Articles Posted in Class Actions

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I have written on several previous occasions about corporate America’s systematic attacks on the class action system. A recent news item from the Associated Press offers a positive reason to revisit this topic. As the news agency writes, the huge insurance company State Farm reached a settlement earlier this month “in a federal class action lawsuit claiming the company funneled money to the campaign of an Illinois Supreme Court candidate.”

The preliminary $250 million settlement has its roots in a 1999 case that went against State Farm “for its use of aftermarket car parts in repairs.” Thousands of policyholders had sued the company alleging that its decision to pay for used (“aftermarket”) rather than new car parts when carrying out repairs on their vehicles violated the terms of the company’s contracts with customers. State Farm lost the original 1999 case and was facing the prospect of a $1.06 billion judgement against it. The company appealed, which is obviously it’s right and a reasonable thing for it to do. What was not right and proper was for the company to attempt to fix the final result of that appeal.

With the case making its way toward the Illinois Supreme Court, State Farm allegedly poured money into the campaign of a candidate for chief justice who, once elected, provided the key vote to reverse the trial court’s decision. In 2005 “the court ruled that the nationwide plaintiff class was improperly certified… It also contended using aftermarket car parts was not a breach of State Farm policyholders contracts.”

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A recent article in New York magazine highlights the ever-growing issue of arbitration clauses and the danger they pose to Americans’ basic rights. Citing reporting that originally appeared in The Guardian, the magazine details a shocking, but all-too-common, story: people who have been treated badly, even criminally, only to discover that they had given away their right to a court hearing without even realizing it.

According to the magazine, “nine women have banded together in a class-action suit against Uber. The women all allege that they were assaulted by their drivers… Uber has argued that this suit should be settled by closed-door arbitration.” According to the original Guardian report “Uber has filed a motion arguing that the riders agreed to privately arbitrate all disputes when they signed up for the ride-share service and have no right to file a lawsuit.”

As I have noted in previous blogs clauses like these pose a number of legal issues. First, there is the simple question of whether people have really agreed to give up their constitutional right to have access to a court of law. However, lengthy terms of service which are not subject to negotiation or reservations raise deeper issues. Most of us ‘agree’ to these in only the most nominal sense. Yet it is an open question whether this system is really compatible with the constitution. Even if we assume that many people are actually reading these dense, jargon-filled documents, there is a broader question, is it appropriate to require citizens to give up basic constitutional rights as a condition of participating in digital (or digitally-based) activities that have become central to modern life?

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I first wrote about the barriers that arbitration clauses place in the way of Oregonians seeking justice nearly three years ago. Today, I am returning to the subject because it is important that readers in Oregon and Washington understand what the Congress has just done, how it effects their rights and what they may be able to do about it.

Last week the Senate joined the House in voting to reverse a rule issued last July by the Consumer Financial Protection Bureau (CFPB). As described by the Reuters news agency the vote “killed a rule banning (financial) firms from using ‘forced arbitration’ clauses.”

As the news agency goes on to explain: “customers must agree to the clauses as a condition of opening accounts, saying they will take any disputes to closed-door arbitration instead of joining class-action lawsuits, where complainants band together to share litigation costs. The clauses are used for nearly every US consumer product and service since the Supreme Court ruled them legal in 2011.”

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An effort by the Trump administration to roll back an obscure Medicare rule has provoked a loud, and unexpected, backlash according to multiple reports in The Hill, a newspaper that specializes in covering the federal government in general and Congress in particular. The paper reports in June an obscure regulatory body known as the Centers for Medicare and Medicaid Services (CMS) said it intends to repeal a “rule that prohibited nursing homes that accept Medicare or Medicaid funds from including language in their resident contracts requiring that disputes be settled by a third party rather than a court.”

This is an issue that I have been following for some time both in terms of this specific rule (click here to read my blog from last year when it was originally issued) and in terms of the broader question of arbitration ‘agreements’ that seek to deny ordinary Americans access to our courts when they suffer financial or physical neglect at the hands of a rich or powerful company (an issue I first addressed in 2013).

