CFPB Arbitration Study Revives Consumer Arbitration Policy Debate

The Arbitration Study issued last month by the Consumer Financial Protection Bureau revives a long-standing policy debate over consumer arbitration.

The CFPB Arbitration Study, mandated by Dodd-Frank, analyzes the prevalence of consumer arbitration, consumer knowledge and understanding of arbitration provisions, procedural rules in arbitration, and empirical data on arbitration experiences as compared to federal and state court.  The Study also compares alternatives, including small claims court, class actions, public enforcement actions, and analyzes credit pricing in the context of pre-dispute arbitration clauses.  The stated purpose of the Study is to provide empirical, not evaluative, analysis of consumer arbitration issues.

Court of Appeal Upholds Dismissal of Song-Beverly Class Action

In Lewis v. Safeway, Inc., the First District California Court of Appeal held that collecting and recording a customer's date of birth in connection with the sale of alcohol is not a violation of the Song-Beverly Act's prohibition on collecting personally identifiable information in a credit card transaction.

In Lewis, plaintiff filed a putative class action alleging that defendant collected and recorded his birthdate when he purchased alcohol at the store, in violation of section 1747.08(a)(2) of the Song-Beverly Act.  Defendant demurred, arguing, among other things, that collection of personally identifiable information in connection with the purchase of alcohol fell within an exception to the statute for an obligation imposed by law.  The trial court granted the demurrer, and denied leave to amend.  Plaintiff appealed.

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California Appellate Court Examines Ascertainability Standard and Reverses Denial of Class Certification

California's Third Appellate District recently reversed an order denying class certification because it found that the lower court used an inappropriate standard in concluding the class was not ascertainable. In Aguirre v. Amscan Holdings, Inc., the lower court's order stated that, in order to show that the class was ascertainable, the putative class representative was required to establish a means to identify, locate and notify members of the class through reasonable expenditure of time and money. The appellate court rejected this standard for ascertainability, and reversed and remanded because this standard had been used to reach the lower court's conclusion.

Plaintiff Dione Aguirre sued Amscan Holdings, doing business as Party America, for violations of §1747.08 of the Song Beverly Credit Card Act of 1971. Aguirre alleged that Party America routinely requested and recorded zip codes from customers using credit cards to pay for their transactions at Party America's retail stores. Aguirre sough to represent a class of similarly-situated Californians.

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California Court of Appeal Holds Unconscionable Arbitration Provisions are Severable

In Trabert v. Consumer Portfolio Services, Inc., the Fourth District California Court of Appeal reversed a trial court order and held that certain unconscionable provisions of an arbitration agreement should be severed, and the remainder of the arbitration agreement should be enforced.

In Trabert, plaintiff purchased a car with an industry standard form installment sales contract.  The dealer assigned the contract to defendant Portfolio.  Defendant repossessed plaintiff's car, and plaintiff filed a putative class action alleging that defendant's default notices violated California's Unfair Competition Law (Bus. & Prof. Code § 17200) as well as California's Consumer Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.).  Defendant moved to compel arbitration pursuant to the sales contract.  The trial court denied the motion, finding two provisions of the arbitration agreement unconscionable.  Defendant appealed, and the Court of Appeal held that certain provisions were unconscionable, and others were not, and remanded for the trial court to determine whether the unconscionable provisions could be severed.  On remand, the trial court denied defendant's motion to sever.  Defendant appealed again.

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U.S. Supreme Court Holds TILA Rescission Does Not Require Suit

In Jesinoski v. Countrywide Home Loans, Inc., the U.S. Supreme Court held that only written notice is required, and a borrower need not file suit, to rescind a loan under the Truth in Lending Act (TILA).

In Jesinoski, borrowers refinanced their mortgage with Countrywide in February 2007.  Within three years, they mailed Countrywide a letter to rescind the loan.  The lender denied the validity of the rescission, and in February 2011, four years and one day after the date of the loan, borrowers filed suit in federal court for a declaration of rescission.  The district court granted the lender's Motion for Judgment on the Pleadings, holding TILA requires a borrower to file suit within three years of a loan in order to rescind: since borrowers had provided notice of rescission within three years, but did not file suit until more than four years after the date of the loan, their claim was time-barred.  Borrowers appealed; the Eighth Circuit affirmed

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U.S. Supreme Court Holds CAFA Removal Notice Need Not Include Evidence of Amount in Controversy

Overturning Tenth Circuit precedent, the U.S. Supreme Court recently held that the Class Action Fairness Act of 2005, or "CAFA," does not require that a party seeking removal to federal court submit with its notice of removal evidentiary support of the amount in controversy. Rather, the high court held in Dart Cherokee Basin Operating Co., LLC v. Owens, CAFA requires the removal notice include only a plausible allegation of the amount in controversy. The Court also clarified that, contrary to Tenth Circuit precedent, there is no presumption against CAFA removal: Congress intended CAFA to facilitate the adjudication in federal court of certain types of class actions. 

