Consumer Advocate Legal Update : Class Action Lawyers & Attorneys : Khorrami Pollard & Abir Law Firm : Mass Torts, Products Liability

In 2005, California passed a law that required special packaging for the sale or rental of “violent video games” to minors. According to the law, if the “violent video game” was not packaged properly sale of it was prohibited. However, this term the U.S. Supreme court declared the law unconstitutionally hindered freedom of speech in violation of the first amendment. The court found no compelling evidence to suggest there was a correlation between violent games and violence in children.  The court noted that other forms of literature such as books and movies are also violent and the interactivity of video games provides no justification for a different standard. However, in their concurrences, justices Alito and Roberts did not preclude the possibility of some form of narrower legislation regulating video game violence.

For full opinion, click here

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Today, the United States Supreme Court issued its much-anticipated ruling in AT&T Mobility LLC v Conception. The holding is not favorable to consumers as it finds that the California Supreme Court ruling in Discovery Bank, which outlawed class action bans in many consumer contracts, is preempted by the Federal Arbitration Act (“FAA”) because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The 5-4 decision, authored by Justice Scalia, is split along predictable lines, with Justices Roberts, Kennedy, Thomas and Alito joining the majority opinion.

This case was brought in federal court by the Concepcions, who entered into a cell phone agreement with AT&T, and who claimed that AT&T had engaged in false advertising and fraud by charging sales tax on “free” phones. The contract provided for arbitration of all disputes between the parties, but required that claims be brought in the parties’ individual capacity, and not as a plaintiff or class member in any purported class or representative capacity, in other words, a class action ban. AT&T moved to compel the case to arbitration, but the federal trial court and Ninth Circuit Court of Appeals refused, finding the class action ban unconscionable, citing the California Supreme Court decision in Discovery Bank v Superior Court, 36 Cal 4^th 148 (2005).  The Ninth Circuit also found that Discover Bank was not preempted by the FAA because it was a refinement of the unconscionability analysis to contracts generally in California and section 2 of the FAA permits arbitration agreements to be not enforced “upon such grounds as exist at law or in equity for the revocation of any contract.”

The U.S. Supreme Court disagreed finding that section 2’s saving clause preserves generally contract defenses, but does not preserve state law rules that stand as an obstacle to the accomplishment of the FAA’s objectives to enforce arbitration agreements according to their terms to facilitate an informal streamlined procedure proceeding. However, as Justice Breyer pointed out in dissent, “a single class proceeding is surely more efficient than thousands of separate proceedings for identical claims. Thus, if speedy resolution of disputes were all that mattered, then the Discover Bank rule would reinforce, not obstruct, that objective of the Act.”

The opinion is an example of the conservative majority of the court siding with big business against the rights of consumers. The decision’s impact on class action litigation could be far reaching because it is hard to envision any company not wanting to capitalize on the decision by inserting class action bans in the fine print of their boilerplate arbitration contracts. Class actions are one of the few swords that consumers hold against big business and are often the only tool to meaningful recovery and a change to an unlawful corporate practice.

For more information about the underlying case see this previous blog post, this blog post and this article in the firm's Newsletter.

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If you use a credit card, you’ve almost certainly been asked to provide your ZIP code when processing the transaction. Yesterday, the California Supreme Court ruled in Pineda v Williams Sonoma Stores, Inc. 2011 LEXIS 1355 (Feb. 10, 2011) that the collection of a ZIP code violates California Civil Code §1747.08, (Credit Card Act), thereby subjecting the retailer to maximum penalties of $250 for the first violation and $1000 for subsequent violations. The Supreme Court reversed a Court of Appeal finding otherwise.

Justice Moreno, writing for the Court, found that in light of the statute's plain language, protective purpose, and legislative history, a ZIP code constitutes "personal identification information" as that phrase is used in section 1747.08. Thus, requesting and recording a cardholder's ZIP code, without more, violates the Credit Card Act.

Justice Moreno sought to quell concerns of possible financial ruin expressed by the business community by noting that the Supreme Court had already held that section 1747.08, subdivision (e), "does not mandate fixed penalties; rather, it sets maximum penalties and that the amount of such penalties. Linder v. Thrifty Oil Co. 23 Cal.4th 429, 448. (2000). Moreover, many consumer class action settlements do not provide the payment of monetary penalties but rather provide for the award of a gift card to the consumer as compensation.

The Court also noted that Section 1747.08 contains some exceptions permitting the collection of ZIP code information, including when a credit card is being used as a deposit or for cash advances, when the entity accepting the card is contractually required to provide the information to complete the transaction or is obligated to record the information under federal law or regulation, or when the information is required for a purpose incidental to but related to the transaction, such as for shipping, delivery, servicing, or installation.

Finally, and very significantly, the Supreme Court rejected Williams-Sonoma’s request that its decision not be applied retroactively because Williams-Sonoma claimed it was operating under the assumption that its conduct was legal. The Supreme Court held that a single Court of Appeal decision could not provide a basis to depart from rule that opinions apply retrospectively.

Accordingly, this important decision protecting the privacy of California consumers brings life to more than a dozen class actions filed several years ago against various retailers who collected and recorded ZIP codes. It will likely spur more given the prevalence of the practice and the significant penalties for violating the statute.

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The U.S. Supreme Court decisions in Ashcroft v. Iqbal and Bell Atlantic v. Twombly has made it much easier for Defendants to have Plaintiff’s cases dismissed before there is even an opportunity to begin discovery.   Both cases interpreted Rule 8 of the Federal Rules of Civil Procedure and together require that sufficient factual allegations are made in the complaint. So basically, Plaintiff attorneys need to do discovery in order to get the information need to prepare a complaint that will not be dismissed under Twombly and Iqbal in order to be able to be given the opportunity to then begin discovery. Sequentially, something is inherently wrong with what the Supreme Court is now requiring at the pleading stage.

Senator Arlen Spector has proposed legislation, known as the Notice Pleading Restoration Act of 2009, that will change this seemingly illogical decision…..or will it. The proposed Bill does not really provide a standard for dismissal of claims in federal court, but rather simply says that the standard used should be the one that the Supreme Court used in Conley v. Gibson.   This is problematic because unlike stating an explicit standard, reference merely to the standard in Conley  leaves open the possibility for different interpretations of what that standard exactly is.   I mean, Twombly and Iqbal could be considered explanations of what the standard is in Conley. It leaves the door open to further debate as to what the Bill really does and what the Conley standard really means. Although Spector’s intent may be to go back to more liberal pleading requirements, it’s the actual words in the Bill that that are going to be interpreted, and as it stands, those words alone to not make Spector’s intent definitively clear.   

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