Articles from September 2011

In re Checking Account Overdraft Litigation: District Court Denies Motion to Compel Arbitration, Limits Application of Concepcion

Many of the largest payouts to class members in recent months have been in actions alleging that banks have rigged their internal software to maximize overdraft fees, typically by altering the order in which transactions are posted to customer accounts.  In March, Bank of America agreed to pay $410 million to settle overdraft claims.  The Bank of America settlement arose from a Florida-based MDL action, In re Checking Account Overdraft Litig., No. 09-MD-02036 (S.D. Fla. transferred June 10, 2009).  While Bank of America opted to settle, the remaining defendants chose to move for reconsideration of the pre-Concepcion denial of their motions to compel arbitration to enforce a class action waiver embedded in the arbitration clause.  That second set of motions was also denied, in an order issued earlier this month holding that Concepcion does not nullify all unconscionability-based defenses to the enforcement of arbitration agreements and class action waivers, and laying out a roadmap for post-Concepcion unconscionability analysis.  See In re Checking Account Overdraft Litig. (order denying renewed motions to compel arbitration) (available here).

The denial of defendants’ renewed arbitration motions presents an ideal before-and-after test case of Concepcion’s application, and reveals that Concepcion did not deal the death blow to the unconscionability doctrine as some had speculated.  The initial set of motions to compel arbitration was denied in May of 2010 because each of the defendants had required that the plaintiffs execute “deposit agreements,” requiring that all claims be arbitrated and prohibiting class actions; these terms were found to be unconscionable.  While that ruling precipitated the Bank of America settlement, the four remaining defendants—Branch Banking & Trust, M&T Bank, Regions Bank, and SunTrust—gambled on a favorable ruling by the U.S. Supreme Court in Concepcion.  These remaining defendants moved for reconsideration of the pre-Concepcion denial of the motions to compel arbitration following the Supreme Court’s 5-4 decision holding that similar terms in another consumer agreement (an arbitration clause and class action waiver) were inconsistent with and thus preempted by the Federal Arbitration Act (FAA).

Despite the seemingly on-point parallels with Concepcion, the defendants’ renewed motions to compel arbitration were denied, as Judge Lawrence King underscored that “Concepcion did not completely do away with unconscionability as a defense to the enforcement of arbitration agreements under the FAA.”  Order at 8.  Rather, Concepcion “simply narrows the permissible factors for consideration in the unconscionability analysis.” Id. at 9.  Judge King drew a sharp contrast between the “extremely consumer friendly” (id. at 4) arbitration agreement in Concepcion and the terms of the at-issue arbitration clauses.  For instance, the SunTrust arbitration agreement entitled the prevailing party to recover costs and attorney fees, and provided that those amounts could be removed from a losing customer’s SunTrust account, without notice.  See id. at 12.  Despite lacking the account-invading feature of the SunTrust agreement, both the Regions Bank and BB&T arbitration agreements provided only for the bank’s recovery of fees and costs as the prevailing party, not the customers’.  See id. at 15, 18.  These one-way fee shifting provisions were also held to be unconscionable, even under a post-Concepcion analysis.

In rigorously limiting Concepcion to its facts, the Checking Account Overdraft Litigation analysis provides the first example of a court distinguishing Concepcion on the basis of the specific provisions of the AT&T arbitration agreement.  In so doing, Checking Account Overdraft Litigation confirms that while unconscionability analysis is perhaps much transformed by Concepcion, it has not been rendered as toothless as some had predicted. 

Pippen v. Iowa: Implications for Interpreting and Distinguishing Dukes

When a class action goes to trial, it is a notable event, especially when there is over $70 million at stake.  The plaintiffs in Pippen v. Iowa (Iowa Dist. Ct. No. CL10738, filed Jul. 1, 2007) allege that the State of Iowa’s executive branch has systematically discriminated against black employees in hiring and promotion, resulting in an as much as $71 million in lost back pay and underpayment of current employees.  This figure does not include emotional damages, which could bring the total potential judgment to well over $100 million if the approximately 6,000-member class of plaintiffs receives a favorable judgment at trial.

