Consumer Law & Policy Blog

Consumer Groups Win Suit Over Used Vehicle Database

Last February, we blogged about a suit filed by Public Citizen, Consumers for Auto Reliability and Safety, and Consumer Action against the Department of Justice over its 15-year unlawful delay in establishing a used vehicle database. The purpose of the database is to enable consumers to check the validity of a car's title and odometer reading and learn whether the car has been stolen or severely damaged. Yesterday, the consumer groups won!

We will provide more details later, but basically federal district judge Marilyn Hall Patel ordered DOJ to finalize rules fully implementing the database by the end of January, and she rejected all of DOJ's defenses. KGO TV in San Francisco (where the case was filed) has a nice story on the victory, as does the New York Times.  To read the briefs and other filings in the case, go here.

Credit Card Truncation Cases and Annihilating Damages

by Jeff Sovern

The credit card truncation cases raise an issue of what to do about potentially annihlating damages.  First, a review: in 2003, when Congress enacted FACTA, it added to the Fair Credit Reporting Act a new provision, §1681c(g), which prohibits retailers from printing on receipts more than the last five digits of a credit card or the card’s expiration date.  The statute gave most retailers three years to comply, but many did not take advantage of that window. In fact, when the statute went into effect, many retailers were surprised by class action suits seeking significant damages under the FCRA.  Last month, Congress passed the Credit and Debit Card Receipt Clarification Act, which added a provision to §1681n which prevents consumers from obtaining statutory damages for willful violations of the provision barring printing of the expiration date, but does not affect damages for printing the full card number.  So consumers who can show a willful violation can still recover statutory damages for receipts which included the full card number, and the statutory damages for a willful violation can be substantial: at least $100 and up to $1,000.  A retailer whose sales typically are much less than $100 might be put out of business by such an award in a class action.  To make matters worse, in many cases consumers won't even be damaged by the printing of a receipt with their credit card number.

So what are courts to do?  One option is to refuse to certify a class on the theory that, under Federal Civil Rule 23(b)(3), a class action is not superior to other available methods for the fair and efficient adjudication of the controversy.  That approach has a long history in consumer law.  To quote our casebook at page 785-86:

In the landmark case of Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y.1972), United States District Judge Frankel denied class certification in a TILA case because the potential $13 million award (130,000 credit card holders each receiving the $100 minimum penalty) “would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act.”  Other courts followed Judge Frankel's lead, and TILA class actions were becoming scarce.

Breach of implied warranty of merchantability or fitness may be a tort

by Richard Alderman

In JCW Electronics v. Garza, the Texas Supreme Court considered whether to apply the state’s proportionate-responsibility statute to a claim based on a UCC implied warranty.  Despite the fact that a prior version of the state expressly included UCC claims -- an inclusion that the legislature removed and replaced with language stating it applied to “to any cause of action based on tort” -- the court held that the statute applied.  The court found that “a party who seeks damages for death or personal injury under a breach-of-implied-warranty claim seeks damages in tort.”  Interestingly, it appears that if the same cause of action were brought for property damage, the claim would not sound in tort, but would be a breach of contract.  In other words, at least in Texas, a UCC implied-warranty claim might be tort or contract depending on the nature of the damages. One wonders what the result would be if the claim involved property damage and personal injury.

Supreme Court Refuses to Hear Class-Action Ban Issue

by Deepak Gupta

  A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before (see, e.g., here, here, and here)--is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the U.S. Supreme Court rebuffed an attempt by one of corporate America's leading Supreme Court litigators, Carter Phillips, to get the Court to weigh in on the battle over class-action bans. Public Citizen filed the brief in opposition, and we're thrilled at the result.  The Court's decision not to hear the issue is a good sign that, at least as far as class-action bans are concerned, the Supreme Court is going to allow the law to continue to develop in a way that vindicates the rights of consumers and employees to access the courts.  (You can read an Associated Press story about the case here.)

New CAFA Decision From Second Circuit

by Brian Wolfman

In Estate of Pew v. Cardarelli, No. 06-5703-mv (May 13, 2008), the Second Circuit resolved a couple issues under the Class Action Fairness Act (CAFA), which greatly expanded federal diversity jurisdiction over class actions. In Pew, an agricultural supply and marketing cooperative issued money market certificates, which were fixed-interest debt instruments. Later, the co-op stopped selling the certificates and ended its practice of repurchasing them prior to maturity. The co-op then filed for bankruptcy. The purchasers were not thrilled and sued the co-op’s officers and auditor in state court under New York’s consumer protection law, asserting, among other things, that the co-op had misrepresented its financial condition. (An earlier suit by the plaintiffs under federal securities law had been dismissed on the merits.)

