National Arbitration Forum's Wall of Secrecy Crumbling

by Paul Bland

cross-posted from Tort Deform

While very few of them actually know it, courts would say that tens if not hundreds of millions of Americans have "agreed" that if they ever have a dispute against various powerful corporations, that their dispute will be decided by an organization named the National Arbitration Forum (or "NAF"). Who is the NAF?  What is its background? Is it really a neutral organization, or is it likely to favor one side or the other in disputes?

Let me put my own "biases" on the table at the outset. Based upon extensive investigation and interviews with literally hundreds of people, my law firm, Trial Lawyers for Public Justice, has argued vociferously in several different court cases around the nation that the NAF is not a truly neutral organization. Instead, we have argued, NAF has conducted itself in ways that suggest that it in disputes between consumers and large corporations (and particularly banks and other lenders), that the NAF as an institution is pre-disposed to favor the corporations and lenders.

Arbitrators Are Answerable to No One

by Paul Bland

In an ever-growing trend, corporations have moved to excuse themselves from the normal civil justice system by shifting disputes that their customers or employees may have against them from courts into the private judging system of arbitration. In this situation, instead of having lawsuits alleging consumer fraud or racial discrimination or similar types of claims handled in court, corporations are requiring consumers and employees to bring their claims before private arbitrators who are largely selected by private arbitration firms who compete with each other to be selected by the corporations.

While consumer and civil rights advocates have raised a host of concerns about this system of private judging, one concern that has consistently arisen is that the decision of the private judges are almost subjected to any meaningful review by courts. Drawing upon a long strand in American political thought that it is unwise to give any one power that is not subject to any meaningful check or challenge, consumer and civil rights advocates have questioned the wisdom of sending important consumer and statutory cases into a system where one person will make a decision that will almost certainly never be seriously questioned.

These policy concerns have been completely rejected by the U.S. Supreme Court. About 15 to 20 years ago, there was a lively controversy in this country about whether arbitrators should be given the power to decide cases involving important statutes that Congress had passed to protect the public at large. "Arbitration may be alright for deciding contract and commercial disputes between two businesses," the argument essentially ran, "but corporations should not have the power to push their customers and employees to bring civil rights and other public statutory claims in arbitration." In a several different cases, the U.S. Supreme Court has flatly rejected these arguments. The Court has held that a broad variety of federal statutory claims are subject to mandatory arbitration agreements.

CL&P Roundup

• Appeal Filed in Light Cigarette Class Action: As expected, the tobacco company defendants in the "light cigarettes" litigation that was certified as a class action by Judge Jack Weinstein last month--and which Steve Gardner blogged about here--have just filed their Rule 23(f) petition for interlocutory review in the Second Circuit, as well as a motion for a stay. [via Mass Tort Litigation blog and Point of Law]

• The "Small Print Project"--A Museum of Adhesion? A graduate student at the University of Southern California has launched an interesting online project that will attempt

to catalog all the “agreements” we find ourselves “consenting to” when we open a box, install a program, sign up for a service or visit a website. These “terms and conditions,” “terms of use” and “end-user license agreements” do terrible violence to the noble agreement, backing us into arrangements that no sane individual would ever agree to. Sony’s DRM made you promise to delete your music if your house burned down; Amazon Unbox lets them spy on your computer and shut down your videos if they don’t like what they see. And it doesn’t stop there. Think of the “agreements” on the back of your dry-cleaning tickets, on your plane tickets, in your credit-card statements, and your cellular phone contract.

The project reminds me a bit of the now well-established Chilling Effects Clearinghouse, which compiles cease-and-desist letters, although in this case it is apparently meant only to be a temporary academic experiment. [via the Trademark Blog.]

