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Robert Panzenbeck
Legal Intern, Manhattan Institute Center for Legal Policy


Last week, the NLRB issued a ruling that could potentially transform the landscape of college sports. In a 24 page opinion, NLRB regional director Peter Orh recognized Northwestern football players as employees of the university with the right to form a union and collectively bargain. Ohr imposed a three-part test that considered the amount of time players spend on non-academic pursuits, the nature of control exerted by non-academic coaches over the players, and the non-academic nature of the scholarships themselves. If the decision is upheld by the NLRB in Washington, it would mean that players could choose a union to bargain with the university on their behalf. That union would likely be the College Athletes Players Association, a labor organization founded with a focus on allowing college athletes to bargain for basic scholarship and injury protections. Kain Colter, the former Northwestern quarterback who initiated the petition, is a founding member.

The media response has been mixed. During the hearings, Northwestern cited its rigorous focus on academics, and its 97 percent football player graduation rate as indicative of a commitment to student athlete education. Bloomberg economist Allison Schrager has defended the current model, noting in her recent piece "In Defense of the NCAA", that from an economic perspective, the current system is preferable to a minor league for most athletes, providing them with an education and the opportunity to earn a degree that is far more valuable than any compensation they would likely get participating in any minor league. NCAA President Mark Emmerich somewhat echoed this sentiment recently on CNBC, noting that while a change might benefit 3 or 4 percent of the players who make it to the NBA, the opportunity for an all-expenses paid degree provides a greater incentive than a paycheck to the vast majority of players.

Even those who criticize the NCAA model are quick to point out the shortcomings of this ruling. Writing at Bloomberg, Megan McArdle writes that "given the realities, it's hard not to cheer the NLRB, but it isn't clear how much allowing football players to unionize will accomplish, as long as the NCAA is still allowed to make rules against paying them. Point of Law contributor Richard Epstein, who has in the past argued that "the NCAA enforces a cartel that denies earned benefits to college athletes," criticized the decision, noting Ohr's failure to examine the absence of the application of the common law standard for "employees" in any other labor related context, and takes Ohr's opinion to task for its notable vagary on issues like who is covered, the extent of negotiations, the conflict between choosing individual schools as bargaining agents and the coherent obligations of a league, and the chaos that might ensue.

Over the last decade, the NCAA has grown s to become a multi-billion dollar cash cow, driven primarily by lucrative television contracts related to BCS Football and March Madness. As the pot has grown without accompanying reform in the realm of player compensation, many have taken notice, and suits have been filed calling into question amateurism policies. The Northwestern ruling is the first to suggest a sea change is afoot. In February, U.S. District Court Judge Claudia Wilken allowed allowed a case brought by former UCLA player Ed O'Bannon challenging the NCAA's ability to profit off the likeness of current and former players without just compensation to move forward. Last week, anti-trust attorney Jeffrey Kessler filed suit against the NCAA seeking an injunction against enforcement of limits on financial aid available to athletes, which if successful would allow players to be paid for their performances. Even if NLRB in Washington should reverse the ruling, as some have suggested is likely, one thing is clear: this is just the beginning.


C-SPAN has broadcasted video footage of Manhattan Institute's recent forum on the topic of class action litigation.

Participants talked about class action lawsuits and why some critics argue they benefit no one except attorneys. Following James Copland's introductory explanation of class action lawsuits, Ted Frank, a leading tort reform advocate and a leading critic of class action suits, described major cases his Center for Class Action Fairness organization got overturned. Panelists in the discussion afterward talked about various aspects of class action suits, including the reasons why big corporations settle and policy changes needed to address the ethical problems with these cases

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.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

A couple of weeks ago, the California Supreme Court decided a potentially very impactful case dealing with the enforceability of arbitration agreements made between companies and their consumers/employees.

In Sonic-Calabasas A, Inc v. Moreno, the court ostensibly agreed with the U.S. Supreme Court's rulings in Concepcion and Italian Colors Restaurant that federal preemption applied over any state rulings that attempted to control the scope of consumer arbitration agreements under a specific formulation of the unconscionability doctrine.

However, the Sonic court then opened up the door to the potential introduction of a new unconscionability standard that would be substantively similar to the previously-discredited standard.

