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.

Cuomo Case Great News for State Attorneys General

by Christopher Peterson

The Supreme Court has issued an opinion striking down the federal banking regulatory preemption of state fair lending enforcement lawsuits. The Court confronted whether ambiguity in the National Bank Act left the Office of the Comptroller of the Currency free to preempt state fair lending litigation originally brought by former New York Attorney General Eliot Spitzer. In applying the administrative deference standard of Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., the Court explained:

[T]he presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the National Bank Act. We can discern the outer limits of the term “visitorial powers” even through the clouded lens of history. They do not include, as the Comptroller’s expansive regulation would provide, ordinary enforcement of the law. Evidence from the time of the statute’s enactment, a long line of our own cases, and application of normal principles of construction to the National Bank Act make that clear.

Cuomo v. Clearing House Association, LLC.,  No. 08-453, slip. op. at 3 (U.S. June 29, 2009).

The decision reverses the trend in recent years, discussed here and here, of giving free reign to federal banking regulators to squelch the consumer protection efforts of state attorneys general. While the long-term impact of the decision is yet to be clear, the opinion is likely to embolden some state AGs in litigation against national banks and their subsidiaries over the subprime mortgage debacle.

Judge Sotomayor's Record in Business and Consumer Cases

by Deepak Gupta

The Alliance for Justice has issued a report on Judge Sonia Sotomayor's record in business and consumer cases. It covers several topics several likely to be of interest to this blog's readers, including arbitration, deceptive and unfair trade practices, debt collection practices, bankruptcy, and intellectual property. There's nothing earthshattering in the report -- which is designed to support her confirmation by describing her as a mainstream judge who merely "follows precedent" -- but it does provide a useful summary of her opinions in those areas.

House Passes Creditcard Holders' Bill of Rights

Over at the U.S. PIRG Consumer Blog (one of my favorite blogs), Ed Mierzwinski is reporting that the House has passes the Creditcard Holders' Bill of Rights bill.

Judicial Hellholes, Debunked

by Deepak Gupta

Those of us who regularly read amicus briefs by the likes of the U.S. Chamber of Commerce and other self-styled tort reform groups are used to seeing references to "judicial hellholes" -- jurisdictions that supposedly embody a "lawsuit climate" hostile to corporate defendants accused of cheating or injuring consumers.  For many years, the American Tort Reform Association has compiled a pseudoscientic annual ranking of these jurisdictions, with perennial favorite West Virginia topping the list. The lists are used not only in amicus briefs--which often suggest that the decision below is suspect because it came from such a jurisdiction--but also to help influence legislative policy.

In 2005, Public Citizen's Congress Watch released a short report, Class Action "Judicial Hellholes": Empirical Evidence Is Lacking, showing that the hellholes rankings were not backed by any actual evidence and therefore provided no justification for proposed class-action legislation. More recently, Professor Elizabeth Thornburgh (SMU Law) has published an interesting new law review article, Judicial Hellholes, Lawsuit Climates, and Bad Social Science: Lessons from West Virginia, offering a more detailed account of ATRA's "hellholes" campaign, focusing on West Virginia. My favorite part is the section that starts on page 26, "Smoke and Mirrors: The Marketing of Anecdotes," in which Thornburgh colorfully illustrates four different deceptive strategies that ATRA has used to support its "hellhole" designation of that state: treating opinions as facts; grossly distorting quotations by former West Virginia Supreme Court Justice Richard Neely; misstating the issues; and leaving out bad facts entirely. It's worth a read.

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!

FTC Releases Annual Consumer Complaint Tally, Debt-Collection Reports

by Deepak Gupta

The Federal Trade Commission today released its annual tally of consumer complaints. For the ninth year in a row, identity theft was the number one consumer complaint category. Of 1,223,370 complaints received in 2008, 313,982, or 26 percent, were related to identity theft. The next-largest category, clocking in at 9% of all complaints, was debt collection. The FTC receives more complaints about the debt-collection industry than any other industry. You can view a summary of the results here, and a detailed report on the data, including geographical statistics, here.

The FTC also released two important reports on debt collection practices--a report on a workshop held last year to mark the 30th anniversary of the Fair Debt Collection Practices Act and the Commission's annual report to Congress on enforcement under the Act.  The workshop report, titled Collecting Consumer Debts: The Challenges of Change, makes several specific recommendations for amendments to the FDCPA and raises questions about abusive collection litigation practices and the use of mandatory binding arbitration.

• Give FTC Rulemaking Authority: The report recommends that Congress give the Commission authority to issue rules under the FDCPA.
• Increase Statutory Damages: The report states that private actions, not FTC actions, were intended by Congress to be the primary means of promoting industry compliance with the FDCPA, and notes that the amount of statutory damages (up to $1,000) that consumers can obtain in lawsuits under the FDCPA has not changed since 1977. To increase deterrence, the report recommends increasing the damage amounts to reflect inflation since then, and, in the future, to increase them periodically.
• Information Flow:  Require that collectors have better information, making it more likely that their efforts will be for the right amount and be directed to the right consumer.

• Validation Notices & Reasonable Investigations: Require that collectors provide consumers with better information explaining their rights under the FDCPA, including (1) that the “validation notices” that collectors are required to send to consumers also disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA and (2) that collectors conduct “reasonable” investigations responsive to the specific dispute the consumer raised.

• Adjustments for New Technology: Modernize the law to reflect changes in technology, including prohibiting collectors from contacting consumers via their mobile phones, including by text messaging, without prior express consent; and requiring collectors who use new payment technologies to obtain express verifiable authorization from consumers before accessing their accounts.

Debt-Collection Litigation and Arbitration Practices: The report recognizes that "certain debt collection litigation and arbitration practices appear to raise substantial consumer protection issues."  Among other things, the report cites Public Citizen's report, The Arbitration Trap, on the use of arbitration as a debt-collection mechanism. The report makes no definitive recommendations on arbitration and litigation, but instead announces that the FTC will convene regional roundtables this year with state court judges and officials, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested stakeholders to learn more and develop possible solutions.

Blockshopper Settles Jones Day’s Trademark Linking Suit – What Are the Lessons? What Can We Do Now?

by Paul Alan Levy

Late last week, lawyers for Jones Day filed a stipulation of dismissal of its trademark claims against the real-estate website Blockshopper. The lawsuit alleged that, by providing links to lawyer bio pages on the Jones Day web site from anchor text that set forth the lawyers’ names, Blockshopper was creating a likelihood of consumer confusion about whether Jones Day was the sponsor of or affiliated with the Blockshopper web site.  Under the terms of the settlement, Blockshopper agreed not to provide a clickable link to Jones Day’s web site from any form of anchor text other than the actual URL to which the viewer would be taken. Thus, instead of linking to Paul W. Schroeder, the lead counsel for Jones Day in the case, in the way I have just done, Blockshopper would have to configure its site this way: Paul W. Schroeder, http://www.jonesday.com/pwschroeder/.

There have been several excellent blog posts about the ramifications of the settlement, on Consumerist, Techdirt, Slate, and Ars Technica.  But here is my take on who won, and what lessons are to be drawn from this development.  Although there is reason to be concerned about the chilling effect of the litigation, there is something that the blogging community can do to limit that chilling effect.

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.