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Xerox unit fined for erroneous credit report information

CFPB says over one million consumers were affected

The Consumer Financial Protection Bureau (CFPB) has fined Conduent Business Services, formerly known as Xerox Business Systems, $1.1 million for erroneous information it sent about consumers to the three credit bureaus.

The CFPB said the company's software errors resulted in the incorrect information being placed on one million consumers' credit reports, which lowered their credit scores and could have impacted their ability to borrow money.

The company was also cited for its failure to tell all of its auto loan clients about the problem in its software. In addition to agreeing to the fine, Conduent has agreed to fix the software and explain the problem to its clients, CFPB said.

“We have entered into a consent order with the Consumer Financial Protection Bureau stemming from a 2014 investigation," a company spokesman said in an email to ConsumerAffairs. "We are focused on maintaining open communications with customers regarding any changes our partners make to their software that may impact their reporting.”

Flawed software

The government's complaint alleges that Conduent used "flawed, unreleased loan-servicing software" that resulted in inaccurate and incomplete information about consumers being sent to credit reporting agencies.

In some cases, CFPB said consumers’ credit files were missing the date of the borrowers’ first delinquent payment, or had an incorrect date. Other missing or incorrect information included the amounts of payments and past due amounts.

Mistakes on credit reports have plagued consumers for years. Often consumers don't learn of incorrect information in their credit reports until they apply for a loan.

Now easier to correct errors

However, attorneys general from 31 states reached a settlement with the three credit reporting agencies in 2015 to make it easier for consumers to correct errors in their credit reports.

The investigation examined how the credit reporting agencies investigate consumer disputes about errors on credit reports and increased accountability for the companies that provide credit information, known as data furnishers.

The agreement required the credit bureaus to hold data furnishers to higher standards, provide greater protections for consumers who dispute information on their credit reports, limit the kinds of information that can go on a credit report, and provide additional consumer education.

Consumers can review their credit reports from all three credit agencies once a year at no charge by going to

The Consumer Financial Protection Bureau (CFPB) has fined Conduent Business Services, formerly known as Xerox Business Systems, $1.1 million for erroneous...

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Domino's settles New York wage theft suit for $480,000

The company will remain a defendant in similar cases across the state

Last May, the state of New York sued Domino’s pizza for allegedly underpaying its workers by an estimated $565,000. New York Attorney General Eric Schneiderman had said that the wage violations were the result of franchisees using a computer system called “PULSE,” which had been known to undercalculate gross wages and overtime pay.

“At some point, a company has to take responsibility for its actions and for its workers’ well-being. We’ve found rampant wage violations at Domino’s franchise stores. And, as our suit alleges, we’ve discovered that Domino’s headquarters was intensely involved in store operations, and even caused many of these violations,” said Schneiderman in a statement.

The case quickly attracted attention because it was the first time that New York had held a corporation liable for actions taken by its franchisees. However, it seems that three franchisees will ultimately be footing the bill for the suit. Shueb Ahmed, Anthony Maestri, and Matthew Denman, the owners of the three franchisees comprising ten restaurants, will pay back $150,000, $240,000, and $90,000, respectively, to affected employees.

Under the proposed agreement, Domino’s will remain a defendant in the case because of further allegations of wage theft across the New York. Schneiderman says that similar wage theft accusations and labor law violations have been resolved throughout the state, with money going back into workers’ pockets.

"The Attorney General has now settled investigations into labor law violations at 71 Domino's franchise locations in New York State, owned by fifteen individual franchisees. These locations comprise more than half of the franchise stores and over a third of the total number of Domino's stores in New York. . . The Attorney General's office has secured nearly $2 million in total restitution for Domino's workers statewide through these settlements," the Attorney General’s office stated in a release.

“My office will continue with our lawsuit against Domino’s Pizza to end the systemic violations of workers’ rights that have occurred in franchises across the State. We will not allow businesses to turn a blind e to blatant violations that are cheating hard working New Yorkers out of a fair day’s pay,” said Schneiderman.

Last May, the state of New York sued Domino’s pizza for allegedly underpaying its workers by an estimated $565,000. New York Attorney General Eric Schneide...

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Carl's Jr. parent company accused of wage suppression and unfair business practices

The lawsuit could mean trouble for CEO Andy Puzder, who awaits confirmation to become Labor Secretary

One former employee and one current employee of Carl’s Jr. have filed a lawsuit against the chain’s parent company Carl Karcher Enterprises LLC (CKE), charging the company of wage suppression and unfair business practices, according to the Los Angeles Times.

The pair claims that CKE and its franchisees colluded with each other to bar employees in management positions from transferring between restaurants. This action, they say, effectively halts any attempt by workers who are seeking a raise from threatening to work at a different franchisee.

“If I can’t threaten my employer with going elsewhere – and taking my unique skills . . . to another Carl’s Jr. restaurant with me – then I am unable to demand as high of a salary. There’s no pro-competitive justification that we can identify that would support having a restraint like this. The only reason we can identify is to actively reduce labor costs to save them money,” said plaintiff attorney Nina DiSalvo.

Bad news for Puzder

While the lawsuit itself is problematic for CKE and Carl’s Jr., its ramifications could be even worse for CEO Andy Puzder. Puzder, who has long touted the virtues of free-market capitalism, has been nominated by President Trump to be Labor Secretary. 

Unfortunately for Puzder, this is not the first time that he has faced criticism for his business practices. Democrats have highlighted the CEO’s opposition to raising the minimum wage to $15 per hour, and past allegations claim that CKE’s restaurants violate labor laws.

Luis Bautista and Margarita Guerrero, the plaintiffs of the current suit, lend credence to these criticisms. They allege that they suffered reduced wages and had to work in “atrocious” conditions because of their franchisee’s no-hire policy. They say that CKE’s policies set up franchisees to compete with each other, but then restrict movement of workers between locations.

“CKE and Puzder cannot have it both ways. They cannot eschew their responsibilities under labor and employment laws by embracing a free-market model constituted by independent, competing franchisees, while at the same time restraining free competition to the detriment of thousands of workers employed by CKE and its franchisees,” the lawsuit states.

"Feeble and baseless"

Puzder’s legal defense has stated that the new lawsuit is nothing more than an intentionally ill-timed shot that is meant to stir up ill will before the CEO’s senate confirmation hearing.

“While we will not comment on the specifics of any pending litigation, the timing of the filing of this baseless lawsuit is obviously intended to be an attempt, albeit a feeble one, to derail the nomination of Andy Puzder,” said CKE executive vice president and general counsel Charles A. Siegel III.

Puzder’s confirmation hearing has been delayed on four separate occasions, but it is currently scheduled to take place on February 16.

One former employee and one current employee of Carl’s Jr. have filed a lawsuit against the chain’s parent company Carl Karcher Enterprises LLC (CKE), char...

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Washington state sues Monsanto over use of PCBs

The suit alleges that the company knew the dangers of PCBs but produced and sold them anyway

The state of Washington has taken aim at Monsanto – the agrochemical company that has caught the ire of millions over its use of biochemicals. According to a report from Consumerist, the state has sued the company because of its decades-long use of polychlorinated biphenyls (PCBs).

PCBs were banned in 1979 after they were found to be toxic, but Washington officials say Monsanto was aware of their harmful effects well before that time and continued producing them anyway, leading to the pollution of state waterways. Washington Governor Jay Inslee says the chemical is so pervasive that it can be found nearly everywhere.

“Monsanto is responsible for producing a chemical that is so widespread in our environment that it appears virtually everywhere we look — in our waterways, in people and in fish — at levels that can impact our health. It’s time to hold them accountable for doing their fair share as we clean up hundreds of contaminated sites and waterways around the state,” he said.

Prior knowledge of dangers

In its lawsuit, the state spells out the negative effects that PCBs can have on the environment and people. “In humans, PCB exposure is associated with cancer as well as serious non-cancer health effects, including injury to the immune system, reproductive system, nervous system, endocrine system and other health effects. In addition, PCBs harm populations of fish, birds and other animal life,” the complaint states.

It goes on to say that Monsanto was the sole manufacturer of PCBs for over 40 years, between 1935 and 1979. It alleges that the company knew the chemicals were toxic but “concealed these facts and continued producing PCBs until Congress enacted the Toxic Substances Control Act,” which banned PCB production in 1979.

As evidence, the state points to a 1967 company memo where company officials stated that there was “no practice course of action that can so effectively police the uses of the products to prevent environmental contamination.” Still, it continued to manufacture and push sales of the chemicals for more than a decade.

