Alexander M. Smith

CFPB Releases Winter Supervisory Highlights Report

By Alexander M. Smith

AutoEarlier this month, the Consumer Financial Protection Bureau (CFPB) released the latest iteration of its Supervisory Highlights report, which summarizes some of the CFPB’s recent supervisory examinations and provides guidance to industry about practices to avoid.  The CFPB’s Supervisory Highlights report notes that the CFPB has recently examined the following practices:

  • Automobile Loan Servicing.  The CFPB has recently conducted examinations of captive automotive finance companies for unfair and deceptive acts and practices (UDAAPs) involving rebates for extended automobile warranties.  Typically, when a lessee purchases an extended warranty for a leased car and the car is a total loss, the lessee is entitled to a pro-rated rebate of the premium amount for the un-used portion of the warranty; the rebate is applied first to any deficiency balance on the lease, and the balance is returned to the lessee.  The CFPB found that some automotive finance companies had engaged in UDAAPs by (1) failing to apply the rebate to the deficiency balance or artificially deflating the value of the rebate (for instance, by overstating the number of miles on the car) and then (2) attempting to collect on the inflated deficiency balance.

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What’s In Your Baby Powder? New York Proposes Stringent New Disclosure Requirements on Cleaning and Personal Care Products

By Alexander M. Smith

Personal-Care-ProductsLast week, New York Governor Andrew Cuomo announced the Consumer Right to Know Act (“Act”) as part of his proposed executive budget.  The Act would authorize the New York Department of Environmental Conservation, along with the New York Department of Health and the New York Department of State, to promulgate regulations requiring product manufacturers to disclose the presence of potentially hazardous substances on their product labeling.  Among other things, the Act would require these agencies to assess the feasibility of on-package labeling; develop regulations establishing a labeling requirement for designated products; develop a list of more than 1,000 substances that must be labeled; and identify the types of consumer products that will be subject to these new labeling requirements.  The Act would also extend the Department of Environmental Conservation’s disclosure requirements for household cleaning products to encompass all cleaning products sold in New York, and it would empower the Department of Health to require similar disclosures for personal care products like shampoo, deodorant, or baby powder.  Needless to say, these disclosure requirements would be among the most stringent—if not the most stringent—in the United States. 

Governor Cuomo’s announcement is available here.  We will keep our readers updated on the progress of Governor Cuomo’s proposal. 


October Term 2018 Preview: The Supreme Court’s Class Action Docket

SCOTUSBy Alexander M. Smith

The Supreme Court’s next term kicks off next week, when the court re-convenes for its first oral argument since last April.  The docket currently features four cases of interest to the consumer law and class action bar:

  • In Lamps Plus, Inc. v. Varela, a divided panel of the Ninth Circuit construed a provision stating that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment” to authorize class arbitration, even though the plaintiff’s employment agreement with Lamps Plus did not expressly authorize class-wide arbitration.  The Supreme Court granted certiorari to determine whether the Federal Arbitration Act “forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” 
  • In Frank v. Gaos, the district court authorized a class-wide settlement of a lawsuit alleging that Google violated federal and state privacy laws by disclosing users’ search terms to third parties, even though the settlement consisted only of cy pres relief and attorneys' fees.  A divided panel of the Ninth Circuit affirmed, rejecting the objectors’ arguments that (1) a settlement that provided no direct relief to the class was inappropriate and (2) that the cy pres beneficiaries, which had previously received settlement funds from Google and which were affiliated with the law schools attended by class counsel, were improper.  The Supreme Court granted certiorari to determine “[w]hether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’”

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Ninth Circuit Reaffirms Narrow Scope of Restitution Under California Consumer Protection Statutes

By Alexander M. Smith

RetailIn the last three years, the Ninth Circuit and the California Court of Appeal have issued a pair of decisions clarifying that restitution under California’s consumer protection statutes is limited to the difference between the price a consumer paid for the product and the value the consumer received from that product—i.e., the “price premium” attributable to the defendant’s conduct.  See In re Tobacco Cases II, 240 Cal. App. 4th 779, 791-802 (2015); Brazil v. Dole Packaged Foods, LLC, 660 F. App’x 531, 534-35 (9th Cir. 2016).  Earlier this week, the Ninth Circuit continued this line of cases in Chowning v. Kohl’s Department Stores, Inc., which reaffirmed that “[t]he proper calculation of restitution . . . is price paid versus value received” and rejected a variety of alternative restitution models suggested by the plaintiff.  No. 16-56272, 2018 WL 3016908, at *1 (9th Cir. June 18, 2016). 

