In Corvello v. Wells Fargo Bank, NA, 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013) (a copy of the opinion can be found here), the Ninth Circuit reversed the lower Court’s dismissal of two consolidated class action complaints, holding that if a borrower complies with a standardized Home Affordable Modification Program (“HAMP”) trial period plan (“TPP”), the mortgage servicer is contractually required to either offer a permanent modification or promptly notify the borrower, in writing, that he or she does not qualify.
In aligning with the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), the Ninth Circuit rejected Wells Fargo’s argument that the promise to provide a permanent modification is not enforceable where a fully-executed modification may not have been delivered. Corvello, 2013 WL 4017279 at *4. Citing Wigod, the Ninth Circuit recognized that banks are “required to offer permanent modifications to borrowers who completed their obligations under the TPPs, unless the banks timely notified those borrowers that they did not qualify for a HAMP modification.” Corvello, 2013 WL 4017279 at *4. In reversing the district Court, the Ninth Circuit held in relevant part:
Wells Fargo’s interpretation of the TPP was suspect because it allowed banks to avoid their obligations to borrowers merely by choosing not to send a signed Modification Agreement, even though the borrowers made both accurate representations and the required payments. As the Seventh Circuit put it, Wells Fargo’s interpretation would allow it to “simply refuse to send the Modification Agreement for any reason whatsoever—interest rates went up, the economy soured, it just didn’t like [the Borrower]—and there would still be no breach … turn[ing] an otherwise straightforward offer into an illusion.” Wigod, 673 F.3d at 563
We believe the reasoning in Wigod is sound. Paragraph 2G cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer. The more natural and fair interpretation of the TPP is that the servicer must send a signed Modification Agreement offering to modify the loan once borrowers meet their end of the bargain.
Wells Fargo’s own failure to fulfill the notification obligation does not deprive plaintiffs of the benefits of their agreement.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
We have another update regarding litigation involving the United States Treasury’s Home Affordable Modification Program (“HAMP”). See some of our HAMP related posts here, here and here. As explained in some of our prior posts, the HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans.
The HAMP was supposed to work in the following way. Under the program, mortgagors seeking to reduce their monthly mortgage payments, make an application to their loan servicer and request a loan modification. After a borrower applies for a loan modification, loan servicers are required under HAMP regulations to determine, based on all financial information submitted by the borrower, whether the borrower is eligible for a loan modification which would reduce the borrower’s monthly loan payment. Before a borrower receives a permanent modification, a loan servicer and a borrower enter into a three-month trial period, during which the borrower makes lower monthly payments towards his/her mortgage.
In most cases, the terms of the trial period are governed by a form trial period payment contract (the “TPP”). The TPP usually explains that the lender will send the borrower a permanent modification agreement if: (i) the borrower’s representations about his financial state continue to be true, and (ii) the borrower complies with the terms of the TPP (including making three timely trial payments). The TPP also states that at the end of the three month trial period the loan servicer will provide the borrower with a permanent modification if he/she is qualified, or will send the borrower a written denial if he/she does not qualify.
Back in May 2012, several plaintiffs filed a putative class action complaint in the Eastern District of Pennsylvania alleging that defendants Saxon Mortgage Services, Inc. (“Saxon”) and Ocwen Loan Servicing, LLC failed to permanently modify their mortgage loans after they fully complied with all of their obligations under the TPP. The complaint included claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and Violation of the Fair Debt Collection Practices Act.
In its motion to dismiss, defendant Saxon argued that plaintiffs’ had failed to adequately allege that it had a duty under the TPP to provide plaintiffs and other homeowners with permanent modifications. Based on Saxon’s interpretation of the TPP, it was not obligated to permanently modify plaintiffs’ mortgages until it determined after the trial period was complete that plaintiffs were qualified under the HAMP guidelines.
In an opinion dated May 9, 2013, the Honorable John Padova rejected Saxon’s argument finding that the TPP obligated Saxon, after it returned the executed TPPs to plaintiffs, to provide plaintiffs with permanent modifications as long as the plaintiffs made all of their trial payments on time and their financial information continued to be true and accurate. In his ruling, Judge Padova stated, “[i]n sum, we conclude that Saxon’s theory that the TPP permitted it to determine whether Plaintiffs qualified under HAMP guidelines after the trial period began conflicts with the plain terms of the TPP.”
As part of Saxon’s motion to dismiss, it also argued that plaintiffs’ alleged damages (i.e. payment of increased interest, longer loan payoff times, higher principal balances, deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments, damage to their credit, additional income tax liability and costs and expenses incurred to prevent or fight foreclosure) were not the result of its refusal to provide plaintiffs with permanent modifications, but instead resulted from plaintiffs’ default on the terms of their original mortgages. The Court rejected Saxon’s argument holding plaintiffs had adequately alleged damages:
If Saxon had provided Plaintiffs with permanent modifications, it is reasonable to infer that they would not have incurred, inter alia, increased principal, interest, and longer loan payoff times that accrued after the end of their trial periods, and may have sought other remedies to address their unaffordable mortgage payments.
Saxon’s motion to dismiss was denied in its entirety and the plaintiffs will now seek class certification.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm. Abbey Spanier is following many of the HAMP related class action lawsuits and will report on any significant litigation developments.
Last year we posted several blog posts that covered the wave of class action lawsuits relating to the United States Treasury’s Home Affordable Modification Program (“HAMP”), including the Fletcher litigation against IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB) where Abbey Spanier is lead counsel. See some of our posts located here, here and here.
HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans. Despite the government’s noble intentions, HAMP has been criticized and viewed by many people as unsuccessful. One of the many problems with the HAMP was that mortgage service providers often unjustifiably denied requests for permanent modifications by losing paperwork, including documents showing borrowers financial hardship.
A few weeks ago, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes. Under the new initiative, many borrowers who are at least 90 days delinquent will be sent an offer that includes a Trial Period Plan specifying the dollar amount of their new mortgage payment based upon a fixed interest rate, extending the payment terms to 40 years, and providing principal forbearance for certain underwater borrowers. Only those borrowers with loans more than 12 months old with a mark-to market loan-to-value ratio greater than 80 percent and who have not had two or more previous loan modifications will be solicited for participation in the program.
A key component of the new procedure is that borrowers will not be required to document their hardship or financial situations to receive a permanent modification. Under the program, after the borrower makes on-time payments during the three month trial period and meets necessary criteria, the borrower will receive a permanent mortgage modification. In a press release dated March 27, 2013, the FHFA explained that, “[t]he new Streamlined Modification Initiative eliminates the administrative barriers associated with document collection and evaluation. Eligible borrowers must demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified.”
The new streamlined loan modification program is only available to those homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac. The program will commence on July 1, 2013 and will expire on August 1, 2015. If you have questions about the new initiative, you can find some helpful answers provided by the FHFA here.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
In Frazier v. Castel Ford, Ltd., 2013 WL 265072 (January 24, 2013), the Maryland Court of Appeals put the brakes on a tactic that has gained favor among defendants in class actions—and that has caught the attention of the Supreme Court, for better or for worse—where a defendant attempts to moot the claims of a potential class representative by paying his damages in full at the outset of the case. This tactic is referred to as “picking off” the class representative. The court in Frazier held that an attempt to pick off the class representative cannot moot a class action, at least where the plaintiff has not had a “reasonable opportunity” to move for class certification.
Picking off the class representative benefits defendants because they can get out of a class action for the small amount they owe to the class representative (usually a single person), whose claims are typically very small on an individual basis. This tactic, however, is particularly dangerous because it allows a defendant to thwart the claims of the proposed class, who may never bring their own actions. Recognizing these principles, the Maryland Court of Appeals held that a defendant cannot defeat a class action by tendering all of the plaintiff’s damages—he must at least be given a “reasonable opportunity” to move for class certification, “including any necessary discovery.”
In Frazier, the plaintiff alleged that the defendant, a Ford dealer, misrepresented the expiration date of his extended warranty by two years. The plaintiff’s complaint asserted two causes of action—one for violation of Maryland’s Consumer Protection Act, and one for common law fraud. The plaintiff alleged that he incurred unexpected repair costs that he would not have paid if the warranty lasted as long as the dealer represented.
After plaintiff commenced his action and began to take discovery, the defendant sent him a check for all the damages it claimed he was owed. Thereafter, the defendant moved for summary judgment and made a motion to deny class certification. The trial court granted the defendant’s motion for summary judgment on the grounds that the plaintiff’s complaint was mooted by the tender of his damages, and granted the motion to deny class certification because the plaintiff, who had now purportedly been made whole, was not a member of the class he sought to represent.
The Maryland Court of Appeals reversed. The court noted that the concept of mootness is more flexible in a class action than in an individual case. The reason for this relaxed mootness standard, the court elaborated, was illustrated by the defendant’s actions: before filing his class action complaint, the plaintiff contacted the dealership and was ignored; the court stated that the defendant made “no effort to rectify the situation until the class action complaint was filed.” Then, once the complaint was filed, the defendant “immediately took action to moot it by tendering individual damages to the plaintiff . . . before the plaintiff had any reasonable opportunity to seek class certification or to conduct discovery addressed to the merits of class certification.”
The court noted that, if this type of behavior were permitted:
“[M]any meritorious class actions will never get off the ground. It will be particularly tempting to ‘pick off’ a putative class representative in cases where the underlying conduct affected many people but each claim, including the class representative’s, is small or moderate in size—a type of case for which the class action procedure was devised.”
The court noted that other jurisdictions—including the Ninth Circuit and the Third Circuit—had come to the same conclusions, based on substantially similar reasoning.
One practice pointer from this case: the court did not hold that a tender of damages fails to moot a class action in any and all circumstances. Rather, the court made clear that a class representative cannot be picked off “if the individual plaintiff has not had a reasonable opportunity to seek class certification, including any necessary discovery.” The court held that the lower court, on remand, could determine whether the plaintiff had an “adequate opportunity to file a timely motion for class certification” and, if so, could permit him to move for class certification.
Have you ever received unsolicited advertising in the form of a text message? These forms of solicitations may be illegal under the Telephone Consumer Protection Act (“TCPA”) which restricts telephone solicitations and the use of automated telephone equipment. The TCPA also limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines.
In a recent decision in Agne v. Papa John’s International, Inc., et al., No. C10-1139-JCC, 2012 WL 5473719, at *1 (W.D. Wash. Nov. 9, 2012), the court certified a national class of all persons in the United States and a sub-class of all persons in Washington State who were sent text messages advertising Papa John’s pizza by Defendant OnTime4U who were sent such messages by Defendant OnTime4U. The Court found that because Plaintiff’s allegation was not merely that all class members suffered a violation of the TCPA, but rather that all class members were sent substantially similar unsolicited text messages by the same defendants using the same automatic technology, commonality is satisfied. 2012 WL 5473719, at *8.
Defendant OnTime4U, a marketing company, offered to increase the profits of Papa John’s restaurants by sending text message advertisements to their customers. Certain Papa John’s franchisees provided OnTime4U with lists of telephone numbers of customers obtained from Papa John’s proprietary database, the PROFIT system. The text messages that were sent solicited consumers to purchase Papa John’s products and provided the customer with a telephone number corresponding to a particular Papa John’s restaurant along with a promotional code. The Plaintiff, who never gave any Papa John’s entity express consent to send her text messages, received three message sent by OnTime4U. 2012 WL 5473719, at *9.
Papa John’s, relying on the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), argued that determining whether Papa John’s was sufficiently involved in the market decisions of its different franchises in order to establish liability would require individual inquiries that undermine commonality. The court rejected Papa John’s comparison of Plaintiff’s claim to the allegation in Dukes that Wal-Mart “national” caused or encouraged the local store managers to make discriminatory employment decisions. The Papa John’s court cited to the Supreme Court’s finding in Dukes that “the only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s “policy’ of allowing discretion by local supervisors over employment matters.” To the contrary, in Papa John’s, the Plaintiff came forward with affirmative evidence that Papa John’s had at least a hand in franchisees’ decisions to enlist OnTime4U to send text messages to their customers. For example, Plaintiff submitted email messages from Papa John’s franchise business directors to multiple franchisees encouraging those franchisees to commission text messages from OnTime4U. Thus, the Court found that the Plaintiff alleged “far more” than an amorphous corporate culture. 2012 WL 5473719, at *8-9.
The Court also rejected Papa John’s challenges that there were three areas where individualized inquiries would overwhelm common issues: (1) consent; (2) questions regarding who actually received messages; and (3) inquiries into Papa John’s liability for various franchisees’ text campaigns. 2012 WL 5473719, at *11. The court found that Defendants’ consent defense could be resolved in one stroke because resolving the legal question of whether a customer’s prior purchase of pizza can be construed as express consent to receive text message advertisements is a common question that will predominate over any individual inquiries. 2012 WL 5473719, at *8. Moreover, since Papa John’s is in the best position to come forward with evidence of individual consent, it will not be precluded from presenting admissible evidence of individual consent if and when individual class members are permitted to present claims. 2012 WL 5473719, at *11. Further, the court concluded that Papa John’s assertion that resolving the common questions regarding its involvement in the campaign will require individual examination of “many interactions” between Papa John’s employees and its franchisees belies its position that it played little or no role in franchisees’ marketing decisions. Finally, the court rejected the legal foundation for Papa John’s argument that individualized issues regarding whether recipients were charged for the text message advertisements will overwhelm common questions because the TCPA does not require plaintiffs to show that they were charged for text message advertisement sent to their cellular phones. Therefore, the Court found that the Plaintiffs had satisfied the predominance inquiry. The Court also found that the Plaintiffs had satisfied the remaining requirements of Rule 23 of the Federal Rules of Civil Procedure.
