Seventh and DC Circuits Allow Nationwide Class Actions with Claims of Out-of-State Plaintiffs after Bristol-Myers Squibb


By: Michael T. Brody, Gabriel K. Gillett, Howard S. Suskin and Brenna J. Field

New-Development-IconThis week, the Seventh and DC Circuits issued long-awaited and major decisions addressing a critical issue in class action litigation explicitly left unresolved in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017)—whether a federal court has jurisdiction to hear claims by out-of-state members of a putative nationwide class action whose claims lack a connection to the forum. Both courts said yes, albeit for different reasons. As other circuit courts weigh in, and possibly disagree, the Supreme Court will likely be called upon to resolve the issue.

In Bristol-Myers Squibb, 600 plaintiffs brought a coordinated mass tort action asserting California state law claims in California state court using a California rule for consolidating individual suits. But only 86 plaintiffs were California residents. The defendant argued that it was not subject to specific personal jurisdiction as to the non-resident plaintiffs’ claims because they and their claims lacked a sufficient connection to the forum. The Supreme Court agreed, but stated that it did not decide whether its holding applied to federal courts or to class actions. Since then, some federal district courts have taken this to mean that federal courts have specific personal jurisdiction over defendants facing claims by absent non-resident putative class members in any type of aggregated litigation while others have taken the opposite view, that this ruling limits the court’s jurisdiction to claims by plaintiffs (named and unnamed) with a connection to the forum.

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COVID- 19: Managing Financial Disruption


By: Angela M. Allen, Marc B. Hankin and Melissa M. Root

Covid-SideCOVID-19 presents an unprecedented global public health challenge that is placing significant stress on economic activity and financial markets.  Widespread mitigation efforts including social distancing and travel restrictions are most directly affecting businesses such as airlines and manufacturers reliant on an international supply chain.  However, at this point it is not possible to accurately predict COVID-19’s second and third order effects.

Just as a business needs to take appropriate steps to safeguard the health and well-being of its employees, it should also ensure its financial viability during this period of significant disruption and uncertainty.  While each enterprise necessarily faces unique challenges, as a general matter   a business would be well served to assess its current financial situation, with a particular focus on maintaining sufficient liquidity and compliance with its financing agreements so as to not trigger a default.  Recognizing that addressing the risk of financial distress is among the many challenges facing businesses at this time, the following are examples of the principal issues they should address in this regard. 

  • Financial Planning
    • Maintain Liquidity: During periods of financial and operational stress, the cliché  “Cash is King” rings true.  Conduct a table top exercise with leaders from finance, operations and legal to determine impact of COVID-19 on cash flow, with a goal of creating a 13-week cash flow forecast.  Update the forecast on a regular basis to incorporate new events and insights regarding the impact that COVID-19 is having on employees, customers and suppliers.  Consider delaying non-essential expenditures to address potential liquidity shortfalls.
    • Providing Credit: Consider changing credit terms for customers with liquidity restraints or whose revenue will be reduced due to common mitigation responses to COVID-19, such as travel restrictions and event cancellations.  Options include obtaining third-party guarantees, letters of credit, or moving to COD before fulfilling the customer’s next order.  Before making any such request, confirm that all applicable agreements with the customer permit the changing of such terms.
    • Insurance: Review coverage and consider making a claim under (1) business interruption insurance, (2) civil authority coverage and (3) trade-disruption insurance.
    • Contracts: Evaluate and understand terms of any key contracts where COVID-19 may impair the ability to timely perform. In particular, focus on “force majeure” clauses and cure periods in the event of a potential breach.  
  • Maintain Access to Credit
    • Evaluate credit documents for covenant default triggers.
    • Evaluate credit documents for substantive compliance with all reporting obligations. These often include matters relating to litigation, material contracts and events that have a material impact on the business – all of which may arise as a result of COVID-19.
    • Where business interruption insurance is available, review loan covenants to determine if proceeds of that policy may be added back to EBITDA or Net Income when calculating compliance with financial covenants.
  • Supply Chain Risks
    • Know and understand your supply chain and map it several tiers down to understand how your business inputs may be affected by COVID-19.
    • Identify critical vulnerabilities and take action. For key suppliers, identify potential alternatives (in particular any local sources) and seek to diversify supply chain to mitigate disruption.
    • Anticipate disruptions in key counterparty supply chain and evaluate potential implications on cash flow, EBIDTA, financial covenants, etc.

