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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.

James Beck and Mark Herrmann

[Originally published in the Drug and Device Law Blog, 7-9-09.]

The two of us have been practicing law now for a little over 25 years. Bexis graduated law school in 1982 and Herrmann a year later. At big firms it takes a few years -- five at least -- before we could start to have any real strategic impact on the cases we were working on. And it took a few years for us to get around to being product liability defense lawyers in the first place.

But now we're here, there, whatever.

We've been doing product liability defense for the better part of a couple of decades, and we've got maybe a couple of decades more to go. So how are we -- not just us, but this generation of the defense bar generally -- doing at this midpoint of our careers?

Bottom line: Are our clients better off now than when we started?

We decided today was as good a time as any to take stock.

Grade: A. Back in the late 1980s, we had to take class actions in product liability litigation very seriously. While there were never a lot of certifications, there were enough of them that – during the Bone Screw litigation, for example – plaintiffs would argue that there was some sort of “modern trend” favoring certification of personal injury class actions. Some courts said so, too. See In re A.H. Robins Co., 880 F.2d 709, 738 (4th Cir. 1989) (later abrogated). We remember how relieved we were to beat the class certification motion in Bone Screw, which kept that litigation from posing an even more existential threat to our clients than it already did.

Then our side prevailed in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). After that – with a lot of blood, sweat, and good legal argument from our side – class actions (at least successful ones) largely disappeared from mass torts, as we’ve discussed before. The few courts willing to certify class actions in drug and medical device cases have so far gotten shot down on appeal, most recently in the St. Jude litigation. Zyprexa may follow. And with the enactment of CAFA, most class action decisions going forward, and essentially everything in mass torts, will be made by federal courts applying post Amchem/Ortiz law.

Medical monitoring, a non-personal-injury derivative of personal injury causes of action that the plaintiffs’ bar dreamt up with class actions in mind, has largely failed in recent years to produce very many successful certifications – despite lots of attempts. We collected those cases here.

Likewise, class actions involving purely economic losses, usually brought as adventurous applications of consumer fraud, RICO, or warranty claims, have had rough going. The first round of appeals in St. Jude recognized the key argument: Even if a given consumer fraud statute does not require the individualized element of reliance, defendants may disprove causation with individualized evidence of non-reliance.

As a measure of how far out of the mainstream tort class actions have become over the last couple of decades, the ALI’s Aggregate Litigation principles project, for all its pro-plaintiff leanings in other areas of the law, states quite clearly that personal injury class actions are disfavored for a variety of reasons.

There’s also a distinct trend afoot, not limited to tort cases, to tighten consideration of class action allegations. The old rule of no "merits" consideration during class certification is out the window.

To top it all off, our side has also had a good deal of success arguing against cross-jurisdictional class action tolling - that failed class actions filed in one court should not toll the statute of limitations on claims filed in a different court. That deprives failed class actions of the one substantive benefit that they could confer upon plaintiffs (as opposed to their lawyers).

We’re still litigating a few issues, such as whether punitive damages can ever be assessed on a classwide basis – discussed here – but overall our clients are a lot better off on the class action front now than they were when we got into this business.


Grade: A. Back when we got started, the courts waved through just about any garbage that a plaintiff’s expert wanted to say. See Wells v. Ortho Pharmaceutical Corp., 788 F.2d 741, 744-45 (11th Cir. 1986) (allowing testimony with no epidemiologic or other statistically significant support that spermicide, of all things, caused birth defects).

Then along came Daubert v. Merrrell Dow Pharmaceuticals, Inc., 509 U .S. 579 (1993). For a while there, it was touch and go. Daubert could have been interpreted as loosening the already capacious federal standard for expert certification even further. But the good guys, again through a lot of hard work and inspired argument, were able to gain the upper hand in this area. The most important thing wasn’t really the standard itself, but the concept of the judge – not the jury – as “gatekeeper.” Given the amount of junk science that plaintiffs’ experts were spewing, if we could just get courts believing that they had an obligation to review things critically, we would win.

And we did, although it took several return trips to the Supreme Court to nail it down. See General Electric Co. v. Joiner, 522 U.S. 136 (1997); Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999); Weisgram v. Marley Co., 528 U.S.440 (2000).

Daubert was a drug case. It was the Bendectin litigation’s lasting gift to the legal profession.

After a while, the Daubert divide’s gotten to be like night and day. We don’t win every case, but we win a lot more of them than before. Nineteen years after Wells, the same court decided McClain v. Metabolife International, Inc., 401 F.3d 1233 (11th Cir. 2005), reversing and requiring judgment n.o.v. where an expert relied on little more than temporal association. That's monumental change for the better.

And the most important part of Daubert – stringent substantive review of expert opinions, by whatever name – is increasingly finding its way into state court decisions as well, in places like New York, Texas, and Pennsylvania.

So this is another area where we think that, after twenty-plus years of our laboring in the litigation vineyards, our clients are a lot better off.


