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Posts Tagged ‘FACTA’

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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Two readers sent me tips yesterday on important decisions from the Second and Third Circuit Courts of Appeals that will be of interest to class action practitioners:

First, John G. Papianou of the Philadelphia firm Montgomery, McCracken, Walker & Rhoads, LLP forwarded a copy of the Third Circuit’s decision in Long v. Tommy Hilfiger U.S.A., Inc., No. 11-1554 (3d Cir., Jan. 24, 2012).  The Third Circuit affirmed a lower court’s decision (summarized in this February 14, 2011 CAB Post) holding that 1) the Fair and Accurate Credit Transactions Act (FACTA) prohibits a merchant from printing a consumer’s expiration month (as opposed to the entire expiration date) on a credit card receipt but that 2) the standard for a willful violation of FAСTA is one of objective reasonableness, meaning that if a merchant acted in conformance with a reasonable, albeit erroneous, interpretation of the statute, it cannot be held liable for a willful violation, regardless of its subjective knowledge or intent.

Second, New York securities class action lawyer Noah L. Shube forwarded a copy of the Second Circuit’s highly anticipated decision in In Re American Express Merchants’ Litigation, No. 06-1871 (2d Cir., Feb. 1, 2012).  In that case, the Second Circuit reaffirmed its conclusion invalidating a class arbitration waiver on federal statutory grounds.  The case had been vacated and remanded by the U.S. Supreme Court to reconsider in light of its recent decision in  AT&T Mobility v. Concepcion.  Yesterday’s decision follows a previous ruling finding the clause unenforceable, which had previously been vacated, remanded for reconsideration in light of the Court’s decision in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), only to be reaffirmed by the Second Circuit in a March 8, 2011 ruling (discussed in this March 9, 2011 CAB entry).  In yesterday’s decision, the Second Circuit relied on the federal law of arbitrability, a concept not squarely addressed in either of the Supreme Court’s recent class arbitration decisions, in holding the class arbitration waiver unenforceable.

The Baker Hostetler class action team is putting together a more detailed alert discussing yesterday’s decision in In re American Express Merchants’ Litigation, and I’ll post a link to that alert as soon as it is available.

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One of the hottest substantive areas in consumer class actions these days is litigation under the Telephone Consumer Protection Act (TCPA), 47 U.S .C. § 227, sometimes called the “fax blast” statute, which prohibits unsolicited faxes and automated calls for the purpose of commercial solicitation.  The TCPA has a statutory penalty provision that allows consumers to recover $500 for each violation.  The ability to collect far more in statutory penalties than the actual damages caused by a given violation makes TCPA violations an appealing target for enterprising plaintiffs’ class action lawyers.  The aggregation of thousands of claims together can create huge monetary exposure for defendants and the potential for easy settlements and the large contingent fees that comes with it.  In this way, the TCPA is similar to other laws with statutory penalties, such as the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which provides for statutory penalties against a company that produces credit card receipts with too much information on them.

Although it is a federal statute, the TCPA does not provide for federal court jurisdiction in private actions to enforce it.  TCPA class actions may only be filed in or removed to the federal courts if there is diversity jurisdiction under CAFA

This has naturally given rise to the question of whether state laws limiting class actions, such as § 901(b) of New York’s Civil Practice Law and Rules, which prohibits class actions for claims seeking statutory penalties, are applicable in federal court exercising diversity jurisdiction over TCPA claims.   Before the Supreme Court’s decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., the Second Circuit Court of Appeals said yes.  After the Supreme Court remanded for reconsideration in light of Shady Grove, the Second Circuit said yes again, reasoning that the TCPA’s language allowing private enforcement “if otherwise permitted by the laws or rules of court of a State” gave the states broad power to determine how TCPA actions may be prosecuted within their borders.  The Third Circuit has disagreed with this conclusion, holding that State limitations on class actions do not apply in TCPA class actions filed in the federal courts.  Given the Third Circuit’s view, defendants in at least some jurisdictions may have a strong incentive to oppose federal jurisdiction in TCPA cases.

Another question that arises from the peculiar federalist nature of the TCPA is whether a state or federal statute of limitations applies.  Earlier this week, in Giovanniello v. ALM Media LLC, the Second Circuit answered this question and held that a shorter state law limitations period applied rather than the 4-year federal catchall provision. 

