Consumer Law & Policy Blog

Sign Up for Supreme Court "Watch List"

Right before each U.S. Supreme Court conference -- the meeting at which the Justices decide, among other things, which cases to take -- Public Citizen Litigation Group's Supreme Court Assistance Project issues an email highlighting the conference's key cases and a "Watch List" providing detail on the most important matters pending before the Court.  If you want to stay up with doings at the Court, sign up right here, and you will automatically receive the email and Watch List.  You won't be inundated: The emails come out only every week or two during the Supreme Court Term.

And there's no better time to sign up:  Today marks day one of the Supreme Court's "long conference" - - a meeting where the Justices will consider the pending petitions that have built up over the Court's three-month summer recess.  The Justices will issue orders this week and/or next Monday (the first day of oral argument for the new Term), granting and denying petitions for cert. and addressing various other issues in pending cases.  To see the Watch List for the "long conference," go here.  And to view the email for the long conference go here.   Finally, to view emails regarding prior Supreme Court conferences, go here.

Plaintiffs' Supreme Court Brief Filed in Important Federal Preemption Case

As CL&P blog readers may recall, on June 25, the Supreme Court agreed to hear an important federal preemption case involving a man allegedly injured by a defective medical device.  The case presents the question whether state-law damages suits seeking recovery for injuries caused by medical devices that received FDA pre-market approval are preempted by the Medical Device Amendments to the Food, Drug, and Cosmetic Act.  The plaintiffs recently filed their opening brief on the merits.  We have blogged about the case on five prior occasions, including in this post, which links to several other posts.  Public Citizen Litigation Group, lead counsel in the case, has collected other relevant materials here.

Supreme Court Ends Philip Morris Farce

  by Scott Nelson   

  Every now and then you read an opinion of a federal court of appeals and realize immediately that if the Supreme Court ever gets its hands on it, it will be reversed.  The only question is whether the Court will take the case. 

  Usually these days that happens when the opinion is from the Court of Appeals for the Ninth Circuit, which has some judges who are, shall we say, sometimes a bit out of step with the Supreme Court's prevailing judicial philosophy.  But sometimes the lower court's error is not that it veered left in a case where the Supreme Court would steer right.  Sometimes a court just issues an opinion that is so appallingly wrong that no Justice, left, right or center, would ever agree with it.

  Such a decision was the Eighth Circuit's ruling in Watson v. Philip Morris.

  The lower court in Watson gave cigarette companies the same right that federal officers, employees, and agencies have to "remove" cases brought against them in state courts to federal courts.  The court of appeals' reasoning, if sustained, would have given many other regulated industries the same ability to take consumer lawsuits filed against them out of the state courts and place them in federal courts.

  Fortunately, sanity prevailed in the Supreme Court.  In a unanimous decision by Justice Breyer, the Court this Monday reversed the Eighth Circuit's decision and held that neither Philip Morris, nor any other cigarette company, nor, for that matter, any business, is entitled to remove cases as if it were a federal officer merely because it is subject to federal regulation.  The Court's decision will help preserve what remaining ability plaintiffs still have to choose to bring lawsuits in the forum of their choice, which for many remains the state courts.

What the Watson Case Was About

  Watson started out as a case brought in an Arkansas state court seeking damages for consumers who bought "light" cigarettes made by Philip Morris -- specifically, Marlboro and Cambridge "Lights."  The theory of the case was that Philip Morris violated state laws against unfair and deceptive business practices by misleadingly marketing its "low-tar" cigarettes as "lights" even though it knew that they were as bad for smokers as regular cigarettes.  Among other things, the suit accused Philip Morris of manipulating the design of the cigarettes so that they would show low tar and nicotine levels when tested in accordance with the "Cambridge method" originally developed by the Federal Trade Commission, even though when actually smoked by human beings they would deliver levels of tar and nicotine comparable to regular cigarettes.

Some Further Thoughts on Safeco v. Burr

by Scott Nelson

Blogging about lost cases is about as satisfying as kissing your sister, but I wanted to add a few additional thoughts to those expressed by Deepak in Monday's post on Safeco v. Burr.  In the interest of full disclosure, I should note that I was co-counsel for the respondents, who lost the case despite winning a couple of the key issues.

  Willfulness and Recklessness: The principal reason the insurance companies gave for seeking review by the Supreme Court in the first place was that the Ninth Circuit's ruling that FCRA's willfulness standard is satisfied by a showing of "reckless disregard for the law" was erroneous and out of step with the holdings of other circuits.  For a change, the Supreme Court ultimately agreed with the Ninth Circuit on that point and adopted a much more consumer-friendly standard for recovery than the insurance companies advocated.

Under the companies' view of the world, enhanced remedies should only be available under FCRA if a defendant violated the statute knowing that its conduct was illegal.  The Supreme Court's ruling makes enhanced penalties available without regard to whether a defendant actually knew or believed it was violating the law, as long as the defendant's conduct was reckless, which the Court's opinion equates with a highly unreasonable interpretation of the law.

