Results matching “wal-mart”

On the Supreme Court cert docket: Glazer and Butler - PointOfLaw Forum

As I discussed in yesterday's Washington Examiner, at tomorrow's conference, the Supreme Court will decide whether to grant certiorari on a pair of companion cases -- Sears v. Butler and Whirlpool v. Glazer, which Ted has previously discussed (here, here, and here).

Both cases involve 21 varieties of energy- and water-efficient "front-load" washing machines manufactured by Whirlpool.

In 2001, Whirlpool released the first of this diverse group of washers that reduced water and energy use by more than two-thirds (cutting $120 from the average family's annual water and power bills).

Whirlpool's washers have been ranked among the best in their class by Consumer Reports and helped the company win multiple "sustainable excellence" awards from the federal Environmental Protection Agency.

Class-action attorneys have pounced on the fact that a small percentage of these washers, like all washing machines, can (if improperly maintained) emit "musty odors" from leftover laundry residues.

Such odors may be marginally more likely in these newer machines than in traditional, less water- and energy-efficient washers.

A decade of call center data from Whirlpool and Sears place the percentage of consumers facing such odors at two to three percent, and a more recent February 2010 examination by the Consumers Union estimates the problem rate at less than one percent.

I agree with Ted and others (e.g., ATRA's Tiger Joyce, Tim Bishop & Joshua Yount, the bulk of the business community filing amicus briefs asking for cert) that these cases have broad-ranging potential implications and that the Supreme Court should take them up to clarify the reach of Wal-Mart v. Dukes and Comcast v. Behrend:

The Supreme Court has taken significant interest of late in limiting the use of class-action remedies. In its 2011 decision in Walmart v. Dukes (involving a gender discrimination claim) and last year's decision in Comcast v. Behrend (involving an antitrust claim), the court has emphasized that for a class of plaintiffs to be approved, the facts have to show a common and specific cause of harm that "predominates."

The washing machine cases certainly fail the Supreme Court's predominance test for class-action litigation.

Let's hope that the Supreme Court decides to step in yet again, because the legal theory underlying these cases is worse than musty -- it stinks.

Update: The Supreme Court neither granted nor denied the cert petitions here -- we'll watch for it at the next conference.

So I tell ProPublica, though my empirically correct observation is somewhat buried amidst a number of Chicken Little quotes. Walter Olson goes into more detail.

Roach v. T.L. Cannon Corp. - PointOfLaw Forum

Just as courts sometimes improperly certify class actions, sometimes they improperly fail to certify them. In the N.D.N.Y. case of Roach v. T.L. Cannon Corp., plaintiffs who worked at Applebee's restaurants alleged a uniform policy of docking employees for rest breaks they had not taken. The district court denied certification, arguing that, after Comcast v. Behrend, one could not certify a class for damages where individual plaintiffs have individualized damages. In the absence of classwide proof of damages, the district court ruled, Comcast prevents certification. Public Citizen is appealing to the Second Circuit.

I haven't seen the briefing below, so I don't take a position on whether class certification is appropriate; there might be legitimate grounds to deny certification not discussed in the court opinion. But it's clear to me that the district court's reasoning is incorrect.

Imagine a class action by waitresses against Chotchkie's Restaurants, alleging sex discrimination because the restaurant has a policy that it will deduct $10/week from women's paychecks, but not from men's paychecks. It's quite clear that this is an appropriate class certification. Even though the damages will vary from plaintiff to plaintiff—Jennifer might have been subject to the illegality for 50 weeks, while Joanne may have quit shortly after the policy was implemented and have only $20 of damages—the common elements of the case predominate over the individualized elements. (I made a similar point in discussing Wal-Mart v. Dukes: the question isn't whether a class is large, the question is whether there are common issues, and the Dukes certification precluded a consideration of individualized defenses to the sex discrimination allegations.)

The problem identified by the Supreme Court in Comcast, as I discussed, was that the plaintiffs attempted to justify class certification with a economically irrational theory that the antitrust violations affected class members equally when, in fact, there would be different market effects in different sub-markets (depending on the effect of the Comcast accretion of market share on deterring overbuilder competition) such that the theory of liability was not subject to classwide proof; subclassing would have or a different theory of certification might have fixed that.

In Roach, though, the allegation is that there is a single policy to fail to comply with New York state law. Perhaps that allegation is true (in which case class certification is appropriate); perhaps it isn't, and the problem varies from store to store or manager to manager or even from day to day, and Applebee's isn't liable on a classwide basis. That is the question the district court should have been investigating, and should be the basis on whether class certification is granted.

By Richard A. Epstein

The recent Supreme Court decision in Comcast v. Behrend is not likely to attract much popular press. The case is worlds apart from the Court's highly publicized class-action decision in Wal-Mart v. Dukes, which addressed burning issues of workplace parity between men and women. In contrast, Behrend reads like a quintessential technical case reserved for class action gurus and antitrust professionals. But on closer look, it may well turn out to be much more.

The Factual Background In Behrend, the plaintiffs allege that the cable company Comcast is violating the Sherman Act through its "clustering" program. Under that program, the company swaps its facilities in areas where it has a low concentration of customers to other cable TV companies, in exchange for those companies' facilities in regions where Comcast has a higher customer concentration. One such area was the Philadelphia Metropolitan Region, where, as Justice Scalia reports in his five-member majority opinion:

In 2001, [Comcast] obtained Adelphia Communications' cable systems in the Philadelphia DMA, along with its 464,000 subscribers; in exchange, petitioners sold to Adelphia their systems in Palm Beach, Florida, and Los Angeles, California. As a result of nine clustering transactions, petitioners' share of subscribers in the region allegedly increased from 23.9 percent in 1998 to 69.5 percent in 2007.

