Consumer Law & Policy Blog

A Self-Inflicted "Crisis"

by Barry Boughton, Public Citizen 

When NY’s Superintendent of Insurance announced a 14 percent across-the-board rate hike for medical liability insurance on July 1, 2007, doctors raised a hue and cry that the increase threatened a crisis in access to care because doctors could no longer afford to practice in New York and would be leaving the state or otherwise restricting their medical practices. As in the past, doctors again blamed the premium increases on skyrocketing claims and lottery awards and demanded tort reforms that would cripple meritorious malpractice claims by the victims of medical negligence.

Today Public Citizen released a report that exposes these claims of the doctors as full blown, deliberate and obvious exaggeration: A Self-Inflicted “Crisis:” New York’s Medical Malpractice Troubles Caused by Flawed State Rate Setting and Raid on Rainy Day Fund. These same claims have been made by doctors during each of the three cycles of rising premiums that have occurred over the past thirty-plus years. Our report shows that rising malpractice premiums are not the result of any escalation in the frequency or severity in malpractice payments. The increase has nothing to do with patients, lawyers, judges, or our courts. It reflects an insurance problem.

Public Citizen’s analysis of the best available New York data demonstrates that the number of malpractice payments made on behalf of doctors in 2006 was at its lowest point since 1991. The total amount of malpractice payments for doctors, adjusted for inflation, was near or below fifteen year average in three of the past five years.

Another Class Action Waiver Falls

by Brian Wolfman

The First Circuit today struck down a class action waiver contained in an arbitration agreement as unconscionable under Massachusetts law. In Skirchak v. Dynamics Research Corp, Nos. 06-2136, 06-2180 (Nov. 19, 2007), the court found the class action waiver unconscionable on the particular circumstances of the case -- which involved wage and hour claims.  Although the court noted academic commentary arguing that class action waivers are always unconscionable in small-claims cases, the court declined to rule on that larger question.  Worth a look.

Consumer Class Action Filed Against "Free File Alliance"

The Free File Alliance program is a partnership between the Internal Revenue Service and about 20 tax preparation software companies, including an affiliate of the mammoth tax preparer H & R Block. The Alliance is supposed to facilitate the free electronic filing of tax returns. A consumer class action filed last Tuesday in federal court in Philadelphia alleges that the Alliance has, in fact, charged fees to millions of U.S. taxpayers in excess of the amounts permitted by federal law. See 31 U.S.C. 9701. An article in the Kansas City Star describes the suit. Read the complaint here.

Introducing the Appellate Assistance Project for Consumer Attorneys

by Daniel Mosteller

For lawyers who didn't make it to the NCLC conference last week or who didn't see the fliers at the conference, I wanted to let you know about a new initiative to assist consumer lawyers with appeals related to all areas of consumer law: The Appellate Assistance Project for Consumer Attorneys.

Five consumer organization -- AARP Foundation, the Center for Responsible Lending, the National Association of Consumer Advocates, the National Consumer Law Center, and Public Citizen -- have teamed up to marshal their wide-ranging consumer law expertise to offer free nationwide assistance with appeals related to all areas of consumer law.  We are eager to work with consumer attorneys to assist with any aspect of the appellate process in any court -- from determining whether to take an appeal, to writing an effective brief, to preparing for oral arguments.  We aim to tailor our assistance to the needs and desires of the lawyers who work with us, whether they are veterans of the appellate process who just need some help arranging a moot or they are facing their first appeal of a consumer law case and want more substantial assistance.  In other words, no request is too small or too big for to be considered.

Lawyers interested in taking advantage of our assistance can submit a request on our website at http://www.responsiblelending.org/caap/.  And those with further questions can contact me at 202-349-1863 or daniel.mosteller@responsiblelending.org.

