Consumer Law & Policy Blog

First Circuit Holds That Class Actions Are Unavailable For TILA Rescission Claims

    By Brian Wolfman

     As many of you know, rescission can be an important remedy in Truth in Lending Act cases.  Well, according to the First Circuit, not all that important.  In McKenna v. First Horizon Home Loan Corp., No. 06-8018 (1/29/07), the First Circuit has held that a class action is never available for litigating rescission claims under TILA on the ground "that Congress did not intend rescission suits to receive class-action treatment."  In reaching this conclusion, the First Circuit followed a Fifth Circuit ruling to the same effect, but rejected various district court rulings certifying TILA rescission claims.  The First Circuit also held that the plaintiffs' rescission claims could not go forward as a class action under the Massachusetts version of TILA, the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), on the ground that the MCCCDA is to be interpreted the same as TILA.  One wonders whether the Massachusetts courts will see it the same way.

    If you really want to understand the opinion, you will have to read it with a dictionary by your side.  The opinion was written by the Honorable Bruce M. Selya and, thus, uses obscure or archaic words where ordinary words would have worked just fine.  Actually, I have never heard of one word used in the opinion, which I did not bother looking up, so it is possible that an ordinary word would have not worked there.  Happy reading!

Second Circuit Joins Growing Chorus Placing Burden of Proof on Proponent of CAFA Jurisdiction and Slams CAFA's Fake Legislative History

    By Brian Wolfman

    The Second Circuit has just joined a number of other circuits in holding that the party invoking federal jurisdiction under the Class Action Fairness Act -- usually a defendant seeking to remove a class action from state court -- bears the burden of proof on CAFA's basic jurisdictional prerequisites (100 class members, minimal diversity, $5 million in controversy).  See Blockbuster, Inc. v. Galeno, No. 05-8019-cv (2d Cir. 12/26/06).

     I have whined on this blog on multiple occasions, including here and here, that the courts have failed to point out that the Senate Report on CAFA is not genuine legislative history because it was issued after CAFA's enactment.  In Blockbuster, the Second Circuit slammed the defendant's reliance on the Senate Report for a number of reasons and then came close to holding that the Report is not worth the paper that it's written on:  "Moreover, the Senate report was issued ten days after the enactment of the CAFA statute, which suggests that its probative value for divining legislative intent is minimal."  Right on!

        So . . . After placing the burden of proof on the removing defendant, the Second Circuit remanded the case to the district court to make findings on the jurisdictional prerequisites.  (In case you're wondering, the plaintiffs in the case claim that Blockbuster's supposed "no late fee" policy was deceptive as a matter of New York statutory and common law.)

     Noted Pittsburgh consumer lawyer Mike Malakoff is among the lawyers for the plaintiffs.  [Disclosure:  I provided a bit of assistance on the appeal.]

Third Circuit Weighs In On Burden Of Proof Under CAFA

by Brian Wolfman

    In Morgan v. Gay, No. 06-4497 (Dec. 15, 2006), the Third Circuit joined a number of other circuits in holding that the party invoking federal jurisdiction under the Class Action Fairness Act bears the burden of proving the Act's jurisdictional prerequisites.  The court went on to affirm the district court's holding that the defendants had not shown that CAFA's $5 million amount-in-controversy requirement had been met, thus upholding the district court's remand to New Jersey state court.  Three additional points:

     First, the placement of the burden seems to have actually made a difference.  As I read the decision, if the burden had been on the plaintiffs to show that less than $5 million was in controversy, the defendants' removal would have been sustained.

    Second, in resolving the burden of proof issue, the court rejected the defendants' reliance on the Senate Committee Report on CAFA.  As have other courts, the Third Circuit spat on the Senate Report because its statements on the burden of proof are completely untethered to CAFA's text, which says nothing at all about the burden of proof.  Although the court mentioned that the Senate Report was not issued until after CAFA was enacted, it did not rely on that fact in rejecting the defendants' use of the report.  That's too bad.  As I have previously noted on this blog, it would be nice if the courts started taking note of this basic impediment to reliance on this supposed legislative history.

    Third, the Third Circuit held that because the plaintiffs had won on the jurisdictional amount point, their recovery on remand in state court would be limited to $5 million.  That limitation strikes me as something to be imposed, if at all, by the state court, not the federal court.

