US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It

   

By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

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The Consumer Welfare Standard on Shaky Ground?

 

By: Lee K. Van Voorhis and Eugene Lim

City-community-crossing-109919For the past forty years, the consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action.  The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978.[1]  The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers. The US Supreme Court quickly solidified Bork’s views in Reiter v. Sonotone Corp.[2]  The CWS has since provided more predictability in antitrust enforcement, narrowing its focus purely on consumer prices.[3]

However, critics are now voicing concerns that it is time to broaden the factors analyzing what benefits consumers.  Critics have advocated that antitrust enforcement should be determined by a “total welfare standard" (TWS) instead.[4]  Note that it is not clear whether the TWS is best for any particular political point of view.  On the one hand, the standard considers whether mergers could lead to higher unemployment, or harm the environment.  On the other hand, the standard would allow some mergers that result in higher prices to consumers, but have benefits that outweigh those higher prices.

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No Circuit Split Yet on Constitutionality of CFPB

By Jessica Ring Amunson

New-Development-IconIn a highly anticipated decision, the Ninth Circuit recently held that the target of a civil investigative demand from the Consumer Financial Protection Bureau (CFPB) could not avoid responding to the demand on the grounds that the CFPB itself is unconstitutional.  The Ninth Circuit thus joined the en banc DC Circuit in upholding the constitutionality of CFPB’s single-director, for-cause removal structure.  However, a circuit split may yet emerge with cases still pending before both the Second and Fifth Circuits raising the same issue.

In CFPB v. Seila Law LLC, the CFPB issued a civil investigative demand seeking to determine whether Seila violated the Telemarketing Sales Rule in the course of providing debt-relief service to its clients.  Seila refused to comply, arguing that the civil investigative demand was invalid because the CFPB is unconstitutionally structured.  According to Seila, not only was the civil investigative demand unlawful, but everything the agency has done is also unlawful because the agency’s structure violates the separation of powers.  The agency is headed by a single director who can be removed by the President only for cause.

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New Indictment a Reminder of CPSC’s Enforcement Capabilities

New-Update-IconOn March 29, 2019, the Department of Justice announced that it had indicted for the first time two corporate executives for failing to furnish information under the Consumer Product Safety Act (CPSA).  The government alleged that the two individuals – executives of companies that imported, distributed and sold dehumidifiers – had failed to timely report known defects in the products to the Consumer Product Safety Commission (CPSC).  In an article published by the New York Law Journal, Jenner & Block Partner Anthony S. Barkow and Associate Danielle Muniz discuss this recent indictment and the sometimes overlooked enforcement capabilities of the CPSC, the federal agency that enforces the CPSA. 

To read the full article, please click here.


HUD Brings Housing Discrimination Charge Against Facebook

By Emily A. Bruemmer

HousingOn March 28, 2019, the US Department of Housing and Urban Development (HUD) filed a Charge of Discrimination against Facebook, alleging that Facebook violated the Fair Housing Act “by encouraging, enabling, and causing housing discrimination through the company’s advertising platform.”  This is an administrative action filed by the Secretary of HUD, on behalf of complainant Assistant Secretary for Fair Housing and Equal Opportunity, before the Office of Administrative Law Judges at HUD.  Unless any of the parties chooses to have the case heard in federal district court, an administrative law judge will hear the charge and may award damages, in addition to injunctive or other equitable relief, attorney fees, and fines.  HUD previously announced a formal complaint, initiated by the Secretary of HUD, against Facebook in August 2018.  The formal complaint was the first step in a process that then moved to a fact-finding investigation.  Last month’s charge indicates that the investigation resulted in a determination that there was reasonable cause to believe that Facebook violated the Fair Housing Act.