Have you received unsolicited advertisements via text message? If so, please tell us your story.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
Sears customers alleged in a class action against Sears, Roebuck and Co. that their Kenmore-brand Sears washing machines had two defects. One defect occurred in their front-loading “high efficiency” washing machines. Because of the low volume of water used in the “high efficiency” machines and the low temperature of the water compared to traditional machines, they do not clean themselves adequately and this results in a mass of microbes that form where the washing occurs, the drum, leading to mold and bad odors. The other defect stops the machine at the wrong time (the “control unit” defect). The district court denied certification of the mold class and granted certification of the “control unit” class.
The Seventh Circuit accepted the Rule 23 (f) appeals in order to clarify the concept of “predominance” under Rule 23(b) of the Federal Rules of Civil Procedure. Rule 23(b) provides that in order to maintain a class action the district court must find “that the questions of fact or law common to class members predominate over any questions affecting only individual members.” The district court denied certification of the mold class because she accepted Sears’ argument that Whirlpool (the manufacturer of the washing machines), made design modifications so that different models have different defects and therefore common questions of fact regarding the mold problem do not predominate over individual questions of fact.
The Seventh Circuit disagreed with this analysis and explained that predominance deals with the question of efficiency. The appellate court held that the basic question for the mold claim is “were the machines defective in permitting mold to accumulate and generate noxious odor?- is common to the entire mold class, although the answer may vary with the differences in design. The individual questions are the amount of damages owed particular class members.” The Seventh Circuit also held that for the “control unit” claim the principal issue is whether the control unit was defective. The court went on to explain that “[t]he only individual issues – issues found in virtually every class action in which damages are sought—concern the amount of harm to particular class members. It is more efficient for the question whether the washing machines were defective — the common question to all class members—to be resolved in a single proceeding than for it to be litigated separately in hundreds of different trials, though, were that approach taken, at some point principles of res judicata or collateral estoppel would resolve the common issue for the remaining cases.”
On July 27, 2010, plaintiff Stacey Fletcher filed a putative class action complaint alleging that the defendant IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB)(“OneWest”) mishandled her application for a mortgage loan modification pursuant to the Home Affordable Modification Program (“HAMP”). The HAMP was created by the federal government in August 2009 to combat the national foreclosure crisis. The program was designed to allow eligible homeowners who are at imminent risk of defaulting on their mortgages to save their homes by modifying the terms of their mortgage loans.
Despite the government’s noble intentions, HAMP has been largely unsuccessful. (See our March blog post describing the wave of HAMP lawsuits by homeowners against U.S. mortgage lenders and our April post on consent orders that Federal Banking Regulators issued with 14 of the nation’s largest mortgage loan servicers.)
The original complaint alleged breach of contract, promissory estoppel, and violations of the Illinois Consumer Fraud and Deceptive Business Practices (“ICFA”). Specifically, Plaintiff alleged that OneWest’s practices fell into an identifiable pattern of misconduct that is consistent across a wide range of homeowners: OneWest makes a written offer to a pre-qualified homeowner, in which it offers a permanent loan modification if the homeowner makes three monthly trial period payments and complies with OneWest’s requests for documentation. Homeowners execute and submit all of the required documents and make the trial period payments, but OneWest does not live up to its end of the bargain, failing even to respond to applicants, denying permanent modifications without justification, avoiding permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, sending out late payment letters and engaging in other evasive conduct which makes it extraordinarily difficult, if not impossible, for homeowners to obtain loan modifications to which they are entitled. OneWest also applied substantial late fees and other fees to plaintiff and other homeowner accounts and reported those loans as delinquent to credit bureaus, causing damage to their credit scores.
Judge William J. Hibbler of the United States District Court for the Northern District of Illinois originally presided over this case. On June 30, 2011, Judge Hibbler issued an Order substantially denying OneWest’s January 18, 2011 motion to dismiss and largely upheld Plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the ICFA. Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011).
On July 15, 2011, OneWest filed a motion to stay this litigation pending the U.S. Court of Appeal for the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Feb. 22, 2011). In Wigod, Judge Manning dismissed the plaintiff’s claims stemming from defendant Wells Fargo’s alleged non-compliance with HAMP. Like the Fletcher litigation, plaintiff Wigod’s class action complaint alleged violations of Illinois law under common-law contract and tort theories and under the ICFA. The district court’s reason for dismissing Wigod’s complaint was primarily that Wigod alleged Wells Fargo had violated HAMP, a federal statute which it determined did not allow for a private right of action. See Wigod v. Wells Fargo Bank, N.A., No. 10 CV 2348, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011). After the Wigod appeal, OneWest argued that a stay was warranted in the Fletcher litigation because the issues raised were virtually identical to those pending before the Seventh Circuit Court of Appeals. After opposing the motion and filing a motion for a preliminary injunction, Plaintiff consented to a stay so long as the status quo was to be maintained.
On March 7, 2012, the Seventh Circuit issued its opinion in Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714 (7th Cir. March 7, 2012). Relying in part on Judge Hibbler’s June 30, 2011 opinion denying OneWest’s motion to dismiss, the Seventh Circuit reversed the judgment of the Wigod district court on breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims. In its decision, the Seventh Circuit determined that plaintiff Wigod’s state law claims are not preempted or otherwise barred by federal law. In light of the Seventh Circuit’s decision, Plaintiff requested that the stay in this action should be lifted. The Court lifted the stay on March 15, 2012.
On April 24, 2012, Plaintiff filed an amended complaint alleging breach of contract, promissory estoppel and violations of the ICFA. On May 22, 2012, OneWest made a motion to dismiss Plaintiff’s amended complaint and to strike Fletcher’s class allegations. After full briefing and oral argument by the parties, on October 22, 2012, Judge Sharon Johnson Coleman issued a Memorandum and Order denying OneWest’s motion to dismiss and denying OneWest’s motion to strike Plaintiff’s class allegations.
In light of Judge Coleman’s decision, the case will now proceed. Abbey Spanier, LLP, is lead counsel in the Fletcher litigation. We believe that the Court’s decision is a significant victory for homeowners who have been harmed by OneWest’s improper and deceptive practices. Abbey Spanier intends to litigate this action aggressively.
If you have been harmed by OneWest’s improper practices, please tell us your story here.
Abbey Spanier located in New York City, is a well-recognized national class action and complex litigation law firm.
In Schnabel v. Trilegiant Corp., plaintiffs commenced a class action lawsuit in the United States District Court of Connecticut against defendants (Affinion Group, LLC, and its wholly owned subsidiary Trilegiant Corp.) who are in the business of marketing and selling online programs that offer discounts on goods and services in exchange for a membership fee. By paying a monthly membership fee to Trilegiant, a member is eligible to receive discounts on a wide range of products and services including dining, retail shopping, car repair, and travel.
Plaintiffs alleged that without their knowledge and consent were enrolled in one of Trilegiant’s membership programs after making online purchases on Beckett.com (a sports memorabilia website) and Priceline.com (an online travel website). Evidently, after finalizing their purchases, plaintiffs clicked on a hyperlink which invited them to receive “cash back” on their purchases. Plaintiffs alleged that they were fraudulently induced into entering the membership program when they provided their personal information and a password on a separate enrollment page (but no credit card information). Several months after unknowingly agreeing to the membership program, plaintiffs discovered on their credit card bills that they had been paying $12-$15 per month for this service.
Defendants moved to dismiss the lawsuit and also to compel arbitration pursuant to a provision that mandated binding arbitration and precluded class-wide arbitration. The arbitration provision was included in the “terms and conditions” section of a hyperlink that was available to plaintiffs when they entered their personal information and password online while enrolling in the program. After plaintiffs signed up for the membership services, defendants also e-mailed the plaintiffs a document with the terms and conditions and therefore argued that they were on notice of the arbitration clause.
On February 24, 2011, the district court (Judge Janet C. Hall) denied the motion to compel arbitration, concluding that the parties had never agreed to arbitrate. Schnabel v. Trilegiant Corp, 10–CV–957, 2011 U.S. Dist. LEXIS 18132 (D. Conn. Feb. 24, 2011). Recently, a three-judge panel of the Second Circuit (U.S. Circuit Judges Robert D. Sack, Joseph M. McLaughlin and Debra Ann Livingston) affirmed the decision of the lower Court finding that no arbitration agreement was formed. Schnabel v. Trilegiant Corp., No. 11–1311 (2d Cir., Sept. 7, 2012). A copy of the Order can be found here. The Second Circuit focused on whether defendants’ terms and conditions that were e-mailed to the plaintiffs after they had enrolled in the program, adequately put them on notice of the arbitration provision. In a detailed holding, the Court determined that the email did not provide sufficient notice to plaintiffs of the arbitration provision, and plaintiffs therefore could not have assented to it solely as a result of their failure to cancel their enrollment in defendants’ service. In his opinion Judge Sack explained,
[A] reasonable person would not be expected to connect an email that the recipient may not actually see until long after enrolling in a service (if ever) with the contractual relationship he or she may have with the service provider, especially where the enrollment required as little effort as it did for the plaintiffs here.
The plaintiffs were never put on inquiry notice of the arbitration provision, and their continued credit-card payments, which were auto-debited from their credit cards, were too passive for any reasonable fact finder to conclude that they manifested a subjective understanding of the existence of the arbitration and other emailed provisions and an intent to be bound by them in exchange for the continued benefits Great Fun offered.
In affirming the order of the District Court, the Second Circuit remanded the case for further proceedings.
As we previously explained in our May blog post, which covered the N.Y.S. Department of Financial Services Probe Into Force-Placed Insurance, in order to obtain a mortgage, lending banks usually require homeowners to maintain insurance on their property. If a homeowner fails to maintain his/her required insurance, pursuant to the terms of the mortgage agreement, the bank is entitled to forcibly place insurance on the property (i.e. purchase insurance for the home and then charge the homeowner/borrower the full cost of the premium). Numerous lawsuits have been brought by homeowners against different banks alleging that the forced placed insurance practices are unfair because their lender: (i) purchased exorbitant insurance coverage that costs far greater than the homeowner’s previous coverage; (ii) received commissions or kick-backs from the insurer for the forced-placed coverage; (iii) billed homeowners for additional coverage that was not required under their mortgage agreement; and (iv) allowed the homeowner’s existing coverage to lapse without providing notice that it would purchase force-placed insurance.
Last month, U.S. District Judge Jan E. Dubois of the Eastern District of Pennsylvania denied in part defendants HSBC Mortgage Corporation and HSBC Mortgage Service, Inc.’s motion to dismiss a class action lawsuit involving force-placed insurance. A copy of the decision can be found here.
In the HSBC litigation, a married couple living in Pennsylvania brought a class action lawsuit against the defendants alleging that the premiums on their force-placed insurance policies were unreasonably high and that defendants profited unlawfully by accepting kickbacks from insurers and purchasing unnecessary insurance policies. Plaintiffs asserted claims for breach of contract, unjust enrichment, and violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.
In her decision, Judge Dubois tossed plaintiffs’ unjust enrichment and unfair trade practices claims but determined that plaintiffs had alleged sufficient facts to state a claim for breach of the implied covenant of good faith and fair dealing. The Court explained that:
“The purpose of a force-placement clause is to protect the lender’s interest in the property securing the mortgage loan. Plaintiffs allege a scheme whereby HSBC Mortgage used its power to force-place insurance on the property to gain additional profits at plaintiffs’ expense rather than using such power simply to protect its interest in the property. While section five of the mortgage contract did not require HSBC Mortgage to obtain the cheapest or most cost-effective insurance available, it was not entitled to use its discretion to obtain secret kickbacks on policies or charge plaintiffs for insurance covering periods of time that had passed without damage occurring to the property. Such behavior contravened plaintiffs’ reasonable expectations. For this reason, courts around the country have held in cases with almost identical facts that plaintiffs stated a claim for breach of the covenant of good faith and fair dealing. See, e.g., Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2012 WL 2003337 (S.D. Fla. June 4, 2012); McNeary-Calloway v. JP Morgan Chase Bank, N.A., No. C-11-03058 JCS, 2012 WL 1029502 (N.D. Cal. Mar. 26, 2012); Williams v. Wells Fargo Bank N.A., No. 11-21233, 2011 WL 4901346 (S.D. Fla. Oct. 14, 2011); Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273 (S.D. Fla. 2009).”
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm. If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.
We have an update to our May blog post regarding The New York State Department of Financial Services (“DFS”) probe into the “force-placed insurance” industry. After holding several days of public hearings the DFS determined that numerous insurers have been overcharging New York homeowners by millions of dollars for “forced-placed insurance.” As a result of the investigation and hearings, last month Governor Andrew M. Cuomo announced that the DFS had ordered insurers offering force-placed insurance in New York to submit proposals for new premium rates. The order was sent to American Security Insurance Company (Assurant), QBE Insurance Corporation, and American Modern Home Insurance Company, which together make up more than 90 percent of the force-placed insurance market in New York.