As during any period of significant disruption, clear and credible communication within an organization and to customers, suppliers and lenders is key.  Recognize that no one has experienced the substantial and widespread disruption that COVID-19 is causing.  Customers, suppliers and lenders are usually more willing to make reasonable accommodations to assist an enterprise experiencing financial distress when they have transparency into the problem, and the business leaders maintain credibility by providing accurate information and demonstrating that they have carefully considered the interests of all stakeholders. 

Seila Law LLC v. Consumer Financial Protection Bureau Summary

By: Julian J. Ginos

Supreme Court 35719-0001

The below summary is based on the Court’s official transcript of the argument, which remains subject to final review.

The March 3, 2020 oral argument in Seila Law LLC v. Consumer Financial Protection Bureau[1] focused on whether the Consumer Financial Protection Bureau’s (CFPB) single-director leadership structure is unconstitutional on the ground that the President, by statute, cannot remove that director at will.

Most questioning concerned whether (and how) the Court could draw a principled line distinguishing permissible and impermissible removal restrictions. The justices also probed the advocates about the likely breadth and impact of the rules being proposed. As usual, Justice Thomas asked no questions. Several themes emerged:

  • Many justices pursued lines of questioning concerning the possibility of a limited ruling.
    • The Chief Justice asked several times how the CFPB’s budgetary independence should affect the Court’s analysis, which suggests he might propose a resolution distinguishing the CFPB from other agencies to produce a narrower opinion.
    • Justice Kavanaugh pointed out that past decisions treating severability clauses as merely creating a presumption of severability date to an era when the Court’s analysis focused less on statutory text, which may indicate a view that the Court is bound to treat the removal restrictions as severable.
    • Justice Ginsburg asked whether Petitioner had even been harmed, given that the investigative demand was later ratified by an acting director (who was removable at will).
    • Justice Sotomayor similarly asked if the Court should address severability first and reserve consideration of the removal restriction for when a concrete dispute arises between a President and a director, if one ever does.

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Federal Reserve Highlights the Fair Lending Risks Posed by Targeted Internet Marketing


By: Keturah R. James

Internet-MarketingIn January 2020, the Federal Reserve’s Division of Consumer and Community Affairs published an article titled “From Catalogs to Clicks: The Fair Lending Implications of Targeted, Internet Marketing.”[1]  In the article, Federal Reserve staff Carol Evans and Westra Miller discuss how new technologies have made it possible for companies to obtain a “treasure trove of data about consumers”—including their race, gender, internet browsing patterns, where they live, and with whom they do business—and to use that data to target consumer groups.[2]  As the authors put it, this “targeted marketing” cuts both ways: it can facilitate financial inclusion and tailoring for consumers, but it may also be discriminatory under civil rights and consumer protection laws.[3]

In particular, Evans and Miller acknowledge that the use of consumer data to market credit can raise fair lending concerns, but also recognize that little regulatory guidance exists despite the increased use of Internet-based targeted marketing.[4]  Financial institutions are largely left to their own devices in determining how best to comply with laws that prohibit discrimination in lending, like the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).  Evans and Miller therefore provide specific recommendations to financial institutions who use targeted marketing, such as:

  • Lenders should “ensure that they understand how they are employing targeted, Internet-based marketing and whether any vendors use such marketing on their behalf.”[5]
  • Lenders that use online advertising services or platforms should “monitor the terms used for any filters, as well as any reports they receive documenting the audience(s) that were reached by the advertising.”[6]
  • Lenders should learn “whether a platform employs algorithms . . . that could result in advertisements being targeted based on prohibited characteristics.”[7]

Evans and Miller conclude by emphasizing the importance of carefully designing and monitoring online targeted advertising, especially given the high stakes that fair access to housing and credit have for minority consumers.[8]  Accordingly, as regulation in this area remains to be more thoroughly developed, financial institutions and others may choose to draw on the guidance in this article in their efforts to ensure that their marketing practices comply with applicable law.


[1] Carol A. Evans & Westra Miller, From Catalogs to Clicks: The Fair Lending Implications of Targeted, Internet Marketing, Consumer Compliance Outlook, Third Issue 2019, at 1.

[2] Id. at 2.

[3] Id. 

[4] Id. at 4. 

[5] Id. at 7. 

