Consumer Law & Policy Blog

Governmental Privileges for Private Corporations: What's the Stopping Point?

by Deepak Gupta

Consider these questions for a moment:

• Does a private debt collector become an "arm of the state" -- meaning that it enjoys the same sovereign immunity from suit in federal court as the state itself -- when it collects on bad checks under a business partnership with a state prosecutor?    

• Does a major tobacco company constitute a "person acting under [a federal] officer" -- meaning that it enjoys the same ability as a federal official to remove a suit against it from state to federal court -- because the Federal Trade Commission has regulatory authority over the way cigarettes are marketed?

These might seem like outlandish possibilities that are hardly worth discussing . . . were it not for the fact that federal courts have recently answered yes to both questions.   In one case, a district court in Florida dismissed a consumer class action against a private debt collector on the grounds that the company was entitled to state sovereign immunity.  Last week, I filed this brief in the Eleventh Circuit urging the court to reverse the district court's ruling.   In another case, the Eighth Circuit allowed Philip Morris to remove an unfair trade practices suit to federal court under the federal officer removal statute.  (I previously blogged about the case here and here.)  My colleague Scott Nelson has just filed this brief in the Supreme Court urging the Court to reverse the Eighth Circuit's ruling.

Although the two cases involve very different legal doctrines, there are some interesting parallells.  In both cases, the lawyers for private corporate defendants in consumer class actions made long-shot arguments that invoked special privileges ordinarily reserved for the government itself.  And in both cases, they won, allowing them to deprive the consumer plaintiffs of their chosen forum.  Both decisions extend the privileges at issue well beyond the purposes for which they were originally designed-- protecting the autonomy of governmental actors within a federal system.  The federal officer removal statute protects federal officers from potentially hostile state courts, while state sovereign immunity protects the dignity and solvency of the sovereign states by immunizing them from federal legal process.  Under these two decisions, for reasons that are hard to discern and even harder to apply in a principled way, the same privileges would protect private corporations as well.  This is federalism run amok.

Supreme Court Junkies, Take Note

by Deepak Gupta

From time to time on this blog, we've brought you updates on how the Supreme Court's docket is shaping up when it comes to consumers' rights.  The Supreme Court isn't the most transparent of institutions and it can be hard to get information about how cases are making their way to the Court, let alone information that's focused on the public interest perspective.

Now there's a new resource for those who want to know about petitions with the potential to affect the rights of consumers, workers, and individuals: an emailed watchlist that brings you detailed information about the status of pending cert petitions before every conference.   The watchlist is the product of Public Citizen's Alan Morrison Supreme Court Assistance Project, which has spent the last seventeen years tracking the thousands of cert petitions that arrive at the Supreme Court every day to find important public interest cases and offer pro bono assistance.  Emma Cheuse, the current project fellow, has done a terrific job launching this listserv.

To sign up, click here.

Transcript of FCRA Arguments

Here's the just-released transcript of this morning's oral arguments in the FCRA cases.   A post-argument report from the Financial Times relays the business community's take on the arguments:  "A majority of the justices on Tuesday seemed reluctant to adopt an expansive interpretation of a federal credit reporting law that the US Chamber of Commerce and others warned could lead to an explosion of class action lawsuits against US businesses, and many billions of dollars in damages . . .  'The court seemed sympathetic to the concerns of the business community,' said Robin Conrad of the US Chamber of Commerce."   

Along the same lines, an AP report sums up the case this way:  "Several Supreme Court justices seemed taken aback . . . at the idea that insurance companies might be required to notify tens of millions of customers they aren't getting the best rates because of their credit reports."   

Today's Fair Credit Reporting Arguments

by Deepak Gupta

In the next hour, the U.S. Supreme Court will hear oral arguments in the consolidated cases of Geico v. Edo and Safeco v. Burr.  The cases concern two aspects of the Fair Credit Reporting Act: the meaning of the statute's "willfulness" standard for civil liability and the scope of the "adverse action" notice requirement in the context of insurance companies' use of credit scores to set rates.  A prior post, by my colleague Scott Nelson (who is co-counsel for the respondents) summarized the case at the time cert was granted; SCOTUSblog also recently ran an in-depth preview, with summaries of the briefing. 

I previously posted all of the "top-side" briefs: the two petitioners' merits briefs, the Solicitor General's brief, and the many industry-side amicus briefs.  Here are the remaining briefs:

Respondents' brief

State AGs' amicus brief supporting respondents

Consumer groups' amicus brief supporting respondents

GEICO reply brief

Safeco reply brief

Arguing for GEICO is Maureen Mahoney, one of the stars of the Supreme Court Bar.  Arguing for the respondents is a first-timer, Oregon lawyer Scott Schorr.  I participated in a moot court for Mr. Schorr at Georgetown on Friday and was impressed with his performance.  Patty Millett will argue for the SG.  I hope to bring you an update on the arguments later today.

