July 29 : July 19 : July 17 : July
8 : June 13 : April
19 : March 14 : March
5 : February 20 : February
12 : February 7
July 29, 2002
- The National Legal Center for the Public Interest has published
"Asbestos Litigation and Judicial Leadership: The Courts' Duty
to Help Solve the Asbestos Litigation Crisis," written by Griffin
B. Bell. In it Mr. Bell proposes that State and Federal Courts
have tools to fix the asbestos litigation system by insisting
on proof of injury, insisting on proof of causation and ensuring
reliable medical evidence of an asbestos-related disease. He also
explains that the courts can restore judicial integrity in asbestos
litigation by monitoring contigency fees, effective use of the
bankruptcy forum, limiting punitive damage awards, reinvigorating
forum non conveniens and preventing joinder, consolodation
and discover abuses. Please click HERE
to read the full piece.
- Two pieces of interest from the Consumer Finance Report newsletter.
Eighth Circuit Reverses Class Certification in YSP Case
On March 21, 2002, the Eight Circuit issued a decision that is likely to have resounding effects on "yield spread premium" (YSP) litigation nationwide: Glover v. Standard Federal Bank, 283 F.3rd 953 (8th Cir., March 21, 2002).
Factually, Glover is a typical YSP class action by some of the same class counsel that have brought hundreds of YSP cases like it around the country. The plaintiffs in Glover, as in most cases, alleged that Standard Federal's practice of paying mortgage loan brokers a YSP on "above par" interest rate loans violated Section 8 of RESPA. The district court in Minnesota granted class certification and the matter went up on appeal.
The Eight Circuit reversed. It held that class certification was "impracticable": "A loan specific analysis is required in determining whether the payment of a YSP is based upon services rendered or an illegal referral."
In reaching that conclusion, the Eighth Circuit expressly declined to follow the Eleventh Circuit's ruling in Culpepper v. Irwin Mortgage, 253 F3rd 1324 (11th Cir. 2001), cert denied 122 S.Ct. 930 (2002) [Culpepper III]. As the Glover court put it: "We reject the analysis in Culpepper, and while it remains the law in the Eleventh Circuit, we choose a different conclusion, giving due deference to HUD's interpretation of its regulations."
The Eight Circuit relied upon HUD's most recent "Policy Statement" concerning the practice of mortgage lenders' payments of YSPs to brokers. (See Real Estate Settlement Procedures Act (RESPA) Statement of Policy 2001-1, 66 Fed. Reg. 53052 (Oct. 18, 2001). In its October 2001 Policy Statement, HUD clarified its earlier position that YSPs are not per se illegal and indeed, "can be a useful means to pay some or all of a barrower's settlement costs" and "can be a legitimate tool to assist the borrower."
The Glover court agreed with HUD. It ruled that the Policy Statements "reflect a reasoned view of responsible agency which is consistent with (RESPA)" and should therefore be considered "controlling authority." Accordingly, the Eight Circuit held that HUD's "two prong test" is the appropriate means of determining whether a yield spread premium payment violates RESPA.
The HUD Policy Statement proves fatal to class certification. The reason is simple. Federal Rule of Civil Procedure 23(b)(3) requires that a plaintiff urging certification to prove that "questions of law or fact common to the members of the class predominate over any questions affecting only individual [class] members." But under the analysis required by HUD's Policy Statement, courts must first consider "whether goods or facilities were actually furnished or services were actually performed for the compensation paid," and then, "whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed." Because the test can only be performed on a case-by-case basis, it was an abuse of discretion for the district court to have granted class certification.
Finally, the Glover court noted that class treatment is not "necessary" to protect "justice" in these cases. Although each individual RESPA claim may be of low monetary value, the statute already allows prevailing parties to recover their attorney's fees and costs. Hence, "Congress has guaranteed legal representation" for consumers who truly have suffered harm as a result of a RESPA violation.
Mark-Up Class Actions
"Mark-up" class actions are all the rage. These are consumer protection challenges to a defendant's failure to itemize or otherwise separately disclose the wholesale cost or a component cost of an item whose retail cost is otherwise disclosed. These started in the mortgage area, but they've morphed. What next? Shall we sue Safeway if their produce department doesn't post the wholesale price of tomatoes?
It's moments like these that we pause and give thanks to the Seventh Circuit. In In re Mexico Money Transfer Litigation (MMTL), 267 F.3rd 743 (7th Cir. 2001) the plaintiffs alleged that banks engaged in the business if wiring funds overseas violated RICO and committees fraud allegedly failing to disclose that they received not only the disclosed $15 fee for their service, "but also the difference between the retail currency exchange rate quoted to customers and the wholesale (interbank) rate ... at which the defendants buy pesos." Huh?
