Consumer Law & Policy Blog

Eleventh Circuit Strikes Down Arbitration Clause Containing Class-Action Waiver

by Scott L. Nelson

The United States Court of Appeals for the Eleventh Circuit has become the latest court to hold that an arbitration clause that contains a waiver of a consumer's right to bring a class action may be unconscionable if its application would effectively prevent consumers from vindicating their rights.  The opinion, issued this Tuesday, September 4, in the case of Dale v. Comcast Corp., can be found here.

Dale involved a suit against Comcast by cable subscribers claiming that Comcast improperly collected excessive franchise fees from them.  The amounts that were alleged to have been improperly collected within the limitations period added up to less than $11 for each subscriber, making an individual action obviously impractical.  Comcast sought to derail the litigation by invoking a provision in its subscriber agreement providing for mandatory arbitration of all claims at the election of either party and prohibiting arbitration or litigation of any claims on a class basis.

Applying Georgia law, the Eleventh Circuit held that the class-action prohibition was unconscionable -- that is, so one-sided that it cannot in good conscience be enforced. The court held that as applied to a claim such as the one in this case, the prohibition on class actions is unconscionable because "[w]ithout the benefit of a class action mechanism, the subscribers would effectively be precluded from suing Comcast" for the violations at issue. As the court explained, "[t]he cost of vindicating an individual subscriber’s claim, when compared to his or her potential recovery, is too great." Permitting Comcast to avoid litigation through the class-action waiver, the court held, would "allow Comcast to engage in unchecked market behavior that may be unlawful. Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims."  (emphasis added).

U.S. Firms Prepare for European Class Actions

Today's Legal Times has an interesting article on the rise of consumer class actions in Europe.  "The next hot American import in Europe may well be class action litigation.  In recent months a number of U.S. firms have been positioning themselves in anticipation of a potential fusillade of class actions across the Atlantic. . . . Although there has been very little class action litigation in Europe to date, the United Kingdom, the Netherlands, Germany, Sweden and Portugal already allow some form of group or class action-style litigation. Other European countries are considering following suit, and the European Commission has been clamoring for more private enforcement of competition law."

Do Consumer Class Actions Have a Future?

The ABA Journal has a column here titled "Decline and Fall" discussing whether consumer class actions have a future.  The piece is by Edward F. Sherman, a professor and former dean at Tulane who also chaired the ABA Task Force on Class Acton Legislation from 2001 to 2003.  The ABA will offer a CLE program on class actions and consumers via teleconference or online later this month.

FJC Guidance on Class Action Settlements

by Tom Wilging

Tom Wilging is a Senior Researcher at the Federal Judicial Center.  Among other things, he helped to write the Manual for Complex Litigation.  He has previously posted here on class action issues.

After CAFA we can expect cases like the one described by Nick Pace in the post below to be litigated in the federal courts, as our recent studies have shown.  In federal court, the best guidance the Federal Judicial Center has to offer gives specific suggestions for dealing with "hot button indicators" of unfair settlements, including use of coupons, cy pres relief, and restrictions on claims and reversion of unclaimed funds to defendant. See Managing Class Action Litigation: A Pocket Guide for Judges (Federal Judicial Center 2005), at pp. 12-13.  The "pocket guide" also gives specific suggestions on providing clear and attention-grabbing notice to the class, at pp. 18-19, and points federal judges (and any one else who cares to download and read it) to The Federal Judicial Center's "Illustrative" Forms of Class Action Notices which can be found at the Federal Judicial Center's website under a guide to providing notices in plain language and in an informative style.   These can be found at www.fjc.gov by clicking on the Class Action Notices Page link on the upper left side.

Interesting Class Action Settlement Ruling from North Carolina

by Nick Pace

Nick Pace, a researcher at the RAND Institute for Civil Justice, kindly agreed to post his thoughts on a recent class action settlement decision.

I thought CL&P blog readers might find interesting the recent opinion in a North Carolina state court class action, Moody v. Sears, N.C. Superior Court, 02-CVS-4892 (May 7, 2007).  The opinion contains an fascinating discussion of the judge's role in overseeing consumer class action settlements. 

The decision by Judge Ben Tennille (Special Superior Court Judge for Complex Business Cases) came in the context of a class action against Sears for selling more expensive "four wheel" alignments to folks with rear wheel drives (they're only needed for four wheel or front wheel drive vehicles; I believe that a local repair shop here in L.A. once burned me on that little trick as well).  A nationwide class action was filed in Illinois four days after the N.C.-only suit was initiated.  Ultimately, a nationwide settlement, approved by a Cook County judge in December 2004, was supposed to provide the estimated class of 1,500,000 customers with either a $10 refund or a $4 coupon depending on the date of the alignment.  Sears also agreed to pay class counsel about $1 million in cash and $50,000 in coupons.  Notice of the settlement was effected through publication in 25 newspapers across the country as well as Parade and USA Weekend magazines.  Consumers learning of the settlement called or wrote in for a claim form.  All in all, this was a fairly standard notice and claiming plan.

NY Times on Proposed Carfax Settlement

Jeff's post mentioned two articles in yesterday's Times.   I want to just briefly mention of a third article from yesterday's paper--a piece by Christopher Jensen discussing a proposed nationwide coupon settlement of a class action against Carfax.  Here's a link to the article.  Public Citizen, representing a group of individual consumers and the Center for Auto Safety, has filed objections to the settlement, which you can read here.

Seventh Circuit: Under FCRA, A Credit Report Must Be Both Accurate And Clear, And Accuracy Doesn't Necessarily Equal Clarity

By Brian Wolfman

[Introductory Note: This post was updated on May 6, 2007, to eliminate potential ambiguity pointed out by a careful reader.  Nothing of substance has changed from the original post on May 5, 2007.]