Third Circuit Issues CAFA Decision

Yesterday, the Third Circuit issued a decision concerning the Class Action Fairness Act in Frederico v. Home Depot, No. 06-2266, __ F.3d __, 2007 WL 3310553 (Nov. 9, 2007). In Frederico, the plaintiff argued that certain fees imposed by Home Depot for the alleged late return of its rental trucks violated New Jersey law. The CAFA questions were whether the putative plaintiff class sought more than $5 million - - the amount necessary under 28 U.S.C. 1332(d)(2) to establish federal jurisdiction - - and what the standard is for proving the jurisdictional amount when, as in Frederico, the complaint does not explicitly limit the amount being sought to $5 million or less.

On the latter question, to make a long story short, here's what the court held: "[W]here the plaintiff has not specifically averred in the complaint that the amount in controversy is less than the jurisdictional minimum[,] the case must be remanded [only] if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount."  Slip op. 18. The court distinguished its ruling from its prior decision in Morgan v. Gay, 471 F.3d 469 (3d Cir. 2006), where the complaint had expressly limited the value of the claim to $5 million. There, "the proponent of the federal subject matter jurisdiction [generally, in CAFA cases, the removing defendant] is held to a higher burden; that is, the proponent of jurisdiction must show, to a legal certainty, that the amount in controversy exceeds the statutory threshold."  Slip op. 15.  [We have previously blogged about that ruling in Morgan v. Gay here, and another ruling in Morgan v. Gay, concerning CAFA's appeal filing deadline, here.]

For what it's worth, the court then found that there was way more than $5 million in controversy, id. at 18-24, and affirmed dismissal on the merits, holding that the plaintiff had not stated a claim under New Jersey law. Id. 25-38. It appears that the class was never certified and that therefore only the named plaintiff and not the (putative) class is bound by the court's ruling on the merits.

Eleventh Circuit: Debt Collectors Masquerading as Prosecutors Don't Get Sovereign Immunity

by Deepak Gupta

A front-page article in the San Jose Mercury News earlier this week and a recent AP story both reported on a practice I've previously blogged about here: private debt collectors that rent out a prosecutor's name and authority, which they use to threaten consumers who have written bad checks with criminal prosecution and jail unless they pay exorbitant collection fees.  The threats are made without regard to the facts of the case (in the vast majority of cases, there's no criminal intent), and the revenues are split with the prosecutors.  Assuming they're subject to suit, these companies' practices violate virtually every section of the Fair Debt Collection Practices Act. 

The threshold question, however, is whether these companies are above the law.  They have argued that they're entitled to blanket immunity from suit--that they get derivative sovereign immunity by virtue of their contractual relationship with the government.  In one case, a Florida federal district court bought that argument, extending the doctrine of state sovereign immunity far beyond previously existing law.  In a second case, a California federal district court disagreed.  In separate appeals, Public Citizen's Consumer Justice Project has been defending the California decision and urging reversal of the Florida decision.

Yesterday, the U.S. Court of Appeals for the Eleventh Circuit (a notably conservative court on immunity issues, and the only federal appeals court ever to have sustained a state sovereign immunity defense by any private corporation) reversed the Florida district court and rejected the immunity defense raised by a company called American Corrective Counseling Services (ACCS).  In its decision, the appeals court found that attorneys in the prosecutors’ offices do not review cases before ACCS threatens consumers with prosecution, and that the prosecutors exercise virtually no control over ACCS.  Sovereign immunity, the court said, “has never been held to apply simply because an independent contractor performs some government function.”

The decision has potentially far-reaching implications for holding all sorts of government contractors--from private prisons to Blackwater--accountable in the federal courts.  And both in its analysis of the Eleventh Amendment issue and its characterization of the program itself, the decision in many ways provides a roadmap for arguing that these types of debt collectors should be held liable under both state and federal consumer protection law.   [press release]  [case info and briefs]

Reckless Disregard of What?

by David Arkush

Readers may recall that in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (2007), previously discussed here and here, the Supreme Court held that the language "willfully fails to comply with any requirement imposed under this subchapter," 15 U.S.C. § 1681n(a), encompasses not just knowing, but also reckless violations of the Fair Credit Reporting Act (FCRA).

