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Archive for the ‘Commentary’ Category

I’ve never used this blog as a platform for political commentary, but these are troubled times.  I believe that it is vital for as many of us as possible to stand on principle and not let the current political climate devolve into something much worse.  I waited with a feeling of dread in the minutes leading up to yesterday’s announcement of President Trump’s Supreme Court nominee.  I don’t think my unease was irrational given Trump’s already proven track record of nominating candidates to various cabinet positions who are either demonstrably unqualified, clearly bent on dismantling the institutions they are being appointed to serve, or both.  But I breathed a sigh of relief when Tenth Circuit Judge Neil Gorsuch was announced.  A noted conservative jurist, member of the Federalist Society, and avowed fan of the late Justice Scalia, Judge Gorsuch would not have been a surprise as the nominee of any more mainstream Republican, but with Trump’s track record so far, the nomination of Senator Ted Cruz or even Alabama Supreme Court Justice Roy Moore was not outside the realm of possibility.

A quick poll of reactions from members of Congress was predictable.   Many Republicans immediately hailed the selection of a solidly “conservative” selection in ways that made clear they knew little about the nominee, while many democrats were already vowing to fight to the death to block it, as Republicans had done last year with the nomination of Judge Merrick Garland.  Almost instantaneously, I received an email from the Democratic Congressional Campaign Committee asking me to donate money to help fight the “hyper-conservative” that Trump had just appointed.   Thankfully, a few took a more measured approach, including Colorado Senator Michael Bennett, who congratulated his fellow Coloradan and said he looked forward to reviewing the nominee’s record, according to the Denver Post.  Still, Democratic Senators are under pressure from progressives to move to block the nomination.

As a lifelong Democrat, I certainly do not support approval of the nominee without fully vetting him through the advise and consent process appropriate for a lifetime appointment of this magnitude.  However, I do think it would be wrong to filibuster or boycott the confirmation process, for several reasons.

First, Judge Gorsuch appears eminently qualified for the Supreme Court.  Although we hail from the same state, I don’t have the pleasure of knowing Judge Gorsuch personally, nor have I appeared before him.  However, members of the Denver legal community whom I respect have unanimously praised his intelligence, legal acumen, fair-mindedness, lack of political agenda, and most notably–given the President who nominated him–his temperament.  Even the most left-leaning lawyers who know or have appeared before him consider him qualified.  Leading civil rights lawyer David Lane was quoted in an AP article authored by Nicholas Riccardi as saying:

He is a very, very smart man. His leanings are very conservative, but he’s qualified to be on the Supreme Court . . . . I don’t know that Judge Gorsuch has a political agenda and he is sincere and honest and believes what he writes.

One of Denver’s leading plaintiff’s-side immigration lawyers, Jeff Joseph, went further in a post on Facebook just after the selection was announced:

I have appeared before Judge Gorsuch in the 10th Circuit. I have lost every time. But…this is a really good pick. Unlike every other decision coming out of the administration this week, this pick shows real deliberation and vetting. Yes, I obviously would have liked someone more left leaning, but Gorsuch is a real jurist. He believes in separation of powers and will check abuse of government power. More importantly, he is against Chevron and Brand X deference. When statues are vague he will not be willing to cowtow to the agency interpretation. He believes, rightly, that it is the role of the court to fill in the gaps. Bravo. This is a smart choice.

Former Colorado Supreme Court Justice Rebecca Love Kourlis, a democratic appointee who now heads the Institute for the Advancement of the American Legal System at the University of Denver, a non-profit think tank focusing on judicial independence and access to justice, was also quoted in Riccardi’s article as applauding Judge Gorsuch’s commitment to simplifying court procedure and making access to the courts more affordable and accessible.

Second, obstructionism on this nomination could be political suicide for Democrats.  If we’ve learned anything from the outcome of the Presidential election, it’s that a large portion of America has completely lost faith in our Government institutions.  In the face of any reasonable move by Trump, obstructionist behavior will not help endear Democrats to the voters they lost in the last election.  And for those who would say that the nomination should be blocked as an act of retribution, get over it.  Our candidate didn’t win, and the result of that is that the other party gets to pick the next Supreme Court Justice. Republicans took a very big gamble in blocking Judge Garland’s nomination and got away with it, probably not because voters liked it, but because voters ended up being so fed up with the status quo that the decided to give the “drain the swamp” candidate a try.  Democrats will not be so lucky here.  We need to accept reality and take the high ground.  At worst for Democrats, Gorsuch represents a return to the status quo on the Court before Justice Scalia’s unexpected death.  At best, Justice Gorsuch may turn out to be an independent thinker who becomes a surprise champion for civil rights, among other positive judicial reforms.  By all accounts, Judge Gorsuch is an independent thinker who admires Justice Scalia and shares his textualist philosophy but has a mind and unique judicial philosophy of his own.  And, according to those who know him, he has one trait that Justice Scalia often lacked, a tactful and fair-minded judicial temperament.

