Consumer Law & Policy Blog

Is Mandatory Consumer Arbitration Dying?

U.S. PIRG's Consumer Blog reports on this story from Money Talk News suggesting that mandatory consumer arbitration is on its way out. It notes, for instance, that the recently-enacted federal financial reform legislation empowers the new Consumer Financial Protection Bureau to limit or ban mandatory arbitration in contracts for consumer financial products and services. The Money Talk News story caught my eye because of the example it used to illustrate why mandatory consumer arbitration is unfair:

Just last week Wells Fargo was ordered to pay $200 million in connection with this class action suit that accused it of deliberately rearranging customer checks and account debits to maximize overdraft charges. What Wells Fargo was doing – and many banks still are doing – is clearing big checks first, which may reduce a checking account to zero, then clearing the smaller checks and debit charges made on the same day. Here’s how that would maximize their  overdraft charges: Say you have $2,000 in your checking account. You use your debit card to make ten $10 purchases. Then you write a check to buy something that costs $2000. What should happen is the ten $10 purchases would clear, but the $2,000 check would bounce, resulting in a $30 bounced check fee. Common industry practice, however, is to re-order the debits: clear the $2,000 check first, leaving the account with a zero balance. Then bounce the ten $10 purchases, resulting in $300 of bounced check fees. Think that’s fair? It’s been going on for years. Would going to arbitration with Wells Fargo over $300 in fees have changed anything? No. Would hundreds of people banding together and costing Wells Fargo $200 million dollars change their behavior? Quite possibly. (In this specific case, however, not yet – Wells is appealing the judge’s ruling.)

Top-Side Amicus Briefs Filed in AT&T v. Concepcion

In AT&T v. Concepcion, the Supreme Court will decide whether companies can use the fine print of contracts to ban class actions by consumers or employees for discriminatory, fraudulent, or deceptive practices. 

The amicus briefs in support of AT&T were filed today.  We're posting them below and are also adding them to the  new web page that we've created to help people follow the case:

American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, and California Bankers Association (Alan Kaplinsky)

Center for Class Action Fairness

Chamber of Commerce of the United States (Roy Englert)

CTIA -- The Wireless Industry Association (Paul Clement)

DirectTV, Comcast Corporation, and Dell Inc.

DRI -- The Voice of the Defense Bar (Kevin Newsom)

Equal Employment Advisory Council

Law Professors (Andrew McBride)

New England Legal Foundation

Pacific Legal Foundation

The States of South Carolina and Utah

[Disclosure: Deepak Gupta and Scott Nelson of Public Citizen Litigation Group are lead counsel for the respondents in AT&T v. Concepcion in the Supreme Court.]

Will the Supreme Court Issue a Wildly Activist Decision in AT&T Mobility v. Concepcion?

by Paul Bland, Claire Prestel, and Melanie Hirsch

The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November.  Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.

[Disclosure: Deepak Gupta of Public Citizen Litigation Group, which hosts this blog, is counsel of record for the respondents in Concepcion. The views expressed in this article are solely those of the authors.]

The Corporate Abuse at the Heart of Concepcion

The Concepcion case involves the widespread corporate practice of using standard-form contracts to ban class actions.  Many state courts have held such class-action bans unenforceable, but AT&T Mobility (“ATTM”) has asked the Supreme Court to find that at least some of that state law is preempted by the Federal Arbitration Act (“FAA”).  To understand why the Court’s holding in Concepcion could be so significant, it is important to understand how class-action bans come to be and why they are often disastrous for consumers and employees.

Class-action bans are contract terms that purport to prevent consumers and employees from ever participating in class proceedings.  As in Concepcion, they are often buried in companies’ standardized arbitration clauses. Class-action bans favor companies at consumers’ and employees’ expense, but companies can impose them unilaterally because they draft the contracts. Consumers and employees rarely have time to read the lengthy agreements companies send them, let alone the ability to understand their dense legalese. And even if they did, few consumers or employees could negotiate the contracts’ terms.

Companies love imposing class-action bans because they dramatically undermine enforcement of consumer- and employee-protection laws.  Unlike European countries which mostly rely on large and powerful government agencies to enforce consumer protection and civil rights laws, the U.S. has relatively small government agencies which handle relatively few cases.  Most enforcement of these laws in the U.S. is done by private parties.  We rely upon individual consumers or employees who’ve been cheated or discriminated against to bring cases enforcing these laws.  Many types of illegal behavior can be addressed through individual cases by a single consumer.  But the reality is that many types of illegal behavior that harm very large numbers of people – thousands, sometimes hundreds of thousands of individuals – can only be meaningfully addressed through class actions.

Petitioner's Brief Filed in AT&T v. Concepcion (Enforceability of Class-Action Bans)

by Deepak Gupta

We're previously mentioned AT&T v. Concepcion, a case in which the U.S. Supreme Court will decide whether class-action bans in consumer and employment contracts may be held unconscionable, and hence unenforceable, under generally applicable state contract law.  Because they have embedded these class-action bans in their standard arbitration agreements, corporate defendants have repeatedly argued that such state-law rulings are preempted by the Federal Arbitration Act of 1925. The lower courts, both state and federal, have uniformly rejected that preemption argument.  Public Citizen Litigation Group represents the respondents, Vincent and Liza Concepcion, the California consumers who seek to bring a consumer fraud class action against AT&T.