In Chowning, the plaintiff alleged that Kohl’s misled consumers by displaying alongside the sale price for its products an inflated “Actual Retail Price,” which was not the prevailing market retail price and which caused consumers to believe that they were receiving a larger discount than they were.  As a result, the plaintiff alleged that she and other putative class members were deceived into buying products that they would not have purchased but for Kohl’s misleading price comparisons.  In March 2016, Judge Klausner of the Central District of California granted Kohl’s motion for summary judgment.  He identified “three limiting principles” that defined the appropriate scope of restitution under California law: (1) that “restitution cannot be ordered exclusively for the purpose of deterrence”; (2) that any proposed method of restitution “must account for the benefits or value that a plaintiff received at the time of purchase”; and (3) that “the amount of restitution ordered must represent a measurable loss supported by the evidence.”  No. 15-8673, 2016 WL 1072129, at *6 (C.D. Cal. Mar. 15, 2016). 

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CFPB Announces It Will “Reconsider” October 2017 Rule Governing Small-Dollar Loans

Pexels-photo-259130By Alexander M. Smith

Last October, the Consumer Financial Protection Bureau issued a final rule requiring payday lenders, automotive title lenders, deposit advance lenders, and similar short-term loan issuers to determine up front whether borrowers would have the ability to repay certain short-term, small dollar loans without borrowing again.  (The CFPB press release summarizing this rule is available here.)  On January 16, however, the CFPB announced that it would initiate additional rulemaking so that it could “reconsider” this rule.   Although the CFPB’s announcement did not repeal the rule, Law360 notes that many observers believe that the protections in the CFPB’s final rule will be “rolled back or eliminated altogether” and that other federal regulators, such as the Comptroller of the Currency, are considering amending their rules to expand the availability of similar small-dollar loans.   We will continue to monitor and report on the fate of the CFPB’s payday lending rule.


Ninth Circuit Hears Oral Argument on Constitutional Challenge to Federal Arbitration Act

Pexels-photo-261706By Alexander M. Smith

Earlier this week, the Ninth Circuit heard oral argument in Roberts v. AT&T Mobility LLC (Case No. 16-16915).  In 2015, a putative class of consumers sued AT&T in the Northern District of California, alleging that AT&T misled consumers about its “unlimited” data plans by misrepresenting its data speeds and failing to disclose that it would “throttle” data after a certain point.  AT&T moved to compel arbitration, and the plaintiffs raised a novel argument in opposition: The Federal Arbitration Act violates the First Amendment because, as construed by AT&T Mobility LLC v. Concepcion and its progeny, it denies consumers the right to petition the government for a redress of grievances.  In 2016, the district court (Chen, J.) rejected this argument.  The district court did not reach the merits of the plaintiffs’ Petition Clause argument; instead, it held as a threshold matter that the plaintiffs could not raise a constitutional challenge to the FAA because AT&T’s act of seeking to compel enforcement of an arbitration agreement did not constitute state action.  No. 15-3418, 2016 WL 1660049, at *4-10 (N.D. Cal. Apr. 27, 2016).  The district court nonetheless noted that the application of the state action doctrine to this argument presented “novel and difficult questions of first impression” and accordingly certified an interlocutory appeal to the Ninth Circuit on the state action issue.  No. 15-3418, 2016 WL 3476099, at *2 (N.D. Cal. June 27, 2016). 

Although the Ninth Circuit will likely take weeks (if not months) to issue its opinion, early coverage of the oral argument suggests that the plaintiffs’ argument may not fare well.  According to Law360, one of the judges on the panel inquired whether the plaintiffs were asking the court “to tell the Supreme Court in hindsight [that] the [J]ustices were wrong in their Concepcion ruling.”  We will update this post when the Ninth Circuit issues its ruling.


Eighth Circuit Reverses Sanctions for Re-Filing Putative Class Action in State Court

Photo-1429961449642-0d5a0d68245fBy Alexander M. Smith

Earlier this week, the Eighth Circuit reversed an order by the Western District of Arkansas (Holmes, J.) imposing sanctions on counsel who voluntarily dismissed a putative class action immediately before they re-filed the action and sought approval of a class settlement in Arkansas state court.  Although the district court concluded that counsel for the putative class stipulated to the dismissal for the “improper purpose of seeking a more favorable forum” and used “properly attached federal jurisdiction as a mid-litigation bargaining chip,” the Eighth Circuit found that counsel’s conduct was proper because “a reasonable lawyer would have had a colorable legal argument that a stipulation of voluntary dismissal . . . is permissible in a case in which the class has not yet been certified.” 

