Earlier this year, Bank of America agreed to pay $410 million to settle sprawling litigation stemming from allegations that consumers were charged unlawful overdraft fees. The cases were consolidated into an MDL action in the Southern District of Florida as In re Checking Account Overdraft Litig., No. 09-MD-02036-JLK (S.D. Fla. filed June 10, 2009). Bank of America was the first of the more than 30 bank defendants to settle—other defendants include JPMorgan Chase, Wells Fargo, U.S. Bank, and Citibank—and preliminary approval of the settlement is expected to signal the parameters of acceptable settlement terms to other defendants. The larger banks’ total exposure is estimated to be in the billions of dollars. Given that, and coupled with the fact that legislative and administrative reforms enacted since the cases were filed effectively outlaw the complained-of practices, it is unlikely that the banks, already financially challenged, will take their chances at trial. By settling first, Bank of America might well have worked that dynamic to its advantage, as the plaintiffs in the remaining actions communicate a willingness to go to trial and hold out for better settlements.

Further complicating the settlement calculus: Some of the defendants, led by JP Morgan Chase, are asking that the district court reconsider its earlier denial of a Rule 12 motion to dismiss in light of new authority concerning federal preemption—not AT&T v. Concepcion, but the considerably more arcane Baptista v. JP Morgan Chase Bank, No. 10-13105, 2011 U.S. App. LEXIS 9568 (11th Cir. May 11, 2011). Baptista, available here, concerns the preemptive effect of the National Bank Act (12 U.S.C. § 21 et seq.) and the complex interplay between federal and state regulation of banks.

The U.S. Supreme Court recently reversed the Second Circuit with a 5-3 vote (Justice Kagan did not participate), holding that corporate whistleblowers cannot bring lawsuits on the basis of information they get from a Freedom of Information Act (FOIA) request because such information is a “report.”  See Schindler v. Kirk, 179 L. Ed. 2d 825 (2011).

The qui tam relator had alleged that his former employer submitted false claims in its federal contracts on the basis of information that his wife obtained through FOIA requests.  Schindler v. Kirk at 833.  The federal Qui Tam Act bars suits to recover falsely or fraudulently obtained federal payments where those suits are “based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media . . . .”  31 U.S.C. § 3730(e)(4)(A) (footnote omitted).  Justice Clarence Thomas’ majority opinion found that the incriminating information derived from FOIA requests constituted a “report,” thereby foreclosing the lawsuit, seemingly irrespective of the truth of the underlying allegations.  Id. at 835-836.

With legal reasoning at least as extensive and compelling, the Second Circuit had concluded the FOIA-derived information to not be a “report.”  Yet the Thomas majority opinion, referencing an amicus brief submitted by the U.S. Chamber of Commerce, offered this justification: “[A]nyone could identify a few regulatory filing and certification requirements, submit FOIA requests until he discovers a federal contractor who is out of compliance, and potentially reap a windfall in a qui tam action under the FCA.”  Id. at 838.

In other words, a citizen might identify a law, submit a FOIA request to confirm compliance with the law, find that there is in fact a violation of the law, and thereafter “reap” precisely the “windfall” that the Qui Tam Act provides for.

The full Schindler v. Kirk opinion is available here.

In 1925, apparently responding to mass hostility toward arbitration agreements, Congress passed the Federal Arbitration Act (FAA), which expressly codified the enforceability of contractual arbitration provisions, “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It is this “saving clause” that provided the most formidable logical obstacle to the AT&T v. Concepcion majority’s creation of a plausible rationale for its holding.

Later, California pioneered the doctrine of unconscionability in both its common law and its statutory law, codifying the judicial authority to refuse enforcement of an unconscionable contract in California Civil Code section 1670.5(a) (and leaving no doubt as to the State’s policy choice about unconscionable contracts). Thus, the FAA’s “saving clause” would appear to quite straightforwardly apply, to the extent that California’s unconscionability doctrine bars the enforcement of all unconscionable contracts, not just contracts with arbitration provisions deemed unconscionable.

Faced with this reading of the FAA’s plain text, the Scalia-authored AT&T majority opinion offers what would be at best a C-plus exam answer, with a convoluted analogy to a case finding “unconscionable or unenforceable as against public policy consumer arbitration agreements that fail to provide for judicially monitored discovery.” AT&T v. Concepcion, 131 S. Ct. 1740, 1747 (2011). Expounding on the same idea, the opinion notes that “[o]ther examples are easy to imagine.” Id. No doubt they are, but this raises the question: How exactly is it that California Civil Code section 1670.5(a) doesn’t apply equally to all contracts? Section 1670.5 would seem to be the exemplar of a statute that puts contracts to arbitrate on “equal footing” with other contracts—the very equality that those who campaigned against arbitration abuse sought in fighting for and passing the FAA.

Yet after meandering through the implications of imagined statutes and implicitly conceding that California’s unconscionability doctrine does in fact apply equally to all contracts, the AT&T opinion simply concludes that as an “obstacle” to arbitration, the doctrine is preempted by the FAA—notwithstanding that the text of the FAA’s “saving clause” contains no such proviso. With an unexplained departure from his strict constructionist, stick-to-the-text jurisprudence, Scalia finds endorsements of arbitration’s efficiency in its legislative history sufficient to graft the necessary exception onto the FAA saving clause—ironic in light of Scalia’s embrace of the principle that “the act cannot be held to destroy itself.” Id. at 1748. In that the only way to deal with the FAA’s saving clause was to destroy it, though, that’s exactly what happened.

The full AT&T v. Concepcion opinion is available here.

Building on the trend in which consumer class actions increasingly adopt a doctrine of presumed reliance, Northern District Judge Jeffrey White recently certified a nationwide class in Wolph v. Acer, No. 09-01314 (N.D. Cal. filed Mar. 25, 2009). Other courts have embraced the same presumption of reliance, which as a practical matter typically defeats defendants’ most potent predominance arguments, to the effect that class treatment would be too unwieldy were it to entail an individualized inquiry into each class member’s motivation for buying the product. See, e.g., Fitzpatrick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (adopting presumption of reliance as to purported health benefits of yogurt); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (granting certification on omission-based liability theory); Wolin v. Jaguar Land Rover North America, 617 F.3d 1168 (9th Cir. 2010) (reversing denial of certification where district court abused discretion; common questions predominated as to defendant’s duty to disclose information a reasonable consumer would deem material).

By obviating the individualized causation inquiries that the defendants had argued precluded certification, the Fitzpatrick, Cole, Wolin and, now, Wolph courts have articulated what can fairly be called an established doctrine, at least as to consumer class actions.

The Wolph v. Acer plaintiffs alleged that the notebook computers they bought from Acer frequently froze, crashed, and required re-starting (which was typically slow), owing to an inherently deficient memory capacity. See cert. order at 1-2. The defendant’s opposition to certification argued a lack of ascertainability, typicality and adequacy, each of which was dispatched with relative ease. See Id. at 3-12. It was the defendant’s predominance argument, and specifically that the plaintiffs were not entitled to a class-wide presumption of reliance or causation under California’s consumer protection statutes, that plainly engaged the bulk of Judge White’s consideration, as he ultimately rejected the predominance defense, holding that individualized reliance on specific misrepresentations is not required, and that the standard for demonstrating class-wide reliance is presumed from a showing that the misrepresentation is material. Id. at 14.

The certification order is available here.