These numbers suggest that Comcast had acquired a dominant position in the geographically discrete Philadelphia market, which under orthodox theory should allow it to raise prices above the competitive level, holding service quality constant. On the other side of the scale is the prospect that Comcast generated various kinds of operating efficiencies that could offset, either in whole or in part, the social welfare loss from higher market concentration.

Even this brief summary reveals that any individual plaintiff in the Philadelphia DMA could face a unique set of considerations to the extent that they subscribe to different systems in different geographical markets. Nothing about this overall pattern indicates that the Comcast clustering strategy should have the same antitrust effect across various submarkets. In some submarkets, the concentrations may not rise up to dangerous levels. In others they will be more severe. But the overall 46 percent increase makes it highly likely that some real negative effects occurred in at least some, and perhaps many, of these submarkets. The fact that swaps instead of direct purchases were used to achieve these concentration levels is irrelevant to the Sherman antitrust issues. The short statement of fact shows that something is afoot. The question is what to do about it.

The Majority Response It is here that the plot thickens because of how the evidence was presented. The plaintiff introduced four different theories as to how the higher concentration hurt consumers. To quote Justice Scalia again:

First, Comcast's clustering made it profitable for Comcast to withhold local sports programming from its competitors, resulting in decreased market penetration by direct broadcast satellite providers. Second, Comcast's activities reduced the level of competition from "overbuilders," companies that build competing cable networks in areas where an incumbent cable company already operates. Third, Comcast reduced the level of "benchmark" competition on which cable customers rely to compare prices. Fourth, clustering increased Comcast's bargaining power relative to content providers. Each of these forms of impact, respondents alleged, increased cable subscription rates throughout the Philadelphia DMA.

None of these so-called theories leap out from the others. From this morass, however, the District Court held that only the overbuilding theory made any sense. Once that was done, the plaintiff introduced an expert analysis by Dr. James McClave that presented a "regression model comparing actual cable prices in the Philadelphia DMA with hypothetical prices that would have prevailed but for petitioners' allegedly anticompetitive activities," and which yielded a tidy sum of about $876 million in damages for the entire class. Justice Scalia speaking for the five conservative justices held that this procedure did not meet the exacting standards for class certification that apply uniformly to all issues under Rules 23(a) & (b), in this instance on the predominance requirement, by showing that the proof of individual antitrust injury could be established by evidence that was common to all class members. To Justice Scalia, the great sin of the plaintiff's proof is that it attempted to show the McClave model bore on the question of class certification just because it was relevant to establishing the damages in the case if the merits had been reached on the overbuiding theory. In his view, the fatal mismatch at the certification stage took place because the regression analysis did not relate exclusively to the single overbuilding theory that the District Judge had allowed into evidence.

An Alternative View A stinging dissent by Justices Ginsburg and Breyer claimed that the writ of certiorari was improvidently granted because of a set of procedural wrangles on the question presented that have been ably analyzed elsewhere, and need not be discussed again here. But the larger question that they raise is whether class actions can ever be brought in this fashion if the type of regression prepared by McClave is insufficient to meet a class-certification threshold. What follows is how I would defend this approach.

The District Court was not concerned that three of the plaintiff's theories for antitrust damage were struck because the regression in question picked up all the losses by comparing the price movements in areas where Comcast had a large concentration with those where it did not. In my mind, the regression asked just the right question for estimating these damages. Unfortunately, the decision of the District Court raised an unnecessary damages kerfuffle by treating the four different lines of proof as though they were separate and distinct, such that the plaintiffs had to win on one or all of them. I regard that as a mistake. Properly understood, this case should have been able to go forward on an antitrust theory even if the District Judge had concluded that none of the four mechanisms identified by the plaintiff drove up the price of services to monopoly level.

The ultimate question in these cases is whether the price increase was attributable to the added concentration, and for that question the regressions have to be admitted because they apply to the class as a whole. The information on the four possible sources of the increase should not be looked at in the alternative; if examined at all, the theories should be treated at most as cumulative descriptive evidence that is weaker in kind than the quantitative evidence in the regression itself. It is therefore a plus that the regression is not tied to the overbuilding theory. If this analysis is correct, it is mistaken to insist that the harms suffered by the plaintiff class do not derive from the distinctive overbuilding theory put forward by the plaintiff. Instead, the numbers tell the key story, as each of the four theories mentioned could offer a partial explanation as to the subsidiary question of how the antitrust injury came to pass.

At this point, the relevant choices should be stark, given the limitations of regression analysis. No matter what regression is used, it is still the case that all the individual members of a given class will suffer somewhat different injuries that could never be picked up or measured if each person were to bring his own separate lawsuit. But in this instance, the class action offers a better vehicle for analysis because it attempts to measure aggregate social harm. That calculation in turn sets the stage for determining optimal deterrence against a defendant, by taking the total amount of antitrust injury that their actions caused and dividing it among the plaintiffs in a form that is certain not to reflect the exact injuries that each member of the class sustained. Yet at the same time, these errors do not systematically favor any identifiable class members and thus tend to cancel out. Allowing averaging across the plaintiffs, therefore, does improve the position of every member of the class, for each does far better off with a pro rata recovery than with nothing at all.

