Consumer Law & Policy Blog

Eleventh Circuit: Attempt to Pick Off a Class Representative Doesn't Moot the Class Action

by Deepak Gupta

The Eleventh Circuit issued issued a very comprehensive and well reasoned opinion this week on a hot issue in consumer class-action practice: Can a defendants' attempt to "pick off" a class representative moot the class action?  Or, as the opinion puts it: "This case presents the question whether a defendant may moot a class action through an unaccepted Federal Rule of Civil Procedure 68 offer of complete relief to the named plaintiffs—but not to class members—before the named plaintiffs move to certify the class. In the circumstances of this case, the answer is no." Here, the issue arose in a Telephone Consumer Protection Act case (Stein v. Buccaneers Ltd. P'ship.); it's a recurrent issue in cases under the Fair Debt Collection Practices Act and other consumer laws that authorize statutory damages.

1. Individual mootness. Here's the heart of the court's analysis on the threshold question of individual mootness:

Giving controlling effect to an unaccepted Rule 68 offer—dismissing a case based on an unaccepted offer as was done here—is flatly inconsistent with the rule. When the deadline for accepting these offers passed, they were “considered withdrawn” and were “not admissible.” See Fed. R. Civ. P. 68(b). The plaintiffs could no longer accept the offers or require the court to enter judgment. In short, the plaintiffs still had their claims, and [the defendant] still had its defenses. [The defendant] had not paid the plaintiffs, was not obligated to pay the plaintiffs, and had not been enjoined from sending out more faxes. The named plaintiffs’ individual claims were not moot.

That's the same common-sense approach sketched out by Justice Kagan's dissenting opinion in Genesis Healthcare Corp. v. Symczyk (joined by three other Justices and contradicted by none), which offered this "friendly suggestion" to the lower court that had found the case moot: "Rethink your mootness-by-unaccepted-offer theory. And a note to all other courts of appeals: Don’t try this at home." The defendant in the TCPA case, the Eleventh Circuit noted, "invites us to try this at home. We decline." On this point, the Eleventh Circuit joins the Ninth Circuit's opinion last year in Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954-55 (9th Cir. 2013).

2. Class mootness. The Eleventh Circuit also went on to hold that, "[e]ven if the individual claims are somehow deemed moot, the class claims remain live, and the named plaintiffs retain the ability to pursue them." On this point, the court relied on a precedent of the Old Fifth Circuit, binding in the Eleventh, and a tour of the Supreme Court's class-action mootness jurisprudence going back to the '70s. Here's the upshot of that analsysis: "In the Third, Fifth, Ninth, and Tenth Circuits, as now in the Eleventh, a Rule 68 offer of full relief to the named plaintiff does not moot a class action, even if the offer precedes a class-certification motion, so long as the named plaintiff has not failed to diligently pursue class certification." Only the Seventh Circuit's decision in Damasco v. Clearwire stands apart, and the panel's opinion includes some nice criticism of the bizarre practical consequences of the Damasco regime.

The panel didn't deny that there may appear to be "tension" between its opinion and a bit of the Genesis majority's dicta -- particularly the Court's distinction between "inherently transitory" claims mooted by the passage of time and damages claims. But the panel explained that (1) Genesis doesn't conflict with the panel's analysis of individual mootness, (2) Genesis emphasized differences between Rule 23 class actions and the FLSA collective action at issue there, and (3) a contrary approach "would prove too much. It would mean that a named plaintiff could not represent a class if the defendant sufficiently proffered full relief at any time before the class was certified, not just before the plaintiff filed a motion to certify." Even the Seventh Circuit doesn't take that approach, and nobody is seriously suggesting it.

David Lazarus in the Los Angeles Times on Debt Collectors Renting Out Prosecutor Letterhead

by Deepak Gupta

In today's Los Angeles Times, consumer columnist David Lazarus takes a look at the practice of for-profit debt collectors renting out the seal and letterhead of local California prosecutors -- the target of a new class-action lawsuit that our firm filed yesterday in federal court in San Francisco. The practice was condemned in a scathing ethics opinion released by the American Bar Association a few weeks ago -- an opinion we blogged about here.

Here's Lazarus's take:

These programs are hinky from the get-go. Prosecutors are allowing private debt collectors to misrepresent themselves as official entities, and consumers are unfairly being threatened with bogus charges.

If these programs focused solely on making the legal system more efficient, fine. But they seem to exist primarily to do the dirty work for merchants who believe they're owed some cash.

These companies should do their own debt collecting. Prosecutors should concentrate on enforcing the law.