Just What You're Hankerin' For: A Bevy of Articles About CAFA

Need some enthralling holiday reading?  Looking for a great stocking stuffer?  You're in luck!  The Loyola of Los Angeles Law Review has published a bunch of articles available here on the Class Action Fairness Act.  After a foreword by Georgene Vairo, here's what you get:

• Removal, Remand, and Other Procedural Issues Under the Class Action Fairness Act of 2005 by Lauren D. Fredricks

• Plaintiffs' Paradise Lost: Diversity of Citizenship and Amount in Controversy Under the Class Action Fairness Act of 2005 by Cameron Fredman

• Once More Into the Breach, Dear Friends: the Case for Congressional Revision of the Mass Actions Provisions in the Class Action Fairness Act of 2005 by S. Amy Spencer

• New Rules for Class-Action Settlements: the Consumer Class Action Bill of Rights by Jennifer Gibson

• The Class Action Fairness Act of 2005: a First Year Retrospective Review by Lonny Sheinkopf Hoffman

Choosing Between Judicial and Arbitral Fora in Class Actions

by Mike Quirk

This is a response to Roger Mandel's post from earlier this week, "Arbitration: Should it Sought Rather Than Fought?", and is the third in a series of posts on arbitration and class actions.

Roger has provided an important and provocative analysis that we practitioners who represent consumers must give serious consideration. In light of the data Roger has gathered and analyzed, consumer class action lawyers must give serious consideration to the pros and cons of the judicial and arbitral fora before proceeding with particular cases.

What follows is meant as a critique not of Roger's analysis, but of the actual arbitral system he describes. This arbitral system for deciding when cases may or may not proceed as class actions raises serious questions of sensibility, legitimacy, and ultimately sustainability.

1. Sensibility

The first step in this process is a "clause construction phase," where the arbitrator decides if a clause allows for class arbitration. But, as described, the case only gets to the arbitrator for this determination if the ARBITRATION SERVICE has already determined that the clause is silent concerning class actions (which it is not in the vast majority of cases where companies now expressly ban class claims). Putting aside the appropriateness of the service making this pre-threshold determination, what is an arbitrator to do in "interpreting" a provision already found to be silent on the subject at issue?

More fundamentally, what is the sense of looking to a contract to determine what procedures will govern a dispute? Can any of us imagine a court or other competent decision-maker deciding class certification, discovery rights, or rights to present testimony by looking to a private contract rather than neutral and generally applicable rules? It is an indisputable fact that consumer arbitration clauses are written by businesses. Having already allowed the business party to pick the forum, why would we let the party to a dispute write the rules by which the dispute is going to be resolved?

Arbitration: Should It Be Sought Rather Than Fought?

by Roger L. Mandel

Mr. Mandel is an attorney at Stanley, Mandel and Iola of Dallas, Texas. CL&P invited him to discuss the following original and provocative proposal, which he presented at a panel on class actions & arbitration at the NCLC Class Action Symposium in Miami last month. This post is the second in a series based on that panel; in the first post, Mike Quirk discussed judicial decisions striking down class arbitration bans.

Plaintiffs’ class action lawyers have long fought tooth and nail against mandatory arbitration clauses. Today, in some instances they may be advised to file arbitrations rather than fight the arbitration clauses in court.

Class Arbitration Rules

Many arbitration clauses specify or allow use of the American Arbitration Association (“AAA”) or JAMS as arbitration providers. Both of those providers have specifically enacted class arbitration rules, which are available on their websites, www.adr.org and www.jamsadr.com, respectively. Both sets of rules provide for a three-step process in class arbitration:

1. A clause construction phase during which the arbitrator decides whether the arbitration clause in question allows for class arbitration;

2. If the arbitrator finds that class arbitration is allowable under the arbitration clause, a class certification phase pursuant to standards identical to Federal Rule of Civil Procedure 23; and

3. Decision on the merits of either the classwide or individual claims.

At the end of both phase 1 and phase 2, the arbitrator enters interim awards and is required to stay the proceedings for thirty (30) days to allow either party to appeal the interim award in court. If an interim award is appealed, the arbitration remains stayed during the pendency of the appeal.

In addition to its class action rules, AAA has a class arbitration policy. Under that policy, it will place on its class arbitration docket any claim involving an arbitration clause that is silent as to class arbitration. It will refuse, however, to place on its class arbitration docket a case that contains an explicit class arbitration ban. JAMS does not have such a policy and will place on its class arbitration docket any claim that is filed as a class action, regardless of the contents of the arbitration clause.

Both providers maintain special national panels of class action arbitrators. Based on my review of those panels, most plaintiffs’ lawyers would prefer the JAMS panel, although there are a number of acceptable choices on the AAA panel.

Running the Numbers: The Role of the Arbitrator's Incentives

AAA maintains on its website its entire class arbitration docket, which is extensive. It posts the claims (complaints) and all of the interim and final awards entered by the arbitrators. This allows research into trends in AAA class arbitration.