Why Class Actions Anyhow? These observations only go to show that the class action in the context of many smallish harms has a hidden advantage over individual law suits when precise estimates of individual harms are not possible. It still leaves open the prior question as to whether the proper antitrust response is through any kind of damage action. The transactions between Comcast and its trading partners were all matter of public record, and it could have been possible to vet the transaction for its positive and negative effects by some kind of pre-clearance procedure that sought to address any net consumer welfare losses that derived from the swaps. But if that is not done, then it seems odd to kill the private right of action by forcing the plaintiff to take what surely seems an unnecessary step in these cases, namely pleading the particular type of evidence that they use to establish the injury in question. So at this juncture, it is hard to predict what will be made of Behrend. Will it be treated as a misadventure in pleading or a major revolution in the proof of damages in consumer class actions? Only time will tell.

How the trial-lawyer tax is hurting hiring - PointOfLaw Forum

Charles Hugh-Smith and Jim Geraghty note that if an employee cannot generate revenue to cover his or her wages plus overhead costs, he or she won't be hired. This is absolutely true, but both understate the problem, and the degree to which the Obama administration has made it worse, and is planning on exacerbating it.

One of the biggest overhead expenses is the expected litigation expense of an employee. Employees have a wide variety of rights under federal and state law to sue their employer—not just for the hiring and firing decision, but for promotions or work conditions. A dishonest employee can impose a great deal of cost on an employer by bringing a meritless suit; whether the employer takes a hard line or pays the Danegeld, these are very real expenses. (For example, defending against the notorious meritless Jamie Leigh Jones suit cost KBR $2 million.) It's little surprise that California, where employees can sue for a variety of technicalities in a lawyer-friendly litigation environment, has a much higher unemployment rate than the rest of the nation, despite a dynamic technology industry and being so attractive to millionaires that the state thinks it can raise revenue rather than drive away taxpayers with a 13.3% tax rate.

That overhead cost isn't just awards to plaintiffs with meritorious, or even plaintiffs with unmeritorious, grievances. It's the lawyers, on both plaintiffs' and defense sides, who collectively receive more than employees take home from litigation victories and settlements. But it's also the (as-far-as-I-know yet-unmeasured) compliance costs: the vast human resources bureaucracy that keeps track of these laws and maintains the paperwork to protect the company in the event of future litigation. The compliance costs can have non-monetary effects as well. But take, for example, something as simple as employee appearance. Even something as simple as "It's not good for the corporate image to have someone with a Maori face tattoo interacting with customers" has an litigation minefield overlay, including EEOC litigation. That costs money, and that money comes at the expense of hiring.

So it's worth noting that these laws, on balance, hurt the average employee. Plaintiffs' attorneys' fees often outstrip the returns to the clients; add to that the defense attorneys' cost, and the cost of a human resources apparatus to ensure compliance, and the vast majority of the benefits of employment litigation is going to white-collar professionals, and most of that going to attorneys in the top decile, or even the top 1%. That overhead cost may add up to more than 10 percent of wages: a $30/hour employee is, instead of being paid $33/hour, getting a $3+/hour "benefits" package, most of which ends up in the pockets of people wealthier than him or her. Now, perhaps we as a society are willing to accept these costs to vindicate the relatively rare cases where a bigot or predator unfairly treats an employee and management acts against the company's interest in letting qualified employees be chased away. (One of the silliest things about the Wal-Mart employment litigation was the premise that the most aggressive cost-cutting company in the world would systematically choose to throw money out the window just to discriminate against qualified women in promotion decisions.) But these costs are rarely ever acknowledged in the policy debates in the first place.

And, even as structural unemployment rises to scary levels, this administration has sought to increase these overhead expenses to make hiring more expensive. The Lilly Ledbetter Fair Pay Act makes it easier to bring meritless suits by obliterating the statute of limitations. (Statutes of limitations are important for justice. Without a statute of limitations, someone can sue for very old alleged injuries, and a defendant would not have a fair chance to defend herself. (Ledbetter sued over her pay after she was retired!) Memories fade, evidentiary documents are discarded, people change employers. If an employee can wait until a middle manager of years ago died before accusing the company of discrimination, justice is impossible.) The EEOC has become increasingly intrusive. Though courts have largely rejected the move as arbitrary and capricious, Obama's NLRB appointments have sought to abolish arbitration agreements as an unfair labor practice. All in the supposed name of increasing workers' rights, but with the effect of exacerbating inequality and unemployment.

The State of the Union bodes more of the same. Not just the proposed minimum wage increase from $7.25 to $9, which will fall disproportionately upon unskilled workers who already have a double-digit unemployment rate. But the administration is reiterating its proposal for a "Paycheck Fairness Act that will surely increase unemployment as well. (More from Hans Bader.)

We previously discussed the tactic of attempting to evade Class Action Fairness Act scrutiny of coupon settlements by calling the coupons "gift cards." Briefing is now complete in In re Online DVD Antitrust Lit., No. 12-15705 (9th Cir.), and we can expect oral argument some time in 2013. Wal-Mart recognized that it didn't make sense for them to spend money on defense counsel defending a class action settlement designed to benefit the plaintiffs' attorneys, and did not file a brief.

(The Center for Class Action Fairness is not affiliated with the Manhattan Institute.)

