Consumer Law & Policy Blog

Class-Action Bans in the Supreme Court: Respondents' Brief in AT&T v. Concepcion

by Deepak Gupta

Today we filed our merits brief for the respondents in the U.S. Supreme Court in AT&T v. Concepcion.  The question in Concepcion is whether companies can use the fine print of take-it-or-leave-it contracts to strip consumers and employees of the opportunity to bring or participate in a class action.  Companies accomplish this by embedding class-action bans in mandatory arbtiration clauses, thereby precluding classwide proceedings in any forum (court or arbitration).  Thus, the case isn't really about arbitration at all; it's about whether stronger parties can use contracts of adhesion to exempt themselves from accountability for systemic wrongdoing.

In our brief, we argue that the Federal Arbitration Act does not trump state-law rulings holding that class-action bans, where they would have the effect of exculpating the defendant from liability, are unconscionable and unenforceable.  The amicus briefs on our side are due next Wednesday, October 6.

In related news, those of you in the Washington area may be interested in attending an event hosted by the American Constitution Society on October 19 at noon, at the National Press Club, at which participants will discuss the case.  I won't be speaking, nor will my opposing counsel.  But you'll get to hear what I expect will be some spirited debate between Paul Bland, Nina Pillard, Alan Kaplinsky, and Steve Ware. Lunch will be served. 

You can read more about the Concepcion case, including all of the briefs filed so far, here.

Implications of the Dodd-Frank Wall Street Reform Act for Consumer Law Practice

The National Consumer Law Center has released an eight-page summary of the Dodd-Frank Act's implications for consumer law practice, covering changes to TILA and RESPA, foreclosure-prevention measures, and preemption, among other things.  Read it here.  NCLC is also presenting a webinar on the subject on September 15 at 2pm EST.

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.)

Misidentification of consumer results in $150,000 judgment.

by Richard Alderman

In an interesting case, the Third Circuit has upheld a $150,000 verdict against Trans Union for misidentifying a consumer as being included on an “OFAC (Office of Foreign Assets Control) Advisory” compiled by the Treasury Department. Trans Union argued that the advisory was not part of the consumer’s file, it was not subject to the Fair Credit Reporting Act, and that it did not violate the Act. In a 91-page opinion, the court affirmed the judgment, including $50,000 in compensatory damages and $100,000 in punitive damages, against Trans Union.

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.]

Truth 1, vitaminwater 0

by Steve Gardner

The Center for Science in the Public Interest, working with private plaintiff firms Reese Richman, LLP  and Whatley Drake & Kallas, were pleased to get a very well-considered opinion in our lawsuit against Coke involving vitaminwater (Coke  uses the lower case, as does the Court, so I grudgingly do as well).

I say that the opinion is "well-considered" because the Court wrote thoughtfully and well on many nuances of the law involving FDA regulation of food labels and the interplay with state consumer protection law.

Of course, it's nice that the Court roundly rejected almost all of Coke's arguments.

In short, our lawsuit says that it's deceptive to call a sugar-water drink "vitamin"-anything and the opinion essentially agreed that this states a cause of action.

                       

 

Ronald McDonald--Creepy Stranger on the Playground?

by Steve Gardner

In June, my organization, the Center for Science in the Public Interest, gave notice to McDonald's that, unless it stopped predating on small children by offering them toys to get them to pester their parents for a Happy Meal, we would bring a state consumer protection lawsuit based on the developmental fact that young kids just don’t understand that an ad or other marketing tool is anything other than helpful advice. 

McDonald's, on the other hand, is all grown up and it knows precisely what it’s doing. Roy Bergold, who was McDonald's advertising head for 29 years, recently bragged:

“Sure, we marketed to kids. As Ray Kroc said, if you had $1 to spend on marketing, spend it on kids, because they bring mom and dad. . . . Parents should totally control their kids. Yeah, right. Research says that seven-year-olds and younger accept what we say in advertising as the truth. Heck, three-year-olds can identify brands using just their corporate logos. According to a survey commissioned by the Center for a New American Dream back in 2002, the average kid asks his parent for something nine times before the parent gives in. . . . What’s a mother to do under this assault?” (My emphasis.)