• "State AGs Eschew CAFA Review":  That's the headline of a new article in the National Law Journal (registration required).  The Class Action Fairness Act of 2005, in addition to greatly extending federal jurisdiction over class actions, requires defendants to notify state AGs of proposed class action settlements, the idea being that AGs might step in to prevent abusive settlements that put the interests of the greedy plaintiffs' lawyers and defendants over those of consumers. The article reports that "[t]wenty months after the Class Action Fairness Act took effect, state attorneys general have not exactly raced to exercise the power the act grants them to review class action settlements," and goes on to describe the lack of objections by AGs since CAFA "took effect."   But, as my colleague Scott Nelson pointed out to me this morning, the settlement-notice provisions of CAFA apply only to cases filed after CAFA's effective date, meaning that most settlements reached since CAFA "took effect" have not been subject to those provisions.  Thus, the jury is still out on what effect, if any, these notice provisions will have on state enforcement of abusive settlements.

• One Year Into "Bankruptcy Reform": Bob Lawless at Credit Slips has some interesting observations on the one-year anniversary of the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," a law whose name is now widely-regarded as a bad joke.  His themes include decreased filings, textual chaos, and bankruptcy-court frustration.  Steve Jakubowski at the Bankruptcy Litigation Blog has some additional reflections on BAPCA's birthday.

FTC Proposes to Ban Most Prerecorded Telemarketing Messages

    By Brian Wolfman

    In an October 4, 2006, Federal Register notice, 71 Fed. Reg. 58,176, the Federal Trade Commission has proposed to prohibit all prerecorded telemarketing messages to consumers except where the seller has obtained the consumer's written consent to receive such prerecorded calls. 

Interestingly, the FTC's proposed rule was issued in response to a petition (which the agency denied) from the Voice Mail Broadcasting Corp. (VMBC) urging the FTC to permit all prerecorded messages to consumers with whom the seller had an "established business relationship."  According to the FTC, about 13,600 consumers responded to the petition, with over 13,000 opposing VMBC's position.  The FTC cited the overwhelming consumer opposition to VMBC's petition as one reason for the proposed rule.  Comments on the proposed rule are due by November 6, 2006.  An FTC synopsis of the proposal appears here.

Update on Publication Opportunity

The deadline for submitting to the "Current Developments" section of the 2007 volume of the Yearbook of Consumer Law has been extended to mid-November.  For more information, please see the earlier blog entry.

Update on FDCPA Amendments

The amendments to the Fair Debt Collection Practices Act that Richard Alderman blogged about here have been signed into law and can be found at Title VIII of Public Law No.109-351.  Here is the final text of the amendments.  (A side note: Co-blogger Deepak Gupta will be speaking about these amendments at the National Consumer Law Center's annual conference in Miami next month.)

Consumer Cases and the U.S. Supreme Court's Docket

by Deepak Gupta

From time to time, I'll file reports like this one to let you know how the U.S. Supreme Court's docket is shaping up on issues that could affect consumers' rights.  This post will focus on recent cert denials and cases on the merits docket.  Upcoming posts will highlight interesting new petitions coming down the pipeline.    (My office has an active practice in the Supreme Court and we closely monitor the Court's docket through our Supreme Court Assistance Project. You can read the project's regularly-updated "watch-list" at this link.)

A Safety Valve for Arbitration:  For starters, I’m pleased to report that yesterday the Court denied review in an arbitration case, John Hancock Life Insurance Company v. Patten, in which my colleague Scott Nelson and I had represented the respondents.  As I discussed at length in a post a few weeks back, John Hancock's petition asked the Court to either abandon or severely restrict the scope of the "manifest disregard" doctrine, under which federal courts may overturn arbitration awards in cases where arbitrators disregard the law.

State AG Petitions on Preemption, Personal Jurisdiction: The Court also denied a number of other interesting consumer cases cases recently.  Leading the pack were:

• The State of Minnesota's cert petition, supported by 36 other states but opposed by the Solicitor General (whose views the Court requested), in Hatch v. Cellco Partnership.  The question presented was whether Minnesota’s "Consumer Protection for Wireless Customers" law--which requires wireless service providers to give notice and obtain customer consent before they change the terms of an existing contract--is preempted by federal law.