In a June press release, Governor Cuomo stated, “These hearings indicate the possibility that the rates are too high, and for this reason DFS has ordered insurance companies to submit new rates, which could result in savings for homeowners. It’s our job to see that rates are priced fairly and homeowners are protected from paying more than what is fair.” DFS Superintendent Benjamin M. Lawsky also commented in the press release and said, “Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners. Based on what we learned at the hearings, it is now appropriate for insurers to propose new rates along with justifications for those new rates.”
According to a July 3, 2012 Circular Letter issued by DFS Superintendent Benjamin M. Lawsky, “The Department’s investigation has raised questions and concerns regarding the rates force-placed insurers currently have on file with the Department, including whether the information provided in support of such rate filings was accurate. The loss ratios (i.e., the percentage of premiums paid on claims) insurers have actually experienced for force-placed insurance have regularly been far below the expected loss ratios insurers filed with the Department. The Department’s investigation suggests that insurers’ rates for force-placed insurance may be excessive and destructive of competition.” All insurers authorized to write force-placed insurance in New York are required to propose and justify their amended rates to the DFS by July 24, 2012.
In related news, several weeks after the May hearings, Democratic New York Assemblywoman Barbara Clark introduced NY Assembly Bill 10490 that would among other things, (i) bar mortgage servicers from receiving “kickbacks” for providing force-placed insurance business; (ii) prohibit mortgage servicers from taking out force-placed insurance that costs more than the last known coverage amount or more than the outstanding loan balance; and (iii) ensure that homeowners are put on adequate notice before mortgage servicers “force place” insurance. A copy of NY Assembly Bill 10490 can be found here.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm. If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.
In the guise of providing convenience to America’s college students, certain financial institutions have teamed up with almost 900 college campuses nationwide to link students’ national financial aid funds to debit cards. While these debit cards purportedly seem to make it easier for college students to access these funds, the students are unaware that these debit cards incur massive fees which are being deducted from their student aid amounts.
The Campus Debit Card Trap, a recent report released by the U.S Public Interest Research Group (“PRIG”) Education Fund, found that banks and financial firms now control or influence federal financial aid disbursements to over 9 millions students by linking checking accounts and prepaid debit cards to college student IDs. As a result, students are moving away from receiving their student aid funds by check and end up paying big fees on their student aid, including per-swipe fees of $0.50, inactivity fees of $10 or more after 6 months, and overdraft fees of up to $38 and more. “Campus id cards are wolves in sheep’s clothing,” observed Rich Williams, US PIRG Higher Education Advocate and report co-author. “Students think they can access their dollars freely, but instead their aid is being eaten up in fees.”
Since a lot of schools have experienced major cutbacks in state funding, the arrangement between the schools and the financial institutions bring in much needed money. These arrangements can also help a school reduce the cost of distributing financial aid to students by outsourcing that service. But these arrangements are not always in the best interests of the students. The biggest firm in the business, Higher One, makes 80% of its revenues from siphoning fees from student aid disbursement cards, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings. In addition, according to the PIRG report, Huntington Bank paid $25 million to co-brand and link their checking accounts with Ohio State University student IDs. Other schools receive substantial payouts, revenue sharing deals, and large reductions in administrative costs.
Most egregious however, is that these deals, many of which are not publicly disclosed, often provide the students with little to no choice to participate, leaving them deeper in debt. The PIRG report found that financial institutions are aggressively marketing or defaulting students into their bank accounts to maximize these fees. Although students can opt of these programs and choose direct deposit or paper checks to receive their aid money, few do because these financial institutions make it incredibly burdensome to do so. For example, Higher One warns students that it will take extra days if they opt-out of the debit card option.
Do you believe that your school has an exclusive partnership with one of these financial institutions? Tell us your story!
In October 2011, The New York State Department of Financial Services (“DFS”), which supervises both the insurance and banking industry, commenced an investigation into “force-placed insurance.” That investigation has recently intensified with several days of public hearings.
In order to obtain a mortgage, lending banks usually require homeowners to maintain insurance on their property. If a homeowner fails to maintain his/her required insurance, pursuant to the terms of the mortgage agreement, the bank is entitled to forcibly place insurance on the property (i.e. purchase insurance for the home and then charge the homeowner/borrower the full cost of the premium). Several lawsuits (see our blog post here) have been brought by homeowners against certain banks alleging that the forced placed insurance practices are unfair because their lender: (i) purchased exorbitant insurance coverage that costs far greater than the homeowner’s previous coverage; (ii) received commissions or kick-backs from the insurer for the forced-placed coverage; (iii) billed homeowners for additional coverage that was not required under their mortgage agreement; and (iv) allowed the homeowner’s existing coverage to lapse without providing notice that it would purchase force-placed insurance.
Last week, on May 17, 2012, the DFS commenced public hearings to “review whether rates for force-placed insurance are appropriate or excessive and to examine the relationships between and payments to and from insurers, banks, mortgage servicers and insurance agents and brokers.” Prior to the hearings, the DFS sent formal document requests, issued under Section 308 of the Insurance Law to 15 financial services companies and directed them to provide written and oral testimony and answer specific questions regarding forced-placed insurance practices. These firms included Balboa Insurance Company, QBE Insurance Corporation, QBE Financial Institution Risk Services, Inc., American Security Insurance Company (Assurant), American Bankers Insurance Company of Florida (Assurant), Meritplan Insurance Company, American Modern Home Insurance Company, Empire Fire and Marine Insurance Company, and Fidelity and Deposit Company of Maryland.
In a recent press release Benjamin M. Lawsky, Superintendent of the Department of Financial Services stated, “The object of these hearings will be to probe all the inner workings of this important industry and examine its impact on homeowners and investors. We will use the information gathered at the hearings to determine whether force-placed insurance rates are justified or need correction. We are looking into all aspects of this industry, and will take whatever action is necessary to root out any misconduct and to make sure that homeowners and investors are treated fairly.”
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm. If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.
Plaintiffs filed a class action against Apple Inc. on behalf of parents who downloaded or permitted their minor children to download a supposedly free app from Apple and then incurred charges for game-related purchases made by their children without their parents’ knowledge or permission. In re Apple In-App Purchase Litig., 5:11-cv-1758 (N.D. Cal.). According to the complaint, the children were able to purchase game currencies, which are virtual objects that are used when playing certain games, without their parents’ authorization. These apps were provided by Apple and advertised as free. Until early 2011, Apple required users to authenticate their accounts by entering a password before purchasing or downloading an app or buying game currency. However, once the password was entered, Apple allowed buyers to buy game currencies for up to 15 minutes without re-entering the password. During this 15 minute window, the children were able to charge their parents’ accounts in amounts ranging from $99.99 to $338.72.
Plaintiffs alleged violations of the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq., California’s Unfair Competition Law (“UCL”), Cal. Bus. Prof. Code. § 17200 et seq., breach of implied covenant of good faith and fair dealing, restitution, unjust enrichment, money had and received, and plaintiffs also sought a declaratory judgment. On March 31, 2012, the district court denied the motion to dismiss against all the claims, except for the claim for breach of implied covenant of good faith, but did provide plaintiffs with leave to amend their complaint. Plaintiffs made the interesting argument that each app purchase was a separate and voidable contract between Apple and the plaintiffs’ children, which could be disaffirmed by a parent. Apple countered that the contractual relationship was based on the original Terms & Conditions signed by the plaintiffs. Therefore, the individual purchases were not voidable. The district court rejected Apple’s argument and noted that on a motion to dismiss the court must construe the complaint in the light most favorable to the plaintiffs and resolve any ambiguity in their favor.
In our July 2011 blog post, we reported about Judge William J. Hibbler’s decision to deny IndyMac Mortgage Servicers, FSB’s (a division of OneWest Bank, FSB) motion to dismiss a class action lawsuit related to its failure to comply with guidelines established by the Home Affordable Modification Program (“HAMP”). See Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011)(order denying OneWest’s motion to dismiss plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”)). Abbey Spanier is lead counsel in the Fletcher litigation.
On July 15, 2011, OneWest filed a motion to stay the Fletcher litigation pending the U.S. Court of Appeal for the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Feb. 22, 2011). In Wigod, Judge Manning dismissed the plaintiff’s claims stemming from defendant Wells Fargo’s alleged non-compliance with HAMP. Like the Fletcher litigation, plaintiff Wigod’s class action complaint alleged violations of Illinois law under common-law contract and tort theories and under the ICFA. The district court’s reason for dismissing Wigod’s complaint was primarily that Wigod alleged Wells Fargo had violated HAMP, a federal statute which it determined did not allow for a private right of action. See Wigod v. Wells Fargo Bank, N.A., No. 10 CV 2348, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011). After the Wigod appeal, OneWest argued that a stay was warranted in the Fletcher litigation because the issues raised were virtually identical to those pending before the Seventh Circuit Court of Appeals. During a status hearing with the Court, plaintiff consented to OneWest’s motion for a stay so long as the status quo was to be maintained.
On March 7, 2012, the Seventh Circuit issued its opinion in Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714 (7th Cir. March 7, 2012), a copy of which is located here. Relying in part on Judge Hibbler’s June 30, 2011 opinion denying OneWest’s motion to dismiss, the Seventh Circuit reversed the judgment of the Wigod district court on breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims. In its decision, the Seventh Circuit determined that plaintiff Wigod’s state law claims are not preempted or otherwise barred by federal law.
In light of the Seventh Circuit’s decision reversing the district court’s decision in Wigod, the Court has lifted the stay in the Fletcher litigation and the case will now proceed. Abbey Spanier intends to aggressively litigate the Fletcher action and seek compensation for homeowners who have been harmed by OneWest’s deceptive practices. If you have been harmed by OneWest’s improper practices, please tell us your story here.
In related news, on March 26, 2012, Judge Hibbler unexpectedly passed away at the age of 65. Abbey Spanier passes along its sincere condolences to Judge Hibbler’s family, friends and colleagues at the Northern District.
On February 3, 2012, another court distinguished the Supreme Court’s holding in Wal-Mart Stores, Inc. v Dukes, 131 S. Ct.2541 (2011). In Johns v. Bayer Corp. et al., 2012 WL 368032 (S.D. Cal.) the District Court for the Southern District of California certified a class a class of consumers who purchased bottles of Bayer’s “Men’s 50+ Advantage” and “Men’s Health Formula” vitamins in California. The product’s packaging claimed that taking the vitamins each day would “support prostate help.” The plaintiffs alleged that the statement was not based on scientific evidence and that the statement violated the state’s Unfair Competition Law and Consumers Legal Remedies Act.
The Court considered class certification under Rule 23(a) and (b) of the Federal Rules of Civil Procedure. It took only a few short paragraphs for the Court to determine that plaintiffs had satisfied Rule 23(a)’s numerosity, commonality, typicality and adequacy requirements. As to the typicality and adequacy requirements, the Court held that plaintiffs satisfied requirements of Rule 23(a) because the Men’s Vitamin packages purchased by plaintiffs and class members all prominently and repeatedly featured the
identical prostate health claims and thus plaintiffs and the class were all exposed to the
same misrepresentations on the packages and advertisements
The Court then turned its attention to the central issue in the case: whether the plaintiffs had met the requirements of Rule 23(b)(3), which requires that “questions of law or fact common to class members predominate over any questions affected only individual class members” and that a class action is the best method for adjudicating the dispute. Bayer argued that the class should not be certified because individual questions predominated over questions that were common to the class. It argued that individual claims would differ according to plaintiffs’ actual reliance on the prostate-health statement, the statement’s materiality and timing, and the amount of damages suffered.
The Court noted that class-action suits play an important role in enforcing California’s consumer protection laws, and that the laws “take an objective approach of the reasonable consumer” rather than focusing on “the particular consumer.” Citing Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008). Since each member of the class had purchased the vitamins and had been exposed to the packaging, the common question in the case was whether a reasonable consumer would have been misled by Bayer’s packaging—not whether the particular individual plaintiffs had been misled.
As to the second prong of Rule 23(b)(3), the Court held that a class-action suit would be
the most efficient means to adjudicate the plaintiffs’ claims of false and misleading advertising, particularly where the damages suffered by each plaintiff were small. Finally, the Court rejected Bayer’s argument that the Supreme Court’s holding in Wal-Mart v. Dukes barred certification because Bayer would be deprived of the opportunity to raise defenses to individuals’ claims. See 131 S. Ct. 2541 (2011). Bayer had made the same argument in the Northern District of Ohio in Godec v. Bayer Corp. in a case involving similar claims. See 2011 WL 5513202 (2011). The California Court borrowed the Ohio court’s reasoning and stated that “to the extent Bayer has individualized defenses, it is free to try those defenses against individual claimants” and therefore held that Dukes did not bar class certification. Quoting Godec, 2011 WL 5513202, at *7.
Nicholas Turner is a third year law student at New York Law School. He is a Notes & Comments editor of Law Review and a John Marshall Harlan Scholar. Mr. Turner came in second in the 2011 ABA Torts, Insurance, and Compensation Law Section Writing contest. He was a 2011 Review Editor of the school’s Global Human Rights Bulletin. Mr. Turner is proficient in French.