"Tort Reform"/Prop. 64

    by Brian Wolfman

    Today, over at Point of Law, Ted Frank has this post on a number of "tort reform" items, including the American Tort Reform Association's new report on what it views as class action abuse.  ATRA's basic claim is that consumer class actions today are largely driven by lawyer greed and left-leaning interest group politics and not by a desire to compensate people who have been harmed.  For a different point of view on the movement to "reform" consumer class actions, see Ira Rheingold's earlier post on this blog.

    Also in today's Point of Law post is a discussion of the current litigation before the California Supreme Court presenting the question whether California's Proposition 64 silently amended the state's consumer protection statutes to require consumer reliance at the same time that it expressly added stricter standing requirements.  The Point of Law discussion links to previous posts on this blog on that important litigation.

Eighth Circuit: CAFA's Interlocutory Appeal Provision Does Not Apply to Non-CAFA Class Actions

    By Brian Wolfman

    Agreeing with the Fifth Circuit, the Eighth Circuit has recently held that the provision of the Class Action Fairness Act authorizing permissive appeals of decisions granting or denying motions to remand applies only to class actions removed from state court under CAFA, not to class actions removed on some other basis (e.g.., diversity under 28 U.S.C. 1332(a)(1)).  See Saab v. Home Depot, Inc., No. 06-8014 (8th Cir. Nov. 22, 2006).  Saab says that the text of 28 U.S.C. 1453, the removal provision added by CAFA, demands that result.  The Eighth Circuit should have stopped there.  But like many other courts interpreting CAFA, it also relied on the Senate Report on CAFA to buttress its conclusion.  That's really too bad.  Courts should be treating the Senate Report as worthless because it was issued after CAFA was enacted.  One lonely district court has made this point.

Vioxx MDL: Nationwide Class Certification Denied

    By Brian Wolfman

    Judge Eldon Fallon of the U.S. District Court in New Orleans, who is presiding over the Multidistrict Litigation of thousands of Vioxx injury cases, has denied the plaintiffs' request for nationwide class certification.  The plaintiffs argued for nationwide certification on the ground that the substantive law of New Jersey, where the defendant is located, should be applied to all plaintiffs' claims no matter where the plaintiffs lived or ingested Vioxx.  Judge Fallon rejected that argument, holding that the plaintiffs' home states (that is, all 50 states) had a greater interest in the litigation than did New Jersey alone.  (Some consumer class actions have been certified nationally on the theory that the law of the defendant's home state applied to the claims of all plaintiffs.)  One might expect the plaintiffs to try to certify class actions on a state-by-state basis, but Judge Fallon indicated that there are obstacles to any class certification because factual and legal differences predominate over common questions.  Note that in light of the Class Action Fairness Act (CAFA), Vioxx class actions brought in state court only by citizens of the forum state will likely end up in federal court (unless the defendant is a citizen of the forum).  And, if those cases end up in federal court, they will almost certainly be MDL'd to Judge Fallon.

UPDATE:  A commenter has made a point that I should have mentioned in my original post.  There are pre-CAFA state court class actions, and they will not be removable to federal court (at least not under CAFA).  My point about the removability of Vioxx class actions under CAFA applies, of course, only to actions filed after CAFA's effective date.

Second Circuit Issues Class Action Fairness Act Ruling

    By Brian Wolfman

        In DiTolla v. Doral Dental, No. 06-2324 (Nov. 17, 2006), the Second Circuit established a couple precedents under the Class Action Fairness Act.  First, it held that the burden of proving CAFA's jurisdictional prerequisites ($5 million in controversy, minimal diversity, etc.) rests on the party seeking the federal forum.  (In DiTolla, as in most CAFA jurisdictional disputes, the party seeking the federal forum was the defendant who sought to remove the case from state court to federal court.)  Second, under CAFA, the court has 60 days (with some exceptions) to decide a permissive appeal from a district court's decision granting or denying a motion to remand.  If the court does not decide the appeal within the deadline, the appeal is deemed "denied."  The Second Circuit held that the 60-day period begins to run from the day the court of appeals agrees to hear the appeal, not the day that the application to appeal is filed.  The Second Circuit's decision in DiTolla follows the unanimous holdings of other circuits on both the burden-of-proof and appeal deadline issues.

    The Second Circuit ended up affirming the district court's decision to remand the case for lack of $5 million in controversy.  That analysis did not strike me as particularly important for future cases (though I'm sure it thrilled the plaintiffs).