Profits over people

The suit cites another report that makes it clear that Monsanto put profits before the health of citizens. In a report to the Corporate Development Committee, Monsanto says that discontinuing production of Aroclor – the brand name under which PCBs were sold – was unacceptable, saying that “there is too much customer/market need and selfishly too much Monsanto profit to go out.

If successful in its suit, the state will look to claim hundreds of millions in damages. Damages will be assed based on the damage done to natural resources, the economic impact made on the state and its residents, and any future costs associated with the presence of PCBs.


Update: In a statement emailed to ConsumerAffairs, Scott S. Partridge -- Vice President of Global Strategy at Monsanto -- defended the company and addressed the lawsuit:

“This case is highly experimental because it seeks to target a product manufacturer for selling a lawful and useful chemical four to eight decades ago that was applied by the U.S. government, Washington State, local cities, and industries into many products to make them safer," he said. 

"PCBs have not been produced in the U.S. for four decades, and Washington is now pursuing a case on a contingency fee basis that departs from settled law both in Washington and across the country. Most of the prior cases filed by the same contingency fee lawyers have been dismissed, and Monsanto believes this case similarly lacks merit and will defend itself vigorously."

The state of Washington has taken aim at Monsanto – the agrochemical company that has caught the ire of millions over its use of biochemicals. According to...

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Chipotle sued for misleading menu labeling practices

The chain's 'Chorizo Burrito' has far more calories than listed in stores, claimants say

Chipotle has taken its fair share of lumps over the past year or so. After its catastrophic connection to an E. coli outbreak late last year, the chain was accused of wage theft in August by a thousands of employees who said they were required to stay and work after their shifts officially ended.

And now, another class action suit is being filed by consumers over false calorie information in the company’s menu labeling. Complainants say that the “Chorizo Burrito” menu item is listed to have a total of 300 calories on the menu but actually can have many times that number.

According to Fortune, the claimants are seeking damages and an injunction against Chipotle from labeling its food products with misleading nutritional information. If successful, the suit could apply to anyone who has purchased food from Chipotle in the four years before the complaint was made.

Misleading nutritional information

The lawsuit may not come as much of a surprise. Customers have been suspicious about the 300-calorie claim for some time now, and many have gone to Twitter to ask the company about it. In one post, Chipotle answers a Twitter user by saying that the calorie information only applies to the chorizo and not the entire burrito.

In fact, after using the nutrition calculator on Chipotle’s website, ConsumerAffairs found that a Chorizo burrito on a flour tortilla with black beans comes out to 600 calories. Adding other ingredients, like cheese, guacamole, and black beans, pushes the calorie count to 1,050.

The suit rails against Chipotle’s labeling practices, saying that by “providing false nutritional information for the menu items, consumers are lulled into a false belief that the items they are eating are healthier than they really are.”

In response, Chipotle has attempted to reaffirm that it has always strived to be clear with its menu labeling practices. However, it stops short of giving the suit legitimacy.

“I will note that we work very hard to maintain transparency as to what is in our food, including our practices for disclosing nutrition information. I’d also note that a lawsuit is purely allegation and is proof of absolutely nothing,” said Chris Arnold, Chipotle’s communications director. 

Chipotle has taken its fair share of lumps over the past year or so. After its catastrophic connection to an E. coli outbreak late l...

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Tesla sues Michigan for right to sell cars to its consumers

The company says its efforts to open a dealership in the state have been barred by state officials

It looks like Tesla will be taking on the state of Michigan for the right to sell its cars to consumers there. The company has filed a lawsuit disputing a law that bars it from selling vehicles directly to Michigan consumers. The action comes less than a week after the automaker’s application for a Class A license was denied by state officials.

The law in question was created in 2014. It dictated that no automaker would be able to sell its cars in Michigan unless it did so through franchised dealerships in the state. It has been dubbed by some as the “anti-Tesla” law because it specifically mentions Tesla in one of its amendments about requiring a franchised dealership.

This is a big problem for Tesla since its company model is based off selling cars directly to consumers; it says that efforts to open dealerships in Michigan have been blocked by state officials.

Opposing forces

Tesla claims that the 2014 law is unconstitutional because it effectively gives automakers in the state a monopoly on car sales.

“As a result of this law, Michigan consumers are forced to accept reduced access to the products they want, less competition and higher prices,” said Tesla in a statement. It goes on to say that it will continue to “fight for the rights of Michigan consumers to be able to choose how they buy cars in Michigan.”

Tesla asserts that its efforts to make headway in the state have been rebuked by Michigan lawmakers at every turn. It stated that it had initially hoped to resolve the matter through the state’s legislature, but it was dismayed to learn that its case would not be submitted for review.

“Unfortunately, the local auto dealers and local manufacturers have made clear that they oppose any law that would allow Tesla to operate in Michigan. Given their position, the leadership of the Michigan legislature recently informed Tesla that it will not even hold a hearing to debate the issue,” the company said in a statement.

“As one leading legislator told Tesla: ‘The local auto dealers do not want you here. The local manufacturers do not want you here. So you’re not going to be here.’”

The company is seeking a jury trial and has named Michigan’s Secretary of State, Attorney General, and Governor as defendants, since each allegedly was involved in preventing Tesla from operating its own stores in the state.

It looks like Tesla will be taking on the state of Michigan for the right to sell its cars to consumers there. The company has filed a lawsuit disputing a...

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Judge tosses case against couple who gave pet sitter a bad Yelp review

Non-disparagement clause can't be used to silence consumers, court finds

A Texas court has dismissed a $1 million lawsuit that a Dallas pet-sitting company filed against a couple who said the pet-sitters had overfed their goldfish.

It all began when fish owners Michelle and Robert Duchouquette returned home to Dallas after a brief vacation and found that the water in their fish bowl was cloudy, suggesting that their fish had been overfed by Prestigious Pets, the pet-sitting company. They posted a review on Yelp, complaining they had been unable to talk directly to the pet-sitter and gave the company a one-star rating.

Prestigious Pets sued, claiming the negative review was libelous and claimed that it breached a nondisparagement clause in its customer agreement.

It is thought to be the first court case in which a court has held a nondisparagement clause in a consumer contract to be unenforceable, said Paul Alan Levy, the Public Citizen attorney who represented the Douchouquettes, along with local counsel.

“Seeking to silence negative criticism, the owners of Prestigious Pets may well have put their whole company on the line,” Levy said. “Not only did the company lose business when customers were disgusted over the non-disparagement lawsuit, it now is responsible to pay attorney fees and sanctions. This case should serve as a warning to other companies.”

Michelle Duchouquette said she was gratified by the ruling.  

"It took lots of hours and many smart minds spending too much time talking about Gordy the betta fish," she said. "Thank goodness they did not lose sight of the real issue: the threats posed by non-disparagement clauses to our right to free speech.”

A Texas court has dismissed a $1 million lawsuit that a Dallas pet-sitting company filed against a couple who said the pet-sitters had overfed their goldfi...

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Two infant formula makers accused of falsely labeling products 'organic'

Formulas by the Honest Co. and Earth's Best contain violations of USDA organic standards

New mothers are often highly concerned with what goes into their child's body, and buying organic products can be one way to help assuage that concern. But some companies’ baby and toddler-focused products may not be as organic as their labels claim.

Two infant formula makers are being accused of falsely labeling products as “organic.” The Organic Consumers Association (OCA) has filed suit against the Hain Celestial Group (owner of the Earth’s Best formula brand) and The Honest Co.

The companies are accused of labeling certain “organic” products that contain ingredients prohibited under the Organic Food Production Act of 1990 (OPPA).

Violates USDA standards

Eleven substances not deemed organic by federal law were found in The Honest Co.’s Premium Infant Formula. Over half of the 48 ingredients in Hain Celestial’s Earth’s Best Organic Infant Formula violate USDA Organic Standards. Non-organic ingredients were also found in other Earth’s Best products (including Organic Infant Formula, Organic Soy Infant Formula, Organic Sensitivity Infant Formula, and Organic Toddler Formula).

The OCA’s international director, Ronnie Cummins, says it’s an especially fitting time to call out the violation of USDA organic standards, as leaders of the organic industry are meeting this week at the Spring National Organic Standards Board (NOSB) to discuss organic standards.

“No one is more concerned about food labels and ingredients than new mothers responsible for feeding infants whose immune systems and brain development are so underdeveloped and vulnerable,” Cummins said in a statement, adding that mothers rely on truthful labeling.