In April 2011, several homeowners brought a class action lawsuit against Wells Fargo Bank and QBE Specialty Insurance Co. involving “force-placed insurance.” According to the complaint, all homeowners who have mortgages with defendant Wells Fargo are required to maintain insurance on their property. If a homeowner fails to maintain his/her required insurance, Wells Fargo is entitled to forcibly place insurance on the property (i.e. purchase insurance for the home and then charge the borrower the full cost of the premium). The complaint alleges that defendants Wells Fargo Bank and QBE colluded in a scheme to artificially inflate the premiums charged to homeowners for force-placed insurance on property, after the homeowners self-placed insurance policies had lapsed. Specifically, plaintiffs assert that the premiums charged on the force-placed loans are not the actual amount that Wells Fargo pays, because a substantial portion of the premiums are refunded by defendant QBE to Wells Fargo through various kickbacks and/or unwarranted commissions.
On October 3, 2011, U.S. District Judge Cecilia M. Altonga denied defendant QBE’s motion to dismiss plaintiffs’ complaint.
Last week, U.S. District Judge Robert N. Scola, Jr. (Judge Altonga was replaced from the case in November) granted plaintiffs’ request for class certification. See Williams et al. v. Wells Fargo Financial et al., 2012 U.S. Dist. LEXIS 20930 (S.D. Fla. Feb. 21, 2012). Judge Scola issued an order certifying a class of:
All borrowers that had mortgages with and/or serviced by Wells Fargo Bank, on property located within the State of Florida, that were charged, and who either paid or who still owe, premiums for a force-placed insurance policy within the applicable statute of limitations through April 7, 2011 (“the Class Period”), unless (1) the lender has obtained a foreclosure judgment against the borrower; (2) the borrower has entered into a short-sale agreement with the lender; (3) the borrower has granted a deed in lieu of foreclosure to the lender; (4) the borrower has entered into a loan modification agreement with the lender; (5) the borrower has filed a claim for damages which has been paid in full or part by the force-placed insurer; or, (6) the cost of force-placed insurance was canceled out in full.
Noteworthy, in addressing whether plaintiffs had sufficiently satisfied the commonality requirement of Federal Rule of Civil Procedure 23(a)(2), Judge Scola distinguished this case from Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011):
This case is distinguishable from the factual scenario that the Supreme Court addressed in Dukes where even if the plaintiffs were able to prove that Wal-Mart’s policy had a disparate impact on female employees, each individual plaintiff-employee would still need to establish that she suffered an adverse employment action as a result of that discriminatory policy. See Dukes, 131 S. Ct. at 2552. Here, the ultimate question of liability is whether the force-placed insurance premiums charged to homeowners were unlawfully inflated and excessive. If they were, that same answer will apply to every plaintiff in the class. There will not be a secondary factual inquiry required, as was the case in Dukes. Any distinctions between class-members with respect to theories of liability, as argued by Wells Fargo and QBE, could be adequately addressed through the use of discrete subclasses, if necessary at all. Accordingly, the Plaintiffs have established that there are questions of law or fact common to the class.
In his decision, Judge Scola also recognized the importance of brining this suit as a class action. The Court observed that, “Since the damage amounts allegedly owed to each individual defendant are relatively low – especially as compared to the costs of prosecuting the types of claims in this case involving complex, multi-level business transactions between sophisticated Defendants – the economic reality is that many of the class members would never be able to prosecute their claims through individual lawsuits.”
The National Labor Relation Board’s (NLRB) recent ruling in D.R. Horton Inc. answered an important question presented by the U.S. Supreme Court’s ruling last Spring in AT&T Mobility LLC v. Concepcion: does federal policy favoring arbitration apply equally in the consumer and employment contexts?
The NLRB’s response was an emphatic “no,” largely agreeing with arguments advanced by dozens of organizations, including the National Employment Lawyers Association (NELA), dedicated to representing individuals who often cannot safeguard their fundamental labor protections in the workplace without class or collective actions.
Although Concepcion arose in the consumer context, some have construed the Supreme Court’s ruling broadly as stating the Court’s approval of forced arbitration provisions in other contexts, including the employment context. Indeed, the Arbitration Fairness Act, which was first proposed in 2009, was reintroduced in response to the Concepcion ruling and, if passed, will eliminate forced arbitration clauses in consumer, employment and civil rights contexts. As we wrote here last year, Abbey Spanier, LLP supports this legislation.
The particular contractual provision at issue in D.R. Horton required plaintiff and other D.R. Horton Inc. employees to agree, as a condition of employment, that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial. Although the general intent of the Federal Arbitration Act (FAA) manifests a liberal federal policy favoring arbitration agreements, the NLRB found that such a provision runs afoul of the National Labor Relations Act (NLRA).
The NLRA is a 1935 United States federal law that limits the means with which employers may react to workers in the private sector who create labor unions, engage in collective bargaining and take part in strikes and other forms of concerted activity in support of their demands. The NLRA does not apply to workers who are covered by the Railway Labor Act, agricultural employees, domestic employees, supervisors, federal, state or local government workers, independent contractors and some close relatives of individual employers.
In ruling against D.R. Horton Inc., the NLRB concluded that “employees who join together to bring employment-related claims on a class-wide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA,” which provides employees with the right “to engage in… concerted activities for the purpose of collective bargaining or other mutual aid or protection” (29 U.S.C. § 157) and that such “forms of collective efforts to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7.” Slip Op., p.3.
Likewise, the NLRB found that the prohibition of individual agreements imposed on employees as a means of requiring that they waive their right to engage in protected, concerted activity lies at the core of the prohibitions contained in Section 8, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise” of such right (29 U.S.C. § 158(a)(1)). Slip Op., p.5.
The NLRB decision provides a lengthy discussion of the FAA and the Supreme Court precedent, including Concepcion, which you can read in full here, but explains why D.R. Horton seems to diverge as follows: it “rests not on any conflict between an agreement to arbitrate and the NLRA, but rather solely on the conflict between the compelled waiver of the right to act collectively in any forum in an effort vindicate work-place rights and the NLRA.” Slip Op., p.13.
The NLRB got it right and, in our view, restored some order to a corner of jurisprudence cast into disarray Concepcion. To have reached any other result, as the U.S. Supreme Court has recognized, “could frustrate the policy of the [NLRA] to protect the right of workers to act together to better their working conditions.” Eastex, Inc. v. NLRB, 437 U.S. 556, 567 (1978).
Anyone who has shopped for concert tickets online knows the feeling. The convenience fees, order processing fees, and shipping fees added to the ticket price make going to concerts an expensive proposition these days, especially as more traditional box office services fall by the wayside. One show I looked at recently would have cost me $36 for a ticket and $10.70 in “convenience fees.” That’s nearly a 30% upcharge compared to going to the box office!
It is somewhat satisfying, then, that I received an email a week ago letting me know that I was a member of a class who had allegedly been charged “order processing fees” that exceeded Ticketmaster’s costs in processing those orders, and notifying me of an impending settlement in my favor. Being curious as to what actually happened, I decided to do some research and find out what really happened in Schlesinger v. Ticketmaster.
Looking at some of the deposition statements quoted in various motion documents, there are some interesting tidbits to be found here. When the suit began, Ticketmaster’s FAQ claimed that “the order processing fee covers the cost to fulfill your ticket request when you purchase the tickets online or by phone.” During depositions, however, Ticketmaster employees admitted that the fee was not related to the cost to process tickets. Furthermore, a Ticketmaster employee testified that senior management felt that Ticketmaster was “greatly overcharging the consumer” for high-speed UPS delivery service. Apparently, while Ticketmaster represented to consumers that they were merely passing through the costs of expedited UPS shipping, in fact they were making a profit on the “shipping charge.”
This is exactly the sort of widespread harm that consumer class actions are designed to protect against. These overcharges were small amounts individually, but aggregated over the 12-year class period would have provided Ticketmaster with a significant windfall.
Certainly, Ticketmaster is allowed to make a profit from selling tickets via convenience fees, and they are also allowed to charge for expedited shipping services. However, California consumer protection laws barred them from making misleading claims about what those convenience fees covered, and from representing shipping fees as a mere “pass-through” of costs when they were profiting from those fees. Thus, it was not the fees themselves that opened Ticketmaster to class action liability; it was how Ticketmaster portrayed those fees, misleading consumers as to where their money was actually going.
The Ticketmaster class action settlement includes all U.S. residents who purchased tickets on Ticketmaster.com between October 21, 1999 and October 19, 2011 and paid money to Ticketmaster for an Order Processing Fee that was not refunded. It also includes a subclass of all Class Members who paid a delivery price for expedited delivery for their tickets via UPS.
All Class Members will automatically receive these benefits from the Ticketmaster fee class action settlement via email at the addresses associated with their Ticketmaster account if the settlement is approved at the May 29, 2012 Final Approval Hearing.
Some argue that the settlement is good for Ticketmaster only. However without this case Ticketmaster would have continued to rip off customers by charging and misrepresenting convenience fees. Class actions are the only mechanism through which this kind of wrong can be dealt with. The plaintiffs’ lawyers spent 12 years litigating this case without getting paid. No lawyer would take on a case where the damage to the individual plaintiff is $4.00.
What does all this mean? Well, sadly, after this we’re still going to have to deal with online convenience fees. But, we’ll be better-informed as to exactly how much money is going where.
Joshua Druckerman is a music enthusiast and a second year student at New York Law School. He is also a member of the Law Review.
In Feeney v. Dell, we spotted a ray of hope piercing the clouds of the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion.
In Concepcion, the Supreme Court struck a significant blow against the rights of consumers by allowing a corporation to waive class action liability by merely inserting an arbitration clause with a class action waiver into any consumer contract. We have written extensively on this topic, the damage it does to your rights, and how it harms individual protections against widespread abuse.
In Feeney v. Dell, the Massachusetts Superior Court determined that Concepcion did not govern and ruled that the class action waiver was unenforceable because it would not have been feasible for the consumer to pursue his claim on an individual basis.
Now, in Feeney v. Dell, it appears that the Massachusetts Superior Court has found a chink in Concepcion‘s armor by:
1.) Limiting Concepcion‘s holding to cases in which an arbitration provision is so “consumer-friendly” that individual arbitration would give plaintiffs better results than if they sued as a class.
2.) Finding that arbitration clauses that serve only to waive class action liability are unconscionable in situations where a class action is necessary for a consumer to receive a fair and just disposition of their claims.
In Feeney, Dell had collected sales tax on computer service contracts in contravention of Massachusetts law, charging named plaintiffs Mr. Feeney and Dedham Health $13.65 and $215.55, respectively. These claims would be far too small to pursue individually. The arbitration provision in Dell’s contracts barred class actions.
In Concepcion, the Supreme Court found, among other things, that AT&T’s arbitration provision was very consumer-friendly, with clauses designed to keep the process simple and cover a plaintiff’s expenses.
On the other hand, Dell’s arbitration provision forced any and all claims to be arbitrated individually but provided no benefit to consumers for doing so. Because it served solely as a prohibition upon class actions and was not consumer-friendly, the Superior Court found that the Dell provision did not provide a “meaningful arbitration process” and was “infeasible as a matter of fact.” Thus, finding Dell’s provision to be unconscionable did not conflict with Concepcion, since any interest the Supreme Court might have had in promoting arbitration as an alternative to class action required that there be a “meaningful arbitration process in the first place.”
Additionally, the Superior Court noted that Concepcion focused solely on the issue of whether states should be able to allow class actions “when [class actions] are not necessary to ensure that the parties . . . are able to vindicate their claims.” In contrast, in Feeney, class procedures were necessary to vindicate the plaintiffs’ claims. Forcing them to litigate or arbitrate individually would be cost-prohibitive and effectively “kill” the lawsuit. This doctrinal distinction allowed the court to find Dell’s provision unconscionable while not contradicting Concepcion.
This narrow reading of Concepcion is very good for consumer’s rights, as Feeney allows consumer class actions to work as they were intended: to protect individuals who have been wronged against widespread corporate abuse or wrongdoing. Hopefully, this will become part of a trend!
This decision is already in the process of being appealed, so we will keep you posted as to any future developments.
Joshua Druckerman is a second year law student at New York Law School. He is a member of Law Review.
When large class actions are settled, money often remains in the settlement fund even after one or more distributions to class members because some class members either cannot be located or decline to file a claim. Courts and/or the parties agree to dispose of these unclaimed funds by making what are known as cy pres distributions. The purpose of cy pres distributions is to put the unclaimed fund to its next best compensation use, e.g., for the aggregate indirect, prospective benefit of the class. See Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007) (quoting 2 HERBERT B. NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS § 10:17 (4th ed. 2002)).
Recently, in Klier v. Elf Atochem North America, Inc., 658 F.3d 468, 2011 U.S App. LEXIS 19650, at *1-2 (5th Cir. 2011y, in Klier v. Elf Atochem North America, Inc., 658 F.3d 468, 2011 U.S App. LEXIS 19650, at *1-2 (5th Cir. 2011),the Fifth Circuit reversed the district court’s cy pres distribution to three charities suggested by the defendants and one selected by the court. The Klier settlement fund had been allocated among three subclasses, one of which received medical monitoring. Upon completion of the monitoring program, substantial sums remained unused. The Protocol for Distribution of Settlement Fund drafted by the parties provided for the reallocation of available funds among the subclasses if considerations of equity and fairneess required reallocation.The district court denied the settlement administrator’s request to distribute the unused funds to another subclass of persons who suffered serious injuries. Id. at *2.
