imageBetter results

Lawyers who like to handle disputes on a basis that shares risk with their clients often prefer the speed and lower cost of arbitration. The process has its drawbacks; some people worry about fuzzy standards and the lack of review for legal errors. And some general counsel even swear that it costs just as much and takes every bit as long as a lawsuit.

To which I say: hire somebody who will work on a contingent-fee or hybrid basis. You’ll get better, more efficient results faster.

But sometimes courts render rulings that seem to put arbitration into a second-class legal stratum, a minor league of law, a dustbin of dispute resolution. The Eighth Circuit did such a thing just this week.

Continue Reading The Dustbin of Dispute Resolution

HackedUnfair methods and data breaches

The Third Circuit has ruled that exposing credit card information to hackers can count as an “unfair method[] of competition” under the Federal Trade Commission Act. Federal Trade Comm’n v. Wyndham Worldwide Corp., No. 14-3514 (3d Cir. Aug. 24, 2015).

The decision opens the way for the FTC to seek injunctive and disgorgement remedies from companies whose cyber security measures fall short. It also has the collateral effect of bolstering consumer lawsuits for damages under the “Little FTC Acts” of California and 27 other states.

Any business that uses an online computer to store customer information should take notice. Continue Reading What the FTC Win on Data Breaches Means

Blind JusticeSurvey says

Since January 1, 2007, I’ve surveyed decisions by the 13 U.S. courts of appeals almost every working day.

The experience has highlighted for me a range of quirks — from their highly variable websites to their peculiar schedules for releasing opinions to the small-bore or high-caliber of the disputes they decide to the great range of writing talent.

I’ve also learned that they vary a lot in their openness. That trait manifests itself most obviously in the seemingly mundane information they provide (or withhold) in the captions of their opinions about the cases they decide.

Today I finally took a look at how transparently these geographically, culturally, and philosophically diverse courts deal with facts that can aid people like you and me in assessing how well they do their jobs.

[See examples from all 13 of the courts at the end of this post.]

Continue Reading The Least Transparent Courts of Appeals

How may terabytes in a cargo container?
How may terabytes in a cargo container?

Rulings on 28 U.S.C. § 1782

Since mid-July 2015, federal courts of appeals have decided at least five cases involving a federal statute that allows “any interested person” to apply for an order requiring a party “found” in a judicial district to produce discovery “for use” in a foreign proceeding. 28 U.S.C. § 1782(a). In this post, I will review the facts and holdings of the cases. Continue Reading In Seventeen Hundred and Eighty-Two, Discovery Can Sail the Ocean Blue

Patent LawA flood of cases

In the second quarter of 2015, a spate of patent cases washed into the 94 district courts around the country, but a single district drew more than half of them — a record 839 out of an all-time-high 1,656 total.

The receiver of the intellectual property bounty? The Eastern District of Texas.

The fact that a good percentage of the cases went to that district — which rambles from north and west of Dallas to north and east of Houston — will not surprise any lawyer who has handled more than a few patent infringement cases during the last decade.

But what accounts for the big spike in cases nationwide? And why did fully 50 percent go to Marshall, Tyler, Plano, Texarkana, Sherman, and Beaumont, Texas? Continue Reading Half of All New Patent Cases Land in East Texas

CompetitionThe cost of errors in antitrust

Jonathan Baker earned a J.D. from Harvard and a Ph.D. (in Economics) from Stanford, served as Chief Economist at the Federal Communications Commission, and now teaches antitrust and economic regulation at American University’s Washington College of Law.

He’s also written an important article on how an obsession with avoiding “false positives” in antitrust litigation systematically biases courts against cases unless they involve price-fixing or market division, horizontal mergers resulting in duopoly or monopoly, or a narrow range of exclusionary conduct. Continue Reading Fear of False Positives Distorts Antitrust

If you’ve read, enjoyed, forwarded, or benefited from posts on The Contingency, you may want to nominate it for the ABA Journal’s Blawg 100 list.