The defendants removed the case to federal court under CAFA. The parties agreed that the case was removable unless it came under a particular CAFA exception, 28 U.S.C. 1332(d)(9)(C), which carves out any claim that “relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under . . . the Securities Act of 1933).” The parties also agreed that the money market certificates were “securities” within the meaning of this exception. The district court held that the plaintiffs’ claims fell within the section 1332(d)(9)(C) exception and remanded the case to state court.

The Second Circuit reversed. The court held that the plaintiffs’ claims did not “‘relate[] to the rights . . . and obligations’ . . . ‘created by or pursuant to’ a security [because they were not] claims grounded in the terms of the security itself.” A claim “grounded in the terms of the security itself, the court held, “might arise where the interest rate was pegged to a rate set by a bank that later merges into another bank, or where a bond series is discontinued, or where a failure to negotiate replacement credit results in a default on principal.” But, the Second Circuit concluded, “[t]he present claim–-that a debt security was fraudulently marketed by an insolvent enterprise–-does not enforce the rights of the Certificate holders as holders, and therefore it does not fall within § 1332(d)(9)(C).” In so holding, the Second Circuit relied on a Senate Judiciary Committee Report on CAFA, which asserts that section 1332(d)(9)(C) is limited to claims over the terms of securities. The Second Circuit’s reliance on the Senate Report was a bit odd, since earlier in Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006), the Second Circuit had dissed the Report’s legitimacy because it was issued 10 days after CAFA’s enactment. (Go to our prior blog entry to read about the Blockbuster decision.)

Judge Pooler dissented, explaining that the majority’s holding was at odds with CAFA’s plain text. She noted that the plaintiffs’ claim was that the co-op had not paid them the principal and interest on their money market certificates. So, she went on, “[i]f this suit therefore does not solely involve a claim ‘that relates to the rights . . . and obligations relating to or created by or pursuant to’ the [money market] Certificates, I am at a loss to understand why.” She also castigated the majority for relying on the Senate Report for a host of reasons, including that the Report’s statement about the scope of section 1332(d)(9)(C) “simply has no relation to the enacted text.” Hard to quarrel with that.

Speaking of “the enacted text,” this case involved a petition for permission to appeal a district court’s remand order, which, CAFA absurdly says, must be filed with the court of appeals “not less than 7 days after entry of the order.” 28 U.S.C. § 1453(c)(1) (emphasis added to actual statutory text). That means that if you seek permission to appeal in 0, 1, 2, 3, 4, 5, or 6 days after entry of the remand order, your request is premature, but, as long as you wait 7 days, you’re golden. Heck, you can file a whole year later, and you’re still good to go. The Second Circuit in Pew joined every other court of appeals to have rewritten this provision, and held that it means the exact opposite of what it says: a party seeking permission to appeal a remand order must do so “not more than 7 days after entry of the order” (emphasis added to non-existent statutory text).

U.S. House Committee on Oversight and Government Reform Holds Hearing on Federal Preemption of State Tort Claims Involving Drugs and Medical Devices

The Committee on Oversight and Government Reform of the U.S. House of Representatives held a hearing today entitled “Should FDA Drug and Medical Device Regulation Bar State Liability Claims?”  The Committee described the hearing as follows:

FDA approval of drugs and high-risk medical devices before they are marketed does not necessarily guarantee safety. Patients harmed by medical products have traditionally sought compensation under state law for damages, such as medical expense incurred, and lost wages. The hearing will examine the implications of “preemption” of state liability laws in the FDA context and whether FDA regulation of drugs and medical devices should bar injured patients from seeking compensation under state law.

Among the witnesses at today's hearing were actor Dennis Quaid, whose new born twins were injected with a near-fatal overdose of the drug Heparin because of faulty drug labeling; former FDA Commissioner Dr. David Kessler; Georgetown law professor David Vladeck; and Dr. Gregory Curfman, Editor, New England Journal of Medicine.

The Committee's website provides links to the written testimony of all 10 witnesses.