The consumer advocacy group says the goal of the lawsuit is to force the two companies to either comply with USDA organic standards or stop calling their products “organic.”

Approved methods

What is and isn’t “organic” has been a contentious issue lately. According to the USDA, the labeling term should indicate that the food has been produced through approved methods.

The agency states that cultural, biological, and mechanical practices that “promote ecological balance and conserve biodiversity” should apply to a product before it’s labeled organic.

New mothers are often highly concerned with what goes into their child's body, and buying organic products can be one way to help assuage that concern. But...

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Los Angeles files criminal charges against two drone operators

The defendants could face a $1,000 fine and six months in jail

The simmering dispute over whether federal or local laws regulate drones is heating up, as Los Angeles City Attorney Mike Feuer has filed criminal charges against two drone operators accused of violating the city's drone ordinances.

“Operating a drone near trafficked airspace places pilots and the public at serious risk,” said Feuer. “We'll continue to use our new city law to hold drone operators accountable and keep our residents safe.” 

Michael Ponce, 20, and Arvel Chappell, 35, were each charged with two criminal counts stemming from two separate incidents -- including allegedly operating a drone within five miles of an airport without permission and allegedly operating the device in excess of 400 feet above ground level. Chappell was also charged with one additional count of operating a drone at a time other than during daylight.

If convicted, Ponce and Chappell could face up to six months in jail and a $1,000 fine.

The Federal Aviation administration has taken the position that it has authority over the skies and late last year implemented regulations requiring drone operators to register their aircraft and abide by safety rules, including not flying near airports.

California Gov. Jerry Brown vetoed statewide legislation that would have banned flying drones over private property, prompting Los Angeles to pass its own ordinances in October. The L.A. rules closely mirror the FAA's.

Heliports, hospitals

In the Los Angeles incidents, a police department airship allegedly observed Ponce operating a drone above 400 feet over Griffith Park, within three miles of a number of hospital heliports. The drone was seized and Ponce was cited.

On December 12, 2015, Chappell was cited by police for allegedly operating a drone in excess of 400 feet and within a quarter mile of Hooper Heliport, the LAPD Air Support Division’s base at Piper Tech in downtown Los Angeles. An air unit coming in to land allegedly had to alter its path in order to avoid the device. Ground units were notified and the device was seized.

"While people may think that flying a drone is a minor or victimless crime, the results could be devastating," said city council member Mitchell Englander, Chair of the Public Safety Committee. "We saw firsthand what happened during a major brush fire where drones grounded firefighting helicopters. A single drone can take down a helicopter or an airplane. If drones fly, first responders can't."

The simmering dispute over whether federal or local laws regulate drones is heating up, as Los Angeles City Attorney Mike Feuer has filed criminal charges ...

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Papa John's franchisee pleads guilty to wage theft

Owner must pay $280,000 in fines and faces jailtime

The owner of nine Papa John's franchises located in New York City is looking at jail time and a hefty fine for not paying his employees according to minimum wage requirements. The owner, Abdul Jamil Khokhar and BMY Foods, Inc. pleaded guilty to wage theft charges and will have to pay nearly $300,000, while Kokhar has been sentenced to 60 days in jail.

“Wage theft is a crime and a Papa John's franchisee is now going to jail for cheating his employees and trying to cover it up,” said New York Attorney General Eric Schneiderman.

Schneidman's office led the investigation, which found that Papa John's employees were not being paid the proper time-and-a-half overtime rate when they worked over 40 hours per week. In order to avoid paying extra, the franchisee had his employees use fake names after they had worked 40 hours so that it looked like the time worked was spread out to multiple workers on the books.

Obviously, this practice is illegal because it defrauds workers of their proper wages and defrauds the state on the company's tax return. As a result, the franchisee has been ordered to pay $230,000 back to its employees for lost wages and an additional $50,000 in civil penalties.

“The Attorney General's successful criminal prosecution of this employer, together with the Department of Labor's civil consent judgment against the enterprise, show that employers will not get away with covering up violations of state and federal wage laws,” said Mark H Watson, Jr. of the Wage and Hour Division at the U.S. Department of Labor.  

The owner of nine Papa John's franchises located in New York City is looking at jail time and a hefty fine for not paying his employees according to minimu...

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Study confirms forced arbitration clauses harm consumers

The clauses block class action suits; consumers seldom prevail in arbitrations

There are some things everyone already knows. One of them is that forced arbitration agreements are great for big companies, bad for consumers. 

For one thing, consumers almost never prevail when they enter into an arbitration under the rules laid down by whatever gargantuan entity they've dared to challenge. For another, forced arbitration clauses block consumers from filing the class action lawsuits that can bring them relief and also dissuade big companies from riding roughshod over consumers.

But don't take our word for it. The Consumer Financial Protection Bureau has just released a study that confirms it.

“Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact,” said CFPB Director Richard Cordray. “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year. Now that our study has been completed, we will consider what next steps are appropriate.”

The study found that more than 75% of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers, and fewer than 7% of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court.

Study findings

The CFPB studied arbitration clauses in a number of different consumer finance markets including credit cards and checking accounts, which have the largest numbers of consumers. The report results indicate that:

Tens of millions of consumers are covered by arbitration clauses. For example, in the credit card market, card issuers representing more than half of all credit card debt have arbitration clauses – impacting as many as 80 million consumers. In the checking account market, banks representing 44% of insured deposits have arbitration clauses.

Consumers filed roughly 600 arbitration cases and 1,200 individual federal lawsuits per year on average in the markets studied. More than 20% of these cases may have been filed by companies, rather than consumers.

In the 1,060 cases that were filed in 2010 and 2011, arbitrators awarded consumers a combined total of less than $175,000 in damages and less than $190,000 in debt forbearance. Arbitrators also ordered consumers to pay $2.8 million to companies, predominantly for debts that were disputed.

Between 2010 and 2012, consumers filed 3,462 individual lawsuits in federal court about consumer finance disputes in five of these markets. The Bureau found that of the relatively few cases that were decided by a judge, consumers were awarded just under $1 million.

Roughly 32 million consumers on average are eligible for relief through consumer finance class action settlements each year. Across substantially all consumer finance markets, at least 160 million class members were eligible for relief over the five-year period studied. The settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses – with roughly 18% of that going to expenses and attorneys’ fees.

These figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. Based on available data, the Bureau estimates that the cash payments to class members alone were at least $1.1 billion and cover at least 34 million consumers.

Arbitration clauses can act as a barrier to class actions. By design, arbitration clauses can be used to block class actions in court. The CFPB found that it is rare for a company to try to force an individual lawsuit into arbitration but common for arbitration clauses to be invoked to block class actions.

For example, in cases where credit card issuers with an arbitration clause were sued in a class action, companies invoked the arbitration clause to block class actions 65% of the time.

No evidence of arbitration clauses leading to lower prices for consumers. The CFPB looked at whether companies that include arbitration clauses in their contracts offer lower prices because they are not subject to class action lawsuits. It found no statistically significant evidence that the companies that eliminated their arbitration clauses increased their prices or reduced access to credit relative to those that made no change in their use of arbitration clauses.

The complete report on arbitration is available online.

There are some things everyone already knows. One of them is that forced arbitration agreements are great for big companies, bad for consumers. ...

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Charles Schwab fined, backs down from forced arbitration

Financial Industry Regulatory Authority says class action suits must be allowed

Good news for anyone who lets Charles Schwab handle their investments: the Financial Industry Regulatory Authority (FINRA) has determined that the company “violated FINRA rules by adding waiver provisions in customer agreements prohibiting customers from participating in class actions.”

Charles Schwab must pay a half-million-dollar fine, and can no longer force its investors/customers into arbitration should they have any complaints.

The issue of forced arbitration and customer rights made it to the forefront of public consciousness last week, after The New York Times discovered that food conglomerate General Mills had quietly altered its legal and privacy policies to state that “In exchange for the benefits, discounts, content, features, services, or other offerings that you receive or have access to by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering,” you-the-customer give up any right to sue the company over a dispute, but must instead agree to let General Mills hire a professional arbitrator to settle the matter.

The outrage inspired by this news soon convinced the company to backtrack, and rescind its attempted forced-arbitration policy.


Schwab's forced arbitration attempts go back much further. FINRA said that “In October 2011, Schwab sent amendments to its customer account agreement to more than 6.8 million investors. The amendments included waiver provisions that required customers to agree that any claims against Schwab be arbitrated solely on an individual basis and that arbitrators had no authority to consolidate more than one party's claims.”