As you can see from the picture at the end of this post, the ABA Journal folks have made the process astonishingly undemanding both time-wise and information-wise.

To complete the form, please go to this URL.

You’ll need to act fast, though. As the Blawg 100 folks put it, “Friend-of-the-blawg briefs are due no later than 11:59 p.m. CT on Aug. 16, 2015.“

That means this Sunday before midnight Central time.

You can make a big difference. Law blogs that make the Blawg 100 have a higher profile and attract more readers. The Contingency will be humbled by and grateful for your nomination. Please act now!

Nominate The Contingency here.

Easy as pie.
Easy as pie.
Apparently you can take it too far.
Apparently you can take it too far.

No privilege?

A district judge ruled that Kellogg Brown & Root could not withhold the results of a probe that it had conducted, with the help of lawyers, into allegations that it defrauded the U.S. Military in Iraq by inflating costs and paying kickbacks. The judge reasoned that KBR made inquiry and put together a report of its findings not for the purpose of getting legal advice — in which case the attorney-client privilege would apply — but “to try to comply with KBR’s obligation to report improper conduct to the Department of Defense” — in which case the privilege would not apply. “Firms Can Hide Routine Probe Details by Using Lawyers, D.C. Circuit Holds“, July 27, 2014.

Continue Reading Catch a Waive

Court cuts American Express settlement
Court cuts American Express settlement

Merchants get a new chance to assert claims

Finding “egregious” misconduct by the lead lawyer for a class of American Express merchants, a New York district court rejected a request for final approval of a nationwide antitrust settlement.

The good news? American Express merchants that have not yet sought individual relief likely may do so now despite a probable statute of limitations defense for damages beyond the four-year period under the Sherman Act. The disapproval of the settlement may permit the merchants to get the benefit of American Pipe tolling and, as a result, they could assert damages claims going all the way back to 2000.

The settlement

On February 11, 2014, U.S. District Judge Nicholas G. Garaufis in Brooklyn granted preliminary approval of a mandatory class action settlement on behalf of American Express merchants, who would receive injunctive relief but no money.

The pact tweaked American Express’s rules against merchants’ granting price breaks to customers who pay with (cheaper) debit or proprietary store cards (or cash, check, or ACH transfer) rather than (more expensive) Amex credit and charge cards. Although the deal promised no cash awards to members of the merchant class, it allowed class counsel to ask for up to $75 million in fees and expenses.

Rejection

All that went for naught. In a 44-page opinion, Judge Garaufis denied final approval of the settlement. In re American Express Anti-Steering Rules Antitrust Litig., No. 11-md-2221 (E.D.N.Y. Aug. 4, 2015). He found that the actions of the lead lawyer for the merchant class, Gary B. Friedman had tainted the settlement process. Friedman had done so by sharing confidential information with, and seeking the advice and guidance of, Keila Ravelo, a defense lawyer and long-time Friedman acquaintance who represented MasterCard in a similar antitrust case.

The shenanigans came to light 10 months after the preliminary approval. The disclosure ensued as a result of the MasterCard lawyer’s arrest on December 22, 2014 for defrauding two law firms of several million dollars. She and her husband used fake vendors to send phony bills to the firms, where she worked as a partner. One of the firms turned over (to lawyers representing other parties in the American Express case) documents reflecting communications between her and the lead class counsel in the American Express case.

Judge Garaufis found lead counsel’s behavior “egregious”. He added:

Whatever his reason for doing so, Friedman’s bringing MasterCard’s counsel into the negotiating process created a conflict between class members and Class Counsel, and specifically a risk that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members than the terms he might have negotiated absent that conflict. This risk requires the Court to deny approval of the Settlement.

Id. at 36-37.

Good news for Amex merchants?

The outcome may prove a boon for members of the merchant class. Some class members with large enough claims have already commenced individual lawsuits or arbitrations against American Express, but many have not. The delay normally would doom their claims for damages from 2011 and before under the Sherman Act’s four-year statute of limitations.