Judge Easterbrook wouldn't hear it: "Since when is failure to disclose the precise difference between wholesale and retail prices for any commodity 'fraud'?" It gets better: "Neiman Marcus does not tell customers what it paid for the clothes they buy, nor need an auto dealer reveal rebates and incentives it receives to sell cars. This is true in financial markets no less than markets for physical goods … Moneygram and Western Union revealed truthfully … the exchange rate they offered … and the rate for the wire transfer to Mexico. Each customer was told how many dollars in the United States would result in how many pesos delivered in Mexico. Nothing in this transaction smacks of fraud."
July 19, 2002
- Tobacco Fees Face Ethics Inquiry in New York State
Manhattan Supreme Court Justice Charles E. Ramos has ordered New
York's Attorney General and several law firms awarded $625 million
in attorneys fees to provide justification for why such fees should
not be set aside. Justice Ramos, who has raised the issue sua
sponte, noted that the arbitrators who awarded such excessive
fees may have "manifestly disregarded well established ethical
and public policies." Ramos suggested that his court had the power
not only to set aside the award of such fees, but to vacate the
entire $25 billion state settlement, approved by another judge
in 1998, if such action was warranted.
In a tense session on July 12, 2002, the Judge told a throng of lawyers that the fees awarded in arbitration might violate the New York Code of Professional Responsibility's proscription against illegal or excessive fees. He was further troubled by the arbitration panel's reference to huge salaries received by ballplayers such as Alex Rodriguez and Derek Jeter as justification for the size of the award.
Ethics experts presented differing views, with NYU Law Professor
Stephen Gillers for example saying that "there does not seem to
be any legal or ethical basis for this inquiry - it will cost
people a lot of time and they will be back in the same place,"
whereas Cardozo Law Professor Lester Brickman praised Judge Ramos
for undertaking the inquiry of this excessive compensation in
a case where the lawyers bore virtually no risk. The tobacco companies
are not challenging the fees, and have questioned the jurisdiction
and timeliness of Justice Ramos's inquiry.
The three New York law firms defending their 45% of the $625 million fee award payable over 20-25 years are Schneider, Kleinick, Weitz, Damashek, & Shoot ($98.4 million), Sullivan Papain Block McGrath & Cannavo ($98.4 million) and Albany law firm, Thuillez, Ford, Gold & Johnson ($84.3 million). The three national firms awarded the remaining $343.8 million of fees in the New York settlement are Ness, Motley, Loadhoalt, Richardson & Poole, of Charleston, S.C., The Scruggs Law Firm of Pascagoula, Miss, and Hagens & Berman of Seattle, Wash.
Justice Ramos adjourned the case until July 25th, when oral argument will be held on the question of his jurisdiction and authority to proceed with the inquiry.
(Source: New York Law Journal, 6/20/02 and 7/12/02)
July 17, 2002
- PriceWaterhouseCoopers has released a study that reviews Securities
Litigation in 2001. In comparing 2001 and 2002 Securities Litigation,
an early trend for 2002 indicates that a lower number of securities
litigation cases filed prior to May 31 involve high-technology
companies, instead, they involve a broad array of industries including
oil, utilities and biotech/pharmaceutical companies. "It
is clear that no publicly traded company is immune from shareholder
litigation. The spotlight is shifting from high-tech companies
to all industries. Also we are seeing more New York Stock Exchange
companies and foreign companies being named in lawsuits,"
said Charles Laurence, partner, PriceWaterhouseCoopers Dispute
Analysis & Investigations Practice. Click HERE
to read the 2001
Securities Litigation Study (PDF).
July 8, 2002
- The Center for Legal Policy at the Manhattan Institute has published
"How should the Law of Products Liability be Harmonized?
What Americans Can Learn from Europeans," by Stephen Presser.
In it he explains that "Europe has escaped an American style litigation
explosion by erecting barriers to excessive litigation. Such barriers
- Absence of contingent fees,
- Loser pays winner's attorney fees,
- Discouragement of massive discovery filings,
- Lower damage judgements,
- Absence of punitive damages,
- Non-use of juries in civil cases and
- Lower expectations of damages.
Unless similar barriers to excessive litigation are created in
the U.S., American companies face an ongoing competitive disadvantage
relative to European manufaturers who operate in a more predictable,
less costly, and less litigious legal environment.
To read the full article please click HERE.
June 13, 2002
- HARRISBURG -- State senators early today passed a lawsuit-reform
bill that would hold defendants responsible for only their share
of court-awarded damages.
The measure, which passed the Senate 40-9 in a vote at about 1
a.m., would severely restrict the legal concept of "joint
and several liability." The legal principle holds that if
two or more parties are both found to be negligent in a lawsuit,
one can be held fully responsible for paying the judgment in a
case if the other does not have the money to pay a share.