Underlying the Court’s decision was the principle that each class member has a constitutionally recognized property right in her claims, and that the settlement fund proceeds (having been generated by the value of those claims)belonged solely to the class members. 2011 U.S. App. LEXIS 19650, at *12. Because the settlement funds were the property of the class, a cy pres distribution to a third party is permissible “only when it is not feasible to make further distributions to class members.” Id. at *12-13. Because the feasibility of distribution to other class members was undisputed, the Fifth Circuit found that the district court abused its discretion by ordering a cy pres distribution rather than a re-distribution of the unused settlement funds to members of another of the subclasses.
While there is nothing about this decision that is surprising, the concurring opinion by Chief Judge Edith H. Jones seems to diverges from the general practice. Chief Judge Jones suggests that if the defendant had not waived its right to request a refund, it would have been entitled to the excess in the event the funds were not distributed to other class members. 2011 U.S. App. LEXIS 19650, at *30. Although she recognized that the constitutionality of cy pres distributions was not presented to the Court, Chief Judge Jones said that in the “ordinary case, to the extent that something must be done with unclaimed funds, the superior approach is to return leftover settlement funds to the defendant because any other use of the funds would result in charging the defendant an amount greater than the harm it bargained to settle.” Id. at *35. This is the first time we have seen this theory espoused by a court.
California’s Consumer Legal Remedies Act (“CLRA”) is often depended upon by plaintiffs’ counsel in consumer actions. But recently, Judge Anthony J. Battaglia of the Southern District of California, granted Apple’s motion to dismiss a claim brought pursuant to California’s Consumer Legal Remedies Act (“CLRA”) and several other statutes, relating to Apple’s iOS 4.0 software upgrade for the iphone 3G and 3GS.
In their class action complaint, the plaintiffs alleged that Apple “violated the CLRA by fraudulently inducing Plaintiffs into downloading and installing iOS4 on their Third Generation iPhone devices knowing that the free upgrade would impair the functionality of their iPhone applications reliant upon AT&T’s data network.” The Plaintiffs alleged that the “upgrade” turned their phones into “virtually useless iBricks.”
Judge Battaglia dismissed the Plaintiffs’ CLRA claim on three grounds. First, he held that, because the software upgrade was free, it was not a “sale or lease” within the meaning of the CLRA. The court also noted that, “Although the CLRA does not require an enforceable contract between the consumer and the defendant . . . the transaction must result or be intended to result in the ‘sale or lease’ of goods or services to a consumer.”
The court also held that the purchase of the iphone was a separate transaction from the free software “upgrade” because the upgrade occurred about a year later.
The court also noted that the CLRA limits the definition of covered “goods” to “tangible chattels,” thus excluding software from its purview.
Finally, Judge Battaglia also found that provision of software is not a “service” for purposes of the CLRA “because software does not fit into the narrow definition of ‘service’ provided in Civil Code § 1761(b), defining service as “work, labor, and services . . ., including services furnished in connection with the sale or repair of goods.”
The plaintiffs also brought claims for violation of California’s unfair competition law (Bus & Prof. Code §17200 et seq), tortious interference with contract, breach of implied contract, and requested and injunction. The court dismissed each of these claims, as well as the CLRA claim, without leave to amend.
This case is interesting in the way it treats software under the CLRA. We will be watching out for subsequent cases on this subject.
Last week, in Sanchez v. Valencia Holding Company, LLC (“Sanchez”), the California Court of Appeal let a car buyer’s class action proceed, despite the fact that the sales contract he signed contained an arbitration clause with a class action waiver. The trial court decided that the class action waiver was unenforceable because a consumer is statutorily entitled to bring a class action under California’s Consumer Legal Remedies Act (“CLRA”) which expressly provides that the right to a class action is unwaivable. The arbitration provision in the car buyer’s sales contract said that if the class action waiver was declared unenforceable, the whole arbitration provision was unenforceable(referred to by the appellate court as a “poison pill”). As a result, the trial court denied the car dealer’s motion to compel arbitration.
The fact that the car dealer appealed was not much of a surprise. Sanchez affirmed the trial court’s decision to let the case proceed as a class action, but for a different reason. It deemed the arbitration clause “unconscionable” as a matter of law, labeling the clause procedurally “adhesive-involving oppression and surprise due to unequal bargaining power”, and said the contract was substantively unconscionable because it contained “harsh one-sided terms that favor the car dealer to the detriment of the buyer.” Under the California Civil Code, a court can refuse to enforce an unconscionable clause in a contract. As the California Supreme Court observed in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, the U.S. Supreme Court has recognized that unconscionability can be the reason to invalidate arbitration agreements, too. Under Armendariz, both procedural and substantive unconscionability must be established to invalidate the offending provision, though they do not have to be present in the same degree. Sanchez observed that Concepcion does not preclude the Armendariz principles from being applied to determine the unconscionability of an arbitration provision.
In his papers opposing the dealer’s motion to compel, plaintiff Sanchez said, among other things, that when he signed his purchase documents, he was presented with a stack of papers with writing on both sides of the pre-printed forms but wasn’t given an opportunity to read or negotiate the terms. He was unaware of the existence of the arbitration clause (and no one explained what an arbitration clause was) which was on the back side of the purchase contract, rather than on a page he had to sign.
Sanchez found 4 clauses unconscionable because of the harsh burden placed on the car buyer: 1) that a party who loses before the arbitrator may appeal if the award exceeds $100,000; 2) that an appeal is permitted if the award includes injunctive relief; 3) that the appealing party must pay certain fees and costs in advance; and 4) repossession, perhaps the most significant remedy to the dealer, is exempted from the arbitration provision, whereas no buyer’s remedy is exempt.
Sanchez determined that the offending language so permeated the arbitration provision, it could not be severed and that, regardless of the validity of the class action waiver, the lower court correctly declined to compel arbitration. The appellate court determined Concepcion to be inapplicable because Sanchez “did not concern a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purpose of the Federal Arbitration Act.”
Based on the Sanchez reasoning, you’d think virtually every consumer contract would be deemed unconscionable. Aren’t all the arbitration clauses in consumer contracts by auto dealers, phone companies, etc. one-sided provisions that favor the sellers? Just show me one that’s even-handed. And since when is the bargaining power even?
It will be interesting to see whether other courts follow Sanchez. We’ll continue to report on the development of post-Concepcion law.
Several weeks ago, Bank of America announced its plan to charge customers a $5 monthly fee for using their debit card. This move has angered customers and the Consumers Union, the public policy and advocacy division of Consumer Reports. The Consumers Union called on Congress and federal regulators to investigate the fee and noted that this new fee could cost customers on average an extra $60 per year at a time when families are hard pressed to pay additional charges.
Bank of America has tried to justify the fee by arguing that under the old rules, debit card fees typically amounted to 44 cents per transaction, but under the new rules (that went into effect on October 1st) fees are capped at 24 cents per transaction. On average, a consumer has 25 debit card transactions per month and if you multiply the 20 cents by 25 you get $5.
Many commentators are opposed to Bank of America’s monthly debit charge. In a recent New York Times op-ed article “Charging For Debit Cards Is Robbery” the bank’s statements were described as “simplistic statements [that] are merely an attempt to rationalize and obfuscate one of the largest illegal transfers of wealth from consumers to banks in American history.” The article pointed out that debit cards were developed by banks to replace paper checks and when a consumer uses a debit card, instead of a check, a bank saves money. According to the article, in the 1980s, Visa calculated the savings at 55 cents – $1.60 per check and today the savings are much higher. The Consumers Union wrote to Senators Johnson and Shelby that the “fee appears to be unreasonable and unrelated to the actual cost of processing debit card transactions.”
Do you think Bank of America has made its case for charging this fee or will it lose many of its customers to other banks?
Abbey Spanier, LLP is located in New York City, is a well recognized national class action and complex litigation law firm.
There has been an abundance of coverage regarding the April 27, 2011 decision by the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, et ux. In a divided opinion, the Supreme Court held that class action waivers in consumer contracts are enforceable under the Federal Arbitration Act. The decision was a major victory for corporations and a blow to the rights of consumers. In essence, the Concepcion ruling allows companies to force consumers to sign contracts that require disputes to proceed in arbitration but prohibits them from banding together in court through a class action lawsuit or class-wide arbitration.
Many lawyers and commentators have agued that Concepcion spelled the death-knell for consumer and employment class actions. Despite this commentary, during the last six months numerous federal and state courts have wrestled with the applicability of the Concepcion decision. See attached link to a “Concepcion Scorecard.”
Back in May, we reported that in response to Concepcion, Senators Al Franken (D-Minn.), Richard Blumenthal (D-Conn.), and Rep. Hank Johnson (D-Ga.) got together and introduced the Arbitration Fairness Act of 2011 (S. 987 and H.R. 1873). The proposed legislation would eliminate forced arbitration clauses in consumer, employment and civil rights cases and would permit consumers and employees to choose arbitration after a dispute has occurred.
Sens. Franken and Blumenthal must be working some serious overtime because we have more positive legislative news to report for consumers. On October 4, 2011, Sens. Franken and Blumenthal introduced the Consumer Mobile Fairness Act, designed to ban mandatory arbitration clauses in cellphone and mobile data service contracts. A copy of the text of the Bill can be found here. Sens. Blumenthal and Franken explained in a press release that the purpose of the new legislation is “an effort to remedy the Supreme Court’s decision to uphold the use of mandatory arbitration clauses by allowing for litigation when mediation and arbitration offer inadequate protection. These clauses are particularly inappropriate in contracts for cellphone and mobile data service plans, as these contracts are often the source of numerous consumer disputes.”
Sen. Franken also stated that, “Consumers should never be forced to give up their rights in order to purchase a cell phone or get a new data plan. This bill makes sure that Minnesotans have the ability to hold their mobile service providers accountable if they are cheated. It also ensures that any dispute resolved through arbitration is truly voluntary, and that consumers are not being forced into it.” Sen. Blumenthal added, “Smartphone users deserve their day in court for legitimate complaints against abuses. Consumers should have rights to access to appropriate avenues – enforceable in court – for recourse in order to hold cell phone companies accountable for poor service or excessive fees. For consumers relying on smartphones – growing in number – the shield to accountability enjoyed by companies can lead to unfair contracts and unacceptable costs.”
Here at Abbey Spanier, we support the implementation of the Arbitration Fairness Act and the Consumer Mobile Fairness Act which we hope will serve to protect the rights of employees and consumers throughout the country.
Image attributed to SOCIALisBETTER.
The recent ruling in AT&T Mobility LLC v. Concepcion, et ux. was feared by many as a death-knell of class action litigation and, in particular, of consumer protectionclass actions. The ruling upheld an arbitration provision with a class action waiver that beforehand was viewed as unconscionable and unenforceable.
In the months since Concepcion, commentators’ fears have shown themselves to be well-founded as courts have interpreted the ruling broadly, sweeping many plaintiffs’ claims for fraud, unfair business practices, wage and hour violations, discrimination, and other matters in class actions out of court. However, a ruling handed down this week by the Ninth Circuit Court of Appeals in Kolev v. Porsche Cars North America offers a ray of hope, at least for class actions involving warranty claims.
Diana Kolev sued the dealership that sold her a car with serious mechanical defects because it refused to honor her warranty claims. She alleged, among other things, that the dealership’s refusal was a violation of the Magnuson-Moss Warranty Act, which provides her the right to a refund or replacement of the defective vehicle without charge. The dealership argued, and the lower court so held, that her purchase agreement included an arbitration provision and that she should be compelled to submit her warranty claim to an arbitrator. But Ms. Kolev appealed that ruling arguing that the MMWA, an important consumer protection statute, bars provisions limiting her access to the court system.
The Ninth Circuit agreed with Ms. Kolev and reversed the lower court’s order that she submit her warranty claims to arbitration. Relying on an interpretation of the MMWA by the Federal Trade Commission, the court held that “written warranty provisions that mandate pre-dispute binding arbitration are invalid under the MMWA.”
Some people believe that the streamlined procedures that arbitration affords makes justice more accessible for many. The reality is that you get what you pay for. The rules governing litigation in the court system are there for a reason and have been refined over the generations to represent a careful balance of the interests of all involved.
More importantly, when the stakes are small, say a five or ten dollars here and there, why would anyone bother to arbitrate on his or her own? It’s hardly worth the gas money. That’s assuming you even notice you’ve been victimized by or other misdeeds. In this busy and increasingly complex world, it’s not unusual for such wrongs to go unnoticed.
Those are reasons the class action mechanism is important. It permits just one knowledgeable plaintiff to vindicate the rights of many, even where his or her own individual injury is small where companies otherwise profit due to the reality that most individuals simply don’t have the time, energy, knowledge or resources to pursue their rights, even if they are aware of the injury inflicted on them.
Big business knows that without effective regulation and the availability of the class action, profits can be increased by the systematic imposition of unjustified costs and refusal to provide contracted services, and some exploit this. Thus, the expenditure of millions of dollars on lobbying against regulation and for laws directly or indirectly limiting class actions.
Concepcion made it easier for big business to avoid class action liability and, as a result, consumers are more vulnerable to corporate wrongdoing today than they have been in a long time. But Kolev has reaffirmed our rights as a consumer, at least with respect to warranty claims arising under the MMWA, and may be a sign that damage done by Concepcion will not be long-lived.