The plaintiffs contend that Iowa neglected to follow its own training, testing, and documentation procedures, resulting in hiring and promotion decisions that are systematically biased against black candidates.  The state refutes these charges with an argument that the plaintiffs’ “unified theory of causation” cannot establish the necessary link between racial bias and statistically significant differences in the hiring and promotion of black and non-black employees, arguing that “African Americans’ employment successes vary widely by department, EEO category, job class and step within the hiring practices.”  Additionally, the state has posited that the proper damage award would be compensatory job interviews, not monetary relief.

Filed in 2007 and certified in September of 2010, Pippen v. Iowa appears to be the first certified Title VII discrimination case to go to trial following the U.S. Supreme Court’s Dukes v. Wal-Mart ruling, in which the Supreme Court reversed the certification of a class of approximately 1.5 million female Wal-Mart employees who had alleged discrimination in violation of Title VII.  A finding of liability in Pippen would likely result in an appeal by the defendant, which would inevitably address whether the significant difference in class size—Dukes’ 1.5 million versus the 6,000-member class in Pippen—provides a basis on which to distinguish Dukes.


Unemployed Law Grads Demand Tuition Refunds in Class Actions Seeking $450 Million

Recent graduates of two law schools—Thomas M. Cooley Law School and New York Law School (NYLS)—are collectively seeking $450 million in class actions that allege the schools misrepresented employment and salary statistics in order to attract students.  The Cooley case was filed in the Western District of Michigan and the NYLS case was filed in the Supreme Court of New York County.  In an interesting twist, the New York firm representing the plaintiffs, Kurzon Strauss, is itself being sued by Cooley for defamation, with the school alleging that, in the course of finding named plaintiffs for the misrepresentation class action, Kurzon Strauss damaged the school’s reputation. 

Cooley consistently has among the highest admission rates of the country’s 200 ABA-accredited law schools, and in the twelfth edition of the law school ranking book, Judging the Law Schools, Cooley ranks second, to Harvard, and comfortably ahead of Yale (#10), Stanford (#30), and fellow defendant NYLS (#62).  Some have questioned the objectivity of these rankings, which are authored by a founder of Cooley Law School along with its current President and Dean. 

Both schools (along with Thomas Jefferson law school, defendant in a class action filed earlier this year) are alleged to have inflated their post-graduation employment statistics by hiring their own graduates, excluding from the statistics graduates who did not respond to employment surveys, and classifying graduates with part-time or contract positions as being “fully employed.”

In defending against the misrepresentation claims, the law schools are expected to rely on the American Bar Association’s liberal definition of “employed,” which makes no distinction between law-related jobs and all others, including the barista and telemarketing positions that recent law school graduates appear to land with some frequency.

Massive Wachovia “Pick-a-Payment” Settlement Exemplifies Modest Fee Awards

The widely-covered $2 billion settlement in In re Wachovia Corp. “Pick-A-Payment” Mortgage Marketing and Sales Practices Litigation, No. M:09-MD-02015-JF, has recently been finalized following the resolution of three appeals; the Effective Date of Settlement is September 7, 2011.  Of note is the relatively modest $25 million in fees sought by and awarded to class counsel, to be divided among the seven firms appointed as such.  The reality of the fee award stands in marked contrast to public misperceptions concerning attorney fees with regard to class actions, exemplified by this comment, posted by “The Attorney” at

Let me explain how it really works. They plan to settle for 50 million and the lawyers are wanting 25 million. The lawyers will then sue the plaintiff for the 25 million. (They will not get it from the settlement nor from the people who are receiving the settlement.) There are 26 people [referring to the named plaintiffs] who will receive 125,000 each. This money is taken out of the settlement.  Leaving 46,750,000. . . . [T]here are 517,000 people who take part of this Class action lawsuit. So when you divide the money by 517,000 . . . each person will get 90.425 (90.43 if you round up).  


Apart from getting the settlement amount wrong (by $1.95 billion) this seemingly informed commentator massively overestimates a 50% fee request, and imagines a process whereby class counsel sues for fees.  In fact, the fees awarded in this case are just 1.25% of the $2 billion total settlement value.  Further, the attorney fees are not part of the $2 billion settlement fund, which is not denominated as a “common fund.”  Rather, the fees are to be paid separately, and thereby do not diminish the money going to class members.  Moreover, the fee award is to be divided among the seven firms appointed as class counsel, just as the $125,000 enhancement payment is to be divided among the 26 named plaintiffs.