Consumer Law & Policy Blog

CAFA Junkies Take Note: Another CAFA Effective Date Ruling, With Some Dicta Thrown In

    By Brian Wolfman

    On October 19, 2006, the Seventh Circuit affirmed a decision remanding a class action to state court on the ground that the class action, which otherwise would have met the jurisdictional requirements of the Class Action Fairness Act (CAFA), was filed before CAFA's effective date and post-CAFA amendments to add a couple of named plaintiffs and some factual details "related back" to the original filing.  See Santamarina v. Sears, Roebuck & Co., No. 06-3054 (7th Cir.).  In the course of the opinion, Judge Posner noted, "for future reference" (how's that for an advisory opinion!), that an erroneous refusal to remand a case under CAFA is not "a jurisdictional error," that is, "it would not be so grave a mistake—so usurpative an assumption of federal jurisdiction withheld by Congress—that we would have an independent duty to correct it even if no party complained ...."  Some CAFA remands are discretionary, and some are mandatory because the district court lacks  jurisdiction to hear the case.  Judge Posner's opinion does not appear to distinguish among CAFA remands.

CAFA Appeals: Third Circuit Agrees That Less Is More

  by Scott Nelson

The U.S. Court of Appeals for the Third Circuit ruled on Monday that petitions for interlocutory appeals of remand orders under the Class Action Fairness Act must be filed not more than seven days after the district court's remand order, even though the statute (28 U.S.C. 1453(c)(1)) says they may be filed not less than seven days after the challenged order.  Morgan v. Gay, No. 06-8045 (Oct. 16, 2006).

In so holding, the Third Circuit joined the 10th, 9th, and 11th Circuits in holding that the language of the statute must be read to mean the opposite of what it says.  See Pritchett v. Office Depot, 420 F.3d 1090 (10th Cir. 2005); Amalgamated Transit Union Local 1309, AFL-CIO v. Laidlaw Transit Services, 435 F.3d 1140 (9th Cir.), opinions on denial of reh'g en banc, 448 F.3d 1092 (9th Cir. 2006); and Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006).  In other words, although the statutory language appears to impose a seven-day waiting period before an appeal may be filed, the courts so far agree that it actually imposes a seven-day time limit.

Illinois Supreme Court Holds Class Action Waiver Unconscionable

by Scott Nelson

On October 5, the Illinois Supreme Court issued its opinion in Kinkel v. Cingular Wireless LLC, No. 100925, holding that a provision in Cingular's arbitration agreements with its customers that purported to bar class actions was unconscionable.  The Illinois Supreme Court has now joined the California Supreme Court in holding that such class action waivers are, at least in some circumstances, unenforceable.  At the same time, the Illinois court held that the class action ban was severable from the arbitration agreement itself, with the result that the consumer claims at issue may become the subject not of a class action heard in the Illinois courts, but rather a class arbitration.

The Kinkel opinion is narrowly written in that it does not condemn all class action waivers under all circumstances.  The opinion also carefully states that its unconscionability analysis is equally applicable to class action waivers in arbitration agreements and those that are not tied to arbitration clauses, thus avoiding the argument that its state-law-based analysis discriminates against arbitration and is preempted by the Federal Arbitration Act (FAA).  The court's solid analysis on this point should "cert-proof" its opinion against any effort by Cingular to request review by the U.S. Supreme Court on the preemption issue -- though that may not stop Cingular from trying, given the vehemence with which industry litigants have sought to enforce class action waiver provisions.

Class Action Fairness Act: More on the New FJC Data

    by Brian Wolfman

    I am surprised that, as noted in Deepak Gupta's recent post, Tom Willging is surprised that The Federal Judicial Center (FJC) preliminary data on the Class Action Fairness Act (CAFA) show that CAFA had its intended effect of moving class actions of the kind previously litigated in state court to federal court (either via original filing or removal).  That result seemed inevitable because, under CAFA, in most substantial consumer class actions where there’s a diverse defendant, there’s nothing a plaintiff can do to keep the case out of federal court.  So, I wouldn't have expected it to take much time for the law to kick in; one would expect to see its effect almost immediately.  The more important question, I think, is whether the law will affect case outcomes (class certification, settlements, other legal rulings). On that question, it’s too early to tell, and the empirical evidence will be tougher to collect and evaluate.  It seems like difficult research, among other reasons, because seemingly there will be no significant group of similar post-CAFA state court cases to which the post-CAFA federal cases can be compared.  I look forward to seeing what Tom and his colleagues at the FJC produce in that regard.

