The UCL Practitioner

Concepcion does not apply in state court?

Last December, I reported on the Supreme Court of Kentucky's decision in Schnuerle v. Insight Communications Co., ___ S.W.3d ___,2010 WL 5129850 (Ky. Dec. 16, 2010), striking down a no-class-action arbitration clause as unconscionable under Kentucky law. 

According to the docket (to pull up the case, insert year 2008, case no. 789), the defendants filed a rehearing petition in January 2011.  That petition was still pending when the U.S. Supreme Court handed down Concepcion on April 27, 2011.  Two days later, on April 29, 2011, the defendants filed a motion for leave to file a notice of supplemental authority. 

On May 10, 2011, the plaintiffs, represented by Paul Bland and Leslie Bailey of Public Justice, filed a response to that motion addressing Concepcion. 

The first argument the response brief makes (at pp. 2-5) is that Concepcion does not apply to cases pending in state court rather than in federal court.  The brief points out that Justice Clarence Thomas has consistently held, in every case in which the issue has come up since 1995, that the FAA does not apply in state-court actions.  Accordingly, had the Concepcion case itself been a state-court action rather than a federal case, his vote likely would have aligned him with the dissenters.  (See this blog post for more on Justice Thomas's concurrence.)

The brief cites federal appellate-level precedents, including a Ninth Circuit decision, in support of the idea that lower courts should consider how the votes would have been cast if the procedural posture of a case had been different. 

The brief also argues that Kentucky law is narrower than the Discover Bank rule found preempted in Concepcion, and that the defendants waived the argument that the FAA applies.

On May 11, 2011, the Kentucky Supreme Court granted the defendants' motion and accepted their supplemental filing.  It stands to reason that both the supplemental filing and the response would be considered.  It will be interesting to see how this case turns out.

ABA program on California consumer protection laws starts in 35 minutes and it's not too late to register

You can still register for the ABA teleseminar on California consumer protection laws, which starts at 10:00 a.m. this morning.  The program will run one hour; registration is free; MCLE credits are not provided.  Once you register, you will receive an email with the dial-in information. 

As a preview, here is our powerpoint for the program. 

REMINDER: Teleseminar on California consumer protection laws tomorrow

Don't forget to register for State Consumer Protection Laws: Enforcement and Litigation Trends in California, sponsored by the American Bar Association, Section of Antitrust Law, Private Advertising Litigation and Consumer Protection Committees. 

The teleconference will take place tomorrow, May 11, 2011, at 10:00 a.m. Pacific.  It is free to register. 

I will be one of the speakers, along with Dale J. Giali of Mayer Brown LLP, Deputy Attorney General Sheldon H. Jaffe of the California Department of Justice, and our moderator, Keri E. Campbell of Kelley Drye/White O’Connor.  Here is the description of the program from the flyer:

An expert panel with diverse perspectives will review California’s major consumer protection laws, including the Unfair Competition Law, the False Advertising Law and the Consumers Legal Remedies Act. The panel will discuss these laws’ uses in recent private civil and public enforcement actions. This will be the first in a state-by-state series looking at the particularities of each state’s consumer protection statues and common law and discussing what makes the state an attractive or unattractive venue for consumer fraud class action challenges and/or competitor challenges, as well as hearing from the regulators on the current consumer protection enforcement priorities.

Click here to register.

Analyses of the oral argument in Erica P. John Fund, Inc. v. Halliburton Co.

As I previously mentioned, the U.S. Supreme Court heard oral argument two weeks ago (on April 25, 2011) in Erica P. John Fund, Inc. v. Halliburton Co., no. 09-1403.

The D&O Diary has an interesting post by attorney Kimberly M. Melvin, who reviewed and analyzed the oral argument transcript.  This was her key takeaway:

No matter how the Court rules, the decision should have a significant impact on the large number of securities class actions working their way through the courts.  By determining whether class certification will give defendants a real opportunity to test plaintiffs’ claims that the class wide presumption of reliance should apply, the Court’s decision will determine whether class certification can be an important event for settlement and will provide defendants with an opportunity to bring an early appeal. The threat of a negative ruling on the merits at the class certification stage or of an early appeal provides companies, their directors and officers and their insurers with additional leverage and an incentive to “stick it out,” as Mr. Sterling [counsel for Halliburton] suggested, if a motion to dismiss is denied.