Have you been sold a defective product only to find that your contract had a class action waiver? If so, tell us your story. Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
We previously blogged about the high prices consumers pay for their medications and explained how the cost can drop significantly once a generic version is available. The FTC’s August 31, 2011 final report on authorized generics, entitled “Authorized Generic Drugs—Short-Term Effects and Long-Term Impact”, sheds new light on the high cost of drugs. The FTC’s study of generic drugs was spurred by the requests of Senators Grassley, Leahy, and Rockefeller, and Representative Waxman in 2005.
The FTC report has four main findings:
In other words, the branded firm “buys” time to continue selling its drug until the non-compete expires. During that time, consumers continue to pay the high cost for the branded drugs rather than the lower cost of generics.
After the report was released FTC chairman, Jon Leibowitz, said in an interview that it’s a “Win-win for the companies, but lose-lose for consumers.” Mr. Leibowitz explained that “Instead of saying, ‘Here’s $200 million, go away,’ they’re saying they could penalize them $200 million, but they won’t so go away.”
Abbey Spanier, LLP is located in New York City, is a well recognized national class action and complex litigation law firm.
In our June blog post , we reported that the U.S. Securities and Exchange Commission proposed new regulations in its effort to ensure that credit rating agencies no longer have conflicts with the issuers they rate. During the last several months, various lawmakers and consumer advocates have suggested that the proposals are inadequate.
For example, last week The New York Times reported that Sen. A. Franken, Democrat of Minnesota, participated in a conference call held by Americans for Financial Reform and said that the SEC’s proposals fail to respond to the conflict of interest inherent in the credit rating system. Franken is an advocate for eliminating the current rating model in which corporations and banks that issue debt pay the rating agencies to rate their products. Instead, Franken has proposed that the SEC create an independent, self-regulatory organization that would be responsible for assigning ratings to different credit agencies.
In recent commentary on CNN, Sen. Franken explained that his proposal “directs the Securities and Exchange Commission to create an independent self-regulatory organization that would assign the initial credit ratings of securities to one agency. The assignments could be based on agencies’ capacity, expertise, and, after time, their track record. Our approach would incentivize and reward excellence. The current pay-for-play model — with its inherent conflict of interest — would be replaced by a pay-for-performance model. This improved market would finally allow smaller ratings agencies to break the Big Three’s oligopoly.”
Barbara Roper, director of investor protection at the Consumer Federation of America (“CFA”), has also urged the SEC to strengthen the proposed rules. The CFA believes that the “recent proposals from the SEC to improve regulation in these areas fall well short of what is needed to deliver the sweeping reforms promised by the Dodd-Frank Wall Street Reform and Consumer Protection Act.” A copy of the CFA’s August 8, 2011 comment letter to the SEC which provides recommendations to improve the proposed rules can be found here.
A list of additional comments to the SEC’s proposed rules can be found here.
Abbey Spanier, LLP is located in New York City, is a well recognized national class action and complex litigation law firm.
Used with permission from Microsoft.
What comes to mind when you think of Tropicana “pure premium” orange juice? Groves of orange trees in the Florida sun, being picked and shipped fresh to you as juice, the image from past advertisements of a straw stuck right into an orange….
Chances are, you don’t think of flavor packs, deaeration, and million-gallon tanks that store orange juice just above freezing for a year before it’s packed and shipped. But that’s exactly what you’re getting.
Here’s how it works, according our research and as partially confirmed by Tropicana’s website. The oranges are picked and “fresh squeezed” as Tropicana says. However, after this stage, the juice is not shipped directly to you. Instead, it is pasteurized (heated to a high temperature to make it “safe”), then cooled, and then stored in giant tanks just above freezing. In these tanks, the oxygen is removed from the juice (deaeration), which prevents the juice from going bad. Once in this state (cold and with no oxygen) the juice will keep for up to a year. Tropicana’s website doesn’t hide this part of the process.
However, no mention is made of the fact that storing the orange juice for a year, just above freezing and with no oxygen, takes the flavor out of the juice. So, orange juice companies use “flavor packs.” These flavor packs are made up in part of orange byproducts, so technically the product can be described as “natural” or “100% orange juice.” Some, however, say that the flavor packs also have chemicals added to them.
Now, is that what you thought you were getting when you bought “100% Pure and Natural” orange juice?
These flavor packs are not just an urban myth, and it’s clear from the tacit non-denials made by the orange juice industry. Take, for instance, this letter written to the Huffington Post, in which the Florida Department of Citrus wrote to address the reasons why flavor packs are used, but did not deny their existence.
In partial defense of the industry, we have to note that consumers want orange juice 365 days a year, but oranges only have a limited growing season. So, it is out of necessity that some juice must be stored. With that said, we believe consumers have a right to know what they’re really getting. It’s just plain wrong for juice to be marketed as being “fresh squeezed” when that’s only a half truth.
This situation is reminiscent of a consumer class action brought on behalf of consumers who bought Citrus Hill Fresh Choice orange juice. The plaintiff alleged that the juice was represented to be fresh orange juice made from the heart of the orange, 100% pure, additive free and from oranges picked and squeezed on the same day when, in fact, the product wasn’t fresh, but instead was reconstituted from frozen concentrate, contained additives including water and flavor enhancers, was made from the entire orange and was not made from oranges picked and squeezed the same day. The California appellate court did not let the case, Caro v. Procter & Gamble, proceed as a class action, primarily because the company had already agreed to remove the word “fresh” from its label as a result of FDA proceedings brought against it.
Do you think that Tropicana should have to change its label?
If you think that you have been misled in connection with your purchase of a consumer product, please tell us your story.
Last year, more than 40 class actions were filed by homeowners against Bank of America, N.A. and its subsidiary, BAC Home Loans Servicing, LP (“BAC”), because these companies were improperly administering the federal Home Affordable Loan Modification Program (“HAMP”). These homeowners tried to participate in HAMP to modify their home mortgage loans and avoid foreclosure on their homes. BAC entered into an agreement with each plaintiff for a temporary trial modification of that plaintiff’s note and mortgage. If the borrowers complied with the terms of the agreement, including making timely reduced mortgage payments, the servicer was required to offer the borrower a permanent modification at the end of the trial period. The plaintiffs allege that although they fully complied with the terms of the agreements, the defendants failed to do what they were obliged to do; either grant the borrowers a permanent modification or provide the borrowers with a written response to the borrowers’ applications.
Last month, Judge Rya W. Zobel of the United States District Court for the District of Massachusetts provided some good news for these homeowners. The court refused to dismiss plaintiffs’ claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, and violations of the California, Illinois, Arizona, Maryland, New Jersey, Pennsylvania, Wisconsin, and Oregon consumer protection laws. As a result of this ruling, the plaintiffs have jumped a significant hurdle in their fight to obtain permanent loan modifications.
Abbey Spanier is involved in this case and will provide updates as the case progresses. If you believe you have been improperly denied a home loan modification, please tell us your story.
Today, we have some good news to pass along to homeowners who may have been subject to wrongful conduct by mortgage servicer IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB), for its failure to comply with guidelines established by the Home Affordable Modification Program (“HAMP”). (See our March blog post describing the wave of HAMP lawsuits by homeowners against U.S. mortgage lenders and our April post on consent orders that Federal Banking Regulators issued with 14 of the nation’s largest mortgage loan servicers.)
The good news is that in a June 30, 2011 decision, Judge William J. Hibbler of the United States District Court for the Northern District of Illinois denied OneWest’s motion to dismiss plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011). A copy of the opinion is located here.
In Fletcher, plaintiff brought a class action complaint against the servicer of her mortgage, OneWest Bank. Plaintiff alleged that OneWest’s practices fell into an identifiable pattern of misconduct that is consistent across a wide range of homeowners: OneWest makes a written offer to a pre-qualified homeowner, in which it offers a permanent loan modification if the homeowner makes three monthly trial period payments and complies with OneWest’s requests for documentation. Homeowners execute and submit all of the required documents and make the trial period payments, but OneWest does not live up to its end of the bargain, failing even to respond to applicants, denying permanent modifications without justification, avoiding permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, sending out late payment letters and engaging in other evasive conduct which makes it extraordinarily difficult, if not impossible, for homeowners to obtain loan modifications to which they are entitled. OneWest also applied substantial late fees and other fees to plaintiff and other homeowner accounts and reported those loans as delinquent to credit bureaus, causing damage to their credit scores.
Abbey Spanier is lead counsel in the Fletcher litigation. We believe that the Court’s decision is a significant victory for homeowners who have been harmed by OneWest’s deceptive practices and will litigate this action aggressively. One of the next steps is to ask the Court to grant class certification on behalf of plaintiff and all other similarly situated homeowners who have complied with their obligations under agreements with OneWest but have been denied permanent loan modifications.
If you have been harmed by OneWest’s improper practices, please tell us your story here.
In a prior post, I discussed the amendment to the Fair Credit Reporting Act which was re-introduced to the House of Representatives on January 19, 2011 and would prohibit use of consumer credit checks against prospective and current employees for purposes of making adverse employment decisions, except in certain specific circumstances, as HR 321.
Rather than waiting for the Federal government, in January 2011, the Maryland state legislature introduced the Job Applicant Fairness Act which Governor O’Malley approved on April 12, 2011. The Act, which takes effect on October 1, 2011, restricts the use of credit reports and credit history information unless certain specified conditions are satisfied. Although the term Applicant is used in the title, the law also applies to current employees and prohibits employers from using an applicant’s or any employee’s credit report or credit history in determining whether to deny employment, discharge an employee or in establishing compensation, the terms conditions or privileges of employment.
In trying to balance the interests of both employees and employers, the Job Applicant Fairness Act creates several exceptions which are much broader than those in the Federal bill. The Maryland exceptions include: (i) employers that are required to obtain an applicant’s or employee’s credit report under federal or state law; (ii) financial institutions that are federally insured or approved by the Maryland Commissioner of Financial Regulation; (iii) employers that are registered as investment advisors in the U.S. Securities and Exchange Commission; and (iv) substantial job-related bona fide purposes such as managerial, access to personal information, fiduciary responsibility and authority and access to expense account or corporate credit card.
During a time teeming with animosity for class actions, reports of the Supreme Court’s rejection of a challenge to a $270 million verdict on behalf of a class of smokers in Louisiana against several big tobacco companies comes as welcome news.
Not only does the Court’s refusal to hear the appeal represent a big win for plaintiffs in that case, but it should also give plaintiffs in all consumer class actions, securities class actions and employment class actions something to smile about.
As I wrote in December, through a rarely-used procedure, Justice Scalia unilaterally entered an order permitting Philip Morris and other cigarette companies liable for the multi-million dollar verdict in a state court action, Scott v. American Tobacco Co., 2004-2095 (La.App. 4 Cir. 02/07/2007); 949 So. 2D 1266, to put off paying plaintiffs until the Supreme Court had decided whether it would hear an appeal of the ruling.
In entering his order, Justice Scalia went out on a limb with the following prediction: “I think it reasonably probable that four Justices will vote to grant certiorari, and significantly possible that the judgment below will be reversed.”
As it turned out, Justice Scalia was wrong about that. Without explanation, six or more of the justices voted against granting the petition and the Supreme Court refused to grant certiorari.
In a term that brought us the AT&T Mobility LLC, v. Concepcion, 563 U.S. __ (2011), and Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __ (2011) rulings, that’s great news.
Those rulings are part of a trend limiting individuals’ access to the courts through procedural rulings. The Scott case presented similar procedural questions with potentially far-reaching effects. And, had the Supreme Court granted certiorari, it would have had yet another opportunity to make life tough for class action plaintiffs.
The U.S. Securities and Exchange Commission (the “SEC”) has been widely criticized for its credit rating agency oversight failures and, as we noted in a post several weeks ago (here), the SEC recently decided to propose new, tougher regulations to ensure that credit rating agencies don’t have conflicts with the issuers they rate.
A June 17, 2011, The Wall Street Journal article indicates that that the SEC may be going further than proposing new regulations. It is considering civil fraud charges against certain credit rating companies, including Standard & Poor’s and Moody’s, for their roles in providing undeserved positive credit grades on the mortgage-backed securities that triggered the financial crisis.
According to the news article, the SEC is questioning whether the ratings companies committed fraud by failing to do enough research to be able to adequately rate the pools of subprime mortgages and other loans that underpinned the mortgage-bond deals. This includes the rating agencies’ reliance on incomplete or out-of-date information and ignoring clear signs of problems which resulted in unduly high ratings to slices of the deals that were sold to investors.
Abbey Spanier will continue to monitor the SEC’s investigation and report back with any relevant updates.
Since 2008, the big three credit rating agencies, Moody’s Corporation, Standard & Poor’s and Fitch Ratings have been under intense scrutiny by Congress, the Securities and Exchange Commission and the general investing public for their role in the global financial crisis. Credit rating agencies are responsible for providing investors with information about the creditworthiness of different financial products. Prior to the bursting of the housing bubble, Moody’s, S&P and Fitch each consistently provided positive credit grades on mortgage-backed securities despite the fact that they were extremely risky products. Much of the criticism of the credit rating agencies relates to the fact that these firms are paid by the issuers they rate and therefore have a conflict of interest.