The Opposite of Radical: Some Thoughts on Judge Weinstein's Decision

by Stephen Gardner

When Judge Jack Weinstein (pictured here) issued his opinion on September 25, agreeing that the New York lawsuit against Big Tobacco should be a class action, he sent a shockwave through the marketing community in general, not just the tobacco companies.

Asking “What's the Judge Smoking?” the Wall Street Journal said that this case was just another in a series of those nasty trial lawyers using “current public sentiment against Big Tobacco to create a more lawsuit-friendly legal environment, which is what these ‘consumer fraud’ cases are really about.” This utterance by the Journal was on the paper's editorial pages; its high journalistic standards would not have permitted it to report such errant nonsense as fact.

In truth, this lawsuit is simply another example of lawyers acting in the public interest to try to rein in the depredations of American marketers. Although this case is about a relatively unique product — one that is fatal when used properly — the methods used by Big Tobacco are no different in kind or scope than those used by Big Food, Detroit, lenders, or used car dealers. At the heart of the light tobacco case is the fact that Big Tobacco engaged in a variety of bait and switch, promising a healthier cigarette but delivering something else. What is perhaps most remarkable about Judge Weinstein’s opinion is that he did hold Big Tobacco to a higher standard than any marketer, simply holding that tobacco companies had to comply with consumer protection laws.

CL&P Roundup

by Deepak Gupta

• Congress to Limit Predatory Lending to the Military:  The groundbreaking Talent-Nelson amendment--which imposes limits on predatory lending to the military--is now part of the must-pass defense authorization bill.   Paul Bland and Elizabeth Warren make similar observations about different aspects of this legislation.  Paul, discussing the bill's precedent-setting ban on arbitration clauses, asks:

"If Congress recognizes that binding mandatory arbitration provisions are unfair as applied to all members of the military who deal with lenders, how does that jibe with the assertion often made that binding arbitration is fairer, cheaper, and better for other consumers who deal with lenders?" 

And Professor Warren, discussing the bill's 36% usury cap for interest rates on loans to servicemembers, asks:

"Soon it will be OK to roll an elderly person with a 400% interest rate, or a Hispanic worker, or a college student, but not someone in the military.  How long will that last?"

• Most Identity Thieves Are Unknown:  The other day, Jeff Sovern observed that Judge Posner, in his discussion of identity theft, seemed to operate on the mistaken belief that "much, maybe most" identity theft is the work of "friends or relatives" and is easily prevented by potential victims.  Similar claims have been made repeatedly in the media in recent weeks, particularly by industry representatives.  Now privacy expert Chris Hoofnagle of Berkeley has demonstrated, using FTC data, the problem with those claims.  He even includes a colorful pie-chart.  (via Ed Mierzwinski)

• More on Consumer Cases in the Supreme Court:  Over at the Credit Slips blog, Katie Porter of Iowa has some thoughts on the recently-granted Fair Credit Reporting Act cases and so-called "off-label" uses of credit reports; we discussed the cases here on Tuesday.   And Bob Lawless speculates about the practical implications of Watters v. Wachovia, the OCC preemption case.  We'll surely have a lot to say about the Watters case here in the coming months, including its administrative law implications.  (Disclosure:  Public Citizen joined an amicus brief in Watters and we'll be providing assistance to petitioner's counsel.  We're counsel for the respondents in the FCRA cases.)

• Emerging Issues in Class Actions:  The UCLA Law Review has published an interesting batch of papers from its symposium on emerging issues in class actions.  The papers include an empirical study on incentive awards to class action plaintiffs by Theodore Eisenberg and Geoffrey Miller; an article on Backdoor Federalization by Samuel Issacharoff and Catherine Sharkey; an article considering various proposals to enhance fairness hearings by William Rubenstein; and a piece by Richard Nagareda discussing the implications of Eisenberg & Miller's empirical research.

• An Ideological Flip-Flop?:  It used to be the case, back in the 1960's, that the conservatives were the ones who supported tort law and the liberals/progressives were the ones that thought it needed to be "reformed" (with statutory consumer protection regimes).  Now it's just the opposite, and the reasons are complex and worth pondering.  So says Stephen Sugarman of Berkeley in a draft paper posted at SSRN, Ideological Flip-Flop: American Liberals are Now the Primary Supporters of Tort Law.  (via Point of Law)

The American Pipe Rule and Successive Class Actions

by Brian Wolfman

    University of Pittsburgh law professor Rhonda Wasserman has written an interesting article on the question whether the American Pipe and Crown, Cork class action tolling rules apply to successive class actions.  The article, “Tolling: The American Pipe Tolling Rule and Successive Class Actions,” 58 U. Fla. L. Rev. 803 (2006), is available here.