The company presumably made this attempt as a result of an April 2011 Supreme Court ruling that the Federal Arbitration Act (FAA) overrides any state law banning forced arbitration or allowing class action suits in customer-service contracts.

In other words, the court ruled, it is acceptable in at least some instances for a company (AT&T, in that specific case) to put fine print in its customer service contracts requiring customers to settle disputes through arbitration, rather than as part of a class-action suit before the courts.

So if AT&T can force its customers into arbitration, why can't Charles Schwab? Because AT&T is not bound by FINRA rules, whereas securities firms like Charles Schwab are. Therefore, FINRA said, “the FAA does not preclude FINRA's enforcement of its rules.”

Good news for anyone who lets Charles Schwab handle their investments: the Financial Industry Regulatory Authority (FINRA) has determined that the company ...

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Huge California hospital chain settles insurance lawsuit

Sutter Health hospitals will pay a record $46 million

Sutter Health, which operates one of the largest hospital chains in California, will pay $46 million and make historic changes in its billing and disclosure of anesthesia charges and services to its patients, insurers and other payers, according to the California Department of Insurance.

“This settlement represents a groundbreaking step in opening up hospital billing to public scrutiny,” said state Insurance Commissioner Dave Jones. “The settlement requires Sutter to disclose on its Website every component of its anesthesia billing and what those services cost Sutter.

“Patients, insurers and the public will now be able to compare Sutter’s costs to what it charges for anesthesia. This new transparency should lead to lower prices and point the way to similar billing reforms for all types of hospital services.”

Sutter has over 20 hospitals in northern California, including California Pacific Medical Center in San Francisco, Sutter General Hospital in Sacramento, and Memorial Medical Center in Modesto. The settlement brings to a close a 2011 whistleblower lawsuit brought against Sutter by billing auditor, Rockville Recovery Associates.

Inflated anesthesia charges

The whistleblower lawsuit alleged that Sutter included a false and misleading charge in its surgery bills. Sutter patients or their insurers received three separate charges relating to anesthesia, including a charge by an outside anesthesiologist, a charge for the operating room and a charge under an obscure Code 37x Anesthesia.

Sutter often charged thousands of dollars for Code 37x Anesthesia for each operation. Yet the services covered by that code were allegedly already captured in the operating room charge, itself a charge in the thousands of dollars. Sutter charged for anesthesia on a time-based or chronometric basis even when no Sutter employee, only the outside anesthesiologist, was present and overseeing anesthesia. Some hospitals also charged separately for anesthesia gasses using code 25x. Sutter’s contracts with insurers also included a clause alleged to unduly restrict insurers from contesting the bills.

Corrective actions

The settlement requires that Sutter:

  • Pay $46 million
  • Stop billing for anesthesia in the operating room on a chronometric basis and instead charge on a fully disclosed flat-fee basis
  • Describe every component of its anesthesia billing
  • Post on its Website and provide to insurers and the commissioner the cost to each Sutter hospital of its anesthesia services, updated annually
  • Clarify the relationship between its master schedule of charges (known as chargemasters in the health care industry) and the bills that consumers and insurers receive. This change will lead to an increase of transparency and accountability in hospital billing
  • More readily permit insurers and other payers to contest Sutter’s bills.

Other defendants

Another defendant, Marin General Hospital, has agreed to implement the same changes to its procedures for billing anesthesia services. Marin General Hospital was a member of Sutter Health during the period of the misconduct alleged by the complaint. In 2010, Marin General Hospital became an independent hospital.

The settlement also includes defendants MultiPlan, Inc. (“Multiplan”) and Private Healthcare Systems, Inc. (“PHCS”), whose provider contracts with Sutter included Sutter’s audit policy that allegedly unduly restricted payers' ability to challenge Sutter’s charges. In addition to paying $925,000, MultiPlan and PHCS agreed to continue to provide notifications to payers about their audit rights.

Sutter Health, which operates one of the largest hospital chains in California, will pay $46 million and make historic changes in its billing and disclosur...

Wal-Mart Case Offers Another Chance for Supreme Court to Strike at Class Actions

Latest opportunity to severely limit group litigation

It's class action season at the United States Supreme Court.

As reported in November, the court has the chance to kill -- or at least severely limit--  the device in AT&T Mobility Services v. Concepcion, a potentially seismic case that has been flying under the radar.

Now, legal experts are holding their breath to see whether the court will take a much higher-profile case: the long-running class action alleging that Wal-Mart systematically discriminated against female employees.

The case -- which is the largest job discrimination suit in U.S. history, and one of the biggest class actions -- was certified as a class action in August by the Ninth Circuit Court of Appeals. Soon after, Wal-Mart asked the Supreme Court to review the decision. Class certification is a critical stage in class action lawsuits, and greatly increases the chances of a settlement.

The legal community has been waiting to see whether the Supreme Court will take the case. If it does, the decision is likely to be seen as a boon for Wal-Mart -- and the corporate community at large.

"If the Supreme Court takes this case, it will signal this business-friendly court is hostile to class actions against corporate defendants,” Stanford Law professor Deborah Hensle told The Los Angeles Times.

Corporate world sits and waits

Throughout the case, Wal-Mart has argued that the sheer number of plaintiffs -- potentially over one million current and former employees -- renders the case "unmanageable.”

The suit covers 1.5 million female employees who worked for Wal-Mart and Sam's Club between 1998 and the present. The plaintiffs allege that they were paid less than their male colleagues, and received fewer chances for advancement. If the case settles, or the plaintiffs win, the award could easily reach into the billions.

The suit has drawn the attention of the business community, with the U.S. Chamber of Commerce and several other corporations filing friend-of-the-court briefs on Wal-Mart's behalf. A Chamber spokeswoman called the case "the most important class action case facing the Court in over a decade.”

If the court does take the case, oral arguments will likely take place sometime in the spring, and the court will issue a decision next summer.

The case, along with the AT&T suit, has class action lawyers on edge. The AT&T suit involves a user agreement mandating consumers to resolve disputes through binding arbitration, rather than litigation in the courts. The same provision forbids consumers from brining class actions.

If the court rules for AT&T, as many expect it to, class-action waivers could be enforced all over the country, thereby eradicating most of the cases that are still ripe for class treatment.

The high-stakes cases are not entirely surprising, given the current makeup of the court. Justice Antonin Scalia, one of the court's conservative justices, made clear his distaste for class actions in a recent tobacco ruling.

"The extent to which class treatment may constitutionally reduce the normative requirements of due process is an important question,” Scalia wrote. He added that the issue shows "national concern of the abuse of the class action device.”

Wal-Mart Case Offers Another Chance for Supreme Court to Strike at Class Actions Latest opportunity to severely limit group litigation...

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The End of Class Actions?

Supreme Court case could spell end of class litigation

Are class action lawsuits about to be snuffed out?

A number of legal practitioners and scholars say that might be the ultimate outcome of AT&T Mobility Services v. Concepcion, a case being argued before the Supreme Court on Tuesday.

Brian Fitzpatrick, a law professor at Vanderbilt University, writes in a San Francisco Chroniclecolumn that the case "could be [the Supreme Court's] most important case in years."

"If the case is decided the way many observers predict, it could end class-action litigation in America as we know it," Fitzpatrick warns.

Case rooted in arbitration clauses

The case owes its very existence to our old friend, arbitration clauses. The plaintiffs, Vincent and Liza Conception, who sued AT&T for deceptive practices, challenged a clause in their user agreement mandating that all claims be resolved through binding arbitration, rather than litigation in the courts. The same provision prohibited consumers from bringing class actions, either in arbitration or litigation form.

While a California federal court ruled that the class action prohibition violates public policy and is thus unenforceable - a commonly-cited argument against class action waivers - AT&T says that the Federal Arbitration Act preempts state laws and mandates enforcement of the class action waiver.

Fitzpatrick - who points out that "the current court is very friendly to businesses" - says that many observers expect the Supreme Court to side with AT&T, allowing class action waivers to be enforced all over the country.

Because of previous decisions making personal injury class actions very difficult to certify, Fitzpatrick says that a ruling in AT&T's favor could constitute a death knell to class actions altogether. That's because almost all remaining class action lawsuits are "between parties who are in transactional relationships with one another,” meaning that, with a win by AT&T, would-be plaintiffs could be forced to sign away their right to bring a class action right from the beginning.