Whirlpool v. Glazer - PointOfLaw Forum

The Sixth Circuit, in a decision that pays only lip service to Wal-Mart v. Dukes while ignoring its requirements for finding commonality, affirmed the certification of a single Ohio class in a consumer-fraud class action against Whirlpool over 21 different models of front-loading washers over a nine-year class period. Like every other environmentally-friendly energy-and-water-saving front-loading washer, Whirlpool washers, if not properly maintained, have a small percentage chance (and a slightly larger chance than for the old technology of top-loading washers) of generating unpleasant odors from laundry residue: does that create compensable injury for purchasers who never suffered this problem? Of course, as in many class actions, the attorneys are less interested in consumer redress for nonexistent harms, so much as imposing litigation expense that would prompt a settlement payment to the attorneys. In a Washington Times op-ed, Tiger Joyce complains "Beyond the urgent question of class certification, the 6th Circuit's opinion being appealed also establishes a radical new theory of product liability. In essence, it says that even if just one buyer of a manufactured product might one day become dissatisfied with the product, even if proper product maintenance would have prevented that dissatisfaction, and even if the product is otherwise widely and enthusiastically embraced in the marketplace, everyone who ever bought the product has, by definition, been overcharged and can be joined in a class action against the manufacturer." The theory is analogous to a fraud-on-the-market theory in securities law transposed to consumer law. Of course, one buys securities to make money, while one buys washing machines to wash clothes. If your clothes are washed satisfactorily, have you really been injured any more than by the fact that you mistakenly failed to buy your washer at Sears instead of Best Buy and inadvertently paid too much?

Of course, this particular question of Ohio law and public policy isn't before the Supreme Court, which generally doesn't intervene in error-correction of federal interpretations of state law, though there is an attempt to resuscitate the First American Federal question of class standing that the Supreme Court chose not to resolve last year in the cert brief itself. This case does not seem like the best of vehicles to make that stand.

But the commonality issue certainly seems cert-worthy, and even GVR-worthy. In terms of the certification, it's hard to see a common issue, given the different designs and different states of manufacturer and consumer knowledge over that time, and the Sixth Circuit opinion doesn't even try to distinguish Dukes. How is Whirlpool supposed to defend itself in a trial over such a wide-ranging class? Note that, while this is "just" a class action over Ohio consumers and Whirlpool washers, the same sort of case is being brought against every washer manufacturer.

I don't quite understand Joyce's reasoning in claiming "the future of all manufacturing in the United States hangs in the balance"—foreign manufacturers selling here will get sued just the same as American manufacturers will. It is, however, a litigation tax on consumers who face higher prices to compensate for the expense of lawsuits like this, and thus a wealth transfer from middle-class consumers to wealthy lawyers.

More: cert petition; Chamber amicus; PLAC amicus; PLF amicus; Wajert; PLF; Karlsgodt. The matter (No. 12-322) was to come up for conference Friday, but the Court has requested a response from the respondents, which is a better-than-average, though not dispositive, sign.

Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

As part of its Proxy Monitor project, the Manhattan Institute's Center for Legal Policy has released its 2012 Proxy Season: Season-End Report. The report, authored by CLP Director James Copland, spotlights union-backed shareholder proposals in the 2012 proxy season. Copland notes that labor union pension fund proposals increased in 2012, and that unions are among the most frequent proponents of proposals that would require companies to disclose their political spending. Furthermore, Copland analyzes the extent to which unions might be using the proxy process to pursue goals unrelated to increasing shareholder value:

Labor investors were also more likely than others to sponsor proposals related to political spending; such proposals are less likely designed to gain leverage over management in union negotiations but may be designed to squelch corporate political spending and lobbying that would generally be adverse to the interests of organized labor.

As in previous years, labor unions' shareholder proposals in 2012 have been unequally distributed across sectors. Companies in financial services and retail -- lightly unionized sectors that are significant public targets of union-organizing campaigns -- remain significantly more likely to be targeted by labor-backed proposals. Among companies receiving multiple proposals in these sectors this year that are also the publicly announced union targets are Bank of America, Citigroup, Rite Aid, Safeway, Wal-Mart, and Wells Fargo.

Copland has focused on labor union proxy activities in previous Proxy Monitor reports as well. Manhattan Institute's Proxy Monitor site also contains a database of shareholder proposals at Fortune 200 companies from 2006-2012.

The state Supreme Court has agreed to hear an appeal on whether a $187.6 million class action award against retail titan Wal-Mart over allegations that its Pennsylvania employees were not properly compensated for off-the-clock work and missed rest breaks violated Pennsylvania law.

The court granted allocatur on "whether, in a purported class action tried to verdict, it violates Pennsylvania law (including the Pennsylvania Rules of Civil Procedure) to subject Wal-Mart to a 'trial by formula' that relieves plaintiffs of their burden to produce classwide 'common' evidence on key elements of their claims."

Plaintiffs, however, dispute that there was a trial by formula in the first place. It's one or the other. Unfortunately, the Legal Intelligencer doesn't tell us which side is lying. One reading the Superior Court description of the evidence might come to the conclusion that it is the plaintiffs, but perhaps the quotation of witnesses using statistical evidence to calculate damages was one of the errors of the Superior Court opinion. The Pennsylvania Supreme Court punted on this question last year in Samuel-Bassett v. Kia Motors. Of course, extrapolating from data to decide individualized issues was criticized in the Dukes case last year, and creates due process concerns, so plaintiffs' attorneys' bluster that this will necessarily be decided on state-law grounds with no hope of appeal to the U.S. Supreme Court suggests whistling past the graveyard. But, again, the Legal Intelligencer doesn't call them on this.