Thus, it is very heartening to see such a widespread backlash against the administration’s proposed rule changes. According to The Hill, 16 states and the District of Columbia filed formal objections to the policy change when these came due early last week. “Pre-dispute binding arbitration agreements in general can be procedurally unfair to consumers, and can jeopardize one of the fundamental rights of Americans; the right to be heard and to seek judicial redress for our claims,” the state attorneys general wrote in objecting to the proposed rule changes, according to The Hill. “This is especially true when consumers are making the difficult decisions regarding the long term care of loved ones. These contractual provisions may be neither voluntary nor readily understandable for most consumers.”

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An important thing to understand about the US Supreme Court is that its rulings can often seem narrow and technical even as they have sweeping repercussions for every American. That was the case with two rulings that were issued late last month, just as the court’s annual term came to an end. In both cases the Court might have appeared to be focused on narrow issues that concern mainly other courts and lawyers when, in fact, it was issuing rulings that will have a profound impact on our justice system in general and on Americans’ ability to seek redress in our courts.

The first case, Ziglar v Abbasi focuses on the arrest and detention of hundreds of Muslim men in the wake of 9/11. Though most of the men were held for immigration violations they were treated as suspected terrorists and, in numerous cases, subjected to unusually harsh interrogations and prison conditions. A group of these men sued the government for damages, citing a 1971 Supreme Court decision that allowed state and local officials to be sued for damages when they violate a person’s constitutional rights. The legal question seemed fairly straightforward: one might assume that if state officials can be sued for violating people’s rights federal officials too can be sued when they do so. By a vote of 4-2, however, the Supreme Court disagreed (two justices recused themselves from the case and the newest justice, Neil Gorsuch, had not yet joined the court when the case was argued).

The important thing to understand is that as a legal precedent effecting ordinary Americans the fact that this case involved egregious rights violations in the aftermath of a terrorist attack is not the point. Using the national security implications of that extreme event as a pretext the court has made it far more difficult for any citizen to sue any employee of the federal government. Put simply: this is not about terrorism and national security, it is about our constitutional right to have access to the courts when a government official abuses his or her power.

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A groundbreaking three-part series published last week by the New York Times has drawn much-needed attention to a problem threatening almost everyone in America despite the fact that many people are not even aware that it impacts them directly.

As the paper reports in part one of the series: “Over the past few years it has becomes increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.” As the series goes on to detail, while arbitration may originally have been conceived as a way for businesses to resolve disputes among themselves more quickly and cheaply than by using our courts it has become a more-or-less routine way for corporations to tilt the field in their favor in any dispute with their customers. The newspaper quotes a federal judge in Boston who aptly describes this development as “among the most profound shifts in our legal history… Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

What makes the new realities outlined in the Times so scary is how widespread they have become in the years since 2011 when a Supreme Court ruling opened the way for wider use of arbitration clauses and made filing class action lawsuits more difficult. The system is particularly lopsided because the growing class of professional arbitrators who administer it generally rely on large corporations to bring them repeat business (an arbitrator must be approved by both sides to a dispute, but large companies have far more knowledge of who they are agreeing to, and can make it clear they will not pick a given individual again if he or she rules against the company) – a conflict of interest that the Times examines at length and which strips away even the thin façade of impartiality that surrounds the arbitration process.

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Oregon took a big step forward today in protecting the rights of consumers and holding bad corporate citizens to account when Governor Kate Brown signed legislation to strengthen consumer rights in class action suits. The new law will also help fund legal aid for our less fortunate neighbors. The bill was the first to be signed into law by the Governor, who took office only last month.

As outlined in a news release issued by Oregon Senate Democrats, “Oregon is one of only a handful of states in the country that allows corporate wrongdoers to keep unclaimed settlement funds. (This law ends) that practice by giving the judge in the case discretion to send up to 50 percent of the unclaimed funds to a non-profit service addressing the damage done in a specific case. The remainder of the money would go to Legal Aid Services of Oregon, providing critical access to civil legal services for those most in need.”

