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Entries in class action (5)


Class Dismissed?

The school year still has more than a month to go, but class actions in consumer cases may be near an end under yesterday’s U.S. Supreme Court ruling in AT&T Mobility LLC v. Concepcion.  The five member conservative majority of the Court struck down California’s law barring arbitration clauses that contained waivers of class action rights in consumer cases because it is preempted by the Federal Arbitration Act (FAA).  The four liberal justices dissented.  Consumer advocates claim this case will immunize corporations from liability to consumers for unfair trade practices because it is too expensive for individual consumers to pursue such cases alone, even in arbitration. 

But a closer look at the decision reveals that such immunity does not come without price.  In this case, AT&T Mobility’s cellular phone sale and servicing agreement provided that customers could initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT&T’s Web site.  If the dispute is not resolved within 30 days, the customer can invoke arbitration by filing a separate Demand for Arbitration, also available on AT&T’s Web site.  In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages.  The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.

It would have been nice if AT&T gave its customers a choice to opt in or out of the arbitration clause, but I suspect many if not most consumers would opt in.  In this case, the lead plaintiff’s claim was that AT&T improperly charged him about $30 sales tax for a free phone.  How many consumers in such a situation would not opt for a dispute resolution mechanism that is free (to the consumer) and relatively simple?  AT&T built into the agreement adequate incentive for it to pay or settle most claims.  Class action litigation, either in court or in arbitration, usually ends in a settlement, but only after the consumption of large amounts of attorney fees, costs and time.  The policy question that remains after the Supreme Court’s decision in this case is whether the additional deterrent effect of a possible class action is worth the expenditure of those fees, costs and time. 

I am not a fan of arbitration clauses imposed on unsophisticated parties in contracts of adhesion.  But the arbitration clause and class action waiver in this case were hardly one-sided.  They provide incentives and benefits, as well as detriments, to both parties.  Neither the parties nor the Court addressed this aspect of the unconscionability issue in this case, but it may still be possible to argue that some arbitration and class-action waiver clauses are so one-sided as to be unenforceable, even under the FAA.  So, as long as this decision is not used to validate every arbitration clause and class action waiver in all consumer contracts, it may not mean the end of consumer class actions in all cases. 



June 1 has come and gone, and one deadline has taken effect while another has been postponed again.

  • Wisconsin’s automobile insurance requirement is now the law. However, police will refrain from issuing tickets to uninsured drivers for at least the first month. Instead, the police will give drivers 30 to 60 days to get insurance and show proof of it.
  • Meanwhile, the FTC has once again postponed its identity theft “red flag” rules while it, or Congress, tries to figure out who to exempt from the requirement.

On the topic of arbitration and class actions, the Wisconsin Court of Appeals has clarified how it will decide whether an arbitration clause is unconscionable, especially in Consumer Act cases.  In a case that was poorly briefed and argued by both sides, the court remanded for further findings on the issues of substantive and procedural unconscionability. 

In federal court, the 7th Circuit has put aside its usual antipathy towards class actions and affirmed class certification in a consumer fraud case, at least on the issue of liability. 


No class arbitration

In a 5-3 decision, the U.S. Supreme Court recently reversed an arbitration panel decision that would have allowed antitrust claims to proceed to arbitration on a class action basis, Stolt-Nielsen S.A. et al. v. Animal Feeds International Corp.  The Court reversed the Second Circuit Court of Appeals that had upheld the arbitrators’ decision. The parties argreed that the arbitration agreement in this case was silent about whether class arbitration was permissible. The arbitrators and the Second Circuit reasoned that since it did not prohibit class arbitration, the arbitrators had discretion to allow it. The Supreme Court disagreed, holding that the arbitrators manifestly disregarded the law. Basing its decision on the Federal Arbitration Act, the Court decided that “the differences between bilateral and class-action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties’ mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings.”

