Blawgletter has now — just now – posted 2012 times. Which means that the number of posts matches the count of years since B.C. switched to A.D. Woo-hoo!

The milestone makes us a bit giddy.  We feel so giddy in fact that the latest ruling by the U.S. Supreme Court inspired us to re-think the outcome in terms of a kids' song, the one about Bingo. You know it. It goes like this:

There was a farmer

Had a dog

And Bingo was his name-o

B-I-N-G-O

B-I-N-G-O

B-I-N-G-O

And Bingo was his name-o

Freeman v. Quicken Loans, Inc., No. 10-1042 (U.S. May 24, 2012), involved no canines, but it did concern the Real Estate Settlement Procedures Act. The Court ruled, nine to zip, that RESPA didn't bar real estate lenders from charging bazillions of dollars for services the lenders didn't "actually perform[]". Which inspires us to say:

There was a lender

Ignored a law

And RESPA was its name-o

R-E-S-P-A

R-E-S-P-A

R-E-S-P-A

And RESPA was its name-o

We don't contest that Their Unanimous Honors got the result right. Yet we do marvel at the audacity of lenders that tacked on thousands of dollars time after time in the guise of a "loan origination fee", a "processing fee", "discount fees", and the like while the question of whether RESPA barred the charges pended in the courts. The whole thing turned on whether (per the statute) taking 100 percent of the fake fee counted as taking a "percentage" of it.

Better to beg forgiveness than to ask permission, we suppose. And even better to get away with it.

The Fifth Circuit seldom affirms class certification orders. Can it stand class actions?

The court's ruling last week in Reed v. Florida Metro. Univ., No. 11-50509 (5th Cir. May 18, 2012), suggests not. The case dealt with the near-worthless degrees that Everest College sold — awarded — online and from store-front "campuses", where (per Everest's introductory video) aspiring students meet first with a "Director of First Impressions".

Jeffrey H. Reed, a Texan, spent $51,000 for an online bachelor's degree in "paralegal studies" only to find that law schools and the local police deemed the Everest degree no degree. Mr. Reed sued under the Texas Education Code, which sets basic rules for degree-awarding outfits, on behalf of himself and a class of the other Everest victims — graduates — who lived in the Lone Star state.

The district court enforced an arbitration clause in Mr. Reed's Enrollment Agreement with Everest. The court left to the arbitrator whether to handle the arbitration on a class basis.

The arbitrator ruled that, because the arbitration clause gave him the power to award any "remedy", it therefore authorized him to certify an arbitration class. The district court confirmed what Blawgletter will call the certification award, which seems not to have dealt at all with the merits.

The Fifth Circuit reversed. The panel held that the arbitrator "exceeded his powers when he concluded that the parties' agreement permitted class arbitration." Id. at 12. The court leaned mainly on Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010), which we thought when it came out meant "that arbitrators will have no choice but to deny almost all class certification requests." Although the panel said "the agreement to submit to class arbitration may be implicit", it added that such an agreement "should not be lightly inferred." Id. at 16 (footnote omitted). It went on to say that the arbitrator inferred way too much from his express power under the parties' contract to award "[a]ny remedy available from a court under the law". "[A] class action cannot properly be considered a 'remedy' under state or federal law", the panel averred. Id. at 21 (emphasis added).

The Second and Third Circuits do not agree with that outcome, as the panel noted. Id. at 22 & n.13 (rejecting Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir. 2012) (post here), and Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), cert. denied, 132 S. Ct. 1742 (2012)). The panel pointed to "the Supreme Court's lengthy discussion of the significant disadvantages of class arbitration". Id. at 25 (citing Stolt-Nielsen, 130 S. Ct. at 1776) (emphasis added).

We wish to highlight Judge Dennis's concurring opinion, at least the part where he says "in different kinds of future cases" — ones that involve such small stakes that "bilateral arbitration would . . . offer claimants . . . no practicable or realistic remedy" — "an arbitrator can properly find an implicit agreement to class arbitration procedures". Id. at 33 (citing In re Am. Express Merchants' Litig., 667 F.3d 204, 214) (2d Cir. 2012)).

We wish also to aim a pinky at the panel's spin on the phrase "any remedy available from a court under the law". The court seems to have added "substantive" before "remedy" and "law". But why? The Securities Litigation Uniform Standards Act, for instance, describes "Class action limitations" as "Limitations on remedies". 15 U.S.C. 78bb(f)(1) (emphasis added). And courts often refer to class treatment as a "remedy" instead of merely a "procedure". E.g., Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 233 (3d Cir. 2012) (quoting Thibodeau v. Comcast Corp., 912 A.2d 874, 884 (Pa. Super. 2006)); In re Am. Express Merchants' Litig., 634 F.3d 187, 196 (2d Cir. 2011), on rehearing, 667 F.3d 204 (2d Cir. 2012).

So why didn't the arbitrator have the power to construe "remedy" in the sense of a "procedural remedy"? Don't arbitrators have broad authority? The Second and Third Circuits based their holdings on that precept. Why not the Fifth Circuit?

Scene: An office near Ground Zero. Way up high. Perhaps in 40 Wall Street. Which has that awesome Duane Reade store on the ground floor. Some place posh in the area no matter what.

Snappy: Did you know, Bitey, that people could insure themselves against risks they Do Not Have?

Bitey: When, in the course of human events, one people may dissolve the political bands which have connected them to another.

Snappy: Right. You value Freedom. Like contract-freedom, such as those dear oh-so-smart Justices who wrote about it in Lochner. True that!

