Professional reading -- notable blog posts

Here are some notable blog and twitter posts I've collected:

"Do it yourself tort reform:  How the Supreme Court quietly killed the class action", by Professor David S. Schwartz.  Key quote:  "Concepcion is the culmination of twenty-five years of Supreme Court arbitration jurisprudence that has turned the FAA into a do-it-yourself tort reform statute.  By adding an arbitration clause, a would-be defendant can do away with juries, with pesky discovery into its documents or employees’ testimony, and, now, with class actions."  From Scotus blog.

"Want efficiency?  Look to the little things", by Toby Brown.  In this post the author recognizes the aversion of lawyers and law firms to big changes, and therefore recommends that efficiency be pursued incrementally, in small steps.  As an example, he points to software that will create a Table of Authorities for a brief, Best Authority.  I'd be interested in buying Best Authority but for the pricing structure.  However, this post reminded me of what a miracle it was, the first time I saw Full Authority create a table of authorities.  Where's my old copy of Full Authority, and can I get it to run on Windows 7?

Virginia:  Civil Jury Trials Are On the Decline. " In 2000, there were 1,514 civil jury trials in Virginia.  In 2009, that number declined 61 percent to only 592."  This has also been true of the number of jury trials in federal courts.

Lawyers' runner gets two years in prison.  This was in Virginia.

The Essential Cloud:  Top Tools for Lawyers

  (from Attorneyatwork)

Lexis Nexis has entered the legal document market.  This is in the UK.  In the U.S., LegalZoom and RocketLawyer exist, so it would be surprising if Lexis Nexis doesn't bring its product here.

In D.C., there's a novel way to settle around another defendant, as recently discussed by the Court of Appeals.



4th Circuit Offers Ideas To Brake FACTA Truncation Class Actions

It seems unusual for the 4th Circuit to write a 21 page opinion, accompanied by a 20 page concurrence, but then designate it only as "unpublished" and "not binding precedent in this circuit."  That's what happened in Stillmock v. Weis Markets, Inc.  The Court's action in not publishing the opinion seems to be an indication that it does not want to do anything to encourage suits of this type.

Stillmock v. Weis Markets is a "FACTA Truncation" case.  FACTA is an acronym for the Fair and Accurate Credit Transactions Act of 2003.  Among other things, this statute provides that "no person that accepts credit cards or debit cards for the transaction of business shall [electronically] print more than the last 5 digits of the card number . . . upon any receipt provided to the cardholder at the point of the sale or transaction."  The statute also says that the merchant cannot print the card's expiration date on the customer receipt.  The statute provides for statutory damages of not less than $100 and not more than $1,000 against any person who "willfully fails to comply with" the foregoing truncation requirements, punitive damages as the court may allow, and attorney's fees and costs.   However, the Supreme Court has interpreted the phrase "willfully fails to comply" in the preamble sentence of 15 U.S.C. sec. 1681n(a), as reaching not only knowing violations of FACTA, but reckless ones as well.  Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007).  A reckless violation for this purpose is one "entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known."  Id. at 68.

The FACTA provision for statutory damages, the possibility of punitive damages, and the ability to recover attorney's fees and costs, is a combination that has sparked a flurry of FACTA truncation class actions in Maryland.   The typical scenario is that an individual makes a credit card purchase at a store or restaurant, and discovers that the customer receipt is not truncated per the requirements of FACTA.  The customer then retains an attorney who does FACTA litigation, who files a class action against the merchant seeking statutory damages, punitive damages, and the recovery of attorney's fees and costs.  The suit is filed, and discovery is taken from the merchant as to the point-of-sale terminals at the establishment, and the number of transactions those terminals have processed during the relevant time period.  The class action complaint will be carefully drafted to seek only statutory damages, not actual damages which would require too much of an individualized inquiry to allow for class certification. 

The potential exposure can be quite significant even for a relatively modest business.  For example, if there were 1,000 credit card transactions within the relevant window of time,  that would mean a potential exposure to statutory damages in the range of $100,000 to $1,000,000, plus attorney's fees and costs, plus the possibility of punitive damages.  The merchant may also receive reservation of rights letters from its insurer, since insurance typically does not cover intentional wrongdoing or punitive damages.  All of these factors create a powerful incentive on the part of the merchant to settle the FACTA class action. 

It seems clear that the Courts do not like FACTA truncation class actions, but this dislike doesn't appear to boil over except when a large merchant is caught in this snare.  Stillmock v. Weis Markets is such a case, but despite that, the 4th Circuit vacated the District Court's denial of Plaintiffs' motion for class certification.  The Stillmock case has varying estimates of the number of customer receipts that were issued in violation of FACTA.  One estimate was that at least a million of such receipts were provided to a hundred thousand or more individual customers.  Weis Markets estimated that it printed over 14 million FACTA violative receipts during the relevant time frame.