Similarly, The Conglomerate has a roundtable of posts on the case, including this post on the argument and this post on the argument. 

Professor Barbara Black, writing at The Conglomerate, summed it up like this: 

The most important message:  Nobody, not even defendant's counsel, supports the Fifth Circuit's position that requires plaintiffs to prove loss causation at the class certification stage.

She also said that the argument gave "no indication that they want to relax the requirements for class certification."  (According to a disclaimer at the end of this post, Professor Black was a signatory to an amicus brief urging reversal of the Fifth Circuit's decision.)

Still no activity in Philip Morris v. Jackson

The U.S. Supreme Court still has taken no action in Philip Morris USA, Inc. v. Jackson, no. 10-735, which was originally distributed for conference two months ago, on March 4, 2011.  The case has not appeared on any of the order lists since then, including this past Monday's list.

The Court may have decided to keep this case on hold until after an opinion is issued in Wal-Mart Stores, Inc. v. Dukes, no. 10-277, which was argued on March 29, 2011.  That opinion is due by the end of the Term.  The last date scheduled for release of opinions this Term is June 27, 2011. 

See this blog post for more on the issues raised in Philip Morris v. Jackson.

"Class Action Ruling an Earthquake for California Litigation"

Petra Pasternak of the Recorder had this article last week on the Concepcion decision.  The article quotes attorney Michael Rubin with an interesting take on the decision:

Michael Rubin of San Francisco's Altshuler Berzon said the decision doesn't actually prohibit class actions in arbitration, so the handful of class actions his firm has will likely move forward.

"All the decision today says is that a clause prohibiting class actions cannot be the basis for striking down an arbitration agreement as unconscionable," Rubin said. "That means arbitration agreements can still be struck down as unconscionable on other grounds," such as if it limits substantive rights or remedies. He said he expects to see a rise in mass tort cases to make up for the curb in class actions.

On Friday, the Recorder had another article on Concepcion, "Plaintiffs Don't See Easy Way Around AT&T Ruling" by Cheryl Miller (subscrption).  Among other things, this article says that a California State Senator plans to introduce "a legislative countermeasure" to the decision. 

In light of Justice Thomas's concurrence, I suppose such legislation would have to declare that contractual class action bans (whether related to an arbitration clause or not) are unlawful and void from inception (instead of merely unenforceable as Discover Bank held).  That would bring such bans within the savings clause of section 2 of the Federal Arbitration Act, as Justice Thomas interpreted it.  Presumably, that would in turn shift his vote over to align with the four dissenters. 

As Justice Thomas reads it,

[Section 2] require[s] enforcement of an agreement to arbitrate unless a party successfully asserts a defense concerning the formation of the agreement to arbitrate, such as fraud, duress, or mutual mistake.  [Citation.]  Contract defenses unrelated to the making of the agreement—such as public policy—could not be the basis for declining to enforce an arbitration clause.

Under this reading, the question here would be whether California’s Discover Bank rule relates to the making of an agreement. I think it does not.

Slip op. at 3-5 (Thomas, J. concurring) (emphasis added; footnote omitted). 

Blogosphere commentary on AT&T Mobility v. Concepcion

Since last Wednesday the legal blogosphere has been busily abuzz about AT&T Mobility v. Concepcion, ___ U.S. ___ (Apr. 27, 2011).

SCOTUSblog has two posts with commentary along with its usual roundups. 

Public Citizen's Consumer Law & Policy Blog has collected links to much of the early press coverage.  ContractProfs Blog similarly has a roundup of media and blogosphere coverage.

Cornell Law School Professor Michael C. Dorf deconstructs the opinion at his blog, Dorf on Law:

[T]he case is arresting because the Court's ruling runs away from principles that conservatives purport to value in other contexts.

....

In the AT&T case, ... the majority opinion exhibits tension with another jurisprudential principle favored by Justice Scalia and other conservatives.  In cases under the Equal Protection Clause and the Free Exercise Clause, Justice Scalia and his fellow travelers have repeatedly argued against disparate impact tests.  To discriminate, they say, is to use a criterion that on its face draws an impermissible distinction or, in rare circumstances, to use a formally neutral criterion that was adopted for the purpose of discriminating and has a disparate impact.

