Is Reliance the New Arbitration?
The typical consumer arbitration provision nowadays is usually accompanied by a “class action waiver” clause. These clauses
provide that neither party to the agreement will have the right, either in court or in an arbitration proceeding, to participate
in a class action, as either a class representative or class member, or act as a “private Attorney General.” But arbitration
clauses and “class action waivers” are under attack. The First Circuit and at least five states (California, New Jersey, West
Virginia, Illinois, and Missouri) have declined to enforce them. (See “Arbitration Report.”) So, even with the majority of jurisdictions still enforcing class action waivers, arbitration has
lost some luster, as least for companies who do business in multiple states.
Is there some other way to manage class action risk? There may be. The title of this item, “Is ‘Reliance’ the New Arbitration?,”
suggests the answer. The “reliance” requirement has been a dormant element of almost every state’s “unfair or deceptive acts
or practices” statute for decades. But only recently have defendants appreciated its force, and only more recently still have
the appellate courts begun to use the “reliance” element in a way that may help offer an answer to the class action threat.
Reliance is not the lone substitute for arbitration. Financial institutions might want to consider a “notice-and-cure” provision.
For more information, or for a copy of the article “The Reliance Element in State Consumer-Fraud Class Actions,” to The Firm
filed an amicus brief on behalf of the Financial Services Roundtable, U.S. Chamber of Commerce, Business Roundtable, Mortgage Bankers Association,
American Bankers Association, American Financial Services Association, America’s Community Bankers, and the Consumer Bankers
Association. That brief describes the negative consequences of the Ninth Circuit’s ruling and the need to reverse that ruling;
the brief also provides strong support for Safeco’s and Geico’s statutory interpretation arguments.
Oral argument is scheduled for January 16, 2007. For more information, or for a copy of the Firm’s amicus brief, contact Beth
Brinkmann at bbrinkmann@mofo.com or Seth Galanter at sgalanter@mofo.com.
Butting In
If you have been worried about removing under the Class Action Fairness Act for fear that a state Attorney General is going
to second-guess your settlement, that fear may be unfounded. CAFA greatly extended federal jurisdiction over class actions,
but it also requires defendants to notify state attorneys general and federal regulators of proposed settlement agreements.
The purpose is to prevent attorneys from crafting abusive settlements favoring lawyers over consumers, especially those that
involve “coupon” settlements. But it turns out that, a year and a half into CAFA, few state AGs aside from Florida are actually
wielding the CAFA cudgel.
The New Verb
The kind of “pretexting” of which Hewlett-Packard stands accused is, according to HP, actually quite common in the financial
services industry, with throngs of vendors roaming the consumer debt collection field selling illegally-harvested phone numbers
and other contact information. According to articles in the Boston Globe, HP is throwing the banking industry “under the bus.”
Expect the new Congress to work itself into a lather. California, ever a trend-setter, enacted a bill in September (S.B. 202)
that makes it a crime to sell or purchase a consumer’s phone records without the consumer’s written consent, and also bans
the practice of obtaining phone records by fraud or deceit. Now may be a good time to review one’s vendor practices, especially
in the debt-collection and servicing areas.
Policing this activity is harder than it sounds. Rarely are vendor contracts of this kind run by the law department. And the
connection is often remote, removed by several degrees of separation. For example, collections personnel (who may themselves
be outside vendors) might out-source the skips to a firm that provides leads who, in turn, may obtain them from a data broker.