 [T]he district court denied class certification on two grounds. First, the district court denied class certification on the ground that determining the quantum of damages with respect to each class member would be too individualized for class-wide treatment under Rule 23(b)(3). Second, the district court denied class certification on the ground that a class action as requested by Plaintiffs "would not be superior and, indeed, would be inferior to having the Plaintiffs herein proceed on their individual claims and, if they prevail, having them obtain whatever statutory and punitive damages might be awarded together with their costs, including reasonable legal fees."

The 4th Circuit rejected the plaintiffs contention on appeal that a consumer is entitled to statutory damages under 15 U.S.C. sec. 1691n(a)(1) on a per violation basis, as opposed to a per consumer basis as implicitly held by the District Court.  Rather, the 4th Circuit agreed that statutory damages under section 1681n(a)(1)(A) are to be awarded on a per consumer basis.  However, the 4th Circuit agreed with the plaintiffs that the District Court erred in concluding that individual issues of damages would predominate over issues common to the class.

Here, the putative class members were exposed to the identical risk of identity theft in the identical manner by the repeated identical conduct of the same defendant, and none suffered actual damages from identity theft. Under these circumstances, it strains credulity to conclude that the individual damages issues presented by the purported class which Plaintiffs seek to certify would be anything other than simple and straightforward. Pragmatically, the only substantive difference between putative class members for purposes of affixing the statutory damages figure within the statutory damages range of $100 to $1,000 or in awarding punitive damages is the number of receipts received by a single class member during the approximately eighteen months at issue. And indeed, this difference does not complicate matters very much at all given that the class can be broken down into subcategories based upon the number of violating receipts received per putative class member.

 Judge Wilkinson wrote a concurring opinion containing many trenchant comments about FACTA class actions.

Specifically, neither this court nor the district court has yet addressed the real possibility that the suggested class could bankrupt an entire chain of supermarkets, and the district court retains wide discretion in deciding whether to certify a class in light of that problem.

I worry that the exponential expansion of statutory damages through the aggressive use of the class action device is a real jobs killer that Congress has not sanctioned. To certify in cases where no plaintiff has suffered any actual harm from identity theft and where innocent employees may suffer the catastrophic fallout could not have been Congress's intent. Indeed, the relatively modest range of statutory damages chosen by Congress suggests that bankrupting entire businesses over somewhat technical violations was not among Congress's objectives.

 Judge Wilkinson subsequently expressed concern that FACTA class actions raise constitutional issues:

Certifying a class action that would impose annihilative damages where there has been no actual harm from identity theft could raise serious constitutional concerns, as plaintiffs themselves admit. . . . . Other courts have noted that "the potential for a devastatingly large damages award, out of all reasonable proportion to the actual harm suffered by members of the plaintiff class, may raise due process issues." Parker, 331 F.3d at 22. See also Spikings v. Cost Plus, Inc., No. CV 06-8125-JFW (AJWx), 2007 U.S. Dist. LEXIS 44214, at *9, 13 (C.D. Cal. May 25, 2007)(same). Indeed, this principle has some salience in the punitive damages context, where the Supreme Court has noted that "[t]he Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor." State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003)

 Judge Wilkinson suggested that to avoid the constitutional issues, it would be preferable for a district court to address them in the context of Rule 23(b(3)'s superiority requirement.

Judge Wilkinson warned that the risks of allowing FACTA class actions in cases like this are high:

 The risk of financial ruin as a result of class certification is far from illusory. Weis Markets estimates that it printed 14,578,600 receipts with improperly truncated account numbers between the time FACTA became effective on December 4, 2006 and the time the company brought its systems into compliance on June 7, 2007. Because FACTA establishes statutory damages between $100 and $1,000, under plaintiffs' per-receipt approach,Weis Markets would thus be subject to a massive payout of between $1.4 and $14 billion.

The court's per-consumer calculation, while less astronomical, is no less annihilating to Weis Markets . Both plaintiffs and Weis Markets  have estimated that "there are potentially over one million Class members." Multiplying that estimate by the statutory damages range results in total liability of between $100 million and $1 billion dollars, without even accounting for the possibility of punitive damages, attorney's fees, and costs, 15 U.S.C. § 1681n(a)(2), (a)(3).

It is no exaggeration to say that a judgment within this range would devastate Weis Markets.  As counsel for Weis Markets  put it, "a hundred million dollars sinks my client." The company is traded on the New York Stock Exchange, and its market capitalization at current prices is just over $900 million dollars. . . .

Nor is the destruction ofWeis Markets   a loss only to shareholders. If plaintiffs are successful, a substantial number of people will be left unemployed in one of the toughest job marketsin generations. Weis Markets currently owns and operates one hundred sixty-four retail grocery stores in Pennsylvania, Maryland, New York, New Jersey, and West Virginia as well as twenty-five pet supply stores. Weis Markets, Inc., Annual Report (Form 10-K), at 1 (Mar. 11, 2010). Approximately 17,600 individuals work for the company in either a full- or part-time capacity. Id. at 2. It is doubtful that Congress intended to cause these thousands of innocent employees to lose their jobs and paychecks by bankrupting their employer, in a situation where no plaintiff suffered identity theft.  