Yet in the AT&T case, the majority is willing to find that California's no-class-waiver rule does not apply to "any contract" because, even though it does apply to any contract, it impedes what Justice Scalia deems to be the purpose of the FAA.  It is possible to make this argument for the hypothetical no-jury-waiver and no-discovery-waiver rules, because then the state rule, while formally applying to any contract, would really apply only to arbitration contracts.  But the existence of arbitration class actions means that it's very hard to say that the California law's (supposed) disparate effect on arbitration must be evidence that the California no-class-waiver rule was adopted for the purpose of singling out arbitration.  Consequently, it appears that the Court's conservatives are betraying their general hostility to disparate impact for its own sake.

Attorney Matt Bailey of the Bailey Class Action Bilateral Arbitration Daily considers whether Justice Scalia's "majority" opinion is actually a 4-justice plurality opinion with less robust precedential effect (a question that probably crossed the minds of many who read the opinion):

[I]t is not entirely clear whether there exists any common overlap between the analysis of the majority and Justice Thomas. Specifically, the majority reasoned that the “saving clause [in § 2] permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability’” [Slip Opinion, at 5], but concluded that preemption must be found when doing so “stand[s] as an obstacle to the accomplishment of the FAA’s objectives.” See Slip Opinion, at 9.  Justice Thomas’ concurrence unequivocally rejected the majority’s “purposes-and-objectives preemption”, however, finding instead that the Discover Bank rule was in direct conflict with § 2.

Joe Consumer of The Pop Tort takes solace that the newly-created Consumer Financial Protection Bureau has a statutory mandate to study the use of arbitration clauses in consumer financial contracts. 

In fact, the Consumer Financial Protection Act of 2010 (which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010) goes much further, authorizing the Bureau to promulgage regulations prohibiting arbitration clauses in certain types of consumer contracts: 

SEC. 1028. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) STUDY AND REPORT.—The Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.
(b) FURTHER AUTHORITY.—The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a). 
(c) LIMITATION.—The authority described in subsection (b) may not be construed to prohibit or restrict a consumer from entering into a voluntary arbitration agreement with a covered person after a dispute has arisen.
(d) EFFECTIVE DATE.—Notwithstanding any other provision of law, any regulation prescribed by the Bureau under subsection (b) shall apply, consistent with the terms of the regulation, to any agreement between a consumer and a covered person entered into after the end of the 180-day period beginning on the effective date of the regulation, as established by the Bureau.

12 U.S.C. § 5518 (emphasis added). 

Elizabeth Warren, the head of the Bureau, has called arbitration "Darth Vader's Death Star--the Empire always wins."  So there is a very real possibility that certain classes of consumer contracts may end up unaffected by Concepcion.  We'll have to wait and see.

At the Huffington Post, David Arkush of Public Citizen laments the end of the American legal system as we  know it:

If recent crises have taught us anything, it's that disaster follows quickly when companies have too little oversight. AT&T is pushing the outer limits of deregulation, seeking a world in which companies can use one-sided contracts to grant themselves immunity from accountability for a vast range of wrongdoing. Concepcion represents a giant leap toward a dystopian legal system that the Supreme Court should have rejected out of hand -- lawlessness for major corporations and corporate-made law for the rest of us.

Some might call this hyperbole, others pragmatism.

At ADR Profs Blog, Professor Paul F. Kirgis of St. John's University School of Law offers this advice for attorneys with business clients:

Coupled with Stolt-Nielsen, which held that an arbitrator may not interpret silence in an arbitration agreement as allowing for class arbitration, Concepcion means companies no longer have to subject themselves to class actions by consumers (or employees, suppliers, or anyone else with whom they contract). As long as it is sufficiently favorable on cost to the consumer, any arbitration agreement that does not expressly allow for class treatment (and of course, none of them do expressly allow for class treatment) now has the effect of prohibiting class relief. I would submit that any attorney who does not now advise her business clients to put arbitration agreements in all consumer contracts risks a finding of legal malpractice.

Two other law professors, Sarah Cole of the Ohio State Univeristy Moritz College of Law, and Jean Sternlight of the University of Nevada at Las Vegas School of Law, have posts on the decision at ADR Profs Blog.