And if prosecutors can't tell the difference, they should, as the American Bar Assn. suggested, sign up for some remedial ethics training.

I admit, I had to look up the word "hinky" in the dictionary. But it seems quite apt.

Jeremy Telman at ContractsProf Blog on the Debate Over "Whimsy Little Contracts"

Here.

ABA Issues Formal Ethics Opinion on Prosecutors Who Rent Out their Letterhead to Debt Collectors

by Deepak Gupta

Since its inception, this blog has covered the pernicious practice of prosecutors who rent out their name and authority to private for-profit debt collectors. As readers may recall, these debt collectors use official-looking letterhead to threaten consumers who have accidentally bounced checks for household purchases  -- consumers are told they'll face criminal prosection and even jail unless they pay exorbitant collection fees.  Our law firm recently filed a class-action lawsuit aimed at one such debt collector, known as Bounceback, Inc., under the Fair Debt Collection Practices Act and Washington state law.

Yesterday, the American Bar Association stepped into the fray. It's about time.

The association's Standing Committee on Ethics and Professional Responsibility issued ABA Formal Ethics Opinion 469, which concludes in no uncertain terms that the so-called "check diversion" programs violate basic standards of professional conduct.

In particular, the opinion shines a spotlight on the misuse of the lawyer's name and authority in facilitating these arrangements. The demand letters are effective at scaring consumers because they are sent on prosecutor letterhead and contain threats of criminal prosecution -- threats that no other debt collector could make.

But those threats are false. "Typically," the ABA's opinion explains, "no lawyer in the prosecutor's office reviews the case file to determine whether a crime has been committed and prosecution is warranted or reviews the letter to ensure it complies with the Rules of Professional Conduct prior to the mailing."

The opinion also rightly emphasizes that the demand letters at issue are especially deceptive "because they misuse the criminal justice system by deploying the apparent authority of a prosecutor to intimidate an individual." And, in addition to making misrepresentations, the letters involve prosecutors in aiding and abetting the unauthorized practice of law by private, for-profit collection collectors.

The prosecutor-debt collector arrangements are also "abusive" because they convey "the impression that the machinery of the criminal justice system has been mobilized" against the consumer, who is led to believe that he or she may face jail time unless the collector gets paid.

Wasserman Article on Global Solutions to Mass Torts

Rhonda Wasserman of Pittsburgh has written Future Claimants and the Quest for Global Peace, Forthcoming in 64 Emory Law Journal (2014),  Here's the abstract:

In the mass tort context, the defendant typically seeks to resolve all of the claims against it in one fell swoop.  But the defendant’s interest in global peace is often unattainable in cases involving future claimants – those individuals who have already been exposed to a toxic material or defective product, but whose injuries have not yet manifested sufficiently to support a claim or motivate them to pursue it.  The class action vehicle cannot be used because it is impossible to provide reasonable notice and adequate representation to future claimants.  Likewise, non-class aggregate settlements cannot be deployed because future claimants will not have contacted attorneys whose participation is critical to those alternative methods of dispute resolution.

In lieu of class actions and non-class aggregate settlements, this Article proposes a hybrid public-private claims resolution process designed to provide many of the benefits of global peace, while preserving the constitutional rights of future claimants and ensuring them fair compensation as their injuries manifest.  Under this proposal, defendants would secure judicial approval of a fair and reasonable class action settlement of the current claims and then, through an extra-judicial process, make fair offers on comparable terms to future claimants as their claims mature, adjusted to take into account the time value of money and intervening changes in legal doctrine and medical advances.  Since the class action settlement would not purport to bind the future claimants, their constitutional rights would be protected.  And even though the future claimants would not be bound by the class action judgment nor obligated to accept the fair offers on comparable terms, they would have an incentive to accept them, rather than sue in tort, because they would be assured fair compensation without incurring the costs of litigation.

More From Mullenix on Aggregate Litigation

On Monday, Brian posted a link to Linda Mullenix's article, Ending Class Actions as We Know Them.  But Professor Mullenix has more thoughts on aggregate litigation, appearing in Reflections of a Recovering Aggregationist, 15 U. Nev. L. Rev., (2014 Forthcoming).  Here's the abstract:

The past fifty years have experienced a radical reformation of civil litigation in American federal courts, with the judiciary and the rulemakers constantly attempting to conform civil procedure to the changing landscape of modern technological society. Beginning with the landmark rule revision package of 1966, which amended the entire array of joinder rules, federal civil procedure since then has been in a constant state of revision, amendment, and doctrinal elaboration. Many of the federal civil rules have been modified in some fashion; with some rules undergoing wholesale rewriting, while others have experienced tinkering at the edges. Moreover, throughout this period the courts have continued to amplify (or obfuscate) doctrines of personal and subject matter jurisdiction, pleading, and applicable law, with each new elaboration raising public policy debates surrounding access to justice.

