Consumer Law & Policy Blog

Watters v. Wachovia

Thanks to the Roberts Court's new and improved same-day service, here's the transcript of this morning's oral argument in the Watters v. Wachovia banking preemption case.   I haven't had time to read it yet.  If you do, and you have some thoughts about it, please let us know.

Yet More on Today's Watters v. Wachovia Arguments

Tom Goldstein's SCOTUSblog has posted this informative and detailed preview of this morning's argument .

Two Quick Supreme Court Notes

1.  The States and the Feds square off tomorrow morning before the Supreme Court on the extent to which federal agencies can preempt state law by regulation.  The case is Watters v. Wachovia Bank.  For you preemption/predatory lending/banking law/administrative law junkies, here's the recently-filed reply brief for petitioner Michigan.   More briefs at this link.  I participated in a moot court for Michigan's lawyer at Georgetown Law last week, but probably won't make it down to the Court tomorrow.  Either way, we hope to bring you a report on the arguments.  If you attend and want to offer your assessment, please email me.   I'm particularly interested to hear whether the Justices focus on the interaction between regulatory preemption and administrative deference--a subject of warring amicus briefs by professors Thomas Merrill and Richard Pierce (available here).

2.  Yesterday, the Supreme Court denied cert in Price v. Philip Morris, a case in which the Illinois Supreme Court held that Illinois law didn't support a Consumer Fraud Act claim against the tobacco company's marketing of light cigarettes because the company's conduct was purportedly done pursuant to FTC "regulation" concerning tar and nicotine testing--even though the Feds are actually suing Philip Morris over the very same conduct!  Although the Illinois court's decision was outrageously wrong and is arguably part of a larger pattern of the tobacco companies' use of the same FTC order as a shield, the U.S. Supreme Court's decision to deny cert was not a big surprise.  Among the likely obstacles to cert was the question whether the petition truly presented a federal question.   For those who are interested, here's the cert petition and here's the cert opp.

More on Important Supreme Court Preemption Case: Watters v. Wachovia Bank

By Brian Wolfman

     Today's Washington Post has this informative article on Watters v. Wachovia Bank, which presents the question whether the National Bank Act preempts states' efforts to regulate the lending activities of state-chartered subsidiaries of national banks.  The case will be argued in the Supreme Court on November 29.  We previously posted many of the Supreme Court briefs here.  On the day before the argument, the American Enterprise Institute is sponsoring a forum featuring speakers who take different views on this important preemption question.

Defending General Jurisdiction

by Deepak Gupta

Most lawyers don't give a lot of thought to the law of general personal jurisdiction--probably because the law, through a case-by-case analysis, has become pretty well-settled.  But if you stop and think about it, general jurisdiction,  in an increasingly complex and mobile society, is often necessary to preserve meaningful access to the courthouse for consumers.  That's why it's worth noting a recent cert petition, filed by R.J. Reynolds Tobacco Company, that asks the U.S. Supreme Court to radically scale back the doctrine.

When a consumer is defrauded or injured based on a transaction that takes place in Minnesota, for example, and decides to sue in the courts of Minnesota, it's perfectly fair to the defendant for the Minnesota courts to exercise jurisdiction.  That's known as specific personal jurisdiction; the jurisdiction is based on the specific transaction at issue in the case.

What about general jurisdiction?  What if the transaction takes place in Minnesota but the suit is in Florida? If it's a business with minimal Florida contacts, it would be unfair to sue in Florida. But what if the defendant is a behemoth with an office and warehouse space in Florida, employees in Florida, hundreds of millions of dollars of sales in Florida, advertising in Florida, political lobbying activity in Florida, and access to an army of lawyers in Florida?  Surely it would be absurd to say that suing them in Florida under those circumstances would be so unfair that it would violate the corporation's constitutional right to due process.

I'm oversimplifying a bit, but that's basically the position that R.J. Reynolds has taken in its cert petition.  Reynolds wants the Court to hold that any contacts that are "sales-related," no matter how extensive, can never support general jurisdiction.  Taken to its logical extreme, this would mean that consumers could only assert general jurisdiction over R.J. Reynolds in North Carolina, or over Wal-Mart in Arkansas.  Working with Los Angeles lawyer Jean-Claude Andre through the Supreme Court Assistance Project, we wrote this Brief in Opposition to Reynolds' petition.  Among other things, the brief points out that no court has ever adopted Reynolds' radical position and so there's no conflict among the courts and it's unclear how the proposed categorical exception for "sales-related" contacts would even work in practice.  A few days ago, Reynolds filed its reply.   A decision should be announced on December 4.  We'll keep you posted.

