Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘class actions’

AmEx v. Italian Colors: the end of the world?

Much commentary regards last week’s decision on American Express v. Italian Colors Restaurant (see earlier) as a virtual sentence of doom for class actions, which will henceforth be barred by contract in favor of individualized arbitration. From the plaintiff’s side, Paul Bland of Trial Lawyers for Public Justice calls the decision “catastrophic for the antitrust laws… an unmitigated disaster” while from the defense side, Michael Fox expects employers to use the ruling to turn back one of the current litigation trends most menacing to them, class actions over wage-hour infractions under the Fair Labor Standards Act (FLSA) (“a large number of employers who have not implemented arbitration plans will be re-thinking the decision”). Others expect a backlash against the decision; for example, the new Consumer Financial Protection Bureau may ban or greatly restrict arbitration waivers in consumer contexts (cf. Daniel Fisher‘s report) or Congress might legislate with the same intent, presumably after future Democratic Party gains in the House. More: Fed Soc Blog.

There are, however, also reasons to doubt that the decision spells utter rout for the class action bar. To begin with, these lawyers have proven resourceful in finding ways around earlier restrictions, as in the case of securities litigation reform and the Class Action Fairness Act. At Class Action Blawg, Paul Karlsgodt comments: “Concepcion hasn’t [ended class actions], so I doubt Amex III will either.”

Moreover, earlier Supreme Court decisions generally make clear that the arbitration option cannot displace substantive legal entitlements. Many, even most relevant federal statutory causes of action are barbed with incentive provisions intended to ease the assertion of meritorious claims, including attorneys’-fee entitlements, treble damages and statutory damages. The particular situation in Italian Colors, in which unrecoverable expert witness costs were expected to exceed even treble damages for the claimant, is not really typical. Our colleagues at Point of Law, especially Ted Frank, have been active in pointing out some of these considerations. [Manhattan Institute paper, plus reaction from Carter Wood and more from Michael Greve; discussion between Ted and Cardozo lawprof Myriam Gilles; more blog posts here and here]

In particular, even if the Rule 23 class action device is not available as such, it is likely that plaintiffs will have considerable scope for cost-sharing and collaboration, as described in more detail by Gregory Cook in the Michigan Journal of Law Reform. This came up in the AmEx case itself, as Jim Copland notes:

In footnote 4, the majority credits AmEx’s concession that “other forms of cost sharing . . . could provide effective vindication.” As Professor [Myriam] Gilles noted, AmEx expressly conceded this point in footnote 8 of its reply brief on the merits. In essence, Justice Kagan’s dissent refuses to credit AmEx’s concession — thus disagreeing with the majority about the facts of this specific case.

As Cook points out, pattern and coordinated litigation filed on behalf of numerous small claimants against financial institutions, but not using the class action device, has been quite successful in fields ranging from the Fair Debt Collection Practices Act to FACTA to the ATM notice cases. Indeed, defendants will sometimes regret the lack of a class action mechanism since it may be more difficult to obtain closure and settlement of a body of liability without it.

Commentators have counted out the class action bar before now. It’s always been a mistake.

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American Express v. Italian Colors: arbitration waiver of class actions

Today’s Supreme Court decision in American Express Co. v. Italian Colors Restaurant is a victory for freedom of contract, a boost for arbitration as an alternative to litigation, and a step forward in the Court’s ongoing recognition that the class action is just one legal vehicle among many, not some priority express train to be favored over other traffic. The restaurant had agreed with American Express to settle disputes by way of arbitration, and to waive any rights to have future disputes handled through class actions. When a potential antitrust claim arose, it nonetheless sought to slip out of its contractual agreement and invalidate the waiver. Split along familiar ideological lines with Justice Sotomayor not participating, the court ruled 5-3 that the Second Circuit erred in striking down the waiver as inconsistent with the Federal Arbitration Act. While the Court has previously held that arbitration agreements must be construed to provide “effective vindication” of statutory claims, the class action format — which did not even exist for these purposes until decades after the Sherman Act’s passage — was not so crucial to the restaurant’s legal rights as to be unwaivable.

A dissent by Justice Kagan — both longer and more spirited than Justice Scalia’s majority opinion — seeks to extend the Court’s earlier rulings that arbitration clauses cannot thwart “effective vindication” of statutory rights by such devices as requiring overly high fees for entry into arbitration. Interestingly, the dissent outdoes the majority in claiming to favor the true spirit of arbitration as an alternative to litigation; in that respect, at least, it departs from the tone of much commentary from the Legal Left which treats arbitration as an evil corporate plot to deprive the world of the benefits of zealous litigation. It also proposes two paths of argument that the majority declines to pursue: 1) that skepticism toward contractual waivers might be especially appropriate in antitrust contexts because the alleged monopolist under scrutiny may use its putative market power to put across unfair contract terms; 2) that confidentiality clauses in Amex’s contract (not addressed by the majority) might fail the “effective vindication” test by preventing Amex customers from joining forces to collaborate on expert reports to use on their behalf in individualized assertion of their disputes.