  Interestingly, the Court's opinion appears to resolve, without actually acknowledging the existence of, considerable confusion about whether recklessness is a subjective or objective standard, or even a little of both.  Justice Souter comes down squarely for an objective standard of recklessness in civil cases, defining recklessness as disregard of a high risk of harm that the defendant either was or should have been aware of.

Supreme Court Decides Fair Credit Reporting Act Cases

by Deepak Gupta

  In an opinion by Justice Souter, the Supreme Court this morning handed consumers an incomplete victory in the consolidated Fair Credit Reporting Act cases, Safeco v. Burr and Geico v. Edo.   For our previous coverage of those cases, including all of the briefs, see here, here, here, and here.  (Disclosure:  My colleague, Scott Nelson, is co-counsel for the respondents.)  In this post, I'm going to attempt a quick summary of the decision, but I hope we'll be able to bring you some additional anaysis in the days to come.

1.  Willfulness Entails Reckless Disregard:  The really good news for consumers today is that the insurance companies lost on the principal question in these cases -- whether  a "willful" violation of the FCRA can be established by proof that the defendant recklessly disregarded the law.  The companies had argued that a willful violation could only be established by proof that the defendant's actions were known to violate the Act, but the Court firmly rejected that interpretation as inconsistent with standard common law usage in civil actions.  The Court also concluded that the FCRA's drafting history didn't shed light on the question either way and that the reckless-disregard standard wouldn't lead to absurd results.   In terms of impact on the run of FCRA cases, this was the most significant question decided by the Court today; a contrary ruling would have made it much harder for consumers to obtain statutory or punitive damages.

2. Adverse Action Requirement Extends to First-Time Rates, But Considering the Credit Report Must Be A "Necessary Condition" of the Increase:  Having arrived at the proper standard of recklessness, the Court then had to decide whether the companies had actually violated the statutory requirement that they send notice to consumers before taking any "adverse action" based on their credit reports.   To make a long story short, the companies had charged consumers higher initial rates for insurance based on their credit reports.  The question was whether that action constituted "an increase in any charge for . . . any insurance, existing or applied for."   

As an initial matter, the Court agreed with the position of the Solicitor General and the plaintiffs--that the word "increase" extended to a first-time rate, consistent with the "ambitious" consumer protection objectives that Congress had in mind when it enacted the FCRA:  "[T]he point from which to measure difference can just as easily be understood without referring to prior individual dealing.  The Government gives the example of a gas station owner who charges more thanthe posted price for gas to customers he doesn’t like; it makes sense to say that the owner increases the price and that the driver pays an increased price, even if he never pulled in there for gas before."   This section of the opinion has some great language about the broad scope and purpose of the FCRA and the need for courts to interpret the statute in a manner that's consistent with Congress's goals.

Watson v. Philip Morris Argued in the Supreme Court

Watson v. Philip Morris was argued today in the U.S. Supreme Court.  That's the case in which the 8th Circuit said, believe it or not, that Philip Morris could remove a class action challenging the marketing of "light" tobacco products from state to federal court because the tobacco giant was "acting under" a "federal officer" within the meaning of the federal officer removal statute, 28 U.S.C. 1442(a)(1).  Why, you ask?  Because, according to the 8th Circuit, the company's production and promotion of light cigarettes was heavily regulated by the FTC. We blogged about the case before, including here, here and here.

Now, read the transcript from today's argument.

Elizabeth Renuart on Line-Drawing and the Practical Effects of Watters v. Wachovia

by Elizabeth Renuart (National Consumer Law Center)

Rather than discussing why the majority may be legally wrong (the dissent does an excellent job of that), my thoughts focus on the lines drawn by the decision and its potential practical effects.

    One line that arguably became brighter is that between operating subsidiaries and other entities that are hired by or act as agents for national banks. The majority focuses on the legal relationship between operating subsidiaries and the banks, the OCC's position that it oversees both entities in a similar fashion, and the added "support" it found in the Gramm-Leach-Bliley Act for Congressional recognition of these closely related companies. The specificity with which the majority details its view of the legal support in federal statutes for its conclusion weighs against the authority of the OCC to extend preemption rights to agents or third party contractors who work closely with national banks, even if the OCC claims it can examine them. (The OCC put its foot in this pool a few years ago when it issued an opinion letter related to car dealers acting on behalf of banks in Michigan). Where an entity is not the equivalent of a national bank (see slip op. at 13), preemption ought not to extend to that business.

As for practical consequences, the decision should cause those remaining independent mortgage companies to reconsider whether they will seek federal charters to parent them in a bank holding structure. Any doubt about whether to go this route, at least as far as the regulatory playing field goes, is now eliminated. The OCC should be careful what it prays for: it is now crystal clear that it must examine and enforce all preempted state laws against all of the operating subsidiaries of national banks in all 50 states (and to know the ins and outs of those state laws). It has not hired scores of new examiners or enforcement attorneys. Its public record in enforcement has been weak over the last few years since it decided to take on this job.

