Consumer Law & Policy Blog

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.

Supreme Court Takes Arbitration Case

The Supreme Court yesterday granted cert in Stolt-Nielsen S.A. v. AnimalFeeds International, which raises the question, according to SCOTUSblog, of "when two companies agree to send their disputes to arbitration, may a court order that process to go forward as a class action, if the contract says nothing on that issue."  Because consumer arbitration clauses never provide for class actions, the case might have consequences for consumer contracts which provide for arbitration, but do not expressly bar class actions. Here is the question presented, as framed in the cert petition:

In Green Tree Financial Corp. v. Bazzle,  539 U.S. 444 (2003), this Court granted certiorari to decide a question that had divided the lower courts: whether the Federal Arbitration Act permits the imposition of class arbitration when the parties’ agreement is silent regarding class arbitration. The Court was unable to reach that question, however, because a plurality concluded that the arbitrator first needed to address whether the agreement there was in fact "silent." That threshold obstacle is not present in this case, and the question presented here--which continues to divide the lower courts--is the same one presented in Bazzle:

Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

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!

Supreme Court Takes Bank Preemption Case

On Friday the Court took Cuomo v. Clearing House Association, 08-453.  After then-Attorney General Eliot Spitzer had sought information from national banks in connection with an inquiry into racial discrimination by the banks, the OCC sued the Attorney General's Office to block the inquiry, arguing that the inquiry was preempted by federal law.  The Second Circuit, over a dissent, agreed with the OCC.  The other 49 states had also filed a brief supporting Cuomo's position.  The SCOTUS Blog report is here and the Times's story is here.  I wonder if the Court will feel some pressure to rule for the states in light of what we now know about the inadequacy of federal regulation.  I also wonder how broad the Court's ruling will be and what it will tell us about the applicability of other state laws to federal institutions. 

Supreme Court Term Begins Soon - Sign Up For Supreme Court Watch List Now

by Brian Wolfman

Today, Monday, September 29, the Supreme Court Justices held their annual "long conference" at which they considered hundreds of petitions for writs of certiorari that had piled up over the Court's 3-month summer recess. If the Court's recent pattern is followed this year, expect the Court to issue orders tomorrow, September 30, granting review in a handful of cases. Then, expect the Court to issue a massive order next Monday, October 6, denying review in hundreds of cases. Next Monday is also the first day of oral argument for the Court's 2008-2009 Term.

Approximately every 2 weeks during the Court's Term, the Justices hold conferences to decide which cases to hear from among the petitions that have accumulated. Prior to each conference, Public Citizen Litigation Group's Supreme Court Assistance Project (SCAP) publishes a "watch list" of public interest cases on the conference. The watch list for today's long conference, along with a cover email highlighting the critical cases, are available here.

It's easy to sign up to receive our email and watch list before each of the Justices' conferences. Just go here.

Supreme Court Rules in Favor of Plaintiffs in Two Key Employment Discrimination Cases

Although a bit off this blog's beaten path, I thought readers might want access here to the Supreme Court's important decisions issued yesterday in CBOCS West, Inc. v. Humphries, No. 06-1431, and Gomez-Perez v. Potter, No. 06-1321. CBOCS held by a 7 to 2 vote that 42 U.S.C. 1981 authorizes a plaintiff to claim that he was retaliated against for asserting a co-worker's right to be free from racial discrimination. Gomez-Perez held by a 6 to 3 vote that a federal employee may maintain a retaliation claim under the Age Discrimination in Employment Act -- specifically, the plaintiff claimed that her federal agency employer retaliated because she filed an administrative complaint alleging age discrimination. The decisions, taken together, seem to stand for the proposition that both private and federal employees have claims for retaliation even when the relevant anti-discrimination statute is silent on the question of retaliation. The majority in both cases rebuffed the defendants' arguments that the Court should narrow or effectively overrule the Court's earlier decisions in Sullivan v. Little Hunting Park (1968) and Jackson v. Birmingham Board of Education (2005), recognizing retaliation-based claims under 42 U.S.C. 1982 and Title IX, respectively.