U.S. District Court Holds That Rape and Assault Claims Against Haliburton Are Not Subject to Arbitration, but Court Case Stayed While Other Claims Are Arbitrated

by Brian Wolfman

Last December, we blogged here about Haliburton's efforts to force into arbitration a suit brought by a former employee who maintains that she was gang-raped by her Haliburton co-workers in Baghdad. The plaintiff also filed a Title VII sexual harassment claim as to which the EEOC had found cause against Haliburton. Now, in an opinion dated May 9, 2008 in Jones v. Halliburton Company, No. 4:07-cv-2719, the U.S. District Court in Houston has held that the plaintiff's claims related to the rape and assault may be litigated in court, while the Title VII claims must be arbitrated. The court "reluctantly" stayed the case to allow the arbitration to be completed. The court rejected the plaintiff's claims of unconscionability under general state-law contract principles, but held that the arbitration clause requiring arbitration of any claim "related to" the plaintiff's employment with Haliburton did not encompass the claims concerning the rape and assault.

Ninth Circuit Allows Claims of Deceptive Food Marketing to Go Forward

by Brian Wolfman

In Williams v. Gerber Products Company, No. 06-55921 (Apr. 21, 2008), the plaintiff class pleaded common-law misrepresentation and breach of warranty claims, as well as claims under California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq., and California’s Consumer Legal Remedies Act, Cal. Civil Code § 1750 et seq.  The class challenged five features of the packaging used by Gerber to sell its Fruit Juice Snacks, including use of the words “Fruit Juice” alongside pictures of oranges, peaches, strawberries, and cherries. The plaintiffs claimed that this advertising was deceptive because the product contained no fruit juice from any of the fruits pictured on the packaging. The plaintiffs’ other claims were similar — such as their challenge to Gerber’s claim that its product is made “with real fruit juice and other all natural ingredients,” even though the two biggest ingredients are corn syrup and sugar. The district court granted Gerber’s motion to dismiss on the ground that its statements were not likely to deceive a reasonable consumer and that at least one of the statements was non-actionable puffery. The Ninth Circuit reversed. Here’s a key part of the Ninth Circuit’s reasoning:

Third Circuit Ruling On Permissive Class Certification Appeals Under Rule 23(f)

by Brian Wolfman

Federal Rule of Civil Procedure 23(f) says a court of appeals may permit an appeal from a district court order granting or denying class certification if a petition for permission to appeal is filed with the court of appeals within 10 days of entry of the district court’s order. In Gutierrez v. Johnson & Johnson, No. 07-8025 (3d Cir. Apr. 22, 2008), a race discrimination class action, the district court denied class certification, and the plaintiffs moved for reconsideration 30 days later. The district court denied the reconsideration motion, and the plaintiffs petitioned for permission to appeal within 10 days of that denial. The Third Circuit dismissed the Rule 23(f) petition as untimely. The court of appeals noted that regardless of whether Rule 23(f)’s 10-day deadline is “jurisdictional,” it is nevertheless “strict and mandatory” – meaning, presumably, that it will be enforced in virtually every case. The court of appeals dismissed the petition because the plaintiffs did not seek permission to appeal or reconsideration in the district court within 10 days of denial of class certification. I understand the first part of the Third Circuit’s holding. Rule 23(f) says 10 days, and so if you miss the deadline, you’re out of luck. But I don’t understand the second part. The court of appeals said that if the losing party seeks reconsideration within 10 days of the district court’s class certification, then the 10-day time limit disappears and starts anew after the motion for reconsideration is ruled on. Why? What’s a motion for reconsideration anyway? And what’s the origin of the 10-day period for seeking reconsideration? Is it imported from Rule 23(f), which says nothing at all about motions for reconsideration?

Second Circuit: Plaintiffs Have Standing To Pursue Antitrust Case Alleging Collusion By Major Credit Card Companies To Require Arbitation And Ban Consumer Class Actions

by Brian Wolfman

The Second Circuit today issued Ross v. Bank of America, No. 06-04755 (Apr. 25 2008). In this case, the plaintiff credit card holders claimed that the defendant banks conspired in violation of section 1 of the Sherman Antitrust Act to include in their credit card contracts provisions that impose arbitration as the sole method of resolving disputes relating to the credit accounts and purport to ban class actions. The district court held that the plaintiffs lacked Article III standing, principally because the arbitration clauses had not been invoked against the plaintiffs. The Second Circuit reversed. The court held that because the case was based on an antitrust theory (and was not a challenge to the contract provisions themselves), the plaintiffs had suffered an Article III injury. The court noted, among other things, that the conspiracy to require arbitration and ban class actions had undermined the plaintiffs’ choice of contract provisions in the marketplace, and that limitation was a concrete and present injury. As the court of appeals put it, a “card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” The opinion is only 15 pages and is written in plain English. Definitely worth a look.