Third, and most importantly to me, a nominee with Judge Gorsuch’s track record provides our best insurance against the threat of Trump authoritarianism.  I don’t think it’s an overstatement to say that in just one week, Trump’s nationalist agenda, false propaganda, attacks on the press, censorship, and bullying tactics have already created the most significant threat to our nation’s Constitutional foundations since Watergate, a sentiment already echoed even by at least one prominent conservative commentator.  A review of his opinions makes clear that Judge Gorsuch is highly principled and a strong believer in the separation of powers and will not tolerate attempts by the executive branch to usurp or ignore legislative and judicial functions.  The best example of this is his concurrence to his own majority opinion in Gutierrez-Brizuela v. Lynch, where he goes to great lengths in describing the dangers of excessive executive power.  Judge Gorsuch also has a consistent track record in supporting the Bill of Rights, including checks on police power and government infringement and free exercise, regardless of religious affiliation.  At a time where Trump’s administration threatens to rule by executive decree, stifle public dissent, and ignore judicial orders, I believe that above all else, we need a Supreme Court that will stand up the constitutional doctrine of strong separation of powers and has an unwavering respect for the Bill of Rights.  Of course, as a textualist, there’s a good chance he disfavors the “penumbra” of rights implied by the Bill of Rights that would include a fundamental right to reproductive privacy, and I know this is a dealbreaker to many liberals.  But again, we aren’t in a position to choose, and this only means that at worst, he will preserve the status quo on the Court.  Given the alternatives that Trump could bring forward, I’ll take a Justice who will champion fundamental rights like free speech, freedom of the press, free expression, and freedom from unreasonable searches, seizures, and excessive force and whose antagonism to other fundamental rights like privacy, if he has antagonism at all, is based on a principled philosophy of limiting the Constitution to what the founders intended, rather than some religious, moral, or politically-motivated ideology.

Those who know me know I am no supporter of Trump or his agenda.  But perhaps in making the selection of a respected jurist rather than a right-wing hack, he is extending the olive branch to tell America that will respect the judiciary and the rule of law.  Or maybe he just didn’t bother to vet Judge Gorsuch enough to understand how antithetical his constitutional philosophy would be to Trump’s apparent efforts to ram through his policy agenda using unchecked executive power.  Whatever the reason, block Judge Gorsuch, and you are likely to get a nominee who may be less principled in conservative jurisprudence, but who is also less principled in promoting the rule of law itself.

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HarrisMartin’s Data Breach Litigation Conference: The Coming of Age is scheduled for next Wednesday, March 25, 2015, at the Westin San Diego.  I’ll be speaking on a panel titled Creative Approaches to Settling Data Breach Cases with Ben Barnow of Barnow and Associates, P.C., Chicago.  So, the news this week was very timely that Target has reached a settlement in the consumer class actions arising out of its massive payment card breach.  Because a few clients and colleagues on both sides of the bar have asked for my opinion about the settlement, I thought I’d share a few thoughts here.

Settlements in data breach cases have been fairly rare up to this point, as many data breach cases have met their doom at the pleadings stage due to the inability of plaintiffs to show injury-in-fact sufficient to give them standing.  Payment Card cases have been an exception because there are real financial losses to consumers that can flow naturally from a hacking incident.  Importantly, these losses generally do not include the amount of any fraudulent card transactions because federal law limits consumer liability to $50 and the major card brands go further and impose $0 liability requirements on issuing banks.  However, other incidental losses, such as replacement card fees, interest, finance charges by other companies due to missed payments, to name a few, can result from a payment card breach.  For this reason, claims in several payment card class actions, including Target (Target Order on Motion to Dismiss) have survived motions to dismiss, leading many defendants to settle these cases.  Payment card class actions against Heartland Payment Systems, TJ Maxx, Michaels Stores, and others were all resolved by class-wide settlements.

The Target Settlement has been praised and derided by the mainstream and legal trade media with a host of characterizations ranging from “huge” to “affordable” to “tiny.”  In fact, Target’s settlement is not particularly groundbreaking beyond the media attention that it has garnered.  Instead, it shares many of the features of the payment card settlements that came before it, and it is not significantly different in terms of its cost or in terms of the benefits it would provide to consumers, if finally approved.