Court Grants Federal Officer Removal Case

This afternoon, the Supreme Court announced that it has agreed--contrary the Solicitor General's recommendation--to review the Eighth Circuit's decision concluding that tobacco giant Philip Morris could remove a case to federal court on the basis of the federal officer removal statute. On Wednesday, I previewed the case (Watson v. Philip Morris) in a post you can access here, and explained why I thought the Court should take the case. Needless to say, this is one of those cases in which getting cert granted was more than half the battle. This one is exceedingly easy to predict: the Court will reverse the Eighth Circuit. Period.

Update: Ted Frank of the conservative American Enterprise Institute, who's much more sympathetic to the plight of the downtrodden tobacco companies than I am, discusses the case here and reacts to the grant here.

U.S. Agrees: Tobacco Companies Aren't Federal Officers

by Deepak Gupta

Several months ago, I posted an overview of consumer cases with a reasonable chance of being granted for review by the U.S. Supreme Court.  Among them was Watson v. Philip Morris, a truly remarkable case in which the Eighth Circuit held that a tobacco company was entitled to remove a case to federal court under the federal officer removal statute--a statute designed to protect federal officers and employees.   The Justices will take up the matter at their private conference this Friday.

Watson may be one of those relatively rare cases in which a federal appellate court's decision on an important and recurring issue is so outrageously wrong that the Court concludes it can't be allowed to stand, regardless of how long the issue has percolated in the courts below.  The court's reasoning--that Philip Morris was heavily regulated by the Federal Trade Commission such that it was effectively "acting under" federal officials when it promoted and sold its "light cigarettes"--is simply indefensible.  Indeed, the absurdity of the decision is heightened when you consider that the federal government actually sued Philip Morris for the very same conduct that the Eighth Circuit concluded was carried out "under" federal direction.

Last May, the Supreme Court invited the Solicitor General to present the views of the United States. That's usually a very strong sign that the Court is interested in a case.  And in Watson, it was particularly welcome news becuase it was hard to see how the government could defend the decision.  Well, the SG's recently-filed amicus brief takes the view that the Eighth Circuit's decision was not only wrong, but fell "substantially wide of the mark."  The SG nevertheless recommends denying cert because a sufficient split of authority hasn't developed.

Court Turns Down New Jersey Rent-to-Own Challenge

by Deepak Gupta

On Monday, the Supreme Court turned down a request by former Solicitor General Ted Olson to hear a challenge to New Jersey's consumer protection and usury laws filed by the nation's largest "rent-to-own" company, Rent-A-Center, which operates 43 such stores in New Jersey.  (06-657, Rent-A-Center v. Perez).   

The Supreme Court's order leaves in place an important victory for consumers.  In an opinion you can access here, the New Jersey Supreme Court had ruled last year that Rent-A-Center is subject to a 30% annual interest-rate cap that applies to other retailers who allow customers to pay for their purchases in installments.   Specifically, the Court held that (1) rent-to-own transactions are "installment sales" within the meaning of the state's Retail Installment Sales Act and (2) the interest-rate limitations of the state's criminal usury laws apply to such transactions.  (You can listen to the oral argument here.  For some background on "rent-to-own" and how it harms low-income consumers, visit this page at U.S. PIRG's website.)

The question in Ted Olson's petition was whether the New Jersey court's decision to apply those holdings to a pending class action against Rent-A-Center was an impermissible retroactive ruling that violated Rent-A-Center's right to constitutional due process.   As is so often the case in cert-stage proceedings, however, the killer arguments in the brief in opposition had less to do with the merits of Olson's creative constitutional argument than with jurisdictional niceties and the procedural posture of the case.   Because the case was coming from a state court, it would have to meet the finality requirement of 28 U.S.C. 1257(a), the statute that allows the Court to review state-court judgments.  But the New Jersey court's decision was interlocutory and none of the established exceptions to the finality rule applied, and accordingly, the Supreme Court lacked jurisdiction.  And because Ted Olson's federal constitutional due process theory hadn't even been raised in the New Jersey courts, Rent-A-Center had waived the issue it was asking the Court to decide.

Update: The same constitutional retroactivity argument has also been raised in the pending cert petition in 06-907, County Bank of Rehoboth Beach, Del v. Muhammad.  In Muhammad -- as Mike Quirk discussed in this previous post -- the New Jersey Supreme Court held that a class arbitration ban in an adhesive consumer contract for high-interest payday loans was unconscionable under state law.

Ninth Circuit Cuts Exxon Valdez Punitive Damages By Half to $2.5 Billion

by Brian Wolfman

    As the Washington Post reports, in a 2-to-1 ruling on Friday, the Ninth Circuit reversed a $5 billion punitive damages award (actually, $4.5 billion plus interest) in the Exxon Valdez oil spill litigation, holding that the award exceeded constitutional limits.  In contrast to the previous two times the punitive damages issue had been before the appeals court, this time the Ninth Circuit did not remand to the district court; it just set the punitive award on its own - - at $2.5 billion.  The dissent would have upheld the entire award.  The lengthy opinions in the case are available here.  All three judges agreed that Exxon's conduct -- including putting an alcoholic in command of a massive oil tanker -- was highly reprehensible, and, thus, deserving of substantial monetary punishment.