The Seventh Circuit just issued a short, powerful decision concerning the Fair Credit Reporting Act's fundamental requirement that “[e]very consumer reporting agency shall, upon request . . . clearly and accurately disclose to the consumer [a]ll information in the consumer’s file at the time of the request.” 15 U.S.C. § 1681g(a)(1).  In Gillespie v. Equifax Information Services, L.L.P., No. 06-1952 (May 3, 2007), the court reminded the world that a technically accurate disclosure is not necessarily a clear disclosure -- and both accuracy and clarity are required to meet the Act's requirements.  In Gillespie, the plaintiffs requested their credit reports, which, among other things, listed the "date of last activity" on certain collection accounts.  Depending on what event triggered the listing in this category, the report could lack clarity as to when delinquency had occurred.  Having clarity on this point could be important to the consumer because, under FCRA, a consumer report may not include “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” 15 U.S.C. § 1681c(a)(4).  Here's the Seventh Circuit's key holding:

We conclude that the consumer reporting agency must do more than simply make an accurate disclosure of the information in the consumer’s credit file. The disclosure must be made in a manner sufficient to allow the consumer to compare the disclosed information from the credit file against the consumer’s personal information in order to allow the consumer to determine the accuracy of the information set forth in her credit file. In writing § 1681g(a)(1), Congress requires disclosure that is both “clearly and accurately” made. An accurate disclosure of unclear information defeats the consumer’s ability to review the credit file, eliminating a consumer protection procedure established by Congress under the FCRA.

Imperfect Competition in Auto Lending: Subjective Markup, Racial Disparity, and Class Action Litigation

Mark Cohen of Vanderbilt's working paper with the above title is available online at SSRN. The abstract is as follows:

While the market for auto lending at first appears to be highly competitive, many consumers lack the ability to obtain accurate information about price. In many markets, uninformed consumers can free ride off the knowledge of informed consumers. However, the market for auto lending differs from traditional markets because price ultimately depends upon both the credit worthiness of the individual borrower and the details of the auto loan (e.g. term length, payment-to-income ratio, etc.). Auto dealers in this market act as agents of both consumers (identifying suitable auto lenders for them) and auto lenders (identifying prospective borrowers).

Given the asymmetric information about prices facing consumers, this market has been characterized by a wide disparity in the prices paid by consumers. This disparity comes about through a mechanism whereby auto dealers are quoted a risk-based interest rate from the lender and are then authorized to subjectively mark up this rate and charge what the market will bear. While the majority of auto loans are written without any markup, some consumers are charged thousands of dollars in addition to the risk-based interest rate.  While charging different prices to different consumers is not illegal, one of the apparent consequences in auto lending is that minority consumers - African-Americans and Hispanics in particular - have systematically been charged a higher markup on auto loans than White borrowers. It is this fact - coupled with federal laws outlawing discrimination in credit markets - that led to a series of lawsuits against auto lending institutions.  This paper reviews the theory and evidence of subjective markups on auto loans and examines how class action litigation has changed the auto lending market.

Fifth Circuit Issues Decision On CAFA's "Local Controversy" Provision

By Brian Wolfman

   

Last week, in Preston v. Tenet Healthsystem Memorial Medical Center, Inc., No. 07-30132, 07-30160 (Apr. 25, 2007), the Fifth Circuit issued a decision concerning the “local controversy” provision of the Class Action Fairness Act, 28 U.S.C. 1332(d)(4).  CAFA devotees ought to look at this one.  It’s actually readable: only 17 pages and in plain English.

    In the original class action complaint filed in Louisiana state court, the plaintiffs alleged injuries and deaths caused by unreasonably dangerous conditions at defendants’ medical facilities during Hurricane Katrina.  The defendants removed under CAFA, but the district court remanded under the local controversy provision.  The Fifth Circuit reversed, holding that the plaintiffs had failed to show that at least two-thirds of the proposed class members were domiciled in Louisiana when the class action was filed.  Under the local controversy provision, the district court “shall decline to exercise jurisdiction” if “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed” and several other facts are present.

More On The Federal Judicial Center's New Report On CAFA From The Lead Author

by Tom Willging

[Ed. note:  Tom Willging is a Senior Researcher at the Federal Judicial Center and an expert on class actions.  Among other things, he helped write the Manual on Complex Litigation.  Note the request for assistance at the end of Tom's post]

    You probably haven't heard enough about CAFA lately. As the Federal Judicial Center's long-term study of the impact of CAFA on the federal courts plays out, we have delivered our third--that's right third, time flies--report on the Judicial Conference's Advisory Committee on Civil Rules. We blogged earlier, here and here, about whether our results were surprising. Now, with 16 months of data after CAFA went into effect, there's no surprise in the number of case brought into the federal courts: at least 300 and perhaps as many as 364 appear attributable to CAFA. More newsy, though, is a shift in the type of cases. The initial wave consisted mostly of cases filed in state courts and removed to federal courts. Most of the more recent increase, though, comes in the form of diversity cases filed originally in federal courts. Figure 4 in the report tells this story in graphic format. Diversity cases before CAFA typically came into federal court by removal. Now they more often arrive as original actions. We also present data on the courts where the increased cases were filed. Though dispersed across the district courts in all circuits, Figure 5 shows that the 9th seems to have had a special impact, particularly focused in Central (L.A.) and Northern (SF) California.  We're still looking for a partner to work with us in studying activity in one or more state courts. Anyone interested?