But American Pipe tolling — which gets its name from American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) — halts the running of limitations on individual claims for members of a class that loses a fight for class treatment under Rule 23. See Renee Choy Ohlendorf, “Growing Divide over Class Action Tolling under American Pipe“, Feb. 4, 2015, Litigation News.

The first case that makes up the American Express merchants litigation dates to 2004. The Marcus Corp. v. American Express Co., No. 13-CV-7355 (E.D.N.Y.). Similar cases ensued in the following years. Merchants who fit within the class definitions in those cases and have not previously opted out or filed a lawsuit or arbitration should qualify for American Pipe tolling for purposes of bringing individual (non-class) claims). Tolling should therefore entitle class members who now opt out of the class to pursue claims for up to 15 years of damages.

Will the settlement agreement blow?

The Class Settlement Agreement provides that either American Express or “the Class Plaintiffs as a group” may “terminate” it in the event Judge Giraufis declined to grant final approval. Class Settlement Agreement § 61.

Having lost a bench trial on the merits before Judge Giraufis earlier this year, American Express will not likely want to abandon the settlement. See United States v. American Express Co., No. 10-CV-4496 (E.D.N.Y. Feb. 19, 2015). The ruling last week puts Class Counsel in disarray; Judge Giraufis not only removed Friedman as class counsel but also ordered the other lead counsel to show cause why he should not remove them as well. In re American Express Anti-Steering, slip op. at 44.

But the likelihood that replacement class counsel or Judge Giraufis will allow the Class Settlement Agreement, in light of the government’s victory on the merits and the misconduct that led to the agreement in the first place, to stand seems low indeed.

American Express merchants may wish to consult their lawyers.

Supply and DemandEconomic theory

The D.C. Circuit confirmed in Osborn v. Visa Inc., No. 14-7004 (D.C. Cir. Aug. 4, 2015), that plaintiffs alleging a price-fixing conspiracy may rely on debatable economic theory to plead an adequate basis for antitrust injury.

The case involved claims that Visa, MasterCard, and several banks conspired to force ATM operators not to use lower-cost off-brand networks to process ATM transactions. The plaintiffs alleged that Visa’s and MasterCard’s rules thwarted the ability of competing networks to capture more of the ATM operators’ business, inflating the fees that operators paid networks and that users paid operators.

Standing

Reversing dismissal of a class action complaint on behalf of ATM operators and users, the panel rejected the district court’s view that the plaintiffs’ economic theory strayed into the realm of speculation for purposes of assessing their standing to sue:

Plaintiffs also rely on certain economic assumptions about supply and demand: that other consumers besides the Plaintiffs are price conscious; that bank operators will respond to consumer demand for cards tied to low-cost networks; and that in the face of competitive pressure, ATM networks will reduce their network fees. But these sorts of assumptions are provable at trial. . . . Indeed, allegations of economic harm “based on standard principles of ‘supply and demand’” are “routinely credited by courts in a variety of contexts.”

Id., slip op. at 13 (citations omitted).

Concert of action

The court also upheld the allegations about the contract, combination, or conspiracy that section one of the Sherman Act requires.  That a group of member banks set the ATM rules for Visa and MasterCard supplied the necessary concert of action, the panel ruled. It observed:

But the Plaintiffs here have done much more than allege “mere membership.” They have alleged that the member banks used the bankcard associations to adopt and enforce a supracompetitive pricing regime for ATM access fees.

Id. at 16.

Conspiracy from non-competitive cooperation

Osborn suggests, by the way, that the process of fixing prices need not involve head to head competition in order to run afoul of section one. The banks engaged in a cooperative effort — to promote high fees for the Visa and MasterCard networks — in an area where they did not compete directly — fees for network services.

In United States v. Apple Inc. (post here), the Second Circuit ruled 2-1 that the nature of the restraint — and not the process by which it came about — determines whether the per se rule of illegality applies. Osborn accords with that view.