    Is the litigation now over?  Don't bet on it.  With so much at stake, you have to figure the parties will at least petition the Ninth Circuit for en banc review.  And, with Exxon claiming that a proper punitive award should not have exceeded $25 million, why wouldn't the company, if en banc review is denied, keep the $2.5 billion in its coffers and spend a little more dough to petition the Supremes for further review?

    By the time Exxon is required to file its Supreme Court petition, we may have heard from the High Court in Phillip Morris v. Williams, which involves a punitive damages award in a tobacco personal-injury case.  Deepak Gupta blogged about the Halloween argument in Williams here.  It's possible that Exxon will be able to parlay the Supreme Court's eventual ruling in Williams into a plea to remand the Exxon Valdez litigation back to the Ninth Circuit for reconsideration in light of Williams.  It's too early to tell, of course, but rest assured that both Exxon and the plaintiffs' counsel are already considering these (and no doubt other) possibilities.

    In case you're wondering, the Exxon Valdez ran aground in 1989.

Overlooking the Obvious in the Supreme Court's Disappearing Docket?

by Chris Peterson

Today's  New York Times reports that the Supreme Court has granted cert to 40% fewer cases this term than last.  Furthermore, "[t]he number of cases the court decided with signed opinions last term, 69, was the lowest since 1953 and fewer than half the number the court was deciding as recently as the mid-1980s." All this despite Chief Justice Roberts' stated intention to take more cases under his leadership.

The article goes on to speculate on possible causes of the decline. Some Court watchers hypothesize that the Justices are refusing to vote for cert. because they are worried about loosing. Others speculate that because Congress has not passed as many statutes lately, there are fewer circuit splits on statutory interpretation. A former Deputy Solicitor blames the clerks wondering if they refuse to recommend cert because they are afraid of loosing the high court equivalent of "street cred."  The article also quotes Orin Kerr who suggests we might all be better off anyway.

The Justices themselves are apparently at a loss. The Times reports that "[i]n private conversations, the justices themselves insist that nothing so profound is going on, but rather seem mystified at what they perceive as a paucity of cases that meet the court’s standard criteria."

Here's another clue in the mystery of the declining docket: maybe the cases are being arbitrated. Readers of the Consumer Law and Policy Blog are familiar with the chorus of complaints on the increasing use of mandatory, binding arbitration clauses in boilerplate contracts with borrowers, buyers, and employees. A significant bulk of disputes over federal regulation can now be effectively diverted out of the judicial system into a private, secret, profit-seeking, dispute resolution system. Many doctrinal areas we should expect to create a significant amount of appellate litigation--employment discrimination, employee benefits, warranty law, and consumer credit law--are all amenable to arbitration. The country cannot develop circuit splits without stare decisis.

Obviously we will not know until someone comes up with an empirical study showing the effect of arbitration on the volume of cases meeting the Supreme Court's cert. criteria. Coming up with reliable control variables would probably be tough. I am wondering whether anyone out there in the blogosphere has any clever ideas on a way to measure this?

Thoughts on the Preemption Arguments from Around the Blogosphere

In today's Washington Post, Tomoeh Tse has a report on yesterday's oral arguments in the Watters v. Wachovia predatory lending preemption case.  A snippet:

[Chief Justice] Roberts said it seemed that banks wanted to be viewed as federally governed on regulation issues but state-based to shelter themselves from liability issues. "You are really trying to have your cake and eat it too," he said.

Justice John Paul Stevens questioned whether the OCC had the manpower to handle the increased responsibility it took when it preempted state law in 2001. He asked specifically how many additional investigators the OCC had hired when it took over this responsibility.

"Well, I don't have an empirical answer to that question," said Sri Srinivasan, assistant to the solicitor general of the Justice Department.

James Rosen, reporting for the McClatchy newspapers, boils the whole thing down this way:

Justices Anthony Kennedy, David Souter and Stephen Breyer seemed most receptive to Wachovia's arguments, while Justices Roberts, John Paul Stevens and Ruth Bader Ginsburg appeared to lean toward Michigan's claims. Justice Antonin Scalia grilled both sides relentlessly. Justice Clarence Thomas had recused himself from the case and didn't participate.

While justices' questions don't always predict their eventual rulings, several appeared to tip their hands in the Wachovia case.

"This is just a standard (federal) pre-emption case," Kennedy said in apparent agreement with the bank.

The Wall Street Journal, in an article titled "The Power to Destroy," suggests that the question in the case goes all the way back to McCulloch v. Maryland.  The Bank Lawyer's Blog tries to read the tea leaves based on yesterday's argument.  Ideoblog discusses the possible implications of Watters for securities law.

Via C-SPAN, you can a watch a video of the American Enterprise Institute panel on the case.  The panel featured George Mason University law professor Todd Zywicki, a member of a group of economists, scholars, and law professors who filed an amicus brief; Columbia law professor Thomas W. Merrill, who represents the Center for State Enforcement of Antitrust and Consumer Protection Laws as amicus in this case; attorney Amy Quester, who represents the Center for Responsible Lending as amicus in this case; and O’Melveny & Myers LLP partner Brian Brooks, an attorney who represents banks in class action defenses in court. Ted Frank, director of AEI’s Liability Project, moderated.