The bill was supported by hospitals, the state's medical lobby
and business groups. It was opposed by the Pennsylvania Trial
Supporters of the measure, Senate Bill 1089, say the legal
principle leads to abusive lawsuits that can drain businesses
that have deep pockets for paying damages but played a minor
role in a wrong inflicted on someone.
Under the bill, passed last week by the House, those defendants
who are found by a judge or jury to be less than 60 percent
liable for a wrong would not be made to pay the full award unless
the wrong was found to be intentional. Rather, a defendant who
is considered responsible for 10 percent of the fault would
pay 10 percent of the total award.
April 19, 2002
- The Manhattan Institute's Center for Legal Policy has published
its Civil Justice Report, "Class Actions: The Need for
a Hard Second Look." In it, Richard A. Epstein concludes, "Quite
simply, the class action serves as an amplifier for the ordinary
principles of civil litigation. Where those are correctly announced,
then the class action increases their effectiveness. Yet when
these are incorrectly stated, then the class action increases
the mischief that these new actions can bring. So, in the end
the class action serves as a giant megaphone that amplifies both
the stregnths and weaknesses of the underlying system of substance
and procedure. It is precisely because this effect will be benevolent
in some cases and harmful in others that we cannot make a uniform
assesment of the overall effects of class action practices. All
that can be confidently said normatively is that the more the
class action conforms to the older models used in derivative suits
for corporations and voluntary associations, the sounder they
will be. Yet, we should be confident that most of the recent innovations
in class actions have tended to deviate from those ideals, which
is why the question of the relative proportions of use and abuse
in class actions remains, as of yet, unresolved." To read the
full report CLICK
March 14, 2002
- A Rutgers Law Journal article, "Judicial Nullification
of Civil Justice Reform Violates the Fundamental Federal Constitutional
Principle of Separation of Powers: How to Restore the Right Balance,"
by Victor Schwartz and Leah Lorber is published in the Summer
20001 issue, 32.4. It argues: "The battle against judicial
nullification of civil justice reforms has just begun. Those who
have sought to nullify civil justice reform have studied and planned
their means of attack for over a decade. In a clear way, they
have asked state supreme courts to utilize little known, malleable
provisions of state constitutionals to set aside legislative reforms."
The articles goes on to chronicle the state of play.
- The House has passed (by 233-190) significant class action reform
March 5, 2002
- RETHINKING LEGAL REFORM: A GLOBAL PERSPECTIVE
Tuesday, March 19, 2002
Professor Stephen B. Presser
Raoul Berger Professor of Legal History, Northwestern University
School of Law
Professor of Business Law, Kellogg School of Management, Northwestern
As the global marketplace becomes increasingly central to the
health of our economy, it is hard to ignore the effect the domestic
liability system has on the competitiveness of American corporations.
In the new global economy, countries seek to enhance trade by
harmonizing laws that affect commerce. Nonetheless, the U.S. continues
on a uniquely self destructive path. American courts continue
to dramatically expand liability rules, ignoring lessons that
could be learned from major trading partners like the E.U.- where
a more predictable and reasonable liability system puts European
companies at a competitive advantage. Professor Presser argues
that it is time to re-evaluate American liability rules in light
of these trends and think about "harmonizing down" U.S.
liability rules to mirror their overseas counterparts.
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February 20, 2002
- On February 19, the Supreme Court granted a writ of certiorari
to consider one of the most important jurisdictional questions
confronting class-action litigants: whether the amount-in-controversy
requirement of the federal diversity jurisdiction statute is satisfied
when the cost to the defendant of complying with injunctive relief
requested by the plaintiffs would exceed the minimum jurisdictional
amount. In Ford Motor Co. v. McCauley, No. 01-896, the Court will
be asked to give guidance about how courts calculate the amount
in controversy in class actions. Since the Court decided two leading
cases on the subject in the late 1960s and early 1970s, some lower
courts have refused to accept diversity jurisdiction over class
actions on the ground that "aggregation" of relief is
not permitted, and that the value of the relief sought by the
plaintiffs must be divided by the total number of class members
for purposes of determining the amount in controversy. The result
in those jurisdictions has been that class actions seeking objectively
costly relief -- for example, injunctions requiring businesses
to spend millions of dollars restructuring their operations, redesigning
their products, and the like -- are often forced out of federal
into the state court systems. Court watchers expect the vote to
be close; in a recent case raising a similar aggregation question,
the Court divided 4 to 4, with Justice O'Connor recusing.
February 12, 2002
- The Litigation Practice Group will host a February 28 panel
discussion on class action lawsuits, featuring Senator Mitch McConnell,
held at Washington, DC's Capitol Hill Club. For further details,
February 7, 2002
- The American Enterprise Institute's Federalism Program hosted
a roundtable on "Torts and Terror: Civil Liability After
September 11." Read the transcripts HERE.