Consumer Law & Policy Blog

Massachusetts Supreme Court Strikes Class Action Ban, Rejects Texas Law

by Deepak Gupta

Just before the holiday weekend, the Massachusetts Supreme Judicial Court issued an opinion in Feeney v. Dell Inc., holding that a statutory right to participate in class action lawsuits may not be be foreclosed by a provision in a consumer contract compelling individual arbitration. The court reached that conclusion based not on unconscionabilty doctrine, but on Massachusetts public policy. It emphasized the strong state policy in favor of class actions and relied on cases such as the First Circuit's decision in Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006), which reject class action bans because of their interference with consumers' ability to vindicate statutory rights: "Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy."  The decision joins the rest of the state and federal appellate courts in holding that the Federal Arbitration Act does not preempt its holding, relying on the analysis of the Ninth Circuit and the Illinois Supreme Court.

The Feeney opinion is also noteworthy for its choice-of-law analysis. The Dell contract at issue specified that Texas law--which appears to allow class action bans--would apply.  The court held that Massachusetts' fundamental policy in favor of class actions for small-value consumer claims outweighed Texas's interest in blocking consumers' access to the courthouse doors.  As the court put it, "[w]e likewise have little trouble concluding that the interest embodied in this policy--the protection of large classes of consumers and the deterring of corporate wrongdoing--is materially greater than Texas's interest, which the defendants identify as 'minimizing its companies' legal expense.'"  Massachusetts joins a growing chorus of courts that reject corporate efforts to use choice-of-law clauses to enforce otherwise impermissible class bans.  Another recent example of this trend is the Third Circuit's decision in Homa v. American Express.

California's 17200: Have rumors of its death been greatly understated?

by Stephen Gardner

Yesterday, the California Supreme Court issued an opinion, Arias v. Superior Court, that seems to have gutted any hopes of a representative action under California Business & Professions Code § 17200, holding:

[W]e construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law "only if the party complies with Section 382 of the Code of Civil Procedure" to mean that such an action must meet the requirements for a class action.

So, to bring a 17200 case, you must have suffered "injury in fact" and must have lost "money or property" (again, thanks to Prop. 64) and you have to bring it as a class action. Which means getting certified, giving notice, etc. The Court decided against a strict reading of Prop. 64, which would have required a rep plaintiff to meet the requisites of a class action without actually bringing the case as a class action.

Thus, I don't see that there is now a lick of difference between a representational plaintiff, who must also bring suit as a class rep, and any other class rep, except to the extent that the standing requirements as a rep plaintiff under 17200 are stricter than those for many class reps. Bummer.

The case was issued  with a companion case, Amalgamated Transit Union v. Superior Court, which holds that representational plaintiff status can't be assigned to another.

But, who would want that, since it confers effectively no benefit?

I gotta go sit shiva for consumer rights in California now.

I'm a Class Member!

by Jeff Sovern

Sometimes consumer law strikes home. I just received a notice of a proposed settlement of a consumer class action, and I might actually be a member of the class!  The defendant is Symantec, which makes the antivirus software I use.  Plaintiffs claim that when Symantec customers upgraded their subscription, Symantec didn't give them a credit for the unused portion of their old subscription, but started the new subscription right at that time, and that this failure is unlawful.  Symantec denies the allegations, but the parties have agreed to a settlement and are now seeking court approval.  

So far, this sounds great. Found money, right?  So what do I get?  Either a $15 dollar voucher good for use on Symantec products, or $2.50!  Wow!  Only, I'm not likely to use the voucher, because I just renewed my Symantec subscription which means I wouldn't renew again for nearly a year, and I'm not going to remember a year from now that I've got a voucher (of course, many consumers won't be in this position, because they might renew sooner, but would a consumer renewing even three months from now, say, remember?  If not, and I bet most won't, and if customer purchases are evenly distributed throughout the year then three-quarters of the class members won't get the voucher unless Symantec's purchase software remembers for them.  And what about consumers who no longer use Symantec products? Which might be likely to include the class members, because, after all, they've just been told of allegations that Symantec behaved badly). So that just leaves me $2.50.  

But wait--to get even that, I have to read through the form (more about that below) and submit the following:

I affirm the following: (1) I purchased an upgraded Symantec Subscription Product** online at the Symantec Renewal Center1 between December 5, 2001 and April 11, 2008; (2) I did notpurchase the upgrade at the Symantec Online Store; (3) I upgraded before the existing subscription on my previous Symantec Subscription Product expired; and (4) to the best of my knowledge, I did not receive the benefit of unexpired subscription time remaining on my previously purchased Symantec Subscription Product.

I have no idea whatsoever whether I bought my upgrade via the Online Store or at the Renewal Center, or whether my existing subscription had expired.  How many consumers will remember something like that  

Perhaps that won't stop consumers from affirming the facts (after all, with the amounts at stake, is anybody going to check?), but if no one remembers and no one is going to check--for $2.50?  even assuming that they could check--then what's the point of asking for the affirmance? In fact, for $2.50, what's the point of submitting the claim form?