Here is a summary of some of the key features of the settlement:

Overall Costs to Target

Claims Fund.  Target is to pay $10M to create a fund to pay consumers who claim certain out-of-pocket losses and time spent in connection with those losses (discussed in more detail below).  The fund is non-reversionary, meaning unclaimed funds don’t go back to the defendant.  Instead, the agreement contemplates that the court will decide who unclaimed funds are to be distributed.  (For a discussion of how courts can deal with unclaimed funds, see this February 2010 CAB post.)

Attorneys’ Fees.  The plaintiffs will request court approval of up to $6.75M in fees.  Target may object to the initial request, but it may not appeal any decision by the trial court to award $6.75M or less.  Target must pay the fees awarded in addition to the $10M fund.

Settlement Expenses.  Target must pay for all settlement administrative expenses in addition to claims fund and fees.  This includes the expenses to provide both published and direct notice of the settlement to affected customers and the costs to administer claims and make payments to claimants if the settlement is finally approved.  For a class size as large as Target’s these costs can easily measure in the millions of dollars.

Total Payment by Target.  So, my guess it that the total payout by Target is likely to be closer to $19M, assuming the full amount of fees are approved.

Settlement Benefits to Consumers 

One of the attachments to the Settlement Agreement is a Distribution Plan that generally outlines the benefits available to claimants.  The Distribution Plan doesn’t itemize every conceivable loss that might qualify for compensation, but it attaches sample claim forms that give more insight into the specific benefits that are contemplated.  Most of the categories of reimbursable losses are similar to those provided for in other payment card settlements.  Here’s a summary, with some comments on each category:

  • Payment for unreimbursed, out-of-pocket expenses, with a $10,000 cap per claim – Note that due to the zero consumer liability rules on fraud losses, combined with the fact that payment card information cannot be used to commit other forms of identity theft, it is extremely unlikely that any individual person will have a claim for an amount near the cap.  If it were otherwise, then the fund would only be sufficient to pay 1000 claims.  Other payment card settlements have included individual caps for the most typical types of expenses, which rarely exceed $200 or so, with a separate fund available for extraordinary claims.  The Target settlement omits this smaller cap, perhaps because experience has shown that it is generally unnecessary to control unreasonable or fraudulent claims.
  • Payment for 2 hours of time at $10/hour associated with each type of actual loss claimed – Payments for time are an interesting feature of payment card settlements.  Because of the zero consumer liability for fraud loss imposed by the card brands, mere lost time and aggravation make up the vast majority of consumer impact in a payment card breach.  However, time and inconvenience are generally not considered injuries for which damages can be recovered, so by agreeing to pay for lost time, the defendant is agreeing to pay for something that the plaintiffs probably couldn’t recover if the case went to trial.  Nonetheless, there is nothing preventing defendants from offering these benefits in a class action settlement setting, and it has become common for defendants to offer payments for lost time.  Because claims for time are susceptible to fraud and abuse and are difficult to document, the amounts available tend to be limited to 1-3 hours.  Based on the sample claim form, the Target settlement seems to allow claims for time spent correcting fraudulent charges, but it doesn’t appear to allow claims for lost time resulting from card replacement (for example, having to change the number on automatic or recurring payments), which is something that affects far more consumers than fraud itself in the aftermath of a payment card breach.  Other payment card settlements have allowed claims for lost time for either fraud or for dealing with replacement card issues.
  • Two different types of claim forms – The settlement contemplates the ability to elect either a documented or undocumented claim.  Documented claims get priority in payment.  From a defendant’s perspective, undocumented claims are problematic, because they are susceptible to fraud and abuse.  From a consumer’s perspective, having to document claims is an added aggravation, on top of the aggravation  of having had to deal with the impact of the breach in the first place.  This structure offers a compromise that permits undocumented claims, but ensures that those claims that are documented will be paid first.

As a practical matter, given the size of the fund, it is likely that there will be plenty of money to pay all documented claims and all plausible undocumented claims.  In fact, in view of past settlements, it is extraordinarily unlikely that the amount of all legitimate claims will get even close to the $10 million available in the fund.  In the Heartland Payment Systems settlement, for example, arising out of an incident that impacted 130 million card holder accounts, the number of claims for reimbursement amounted to a grand total of $1925.  (See Judge Rosenthal’s Order in Heartland Payment Systems).  This miniscule claims amount was due undoubtedly to a lack of public familiarity with Heartland (a payment processor) as a brand and with the incident itself, two things that are certainly not true of Target, and claims rates in other settlements have certainly been higher despite having much smaller numbers of potential class members.  However, various media outlets have quoted a RAND Corporation researcher as estimating that less than $1 million of the $10 million fund will be claimed (see, for example, this article by Jason Abbruzzese at Mashable).