Yesterday, AT&T filed its opening brief. Read it here. 

When the amicus briefs supporting AT&T are filed next week, we'll post them here as well.

Bugged by VW Settlement

by Scott Nelson

 What if a class action settlement defined a subclass that had no class representative and no separate representation by counsel, and it purported to release the claims of all members of the subclass for nothing while giving valuable benefits to other subclasses? And what if the settlement notice didn't mention that members of this subclass had nothing to gain by staying in the settlement, and no reason not to opt out? And what if the rest of the class, and class counsel, had an obvious reason to minimize opt-outs by the members of the take-nothing class, because the settlement allowed the defendant to walk away if too many class members opted out?

Does it sound like there might be a problem?

That's what appears to be going on in a proposed settlement in a pair of consolidated cases in the U.S. District Court for the District of New Jersey called Dewey v. Volkswagen AG and DelGuercio v. Volkswagen Group of America (Nos. 07-CV-2249 and 07-CV-2361). The settlement is set for a fairness hearing in July, with objections/opt-outs due for some members of the class next week (opt-outs must be postmarked by June 15) and others a little later because of a problem with misdirected notices. (The settlement website is here.)

The case is about a problem with a number of models of Volkswagens and Audis over a number of years: They leak around their fresh air vents and sunroofs, especially when their drain systems get clogged with leaves or other debris. The result can be water damage to the vehicles, expensive cleanups and repairs, and loss of value.

The plaintiff class in the cases consists of owners and lessees of a large number of Volkswagen and Audi models spanning the years 1997-2009 and covering millions of vehicles and even more millions of class members. And for some of the class members, at least, the proposed settlement appears to provide some valuable benefits. Some vehicle owners who've incurred repair costs in the past will get to share in an $8 million fund that will reimburse them for their out-of-pocket expenditures, and owners of some vehicles are entitled to free services, including modifications to drain systems, from dealers. So far, so good (at least, maybe: I can't speak to the adequacy of the reimbursements, because the class notices and other settlement documents don't provide estimates, as far as I can tell, of how many class members are thought to have incurred repair costs and how much of the costs will be covered by the $8 million fund).

But the settlement agreement defines one subclass, consisting of owners of various models of Volkswagens and Audis for different ranges of model years, who aren't entitled to share in the reimbursement fund and aren't eligible for any free repairs. What do they get? Nothing but a one-page insert for their vehicle's maintenance manual advising them to inspect their drains every 40,000 miles and clean them if necessary (at the owner's expense, of course).

And, oh, by the way -- the free advice in the revised maintenance schedule isn't really a benefit of the settlement, because the members of the subclass get to keep it whether the settlement is approved or not, and whether they opt out of the class or not. But if the settlement is approved, and the members of this subclass don't opt out, they are bound by a very broad release of all claims against Volkswagen relating to the subject of the lawsuit.

In other words, if you're in this subclass, you don't get anything by staying in the settlement, but you give something up -- your potentially valuable claims against Volkswagen. If you stay in, VW gets something for nothing, which is a pretty neat trick.

Supreme Court Agrees to Hear Class-Action Ban Issue

by Deepak Gupta

  Back in May 2008, I wrote a blog post that began like this:

A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before . . . is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the Supreme Court granted certiorari in AT&T Mobility v. Concepcion, which presents the question whether the Federal Arbitration Act preempts rulings that particular class-action bans are unconscionable under generally applicable state contract law.  We are counsel for the respondents, Californians who seek to sue AT&T over violations of state consumer-protection law in connection with the sale of cellular phones.

You can read the briefs, including the cert petition and our brief in opposition, here.

Public Citizen Wins Supreme Court Victory Allowing Class Actions in Federal Court!

 The U.S. Supreme Court today decided that state laws barring class actions can't trump federal court rules allowing them.  The case, Shady Grove Orthopedic Associates v. Allstate Insurance Company, was argued by Public Citizen's Scott Nelson.  Congratulations, Scott!

Today's decision, written by Justice Scalia and joined by Chief Justice Roberts and Justices Stevens, Thomas and Sotomayor, accepted our argument that the federal rules, by their terms, authorize class actions in any case that meets the criteria set by the rules, and conflicting state laws cannot override the federal rules.  As the majority opinion put it, federal procedural standards "create a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action," and that rule "automatically applies" in all cases in federal court, even if a class action would not be allowed in a similar case brought in a state court.

The case ensures that class actions will be available as a means for redress for plaintiffs advancing claims based on both state and federal substantive law if there is a basis for federal court jurisdiction over the case.  Because Congress expanded federal-court jurisdiction over class actions in the so-called "Class Action Fairness Act" (CAFA), state efforts to curtail class actions will not be effective for large numbers of cases over which CAFA provides federal jurisdiction.
 