Bitey: And to assume among the powers of the Earth the separate and equal station to which the laws of Nature and Nature's own God entitle them.

Snappy: Thank you for not leaving a preposition at the end of what you just said.

Bitey: A decent respect to the opinion of womankind requires them to declare the causes of the separation.

Snappy: You have once again made my point about gender-neutral stuff, Bitey! How I adore you.

Bitey: I mainly regret not knowing the rest. The we hold these truths self-evident part for some reason escapes me just now.

Snappy: Don't worry, Bitey-meister. Jamie Dimon sings those words better than you can think! He knows from truth, let me tell you, whose cogitation I value and fear above that of all others.

Bitey: What a dork. We all know that credit default swaps have both a good function (hedging risk for bets you've in fact made on, for instance, a real firm's actual bonds) and a nutty risky one (making crazy gambles on debt as to which you have no risk at all). Will Dimon at last confess that his bank deserves to forfeit any right to write credit default swaps? Because if he won't I'd like to beat the [unclear words here] him.

Snappy: Alrighty then, Bitey. You rock. Let's go see Wicked!

Fade to Snappy and Bitey riding a taxi towards Broadway. Not to see Spiderman. Something else for sure.

We can all agree that granting people stock options that can't lose — as Apple and lots of other (often high-tech) outfits did Not Long Ago — at least feels wrong. But who knew that accounting for them in the wrong way could expose you to a suit by the Securities and Exchange Commission?

Blawgletter surely did not know. As far as you know. But surely the chief financial officer of a public company should have known that, right?

Likely.

Yet we want to tell you about something else. We desire to let you know that an Annual Report on Form 10-K, the Ninth Circuit held today, can come into evidence under the business records exception to the hearsay rule to help persuade a jury that, yes, you (as CFO) messed up in how you accounted for those stock options that your firm back-dated. Even though the 10-K came out long after you left. And in spite of the fact that the parts the SEC used against you dealt with the results of a series of judgments about pretty complex stuff (like generally-accepted accounting principles). Securities and Exchange Comm'n v. Jasper, No. 10-17064, slip op. 5159-64 (9th Cir. May 15, 2012).

photo

Note the dripping red wax on the seal.

All bourbon is whiskey, but not all whiskey is bourbon.

Maker's Mark Distillery, Inc. v. Diageo N. Am., Inc., No. 10-5508, slip op. 4 (6th Cir. May 9, 2012) (affirming verdict and judgment that dripping-wax red seal on tequila bottles infringed trademark for same on bottles of bourbon) (per Boyce F. Martin, Jr., J.).

May a pack of hedge funds gang up on a borrower to stop pack members from cutting deals with the borrower to lighten its debt burden?

Of course they can (and would), you say. But would they thus run afoul of the Sherman Act? Did you think of that? Heard of section 1? Which bars contracts, combinations, and conspiracies to restrain trade? Huh?

If that notion failed to flit across the great swirling maelstrom of your ever-churning mind, don't feel lonesome. The Eleventh Circuit ruled that section 1 Did Not Apply to a boycott by a group of hedge funds, which owned debt of subprime lender CompuCredit. At least the panel felt that way last November.

But now the Whole Court will give it further thought. The order sets a briefing schedule and oral argument some time in the week of October 15, 2012.

Please do not confuse this CompuCredit case with this one in the U.S. Supreme Court from January 2012 or this other one in the Eleventh Circuit from April 2012.

The First Circuit sits in Boston. Which when Blawgletter went to law school called itself "The Hub". As in "Hub of the Universe". Which we found charming. Also troubling.

True, though? Kinda.

Today the court that sits in the Hub held that a qui tam — False Claims Act — claim about Harvard Medical School and others should have gotten beyond a summary judgment motion. The panel said:

The dispute at the heart of this case is not about resolving which scientific protocol produces results that fall within an acceptable range of "accuracy." Nor is it about whether Killiany's re-measurements, the basis for the preliminary scientific conclusions reported in the Application, are "accurate" insofar as they fall within a range of results accepted by qualified experts. Rather, the essential dispute is about whether Killiany falsified scientific data by intentionally exaggerating the re-measurements of the EC to cause proof of a particular scientific hypothesis to emerge from the data, and whether statements made in the Application about having used blinded, reliable methods to produce those results were true. If the jury should find that statements in the Application are false, they must also determine whether those statements were material and whether the Defendants acted knowingly in violating the FCA.

Because we conclude that genuine issues of material fact remain on these central issues, we vacate the district court's order and remand for further proceedings consistent with this opinion. Costs are awarded to the appellant.

So ordered.

United States ex rel. Jones v. Brigham & Women's Hospital, No. 10-2301, slip op. 50-51 (1st Cir. May 7, 2012).

 

 

The Federal Circuit today ruled that the Eastern District of Texas has the wrong idea about whether Rule 20(a) lets plaintiffs sue a bunch of defendants in one patent infringement case simply because they all infringed the same patents.

You have to show something more, it held — such as that the defendants somehow acted in concert to infringe the same patent, made the same infringing product, or used the same infringing method to make their own infringing products. In re EMC Corp., Misc. No. 100 (Fed. Cir. May 4, 2012) (granting mandamus and ordering district court on remand to use different legal test in ruling on motions to sever and transfer).

Blawgletter notes that the ruling applies to mandamus petitions that pre-date the Leahy-Smith America Invents Act, which in 2011 changed the joinder rules in patent cases.