CL&P Book Club: The Consumer Law of the Horse (part 2 of 2)

by Michael Greve   (This is second half of a two-part excerpt.  The first part is here.)

...There is, then, no set of criteria or principles that reliably delineates a discrete consumer law.

The attempt to conjure up such a body of law partook of a broader, explicitly ideological reform movement. Beginning in the 1960s, policy advocates and legal scholars argued that commonlaw forms and formalities were an impediment to social reform, to the effective management of public problems, and to the aspirations and interests of deserving political constituencies. At its zenith, this critique became distilled in an ambitious effort to develop a full-blown theory of “public law,” in contradistinction to “private” or common law. The venue for the most serious and thoroughgoing version of this argument was environmental law, whose champions claimed that environmental complexities rendered common-law distinctions between “mine” and “thine” a menace to an imperiled planet. In an interconnected world, human activities become per se externalities; when an endangered woodpecker decides to build its nest where you want to build your house, the bird wins, and you lose. The ambition of environmental law to manage entire ecosystems in accordance with a coherent political scheme implies a full-scale repudiation of the common law and its theoretical foundations, including notions of property, harm, or individual injury.

Consumer-law advocates initially rested their case on a more modest critique of the common law and of a market economy. Affirmative-disclosure obligations, they argued, would make for more informed consumers and hence better customers. They would not stifle but rather improve competition. Unlike environmental law, then, consumer law remained at least superficially tied to the realities of production and markets. (In fact, federal and state prohibitions against unfair trade practices, beginning with the Federal Trade Commission Act in 1915, were originally intended to protect competitors, not consumers.) Instead of attacking the common law at its roots, advocates could plausibly rest their case on the enforcement problems and transaction costs of common-law litigation.

CL&P Book Club: The Consumer Law of the Horse (part 1 of 2)

by Michael Greve

Suppose (a well-worn but instructive hypothetical story runs) a gentleman intent on entering the horse trade were to ask his lawyer for advice on the legal landscape. Would a competent counsel perform a Westlaw search for every case with a mention of “horse”? Or would he advise the entrepreneur of the basics of contracts and torts, even at some risk of underinclusiveness (leaving out, say, some obscure precedent involving carcass disposal in Iowa) and overinclusiveness (such as bringing in liability precedents involving automobiles)? Not even close. The horse trader’s transactions are easily captured under the traditional doctrines of contracts and torts, and they are comprehensible only in the broader context of commercial law. The implied terms of contracts in the horse market will differ from those in the markets for airplanes or avocados, but the structural issues are the same. This explains why there is no distinct “law of the horse.”

The absurdity of equine law also explains why the call for some new, separate body of law typically rests on a claim that some transactions are wholly unlike those contemplated by the common law. Antitrust law has become an established body of law because we believe that certain contracts—those in restraint of trade—should not only be unenforceable but affirmatively prohibited. Other transitions to new legal arrangements break with common-law notions for overtly ideological reasons. In the 1930s, common-law doctrines governing relations between employers and employees were trumped by “labor law,” meaning the law of labor unions and collective bargaining, on the theory that individual workers were powerless against corporate employers. Three decades later, “employment law” was superimposed on preexisting layers of employment-at-will and collective bargaining rights—this time to empower minority workers against racist employers and unions. Those bodies of law cover the same transactions; they differ chiefly with respect to the underlying presumptions.

In the same fashion, “consumer law”—unknown before the 1970s—does not cover a single transaction that is not also covered by traditional common-law doctrines. Handbooks and treatises often define consumer law in contradistinction to commercial law—that is, the law governing transactions among merchants. The common law, of course, made no such distinction; it rested on a robust, across-the-board presumption in favor of freedom of contract. Even the Uniform Commercial Code treats, with rare exceptions, consumer transactions under the same rules that apply to comparable business transactions.

CL&P Book Club: Introductory Remarks

by Michael Greve

I am no great fan of consumer class actions. I am particularly skeptical of class actions (such as the far-famed Price litigation in Illinois) that effectively dispense with “detrimental reliance” and other doctrines that require some connection between a defendant’s wrong and a plaintiff’s remedy. Such doctrines, it seems to me, have important efficiency characteristics, which we dismiss at our peril.

In one of my rare forays into tort law, I have attempted to make that case in a little book entitled Harm-Less Lawsuits? What’s Wrong With Consumer Class Actions (AEI, 2005). I am grateful that clpblog has decided to post an excerpt from that book. “The Consumer Law of the Horse” deals with the intellectual foundations of modern consumer law—in particular, the determined effort to disconnect that body of law from traditional notions of “harm.”