Perhaps one of the most significant developments in the past fifty years has been the advent and domination of the litigation arena by large scale aggregate litigation. Spurred on by the 1966 amendment to the class action Rule 23 and the enactment of a multidistrict litigation statute in 1968, the litigation landscape in the 1970s experienced the first rush of public law and institutional reform litigation. This was followed swiftly by onslaught of mass tort litigation, which cases dominated public policy debates of the 1980s and 1990s. By the turn of the twenty-first century, the mass tort class action gave way to second and third generation aggregate litigation, with multidistrict litigation and aggregate settlement procedures prevailing as a preferred mechanism for resolving large-scale complex litigation.

Champions of the twenty-first century aggregate dispute resolution mechanisms largely base their policy arguments on rhetoric similar to that first advocated during the heyday of mass tort litigation in the 1980s. Advocates of current MDL procedures, settlement classes, non-class settlements, and the quasi-class action have imported rationales that were used to justify novel class action techniques during the 1980s. Ironically, however, proponents of the new aggregate litigation techniques point to the failure of the class action rule as a primary justification for the deployment of non-class aggregate techniques to resolve multiple claims.

This article questions the wisdom of engrafting the rhetoric and rationales that justified the mass tort litigation movement of the 1980s to support novel aggregate litigation mechanisms in 2015. It concludes that the current twenty-first century aggregation movement, with its roots in the 1980s mass tort litigation crisis, has devolved into problematic mass claims settlement mechanisms of dubious fairness and troubling process concerns.

A Comment on Comments on the CFPB Arbitration Study

by Jeff Sovern

The CFPB Monitor blog has a post titled Industry trade groups urge OMB not to approve CFPB arbitration telephone survey about a filing by the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable. They "strongly recommend that OMB not approve the proposal because it will not produce information of practical utility . . . ."  I couldn't disagree more. 

The survey will ask respondents what credit card they have.  From that, the CFPB should be able to determine if the credit card contract includes an arbitration clause, waives the right to a jury trial,  and the right to participate in class actions, among other things, because the Bureau has credit card contracts on file.  The survey asks respondents about all those rights. Accordingly, the Bureau should be able to find out how aware consumers are about their surrender of those rights.

Suppose for the sake of argument that the Bureau finds that significant numbers of consumers don't realize that they have given up those rights.  Wouldn't that raise questions about whether arbitration clauses are abusive within the meaning of 12 U.S.C. section 5531(d), which provides that conduct can be abusive a long as it “takes unreasonable advantage of— (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service . . . "?  The abusive definition establishes public policy that the Bureau should consider in exercising its discretion to ban or regulate arbitration in consumer financial contracts under the Dodd-Frank Act.

I will have a lot more to say about consumer understanding of arbitration clauses later in the summer.

Media Matters Talks to Paul Bland about Class Actions and Justice

Co-blogger Paul Bland, the new Executive Director of Public Justice, was recently interviewed by Media Matters.  In an engaging interview in his office Paul discusses his singular career as a champion for consumer rights, the importance of class actions as a means of challenging corporate wrondoing, and the pro-corporate bent of the Roberts Court. It's a nicely produced video, complete with animations, and Paul is as articulate a spokesperson as we have on these issues. Well worth watching and distributing widely.

NACA adopts Third Edition of its Standards and Guidelines for Litigating and Settling Class Actions

by Stephen Gardner

The Board of Directors of the National Association of Consumer Advocates adopted the Third Edition of its Standards and Guidelines for Litigating and Settling Class Actions on May 13 (Download here), continuing a tradition of setting high standards for the ways consumer class actions are handled that began with the first Guidelines adopted in 1997 and published at 176 F.R.D. 370. (NACA issued the Second Edition of the Guidelines in 2006, published at 255 F.R.D. 215)