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Supreme Court Holds That Voluntary Dismissal Does Not Permit Appellate Review of Class Certification Orders

Us-supreme-court-building-2225765_1920By Alexander M. Smith

This morning, the Supreme Court held 8-0 in Microsoft Corp. v. Baker that the named plaintiffs in a class action cannot appeal a denial of class certification (or the granting of a motion to strike class allegations) by voluntarily dismissing their claims.  A five-Justice majority held that this tactic was barred because a voluntary dismissal under these circumstances does not constitute a “final order” under 28 U.S.C. § 1291, while three Justices concurred in the judgment on the basis that such a voluntary dismissal extinguishes the adversity necessary to give rise to Article III standing.  (The Consumer Law Roundup has covered Baker in three previous posts.) 

In Baker, the plaintiffs had filed a putative class action against Microsoft alleging that a defect in the Xbox 360 resulted in scratched discs.  After the district court granted Microsoft’s motion to strike the plaintiffs’ class allegations, the named plaintiffs voluntarily dismissed their claims against Microsoft so that there would be a “final decision” from which they could appeal the denial of class certification.  The Ninth Circuit held, inter alia, that a stipulated dismissal of an individual claim is an adverse and appealable final judgment.  The Supreme Court granted certiorari to address this jurisdictional issue and subsequently reversed.

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D.C. Circuit Strikes Down FCC Rule Requiring Opt-Out Notices on Solicited Faxes

By Alexander M. Smith

Printer-2178752_1920In November 2016, this blog reported that the D.C. Circuit appeared “sympathetic” to the position that the Telephone Consumer Protection Act (“TCPA”), which regulates “unsolicited” fax advertisements, did not empower the FCC to require opt-out notices on solicited fax advertisements.  Last Friday, a divided panel of the D.C. Circuit issued an opinion striking down the FCC’s 2006 rule requiring opt-out notices on solicited fax advertisements. 

In 2010, a group of businesses facing class action lawsuits involving solicited faxes without opt-out notices sought a declaratory ruling from the FCC clarifying that the TCPA does not require an opt-out notice on solicited fax advertisements.  The FCC responded to their petition by reiterating its position that the TCPA authorized it to require opt-out notices on solicited faxes, but it stated that it would waive application of this rule to businesses that sent solicited faxes before April 30, 2015.  The petitioners then sought review from the D.C. Circuit.  (A separate group of class action plaintiffs also appealed the FCC’s decision to grant a retroactive waiver.) 

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Supreme Court Hears Oral Argument in Microsoft v. Baker (Part II)

Supreme Court iStock_000017257808LargeBy Alexander M. Smith

On Tuesday, March 21, the Supreme Court heard oral argument in Microsoft, Inc. v. Baker.  (This blog has previously covered Baker here and here.)  Baker addresses whether a plaintiff can render a denial of class certification – which is not otherwise a final appealable order under 28 U.S.C. § 1291 – appealable by voluntarily dismissing her individual claims.  

According to Ronald Mann at SCOTUSBlog, the Justices were “deeply skeptical” of this strategy and appeared sympathetic to Microsoft’s argument that a party cannot ask a court to enter a judgment against her and then appeal from that judgment.  At one point, Mann reports, Justice Kagan asked: “Why did people think this was the governing law?”  Likewise, Justice Roberts commented that if “you told the district court to enter a judgment against you . . . you can’t argue that it shouldn’t have done that.”   The Court also appeared sympathetic to Microsoft’s argument that the voluntary dismissal strategy effectively gutted Federal Rule of Civil Procedure 23(f), which grants federal appellate courts discretion to allow interlocutory appeals of class certification rulings.  At one point, Justice Ginsburg stated that Rule “23(f) is out the window” if plaintiffs are allowed to appeal a class certification ruling after voluntarily dismissing their individual claims.   Ultimately, Mann concluded, “[t]his is one of those arguments in which the [J]ustices leave little doubt about the ultimate outcome,” and he predicts a “prompt and all-but-unanimous reversal of the 9th Circuit.” 

The transcript is available here.  We will report on the opinion once it issues.