[6] Id. 

[7] Id.

[8] Id.

House Hearing on Equitable Algorithms


By: Isabel F. Farhi

New-Development-IconOn February 12, the Task Force on Artificial Intelligence of the House of Representatives Committee on Financial Services conducted a hearing titled “Equitable Algorithms: Examining Ways to Reduce AI Bias in Financial Services.”  The purpose of this hearing, as articulated in the opening remarks of the Committee Chair, was to assess fairness and transparency in the use of algorithms in the financial services industry.  The panelists were public interest advocates, academics, and legal professionals working in the technology space. 

The comments at the hearing revolved around two major themes:  first, how to define ‘fairness’ and the consequences of choosing a definition, and second, how bias can result from using algorithms and how regulators might correct that bias.  The panelists and Congressional representatives also made some general suggestions about appropriate regulations and remedies Congress could implement to ensure fair algorithms.

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FDA to Study "Endorser Status and Explicitness of Payment in Direct-to-Consumer Promotion"

By: Jay K. Simmons

DrugstoreFor several years the FDA and FTC have been considering the impact of celebrity endorsers.  The FDA is now providing an opportunity for public comment on a proposed study on celebrity endorsers and the explicitness of payment disclosures in direct-to-consumer promotions.  As the agency’s January 28, 2020 notice indicates, commercial advertisers have long employed celebrity endorsers, including in direct-to-consumer pharmaceutical promotion.[1]  Prior research has explored the role of various types of endorsers, such as celebrity influencers, experts and non-celebrities, in generating attention for a product.[2]  Existing research suggests that physicians and pharmacists, followed by other consumers and celebrities, are the types of endorsers most likely to influence consumers’ interest in purchasing over-the-counter pharmaceuticals.[3]

The FDA proposes collecting new information in this area via two studies on the role of celebrity product endorsements and endorsers’ payment status.  These studies are proposed to consider “the role of endorsement and payment status on participants’ recall, benefit and risk perceptions, and behavioral intentions.”  This includes, first, whether the type of endorser and “the presence of their payment status influences participant reactions,” and second, the impact of different types of endorsers’ payment disclosure language, ranging from “direct and more consumer-friendly” to “less direct.”[4]

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Consumer Finance Observer – Winter 2020

CFOJenner & Block has published its third issue of Consumer Finance Observer or CFO, a newsletter providing analysis of key consumer finance issues and updates on important developments to watch.  As thought leaders, our lawyers write about the consumer finance sector on topics ranging from artificial intelligence, compliance, data security, FinTech, lending and securities litigation.

In the Winter 2020 issue of the CFO, our consumer finance lawyers discuss the use of alternative data in credit underwriting; the New York action on UnitedHealth's algorithm; the next phase of Madden v. Midland Funding; the validity of arbitration agreements in bankruptcy proceedings; CCPA's impact on existing California consumer protection statutes; a quick look at HUD’s new Affirmatively Furthering Fair Housing Rule; and proposed amendments to the CCPA.  Contributors are Partners Landon S. RaifordMichael W. RossDavid P. SaundersDamon Y. SmithKate T. Spelman and Andrew W. Vail; Associates Kevin J. MurphyWilliam S.C. Goldstein and Effiong K. Dampha; and Law Clerk Isabel F. Farhi.

To read the full issue, please click here

California’s Attorney General Appeals a Preliminary Injunction Barring Enforcement of AB-5, The State’s New Worker Classification Law


By: Gabriel K. Gillett and Philip B. Sailer

CaliforniaCalifornia’s new AB-5, which took effect January 1, 2020, revised the state’s worker classification law to make it very difficult to classify a worker as an independent contractor.  Under the so-called ABC Test codified in the new law, businesses must show (A) that the worker is free from the hiring entity’s control and direction, (B) performs work that is outside the usual course of the business, and (C) engages in an independently established trade, occupation, or business.  A number of plaintiffs challenged the law, including Uber, freelance journalists, and the California Trucking Association. 