If he’s right, expect a fight ahead on what should happen with the $9M in unclaimed funds which, according to the agreement, “shall be distributed by the Settlement Administrator as directed by the Court.”  Cy pres anyone?

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Editor’s Note: The following guest post was authored by Sara Collins, contributor to the consumer finance website, NerdWallet.  The views expressed in Sara’s article are her own.  Although those of us who tend to represent defendants in consumer class actions may not agree with all of Sara’s views on the benefits of class actions, we can certainly learn something from reading a consumer advocate’s views on the subject.  The article also provides an easy-to-follow primer on how class actions work.  Many thanks to Sara for her contribution. 

Class Actions – Do They Actually Help Consumers? 

By Sara Collins

Consumers in the United States are sometimes victims of bad business behavior. These behaviors cover a huge range of bad acts, particularly in the field of securities. Class actions allow consumers to band together and fight against bad business. As such, they have a number of benefits for consumers and are quite helpful in evening the corporation versus consumer playing field.

What are Consumer Class Actions?

A consumer class action is simply a lawsuit which takes place in a federal or state court. The case is brought by one or a small handful of individuals, acting as representatives for a larger group of consumers, known as the class. Typically the case is seeking damages on behalf of the named individuals in addition to the entire class.

Why is a Consumer Class Action Necessary?

Traditionally, class actions are used to combine small-dollar claims for a large number of people. One small claim is generally too small for a cost-effective suit. Consumer class actions offer a helpful alternative, justifying the litigation expenses and immensely improving the consumer’s odds of success, particularly when it comes to larger corporations.

How do Consumer Class Actions Work?

When a class action is first brought, the court initially decides whether it is a proper class action. This is a process known as class certification. The parties then work towards a trial, though settlement negotiations can take place at any point.  If the parties decide to settle the case, the court must approve the settlement and then order notice given to class action members.

Do Class Actions Work?

They definitely do. Billions of dollars are given back to the public every year which come from consumer class actions. In most cases, the money is given directly to the victims of the suit, rather than going into the hands of the government, lawyers or other non-consumers.

What Long-Term Effects do Consumer Class Actions Cause?

Class actions help to make bad business practices unprofitable. Class actions aggregate the power of isolated consumers, allowing class actions to compete against corporate behemoths. It levels the playing field, forcing businesses to operate in honest and trustworthy ways.  Markets in other countries where class actions are not allowed often suffer from corporate abuses like stock manipulation, insider trading and other problems.

Do Lawyers Benefit Excessively From Consumer Class Actions?

One argument used by businesses to protest the prevalence of consumer class actions is to claim that the lawyers benefit excessively from the cases. In fact, attorney fees in class action cases average just between 20 and 30 percent of the amount recovered. In stark comparison, personal injury lawyers typically reap 35 to 50 percent of their case winnings. Clearly businesses are using false arguments in an attempt to eliminate class actions and thus damages sought against them.

What is the Class Action Fairness Act of 2005?

The Class Action Fairness Act of 2005 (CAFA) was enacted by Congress in order to curb abuse of class action suits in state courts. Evidence showed that many class actions were being filed which benefited the counsel, rather than the consumers. Additionally, many cases were filed in courts which showed prejudice against business defendants, a problematic issue.

CAFA was enacted to extend federal jurisdiction to these state courts in order to diminish such abuses. CAFA has had a mild success and while most benefits are for businesses, some benefits are extended to consumers. Primarily, the legislation limits the monetary benefits for the attorneys. This ensures that money won in settlements goes to the members of the class, rather than the plaintiff counsel.

Consumer class actions are needed to ensure the financial safety of consumers, particularly in the realm of securities. Class actions allow consumers to band together, combining resources in order to sue a corporation as a singular entity. In turn, all consumers reap the benefits of the settlement, helping to prevent future bad behavior from the corporation in question. Class actions undoubtedly have a positive effect on the world of consumers and it is vital they stay legal for the foreseeable future.

Sara Collins is a writer for NerdWallet, a personal finance site dedicated to helping consumers learn about new ways to save money.

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My article for the University of Denver Law Review’s Online Edition entitled Statutory Penalties and Class Actions: Social Justice or Legalized Extortion?  was posted today.  The article discusses potential reforms to address the problem of class actions for statutory penalties giving rise to potentially annihilating liability in cases involving little or no actual harm.  Please check it out.  While you’re there, check out some of the other excellent content on a wide variety of legal topics that the DU Law Review has to offer in its online supplement to its regular print publication.