Second Circuit Agrees to Hear Interlocutory Appeal of Judge Weinstein's Class Certification in Massive "Light" Tobacco Case

    By Brian Wolfman   

    The Second Circuit has granted the tobacco industry's request to hear an interlocutory appeal seeking reversal of Judge Jack Weinstein's September 2006 certification of a national class action challenging the industry's deceptive marketing of so-called "light" tobacco products.  (Basically, the plaintiffs allege that the tobacco industry deceived consumers into believing that "light" cigarettes are healthier than ordinary cigarettes.)  After the Wall Street Journal criticized Judge Weinstein's ruling and joked that the judge had been influenced by something he'd been smoking, CL&P contributor Steve Gardner responded, explaining why Weinstein's ruling was "the opposite of radical."

    The Second Circuit had earlier stayed the district court proceedings while it considered whether to hear the appeal, thus putting off the trial, which Weinstein had scheduled for January 2007.  An early trial is now impossible, as the Second Circuit will presumably get full briefing from the parties and amici and set the case for oral argument.

     As explained here, just last year, the Second Circuit overturned another Weinstein class action ruling in the Simon II case.  There, Weinstein had certified a national non-opt-out punitive damages class of people diagnosed with smoking-related disease.  There are significant differences between the "light" tobacco case and Simon II, and we will see if those differences are enough to lead to a different result this time around.

14 Top-Side Briefs Filed in FCRA Cases

by Deepak Gupta

In Safeco v. Burr and GEICO v. Edo, set for argument on January 16, the U.S. Supreme Court will decide whether a "willful" violation of the Fair Credit Reporting Act can be established by proof that the defendant recklessly disregarded the law. My colleague Scott Nelson, who is counsel for the respondents in both cases along with Scott Schorr of Portland, Oregon, has already summarized the case in this prior post and posted the the decision below, the petitions in Safeco and Geico, and our Brief in Opposition.

The other side's briefs have just been filed: two insurance company petitioners' briefs, the Solicitor General's brief, and a slew of industry amicus briefs--for a whopping total of 14 briefs in all. This is a perfect illustration of a point made by Brian Wolfman and Paul Bland at a panel on Supreme Court litigation in Miami this past weekend: Does anyone really believe that the Justices will have the time to carefully study all of these briefs?

(A sidebar: On the problem of amicus overload at the Court, see these two articles. Justice Ginsburg is quoted as saying that "she has her law clerks arrange the briefs into three piles: must-read briefs; those she could skim or read selected pages from; and then, the 'skip' pile that she does not need to read at all. The first pile, she said pointedly, is 'very thin.' The largest pile, she said sheepishly, is the 'skip' pile." Needless to say, when you have 14 briefs on one side of the case, the odds that a good number will end up in the 'skip' pile is pretty high.)

Punitive Damages in the Supreme Court: Today's Big Argument. Or Maybe Not.

by Deepak Gupta

Because lots of consumer protection statutes permit consumers to seek punitive damages, the Supreme Court's decisions limiting the availability of punitive awards can have a big impact on the enforcement of consumer rights and, more generally, on the ability of the civil law to deter bad corporate conduct.  The Rehnquist Court, with a few exceptions (Justices Scalia, Thomas, and Ginsburg didn't go along), was very activist in curtailing what it saw as unconstitutionally excessive punitive damage awards.  As a matter of substantive due process, the Court decreed in BMW v. Gore, punitive awards must be evaluated according to three "guideposts": the degree of reprehensibility of the conduct, the ratio between punitive and compensatory damages, and a comparison of the amount of punitive damages to any civil or criminal penalties that could be imposed for comparable misconduct.  Following up in State Farm Mutual Auto. Ins. Co. v. Campbell, the Court divined a specific numerical limit in the Due Process Clause: few awards exceeding a "single-digit ratio" between punitive and compensatory damages generally will satisfy due process.  The upshot is that, when it comes to proportionality, the constitutional limitations on civil damages against rogue corporations are a lot stricter than the limitations on the imprisonment of real people.

Today, the Roberts Court got its first chance to shape the Court's controversial jurisprudence in this area when it heard arguments in Phillip Morris v. Williams, a highly-anticipated case from Oregon involving punitive damages of $79 million in an individual tobacco case.  The case is about whether juries can punish for harms to other people, the application of BMW and State Farm to the tobacco/personal injury context, and the extent to which the second "guidepost" trumps the rest.  Or so everyone thought.   Based on today's oral arguments, however, the case may end up turning on the meaning of a jury instruction that was never given.  And the smart money seems to be on the case being sent back to the Oregon state courts for a clarification of exactly what it meant when it upheld the denial of that jury instruction.  It seems likely the Court may end up ducking the bigger questions for now.