Though Wal-Mart had a policy of disciplining managers who violated the company's internal rest-break rules, the jury was asked to find (and did find) that Wal-Mart's policy of seeking to reduce labor expenses—i.e., the same policy that every business has—acted to trump this and incentivized managers to shortchange employees. Thus, this rationalized a finding of "bad faith" that entitled the plaintiffs to $62 million in liquidated damages. It's hard to see how this does not transform the "good faith" defense into simple de facto strict liability, if such a flimsy theory can provide a bad-faith finding, but the Pennsylvania Supreme Court is not considering this issue.

Earlier on POL: March 2007; October 2007. More: Wajert. And as Kantke notes, the court upheld a finding that the Wal-Mart employee handbook created contractual obligations that led to liability, despite the handbook explicitly disclaiming that it was a contract.

"Equal Opportunity Employment Restoration Act" - PointOfLaw Forum

S. 3317, introduced by Al Franken, is intended to undo Wal-Mart v. Dukes, but is largely an incoherent mess that strips both plaintiffs and defendants of important constitutional protections through a "group action" process replacing Rule 23; it is of dubious constitutionality. As Andrew Trask points out in a similar critique,

it appears that the primary benefit of this bill is rhetorical: it allows Democratic legislators to claim that they are standing up for civil rights, while not really standing a chance of amending Rule 23 in any significant way. Instead, they can claim that they tried to address the primary talking points of Dukes critics, and were stymied.

So Senator Franken's proposal is a competent political tactic, but would make for a lousy solution to civil rights problems.

The bill does effectively create a substantive right to quotas by essentially prohibiting any other defense to an employment discrimination claim in front of the wrong judge.

Justice Department May Be in the Next Cubicle - PointOfLaw Columns

James R. Copland

The Justice Department appears to have learned a lesson in the 10 years since it indicted Arthur Andersen LLP for alleged improprieties in the firm's Enron bookkeeping. By 2005, when the U.S. Supreme Court unanimously vacated a conviction in the case, the accounting firm had collapsed, and all but a handful of the 85,000 employees worldwide lost their jobs.

The Justice Department has since avoided large-scale corporate prosecutions that would threaten the disastrous collateral consequences brought on by its case against the former Big Five accounting firm.

But in the place of actual prosecutions, the Justice Department has aggressively pursued what are blandly called "deferred prosecution" or "non-prosecution" agreements -- DPAs and NPAs, for short -- through which prosecutors and companies negotiate terms to avoid a criminal trial. This approach may be avoiding the sort of corporate death sentence visited upon Andersen for what proved to be non-crimes, but nonetheless does something just as worrisome: It insinuates Justice Department career bureaucrats into the day-to-day management of major American businesses.

Although only 17 DPAs or NPAs were reached between businesses and federal prosecutors in the decade before the Andersen indictment, more than 200 have followed in its wake, through both the Bush and Obama administrations. Seven Fortune 100 companies are currently operating under the supervision of federal prosecutors: CVS Caremark (CVS) Corp., Google (GOOG) Inc., Johnson & Johnson, JPMorgan Chase & Co., Merck & Co., MetLife Inc. and Tyson Foods Inc.

Wal-Mart on Deck

Seven other of the 100 largest businesses have been under a DPA or NPA in just the past few years. Others, such as Wal-Mart Stores Inc., currently facing scrutiny for alleged Mexican bribes prohibited under the Foreign Corrupt Practices Act, are sure to follow.

In each of the past three years, fines and penalties levied under federal deferred-prosecution and non-prosecution agreements have exceeded $3 billion. While such fines are not insignificant, of far greater concern are the sometimes sweeping powers that prosecutors have asserted over business practices. In recent DPAs and NPAs, federal prosecutors have variously pressured companies to change long-standing sales and compensation practices; to restrict or modify contracting and merger decisions; to carry out onerous compliance and reporting programs; to appoint corporate monitors with broad discretion over management decisions; and even to oust executives or directors.

Businesses accept the agreements with such aggressive terms because they can ill afford to fight a criminal investigation. A certified public-accounting firm like the former Arthur Andersen is uniquely vulnerable to criminal indictment and conviction. But criminal inquiries place significant pressure on stock prices for all companies and can impair the ability to obtain credit. Companies can be debarred from government contracting or denied licenses upon an indictment or conviction, making businesses in certain industries, such as health care and financial services, particularly unable to fight back against a prospective prosecution.

Just since 2009, finance companies have entered into 18 federal DPAs and NPAs and health-care businesses into 11 such agreements. The finance companies alone have a collective market value exceeding $690 billion, with more than $20 trillion in assets under management.

There is essentially no evidence that DPAs and NPAs, for all their sweep, have been effective in combating corporate crime. Some corporate-ethics watchdogs have argued that current Justice Department practices, by failing to credit internal compliance programs, have undermined companies' incentives to self-police.

No Judicial Oversight

What the agreements have been effective in doing is elevating Justice Department lawyers as business regulators who can reshape industry practices without having to engage in the cost-benefit analysis that is the norm for administrative agency action. Prosecutors in this area act largely without any judicial oversight: Judges never see NPAs and routinely rubber- stamp DPAs, and these agreements typically state that determinations of whether a company is in breach are the prosecutor's alone and are beyond judicial review.