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Brian Wolfman, Co-director of the Institute for Public Representation at Georgetown University Law Center, has two excellent recent posts on Public Citizen’s Consumer Law and Policy Blog that provide food for thought on the need for class action reform, and the best way to achieve reform if it is needed.

In the most recent of the two articles, Paying the Lawyer’s Expenses in Class Actions, Wolfman discusses the social importance of allowing plaintiffs’ attorneys to recover their reasonable costs incurred in successfully pursuing a class action settlement or judgment, but discusses a recent case in which two attorneys from a prominent plaintiffs’ firm were sanctioned for having claimed reimbursement for fancy dinners and first class airline tickets.  Wolfman warns about the negative impact that this type of conduct has on public perception of class actions, and makes the valuable point that even minor abuses of the system for personal gain threatens to bring scrutiny to the class action mechanism more generally, which limits access to justice that class actions may provide in meritorious cases.

In an earlier article, Important 7th Circuit Decision Rejecting Shareholder Derivative Suit, Wolfman applauds Judge Frank Easterbrook’s opinion throwing out the settlement of a shareholder derivative suit after finding that the underlying suit lacked merit and should be dismissed.  Wolfman makes the point that rather than approving a settlement that provides little or no benefit to class members on the grounds that the merits of the claims are weak, the better solution from a public policy perspective is to dismiss the case entirely.  He sums up this point concisely, “[a]n obviously meritless case should not benefit the lawyers and no one else.”

The two articles illustrate two important conceptual principles on which many consumer advocates and corporate interests may find themselves in complete agreement: First, it is the potential for abuse of class actions, and not the class action mechanism itself, that often provides the basis for legitimate criticism.  Second, courts can preserve the fairness and integrity of class action mechanism without the need for systematic reform simply by applying common sense restraints in the face of clear abuse.  I think that both of these points are correct as a matter of principle, and they are both eloquently illustrated by Wolfman’s posts.

My only question is whether the idea of preventing abuse through the application by the courts of common sense constraints, while pure in theory, is truly realistic in practice.  It only works to the extent that all judges will act as carefully and thoughtfully as the judges in the two cases highlighted above.  If courts do not dismiss all frivolous cases when a defendant files a motion to dismiss, what choice does a defendant have as a practical matter but to consider buying peace on the best terms possible, which often means paying off the lawyers at the expense of a class that the defendant doesn’t believe was harmed anyway?  And, if some courts continue let frivolous claims proceed in the hopes that the parties will settle, or turn a blind eye to small excesses in fee and cost petitions, then basic human nature says that some (but certainly not all) plaintiffs’ lawyers will continue to commit these abuses, and some (but not all) defense lawyers will play along to serve their own interests.  In the end, the cynic will question whether relying on the diligence and intellectual honesty of the judiciary and the professional integrity of the bar is a realistic path to reform.

On the other hand, for those of us who are practitioners and not policymakers, professional responsibility, appeal to reason, diligence, and intellectual honesty are the only tools we have at our disposal at maintaining the integrity of the judicial process.

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David Lat posted an article on the legal industry blog Above the Law yesterday that caught my eye.  Lat’s post, entitled Benchslap of the Day: Second Circuit Rebukes Rakoffdiscusses the Second Circuit Court of Appeals’ per curium decision granting a stay pending the appeal of the lower court’s refusal to approve the settlement in SEC v. Citigroup Global Markets Inc., No. 11-5227-cv (2d Cir., Mar. 15, 2012).  Although the case is an SEC enforcement action and not a class action, I would argue that the following sentiment from the Second Circuit’s opinion applies with equal force in the class action context:

It is commonplace for settlements to include no binding admission of liability. A settlement is by definition a compromise. We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.

There is a corollary to this statement, which holds that a settlement does not have to fully compensate alleged victims in order to be fair and reasonable.  Too often, I hear statements by the media, members of the public, and even lawyers and judges, that are critical of a class action settlement because it does not fully compensate the members of a class or because it does not force a defendant to fully pay for the alleged harm.  As the Second Circuit panel’s opinion reminds us, a settlement is a compromise.  Except perhaps in the rare case where liability has already been proven, it is not unfair or unreasonable that a class action settlement does not provide full relief for the alleged victims of some as-yet unproven wrong.  You can bet that I will be citing this decision the next time I face that sort of argument in a class action settlement.

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For those readers who are interested in additional insights on Judge Posner’s opinion in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 11-3639 (7th Cir., Feb. 24, 2012), which was the subject of Wednesday’s CAB post, here’s a link to an insightful executive alert on the decision, which was authored by colleagues in Baker Hostler’s New York office, partner Deborah Renner and associate Matthew Moody.

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