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.)

Elizabeth Schiltz Paper on the Supreme Court's Watters Decision

Elizabeth Rose Schiltz's paper Damming Watters: Channeling the Power of Federal Preemption of State Consumer Banking Laws, 35 Florida State University Law Review, is available at  http://ssrn.com/abstract=1028886.  Here's the abstract:

In Watters v. Wachovia, 127 S. Ct. 1559 (2007), the Supreme Court reversed two presumptions about federal preemption of state law that historically have guided the delicate balance between state and federal authority over consumer protection in banking services - the presumption that issues involving consumer protection are quintessentially matters of state rather than federal prerogative and the presumption that national banks are subject to nondiscriminatory laws of the states where they are located, except where federal law expressly preempts such law.

This article analyzes the dramatic impact of Watters' reversal on two different areas - consumer protection in banking services and the continued vitality of the uniquely American dual banking system. The first part of the article traces the evolution of consumer protection law in the banking industry through three stages. The first was the gradual expansion of the preemptive effect of a particular federal usury statute for national banks through a combination of action by federal banking agencies and case law. The second stage was the assertion by federal banking regulators of a broad theoretical framework for federal preemption of state banking law based not on any particular federal statute, but rather on a theory of congressional intent to permit national banks to provide consistent banking services nationwide. The third stage was the validation of that broad conflict preemption theory by the Supreme Court in Watters. The article demonstrates how the reversal of the historic presumption has recently played itself out in the preemption of state laws governing bank-issued gift cards, culminating in the first citation of Watters in SPGGC, LLC v. Ayotte, 488 F.3d 525 (2nd Cir. 2007).

While challenging the proposition reflected in most recent scholarship in this area that federalization of consumer protection law necessarily entails deregulation, in this article I nevertheless conclude that Watters will have a significant adverse effect on the continued vitality of the dual banking system. Arguments for preserving the "dual banking system" arise out of our nation's fundamentally federalist sensibilities. From that perspective, a recent shift in the tenor of arguments for the preserving the dual banking system from the benefits of competition (states as laboratories of reform) to arguments based on the principle of subsidiarity (states as more responsive units of government where democratic ideals are more fully realized) can be observed. I argue that the subsidiarity arguments are likely to be more persuasive in convincing Congress to intervene to address the imbalance between the state and national banking system exacerbated by the Watters decision. I conclude by proposing that Congress partially reverse Watters by validating a recent proposal by the primary federal regulator of state banks to extend preemption authority to state banks, thus preserving to states the authority to offer a meaningful alternative to the national banking system on the level of consumer protection.

Riegel v. Medtronic To Be Argued To The Supremes On Tuesday

Riegel v. Medtronic, Inc. -- which presents the question whether federal pre-market approval of a medical device preempts state-law damages suits premised on defects in the design and labeling of that device - - will be argued this coming Tuesday, December 4, before the U.S. Supreme Court. This post provides links to all of CL&P's information on this important case. Friday's Law.Com has this article about the case. Here are the plaintiffs' Supreme Court briefs. Here is the defendant's brief. Check back here after the argument for a link to the oral argument transcript.

Supreme Court Grants Review in Exxon Valdez Case

We have on four prior occasions blogged about the Ninth Circuit's December 2006 decision halving the punitive damages award in the Exxon Valdez oil spill litigation to $2.5 billion and Exxon's effort to obtain en banc rehearing.  All of our prior posts can be accessed here.  The Supreme Court has now granted review in the case, limiting itself to several questions concerning whether federal maritime law permits an award of this nature and size.  The Court decided not to address the question presented in Exxon's petition on whether the Due Process Clause prohibits a punitive damages award of that size (claimed to be 123 times greater than the compensatory award).  The Court denied the plaintiffs' cross-petition asking for reinstatement of the original $5 billion award.

In its petition, Exxon claimed that the $2.5 billion punitive damages award was larger than the total of all punitive damages awards affirmed by all federal appellate courts in U.S. history.  Is that correct?