Wide-ranging consequences

The ramifications of a class action ban would be profound. Plaintiffs who bring the kinds of suits that end up as class actions - those concerning defective products, misleading contracts, or unfair working conditions - usually don't suffer economic damage great enough to justify bringing a suit all by themselves. The class action gives them an incentive to fight a case that wouldn't otherwise be worth it.

And perhaps more importantly, class actions serve as a deterrent to companies who would otherwise be able to nickel-and-dime consumers without consequence.

"The marketplace is fairer for consumers and workers because there's a deterrent out there," Deepak Gupta, an attorney with Public Citizen, a consumer watchdog group, told The Los Angeles Times. Gupta is arguing the case for consumers.

"Companies are afraid of class actions," Gupta said. "This helps keep them honest."

Long time coming?

That the conservative Supreme Court would like to end class actions is not a completely surprising concept. Recently, in staying a class action ruling against tobacco companies, Justice Scalia ominously warned that such a day might come. Scalia took issue with class action defendants' inability to cross-examine witnesses who allege that they broke the law, an issue that he said might amount to a violation of due process.

"The extent to which class treatment may constitutionally reduce the normative requirements of due process is an important question," Scalia wrote, adding that the issue is reflective of what he says is "national concern of the abuse of the class action device."

The End of Class Actions?Supreme Court case could spell end of class litigation...

Justice Scalia Stays Big Tobacco Class Action Ruling

His opinion hints at big changes to come for consumer class actions

Supreme Court Justice Antonin Scalia, in his role as circuit justice for the Fifth Circuit Court of Appeals, has stayed a $270 million tobacco verdict for Louisiana smokers, ruling that the lower court likely erred in failing to require that the plaintiffs show reliance on the tobacco companies advertisements.

A bit of context: each Supreme Court justice also serves as a circuit justice for at least one appellate court, a role that often presents the question of whether a stay should be granted so that the full court can hear an appeal.

The case involves a suit that was brought as a class action on behalf of all Louisiana smokers, accusing several tobacco manufacturers of misleading the public about the addictive effects of nicotine. A Louisiana state court eventually gave the plaintiffs a verdict for a whopping $241 million, plus around $30 million of accumulated interest. The money was to be paid into an account set up to fund smoking cessation programs.

The defendant companies eventually petitioned for a stay pending a writ of certiorari to federal court, which is apparently in the works. Scalia, conceding that the companies bore a heavy burden in showing that such a stay is necessary, nevertheless found that the companies had met that burden.

No reliance, Scalia says

In his opinion, Scalia wrote that, while the tobacco companies had potentially been subjected to many violations of due process, one especially stuck in his craw: in Louisiana, Scalia wrote, a fraud case requires the plaintiff to prove that the plaintiff detrimentally relied on the defendants misrepresentations.

But, according to Scalia, the Louisiana court held that this element need not be proved since the defendants are guilty of a distortion of the entire body of public knowledge regarding tobacco, which the class on a whole relied on.

Consequently, Scalia continued, the [Louisiana] court eliminated any need for plaintiffs to prove, and denied any opportunity for applicants to contest, thatany particular plaintiff who benefits from the judgment (much less all of them) believed applicants distortions and continued to smoke as a result.

Future of class actions

Scalias ruling is certainly a victory for the defendant companies, which previously tried unsuccessfully to get the ruling thrown out by a state court. But his opinion is more noteworthy for its sweeping language regarding class actions in general -- and what it could mean for their future.

The extent to which class treatment may constitutionally reduce the normative requirements of due process is an important question, Scalia wrote, adding that the issue is reflective of what he says is national concern of the abuse of the class action device.

The alleged due process violations to which Scalia refers include the inability to cross-examine every member of the class to ensure that they relied on the defendants advertisements, inaccurate estimations of the classs size, and constant revision of the plaintiffs claim during the course of litigation.

These concerns, along with Scalias prediction that it is significantly possible that the award will be reversed, suggests that the Supreme Court is looking to make sweeping changes in class action law. And a decision making class actions harder to bring would be in line with the courts recent corporate-friendly trend.

That trend came to a head earlier this year, when, in Citizens United v. Federal Election Commission, the court ruled that corporations must be allowed to use general treasury funds to support political candidates, a major shift likely to change the nature of political advertising. That case, which essentially embraced the theory of corporate personhood -- that corporations are subject to the same rights as individual people -- offers a glimpse into class actions under the Roberts court. Its not likely to be pretty for consumers.

Justice Scalia Stays Big Tobacco Class Action Ruling...

Wal-Mart Appealing Discrimination Ruling to Supreme Court

Ninth circuit certified class of more than 1 million employees

Wal-Mart has asked the U.S. Supreme Court to weigh in on a lawsuit contending that the retailer discriminates against female employees, The New York Times reported this week.

The suit, pending in federal court in San Francisco, alleges that female Wal-Mart employees are paid less, given smaller raises, and promoted less often than their male counterparts. If found liable, Wal-Mart could be on the hook for at least $1 billion.

The suit has been winding its way through the courts since it was first filed in 2001. In April, the Ninth Circuit Court of Appeals narrowly certified the case as a class action, ruling that just because over 1 million employees are potentially involved doesn't necessarily render [the] case unmanageable.

Wal-Mart sought to paint the court's decision as relying on technicalities.

"It is important to remember that the Ninth Circuits opinion dealt only with class certification, not with the merits of the lawsuit," the company said in a statement, contending that "the Ninth Circuits opinion contradicts numerous decisions of other appellate courts and even the Supreme Court itself."

Wal-Mart's appeal is based on the contention that the case is unsuitable for class treatment, since each employee's claim will necessarily involve individual factual issues that can't be applied to the case as a whole.

That argument echoes Judge Sandra Ikuta's dissent in the Ninth Circuit decision.

Never before has such a low bar been set for certifying such a gargantuan class, Judge Ikuta wrote, adding that the plaintiffs' allegations were based on general and conclusory allegations, a handful of anecdotes and statistical disparities that bear little relation to the alleged discriminatory decisions.

Attorneys for the plaintiffs cite as evidence data showing that women account for two-thirds of Wal-Mart employees, but only a third of its management.

Brad Seligman, an attorney for the plaintiffs, told the Times that class certification was entirely appropriate, even given the class's enormity.

The ruling upholding the class in this case is well within the mainstream that courts at all levels have recognized for decades, Seligman said. Only the size of the case is unusual, and that is a product of Wal-Marts size and the breadth of the discrimination we documented.

Company was warned

In a separate article, the Times reported that Wal-Mart was warned of potential liability a full six years before the lawsuit was filed. In 1995, lawyers for the firm Akin Gump reported that salaried male employees earned 19 percent more than females, and that men were five times more likely than women to be promoted into management jobs.

Paradoxically, Wal-Mart has been careful to avoid the appearance of discrimination in other areas. In 2003, the company announced that it was implementing policies designed to prohibit discrimination against gay and lesbian employees.

In any event, Wal-Mart is vigorously defending its workplace policies.

Wal-Mart is an excellent place for women to work and has been recognized as a leader in fostering the advancement and success of women in the workplace, the company said in a statement.

Assuming that the Supreme Court agrees to hear the case, its ruling is likely to either open the floodgates for future jumbo class actions, or effectively shut the door on them.

This is the big one that will set the standards for all other class actions, Robin S. Conrad, executive vice president of the National Chamber Litigation Center, told the Times. Conrad's organization is part of the U.S. Chamber of Commerce and has filed amicus briefs in support of Wal-Mart's position.

Wal-Mart Appealing Discrimination Ruling to Supreme Court...

Gulf Dispersant Making Matters Worse, Suit Says

Plaintiffs say chemical is ineffective, hazard to health

By Jon Hood

June 18, 2010
The dispersant BP is using to clean up the oil spill in the Gulf is actually more toxic than the oil itself, a Louisiana class action lawsuit claims. In an unrelated filing, Louisiana Attorney General Buddy Caldwell filed a brief asking that consolidated cases stemming from the Deepwater Horizon explosion be heard in the Eastern District of Louisiana federal court.

The dispersant suit, filed today in a New Orleans federal court, seeks $5 million on behalf of Gulf coast residents and those working to clean up the spill. The action also targets Nalco Holding Company, the corporation that manufactures the dispersant, known as Corexit.

According to the complaint, the 1.3 million gallons of dispersant used so far have caused a toxic chemical to be a permanent part of the sea bed and food chain in the bio structure. The plaintiffs say that the chemical is actually four times more lethal than the oil itself, and that BP has allowed an even more dangerous condition to exist in the Gulf of Mexico than if the oil was allowed to float to the shoreline.