For years, organized trial lawyers have been publicly campaigning against arbitration — which keeps money out of their pockets by diverting disputes from knock-down litigation — claiming that it is unfair and one-sided. But many studies support the view that disputants’ overall satisfaction in arbitration compares very favorably to that in litigation, in part because it is a speedier and less acrimonious process. And consumers and small businesses by millions sign away their class action rights not because they are all hoodwinked or coerced, but because at some level they have rational grounds to recognize that those class-action rights are very unlikely to pay off for them in durable future benefits (as opposed to benefits for participants in the litigation industry). Congress will be asked to overturn Supreme Court decisions like Amex v. Italian Colors and the earlier, related AT&T Mobility v. Concepcion. It should resist. (expanded from an earlier post at Cato at Liberty; and welcome SCOTUSblog readers.)

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Food roundup

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SCOTUS: trial lawyers can’t scoop up DMV names to solicit cases

Yesterday, in the case of Maracich v. Spears, the Supreme Court ruled that the Driver’s Privacy Protection Act of 1994 (DPPA) prohibits trial lawyers from accessing names and contact information from states’ drivers license databases with the intention of soliciting potential clients for litigation. Under DPPA, the general rule is that states must keep the information in such databases private; there is a “litigation exception” for queries intended to investigate or prepare for legal proceedings, but the Court ruled that soliciting clients was not part of its scope. As I argue in a new post at Cato at Liberty, the dispute brought about a curious reversal in the polarities displayed in the case of Maryland v. King earlier this month: the pro-privacy justices in that case were more likely to be willing to dispense with privacy this time, and vice versa.

The underlying lawsuit (Kevin Russell at SCOTUSBlog and background here, here) also involves a bit of a reversal: class action lawyers are themselves being sued in a class action. The majority opinion by Justice Anthony Kennedy sketches in some of the background:

In the case now before the Court, petitioners are South Carolina residents whose personal information was obtained by respondents from the South Carolina DMV and used without their consent to send solicitation letters asking them to join the lawsuits against the car dealerships. Petitioner Edward Maracich received one of the letters in March 2007. While his personal information had been disclosed to respondents because he was one of many buyers from a particular dealership, Maracich also happened to be the dealership’s director of sales and marketing. Petitioners Martha Weeks and John Tanner received letters from respondents in May 2007. In response to the letter, Tanner called Richard Harpootlian, one of the respondent attorneys listed on the letter. According to Tanner, Harpootlian made an aggressive sales pitch to sign Tanner as a client for the lawsuit without asking about the circumstances of his purchase.

Some of these points may be relevant on remand, because the court will be asked to consider whether the original solicitation letter (marked “SOLICITATION”) had the predominant purpose of investigating the developing lawsuit, or of attracting clients for it. And this leads to the third turnabout. In the second class action, the one over privacy and the lawyers’ use of the DMV database, petitioners are seeking specified statutory damages of $2,500 for each person whose privacy was breached, which could add up to an “astronomical” (as Justice Ginsburg put it in her dissent) sum of hundreds of millions of dollars in all. Indeed, the majority opinion as well as the dissent signaled disquiet at a possible assessment of damages so far out of proportion to any actual harm done — a phenomenon we have seen again and again in statutory class or group damages cases in the past. Some trial lawyers have in the past pooh-poohed, as the griping of sore losers, complaints about mechanical multiplication of statutory damages into huge sums (e.g. FACTA, junk faxes, song piracy, California Labor Code). In this case, such multiplication could pose a threat to the fiscal well-being of some of their own number. (& welcome TortsProf, Legal Ethics Forum, SCOTUSBlog, JOLT Digest (Harvard Journal of Law and Technology) readers)

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1. Government strong-arms production of enviro-friendly washers…

…2. The new front-loading washers turn out to have novel maintenance issues. In particular, they may develop musty smells unless owners practice some combination of leaving doors open to vent, wiping down surfaces, and other steps. Some consumers are irritated at this and regret the purchase, others not.

3. Trial lawyers sue all the major makers in class actions saying the new designs are defective, even though Consumer Reports rates the new category of washer “best in class” despite its drawbacks.

4. One of these class actions lands before Judge Posner at the Seventh Circuit, and he rules for letting it go forward on a theory of “predominance” (do these plaintiffs all belong in the same suit, when many are experiencing no problem at all?) that varies interestingly from what people assumed the Supreme Court’s thinking was on that subject.

5. The U.S. Supreme Court decides (coming up momentarily) whether to grant certiorari in Sears v. Butler.

There isn’t actually a strong logical chain linking 1) through 5); it’s kind of happenstance that the case threw up an issue involving predominance that the Supreme Court might find worth its attention, as opposed to merely presenting an overall profile of “hasn’t the whole system just become a crazy way to enrich lawyers?” Because “hasn’t the whole system just become a crazy way to enrich lawyers?” doesn’t count as a well-formed question for certiorari. [Ted Frank, more, Daniel Fisher] (& cross-posted, adapted, at Cato at Liberty) Update: Court vacates and remands in light of Comcast.) (& thanks to Marissa Miller, SCOTUSBlog, for roundup link)

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Class action roundup

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