The book is available from AEI and the full text is available online here. Consistent perhaps with my embrace of ancient, supposedly discredited common law doctrines, I am no great blogger. But I would much welcome comments, and I shall participate in the discussion to the best of my abilities.

For the first installment, click here.

CL&P Book Club: Michael S. Greve

by Deepak Gupta

I'm pleased to introduce a new feature here at the Consumer Law & Policy blog--an on-line book club. From time to time, we'll invite an author of an interesting book or article on consumer law to visit the blog and provoke a discussion about what they've written. The author will offer a few introductory comments to set the stage and then we'll post the relevant piece--usually an excerpt--and invite you to comment.

This blog is ostensibly about "consumer law," but we haven't once stopped to discuss what that term means or why we have a distinct body of consumer law. It seems appropriate, then, to begin the book club experiment with a text that explores some foundational questions about modern consumer law. In this case, those questions are explored from a decidedly external, critical perspective.

We've invited Michael S. Greve, the John G. Searle Scholar and Director of the Federalism Project at the American Enterprise Institute, and an adjunct scholar at the Competitive Enterprise Institute, to discuss his book on consumer class actions. Dr. Greve's research interests include federalism, constitutional law, environmental policy, and Internet regulation. He founded and, from 1989 to 2000, was executive director of the Center for Individual Rights (CIR), and was also previously a resident scholar at the Washington Legal Foundation. Dr. Greve earned his Ph.D. in Government from Cornell University in 1987.

Dr. Greve's book, Harm-Less Lawsuits, argues that consumer class actions brought by consumers who have not themselves been injured, on top of existing protections for injured consumers, "punish corporate defendants twice for the same conduct . . . In allowing both types of suits (without one foreclosing the other), we have two liability regimes operating on top of one another, over the same range of transactions. Such a dual regime is bound to deter a wide range of productive activity, without serving a sensible public purpose."

To read Dr. Greve's introductory remarks, click here.   For part one of the excerpt, click here.

What Is the U.S. Attorney General Doing with Settlement Notices Under the Class Action Fairness Act?

by Scott Nelson

The Class Action Fairness Act (CAFA) requires that whenever a federal class action filed after the Act's effective date is settled, notice of the proposed settlement must be sent to relevant federal officials, which in most cases means the Attorney General of the United States.  But what does the Attorney General do with these notices?  It seems that is a mystery.

The Senate Judiciary Committee's Report on CAFA says that the point of the notice provision is "to ensure that a responsible ... federal official receives information about proposed class action settlements and is in a position to react if the settlement appears unfair to some or all class members or inconsistent with applicable regulatory policies."  Put another way, the provision is aimed at "adding a layer of independent oversight to prohibit inequitable settlements."  At the same time, however, the Senate Report stresses that the law doesn't actually require the Attorney General to do anything: "it should not be construed to impose any obligations, duties or responsibilities on the federal ... officials who receive notice of a class action settlement."  Thus, whether the notice provisions do any good depends entirely on what (if anything) the officials who receive them decide to do with them.

As far as I can tell, there is virtually no publicly available information about what the U.S. Attorney General does with CAFA settlement notices - who, if anyone, reviews them; what, if any, standards are used in reviewing them; and what, if anything, the AG does once it has reviewed them.  That's perhaps not terribly surprising, because the Department of Justice (unlike the FTC) didn't have any program for reviewing class action settlements before CAFA was enacted, and nothing in CAFA obligated DOJ to institute such a program.  But one might hope that the AG at least does something with the notices he receives.

If anyone has any information on this subject, we'd like to hear about it.  Meanwhile, we've submitted this Freedom of Information Act request to the Department of Justice seeking any documents that set forth the AG's policies and procedures for reviewing CAFA settlement notices, as well as documents indicating how many notices the AG has received and what (if any) actions he has taken as a result.  It's been reported that the California AG has received in excess of 40 CAFA settlement notices since the Act went into effect, so Alberto Gonzales has probably received even more, and there has to be some paper trail indicating what he does with them.

Maybe the CAFA settlement notices just go into some black hole at DOJ - which also has been known to happen with FOIA requests like mine.  But I hope that at least someone at DOJ is looking at these things, and that a fairly simple FOIA request may help shed some light on the subject.  We'll see - but I'm not going to hold my breath in the meantime.

