Businesses across the country regularly bemoan the time and expense of litigation. Even when businesses are successful in defending non-meritorious consumer claims alleging unfair or deceptive practices, false advertising, technical violations of statutory rules, and so on, they nonetheless essentially suffer defeat because of the time and resources they expend to fend off such claims. There is a relatively proven way to ameliorate this situation that is often quicker and less expensive for everyone involved—and yet many companies do not understand or utilize pre-dispute arbitration provisions when they easily could do so.
Foley is restructuring its practice groups to bring our considerable consumer law and class action expertise together in a single forum. We are proud to announce the formation of our new Consumer Law, Finance & Class Action Practice Group. Consistent with our new focus, we are also expanding the scope of this blog to reach a broader array of consumer class action issues.
A class action that aggregates the claims of individual plaintiffs against a common defendant can promote judicial economy and maximize efficiency. However, even the pursuit of class certification can promote abuse. In the words of Judge Henry Friendly, class actions can at times result in “blackmail settlements,” where even defendants with meritorious defenses feel compelled to settle based on the enormous threat of liability that a class action can present. See In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995) (quoting Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973)). In part to avoid this abuse, the Federal Rules of Civil Procedure strike a balance that permits certification of damages classes under Rule 23(b)(3) only when, among other things, common issues predominate over individualized issues necessary to resolve the case.
In an April 5, 2017 unanimous opinion, the California Supreme Court (the “Court”) held that private arbitration agreements which prohibit public injunctive relief in any forum are contrary to California public policy and unenforceable under California law. Furthermore, the court held that the Federal Arbitration Act (“FAA”) did not preempt this rule of California law nor did it require enforcement of the waiver provision.
The Consumer Financial Protection Bureau (CFBP) on January 31, 2017 issued consent orders settling enforcement claims that a major mortgage lender violated the Real Estate Settlement Procedures Act (RESPA) in connection with its marketing, desk rental, lead purchase and other agreements with hundreds of real estate brokers and other settlement service providers (the “Consent Orders”). The CFPB alleged that the agreements were actually mechanisms for the mortgage lender to pay for the referral of business in violation of RESPA Section 8(a). The lender will pay a $3.5 million civil money penalty to settle the action. The CFPB also resolved claims against two of the real estate brokers and a mortgage servicer for allegedly accepting payments under such agreements; those three respondents together will pay $495,000 in consumer redress, disgorgement, and penalties. Moreover, as described in Point 8 below, the recordkeeping and cooperation provisions of the various consent orders suggest that the CFPB has preserved its ability to pursue other real estate brokers (and individual sales agents) who may have been involved in similar conduct.