I'd love to know how many class members, and what percentage of the class actually receive the benefits.  I would also love to know how many class members actually read the notice.  It certainly contains enough verbiage to deter reading.  Here, for example, is how it identifies the addressees:

To: ALL PERSONS AND ENTITIES RESIDING IN THE UNITED STATES OF AMERICA WHO, BETWEEN DECEMBER 5, 2001 AND APRIL 11, 2008, PURCHASED ONLINE A SYMANTEC SUBSCRIPTION PRODUCT WITH A STOCK KEEPING UNIT THAT DESIGNATES THE PRODUCT AS AN UPGRADE, THE INSTALLATION OF WHICH RESULTED IN THE UNINSTALLATION OF ANOTHER SYMANTEC SUBSCRIPTION PRODUCT PRIOR TO THE EXPIRATION OF THAT PRODUCT’S SUBSCRIPTION.

A stock keeping unit?  What's that?  That's right at the beginning.  Want to bet that a lot of people stopped reading before they got through it?

So, as has no doubt become apparent, I have real doubts about how many class members will actually benefit from this settlement.  Incidentally, the settlement also provides for a release of Symantec. Symantec also will add the following language to its FAQ and its renewal center landing page:

Any subscriptions for upgrade products begin on the day of product installation. If you replace the Symantec subscription product that you currently have with an upgrade product, any unused subscription time on the replaced product will not be added to the upgrade subscription, when the new upgrade product subscription replaces your current product subscription.

So future buyers won't be misled about their rights.  That's good, right? That will surely be a big comfort to future subscribers, if they read it.  A big benefit to current class members too.  By the way, I kind of wonder whether Symantec added language like that to their renewal center page the day they got served.  Oh, and did I mention the attorney's fees?  $2,275,000.00 split among five firms.

Now maybe those lawyers did a great job.  I don't know anything about the underlying claim.  Maybe the suit was a long shot at best and the lawyers did an incredible job persuading the defendants to settle.  And maybe I'm wrong about the number of class members who will benefit from the suit.  I'm a believer in paying attorneys bigger fees than the class members get in damages if the attorneys benefited the class, their work justifies it,  and the damages are small.  But really, is this the kind of thing that makes consumer lawyers or our legal system look good?  Can't we do better than this?

More information about the case is available here.

Third Circuit Strikes Down Class-Action Ban, Eliminates Claimed Circuit Split

by Deepak Gupta

This blog has closely followed the ongoing battle over class-action bans: adhesion contract provisions that purport to strip consumers and employees of their right to pursue class actions, whether in litigation or in arbitration. Needless to say, the stakes in this battle are big: Class actions seeking to vindicate protections under the civil rights, consumer, and tort laws could all be barred if industry gets its way.  Because these provisions are typically embedded in arbitration clauses, corporations argue that any refusal to enforce the clauses under state law is preempted by the Federal Arbitration Act.  Last year, I blogged about an industry effort to get the U.S. Supreme Court (in T-Mobile v. Laster and a series of tag-along cert petitions) to take up the preemption question and wipe out a string of industry losess in courts across the country. 

The industry pitch for Supreme Court review, and its claim of a split among the lower courts over preemption, had been premised largely on language in a single Third Circuit opinion by Senior Judge Morton Greenberg, Gay v. Creditinform, which could be read to reflect support for a categorical rule that state-law determinations concerning the unconscionability of class-action bans are preempted by the FAA. The Gay opinion was quite muddled, however, and it wasn't even clear that the panel understood that its discussion was in conflict with every other federal circuit and state high court to have considered the issue. In our cert opp in the Laster case, we suggested that the language in Gay was essentially dicta--unnecessary to the decision (which held that the clause was enforceable under Virginia law anyway) and entirely speculative, based on questionable predictions about what the Pennsylvania Supreme Court would do.

In a big victory for consumers on Tuesday, the Third Circuit's unanimous ruling in Homa v. American Express made clear that the FAA preemption language in Gay was nothing but dicta, thereby eliminating the industry's claimed circuit split. For those interested in the battle over mandatory arbitration and class-action bans, the decision is a must-read. It not only rejects the proposition that New Jersey's law on the unconscionability of certain class-action bans is preempted by the FAA, but also contains an important choice-of-law discussion. Based on New Jersey public policy, the court refuses to apply the law of Utah, under which the class action would be have been barred.  Congratulations to class-action-ban-slayer extraordinaire Paul Bland, who did a terrific job of briefing and arguing the appeal for the plaintiffs!

New Class Action Fairness Act Decision

In a split decision, the Fourth Circuit has held in Palisades Collections LLC v. Shorts, No. 08-2188 (Dec. 16, 2008), that the Class Action Fairness Act's removal provision, 28 U.S.C. 1453(b), does not permit a counter-defendant to remove a class action counterclaim to federal court.