• The petition filed by a large group of state Attorneys General in King, et al v. Grand River Enterprises.  The question there was whether, in a suit filed by tobacco companies challenging certain state statutes aimed at tobacco, a federal court in one state may exercise jurisdiction over AGs from other states solely on the grounds that they had “assembled purposefully” and agreed while there to “pass” the challenged laws.

• FreeEats v. North Dakota, an industry petition asking whether a North Dakota statute that restricts the making of prerecorded telephone calls is preempted by the Telephone Consumer Protection Act and an FCC rule, as applied to prerecorded interstate telephone calls that seek to survey the recipient's political views.

I'll provide an overview of the granted cases after the jump.

Illinois Supreme Court Holds Class Action Waiver Unconscionable

by Scott Nelson

On October 5, the Illinois Supreme Court issued its opinion in Kinkel v. Cingular Wireless LLC, No. 100925, holding that a provision in Cingular's arbitration agreements with its customers that purported to bar class actions was unconscionable.  The Illinois Supreme Court has now joined the California Supreme Court in holding that such class action waivers are, at least in some circumstances, unenforceable.  At the same time, the Illinois court held that the class action ban was severable from the arbitration agreement itself, with the result that the consumer claims at issue may become the subject not of a class action heard in the Illinois courts, but rather a class arbitration.

The Kinkel opinion is narrowly written in that it does not condemn all class action waivers under all circumstances.  The opinion also carefully states that its unconscionability analysis is equally applicable to class action waivers in arbitration agreements and those that are not tied to arbitration clauses, thus avoiding the argument that its state-law-based analysis discriminates against arbitration and is preempted by the Federal Arbitration Act (FAA).  The court's solid analysis on this point should "cert-proof" its opinion against any effort by Cingular to request review by the U.S. Supreme Court on the preemption issue -- though that may not stop Cingular from trying, given the vehemence with which industry litigants have sought to enforce class action waiver provisions.

Predatory Lender Gets Ten Years in the Clink

by Christopher Peterson

Will the possibility of ten years in a state prison deter payday lenders from circumventing consumer protection laws? I guess we'll find out. Last August Assistant State Attorney Russ Edgar from Pensacola, Florida obtained a guilty verdict in a state "little RICO" Act prosecution of a notorious payday lender. The trial court recently finished the sentencing phase of the trial, giving John Gill, Jr. ten years in the clink. Read the story here.

Mr. Gill operated strip-mall loan outlets in several states around the country, usually without obtaining a license or even attempting to comply with state lending laws. His companies disguised payday loans as purchases of internet services or catalogue certificates combined with a "rebate." In a typical transaction, a consumer would receive $600.00 in cash (the "rebate") and be obligated to pay $100.00 every two weeks for an entire year. The consumer would also have the right to schedule appointments to use a computer at the store location to access the Internet for up to ten hours every two weeks. At one point Mr. Gil did obtain a license to legally lend within Florida's industry-drafted statute (which currently allows payday lending at interest rates of around 390%). But, he apparently found the regulations to onerous, instead opting to turn in his license and lend illegally.

 

To me, the case is an interesting example of the Bentham's old argument about interest rate caps creating a black market. Florida has (roughly speaking) a 390% per annum cap, but some lenders still refuse to comply. Is this an indictment of usury law as a policy strategy? Or, does it tend to show that market imperfections prevent the short-term, high-cost consumer debt market from resolving to Pareto optimal pricing? I suspect that it is both. Neither usury law, nor markets are adequate policymaking tools. But, given a choice between the two, I think mandating and attempting to enforce a reasonable upper limit on credit prices is better for society in the long run.

Copyright-Protected Area?

by Greg Beck

In this post, I questioned whether a company can claim copyright in a shampoo bottle to preclude anyone from taking pictures of it.  As reported by BoingBoing, this business seems to have taken the concept even further, creating a "Copyright-Protected Area."