Several recent decisions have highlighted a split among both the state and federal the courts about whether TCPA claims should be permitted to be brought as class actions at all.  Of particular note is the recent decision of the New Jersey Superior Court, Appellate Division in Local Baking Products, Inc. v. Kosher Bagel Munch, Inc., which provides an excellent survey of the various state and federal court decisions on both sides of the issue.  The court in Local Baking Products ultimately decided that class certification of TCPA claims was not appropriate. It reasoned that class actions are not a superior procedure for enforcing the TCPA because Congress had made statutory penalties available so that individuals would be incentivized to pursue vindication of their rights in individual actions in small claims or other state courts.  In addition to lack of superiority, a common reason offered by other courts for rejecting class certification is that the question of whether faxes or calls were authorized is too individualized for common questions to predominate.

Earlier this month, however, the Supreme Court of Kansas upheld a lower court’s decision granting class certification in a TCPA case.  In Critchfield Physical Therapy v. The Taranto Group, Inc., the court rejected both the argument that individual actions in small claims court would be superior to a class action and the argument that the question of consent was too individualized.  In addition, the court rejected the argument that class actions would not be superior in light of the threat that aggregating thousands of individual statutory penalties together could create an “annihilating” judgment against the defendant that would be disproportionate to any harm to the class.  A similar argument had been successful in a FACTA case in California federal court, but later reversed by the Ninth Circuit in Bateman v. American Multi Cinema, Inc.

Meanwhile, while a bill has been introduced in the U.S. house to “modernize” the TCPA by permitting certain informational robo-calls to be made to mobile phones, among other things, the bill would not modify the private enforcement provisions of the statute.

One quandary facing courts and counsel in TCPA class actions is how to give notice to consumers if a class is certified.  Last month, a Madison County, Illinois judge ordered that notice of a class action for unsolicited faxes under the TCPA should be disseminated by. . . 

. . . you guessed it . . .  

fax.

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Class Action Watch executive director Lawrence W. Schonbrun has an opinion piece in yesterday’s Huffington Post entitled The Class Action Mess in a Nutshell.  In the article, he questions whether the same “weapons of mass destruction” label that Warren Buffet gave to financial derivatives should apply equally to class action lawsuits.  As an example, he offers a recent lawsuit against a mortgage lender that had to settle a lawsuit for millions rather than face billions in potential liability for statutory penalties under the Fair Credit Reporting Act (FCRA).  The allegation against the company had been that it had sent out a mass solicitation that failed to give a sufficiently “conspicuous” statutorily-required notice about a consumer’s right to prevent certain uses of his or her credit information. 

As noted in this February 14 CAB entry, class actions seeking statutory penalties under FCRA and similar statutes have been a controversial issue over the past few years.  Some say that it is unfair to subject a company (and, by implication its employees and shareholders) to potentially “annihilating” liability for acts that have caused no material injury to the vast majoirty of a class of consumers.  Others say that if class actions are to be prohibited in cases seeking penalties under these statutes, it is up to Congress to say so.

I will leave it up to the reader to decide whether these types of class actions portend an economic nuclear holocaust.

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Over the weekend, John Papianou, class action defense lawyer and Partner at Montgomery, McCracken, Walker & Rhoads, sent me a copy of Long v. Tommy Hilfiger U.S.A. Inc., No. 09-1701 (W.D. Pa., February 11, 2011) (link courtesy of www.justia.com), an interesting decision involving the Fair and Accurate Transactions Act of 2003 (“FACTA”), 15 U.S.C. §§ 1681c(g), 1681n(a)(1)(A).

FACTA contains provisions requiring that account numbers on credit card receipts be truncated to no more than the last five digits and that receipts not display the card’s expiration date.  It is a popular subject of class actions because it provides for statutory penalties for willful violations of its truncation requirements, which potentially alleviates the need to prove individual injury.

FACTA class actions can pose an extreme risk to companies because, when they are aggregated, the per-violation statutory penalties of $100 to $1000 can far outweigh the potential harm caused by the disclosure of credit card information.  Moreover, in the case of smaller companies, the potential liability can dwarf the net worth of the company itself.  The potential for “annihilating” liability has led several courts to hold that class actions are not a superior method of adjudicating actions for statutory penalties under FACTA.  See, e.g., Leysoto v. Mama Mia I, Inc., 255 F.R.D. 693, 697-98 (S.D. Fla. 2009) (link courtesy of Class Action Defense Blog), see also Stillmock v. Weiss Markets, Inc., No. 09-1632 (4th Cir. July 1, 2010) (unpublished) (Wilkinson, J., concurring specially).  However, the Ninth Circuit Court of Appeals recently held that the prospect of liability that is vastly disproportionate to the actual harm suffered by a prospective class was not a sufficient basis to reject class certification on superiority grounds. Bateman v. American Multi-Cinema, Inc., — F.3d — (9th Cir. Sept. 27, 2010), reversing Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647 (C.D. Cal. 2008) (link courtesy of Class Action Defense Blog).