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Facebook Announces Potential $5 Billion FTC Fine

By Emily A. Bruemmer

Facebook-privacyOn April 24, 2019, Facebook announced in its Q1 earnings release that it had set aside $3 billion and estimates that it may pay up to $5 billion in a fine related to the FTC’s ongoing inquiry into its “platform and user data practices.” Facebook entered into a settlement with the FTC related to its privacy practices in 2011, which has reportedly been re-opened. This would be the largest fine ever imposed by the FTC on a technology company. The possibility of a “multi-billion dollar fine” was first reported this February by The Washington Post.


Online Lender Agrees to Pay $3.85 Million to the FTC

By Corinne M. Smith

Cash-walletOn April 15, 2019, the FTC Bureau of Consumer Protection announced a settlement with online personal-loan lender Avant LLC for $3.85 million.  The FTC had accused Avant of engaging in a pattern of deceptive and unfair conduct regarding consumers’ payments and payment information, including falsely advertising that it would accept payment by credit or debit cards and then rejecting those forms of payment; withdrawing money from consumers’ accounts and charging their credit cards without authorization; improperly withdrawing consumers’ monthly payments twice or more in one month—in one instance, 11 times in a single day; and refusing to provide refunds and continuing to charge consumers without authorization following consumer complaints.  The FTC further accused Avant of impermissibly requiring borrowers to agree to recurring automatic debits of their bank accounts as a condition of obtaining a loan.  The FTC alleged violations of the following statutes and regulations: Section 5(a) of the FTC Act, 15 U.S.C. § 45(a); Section 310.4(a)(9) of the Telemarketing Sales Rule, 16 C.F.R. § 310.4(a)(9); Section 913(1) of the Electronic Fund Transfer Act, 15 U.S.C. § 1693k(1); and Section 1005.10(e)(1) of the Consumer Financial Protection Bureau’s Regulation E, 12 C.F.R. § 1005.10(e)(1).  The settlement order, filed in the Northern District of Illinois, permanently enjoins Avant from engaging in these unlawful practices, and it requires that the $3.85 million be returned to consumers who were harmed. 


Facebook Announces New Privacy Initiative

By Emily A. Bruemmer

Smartphone computerOn March 6, 2019, Facebook CEO Mark Zuckerberg announced via an interview and a Facebook blog post a planned shift to “building a privacy-focused messaging and social networking platform.”  Characterizing this shift as a “privacy-focused vision,” Zuckerberg said that this change in focus meant that Facebook and Instagram would not only function as “the digital equivalent of a town square” but also “the digital equivalent of the living room.”  This shift was billed in part as a response to user demand: according to the post, the “fastest growing areas of online communication” were private messaging, “ephemeral stories,” and small group communication. 

According to the blog post, Facebook’s “privacy-focused platform” will be based on six principles: private interactions, encryption, reducing permanence, safety, interoperability, and secure data storage.  “Interoperability” refers to Facebook’s plan to integrate its messaging services across Facebook Messenger, WhatsApp, and Instagram Direct.  The blog post did not provide much detail on what these principles would mean in practice or what changes users would see from an experiential perspective, but rather qualified its efforts as being in the “early stages.”  

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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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CSBS Releases Recommendations for FinTech Regulators

By Camila A. Connolly

New-Update-IconOn February 12, the Conference of State Bank Supervisors (CSBS) released its Fintech Industry Advisory Panel Recommendations.  CSBS is a national organization of financial regulators from around the United States, Guam, Puerto Rico, American Samoa, and the US Virgin Islands.  The recommendations are designed to improve the use of regulatory technology and harmonize regulatory standards throughout the United States.  The recommendations include a plan to develop a model state law for MSBs and to standardize licensing requirements.  The panel also recommended a pilot program for building a uniform state licensing examination.  Overall, the recommendations seek to create uniformity in state FinTech licensing and regulation.  To aid in the harmonizing process, the panel recommends creating repositories of the different state laws and licensing requirements so that financial companies can access all necessary regulations at once.  CSBS includes these recommendations as part of a broader effort to streamline state FinTech regulation called Vision 2020.  Read the full list of recommendations here.