On January 16, 2020, the California Trucking Association became the first plaintiff to succeed in its challenge (at least so far).  In California Trucking Assn v. Becerra, the Southern District of California issued a preliminary injunction barring the state from enforcing the law as to motor carriers.  2020 WL 248993 (S.D. Cal. Jan. 16, 2020).  As the court explained, the Federal Aviation Authorization Administration Act (FAAAA) expressly preempted state regulations that “related to . . . price, route, or service of any motor carrier.”  49 U.S.C. § 14501(c)(1).  The court cited past cases in the First and Ninth Circuits that held that the FAAAA preempted similar state employee classification statutes, and distinguished a Third Circuit case that held otherwise.  See id. at *6 (comparing Schwann v. Fedex Ground Package Sys., 813 F.3d 429 (1st Cir. 2016), California Trucking Ass’n v. Su, 903 F.3d 953 (9th Cir. 2018), and Bedoya v. Am. Eagle Express, Inc., 914 F.3d 812 (3d Cir. 2019)).  Notably, the court explained, AB-5 codified a test that “classif[ied] workers for the purpose of determining whether all of California employment laws do or do not apply, rather than a small group of those laws” as other states had done.  Id. at *9.  The result, according to the court, is that AB-5 will cause employers to reclassify a substantial amount of independent contractors as employees because they work “within ‘the usual course of the hiring entity’s business.’”  Id. at *7.

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New York and California Aim to Provide Consumers with Additional Protections

By: Alexander N. Ghantous

New-Update-IconNew York Governor Andrew M. Cuomo recently introduced a number of new legislative proposals in his 2020 State of the State agenda, including proposals that would offer New York consumers increased protections.[1]  Additionally, California Governor Gavin C. Newsom also outlined how California will provide additional protections to its consumers in the Governor’s Budget Summary for 2020-2021.[2]  Below are some highlights from each state:

New York

I.  Regulating and Licensing Debt Collection Firms.

In Governor Cuomo’s 2020 New York State of the State agenda, legislation was proposed that would grant the Department of Financial Services (DFS) the power “to license debt collection entities, and empower DFS to examine and investigate suspected abuses, including by requiring the submission of information to DFS, and authorizing DFS investigators to enter a debt collector’s office at any time to review its books and records.”[3]  Consequently, DFS, with this new authority, would have the ability to initiate actions against debt collection organizations that could result in fines, or even the forfeiture of licenses that are required to conduct business in the state of New York.[4]   The proposed legislation would also protect individuals from fraudulent schemes in which they would pay non-existing debts.[5]  Governor Cuomo will also propose legislation that would authorize the state to “codify a Federal Trade Commission rule that prohibits confessions of judgement in consumer loans.”[6]                     

II.  Bolstering Consumer Protection Laws.

In Governor Cuomo’s 2020 State of the State Agenda, legislation was also proposed that would “mak[e] New York State consumer protection law consistent with federal law.”[7]  Currently, New York state authorities are unable to “bring the type of enforcement actions that federal authorities can bring for a broad range of unfair, deceptive, abusive acts and practices.”[8]  The proposed legislation would empower the state to oversee numerous consumer services and products by eradicating exemptions that are currently in play.[9]  Furthermore, the proposed legislation would eliminate loopholes and create an environment where regulated entities would all have the same chance to succeed.[10]

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HUD Publishes New Affirmatively Furthering Fair Housing Rule

By: Damon Y. Smith

Housing1Ever since the US Department of Housing and Urban Development (HUD) suspended certain reporting requirements of the Affirmatively Furthering Fair Housing (AFFH) rule for local governments in 2018, cities and affordable housing developers and lenders have awaited their proposed replacement.  After a year of review and revisions, HUD recently released a newly proposed AFFH rule.  The proposed regulation re-defines AFFH and makes substantial changes to the metrics for compliance.

The Department’s new definition of AFFH is “advancing fair housing choice within the program participant’s control or influence.”  However, the headline change for most program participants (state and local government and public housing agencies) is that they will no longer have to use a HUD-prescribed computer assessment tool to determine their compliance with AFFH.  That tool required program participants to answer questions about segregation levels and patterns in their communities and impediments to changing those patterns in the future.  Instead, the proposed rule has adopted three metrics to determine if a participating jurisdiction is (1) free of fair housing claims; (2) has adequate supply of affordable housing and (3) has adequate quality in that supply of affordable housing.  These metrics dovetail with the Department’s new definition of AFFH because “fair housing choice” is further defined to include choice that is (1) free of fair housing discrimination, (2) actual in fact, due to existence of informed affordable housing options and (3) capable of providing access to quality affordable housing that is decent, safe and sanitary.

Comments on this new rule are due on March 16, 2020.