A lot has been written about this case already.  Rather than add to it, I've rounded up links to the argument transcript, reactions to today's oral arguments by those who were in the courtroom, and some of the prior commentary.  (I participated in a moot for the respondent's counsel, Bob Peck, last week, but I didn't make it down to the Court this morning to watch the arguments.)

More on Unaccountable Arbitrators

  by Scott Nelson

Paul Bland concludes his post on the extraordinary leeway that courts give arbitrators to botch legal and factual issues by saying, "If that is a system of judicial review that is 'sufficient,' I’d REALLY hate to see what an insufficient judicial review system would look like."

Paul might've gotten his chance to see an insufficient system if the petitioners in John Hancock Life Insurance Co. v. Patten, No. 06-49, had convinced the Supreme Court to hear their claim that even the extremely limited review now available for arbitration awards that are issued in "manifest disregard of law" is too much -- even though, by the petitioners' own count, challengers to arbitration awards have prevailed under that standard in only six reported federal cases over the past fifty years!  As Deepak Gupta reported a couple of days back, the Court denied certiorari in Patten, but I expect that industries that seek to channel consumer claims into arbitration will continue to look for opportunities to get the Supreme Court to kill the manifest disregard standard.  Their chances to attack the standard, however, are limited by the fact that they almost never lose under it.  One might think they'd be content to leave well enough alone.

Meanwhile, one of the other cases Paul mentions -- the Wise v. Wachovia Securities case, where Judge Posner stood up for the right of arbitrators to issue "wacky" decisions in contract cases -- is also the subject of a petition for certiorari filed by the plaintiffs who lost in the court of appeals.  The petition, No. 06-331, was filed September 5, and will probably be up for consideration at the Court's November 9 Conference.  Although I haven't yet seen the petition, I doubt if it directly challenges Posner's "wacky" comment because the comment appears to be dictum.  (It referred to the standard applicable in a case involving contract interpretation, which, as he noted, was not the issue in Wise.)  The principal issue the plaintiffs raised in the Seventh Circuit was the absence of any evidence to support the arbitration award, a claim that Judge Posner also found to be an insufficient basis for a judicial challenge.  In any event, we'll keep tabs on the petition and report on the Court's disposition of it.

Consumer Cases and the U.S. Supreme Court's Docket

by Deepak Gupta

From time to time, I'll file reports like this one to let you know how the U.S. Supreme Court's docket is shaping up on issues that could affect consumers' rights.  This post will focus on recent cert denials and cases on the merits docket.  Upcoming posts will highlight interesting new petitions coming down the pipeline.    (My office has an active practice in the Supreme Court and we closely monitor the Court's docket through our Supreme Court Assistance Project. You can read the project's regularly-updated "watch-list" at this link.)

A Safety Valve for Arbitration:  For starters, I’m pleased to report that yesterday the Court denied review in an arbitration case, John Hancock Life Insurance Company v. Patten, in which my colleague Scott Nelson and I had represented the respondents.  As I discussed at length in a post a few weeks back, John Hancock's petition asked the Court to either abandon or severely restrict the scope of the "manifest disregard" doctrine, under which federal courts may overturn arbitration awards in cases where arbitrators disregard the law.

State AG Petitions on Preemption, Personal Jurisdiction: The Court also denied a number of other interesting consumer cases cases recently.  Leading the pack were:

• The State of Minnesota's cert petition, supported by 36 other states but opposed by the Solicitor General (whose views the Court requested), in Hatch v. Cellco Partnership.  The question presented was whether Minnesota’s "Consumer Protection for Wireless Customers" law--which requires wireless service providers to give notice and obtain customer consent before they change the terms of an existing contract--is preempted by federal law.

• The petition filed by a large group of state Attorneys General in King, et al v. Grand River Enterprises.  The question there was whether, in a suit filed by tobacco companies challenging certain state statutes aimed at tobacco, a federal court in one state may exercise jurisdiction over AGs from other states solely on the grounds that they had “assembled purposefully” and agreed while there to “pass” the challenged laws.

• FreeEats v. North Dakota, an industry petition asking whether a North Dakota statute that restricts the making of prerecorded telephone calls is preempted by the Telephone Consumer Protection Act and an FCC rule, as applied to prerecorded interstate telephone calls that seek to survey the recipient's political views.

I'll provide an overview of the granted cases after the jump.