Nalco issued a press release on Thursday asserting that federal testing has concluded that the use of the COREXIT dispersant remains a safe, effective, and critical tool in mitigating additional damage in the Gulf. The statement quotes Nalco's chief technology officer, Dr. Mani Ramesh, as saying that the dispersant is safe.

The use of the dispersant has had no impact on marine life. These latest [federal] tests underscore previous findings that show COREXIT rapidly biodegrades and does not bio-accumulate, Ramesh said. The oil continues to be the primary hazard in the Gulf -- for workers, wildlife and vegetation. Dispersants have prevented more oil from reaching our shoreline.

Making it worse?

Still, a 2005 study by the National Research Council found that in some circumstances Corexit had no effect whatsoever, and occasionally even made conditions worse.

Additionally, Corexit has been banned in the United Kingdom -- where BP is based -- since 1998, when it was found hazardous to the food chain.

A May article in The New York Times reported that Corexit ranks far above dispersants made by competitors in toxicity and far below them in effectiveness in handling. Specifically, the article singled out Dispersit, a competing chemical, as being almost twice as effective in cleaning up oil spills while being, at most, one-half as toxic.

And Corexit, which was used in response to the 1989 Exxon Valdez disaster off the coast of Alaska, has been identified as a possible contributor to serious health problems suffered by recovery workers there, the Times noted. Specifically, a number of maladies that included kidney and liver problems were thought to be connected to the chemical 2-butoxyethanol, an ingredient in Corexit 9527. Both that dispersant and an updated sibling, Corexit 9500, are being used to clean up the Gulf spill.

At least one of the plaintiffs' attorneys is suggesting that Corexit got the nod because former officials from BP and ExxonMobil sit on Nalco's board.

Basically the oil companies are selling themselves their own product, said attorney Arlen Braud. That can be the only explanation as to why they didnt use the better ones.

Caldwell's filing

In his filing with the Judicial Panel on Multidistrict Litigation, Caldwell said the Eastern District of Louisiana is the most appropriate venue for consolidated proceedings citing the courts proximity and connection to the disaster, as well as the convenience for affected litigants and witnesses.

The impacts from this catastrophe are, and will continue to be, most keenly felt by Louisiana's citizens including the families of those Louisiana offshore workers who lost their lives in the explosion, those who were injured, the fisherman and their families who depend on Louisiana's natural resources for a living, and the citizens who live along Louisiana's coastline, which is already fragile and disappearing at alarming rates, Caldwell said.

Gulf Dispersant Making Matters Worse, Suit Says...

BP Facing Nearly 100 Suits

Once again, bayou denizens, chefs and tourism promoters fear the worst

The pipe threaded inside the leaking oil pipe a mile under the surface of the Gulf of Mexico did not work. It was hoped it would save some of the oil spewing like a volcano from BP's hole in the bottom of the sea and pump it aboard a waiting ship sitting overhead. It didn't work. We heard the news from Fox on Sunday morning.

There was both good and bad news later Sunday. The good news is BP is taking oil up the mile-long pipe to the mother ship hovering above the gushing volcano, according to BP spokesman Mark Proegler. The bad news is Proegler can not say how much of the oil is being captured or what percentage of the discharge is being diverted to the holding ship above.

Kent Wells, BP's senior vice president for exploration and production, said during a news conference that the amount being drawn was gradually increasing, but it would take several days to measure it.

Proegler had indicated earlier, at the Joint Spill Command Center in Louisiana, that the tube was capturing most of the oil coming from the broken pipe. This particular break is thought to be contributing about 85 percent of the crude in the overall leak. But estimates of the size of the leak vary wildly.

Potentially worse news is that computer models show the oil either already in the Gulf Stream or within three miles. Which means the U. S. Eastern Seaboard is at risk. And possibly the United Kingdom, where BP has home offices in London.

How much?

The oil is leaking at least 210,000 gallons a day, according to BP and the U. S. government. It is ten times that amount, say other scientists.

"When you hear officials disagreeing like that you wonder if they know how to handle this." We are listening to a table of local oystermen at Shukes, a popular oyster house in Abbeville, home of the first commercial oyster fishery in Louisiana..

"Wonder, my ass!" responded a frustrated oysterman. "I know, they do not."

The only good news today: Shukes has just announced they have a two-week supply of oysters on ice.

We have spent the week in Acadiana, the French-Canadian, Creole region of Louisiana. This is Cajun Country. It is home to the University of Louisiana at Lafayette and their football team, the Ragin Cajuns, and also home to Louisiana's oil industry.

"America does run on oil," retired U. L. marine biologist Mark Konikoff, a vocal supporter of the oil industry, reminded us.

Indeed, it does. But California Governor Arnold Schwarzenegger announced last week that all oil drilling would be banned from California's golden shores, causing local Lafayette radio talk-show host, Ken Romero, to say in a recorded radio spot that California should be barred from receiving Louisiana oil. Not likely given the fluidity of the product, but indicative of the faith many here place in Big Oil.

Of course, Big Oil has made the region rich. It may be asking too much to grasp how it may now make its culture non-existent if, in fact, the Gulf becomes a dead sea. But the truth is that -- as always -- no one knows what is going to happen. Think how much wealthier Rupert Murdoch would be if The Wall Street Journal printed tomorrow's stock prices.

New way'a doin'

At a Native American Pow Wow this weekend at the Tunica-Biloxi Reservation and Paragon Casino Resort, at Marksville, it was not hard to find people who have seen total cultural and economic change. "We will just find a new way'a doing," was pretty much the consensus among Pow Wow attendees.

All around us is the prosperity of Louisiana's first land-based gambling casino sitting on the edge of where recently there was an longtime air of hopelessness, we heard a feathered dancer telling the audience, "Our people are survivors."

In New Orleans, the smell of oil is noticeable even to those most resistant to noticing. At Pascal's Manale, the Napoleon Avenue restaurant that invented New Orleans Barbecued Shrimp -- a succulent dish far removed from simply tossing some shrimps on the BBQ -- our waiter placed steaming bowels before us and tied bibs around our necks.

The shrimp were as fine as Judy Sherrod remembered from her youth. Sherrod was in New Orleans for a photography workshop. She drinks two beers with her shrimp, and wears a safari jacket of the type you associate with a world adventurer.

"I've recently returned to New Orleans, after many years." During those years she has been busy compiling a body of work titled: "Exploring the Mystery of Easter Island."

Neither of us could smell oil in the air that day. Nor taste it in our food. However, a few days later the smell was very noticeable.

"The feeling I get in the pit of my stomach is like the feeling I got when all those generals and politicians and industrialists kept assuring us about the war in Vietnam," said French Quarter resident L. A. Norma.

"Now, after Katrina and Rita, we finally got our tourist industry back. Now this!" Norma sighed.

And, perhaps most frightening, we still do not know what "this" is going to end up being, as we enter the fourth week of BP's big oil volcano at the bottom of the sea.


Leonard Earl Johnson is a former cook, merchant seaman, photographer and columnist for Les Amis de Marigny, a New Orleans monthly magazine. Post-Katrina, he has decamped to Lafayette, La. Columns past, present and future are at

BP Facing Nearly 100 Suits...

Dismissed Federal Class Action Can't be Reheard in State Court, Judge Rules

Baycol decision could have far-reaching implications

A federal appellate court ruled this week that class action plaintiffs who find their federal cases thrown out can't turn around and re-file in a state court.

The decision, rendered by the Eighth Circuit Court of Appeals on Tuesday, involved a class action against Bayer regarding its prescription medication Baycol. The drug was intended to lower cholesterol and fight cardiovascular disease, but was taken off the market in 2001 after being linked to 31 deaths.

The plaintiffs, led by West Virginia resident George McCollins, filed a class action lawsuit in a West Virginia county court in 2001. The suit was later removed to federal court, and heard by a multidistrict litigation (MDL) panel in Minnesota.

The MDL panel denied class certification in 2008, holding that, to state a proper claim for economic injury under the West Virginia Consumer Credit and Protection Act (WVCCPA), McCollins would need to "demonstrate Baycol was something other than what he bargained for," which was impossible since he hadn't been injured by the drug, and had in fact benefited from it. The court subsequently granted an injunction preventing the plaintiffs from bringing an action in state court. The appeals court's decision affirmed that injunction.