A statement issued by Gov. Brown’s office said, in part, “This law makes Oregon’s class-action laws fair for all Oregonians and ensures that corporations who are responsible compensate for the harm they have caused.” It also, she said “helps support our critically underfunded legal services.”

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An article that appeared this week in the New York Times detailed the legal struggles of some of the victims of General Motors’ corporate negligence – struggles made worse by misguided laws designed to protect corporate bottom lines at the expense of public health and safety.

As I have written about many times this year, the giant auto maker is in serious legal trouble as evidence has emerged that it knew for years about defects in its cars’ ignition switches but did little to fix them. As the Times notes, “Today, at least 42 people are known to have died in crashes linked to the defective ignition switch, and both GM and federal safety regulators have come under fire for allowing the danger to linger for more than a decade.”

What could make a situation like this even worse? A legal system that limits the damages a bereaved family can collect. The Times article details the struggle of two Wisconsin families. Both lost loved ones to the GM defect, but neither was able to get any Wisconsin attorney to take their case because of a state law capping damage awards at $350,000. Every law firm approached by both families eventually decided that the limit on potential damages made it impossible for them to fight a huge company like GM without ultimately losing money.

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Last month I wrote about the spreading scandal relating to potentially lethal airbags installed in millions of vehicles from nearly a dozen carmakers over more than a decade. The airbags have a defect that can cause the steel cylinders used to inflate them to fragment, sending shrapnel into the bodies of the people the bags are meant to protect. Car accidents involving the defective airbags, manufactured by an auto parts supplier named Takata, are believed to have resulted in at least four deaths.

This week, however, the story became even more serious when the New York Times reported that as far back as 2004 “Takata secretly conducted tests on 50 airbags it retrieved from scrapyards, according to two former employees involved in the tests.” The paper goes on to report that when the tests confirmed the defect in the airbags “instead of alerting federal safety regulators to the possible danger, Takata executives discounted the results and ordered the lab technicians to delete the testing data from their computers and dispose of the airbag inflaters in the trash.”

“Today, 11 automakers have recalled more than 14 million vehicles worldwide because of the rupture risks,” the Times notes. In addition to the four fatalities linked to the defective products “complaints received by regulators about various automakers blame Takata airbags for at least 139 injuries, including 37 people who reported airbags that ruptured or spewed metal or chemicals.” The newspaper adds that Takata is the world’s largest airbag company “accounting for about one-fifth of the global market.”

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A recent article in Slate highlighted an important but little noticed executive order signed by President Obama on the last day of July. According to the online magazine, the “Fair Play and Safe Workplaces” order, as it is formally known, “requires companies bidding for federal contracts worth more than $500,000 to make previous violations of labor law public, if they have any to report.” A less well-publicized, but potentially further-reaching, provision “says that companies with federal contracts worth more than $1 million can no longer force their employees out of court, and into arbitration, to settle accusations of workplace discrimination.”

As the article goes on to note, arbitration clauses buried deep in the fine print have been spreading widely since a Supreme Court ruling (focused on cellphone contracts) upheld them in 2011. The result has been a loss of court access for many Americans. This trend reached both absurd and frightening proportions earlier this summer when food giant General Mills tried to contend that by ‘liking’ any one of its many products on Facebook or other social media sites, or simply by purchasing an item, customers would surrender the right to sue the company ever, over anything.

General Mills later retreated in the face of a storm of public criticism, but the incident highlighted a trend in corporate America that is little-noticed but deeply disturbing: efforts to use ‘terms of service’ to force ordinary Americans to surrender our constitutional right to a trial by jury, as guaranteed by the 7th Amendment. Slate, citing figures compiled by the watchdog group Public Citizen, notes that since that 2011 Supreme Court decision “at least 139 class action suits have died” including cases “brought by consumers who said they’d been stung by predatory lenders, or misleading mortgages, or false promises by vocational schools. And also on the line are complaints by employees of discrimination on the job.”

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