Consumer Law & Policy Blog

Second Circuit Rejects Class Certification in "Light" Tobacco Litigation

Last Thursday, the Second Circuit issued McLaughlin v. American Tobacco Company, No. 06-4666 (2d Cir. Apr. 3, 2008), reversing Judge Jack Weinstein's certification of a class including virtually all Americans who had purchased cigarettes labeled as "light" or "lights." Plaintiffs alleged that they were deceived into believing that “light” cigarettes are healthier than “full-flavored” cigarettes. The court of appeals held that the class could not meet Federal Rule of Civil Procedure 23(b)(3)'s requirement that the common questions predominate over the individual questions for a number of reasons, including the need for each plaintiff to show that he or she relied on defendants' deceptions. The court of appeals acknowledged that a district court may partially certify a case on common issues (even where individual questions predominate on other issues) under Rule 23(c)(4), but held that use of that Rule was impermissible in this case because it would not “reduce the range of issues in dispute and promote judicial economy.”

Note that the Supreme Court has granted review in another "light" tobacco case, Altria v. Good, 07-562. That case presents the question whether the plaintiffs' claims are preempted by federal law.

Ninth Circuit: Private Debt Collectors Under Contract With Prosecutors Are Not Shielded by Sovereign Immunity

by Deepak Gupta

Yesterday, the U.S. Court of Appeals for the Ninth Circuit, in an opinion by Judge Marsha Berzon, ruled that American Corrective Counseling Services (ACCS), the nation's largest operator of "check diversion" programs, may not shield itself from a consumer class action over its aggresive debt-collection practices by invoking the doctrine of state sovereign immunity.  (Information about the case, including the briefs and opinion, is available here.)

I've blogged here before about so-called check diversion companies -- private debt collectors that use their contracts with prosecutors to gin out collection demands, on official prosecutor stationary, threatening consumers who have written bad checks with criminal prosecution or jail unless they pay exorbitant collection fees.  Passing a bad check is only a crime where there's knowing and intentional fraud, but these companies demand fees regardless of whether a crime has been committed. It's a lucrative and shady business that essentially criminalizes civil debt collection.

Judge Berzon's opinion is the most thorough and scholarly treatment to date on the question of private entities and sovereign immunity.  In a sweeping rejection of ACCS's arguments, the Ninth Circuit characterized sovereign immunity as “strong medicine” that should be carefully limited, especially in the case of for-profit corporations that are not democratically accountable to the public. Quoting the philosopher Gilbert Ryle, the court called the argument that a private company could enjoy sovereign immunity a “category error,” like “inquiring into the gender of a rock or into which day of the week is reptilian.”

Consumer Groups Sue Justice Department Over Auto Database

by Deepak Gupta

1992, Congress required the federal government to set up a comprehensive national database covering the title-, theft-, and damage- history of used cars, based on data from insurance companies, junk and salvage yards, and all 50 states.  A consumer thinking about buying a used car would be able to instantly check the validity of the car's title and odometer reading and learn whether it had been stolen or severely damaged in the past.  Making that kind of information widely available would dramatically reduce the amount of auto fraud and save consumers from economic loss and physical injury.

But more than fifteen years since Congress first required the federal government to implement the database, the government still hasn't done it!

Yesterday, we filed a lawsuit against the U.S. Department of Justice, asking the federal district court in San Francisco to force the government to do what Congress required it to do. Public Citizen was joined in the suit by two other national consumer groups -- Consumers for Auto Reliability and Safety (CARS) and Consumer Action. You can read our complaint here and find additional information about the case here, here, and here.

Here's what Senator Chuck Schumer (D-NY), the lead sponsor of the original 1992 legislation, said in a statement released yesterday:

"We all know that you can't always judge a book by its cover and the same is true with many used cars that end up at junk and salvage yards. Consumers deserve to know the true origin and condition of the vehicles they are purchasing, including whether that car was once stolen.

It is simple: for sixteen years, the Department of Justice and junk yards have been eschewing their responsibility to consumers, law enforcement, and the public by ignoring their mandate to routinely file the required reports. It is about time that all parties were forced to comply with what I believe is a common sense measure to fight auto theft and to protect the public from fraud. I am encouraged by Public Citizen's efforts on this case, and I hope that this important law will finally be enforced as it should have been from day one."

Mortgage Fraud Enforcement Reportedly Not Keeping Up

by Jeff Sovern

I've been meaning to post for some time a link to this story in the Times, "Officials Say They Are Falling Behind on Mortgage Fraud Cases" which ran on Christmas day.  An excerpt:

The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.

Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. * * * *

Eleventh Circuit Issues Important RESPA Class Action Decision

by Brian Wolfman

The Eleventh Circuit's decision in Busby v. JRHBW Realty, No. 06-15308 (Jan. 17, 2008), is worth reading for two reasons.  First, in Busby, the district court denied class certification, the plaintiff class sought permissive interlocutory review under Federal Rule of Civil Procedure 23(f), the appellate court allowed review, and that court reversed in favor of the class. That scenario has been quite rare.  In the vast majority of Rule 23(f) cases, it has been defendants who have convinced the appellate court to review, and, in many of those cases, certification has been reversed.  Plaintiffs' Rule 23(f) petitions have rarely been granted, let alone led to plaintiff-favorable rulings.