On May 18, the SEC’s five commissioners voted unanimously to propose new, tougher regulations for credit rating agencies. This was the culmination of an initiative that was approved by the commissioners three years ago, in June 2008. The new proposed rules, which are over 500 pages and are now open for public comment, would implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and enhance the SEC’s existing rules governing credit ratings that are registered with the SEC as Nationally Recognized Statistical Rating Organizations (“NRSROs”). Among other things, under the SEC’s proposals, NRSROs would be required to:
You can find the SEC’s press release here, which also contains a link to the proposed rules. Public comments on the SEC’s proposal are required to be submitted within 60 days after it is published in the Federal Register. The major rating agencies immediately issued press releases expressing general approval of the proposed rules, which rely primarily on internal self-assessment. So far one comment received by the SEC suggests that the new proposals are not enough and that periodic external audit of some rating agency decisions should also be imposed.
That’s a question that five U.S. Senators are asking the Federal Trade Commission to answer. On Tuesday, Senators Harry Reid, Charles Schumer, Patty Murray, Dick Durbin, and Claire McCaskill sent a letter to the FTC to look into the potential price fixing of gasoline by U.S. refiners.
The senators are concerned about recent reports suggesting that refiners are reducing U.S. gasoline stockpiles in order to artificially keep prices high as well as inflate their bottom line. According to the Energy Information Administration, U.S. refiners are only using 81.7% of their capacity, which is a decline of 7% from last year. The senators wrote that “while some have argued that this increase is due to potential impacts from recent flooding along the Mississippi River, this cannot justify the steady increases in their margins since January of this year.”
Unsurprisingly, President of the National Petrochemical & Refiners Association, Charles Drevna, issued a statement that was critical of the senators’ letter. Drevna argued that the letter was “political theater” and that “dozens of investigations of gasoline price fixing over the years have generated plenty of headlines and political hyperbole, but have failed again and again to find any evidence of wrongdoing.”
Abbey Spanier will continue to monitor these developments and will let you know if the FTC beings an investigation into U.S. refiners.
Today, U.S. Sens. Al Franken (D-Minn.), Richard Blumenthal (D-Conn.) and U.S. Rep. Hank Johnson (D-Ga) are introducing the Arbitration Fairness Act, which will eliminate forced arbitration clauses in employment, consumer, and civil rights cases, and allow consumers and workers to choose arbitration after a dispute occurs. The text of the bill has not yet been released, but we look forward to seeing it soon.
The Arbitration Fairness Act, which was proposed in 2009 but did not become law, is being re-introduced in response to the Supreme Court’s decimation of consumer class actions in AT&T Mobility v. Concepcion. We couldn’t better sum up the effects of Concepcion than Senator Franken did on his website:
“The majority of the Court held that the Federal Arbitration Act barred state courts from protecting consumers from [forced] arbitration clauses. The effect of this decision essentially insulates companies from liability when they defraud a large number of customers of a relatively small amount of money.”
These are not empty words. The effect of the Concepcion decision is real, although it may be hard to visualize until something goes wrong for you and you are left to fight a billion-dollar corporation, on your own, over a contested $50 charge on a phone bill. Some arbitration clauses have exceptions allowing consumers to bring cases in small claims court on an individual basis–but rest assured that the company will send its lawyers to defeat your claims (and the filing fee alone might not justify your time). Go to arbitration, and you’ll appear before a paid dispute resolution professional who gets an awful lot of business from your adversary, and whose decisions are only minimally reviewable in court. Talk to the press, and the big company will have its lawyers threaten you with a defamation suit. Does that sound far fetched? It’s not–it happened in one of our cases, and the threat was meritless and calculated to silence our client.
The only way consumers can fight for their rights are by banding together, and the Supreme Court has effectively taken that right away. So, thank you Senators Franken, Blumenthal and Rep. Johnson for introducing this bill. It’s nice to see that someone has consumers’ interest in mind.
Concepcion is not the only recent Supreme Court decision that has come out on the side of corporate interests (see Citizens United, which allowed unlimited political donations by corporations). So, although members of Congress can introduce a law overruling Concepcion, other elected representatives may choose to allow their biggest contributors the free reign that they have recently been handed. We hope not. In America, consumer spending amounts to about 70% of our economy. In one slash of the pen, the Supreme Court disenfranchised this majority. Maybe we should take a cue from the satire newspaper the Onion, which last October ran a story titled “American People Hire High-Powered Lobbyist to Push Interests in Congress.”
If you are a CVS Caremark customer, be on the lookout for anti-consumer practices identified by five respected consumer groups who recently asked the Federal Trade Commission to unwind the CVS Caremark Corp. merger. In an April 14, 2011 letter, they say there is “strong evidence” of CVS Caremark’s harm to consumers. Examples include:
-Using confidential patient information collected by Caremark (a pharmacy manager) so CVS pharmacists can solicit non-CVS customers by mail and phone and direct them to fill their prescriptions at CVS stores;
-Switching Medicare beneficiaries to CVS stores with an increased co-pay and bringing them to the Part D “donut” hole” (when they must pay out of pocket) prematurely; and
-Using the “Maintenance Choice” program which forces consumers to fill their prescriptions at CVS stores or by mail, in order to avoid paying an increased co-pay to fill their 90 day or maintenance prescriptions at non-CVS locations.
The consumer groups highlighted the widespread impact these practices can have, given that CVS Caremark deals with over 40% of all consumers.
The FTC is reportedly investigating these practices and, according to CVS Caremark, attorneys general in 24 states are conducting similar investigations.
Abbey Spanier will continue to monitor these investigations and will report any significant developments.
Well that’s what some people think and we want to hear what you think.
Apple Inc. has been sued for privacy invasion and computer fraud by two customers who claim the company is secretly recording and storing the location and movement of iPhone and iPad users.
Apparently Illinois’ Attorney General Lisa Madigan is a little concerned and has asked to meet with Apple and Google Inc. executives to discuss reports that their products collect information about users’ locations. In addition, French, German, Italian, and South Korean regulators are also investigating this issue.
So what do you think? Do you think that Apple is tracking you for marketing reasons? If Apple is tracking your location and movement, do you think this is a problem? Do you have EZPass? If Apple is tracking you don’t you think EZPass can track you too? Is there a difference between EZPass and Apple? When you got your EZPass did you know you could be tracked?
Is big brother watching us just a little too much through our handheld devices?
Finally, there’s some good news for home mortgage borrowers who have been treated unfairly by their banks. On April 13, 2010, federal banking regulators took formal action against 14 of the nation’s largest loan servicers (including the 10 banks that represent 65% of the loan servicing industry) as a result of their “misconduct and negligence” and “unsafe and unsound practices” in residential mortgage loan servicing and foreclosure processing.
Among other things, the banks will now be required to:
The banks and loan servicers subject to the regulators’ action (including financial penalties that will be imposed in the future) are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; Wells Fargo & Company; Aurora Bank; EverBank; OneWest Bank and Sovereign Bank. You can find the consent orders here, here and here.
You can also read our March 3, 2011 post in which we discussed the wave of lawsuits brought by homeowners against U.S. mortgage lenders for failing to comply with the terms of the United States Treasury’s Home Affordable Modification Program (“HAMP”).
Do you think the federal regulators’ enforcement action will end the unfair practices?
Today, we write to highlight a New Mexico decision continuing the trend of striking arbitration clauses and class action waivers from consumer contracts. This decision is not the first in New Mexico to strike down a class action waiver, but it does touch on a topic that we have not previously discussed in this blog: severability, or, to put it differently, viewing the “arbitration clause” and “class action waiver” separately from one another. In theory, a court can sever the class action waiver, but enforce the arbitration clause. The effect of such an action would be to send the case to classwide arbitration.
In federal court, the Supreme Court’s decision in Stolt-Nielsen appears to have ended the severance of class action waivers. However, the possibility of such a result still comes up in state court proceedings.
In Felts v. CLK Management, Inc., the plaintiff brought a class action against several “payday loan” companies who were charging the plaintiff well over 500% interest on several loans she took out and could not pay back.
The defendants asked the court to send the case to arbitration on an individual basis because the loan contracts had an arbitration clause and class action waiver. The district court allowed the case to go forward in court as a class action. The defendants appealed and asked appeals court the court to sever the class action waiver and send the case to class arbitration.
The appeals court opined that the class action waiver was not severable because it was “central to the means by which the parties could resolve their disputes[.]” The court said the arbitration clause placed so much emphasis on the waiver of rights to bring a class action, that, in order to remove only the class action waiver, the court would have to perform “judicial surgery” and rewrite the contract for the parties. Courts, as a general matter, strongly disfavor meddling in the parties’ affairs in such a manner.
Recently, there has been a wave of class action lawsuits brought by homeowners against several of the nation’s largest mortgage lenders for failing to comply with the terms of the United States Treasury’s Home Affordable Modification Program (“HAMP”). HAMP was created by the federal government in August 2009 to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans. Despite the government’s noble intentions, HAMP has been largely unsuccessful. Mortgage service providers have been accused of unjustifiably denying permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, and engaging in other evasive conduct which makes it extraordinarily difficult, if not completely impossible, for eligible homeowners to obtain loan modifications.
In January 2011, Judge F. Dennis Saylor of the Massachusetts federal court issued a decision that gives homeowners some hope for relief. Bosque v. Wells Fargo Bank, N.A., C.A. No. 10-10311-FDS, 2011 U.S. Dist. LEXIS 8509 (D. Mass. Jan. 26, 2011). In Bosque, even after the homeowners complied in all respects with Wells Fargo’s requirements during a three month trial mortgage modification period, they were never notified of their permanent loan modification status. The plaintiffs contended that they, like hundreds, if not thousands, of Massachusetts homeowners, were deprived of the opportunity to cure their delinquencies, pay their mortgage loans and save their homes.
Judge Saylor denied Well Fargo’s motion to dismiss plaintiff’s claims against it for breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and violation of the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A. and allowed expedited discovery regarding the bank’s HAMP eligibility determination and foreclosure procedures.
Abbey Spanier is following the Bosque litigation closely and will report any significant developments.
“Simply stated: labels matter.” This recent statement by the California Supreme Court in Kwikset Corp. v. Superior Court (Benson), 51 Cal. 4th 310 (Jan. 27, 2011) reduces a notion so obviously true and consistent with our everyday experience that it should be hardly worth arguing over.
Yet the truth of that statement was at the heart of the Kwikset case, which arose out of Kwikset Corporation’s manufacturing of locksets labeled “Made in the U.S.A.” Plaintiff James Benson brought suit under California’s unfair competition (“UCL”) and false advertising laws (“FAL”), Cal. Code § 17200, et seq. and § 17500, et seq. respectively, to challenge the labels’ veracity, because those locksets either contained parts made in Taiwan or were assembled in Mexico.
The court below held that, while Benson’s “patriotic desire to buy fully American-made products was frustrated,” that injury was insufficient to confer standing. In other words, the court below held that the label didn’t matter, at least for the purposes of the California consumer protection laws. The California Supreme Court disagreed and reversed the lower court’s ruling.
The California Supreme Court explained that “[t]he marketing industry is based on the premise that labels matter, that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source” and illustrated its point with several examples:
Whether a particular food is kosher or halal may be of enormous consequence to an observant Jew or Muslim. Whether a wine is from a particular locale may matter to the oenophile who values subtle regional differences. Whether a diamond is conflict free may matter to the fiancee who wishes not to think of supporting bloodshed and human rights violations each time she looks at the ring on her finger. And whether food was harvested or a product manufactured by union workers may matter to still others.
This discussion arose in considering the standing requirements of the UCL and FAL, which are essentially the same. Both require plaintiff to establish an economic injury and that the injury was caused by the unfair business practice or false advertising at the heart of the claim.
The court below found Benson and the class of purchasers he sought to represent could not show economic injury and therefore could not establish standing because, while they had spent money, they “received locksets in return”. Specifically, they received locksets that were not defective, overpriced or of inferior quality. The California Supreme Court viewed it very differently: “For each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same: the consumer has purchased a product that he or she paid more for than he or she otherwise might have been willing to pay if the product had been labeled accurately.” (emphasis in original).
However seemingly obvious the question may have been, it took the California Supreme Court to settle once and for all that a consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirements of the UCL and FAL by alleging, as Benson did in Kwikset, that he or she would not have bought the product but for the misrepresentation.
Our December 10, 2010 “There Oughtta Be a Law” post suggested that dollar amounts should be rounded up or down to the nearest 10 cents to eliminate pennies and nickels. Never did we imagine that passage of such a law could have impacted a lawsuit.
Forced to dismiss a family’s lawsuit for bodily injury insurance proceeds following an accident in which two family members died, the Sixth Circuit Court of Appeals observed in Freeeland v. Liberty Mutual, decided on February 4, 2011,”The penny is the most easily neglected piece of U.S. currency… The amount in controversy in this declaratory judgment action is exactly one penny short of the jurisdictional minimum in the federal courts.”
The court recognized that dismissing the case was “painfully inefficient” but determined that it had no choice given the applicable statutory language. Sometimes, the law just doesn’t make sense.
A recent Supreme Court of Kentucky decision made that state the tenth where courts have struck down as unconscionable a class action waiver imposed on customers in a merchant’s form consumer agreement .
In Schnuerle v. Insight Communications, L.P., several consumers brought a class action against an internet service provider for failure to provide internet access in accordance with the terms of their contracts. The customer agreement contained an arbitration clause and class action waiver. The arbitration clause also had provisions requiring customers to keep confidential any settlement reached through arbitration, and permitted consumers to file claims of less than $1,500 in small claims court.