In most antitrust actions, the alleged violator reaps large monopoly profits by first undercutting competitors’ prices, and then raising prices after those competitors are driven out of business. Consumers are benefitted at first by the price-cutting competition, but ultimately they lose when competition ceases and prices rise. However, prices rarely rise enough to justify any one consumer in pursuing an antitrust case by himself. Most such cases have to proceed as a class action or not at all. Therefore, the Court’s decision in this case effectively allows monopolists to insulate themselves from antitrust lawsuits by incorporating arbitration clauses in their contracts. Under the Court’s decision, the only way consumers could proceed with an antitrust suit would be to negotiate an arbitration clause that specifically allows class arbitration, or else to exclude such actions from arbitration and allow them to proceed in court. I wonder how many consumers are so savvy and such good negotiators?


A good example

The recently announced proposed settlement of rescue workers’ claims arising out of the City of New York’s response to the Sept. 11 terrorists attack on the World Trade Center is an example of a good negotiated settlement on the most massive scale. About 10,000 people claim to have been involved in the rescue and clean-up efforts, and to have incurred some illness or injury in the process. Now, with trials set to begin in a couple of months, the claimants, the City, and the fund set up to compensate the workers have come up with a plan to distribute the money. The proposal still needs to be approved by a federal judge and 95% of the claimants, but with both the City and the claimants’ attorneys recommending it, that is likely. Like any personal injury settlement, some claimants will be unhappy. But they will have traded an uncertain claim and the risk of coming up empty-handed for a certain payout. The class action settlement proposal contains a mechanism for determining individual awards based on duration and nature of the workers’ exposure to dangers at the site and on each workers’ actual and potential medical history and condition. Apparently, after nearly 8 years of litigation and with juries almost in the box, both sides finally had enough information to adequately judge the costs, risks and potential rewards of further litigation. As I pointed out in my last post, mediation works best when the participants know their alternatives to a negotiated agreement. I don’t know if the parties actually used a mediator to help them reach this agreement. If anyone knows and cares to comment here, I would welcome your insight.

A few days after my last post, Lee Jay Berman blogged about the problem with President Obama’s attempts to mediate Congressional reforms, such as health care. He noted that the President is not a true neutral. In Berman’s words “He has a dog in the fight …” Berman suggested that what is needed is for the President to appoint a true neutral third-party to mediate the legislative disputes. I agree. And the first thing that mediator should do is to help each side determine their alternatives to a negotiated agreement. Their “jury” (i.e., voters) will be in the box in November. Perhaps that is their Sword of Damocles.


7th Circuit continues to make class actions scarce

Class actions are supposed to be for people who have small claims that are not worth pursuing alone but, due to the number of people affected, are worth pursuing in the aggregate.  Nonetheless, the 7th Circuit U.S. Court of Appeals continues to read the class action rules and cases strictly, making it difficult for people with similar small claims to join together and pursue justice.  Whether it is consumers who are sent credit cards in violation of the truth-in-lending act or pre-trial detainees who are kept in jail too long after bond is posted, the court continues to parse the rule and case law with scant attention to the larger picture and purpose of the procedure. 

Credit Card case

In Muro v. Target Corp., the named class representative settled her claim but reserved her right to appeal the district court’s denial of class certification.  The 7th Circuit denied her appeal because she did not have a sufficient interest to continue the litigation on behalf of the class.  This type of reasoning gives defendants an incentive to pick off willing class representatives by settling with them, thereby avoiding exposure to the larger class as a whole. 

Pre-trial detainee case

In Harper v. Sheriff of Cook County, the court found that individual variations in facts among class members precluded certification.  In my opinion, this shows a lack of imagination and creativity that the class action mechanism should promote.  The important thing to remember is that all of the plaintiffs’ claims are too small to bring individually, so the individual variations cannot be too large to begin with.  If necessary, subclasses could be devised to take into account some of the variations. 

If the courts really want to dispense justice to as many people as possible, they must quit equating big individual claims with important issues.  Resolving small individual claims that affect hundreds of thousands or millions of people can be more important to fostering trust and confidence in our legal system.