It is long past time that Congress asserted itself over the Justice Department's use of DPAs and NPAs to assume broad and unaccountable regulatory authority. Public "tough on crime" sentiment and understandable anger over unprincipled conduct by some business leaders make most politicians hesitant to suggest that the criminal law is being too harshly applied to corporations.

Still, there's little case for prosecuting corporations as entities in the first place. Unlike individuals, they can't be imprisoned. As the Arthur Andersen case demonstrated, business entities often cannot be prosecuted, either -- at least without potentially drastic effects on corporate shareholders, employees, pensioners, customers and suppliers.

Federal prosecutors have been having a profound impact on those constituencies, with broad economic consequences, in the way they have been deciding not to prosecute businesses, but rather to control them through DPAs and NPAs. In the decade since Arthur Andersen was indicted, we haven't seen a repeat of that error. But in its place we have watched as federal prosecutors assume vast powers that make them an overarching, if hidden, regulator of American business.

Cobell v. Salazar (D.C. Cir. 2012) - PointOfLaw Forum

I'm disappointed by Tuesday's decision in Cobell v. Salazar, the first time I ever lost a federal appeal I've argued. (Of course, as always, the Center for Class Action Fairness is not affiliated with the Manhattan Institute.) [Briefing; Coverage: DC Circuit Review; BLT; ICTMN; AP; Reuters; Cronkite; McClatchy; Oklahoman; wildly inaccurate KFBB.]

It has been 10 years since Arthur Andersen LLP, former "Big Five" accounting firm, was indicted for its actions related to the audit of Enron. The firm gave up its CPA licenses and shed nearly 85,000 employees after being found guilty of numerous crimes by a district court and was never able to recover as a firm despite a ruling by the U.S. Supreme Court in Arthur Andersen LLP v. United States which overturned the conviction.

Jim Copland, director of the Center for Legal Policy at the Manhattan Institute, brings to light new tactics employed by the Department of Justice to enforce criminal laws against corporations. In an op-ed published by, Copland explains this new approach and why even in the DOJ's efforts to avoid collateral consequences that flow from large-scale prosecutions of corporations such an approach can be problematic: the place of actual prosecutions, the Justice Department has aggressively pursued what are blandly called "deferred prosecution" or "non-prosecution" agreements -- DPAs and NPAs, for short -- through which prosecutors and companies negotiate terms to avoid a criminal trial. This approach may be avoiding the sort of corporate death sentence visited upon Andersen for what proved to be non-crimes, but nonetheless does something just as worrisome: It insinuates Justice Department career bureaucrats into the day-to-day management of major American businesses...

In each of the past three years, fines and penalties levied under federal deferred-prosecution and non-prosecution agreements have exceeded $3 billion. While such fines are not insignificant, of far greater concern are the sometimes sweeping powers that prosecutors have asserted over business practices. In recent DPAs and NPAs, federal prosecutors have variously pressured companies to change long-standing sales and compensation practices; to restrict or modify contracting and merger decisions; to carry out onerous compliance and reporting programs; to appoint corporate monitors with broad discretion over management decisions; and even to oust executives or directors.

Businesses accept the agreements with such aggressive terms because they can ill afford to fight a criminal investigation.

Copland's piece is only an overview of his deeper analysis of DPAs and NPAs undertaken in a Manhattan Institute Civil Justice Report titled The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements. In this report, Copland zeros in on companies currently operating under these agreements and explores the agreed-to terms. He uncovers that "seven Fortune 100 companies are currently operating under the supervision of federal prosecutors: CVS Caremark (CVS) Corp., Google (GOOG) Inc., Johnson & Johnson, JPMorgan Chase & Co., Merck & Co., MetLife Inc. and Tyson Foods Inc."

Manhattan Institute's Center for Legal Policy also brought Copland together with Senator Rand Paul (R-KY) for a web conference to discuss the broader issue of overcriminalization, the rapid expansion over the last forty years of a host of criminal laws, many of which are vague, many of which overlap and those which decrease or eliminate the intent requirements that traditionally were the foundational principle of criminal law.

It will be important to track the developments of DPAs and NPAs especially as more corporations are subject to these agreements. As Copland explains, "others, such as Wal-Mart Stores Inc., currently facing scrutiny for alleged Mexican bribes prohibited under the Foreign Corrupt Practices Act, are sure to follow."

Sherry on Dukes and Concepcion - PointOfLaw Forum

A new paper by Suzanna Sherry (h/t M.G.), argues that overreaching and greed by plaintiffs' lawyers resulted in adverse precedent:

Class action plaintiffs lost two major five-to-four cases last Term, with potentially significant consequences for future class litigation: AT&T Mobility v. Concepcion and Wal-Mart v. Dukes. The tragedy is that the impact of each of these cases might have been avoided had the plaintiffs' lawyers, the lower courts, and the dissenting Justices not overreached. In this Article, I argue that those on the losing side insisted on broad and untenable positions and thereby set themselves up for an equally broad defeat; they got greedy and suffered the inevitable consequences. Unfortunately, the consequences will redound to the detriment of many other potential litigants. And these two cases are not isolated tragedies; they provide a window into a larger problem of Rule 23. When plaintiffs' lawyers chart a course for future litigants, they may be tempted to frame issues broadly for the "big win" - with disastrous consequences. I suggest that it is up to the courts, and especially to those judges most sympathetic to the interests of class-action plaintiffs, to avoid the costs of lawyers' overreaching. That is exactly what the dissenting Justices (and the judges below) failed to do in these cases.