In coming to its conclusion, the court engaged in a thorough exposition of the justification for class actions and the inherent unfairness in requiring consumers to give up their right to band together against large companies that can make millions by harming many people in amounts too small to justify individual actions. For instance, the court explained:
“The potential that an absolute ban on class action litigation may produce an improper exculpatory result is demonstrated by way of a simple example. Suppose XYZ Company inadvertently or intentionally overbilled each of its one million customers by one dollar during a particular month. As a result, it gained possession of one million dollars to which it is not entitled, and which instead belongs to its customer base. Suppose, in addition, that the company acted unethically (or incorrectly believed it had a valid defense) and refused to return the overcharges. Economic realities dictate that none of the one million overbilled customers would bring an individual claim seeking the recovery of his dollar. The time, effort, and expense involved to recover a dollar simply would not be worthwhile. Thus, while the economic loss to each individual customer would be negligible, the lack of an economically viable means to bring the company into court would effectively exculpate the company from liability, allowing it to reap unjustly a substantial economic windfall.” Read More
Congress passed the Magnuson-Moss Warranty Act (the “MMWA”) in 1975 to combat perceived abuses in consumer automotive sales. Although the MMWA is not a model of clear drafting (in fact, many courts have noted just the opposite), the MMWA does make one very clear pronouncement: it expressly permits class actions.
However, the MMWA contains a jurisdictional requirement that renders its grant of class actions illusory: in order for a federal court to have jurisdiction over a class action under the MMWA, the plaintiff must name 100 class members in the complaint. This requirement was interpreted strictly and literally by courts and, for 30 years, caused the death knell for otherwise viable class actions in federal court.
However, the Class Action Fairness Act of 2005 (“CAFA”) rendered the MMWA’s jurisdictional limitation moot. CAFA gave federal courts jurisdiction over any class action in which the amount in controversy exceeds $5 million, and in which any of the members of a class are citizens of a state different from any defendant (subject to certain exceptions). Courts began looking at this jurisdictional requirement as superseding MMWA’s requirement under the principle of statutory interpretation that holds that “Congress is knowledgeable about existing law pertinent to the legislation it enacts.” If Congress enacted CAFA and did not make a carve out for MMWA class actions, then Congress intended for CAFA’s jurisdictional requirements to trump the MMWA.
So, in the last few years, several courts have held that CAFA provides an alternative basis for jurisdiction over MMWA claims. See McCalley v. Samsung Elecs. Am., Inc., No. 07-2141 (JAG), 2008 U.S. Dist. LEXIS 28076 (D.N.J. Mar. 31, 2008); Payne v. Fujifilm U.S.A., Inc., No. 07-385 (JAG), 2007 U.S. Dist. LEXIS 94765 (D.N.J. Dec. 28, 2007). We are not aware of any court that has disagreed.
More recent cases have have bolstered this alternative basis for federal court jurisdiction over MMWA claims. In these cases, decided over the last twelve months–Marcus v. BMW of North America (December 18, 2009 opinion) and Oscar v. MINI USA–federal district courts have permitted MMWA claims to proceed under CAFA without requiring 100 class members to be listed on the complaint. Abbey Spanier represented the plaintiff class representatives in both of those cases.
A remarkable ruling was handed down several years ago by the Fourth Circuit Court of Appeal of Louisiana. In Scott v. American Tobacco Co., 2004-2095 (La.App. 4 Cir. 02/07/2007); 949 So. 2D 1266, the Court found that plaintiffs in a class action alleging fraud did not need to provide direct evidence that class members relied on defendants’ misrepresentations.
In the context of class action litigation, that ruling was a significant departure from the norm. Courts typically do not permit class cases to proceed if individual issues affecting particular plaintiffs and class members are likely to dominate the issues that can be decided in common for all class member, which would be the case if a judge had to evaluate whether every individual class member actually relied on defendants’ allegedly misleading statements. Easing the requirements to prove individual reliance in fraud cases would allow the courts to hear a broader range of class actions.
The ruling has not done that, because, in part, it so specific to tobacco litigation. The Circuit Court explained that the record showed defendants had engaged in a “five decade long public relations effort to create the impression in the public that there was a legitimate controversy about the health effects of smoking, even though defendants knew that such an impression was false” and that “defendants sought to create doubt about the connection between smoking and disease so that smokers would be able to justify beginning or continuing to smoke.” Scott, 949 So. 2D at 1277. The Circuit Court’s holding was premised on finding “defendants’ lengthy course of prohibited conduct affect[ed] a large number of consumers, like the class of Louisiana smokers, and the defendants use[d] indirect communications designed to distort the entire body of public knowledge.” Scott, 949 So. 2D at 1277-8.
And, until recently, it would have been a fair bet that the ruling would never have any effect outside the world of tobacco litigation. However, a recent and rare order of the Supreme Court issued by only a single Justice suggests that it may have a major impact on class action litigation.
On September 24, 2010, Supreme Court Justice Antonin Scalia found it “reasonably likely” that the Supreme Court would grant the tobacco companies’ petition for writ of certiorari to review the ruling, under which an entry of judgment was recently entered requiring defendants to create a $250 million smoking cessation program. Philip Morris USA Inc. et al. v. Gloria Scott et al., 561 U.S. __ (2010).
Justice Scalia pitched the issue broadly as “[t]he extent to which class treatment may constitutionally reduce the normal requirements of due process.” In finding that plaintiffs were not required to prove reliance, the Circuit Court, according to the tobacco companies, denied defendants their constitutional due-process right to present every possible defense. Plaintiffs’ response, which Justice Scalia noted “may ultimately prove persuasive”, was that defendants have no nonreliance defense. Whether and to what extent class treatment reduces the requirements of due process is, as Justice Scalia wrote, an “important question” with far-reaching implications.
Given that the Supreme Court has shown itself to be increasingly likely to issue rulings that reach far beyond the facts of the cases before it, as it did recently in Morrison, et al., v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010) in tossing aside forty years’ worth of securities fraud jurisprudence, the Scott case presents an opportunity for the Court to reshape yet another area of law.
Justice Scalia found it “significantly possible” that the judgment below would be reversed, but the nature of the issue and attitudes of the current Supreme Court make this case one worth watching. Philip Morris USA Inc. filed the petition for writ of certiorari with the Supreme Court on behalf of the tobacco companies involved in the suit December 3, 2010 (Docket No. 10-735). A response from respondents is due January 3, 2011.
In case you are wondering how it is that Justice Scalia is involved at this stage of the action, in such an apparently substantive way, prior to any formal action by the Supreme Court, the answer is 28 U.S.C. § 42, a part of the Judiciary and Judicial Procedure Act. This statute deals with the organization of the U.S. courts and requires the Supreme Court to assign each of its justices as “circuit justice” for one or more of the nation’s thirteen circuit courts of appeal. Justice Scalia is the one and only circuit justice for the Fifth Circuit Court of Appeals, which covers Texas, Mississippi and Louisiana (where Scott was decided). The circuit justice, by himself or herself, typically decides issues that might adversely affect the Supreme Court’s jurisdiction pending a likely petition to the full Supreme Court. In Scott, the losing tobacco companies, facing execution of a damages judgment in favor of the plaintiff class for over $240 million, went straight to Justice Scalia seeking a stay of that judgment, as permitted by 28 U.S.C. § 2101(f), pending their cert petition.
A few months ago, the Supreme Court granted certiorari in AT&T Mobility v. Concepcion, No. 09-893, which sent chills down the spines of consumer advocates who know the tremendous advantage that a class action waiver gives to a large corporation. They had applauded the willingness of certain state courts to strike down these waivers in the arbitration clauses found in more and more of the “contracts” that average folks must swallow if they want to have cell phone service or establish a brokerage account or take a job with a large corporate employer, etc., etc. Some state courts, including the California Supreme Court, have refused to accept that any consumer, unless powerless to avoid it, would ever give up the only practical legal recourse–a class action–available to obtain compensation for and/or stop illegal conduct by a corporation directed at that person and at hundreds or thousands or millions of others through the same, repeated systematic acts that injure each in an amount or in a manner that could never justify the expense of an individual lawsuit or arbitration. This kind of unreasonable condition imposed by the party with all of the bargaining power in a contract “negotiation” may be stricken under the doctrine of contract law known as “unconscionability.”
Immediately after certiorari was granted by the Supreme Court, the dire predictions rolled in: the Supreme Court was going to kill class actions by preventing state courts from reviewing the terms that corporations impose on their customers, clients and employees under the guise of an arbitration agreement. These predictions were not without basis–it has been widely noted that the current Supreme Court is the most big-business friendly panel in recent memory.
However, at oral argument in Concepcion on November 9, 2010, the Justices did not seem inclined to further their assault on the rights of plaintiffs. Instead, they addressed their most difficult questions to counsel for the petitioner, AT&T Mobility. AT&T had asked the court to declare that the California Supreme Court’s decision in Discover Bank v. Superior Court–a decision that held that arbitration clauses and class action waivers may be unconscionable in certain circumstances–is preempted by the Federal Arbitration Act.
With the caveat that predicting the outcome by analyzing the justices’ questions and comments at the argument has a low success rate, here is a sampling:
Justice Scalia hinted that the Supreme Court may not step into the merits of a contractual dispute under state law, and asked “Are we going to tell the State of California what it has to consider unconscionable?”
Referencing the Federal Arbitration Act’s preemption of laws that single out arbitration agreements, Justice Ginsberg stated to counsel for AT&T: “You don’t have anything that says—the California court hasn’t said: We are applying a special definition of unconscionability to arbitration agreements.”
Justice Kagan indicated that the decision as to whether an arbitration clause is unconscionable should be left up to the states, asking counsel for AT&T: “Who are we to say the state is wrong about that?”
And, in a potentially telling indicator familiar to those with appellate court experience, the justices seemed a bit more deferential to counsel for the plaintiffs, who defended the Discover Bank decision. This could indicate that the justices favored the plaintiffs’ position.
Now, we won’t have a decision on this case until sometime next year, and we don’t have any idea what the Justices were actually thinking, so what we are saying is entirely speculation. But we’re not alone in our view that the questioning by the justices in this case did not show the type of hostility that would be expected if the Court was truly considering killing the class action. It seems that the New York Times, the Wall Street Journal, and Slate, among many others, share our view.
See our prior post on ATT v. Concepcion.
Is your mortgage banker’s execution of rapid, rubber-stamp foreclosures the makings of a criminal enterprise? Some plaintiffs and legal commentators think so.
Recent headlines have revealed that many of the largest banking institutions in the US may have, perhaps illegally, cut procedural corners to quickly foreclose on homeowners struggling to make their mortgage payments. As a result of these shortcuts, the banks may have violated the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO. RICO is law mostly associated with the prosecution of mobsters, but the statute has been used to nab high profile white-collar criminals and even to challenge Bud Selig and Major League Baseball.
A RICO violation occurs when a person or entity engages in a pattern of racketeering activity while conducting the affairs of an enterprise. Racketeering activity includes any act or threat involving murder, kidnapping, or bribery as well as obtaining money or property by means of false pretenses while using the postal service or any private or commercial interstate carrier, i.e. mail fraud. Any person harmed by a defendant’s RICO violation can receive three times the damages that person sustained.
Turning back to the mortgage crisis, some bank employees have revealed that they were instructed to rubber-stamp shoddy affidavits that were used in foreclosure hearings, a process commonly referred to as “robo-signing”. These employees often attested that they were familiar with the facts related to the foreclosure when in fact they did not have the time to read the affidavits due to the sheer volume of foreclosures. As result, some are claiming that the banks instructed their employees to falsify affidavits in order to fraudulent repossess property that the banks may not even own. If it can be established that the banks engaged in a pattern of these fraudulent practices to obtain property, a RICO violation may have occurred.
Sometimes a shakedown occurs from the barrel of a pen.
The potential impact of AT&T Mobility LLC v. Concepcion.
Class actions level the playing field between employees and big business. Unlike individual lawsuits and complaints, class actions are likely to force companies to halt wide spread illegal, fraudulent or deceitful practices. Class actions provide an effective and efficient means of providing compensation to a large group of harmed individuals.
The class action’s “historic mission of taking care of the smaller guy” has been widely recognized. The United States Supreme Court itself has observed that the drafters of the federal class-action rule sought to vindicate “the rights of groups of people who individually would be without effective strength to bring their opponents into court at all.”
However, consumer, employee and civil rights groups are now fearful that the Supreme Court may lock the courthouse doors to many small plaintiffs claiming widespread injustice. Yesterday the Court heard oral arguments on whether or not state courts have the power to strike down as “unconscionable” mandatory arbitration clauses in standard-form consumer, employee and similar agreements that prohibit the individual subject to the agreement (which is prepared by the company and as a practical matter is imposed on the individual party as a non-negotiable condition of obtaining a product, service or employment) from commencing or participating in a class action or class arbitration involving the terms of the agreement. Such anti-class action “waiver” provisions are becoming more common in the small print of the agreements that large companies impose on customers in mass market consumer transactions like cell phone subscriptions or in standard employment agreements. The Court will decide this issue in AT&T Mobility LLC v. Concepcion, No. 09-893.
While the Concepcion case arises in the consumer context, the Court’s decision could decide the fate of labor and employment class actions for years to come.
If the Supreme Court accepts AT&T’s position that such anti-class waivers are mandated by the Federal Arbitration Act and therefore cannot be limited by state courts, consumers and employees will effectively be stripped of their right to pursue small claims on a class wide basis.