New Federal Judicial Center Study on the Class Action Fairness Act: One of the Authors Speaks

by Tom Willging

[Ed. note: The following post was written by Tom Willging, a senior researcher at the Federal Judicial Center, the research arm of the federal judiciary. Tom knows as much about the inner workings of the federal judicial docket than anyone. This post on the FJC's recent study on the Class Action Fairness Act is worth reading.]

    Here are some thoughts on the Federal Judicial Center's ongoing CAFA study as we shift gears from Phase One's count of cases into Phase Two's examination of what happens in those cases.

    Phase One concentrated on identifying class actions (not as simple a task as it might seem) and measuring the impact of CAFA on the number of cases filed in and removed to the federal courts. As Brian Wolfman noted in his post on Saturday, CAFA generally has had its intended effect in the sense that more cases are being filed in or removed to the federal courts since CAFA went into effect. Yet, as Brian's post suggests, the question lingers as to how many cases are really being shifted to the federal dockets. Recall that early predictions were that all or most class actions would end up in the federal courts. The Congressional Budget Office predicted that "most" class actions would go that way. Others forecast an "epic reallocation" of class action adjudication resulting from the "wholesale removal" of cases from state to federal courts. Emery Lee and I detailed some of these predictions in our recent article, part of a CAFA symposium in the University of Pennsylvania Law Review.

Hot Off the Presses: Federal Judicial Center Issues New Report on CAFA

by Brian Wolfman

The Federal Judicial Center (FJC) has just released the most recent in a series of reports to the Federal Civil Rules Advisory Committee concerning the operation of the Class Action Fairness Act of 2005 (CAFA). Read the report here. The report represents the beginning of phase two of the FJC's study on CAFA, which will concentrate on litigation activity and outcomes in class actions filed before and after CAFA. This initial report examines a sample of diversity class actions filed in or removed to federal courts in the two years before CAFA's effective date.

It seemed clear when CAFA was enacted that the law would have its intended jurisdictional effect: comparatively more diversity class actions would end up in federal court as opposed to state court. To be sure, it is important to know whether the total number of filings was affected by CAFA. But the bigger question, to me, is what affect CAFA has had on class certification decisions, settlements, fees, and other case outcomes.This strikes me as a really hard question to answer, and I'm glad that the FJC is trying to do it.

We hope to have a guest post next week by one of the report's authors.

State of Texas Objects to Ameritrade Settlement

by Brian Wolfman

A little while back, Public Citizen Litigation Group objected to the proposed settlement in In re Ameritrade Accountholder Litig., No. 3-07-cv-02852-VRW (N.D. Cal.), on behalf of the named plaintiff who instigated the litigation. The case concerns alleged massive security breaches in Ameritrade's on-line stock trading accounts. View our objections to see why we think the settlement stinks.

I'm writing now to tell you that the State of Texas has objected to the settlement. In 2005, Congress passed and President Bush signed the Class Action Fairness Act (CAFA), one provision of which requires the parties to notify state Attorneys General of class action settlements that affect their citizens and to send the AGs certain case documents. Some class action gurus have been skeptical of that requirement, thinking that it would do no more than increase the size of the AGs' circular files. But it appears that Texas's objection to the Ameritrade settlement may have been prompted by the CAFA notice.

New York Appellate Division Says Class Action Incentive Awards Are Not Permitted

By Brian Wolfman

Here's a surprising class action developement: In Flemming v. Barnwell Nursing Home and Health Facilities, Inc., No. 504328 (Oct. 16, 2008), one of New York's intermediate appellate courts has held that New York law prohibits incentive awards for named plaintiffs in class actions. Incentive awards, particularly lavish ones, have been controversial, but federal judges approve them all the time, as do state court judges. The court in Flemming indicated that federal courts approve incentive awards only in "special circumstances," but that is not accurate. As noted, many federal judges approve them routinely. Question: Are there any other appellate courts that have banned them?

Eighth Circuit Finds Class Action Aribtration Ban Not Unconscionable

by Brian Wolfman

In Pleasants v. American Express, No. 07-3235 (Sept. 8, 2008), the Eighth Circuit has upheld an adhesion contract requiring pre-dispute mandatory arbitration and banning class actions in arbitration. The case involved a dispute over pre-loaded store cards (or gift cards). Applying Missouri law on unconscionability, the Eighth Circuit held that the contract was not procedurally unconscionable because the relevant contractual provisions were conspicuous (although it appears that they would not have been seen by the consumer until after he or she had purchased the card) and was not substantively unconscionable because the contract did not waive the damages and fees available to consumers under applicable substantive law. The Eighth Circuit distinguished a Missouri Court of Appeals case finding a class action ban unconscionable (read the decision and decide for yourself whether the Missouri case was properly distinguished). The Eighth Circuit also noted that in deciding questions of state law it was not bound by the decisions of intermediate state appellate courts (as opposed to state high courts).