In Long, the defendant had complied with the five-digit truncation requirement.  It had printed the expiration month, but not the year, on the receipt.  The court interpreted the words “expiration date” as requiring both the month and the year of expiration, and found that the defendant had not been in violation of the prohibition against printing the expiration date on a credit card receipt.  Alternatively, the court held that even if printing the month had been a technical violation, it could not be a wilful violation sufficient to trigger statutory penalties.  In reaching this conclusion, the court followed the reasoning of the Seventh Circuit Court of appeals in Shlahtichman v. 1-800 Contacts, Inc., 615 F. 3d 794 (7th Cir. 2010) (link courtesy of www.findlaw.com) that the standard for assessing whether a wilful violation has occurred is an objective one, whether a reasonable person in the position of the defendant could have believed that it was a violation.  The decision to apply an objective rather than a subjective standard is important, as Papianou pointed out to me, because it renders unnecessary any factual analysis (and discovery) of what the defendant actually believed.

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As the new year approaches, everyone seems to be doing a “top ten” list for 2008, so of course, ClassActionBlawg has to have one too.  However, this “top ten” list has two improvements.  First, the rankings will be decided by reader vote.  Second, and even better, it goes to 11!

So, here are some key class action decisions and trends from the year that was, in no particular order.  See the poll below to vote for the one you like best.  Feel free to submit comments with other suggestions, and maybe together we can make a top ten list so good that it will go higher than 11.  Best wishes to all in 2009.

  • RICO fraud class actions show promise after Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S.. —. , 128 S.Ct. 2131 (U.S. June 9, 2008) (holding that a plaintiff need not show first-party reliance in order to assert a claim under the federal RICO statute).
  • “Foreign Cubed” class actions show promise, then sputter a bit.  See Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008) (discussing federal jurisdiction over “foreign cubed” securities class actions).
  • Fraud on the market theories are tested in consumer fraud cases.  See McLaughlin v. Philip Morris USA, Inc., 522 F.3d 215 (2d Cir. 2008) (rejecting class certification on various consumer fraud theories, including the “fraud on the market theory”).
  • Courts reject certification of FACTA Class Actions on superiority grounds based on reasoning that class exposure would be grossly disproportionate to the alleged harm to consumers.  See, e.g., this recent California federal court decision summarized at Class Action Defense Blog.
  • California courts address certification of wage and hour class actions involving unpaid wages for time worked during meal and rest breaksSee Brinker Restaurant Corp. v. Superior Court (2008), 165 Cal. App. 4th 25, review granted (Oct. 22, 2008).
  • Truth in Lending Act (TILA) actions seeking rescission of mortgages due to alleged predatory lending deemed unsuitable for class treatment.  See Andrews v. Chevy Chase Bank, No. 07-1327 (7th Cir., Sept. 24, 2008)
  • Class actions for damages caused by pollution where defendant has complied with applicable regulations see mixed results in the U.S. and Canada.
  • The Second Circuit Court of Appeals holds that a preponderance of the evidence standard of proof applies in determining whether the elements of class certification have been satisfied in Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., Case No. 06-3794-cv (2d Cir. Oct. 14, 2008).
  • Italy’s new class action law takes effect, while other European countries consider class action reforms.
  • Class action scandals involving illegal kickback and bribery schemes result in prison sentences for class action lawyers Melvin Weiss, William Lerach, Dickie Scruggs and others.
  • The Supreme Court rejects “scheme liability” in securities fraud cases in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008)

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Here are some blog entries from the week that was that might be of interest to class action practitioners:

Class Action Blog Post Title of the Week

CAFA Law Blog‘s entries often make me chuckle, but here is one that had me rolling for some reason (probably lack of sleep due to late night blogging): “Plaintiff Gets His Bic Flicked on a CAFA Removal in California”:

http://www.cafalawblog.com/-case-summaries-plaintiff-gets-his-bic-flicked-on-a-cafa-removal-in-california.html 

Class Action Decisions

The Complex Litigator and The UCL Practitioner  both offer commentary on a California Court of Appeal decision addressing the collateral estoppel effect of a final order denying class certification on a subsequent class action brought by a different named plaintiff but raising the same claims:

http://www.uclpractitioner.com/2006/10/new_class_certi.html

http://www.thecomplexlitigator.com/2008/10/procedural-news.html

Class Action Defense Blog summarizes an Eighth Circuit Court of Appeals decision upholding a class arbitration waiver clause:

http://classactiondefense.jmbm.com/2008/10/arbitration_class_action_defen_9.html 

Class Action Trends

Compliance Week provides some excellent commentary on the rise of subprime mortgage litigation in an article that includes quotes on subprime litigation trends from The D&O Diary‘s Kevin LaCroix and one of my law partners, Fritz Chockley:

http://www.complianceweek.com/article/5079/sub-prime-litigation-its-only-just-begun