To my surprise, the September 28th issue of the Class Action Litigation Report (BNA) contains an attempt to read this as a pro-defense ruling that creates a consumer harm requirement. The "Analysis & Perspective" piece argues that, after Safeco, a defendant is not liable for statutory violations unless it "subjected the consumer to 'an unjustifiably high risk of harm that is either known or so obvious that it should be known.'" (emphasis added). This interpretation would allow defendants to escape liability for statutory violations in numerous cases. But it's dead wrong.

Supreme Court Hears Argument in Stoneridge Securities Case

The Supreme Court heard argument Tuesday in the much-anticipated federal securities case, Stoneridge Investment Partners v. Scientific-Atlanta.  The case may help draw the dividing line between aiding and abetting a violation of the federal securities laws, which does not give rise to a private suit under those laws, and a primary violation, which, of course, does.  The question presented, more formally stated, is whether claims for deceptive conduct under Section 10(b) of the Securities Exchange Act of 1934 are barred by the Court's decision in Central Bank v. First International Bank (which rejected aiding-and-abetting liability), when the defendant engaged in fraudulent transactions designed to inflate a corporation's financial statements, but made no public statements concerning those transactions.

Linda Greenhouse at the New York Times reports here that the Justices appeared skeptical of the plaintiff's claim.  Make your own guess about where the Court is headed in the case by reading the oral argument transcript from Tuesday's argument.  Readers can also consult the Oyez Project for a concise discussion of the case and access to the briefs filed by the parties.

One quirky thing about the case:  When the Supreme Court agreed to hear the case, only 7 of the 9 Justices participated.  Chief Justice John Roberts and Associate Justice Stephen Breyer had recused, possibly because they owned stock in one of the parties (often the reason for a recusal).  But less than 3 weeks before oral argument, the Chief unrecused.  How often does that happen?

Recusals for Anti-Plaintiff Bias?

In a wrongful death action in the Texas Supreme Court, plaintiffs recently moved for recusal of four justices for anti-plaintiff bias.  Relying heavily this paper by David A. Anderson at University of Texas (Austin), the plaintiffs argue that bias is evident from a couple of factors:  First, defendants won 87% of tort cases in the Texas Supreme Court in 2004 and 2005, a fact that Anderson argues cannot be explained by (1) the court's having left plaintiff victories in the courts of appeals undisturbed; (2) the correction of rogue courts of appeals; or (3) the implementation of tort reform legislation.  Second, defendants prevailed on 18 of 22 petitions alleging that there was "no evidence" to support a jury verdict, notwithstanding that in 17 of those cases the jury, the trial judge, and the court of appeals all found evidence supporting liability.

These are cogent arguments that tort plaintiffs don't get a fair shake in the Texas Supreme Court.  But assuming this motion will not secure the recusal of any justice, what might it accomplish?

Recent Third Circuit Fair Credit Reporting Act Case

Take a look at Whitfield v. Radian Guaranty, No. 05-5017 (3d cir. Aug. 30, 2007), a recent Third Circuit decision construing the Fair Credit Reporting Act.  In this case, the Whitfields financed a home purchase through Countrywide Home Mortgage. After the loan documents were signed, Countrywide arranged for Radian to provide mortgage insurance. The premiums would be paid by Countrywide to Radian out of proceeds Countrywide would receive from the Whitfields.  Radian based the price of the insurance in part on Mr. Whitfield’s credit score, which had been obtained by Countrywide (not Radian).  Radian conceded that if the credit score had been higher, the insurance premium would have been lower.  As was its custom, Radian did not provide the Whitfields with an adverse action notice under FCRA.  (A notice would have alerted the Whitfields to the fact that the premium was based in part on adverse information in the credit report and allowed them to challenge inaccuracies in the report; such a challenge, in turn, might have led to an improved credit score and a lower insurance premium.)

The main question in the case was whether Radian had a duty to provide an adverse action notice even though it did not have a contractual relationship with the Whitfields.  Relying on both FCRA’s text and purpose, Judge Dolores Sloviter agreed with the Whitfields that FCRA requires a notice despite the absence of privity.  Judge Sloviter’s opinion indicates that prior authority on this issue was scant but consumer-favorable.