New and Improved NACA Class Action Guidelines

by Charles Delbaum

Class action practitioners should  become familiar with September, 2006 revisions to the National Association of Consumer Advocates’ Guidelines for Litigating and Settling Consumer Class Actions, originally adopted in 1997. The initial Guidelines were published at 176 F.R.D. 370.  The new Guidelines, available at www.naca.net, are 70 single spaced pages. The Guidelines set out best practices governing difficult ethical and practical issues, are replete with fresh insights into important legal issues, and have proved to be persuasive authority to courts.

Eight topics are added, including how to settle a predatory lending class action while protecting homeowners’ rights to resist foreclosure, how to keep class representatives from being “picked off” by offers of individual relief, and preventing defendants from improper ex parte communications with customers who are class members. The revised Guidelines also clarify several existing guidelines, and delete two guidelines because intervening Fed. R. Civ. P. 23 amendments afford adequate direction. See, e.g., In re Educational Testing Service Praxis, 2006 WL 2513005 (E.D. La. 2006).  For reasons of space, this article only briefly reviews certain highlights of the revised Guidelines:

California Supreme Court Grants Review In Important Consumer Protection Cases

    By Brian Wolfman

    CL&P readers may recall that, back on September 15, I blogged about recent California appellate decisions holding that Proposition 64 -- which imposes tighter standing requirements for private litigation under California's consumer protection statutes -- requires plaintiffs to show reliance on a defendant's unfair or deceptive act or practice.  I noted that Public Citizen and the Center for Auto Safety had filed an amicus letter asking the California Supreme Court to review these cases.  That letter explained that a reliance requirement would be antithetical to one of the basic purposes of modern consumer protection statutes: to override the obstacles to proving common-law fraud, one element of which is reliance.

    I'm happy to report that today the California Supreme Court granted review.   We plan to file an amicus brief on the merits.  I will keep you posted.

Speaking of Philip Morris ... An Update on the Schwab Class Action and United States v. Philip Morris

by Scott Nelson

As most readers are probably aware (and as previously discussed in this blog by Stephen Gardner last month here), Judge Jack Weinstein of the Eastern District of New York certified a nationwide class action of light cigarette smokers in a RICO/consumer fraud action against the major cigarette manufacturers on September 25, 2006.  The order also denied summary judgment and set a trial date of January 22, 2007.  For good measure, Judge Weinstein denied certification of his summary judgment ruling for appeal and refused to stay the trial date.

The manufacturers went to the Second Circuit and filed a Rule 23(f) application for interlocutory review of the certification order on October 6, together with an application for a stay of pretrial and trial proceedings pending action on the Rule 23(f) application and resolution of the appeal if the application were granted.  The plaintiffs filed oppositions to both motions (I don't have links, but we'll try to find them).

On October 24, Second Circuit Judge Barrington Parker entered an order granting a temporary stay of pretrial and trial proceedings, pending the Second Circuit's decision whether to grant the Rule 23(f) application.  Otherwise, he referred the motion for stay pending appeal to the panel (whose identity is as yet unknown) that will decide whether to hear the Rule 23(f) appeal.  Then, on October 27, the Second Circuit clerk's office issued a notice to counsel that oral argument on the motion for stay will be heard by the panel on December 5.

Although the scheduled argument is on the motion for a stay, it seems likely that the principal factor determining whether a stay will be granted is whether the court will accept the Rule 23(f) appeal.  The case thus presents the somewhat unusual situation of a full oral argument before a court of appeals over whether it will accept an appeal for briefing and argument.  That the court is hearing argument on the issue also seems to call into question predictions, such as those of the Wall Street Journal, that review and reversal of Judge Weinstein's ruling by the Second Circuit is inevitable.  Meanwhile, the parties evidently won't know whether this massive case will be going to trial in January until December 5 at the earliest.

Meanwhile, on the subject of stays, the D.C. Circuit yesterday granted a stay of Judge Kessler's rulings in United States v. Philip Morris, effectively permitting cigarette companies to continue marketing light cigarettes and engaging in other activities found by Judge Kessler to constitute RICO violations, pending appeal.  The panel of Sentelle, Randolph and Tatel said nothing more to justify their ruling than that "Appellants have satisfied the stringent standards required for a stay pending appeal."   Well, that explains that.