For synopses of various cases addressing Truth in Lending Act (TILA) issues, including the viability of class actions for rescission of mortgages, see this entry from Foreclosure Combatant.  (Note that the Seventh Circuit Court of Appeals recently overturned the decision in Andrews v. Chevy Chase Bank.  See this September 26 CAB Entry).

http://loanaudit.wordpress.com/2008/10/15/truth-in-lending-act-developments/

Mass Tort Litigation Blog provides information about the speakers scheduled for the upcoming 12th Annual ABA National Institute on Class Actions in New York City:

http://lawprofessors.typepad.com/mass_tort_litigation/2008/10/12th-annual-aba.html

Class Action News

RetiredPlayers.org reports on the commencement of the trial in a class action brought on behalf of former NFL players against the NFL Players’ Association and Player’s, Inc. seeking a share of licensing revenues:

http://retiredplayers.org/2008/10/15/retired-players-class-action-trial-to-begin-next-week/

The D&O Diary reports on what may be the first settlement of a subprime-related securities class action:

http://www.dandodiary.com/2008/10/articles/subprime-litigation/first-subprime-securities-lawsuit-settlement/

Overlawyered provides a link to a Connecticut Employment Law Blog entry updating readers on proceedings in an employment class action filed by several professional wrestlers against WWE and discussing why the case may have broader implications in cases involving the distinction between an employee and independent contractor.  (Aside-There’s still no sign of a consumer fraud class action against professional wrestling on the grounds that it is fake–I know, it would be extremely difficult to prove):

http://overlawyered.com/2008/10/update-wrestlers-class-action-against-wwe/

http://www.ctemploymentlawblog.com/2008/10/articles/decisions-and-rulings/wwe-lawsuit-update-what-you-need-to-know/

Class Action Commentary

Legal Radar comments on the impact of the denial of class certification in cases brought by rice farmers against a seed manufacturer for alleged contamination caused by its genetically modified seeds:

http://www.legalradar.com/2008/10/class-action-ag.html

Pro Publica discusses the challenge facing the plaintiffs in securities class actions filed in the wake of the recent credit crisis in light of the heightened burden of proof in securities class actions under the 1995 Private Securities Litigation Reform Act (PSLRA):

http://www.propublica.org/article/fraud-suits-in-the-pipeline-face-high-burden-of-proof-1014/#When:16:13:01Z

TM&S offers commentary on the “fairness” of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which has generated controversy by providing a vehicle for class action liability to small business due to technical violations of credit card receipt requirements…

http://www.tmspay.com/2008/10/14/is-facta-really-fair-and-accurate/

… and here’s more insightful FACTA commentary from guest columnist Randy J. Maniloff, writing for Point of Law:

http://www.pointoflaw.com/columns/archives/2008/10/whole-enchilada-inc-v-traveler.php

Class Action Reform

Drug and Device Law follows up on a recent post discussing Michigan Law Professor Adam Pritchard’s idea for corporations to stave off “fraud on the market” securities class actions through amendments to their articles of incorporation:

http://druganddevicelaw.blogspot.com/2008/10/end-of-securities-fraud-class-actions_15.html

International Class Action Law

News Link provides a brief introduction to class action law in India:

http://www.newslink.in/2008/10/15/all-about-the-class-action-lawsuit/

Pogo Was Right responds to a Korea Times article discussing a potential class action suit against an Internet company accused of leaking private consumer information.  The news article includes a description of an interesting dispute resolution procedure to be employed prior to trial:

http://www.pogowasright.org/article.php?story=20081012081754274

With Vigour and Zeal summarizes a report issued by the law firm Fullbright & Jaworski on litigation trends and statistics, including statistics on UK companies facing class actions in the US and on subprime-related class actions:

http://kranenburgesq.com/blog/2008/10/fulbrights-fifth/

Class Action Potpourri

Legal Writing Competitions announces a law student writing competition in which the winner will be selected for publication in Class Action Reports:

http://legalwritingcompetitions.blogspot.com/2008/10/class-action-reports-publication.html

Hair Balls reports on the case of a disgruntled traveler who brought a class action against an airline for having to pay a fuel surcharge for a flight he didn’t take:

http://blogs.houstonpress.com/hairballs/2008/10/guy_sues_continental_airlines.php

Cannabis Liberty muses about the possibility of a class action to vindicate the victims of false positives in drug testing due to their choice of adopting an “organic natural lifestyle”:

http://cannabisliberty.com/2008/10/09/a-class-action-suit-id-like-to-see/

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