managers abuse the sellers and how the industry is largely unregulated.  There's a distressing irony in that:  cooling off periods were adopted to protect consumers from hard sells, but it turns out that the sellers may need more protection than the consumers.

Justice Kennedy: Are Judges Abandoning the Bench?

by Paul Bland

In a series of decisions dating back many years, Justice Kennedy has proven to be a most reliable vote for those who wish to expand the use of mandatory arbitration in nearly every context in which the question has arisen. In Circuit City v. Adams, 532 U.S. 105 (2001), for example, he just declared as a self-evident truth that mandatory arbitration is cheaper than litigation in court.  Id. at 132 ("Arbitration agreements allow parties to avoid the costs of litigation. . . .").  The Justice did not cite to anything for this proposition, and no wonder, as indeed it is simply untrue in many circumstances. Because arbitrators charge by the hour – unlike judges, whose salaries are paid by the taxpayers and the government – many consumers and employees have been hit with huge bills in order to pursue their claims in arbitration. Justice Kennedy has also spoken favorably about how mandatory arbitration can reduce the "burden to the courts" of litigating employment discrimination cases. (Many civil rights lawyers have expressed frustration to me that the Justice views their lives’ work as a "burden.")

Yet, even Justice Kennedy has apparently found ONE thing about it that he doesn't like: because arbitrators can make a lot more money, arbitration is luring good judges from the federal bench. In recent testimony to the U.S. Senate Judiciary Committee, Justice Kennedy made the following point in support of a pay raise for federal judges:

There are two present dangers to our maintaining a judiciary of the highest quality and competence: First, some of the most talented attorneys can no longer be persuaded to come to the bench; second, some of our most talented and experienced judges are electing to leave it.  In just the past year, two of the finest federal district judges in California have left for higher-paying jobs elsewhere, one in academia and the other in the state judiciary. The loss of these fine jurists is not an isolated phenomenon. Since January 1, 2006, ten Article III judges have resigned or retired from the federal bench. It is our understanding that seven of these judges sought other employment. In 2005, nine Article III judges resigned or retired from the bench, which was the largest departure from the federal bench in any one year. Four of those nine judges joined JAMS, a California-based arbitration/mediation service, where they have the potential to earn the equivalent of a district judge’s salary in a matter of months. My sense is that this may be just the beginning of a large-scale departure of the finest judges in the federal judiciary. It would be troubling if the best judges were available only to those who could afford private arbitration.

Court Says Using Punitive Damages to "Punish" (for Harm to Others) Is Unconstitutional

by Deepak Gupta

About an hour ago, the Roberts Court issued its first decision on the substantive due process limits on punitive damages.  (The case is Phillip Morris v. Williams, which I previously blogged about here.)   For those who believe in the civil justice system as a tool for deterring illegal conduct that harms society, the news today was not good.  Justice Breyer, in an opinion joined by Justices Roberts, Alito, Kennedy, and Souter, framed the question presented and the holding this way:  "We are asked to decide whether the Constitution's Due Process Clause permits a jury to base [a punitive damages] award in part upon its desire to punish the defendant for harming persons who are not before the court (e.g. victims whom the parties do not represent).  We hold that such an award would amount to a taking of property from the defendant without due process."

The dissenters are Ginsburg, Stevens, Thomas, and Scalia, with three separate dissents.  But as usual, it's Justice Stevens who really gets to the heart of the issue--pointing out the novel and unprincipled distinction on which the majority opinion relies:

The majority relies on a distinction between taking third-party harm into account in order to assess the reprehensibility of the defendant’s conduct—which is permitted—from doing so in order to punish the defendant “directly”—which is forbidden. This nuance eludes me. When a jury increases a punitive damages award because injuries to third parties enhanced the reprehensibility of the defendant’s conduct, the jury is by definition punishing the defendant “directly” for third party harm. A murderer who kills his victim by throwing a bomb that injures dozens of bystanders should be punished more severely than one who harms no one other than his intended victim. Similarly, there is no reason why the measure of the appropriate punishment for engaging in a campaign of deceit in distributing a poisonous and addictive substance to thousands of cigarette smokers statewide should not include consideration of the harm to those “bystanders” as well as the harm to the individual plaintiff. The Court endorses a contrary conclusion without providing us with any reasoned justification.

Blogging Away Debt

by Deepak Gupta

This morning's New York Times has an interesting article on a strange new phenomenon: people who anonymously blog about their personal debt (e.g. Poorer Than You, We're in Debt). The article suggests that, although they're too embarassed to talk about it with their family or friends, these bloggers gain discipline by cataloguing their spending habits and announcing them to the world. For a sampling, click on the image on the right.

Update: Angie Littwin of Harvard Law School read the same article has some extended reflections on the subject at Credit Slips. She observes that "these bloggers have developed a self-control mechanism that aligns perfectly with cutting-edge research in behavioral economics."