A number of courts have referred to the Guidelines, including Boyle v, Giral, 820 A.2d 561, 569 fn. 8 (D.C.C.A. 2003); Braud v. Transport Service Co. of Illinois, 2010 WL 3283398 (2010 E.D. La.); Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1308 (S.D. Fla. 2007); Henderson v. Eaton, 2002 WL 31415728, *6 (E.D.La. 2002); In re Compact Disc Minimum Advertised Price Antitrust Litigation, 216 F.R.D. 197, 204 (D.Me. 2003); In re Educational Testing Service Praxis Principles of Learning and Teaching, Grades 7-12 Litigation, 447 F.Supp.2d 612, (E.D.La. 2006); In re Mexico Money Transfer Litigation (Western Union and Valuta), 164 F.Supp.2d 1002, 1028-1030 (N.D.Il. 2000); In re Prudential Ins. Co. America Sales Practice Litigation Agent Actions, 278 F.3d 175, 194 fn. 1 (3rd Cir. 2002); Milkman v. American Travellers Life Ins. Co., 2002 WL 778272, *7-9  (Pa.Com.Pl. 2002); Moody v. Sears, 2007 WL 2582193 (N.C. Super. 2007);State v. Homeside Lending, Inc.,  826 A.2d 997, 1009-1011 (Vt. 2003); Wilson v. DirectBuy, Inc., 2011 WL 2050537 (D. Conn. 2011).

Because things have changed in the class action world since 2006, NACA’s Executive Director Ira Rheingold appointed a committee consisting of some of the most principled and experienced class action lawyers in the country (Rob Bramson, Seth Lesser, Mike Quirk, Stuart Rossman, and Brian Wolfman) and asked me to chair the committee. I’d had the privilege of helping draft the prior two editions of the Guidelines (together with committee member Rob Bramson), and was happy to coordinate the efforts of this excellent set of drafters.

The Third Edition is thoroughly updated on the law, and continues the spirit of demanding high ethical standards of NACA members who bring class actions. It covers a wide range of issues that arise in consumer class actions (listed below).

One significant, though regrettable, change from the Second Edition is that the Third Edition no longer has a guideline on arbitration, metaphorically marking the regrettable fact that the Supreme Court has effectively aided the business community in forcing arbitration in almost every situation covered by consumer laws.

Each Guideline is organized into three sections: A. The Issue (containing an overview of the current state of the topic of the specific Guideline), B. Discussion (discussing and addressing differing viewpoints), and C. NACA Guideline (the Guideline itself, which the Board adopted as NACA policy).

Reading any or all of these Guidelines provides a good overview of the current status of these issues, both factual and legal, and gives high standards for any lawyer who brings consumer class actions.

• Guideline 1 – The Propriety Of Class Actions When Individual Recoveries Are Small                  
• Guideline 2 – Settlements When Other Class Actions Are On File
• Guideline 3 – Class Actions Involving Homes
• Guideline 4 – Certificate Settlements
• Guideline 5 – Additional Compensation To Named Plaintiffs
• Guideline 6 – Class Member Buyoffs/Rule 68
• Guideline 7 – Cy Pres Awards
• Guideline 8 – Attorney Fee Considerations
• Guideline 9 – Class Member Releases
• Guideline 10 – Confidentiality
• Guideline 11 – Improved Notice Of Settlement
• Guideline 12 – Claim Forms
• Guideline 13 – Communications With Class Members
• Guideline 14 – Role Of Objectors
• Guideline 15 – Monitoring Settlement Compliance

 UPDATE: Brian Wolfman points out to me that it was NACA member Chandler Visher who first suggested that NACA consider revising these Guidelines, so good on ya, Chandler.

Tidmarsh Article on Auctioning Class Settlements

Jay Tidmarsh of Notre Dame has written Auctioning Class Settlements, forthcoming in the William & Mary Law Review. Here's the abstract:

Although they promise better deterrence at a lower cost, class actions are infected with problems that can keep them from delivering on this promise. One of these problems occurs when the agents for the class (the class representative and class counsel) advance their own interests at the expense of the class. Controlling agency cost, which often manifests itself at the time of settlement, has been the impetus behind a number of class-action reform proposals.

This Article develops a proposal that, in conjunction with reforms in fee structure and opt-out rights, controls agency costs at the time of settlement. The idea is to allow the court, once a settlement has been achieved, to put the class’s claims up for auction, with the settlement acting as  reserve  price. An entity  that outbids  the settlement becomes owner of the class’s claims, and may continue to pursue the case against the defendant. A successful auction results in more compensation for the class. On the other hand, if no bids are received, the court has evidence that the settlement was fair. The prospect of a settlement auction also deters class counsel and the defendant from negotiating a sweetheart deal that sells out the class.

The Article works through a series of theoretical and practical issues of settlement auction, including the standards that a court should use to evaluate bids, the limitations on who may bid, and the ways to encourage the emergence of an auction market.