    Assume that a class action is timely filed on behalf of the named plaintiff and all of the absent class members.  May an absentee pursue an individual action if class certification is denied without worrying about whether the limitations period is blown?  Generally, yes.  In American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court held that the statute of limitations is tolled from the filing of the class action complaint to the denial of class certification for an absentee who thereafter seeks to intervene in the action to pursue her individual claims.  And, in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the Court applied the same tolling rule for absentees who, after certification is denied, file separate actions rather than seeking to intervene in the original action.

    But what is the rule where, after certification is denied, the absentee initiates another class action?  Generally, Professor Wasserman concludes that tolling is appropriate in two circumstances:

Judge Weinstein Certifies "Light" Cigarettes Class Action

This morning, the legendary Judge Jack Weinstein of the Eastern District of New York issued this mammoth opinion certifying a nationwide class action against the major tobacco companies and denying their motion for summary judgment.  The opinion is a must-read for those interested in class actions as a means of addressing serious social issues, but we understand that you may not all have the time to pore over Judge Weinstein's 540 pages (plus another 1,000 pages of appendices) of fine-tuned legal prose. That's why co-blogger and consumer class action expert Steve Gardner will be doing it for you and offering his thoughts and observations later this week.

CL&P Roundup

by Deepak Gupta

• "Tort Deform": That’s the snappy and provocative title of a new blog on civil justice issues produced by the Drum Major Institute for Public Policy, a progressive think tank in New York. They’ve already assembled an impressive and interesting lineup of contributors (including CL&P co-bloggers Paul Bland and Brian Wolfman). Here’s their mission statement. Highlights so far include a piece on preemption by Alan Morrison; an item by Linda Andros on the junk food bill (on which Steve Gardner also posted here last week); and a discussion by the blog’s coordinator, Cyrus Dugger, on the book Distorting the Law.

• Victor Schwartz's Common Sense: Philosophers warn us to be wary of appeals to 'common sense'. In a recent Kansas Law Review article, Victor Schwartz presents his case for “Common-Sense Construction of Consumer Protection Acts.” Although he assures the reader that he's not advocating the complete “elimination of private rights of action,” Schwartz's proposal would come as close to that goal as might be thought politically feasible; the article bristles with hostlity to modern statutory consumer protection law and urges a return to common law principles. Schwartz advocates model legislation that would require proof of objectively reasonable reliance and actual injury, strict limitations on treble damages and awards of attorneys’ fees, a complete prohibition on class actions wherever statutory damages are available, modifications to statutes of limitations, and extreme restrictions on the circumstances under which class certification could be granted. As we discussed earlier in this post, Schwartz's article isn't mere theory; it's the blueprint for legislation that will soon be introduced in state legislatures across the country.

• Ban on Consumer Class Actions Held Unconscionable: Wading into the growing battle over the enforceability of class action bans in arbitration agreements, a California appellate court this week said DirecTV could not require its customers to give up their right to class actions and held that a waiver buried in a “bill stuffer” was both procedurally and substantively unconscionable. California's 2d District was not persuaded by DirecTV's argument that the possible amount of recovery could be as high as $1,000. While "$1,000 is not an insignificant sum, many consumers of services such as those offered by DirecTV may not view that amount as sufficient to warrant individual litigation.” The court explained that “the class action device remains, in our view, the only practicable way for consumers of services such as DirecTV's to deter and redress [such] wrongdoing.” The ruling builds on the California Supreme Court's landmark Discover Bank decision last year.

• Debt Collectors and Bankruptcy Filings: Elizabeth Warren suggests that last year’s bankruptcy legislation may have emboldened debt collectors to intimidate consumers out of filing for bankruptcy.

Federal Judicial Center Reports on the Class Action Fairness Act

    By Brian Wolfman

    The Federal Judicial Center, in a report written by Tom Willging and Emery G. Lee III, has concluded based on early data that the Class Action Fairness Act (CAFA) is generally having its intended effect of moving state-law-based class actions from state to federal court.  The report's key findings are as follows:

    • Class action filings in or removals to federal district courts post-CAFA brought class action activity to its highest level during the four-year period. Class actions were filed at a rate of 10.48 cases per filing day before CAFA (July 1, 2001, through February 17, 2005) and 11.96 cases per filing day after CAFA went into effect. This difference in filing rates is statistically significant.