Second, the Eleventh Circuit's reversal is interesting on its own terms.  Busby is a class action under the Real Estate Settlement Procedures Act (RESPA).  Section 8(b) of RESPA provides that

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

The Eleventh Circuit held that because all class members were claiming a violation of section 8(b) on the ground that no services were provided for the fee that they were charged in settlement, the predominance requirement of Rule 23(b)(3) had been met.  In so holding, the court distinguished another of its cases holding that class treatment is generally inappropriate in other kinds of RESPA actions.  The Eleventh Circuit's decision also contains an interesting discussion of whether class counsel's allegedly unethical solicitation of the named plaintiff rendered that counsel inadequate under Rule 23(a)(4).

Using Choice-of-Law Clauses to Defeat State Consumer Law Protections

After the California Supreme Court found unconscionable a clause banning class actions in a consumer arbitration contract in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal. Rptr.3d 76, 113 P.3d 1100 (2005), the lower court, on remand, relied on a Delaware choice-of-law clause in the contract, among other things, to conclude that Delaware law applied and that Delaware would enforce the class action waiver, thus rendering the consumer victory at the Supreme Court pyhrric.  See Discover Bank v. Superior Court, 134 Cal. App.4th 886, 36 Cal.Rptr.3d 456 (2005).  William J. Woodward of Temple explores the problem of such choice of law clauses in his article, Constraining Opt-Outs: Shielding Local Law and Those it Protects from Adhesive Choice of Law Clauses, 40 Loyola of Los Angeles L. Rev. 9 (2006) and available at http://ssrn.com/abstract=1003997.  Here's the abstract:

Fifty years ago, the idea that parties could "choose" the law governing their contract was alien to the way most courts viewed their roles. Applicable law depended on complicated conflict of laws rules, administered by judges who would apply the law, not on party choice. Contemporary contracts, by contrast, nearly always specify the law that will govern them. Choice of law clauses reduce uncertainty, contribute to economic welfare and, in most instances, are no longer controversial. But when we move from negotiated contracts to adhesion and mass market contracts, choice of law clauses can become less than benign. A drafter will, of course, choose law that best suits its needs. But the law that best suits the drafter may well be less than ideal for the customer. Not surprisingly, recent cases reveal that mass market drafters often choose the law of a state that offers very limited protection for customers in their dealings with the drafter. Cases show, for example, that drafters choose the law of a state that recognizes adhesive class action waivers over the law of a state that does not. If such a choice of law provision is effective against customers whose law ordinarily protects them from such waivers, the drafter has effectively replaced the law their state crafted to protect its residents with the less-beneficial law the drafter chose. This, of course, raises policy questions and both courts and state legislatures have begun to address them. How can a state "protect" the law it has developed to benefit its residents without jeopardizing the commercial certainty that choice of law provisions provide? After providing an analytic framework for considering the complex issues raised by this amalgam of conflicts and contract law, we proceed to consider solutions both at the state and federal level.

New York State's Human Rights Division Files Landmark Suits Against Sellers of Tax Refund Anticipation Loans

by Brian Wolfman

The New York State Human Rights Division has just filed first-of-their-kind suits against firms that market tax refund anticipation loans (RALs). The suits claim that the firms' RAL businesses illegally target African-American and hispanic consumers and members of the military. The New York Times suggests that the suits are an effort to end the RAL industry. The complaints in the two cases can be found here and here. Read the press release announcing the suit.

I blogged last year about the annual report of the National Consumer Law Center and Consumer Federation of America on RALs. Yesterday, those groups issued a press release concerning their most recent findings.

City of Baltimore Sues Wells Fargo Over Predatory and Discriminatory Mortgage Lending

by Brian Wolfman

Read this Baltimore Sun article about the City of Baltimore's suit alleging that Wells Fargo engaged in predatory and racially discriminatory lending against Baltimore citizens. Baltimore Mayor Sheila Dixon, pictured to the left, is behind the suit.

Baltimore claims that it reviewed foreclosure data and concluded that Wells Fargo was intentionally steering African-American Baltimoreans into subprime loans. Wells Fargo denies the allegations. The City alleges that it has been injured because it has been required to spend more social services funds on its citizens who have been victimized by Wells Fargo's allegedly unlawful conduct. I think you'll find the complaint very interesting. Note in particular page 34 of the complaint - - a full-color map of the city depicting the racial disparities alleged in the complaint. The New York Times has also covered the story.

University of Oregon Takes Legal Stand Against RIAA In Downloading Suits

This story in yesterday's New York Times describes how the University of Oregon is standing up for what it believes are its students' privacy and due process rights by refusing to give up the students' identities in suits by the Recording Industry Association of America. The RIAA suits are going after what it claims is unlawful downloading of copyrighted music. Well worth a read.

Foreclosures over the Holidays

by Deepak Gupta

Last month, I mentioned a case in which Public Citizen, together with Baltimore-based Civil Justice Inc., is challenging the constitutionality of mortgage foreclosure notice procedures in Maryland.  This morning, the Washington Post ran a very moving profile of our client, Joyce Griffin. The story recounts how Joyce, a first-generation homeowner, saved up her whole life to buy a house, was tricked into a predatory refinanced mortgage with the now-defunct Ameriquest, and never learned until it was too late that her home was put up for sale at a foreclosure auction on the courhouse steps.  She first found out that she had lost her house when she and her young daughter returned home one day and found a handwritten note that had been tacked onto the front door by the investor who bought the house.  The lawyers that conducted the foreclosure proceedings never tried to personally serve Ms. Griffin (the procedure that would have been followed in virtually any other civil proceeding, even an action to collect a very small debt), never posted the house, and did nothing when the certified-mail notices they sent were returned undelivered.   I'll be presenting oral argument in Ms. Griffin's case in the Maryland Court of Appeals in Annapolis on January 8.