This particular case, for example, involves a New York law that says that in New York courts, a class action cannot be maintained to seek "statutory penalties." The plaintiff class in this case sought to recover interest on late-paid insurance claims, as required by a New York statute.  If such lawsuits had to be brought on an individual basis, the claims of any one individual would probably not be worth litigating, so New York's rule barring class actions, if it applied, would effectively be the death-knell for the case.  But because the case was filed in federal court, where, under today's ruling, the New York class-action ban does not apply, the class may now have an effective remedy for the insurance company's practice of paying claims late without paying the required interest.

Delaware lawyer John Spadaro originally filed the case in federal district court and persuaded the Supreme Court to hear it after the lower courts had dismissed it on the basis of New York's class action ban.  Mr. Spadaro acted as co-counsel when the case was briefed and argued on the merits before the Supreme Court.  Public Citizen's Brian Wolfman was also co-counsel.

The briefs and opinion in the case are available online here.   Forbes wasted no time in letting us know that they don't like Justice Scalia's opinion.

Carfax Class-Action Settlement Rejected

by Deepak Gupta

Way back in May 2007, we posted here about objections by Public Citizen and the Center for Auto Safety to a nationwide-class action settlement involving Carfax. The underlying suit alleged that Carfax deceived customers by concealing the limits of the information contained in its popular vehicle history reports. Under the proposed settlement, Carfax would get a complete release of all claims, the plaintiffs' lawyers would get fees, and consumers nationwide would get the option to receive coupons for more free Carfax reports. The case was a poster-child for a bad coupon settlement. Nevertheless, a state trial court in Ohio approved the settlement over our objections.

In September 2009, I flew out to Ohio to argue the case before the state appeals court. We had three straightforward arguments for why the settlement was defective: (1) Carfax did not even attempt notice to the vast majority of the class, (2) the trial court approved the settlement without considering information concerning the actual value of the coupons to the class (as revealed by the number of claims made) and (3) the trial court inexplicably denied a request that Carfax turn over the relevant claims information. Although the state court does not get many class actions, let alone nationwide class-action settlement objections, the judges seemed surprisingly well prepared and had pointed questions for the settling parties' lawyers.

I'm pleased to report that the Ohio Court of Appeals handed us a victory over the holidays, ruling in our favor on all three grounds. Beyond the importance of this ruling for consumers in the vehicle history context, it's significant for several reasons. Ohio has a remarkably sparse class-action-fairness jurisprudence, and we're hopeful that this case will set some minimum standards, including an individual-notice requrement as a constitutional floor for notice. In addition, the insistence on the discovery of coupon-redemption information is also quite significant in its own right. When that kind information is revealed -- for example, when people find out that far less than 1% of the class is likely to claim the coupons -- it becomes really hard to defend a bad coupon settlement. 

Good coverage of our Carfax victory appeared this week in the New York Times, the Cleveland Plain Dealer and Consumer Affairs.

In related vehicle-history-information news, the National Motor Vehicle Title Information System -- a long-overdue public alternative to Carfax that was launched in response to our successful lawsuit against the Justice Department -- continues to proceed toward full implementation. Here's an update on some of the latest.

Milberg Firm Files Class Action Against NAF

The claims include UDAP and FDCPA violations, as well as breach of contract.  Milberg's statement is here while the complaint is here (hat tip to Ray Warner).

Court to Greenmailers: Drop Dead

by Stephen Gardner

A bane of honest class action lawyers (and there are plenty of them, the vast majority) is the creature that I call a greenmailer -- a lawyer who objects to a good class action settlement only in hopes of getting some fees out of it, without a care for improving the settlement itself. (Some call these weasels "professional objectors," but I don't like that term because it suggests that outfits such as Public Citizen are "unprofessional" objectors. Quite the opposite, in fact.)

Today we see a federal court opinion that warms our hearts and brings goofy grins to our faces.

U.S. District Judge James M. Rosenbaum issued an order denying objectors' request for fees. In addition to being a substantively excellent decision, it is also one of the most entertaining and readable opinions to emit from the judiciary in some time.

You know it's not going to go well for objectors when the opinion starts out, "The remoras are loose again."

And it gets worse from there. (A personal note: While on a fishing boat, I saw a pelican that had lit on the transom of the boat in search of nibble -- because pelicans will eat damn near anything -- grab a remora that the captain had tossed to it, but immediately spit it out. Now, I'm not saying that a pelican would spit out these lawyers as well, although it's worth noting that it's possible.)

The Judge, in an "egregious paraphrase of Winston S. Churchill," noted that, "Seldom in the field of securities litigation was so little owed by so many to so few."

He goes on. Noting that the objector-remoras' request for fees was "a pleading which may charitably be described as disingenuous," the Judge found it "preposterous that any legitimate lawyer would charge $74,500 to prepare an eight-page submission, and submit it tardy to boot."

As the Judge also noted, "Objectors' request and their motion ill-befit attorneys admitted to the bar."

It ended no better for the objector-remoras than it began, with the Judge concluding that they "are entitled to an award equal to their contribution . . . nothing."

May it displease the Court, huh?