Finally, the pressure now will build on the FDIC to create a similar playing field for state-chartered banks and their operating subsidiaries even though the legal infrastructure to do so is much weaker than the National Bank Act (arguably non-existent). Attempts to pressure the FDIC along these lines occurred 2 years ago but the FDIC shelved the industry's petition. I expect that pressure to resurface in light of this decision.

Ann Graham on the Surprises in Watters v. Wachovia

Professor Ann Graham, a banking law scholar, focuses on a few of the surprises in today's decision in the Watters v. Wachovia case:

1.  Justice Ginsburg authored the majority opinion, joined by Justices Kennedy, Souter, Breyer, and Alito.  In oral argument, Justice Ginsburg asked few questions of either party.  The Dissenting Opinion was written by Justice Stevens, joined by Chief Justice Roberts and Justice Scalia.  All these dissenting justices were active participants in the oral argument, displaying clear concern for the impact of this case on preemption jurisprudence.

2.  This is perhaps the biggest surprise:  The majority opinion did not examine Chevron deference at all.  According to the majority, the National Bank Act preempts the Michigan statute affecting state-chartered mortgage lending corporations which are structured as operating subsidiaries of national banks.  The majority opinion cannot point to any National Bank Act language for this preemption and does not examine Congressional intent.

3.  As Justice Stevens points out in the dissenting opinion, "the Court's eagerness to infuse congressional silence with preemptive force threatens the vitality of most state laws as applied to national banks -- a result at odds with the long and unbroken history of dual state and federal authority over national banks, not to mention our federal system of government.  It is especially troubling that the Court so blithely preempts Michigan laws designed to protect consumers.  Consumer protection is quintessentially a 'field which the States have traditionally occupied.' [citations omitted]"

4.  Here's the concluding statement of the dissent regarding the impact of this decision:  "Never before have we endorsed administrative action whose sole purpose was to preempt state law rather than to implement a statutory command."

(cross-posted from the Banking Law Prof Blog)

Supreme Court Decides Watters v. Wachovia

by Deepak Gupta

SCOTUSblog is reporting that the Supreme Court has ruled that federal law, not state law, controls the regulation of mortgage lending activity by national banks, even when that is carried on by an operating subsidiary of the bank. The vote was 5-3.  Ginsburg, joined by Kennedy, Souter, Breyer, and Alito, announced the opinion of the Court.  Stevens, joined by Roberts and Scalia, dissented.  Thomas took no part in the decision.  The opinions are available here.

Announcing the ruling in Watters v. Wachovia Bank (05-1342), Justice Ruth Bader Ginsburg said: "Where a national bank engages in real estate lending through an operating subsidiary, the subsidiary is subject only to the same terms and conditions as those that would govern the bank itself" -- that is, federal regulation under the National Bank Act. ""Though state law, in this case North Carolina law, governs matters pertaining to an operating subsidiary's incorporation, state regulators cannot interfere with the 'business of banking' by subjecting national banks or their [federal]-licensed subsidiaries to rival oversight regimes."   

Much of the debate and briefing over this case concerned the interaction between preemption and the power of federal administrative agencies--a dicey and dangerous can of worms. Did Congress confer authority on the agency to preempt state law? Can Congress do that? Should the courts defer to the agency under these circumstances?    The Court avoided that can of worms today:

Watters disputes the authority of OCC to promulgate this regulation and contends that, because preemption is a legal question for determination by courts, [the regulation] should attract no deference. . . . This argument is beside the point, for under our interpretation of the statute, the level of deference owed to the regulation is an academic question. Section 7.4006 merely clarifies and confirms what the NBA already conveys: A national bank has the power to engage in real estate lending through an operating subsidiary, subject to the same terms and conditions that govern the national bank itself; that power cannot be significantly impaired or impeded by state law.

Attorney's Fees Litigation in the Supreme Court

By Brian Wolfman

Following up on yesterday's post from Steve Gardner, I wanted to let you know about two potentially important statutory attorney's fees cases before the Supreme Court.  In Davis v. Department of Justice, No. 06-1131, a fee-seeking plaintiff has asked the Court to address the question whether the rule limiting attorney's fees established in Buckhannon Board and Care Home, Inc. v. W. Va. Dep't of Health and Human Resources, 532 U.S. 598 (2001), applies in Freedom of Information Act cases.  An amicus brief written principally by my colleague Adina Rosenbaum -- filed on behalf of Public Citizen, Judicial Watch, the Electronic Frontier Foundation, and the National Security Archive -- explains why the Court should grant review and put the brakes on Buckhannon.  In an apparent response to the amicus brief, the government has been ordered to respond to the petition.

In addition, on April 17, the Supreme Court will hear oral argument in Sole v. Wyner, No. 06-531, which addresses the circumstances, if any, in which statutory attorney's fees may be awarded to a plaintiff who secures a preliminary injunction.  A host of organizations from all over the political spectrum, including Americans United, Public Citizen, and the Institute for Justice, have joined an amicus brief that lays out what is at stake in this important case.