Judge Wilkinson also pointed out why, in FACTA truncation class actions, the critical decision point for the defense is whether the Court will grant certification to the plaintiff class.  Once that happens, the exposure to risk all but forces a settlement:

 Companies may be forced to settle in the face of such annihilating liability, even if they have a strong defense. In such an event, the substantial costs associated with settlement will inevitably be passed on to consumers — the very ones whom Congress sought to protect.

As the Seventh Circuit explained, there is a serious concern with forcing these "defendants to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability." Matter of Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir. 1995). Indeed, "[t]he risk of facing an all-or-nothing verdict presents too high a risk, even when the probability of an adverse judgment is low." Castano v. Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996); see also Coopers & Lybrand v. Livesay, 437 U.S. 463, 476 (1978)(same). "[O]nce a class is certified, a statutory damages defendant faces a bet-the-company proposition and likely will settle rather than risk shareholder reaction to theoretical billions in exposure even if the company believes the claim lacks merit." Sheila B. Scheuerman, Due Process Forgotten: The Problem of Statutory Damages and Class Actions, 74 Mo. L. Rev. 103, 104 (2009). At least the plaintiffs in Rhone-Poulenc and Castano alleged substantial actual damages; here we face the risk of forcing a defendant to settle in the face of billions in liability for actions that resulted in not a single instance of identity theft.

With those high stakes in mind, it is interesting to review Weis Market's 40 page brief in opposition to class certification which was filed in the Stillmock case, following remand from the 4th Circuit.  They gave it all they had, and then subsequently the case settled. (Courtesy of Recap).




Class Action Against D.C. Water and Sewer Authority Has Been Remanded To Superior Court

The class action against the D.C. Water and Sewer authority based on lead in the drinking water in the District has been remanded from federal court to D.C. Superior Court, on the grounds that there is no longer federal question jurisdiction.

The issue was whether the plaintiffs' negligence per se theory of liability, based on alleged violations of federal statutes or regulations, created federal question jurisdiction.  The Court held that it did not, because it was an alternative theory of liability.

Fourth Circuit in Published Opinion Affirms Piecemeal Class Certification Over Sharp Dissent By Circuit Judge Niemeyer

In Gunnells v. Fidelity Group, Inc., No. 01-2419 (4th Cir. Oct. 30, 2003), the Court, in an interlocutory appeal, affirmed the trial court's partial certification of a class action in a suit brought by purchasers and beneficiaries of a multi-employer health care plan for claims growing out of the plan's collapse.

The complaint alleged causes of action for negligent undertaking, fraud, negligent misrepresentation, breach of contract, civil conspiracy, and violations of the South Carolina Unfair Trade Practices Act.

The trial court refused to certify any class action claims under the S.C. Unfair Trade Practices Act. However, the court conditionally granted plaintiffs' motion for class certification with respect to their management claim against the third party claims administrator, allowing the class to pursue a single claim: that it violated its duties, both contractual and at law, as third party administrator of the plan and such such conduct was a cause of the plan's failure.

In a lengthy dissent, Judge Niemeyer blasted the majority's approach, stating among other things that:

As a result of the majority’s limited focus on the facts related to a single issue in this case, it has left a difficult and complex procedural structure created by the need to try numerous individual claims for each class member that will result in an unnecessary, and ultimately unhelpful, procedural nightmare. And on a broad judgment level, one has to question the utility of enduring this procedural morass for the purpose of answering the single question certified for class treatment: whether TPCM’s mismanagement was a cause of the Plan’s failure. Answering this question resolves no class member’s claim and only invites the difficult questions of how to proceed once the question is answered. Little, if any, time or effort can be saved by answering this question in the abstract because full individual trials on liability will still have to be conducted for each individual class member.

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DC Court of Appeals Affirms Multi-Million Dollar Judgment Against District Cablevision

Putting an end to nine years of litigation, the D.C. Court of Appeals has affirmed a judgment against District Cablevision under the D.C. Consumer Protection Procedures Act, in the amount of $3,414,411 in compensatory damages, $425,916.25 in attorney's fees, prejudgment interest, plus treble damages. This was a class action based on illegally excessive late payment fees the cable company levied on its subscribers.

Significantly, the Court of Appeals held that treble damages must be awarded to the plaintiffs even though the evidence was insufficient to support punitive damages:

Since the purpose of treble damages under the CPPA is remedial rather than punitive, the plaintiffs in this case were entitled to an award of treble damages without the showing of egregious conduct and malice required for punitive damages. We agree with the Williams court that “[o]nce it is established that a consumer [has] suffered any damage, the CPPA authorizes courts to treble damages without further findings.”

District Cablevision, LP v. Bassin, No. 98-CV-1837 (D.C. July 17, 2003).