Owens filed a putative class action in a Kansas state court. The defendant, Dart, removed the action to a federal district court under CAFA. CAFA permits the removal to federal court of certain state law class actions filed in state court, even if there is not the "complete diversity" that is otherwise required for federal diversity jurisdiction. In order for an action to qualify for CAFA removal, three requirements must be met. First, there must be at least 100 class members. Second, there must be so-called minimal diversity, as defined by CAFA itself. And finally, there must be at least $5 million in controversy.

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No Arbitration Without Contract Formation: 9th Circuit Holds Auto Buyer's Use of Trial Radio Service Insufficient to Manifest Assent

 In Knutson v. Sirius XM Radio, Inc., the Ninth Circuit held that the consumer was not bound to an arbitration agreement where he was unaware, and could not reasonably have been expected to be aware, that he had entered a contractual relationship in the first place. The decision reversed a district court's order compelling arbitration and dismissing the Toyota buyer's putative class action under the Telephone Consumer Protection Act.

In November 2011, Erik Knutson purchased a new Toyota pick-up truck. It came equipped with Sirius XM satellite radio, and a 90-day free trial subscription to the service. At the time of the purchase, Knutson was given no paperwork or other information about Sirius XM or any potential contractual relationship he might have been entering with them by using the trial service. About a month later, Knutson received a "Welcome Kit" from Sirius XM that contained a Customer Agreement. The Customer Agreement contained an arbitration provision. Knutson did not review these materials. Knutson alleges that subsequently, during the trial subscription period, he received three unauthorized phone calls from Sirius XM on his cellphone.

Knutson then filed a class action against Sirius XM for violations of the TCPA. Sirius XM moved to compel arbitration under the Customer Agreement, and the district court granted their motion and dismissed the putative class action.

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California Court Rejects Firm's Attempt to Collect Undisclosed Attorneys' Fees in Class Action Settlement

The apparent misconduct of counsel representing some class members recently led California's First Appellate District to uphold a temporary restraining order barring a law firm from collecting nearly $5 million in attorneys' fees. In Lofton v. Wells Fargo Home Mortgage, the court stated that the firm had tried to distribute the fees to itself without the approval, or even the knowledge, of the court. Moreover, the firm's clients, whose individual suits the firm settled along with a concurrently pending class action represented by other attorneys, also were not apprised of the relevant details regarding the settlement or the attorneys' fees. Ultimately, in upholding the temporary restraining order sought by an intervenor who was their former client, the First District suggested that the firm may not be entitled to any fees at all. The Lofton opinion provides an inside look at a class action settlement gone very wrong.

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California Appellate Court Decertifies Class and Endorses High Standard for Class Certification of Unauthorized Call Monitoring Claims

 California's Fourth Appellate District recently upheld the decertification of a class of consumers who asserted that their lender monitored phone conversations without their consent. The decision in Kight v. CashCall, Inc. (Oct. 9, 2014) will make it more difficult for plaintiffs to certify classes under Penal Code section 632, which prohibits the unauthorized monitoring or recording of confidential conversations. Penal Code section 637.2 authorizes a minimum fine of $5,000 for violation of section 632. The court ultimately concluded, in accordance with Hataishi v. First American Home Buyers Protection Corp. (Feb. 21, 2014), that the confidentiality determination under section 632 required an individualized inquiry into each class member's background and experiences that precluded maintenance of a class action for the determination of liability. In light of these two decisions, unauthorized call recording class actions may well become a thing of the past.

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9th Circuit Confirms Citizenship Test for CAFA Removal

In Doyle v. OneWest Bank, FSB, the Ninth Circuit held that citizenship for purposes of removal under the Class Action Fairness Act (CAFA) must be determined based on the complaint at the time the case became removable.

In Doyle, two plaintiffs sued several defendants in a putative class action in California state court.  Defendants removed the case to federal court based on CAFA jurisdiction.  The parties stipulated that claims of one of the plaintiffs would be severed and transferred to another district court.  The remaining plaintiff amended her complaint to reflect the severance, but also revised her changed her allegations related to citizenship.  Plaintiff then moved to remand the case to state court, asserting that plaintiff's citizenship, as alleged in her amended complaint, put her within an exception to CAFA removal jurisdiction under 28 U.S.C. 1332(d)(4).  The district court granted plaintiff's motion to remand.  Defendants appealed.

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