In the prior U.S. Supreme Court rulings, the Court specifically overruled the Discover Bank rule, which mandated that consumer arbitration agreements that did not include clauses allowing for class action suits were effectively unenforceable. The Supreme Court has held that the Federal Arbitration Act's mandates apply, regardless of any state "substantive or procedural policies to the contrary," including any any specific state standards for arbitration applicability.

Andrew J. Pincus and Archis A. Parasharami of the Mayer Brown law firm have written an op-ed discussing the various issues involved.

Businessweek on class actions
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Businessweek mentions the pending CCAF Marek v. Lane Facebook cy pres certiorari petition (on the calendar for tomorrow) in a larger article about how the Supreme Court is supposedly squelching the class action by issuing rulings against abusive class-action certifications. Public Citizen got to Businessweek apparently, with the author warning that a cert grant could be bad for consumers. It's hard to see how consumers could be made worse off than a $0 settlement; such settlements hurt consumers by raising their costs without any corresponding benefit. Defense attorney John Beisner tells me of being on an American Constitution Society panel and asking the audience to identify a consumer class action where the consumers got more than the attorneys, and no one being able to name one.

One quote stands out as especially poor analysis, though:

Reliable data on class actions are in regrettably short supply because courts don't track them. The only helpful gauge over time measures just a slice of the relevant cases: federal securities fraud claims. The economic consulting firm Cornerstone Research says in the first six months of 2013, 74 securities class actions were filed in U.S. district courts. That's down 22 percent from the 16-year average from 1997 to 2012 and off 42 percent from the peak in the second half of 1998.

The problem here is that the Supreme Court has consistently ruled in favor of plaintiffs in securities cases in the last few years. If securities filings have gone down, it's because the stock market has gone up in the last four years, and securities filings go up and down in inverse correlation to the market direction—which does a lot to demonstrate that securities lawsuits tend to be less about fraud than about rent-seeking. In any event, the direction of securities class actions tells us nothing about the direction of consumer class actions.

Two podcasts
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Anyone wanting to hear my voice? I recently did two podcasts.

Law & Liberty talks to me about class actions and recent Supreme Court jurisprudence on class-action waivers.

And on Legal Talk Network, I debate trial lawyer Marc Saperstein about the recent appalling New Jersey appellate decision creating liability for third-party texters when drivers have accidents after texting. The crazy thing I learned about in this podcast: the driver who had the accident had the accident seventeen seconds after he sent a text. Unless he was in the middle of another text (and no one claims that he was to my knowledge), it's hard to see how texting (much less texting by an outside party) "caused" the accident.


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.


In The Wall Street Journal, David Rivkin and Lee Casey write about Marek v. Lane, arguing that it's time to end class-action settlements that only reward lawyers, not plaintiffs. Earlier.


FACTA—which calls for statutory damages for printing too much information on credit card receipts—is perhaps the statute with the most abusive class action settlements, because notice rarely reaches class members and thus no one objects when the attorneys rip off the class. If a district court doesn't engage in its duty to protect class members, attorneys can walk away with windfalls while accomplishing next to nothing for their putative clients.

In Albright v. Bi-State Dev. Agency, a St. Louis federal case, here's how the settlement shook out:

$742.50 in cash and face value of tickets (surely mostly all tickets) to class members
$2,500 each to two class reps
$190,000 in attorneys' fees and expenses.

And the attorneys—Armstrong Law Firm, Bock Law Firm, LLC, and Chant and Co.—had the temerity to request over $400,000 in fees before the judge reduced it to something more than 200 times the class benefit. The class representatives got nearly seven times what the class got.

The case is Albright v. Bi-State Dev. Agency, 2013 U.S. Dist. LEXIS 129579 (E.D. Mo. Sept. 11, 2013).

Dry Max Pampers Litigation update
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Procter & Gamble (but not the plaintiffs) filed an en banc petition seeking further review of the 2-1 decision striking down the ludicrous attorney-benefit-only settlement in Dry Max Pampers. CCAF filed its opposition yesterday. I'm optimistic that the petition will be denied; it relies too heavily on a dissent that simply ignored precedent and problems with the settlement and class certification. But perhaps we'll get a certiorari petition, too.

 

 

 


Books

Class Action Dilemmas: Pursuing Public Goals for Private Gain




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Class Actions: The Need for a Hard Second Look


They're Making a Federal Case Out of It . . . In State Court


Lawyers' Ethics and Fiduciary Obligation in the Brave New World of Aggregative Litigation


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Courts of Convenience




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