Latest on NCLC's Miami Consumer Rights Litigation Conference

by Jon Sheldon

This year's NCLC Consumer Rights Litigation Conference is being held in Miami November 9-13. Here is the latest:

1. Over 660 people have already registered and the number is likely to exceed 700 by next week.

2. There is so much interest in this year's conference that room blocks have filled up at the Hyatt Regency (where the conference is being held), the Courtyard Marriott, and the Radisson Miami.  NCLC has arranged a group rate with the Marriott Biscayne Bay Hotel & Marina (1-800-228-9290) and the Doubletree Grand Hotel Biscayne Bay (1-800-222-8733). In order to receive the negotiated group rate of $169 per night, individual attendees must ask for the group block by name: National Consumer Law Center.  Both hotels are a short ride from the Hyatt Regency by Metromover, a free people-mover system that serves downtown Miami.

3.  The Friday (Nov. 9) intensive on Mortgage Servicing is already sold out, but there is still space available for the all-day Friday intensives on  Auto Sales and Financing Fraud and also Doing Well While Doing Good: Secrets to Running a Profitable Consumer Law Practice. 

4. Also Friday at 11:30 AM the main conference starts with over 10  roundtables and other special sessions. The main conference gets into high gear Saturday and Sunday with over 30 sessions to choose from on those days. This year's advance registration shows strong interest in predatory lending, foreclosures, arbitration, debt collection, and trial practice sessions, with fair credit reporting and auto topics not far behind. But there are many other options too--everything from electronic payments to reverse mortgages to ethical issues in class action settlements.

5. Monday  (Nov. 12)  there is still space available for two well-received intensives:  The Class Action Symposium and Beyond Bankruptcy Reform: Getting Mortgage Servicers on Track in Chapter 13, and Bankruptcy Reform Update.

6. We cannot list all the special meetings and events that are happening at the conference that weekend, but highlights are the NACA Media and Trial Advocacy Awards and the NACA annual meeting, the Carnival de Abogados, a special showing of MAXED OUT (pre-release of an amazing new movie on debt), and various special luncheons and receptions.

7. You can register in person at the conference registration table at the Hyatt Regency or go to http://www.consumerlaw.org.  All registrants are required to sign a certification relating to their representation of consumer rather than business interests.

Punitive Damages in the Supreme Court: Today's Big Argument. Or Maybe Not.

by Deepak Gupta

Because lots of consumer protection statutes permit consumers to seek punitive damages, the Supreme Court's decisions limiting the availability of punitive awards can have a big impact on the enforcement of consumer rights and, more generally, on the ability of the civil law to deter bad corporate conduct.  The Rehnquist Court, with a few exceptions (Justices Scalia, Thomas, and Ginsburg didn't go along), was very activist in curtailing what it saw as unconstitutionally excessive punitive damage awards.  As a matter of substantive due process, the Court decreed in BMW v. Gore, punitive awards must be evaluated according to three "guideposts": the degree of reprehensibility of the conduct, the ratio between punitive and compensatory damages, and a comparison of the amount of punitive damages to any civil or criminal penalties that could be imposed for comparable misconduct.  Following up in State Farm Mutual Auto. Ins. Co. v. Campbell, the Court divined a specific numerical limit in the Due Process Clause: few awards exceeding a "single-digit ratio" between punitive and compensatory damages generally will satisfy due process.  The upshot is that, when it comes to proportionality, the constitutional limitations on civil damages against rogue corporations are a lot stricter than the limitations on the imprisonment of real people.

Today, the Roberts Court got its first chance to shape the Court's controversial jurisprudence in this area when it heard arguments in Phillip Morris v. Williams, a highly-anticipated case from Oregon involving punitive damages of $79 million in an individual tobacco case.  The case is about whether juries can punish for harms to other people, the application of BMW and State Farm to the tobacco/personal injury context, and the extent to which the second "guidepost" trumps the rest.  Or so everyone thought.   Based on today's oral arguments, however, the case may end up turning on the meaning of a jury instruction that was never given.  And the smart money seems to be on the case being sent back to the Oregon state courts for a clarification of exactly what it meant when it upheld the denial of that jury instruction.  It seems likely the Court may end up ducking the bigger questions for now.

A lot has been written about this case already.  Rather than add to it, I've rounded up links to the argument transcript, reactions to today's oral arguments by those who were in the courtroom, and some of the prior commentary.  (I participated in a moot for the respondent's counsel, Bob Peck, last week, but I didn't make it down to the Court this morning to watch the arguments.)