The Eighth Circuit agreed with the MDL panel's ruling, ruling that "economic loss alone is insufficient" to state a claim under the WVCCPA. Judge Diana Murphy went on to hold that "[r]e-litigation in state court of whether to certify the same class rejected by a federal court presented an impermissible 'heads-I-win, tails-you-lose situation.'" The court cited a Seventh Circuit decision, In re Bridgestone/Firestone, which similarly held that unsuccessful federal class actions couldn't be reheard in state court.

The plaintiffs contended that their individual economic damages were so small that bringing individual actions would be a waste of time and money, and that a class action was thus their only practical option. Judge Murphy recognized this concern, but said that the plaintiffs "have no absolute right to litigate their claims as a class ... only a right, preserved by the district court's narrowly tailored injunction, to litigate their own claims."

The decision could have far-reaching implications in other circuits. Dorsey & Whitney LLP, one of the firms representing the defendants, highlighted the decision on its website as one that "could limit class action exposure for product liability defendants." Whether the plaintiffs plan to appeal is unclear.

The Eighth Circuit appeals court is dominated by Republican-leaning judges, who are regarded as relatively hostile to civil plaintiffs and class action suits. Nine of its 11 judges were appointed by Republican presidents. Judge Murphy was appointed by President Bill Clinton, while the other two judges deciding the case -- Duane Benton and Lavenski Smith -- were both appointed by President George W. Bush.

Dismissed Federal Class Action Can't be Reheard in State Court, Judge Rules...

Chase Drops Mandatory Arbitration Clause

Allows credit card holders to file suit in court

By Jon Hood

November 22, 2009
Consumers scored a major victory on Friday as JPMorgan Chase, the nation's largest credit card lender, announced it will drop a mandatory arbitration clause from its credit card contracts. The announcement was made with an eye toward settling a class action lawsuit targeting Chase and several other major financial institutions.

The class action, filed by Berger & Montague PC of Philadelphia, also names Bank of America, Citigroup, Discover, and Capital One as defendants. The suit accuses the defendants of having secretly met or consulted on some 30 occasions for the purpose of requiring their cardholders to arbitrate all disputes.

Chase agreed to drop the arbitration requirement for at least three and a half years, starting next year, although it appears the lender has already gotten a head start. Before news of the settlement broke, a spokesman said via an e-mail that the bank stopped using arbitrators in July. Chase also promised not to replace the clause with a class-action waiver or other restrictions on consumers' remedial options.

It has been a good year for consumers on the arbitration front. In March, the Supreme Court held that credit card holders are not always bound by arbitration agreements, overruling the Fourth Circuit.

Bank of America announced in August that it was no longer requiring arbitration for disputes relating to a range of products, including credit cards, car loans, and deposit accounts. BofA, the nation's largest bank, was the first to abandon the arbitration-only policy.

What's it mean

What does it mean for consumers? Those who have a dispute or disagreement with Chase are now able to file suit in court, where their chances of success or at least a fair hearing are infinitely better. The arbitration forums used by credit card companies are notoriously tilted in banks' favor. A 2007 Public Citizen study found that consumers lost fully 95 percent of cases decided in a California arbitration forum.

State attorneys general and other law enforcement officials have been cracking the whip as well, often with great success. The National Arbitration Forum went so far as to halt all consumer arbitration disputes as part of an agreement with Minnesota Attorney General Lori Swanson. The American Arbitration Association similarly said it would suspend arbitration proceedings until new fairness standards were in place.

Next year may prove even more brutal for credit card companies; they become subject to new regulations on rates and fees in February, when the Credit Card Accountability Responsibility and Disclosure (CARD) Act goes into effect.

The settlement between Chase and the plaintiffs now awaits final approval from the court. As part of the agreement, the plaintiffs agree to relieve Chase of any liability stemming from the arbitration clause itself, but reserve their right to litigate claims that were originally slated for, or heard in, arbitration forums.

Chase Drops Mandatory Arbitration Clause...

Mandatory Arbitration Stacks Deck Against Consumers

Study finds justice systematically denied to cardholders

Consumers who seek justice in disputes with their credit card companies shouldnt expect to find it in binding mandatory arbitration; in cases decided in California by a major arbitration firm over a four-year period, consumers lost 95 percent of the time, a new Public Citizen report shows.

Further, virtually all were collection cases filed against consumers by credit card companies or firms that buy debts from these companies, indicating that credit card companies are using arbitration as a means to collect debts.

The report was released at a press conference today with lawmakers who have introduced legislation to protect consumers from arbitration, and a victim of unfair arbitration proceedings.

In the report, available online, Public Citizen pulls back the curtain to reveal the cozy and dangerous relationship between credit card companies and the private arbitration firms that decide their binding mandatory arbitration cases.

The result of an eight-month investigation, the report provides, for the first time, a comprehensive analysis of data on nearly 34,000 arbitration cases, and in-depth stories of credit cardholders and their struggles in this nightmarish system.

The report focuses on the National Arbitration Forum (NAF), the go-to arbitration forum for the credit card industry and a major player in the California arbitration business. Between Jan. 1, 2003, and March 31, 2007, arbitrators working for the Minneapolis-based NAF ruled for businesses in 95 percent of the California cases examined.

In fact, 90 percent of the NAF cases were handled by just 28 arbitrators, who awarded businesses $185 million. One arbitrator handled 68 cases in a single day - an average of one every seven minutes, assuming an eight-hour day - and ruled for the business in every case, awarding 100 percent of the money requested. The same arbitrator is an attorney with his own practice serving business and corporate clients.

Give up rights

People shouldnt have to give up their legal rights just to get a credit card, said Public Citizen President Joan Claybrook. This is a system that is unfair to consumers, many of whom are struggling financially, and a huge gift to big business. We need to ban mandatory arbitration clauses in consumer contracts now.

Public Citizens excellent report provides solid evidence of the abuses that take place when consumers are forced into binding mandatory arbitration agreements, said Sen. Russ Feingold, who, along with Rep. Hank Johnson (D-Ga.), has introduced the Arbitration Fairness Act of 2007.

Its time to restore choice to consumers and employees, and restore the effectiveness of the laws Congress has passed to protect them, Feingold said.

The Arbitration Fairness Act of 2007 would ensure that citizens have a true choice between arbitration and the traditional civil court system by requiring that agreements to arbitrate employment, consumer, franchise and civil rights disputes be made after a dispute has arisen.

The act would prevent a party with greater bargaining power from forcing individuals into arbitration through a contract.

Forget the jury

Buried in the fine print of millions of customer-service agreements for everything from credit cards to cell phones, as well as employment contracts, binding mandatory arbitration clauses require customers to agree to settle any grievances through arbitration, thereby forgoing their right to a trial by jury.

Most people dont realize that by accepting the credit card or computer, they are giving up their right to go to court if they have a dispute with the company, and in fact will be forced into a system in which the company holds all the cards.

Not only do the companies hire the arbitrators and drive millions of dollars of business to arbitration firms - giving arbitrators a financial incentive to rule for the company - but proceedings are costly to consumers, largely handled through document exchange and kept secret.

Consumers who want due process must pay; in one case examined by Public Citizen, a three-page decision cost $1,500 to obtain.

Public Citizen focused on California data because California is the only state that requires arbitration providers to disclose any information about arbitration results. In all other states, there is no oversight or accountability.

Public Citizens investigation revealed customers left in the shadows of arbitration, often spending years fending off collection agencies, cleaning up identity theft messes, untangling themselves from administrative bungling and bouncing back from credit rating hits.

Horror story

Troy Cornock, a Hillsboro, N.H., resident, brought his arbitration horror story to Capitol Hill. Cornocks credit rating was decimated after the card his now ex-wife opened in his name was not paid off.

He tried repeatedly and unsuccessfully to make credit card giant MBNA aware that not only was it not his card, but also that he had moved to a different address. MBNA kept sending all correspondence, including notice that the case was being sent to arbitration, to his ex-wifes address.

NAF ordered Cornock to pay MBNA $9,446.85 but sent that ruling to his ex-wifes address. MBNA then went to court and successfully petitioned for a default judgment against Cornock. Cornock hired a lawyer, who had the default judgment set aside and successfully filed a motion to have the arbitration award tossed out. Cornocks days in court are over, but his credit record is sullied and his financial trials continue.

Most people have no idea what an arbitration firm is, Cornock said.

Sure, its in the contract you sign, but that fine print should be in big old bold print, warning you. In my case, they held an arbitration hearing even though I didnt sign a contract agreeing to arbitration.