The Dodd-Frank Wall Street Reform Act: Mandatory Arbitration Provisions

by Deepak Gupta

The Wall Street Reform bill has a lot of stuff in it. If you have time to kill, you can pore through the actual text of the legislation here. If you're looking for something beyond the relatively superficial accounts in the newspapers, a few big law firms have already produced impressive summaries of the legislation, including Davis Polk, Mayer Brown, and Skadden.  Davis Polk also created a nifty set of slides showing the complex implementation process for the legislation (skip to slide 24 for the consumer financial protection provisions).  By their count, the bill will require a whopping 243 rulemakings and 67 studies.

One sure-to-be-closely-watched study/rulemaking combination is called for by Sec. 1028, which requires the new Bureau of Consumer Financial Protection to conduct a study of, and provide a report to Congress concerning, the use of mandatory pre-dispute arbitration in consumer financial services. The Bureau then has the authority, by rulemaking, to "prohibit or impose conditions or limitations on the use of" mandatory arbitration clauses, consistent with the study. This provision had its origins in the Obama Administration's initial white paper on financial reform and, amazingly, it stayed in the legislation all the way.  

Needless to say, Sec. 1028 is an enormous step forward in the campaign to end forced arbitration in the consumer-protection context. Corporate lobbyists, however, will use every opportunity to thwart a pro-consumer rulemaking and will likely return to Congress if they don't like what the study says.

The Act also confers similar authority on the SEC to ban mandatory arbitration in the securities context (Sec. 921) and flatly prohibits mandatory arbitration in mortgage and home equity loans--without the need for any further study or rulemaking (Sec. 1414).  Finally, the Act bans mandatory arbitration that would waive protections for those who blow the whistle on securities fraud (Sec. 922) and commodities fraud (Sec. 748).  The text of Sec. 1028 is below the jump.

Another Supreme Court Victory for Consumers: Ignorance of the Law Doesn't Excuse Collection Abuses

by Deepak Gupta

 In an opinion by Justice Sotomayor, the U.S. Supreme Court this morning handed consumers an important victory in the battle against abusive and deceptive debt-collection practices.  The Court ruled 7-2 that debt collectors who violate the Fair Debt Collection Practices Act can't evade liability for those violations by claiming ignorance or mistake of law. Resolving a circuit split, the Court rejected the collection industry's argument that the Act's defense for "bona fide errors," which excuses clerical or factual errors made despite adequate preventive procedures, also extends to errors of law.

I filed a brief in the case, which you can read here, on behalf of five national consumer groups (Public Citizen, AARP, the National Association of Consumer Advocates, the National Consumer Law Center, and U.S. PIRG: The Federation of State PIRGs). We argued that a mistake-of-law defense would deter enforcement, inhibit the development of precedent, and create a "race to the bottom," encouraging the very abuses that Congress sought to prevent when it passed the FDCPA.  Justice Sotomayor's majority opinion cites and quotes our brief, explaining that "the dissent's reading would give a competitive advantage to debt collectors who press the boundaries of lawful conduct."  The opinion also twice cites the NCLC's manual on the statute.

Justice Breyer wrote a brief concurrence to stress that the dilemma lawyer-debt collectors may face--between zealous representation of their clients and fear of personal liability--can be cured by the FTC advisory opinion process.  He notes that the FTC hasn't issued many such opinions, but says that he "would expect" the FTC to issue more opinions if the dilemma proves serious, and joins the majority opinion "[o]n this understanding." Justice Scalia writes separately to say that the Court could have rested on textual analysis alone.

Justice Kennedy, joined by Justice Alito, dissents. Speaking for myself, I'm mildly surprised that there's a dissent in this case.  Justice Kennedy's opinion displays some worrying hostility to plaintiffs' lawyers, consumer litigation, class actions, and the statute itself.  Thankfully, it's just a dissent.

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.