I'll repeat my earlier statements that the panic over Concepcion is wholly unwarranted: consumers will be far better off ex ante if vendors adopt consumer-friendly arbitration clauses like AT&T Mobility's, and many vendors will prefer the class action system to such generous arbitration clauses, so the death of the class action is a long ways away.

The Class Action Fairness Act requires additional scrutiny of coupon settlements, as well as limitations on attorneys' fees in settlements with coupon relief. With the able help of Dan Greenberg, I recently objected to a coupon settlement in a class action settlement Wal-Mart made in antitrust litigation accusing them of conspiring with Netflix to divide the online DVD market. (Netflix fought the case and won.) Plaintiffs argued that CAFA did not apply because the parties agreed to call the coupons awarded to the class "gift cards," and the district court literally rubber-stamped the settlement. I have appealed. Fierce Online Video and UPI cover the story. Earlier and see also.

The case is In re Online DVD Rental Antitrust Litigation, No. 4:09-md-2029-PJH (N.D. Cal.), appeal pending, No. 12-15705 (9th Cir.).

Olson on Wal-Mart bribery allegations and the FCPA - PointOfLaw Forum

Walter Olson tackles well the controversy over Wal-Mart's Mexico problem and the Washington Post's misguided coverage. [Daily Caller; Cato; OL]

FBI Stings: Combatting Terrorism or Creating It? - PointOfLaw Forum

In the fall of 2008, James Cromitie - a 45 year old Wal-Mart employee who had converted to Islam in prison on drug charges - met "Maqsood" at a Newburgh, New York mosque. Cromitie told his new friend that he felt sure he was "gonna run into something real big." Maqsood was just the person to help in this regard. As the Washington Post recently reported, and unbeknownst to Cromitie, "Maqsood" was actually Shahed Hussain, a native of Pakistan who had fled to the U.S. when he was arrested for murder in 1994. Hussain got a job as a translator for the DMV, and became an informant when he was arrested on fraud charges for helping applicants cheat on tests. By the fall of 2008, he was working for the FBI, hunting supposed "lone wolf" terrorists in the suburbs of New York. He visited the Newburgh mosque 12 times before he met Cromitie. Hussain told Cromitie that he was part of a Pakistani terrorist group, and when Cromitie told Hussain he'd "like to get a synagogue," Hussain was happy to help, even suggesting, when it appeared that Cromitie had lost interest, that Cromitie could make $250,000. Ultimately, Hussain put together a plot that resulted in the arrests of Cromitie and 3 others for planting fake bombs outside 2 synagogues.

At trial, U.S. District Judge Colleen McMahon expressed concern with the FBI's tactics. "I believe beyond a shadow of a doubt," she said, "that there would have been no crime here except the government instigated it, planned it and brought it to fruition." However, she said, "[t]hat does not mean that there was no crime." She sentenced the 4 men to 25 years in prison.

If you've followed the news for the past decade, Cromitie's case may seem familiar -- "sting" operations involving FBI informants have resulted in arrests in supposed plots to bomb the U.S. Capitol, the Washington, D.C. metro, the Sears Tower and the Portland, Oregon Christmas tree, among others. These cases are part of the government's so-called "pre-emption" strategy against terrorism, in which government agents attempt to identify individuals who might commit an act of terrorism had they the means and opportunity, and to provide those means an opportunity, in order to "neutralize such threats before they come to fruition." This strategy has become so prevalent that the FBI's stable of informants has reportedly grown by a factor of 10 since 1975. In its 2008 budget, the FBI requested more than $12 million for software to track and manage all of its informants.

Government authorities often make deals with participants in crime in order to get information necessary to prove criminal cases. But when it recruits criminals and manufactures crimes, the government enters a whole new Orwellian landscape. There may be room for on honest debate over whether it is necessary to jail individuals for their thought and beliefs in order to combat terrorism. But the tactics that landed James Cromitie -- and dozens of others -- in prison have that result, without the debate.

Around the web, April 11 - PointOfLaw Forum

  • Epstein on DOJ lawsuit against Apple. [Epstein @ Ricochet]
  • Replaying the Duke Lacrosse case at the New York Times with Patrick Witt's reputation; and why isn't there more of a scandal with Yale's abuse of an already abusive process? [KC Johnson @ MTC]
  • The federal prosecutorial overuse of ยง1001 charges, turning minor civil regulatory violations into federal felonies. [WSJ]
  • PLF speaks out against the ridiculous Toyota sudden acceleration class action litigation in the Ninth Circuit. [PLF]
  • Lawsuit against Iowa government alleges subconscious discrimination based on disparate impact, using theory rejected in Wal-Mart v. Dukes. [Overlawyered; Sailer]

  • Ohio Supreme Court urged to review abusive certification of class action in Cullen v. State Farm, where, speaking of Wal-Mart v. Dukes, lower courts disregarded individualized defenses. [WLF; ATRA; WLF brief]
  • Why the Supreme Court should curb the Alien Tort Statute. [Bellinger @ WaPo; Overlawyered; related @ Volokh]
  • New Hampshire "early offer" statute proposed. [TortsProf; SeaCoast Online]
  • Nearly half of the Warren Court justices were infrequent questioners (and Ruth Bader Ginsburg has fallen asleep during oral argument), but that Clarence Thomas is uniquely quiet among the historically unusually hot bench of the current Supreme Court is somehow evidence that he's a bad justice. [Drumm via Alkon]
  • Remember Obama Girl? She's shilling for a Kentucky Social Security disability lawyer now. [YouTube (h/t R.U.)]