Binding mandatory arbitration is a systematic, privately funded denial of justice for consumers, said Laura MacCleery, director of Public Citizens Congress Watch division. It is a get-out-of-jail-free card for corporate hucksters.

Mandatory Arbitration Stacks Deck Against Consumers...

North Carolina Court Strikes Down CitiFinancial's Mandatory Arbitration

The lawsuit was filed as a class action, so the ruling affects thousands of consumers across North Carolina

A North Carolina judge struck down a mandatory arbitration clause, which had been placed in consumer contracts by CitiFinancial Services, a division of Citigroup, Inc. Judge Ronald Stephens ruled that two North Carolina women have the right to bring a lawsuit against CitiFinancial for predatory lending practices in state civil court and will not be forced into arbitration as requested by CitiFinancial.

The lawsuit was filed as a class action, so the ruling affects thousands of consumers across North Carolina.

In June 2002, Raleigh attorneys John Alan Jones and G. Christopher Olson filed a class action on behalf of Fannie Lee Tillman and Shirley Richardson. Tillman and Richardson contended that they were victims of predatory lending practices by CitiFinancial. Their lawsuit sought compensation for thousands of North Carolina borrowers who were sold a now-outlawed type of credit insurance known as single-premium credit insurance (SPCI).

Consumer groups have complained about SPCI for years.

The beneficiary of the insurance policy is the bank, not the borrower. Jones explained. With SPCI, the entire insurance premium is paid in a lump sum when the loan is made. SPCI is an extremely expensive type of insurance. The bank pressured customers to buy the insurance and then financed the premium and added it to their loan."

"Folks like Ms. Richardson and Ms. Tillman ended up borrowing more money than they needed or wanted and were then forced to pay interest on the premium over the life of the loan," Jones said. "This lending practice also led to an increase in closing costs such as points and origination fees. So the bank is the beneficiary of the insurance. The bank gets to loan more money. The bank earns more on closing costs. And by the way, usually the bank also earned a big commission on the insurance premium, sometimes approaching 50 percent.

The suit, which was filed in Superior Court in Henderson, North Carolina, alleges that Tillman and Richardson were never told that the SPCI had been added to their loans or that they could be forced into arbitration. Both women testified that they were rushed through their loan closings and simply told where to sign their names or place their initials on the loan documents.

After Tillman and Richardson filed their lawsuit in civil court against CitiFinancial, the bank, which had included an arbitration clause in their closing documents, tried to force Tillman and Richardson into arbitration. Judge Stephens held that the CitiFinancial arbitration clause should be struck down because it was so one-sided and unfair to CitiFinancial borrowers.

In theory, arbitration clauses are intended to provide an efficient and inexpensive way to resolve disputes, without going into the courts, explained Jones. Unfortunately, CitiFinancials arbitration clause was so one-sided and expensive that few, if any, North Carolina consumers could afford it. CitiFinancial drafted an arbitration clause which essentially immunized it from the victims of its predatory lending practices. Thanks to Judge Stephens, North Carolina borrowers victimized by CitiFinancials predatory lending practices will have their day in court.

CitiFinancial, formerly known as Commercial Credit Loans, Inc., began including the mandatory arbitration clause in its loan agreements in 1996. CitiFinancials customers were in the subprime lending market, meaning that their credit ratings were below average and the interest rates charged were very high. Both Tillman and Richardson were charged rates of 15-20 percent by CitiFinancial.

CitiFinancials arbitration clause prevented them from bringing a lawsuit in civil court, but included exceptions which allowed CitiFinancial to continue to sue borrowers in civil court. To illustrate how one-sided CitiFinancials arbitration clause was, Olson cited evidence indicating that CitiFinancial had brought 3,700 lawsuits against North Carolina borrowers in civil court since the arbitration clause was adopted in 1996, but no borrower had gone into arbitration.

Jones and Olson told the Court that the arbitration clause was so expensive it would prevent Richardson, Tillman, or any other CitiFinancial borrower from going into arbitration. In his ruling, Judge Ronald L. Stephens cited evidence that CitiFinancial arbitration process could cost the borrower more than $10,000 if they lost, plus costs and attorneys fees.

Jones emphasized, This is not some coupon class action. We believe that as many as 25,000 North Carolina borrowers are entitled to a refund of their insurance premiums, as well as the closing costs and interests caused by those premiums. If we prevail, CitiFinancial will be required to pay back many North Carolinians the thousands of dollars which was wrongly taken from them.

CitiFinancial is appealing the ruling.

North Carolina Court Strikes Down CitiFinancial's Mandatory Arbitration...

Supreme Court Upholds AT&T Customers' Right to Day in Court

Consumers are not required to use secretive arbitration process

The Supreme Court has refused to review a February decision giving 7 million California AT&T long-distance customers the right to take their complaints to court, instead of being bound by a secretive AT&T arbitration process.

Without comment, the high court yesterday denied review of the Ninth U.S. Circuit Court of Appeals' finding that AT&T's arbitration rules were "oppressive and unenforceable."

It is one of several recent cases in which state and federal courts in California have overturned major companies' arbitration rules. The basis for those rulings is an August 2000 state Supreme Court decision that one-sided arbitration programs could not be imposed on consumers or employees.

AT&T adopted the mandatory arbitration rules in 2001 for its 60 million customers nationwide. The rules were written in tiny print in new contracts the company mailed to customers, basically giving them the choice to take it or leave it. Further, findings by the AT&T-controlled arbitrators were nearly impossible to appeal.

The recent court decisions affect only California customers but are seen as an important development in consumers' struggle to break free of the onerous mandatory arbitration clauses that have been adopted by telecommunications and credit card companies, among others.

"This is a great day. The courts have recognized that consumers are still citizens and that human beings have the same legal rights as corporations," said President James R. Hood.

"Not too long ago, corporations -- which are really imaginary people -- were not even recognized as having 'rights' in the same manner as living, breathing, voting citizens. Over the last few decades, they seem to have waved huge fistfuls of money and convinced everyone that they have more rights than so-called 'ordinary' citizens," he said.

The appeals court ruling said AT&T's arbitration rules contained several unfair provisions, including:

  • A ban on class actions filed on behalf of multiple customers. The company decreed that arbitrators could consider only individual claims.
  • A rule that allowed victims of willful misconduct to collect damages only for the amount they were improperly charged for phone service and barred damages for additional losses and punitive damages.
  • A requirement that customers split the cost of arbitration with AT&T;, while giving them no say in who the arbitrators should be, how much they should charge or where the sessions should be held.
  • A secrecy clause banning customers, as well as the company, from publicly disclosing the existence or results of arbitration.

The appeals court also rejected AT&T's argument that long-distance phone service must be subject to uniform national standards, saying federal law allows states to use their own laws to protect consumers.

Supreme Court Upholds AT&T Customers' Right to Day in Court...

Consumers Unwittingly Giving Up Their Right to Sue

WASHINGTON, May 22, 1999 -- The right to seek redress in the courts is every American's birthright, but it is being signed away everyday by consumers too busy to notice.

Tired of having to defend themselves in court, banks, car dealers, computer firms, credit card companies and others are inserting clauses in their service agreements and contracts that prohibit their customers from suing or even participating in class-action lawsuits.  Instead, consumers agree to use arbitration or mediation, a process under which they give up their right to trial by jury and the strict rules of discovery and procedure that protect the rights of both sides in a court proceeding.

American Express adopted just such language in a bland-looking modification of its basic agreement mailed to cardholders in June.   Gateway 2000 puts its arbitration provision in a pamphlet that is usually inserted in the packing material when a computer is shipped.  First USA Bank has a mediation clause in its agreements with 58 million cardholders.

The corporations argue that mediation saves time and money.  But consumer advocates and attorneys the savings are one-sided.   Mediation often costs the customer more money, since it is not possible to find a lawyer willing to work on contingency, and it is generally much harder for customers to win in a mediation than in a trial.

Experts say mediation works best when both parties are roughly equal -- between two large companies, for example, or two individuals.  But when one side is a huge corporation and the other is an individual, the procedure can break down.

In traditional consumer cases, plaintiffs with a strong case are usually able to find a lawyer to handle it on a contingency basis, so that there is virtually no upfront cost.  But arbitration often requires a deposit and both sides must split the cost of the arbitrator, who can charge as much as $1,000 a day.

Various federal agencies are studying the issue to see if additional regulation is needed and there are various cases pending in the courts that may establish a precedent one way or the other.

Until then, the only recourse open to consumers is to be vigilant about giving up their right to sue.

Consumers Unwittingly Giving Up their right to sue...