Around the web, March 13 - PointOfLaw Forum

  • Who says Wal-Mart v. Dukes ends class actions—or even employment class actions? Certainly not Richard Posner. [McReynolds v. Merrill Lynch; Trask; Karlsgodt; Seyfarth Shaw; Baker Hostetler; WSJ Law Blog; earlier at POL]

  • Richard Epstein on safety nets: "These can cushion individuals from shock in the short run, but the balance is not sustainable in the long run. Too many people climb into the nets, leaving too few productive individuals to support them." [Hoover]
  • Charity auction for Friars Club doesn't deliver on the promised goods of Oscar tickets, so not only refunds purchasers their $27,000 purchase price, but offered them first-class roundtrip airfare and a luxury hotel stay. Not good enough, say plaintiffs, who hire BigLaw firm to sue for $250,000 in damages including "intentional infliction of emotional distress." [Am Law Daily]
  • Mazie Slater attempt to free ride on class action ex-partners litigated doesn't fly with New Jersey federal judge. [Lawyers USA]
  • EDNY magistrate shoots down defendant's request for plaintiff's log-in information for Facebook and other social network sites. Such an overbroad request and intrusion on privacy can deter plaintiffs from bringing legitimate actions, so this is a good ruling. But let's see judges recognize the problems caused by overbreadth in the other direction. [Turkewitz]
  • Coverage of Chevron/Ecuador $18 billion Lago Agrio judgment. Theodore Boutros notes that the ability of Ecaudorian President Rafael Correa to silence a critical newspaper with a criminal libel prosecution demonstrates the corrupt judiciary of Ecuador. [Boutros @ Forbes; Mastro video interview @ WSJ; California Lawyer]
  • For all the complaints about working conditions at Foxconn (which do seem very unpleasant), Chinese workers prefer it to other alternatives. [Atlantic]
  • The Landlord's Tale. [CJ]

Herzfeld & Rubin, Volkswagen, and Stockholm Syndrome - PointOfLaw Forum

I've noted before that one of the things that's surprised me most about my practice with the Center for Class Action Fairness (which, as always, is not affiliated with the Manhattan Institute) is how often law firms representing defendants will seek to lose the war to win exceedingly tiny battles at the long-term disadvantage of all of their corporate clients, including the one in the case.

Herzfeld & Rubin represents a number of Fortune 500 clients, including Volkswagen. For reasons that remain utterly inexplicable to me, they negotiated a settlement that arbitrarily excluded a million vehicles in the settlement class from receiving any pecuniary relief, while other class members were entitled to reimbursements of over $1000. My clients objected to the illegal intra-class disparities in the distribution, and, though VW should hypothetically be economically indifferent as to which class members receive which relief from a settlement fund they've already committed to pay, they've spent a lot of VW's money defending that distribution tooth and nail. We've argued that it made no sense to treat identically situated vehicles in a single settlement class differently: if a 1997 Audi and a 2009 Touareg are in the same class with the same claim and the same damages, there's no reason that the owner of the older Audi should get full reimbursement while the Touareg owner gets nothing. This isn't some odd right-wing ideological view of class actions; Public Citizen takes the same position about the same settlement. And if the argument is that it's okay to treat the uncertified "subclasses" differently because they're differently situated and have different individualized chances of success at trial, then there is obviously a Rule 23(a)(2) commonality problem that should preclude certification of the single settlement class.

This week, Herzfeld & Rubin has filed a brief defending the settlement by asking the Third Circuit to essentially eviscerate the Wal-Mart v. Dukes commonality requirements. Why would a defense law firm ask a court to take such a position ultimately so harmful to defendants' rights? Set aside an abusive personal attack that they made on me by name in an earlier appellate brief. Set aside that Sullivan v. DB Investments questionably narrowed Wal-Mart and other Supreme Court precedent: Herzfeld & Rubin is asking the court to make a questionable extension of Sullivan, a case that actually supports reversal. It would be one thing if this was just myopia of seeking a short-term result against long-term interests, but CCAF's argument against the settlement is largely irrelevant to VW's bottom line in this one case. It's a question of whether class members will get reimbursed or whether there will be leftover money in the settlement fund that will go to an unrelated charity some time in 2015; at worst to Volkswagen, a reversal will result in a wealth transfer from 1997 Audi owners to 2009 Touareg owners, and VW will, for interests of customer relations, make up the difference to Audi owners out of its own pocket. This is just seeking Pyrrhic victory for the sake of Pyrrhic victory: a notch in defense counsel's belt at the expense of their clients. And, of course, elimination of the commonality requirement is good for class-action defense firms, if not their clients.

Perhaps the fault is that of a general counsel who doesn't want to have to explain to his boss that a settlement needs to be renegotiated. But corporations are ill-served if their general counsels are not doing long-term strategic thinking. And they're worse served if their defense counsel is looking out for its own mercenary interests rather than the long-term interests of its clients.

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