Grade: A- (due to incompleteness). We’ve been all over Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), on this blog.

For good reason.

Before these decisions, the federal pleading standard was a joke. Plaintiffs could survive a motion to dismiss without pleading a single actual fact, only the same boilerplate they could repeat over and over again in thousands of identical complaints, with only the names changed to encourage the greedy.

Under the new plausibility standard, so far it looks like things will get better. We haven’t done a complete survey by any means, but we do analyze post-Riegel device preemption cases, and a lot of those are being decided on motion to dismiss lately. Under the new pleading standards, the courts aren’t buying boilerplate allegations of “FDA violations” any longer – and cases are getting dismissed (or not refiled). That's immediate, concrete improvement.

We’re hoping that carries over to other allegations having nothing to do with preemption, such as feasible alternative design, warning causation, and reliance.

If our side can continue to build on Iqbal and Twombly the way we have with the Supreme Court’s favorable class certification and expert admission decisions, maybe we can force the other side to abandon their word processors and actually have to evaluate the facts relevant to each of their clients before filing suit.

So with respect to pleading, our clients are already better off – and could be a lot better off – than they were when we first got our seats at the table.


Grade: A-. The minus is due to the wrongheaded decisions of one state supreme court and a federal district court ignoring state precedent, undermining the learned intermediary rule in a couple of smaller states.

The A is due to the number of states that have adopted the learned intermediary rule since the mid-1980s. Take a look at the chart we did a while ago on who’s adopted the learned intermediary rule. In 1987 sixteen state supreme courts had adopted the rule. We’re up to 33 now, with the addition of Wyoming after that post was written. Three more states, including Texas, have had their supreme courts adopt the rule in cases not involving drugs or devices. Federal courts have predicted adoption in three more states.

Personally, we’ve been involved in state supreme court decisions either adopting or reaffirming the learned intermediary rule in Pennsylvania, Ohio, New Jersey, Connecticut, Kentucky, and Georgia.

Beyond simply the number of states adopting the learned intermediary rule, we’ve also seen a strong trend towards its expansion in various directions. It’s expanded from drugs to medical devices. The rule has grown from adequacy of warnings to whether an allegedly defective warning had any causal effect. It’s expanded from failure to warn claims to other claims such as consumer fraud. The rule has been increasingly adopted to protect entities like pharmacists, in addition to product manufacturers.

And because the learned intermediary rule requires that warnings be viewed from the perspective of medical professionals, courts have increasingly been requiring expert testimony as to warning adequacy.

So far, even when the other side tries their own version of “tort reform,” they haven’t really gotten anywhere trying to repeal the learned intermediary rule legislatively - at least not yet. "Constant vigilance."

So with the learned intermediary rule as well, we’d have to say that our clients are quite a bit better off now than when we started in this business.


Grade: B. What? Didn’t you guys just get hammered in Wyeth v. Levine, 129 S. Ct. 1187 (2009)?

Yeah, and our ears are still ringing.

But back 20+ years ago, who’d ever heard of preemption in a product liability case to begin with? When we got started, preemption was nowhere.

We were on the barricades in the first wave of preemption litigation, in vaccine cases. We got clobbered.

We were back on the barricades in the second wave of preemption litigation. We had just gotten most of the Bone Screw litigation thrown out on preemption grounds, see In re Orthopedic Bone Screw Products Liability Litigation, 1996 WL 221784 (E.D. Pa. April 8, 1996), when we got clobbered again in Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996). So we’re sort of used to it.

But we’ve got some degree of prescription drug preemption after Levine, with the boundaries still to be fleshed out. In Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008), we won extensive preemption with respect to pre-market approved medical devices – a minority of all devices, but a category including a lot of the most important devices that would be most adversely affected by litigation as usual. Maybe best of all, preemption precludes the other side from standing up in front of juries and alleging that our client lied to the FDA in its regulatory submissions. Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001).

So we haven’t gotten the home run with preemption that we hoped, but considering that back in the late 1980s preemption wasn’t even an affirmative defense worth pleading, our cohort has made significant gains for a significant number of clients.


Grade: B-. When we started market share liability was a major threat to burst its DES bounds and become generally accepted. That hasn’t happened. No state has adopted it since Hawaii in 1991, and some of the states that did so earlier, like New York, have tightly confined it to the original DES set of facts. Score one for the good guys.

Public nuisance is also appearing more and more like a bad idea whose time has passed. It got a little traction with some pro-plaintiff courts in gun litigation, but not that much. Lately the theory – when asserted in product liability litigation – has taken its lumps in lead paint litigation. Public nuisance has gotten nowhere in drug and device litigation. Two-zip to the good.

The third Restatement of Torts, adopted in 1997 and published the following year, cut back on some of the loopier aspects of strict liability, including liability for unknowable risks, and failure to recall/retrofit claims.

We’ve largely kept an independent duty to test out of the law, too.

And fraud on the FDA is preempted (see above).

But on the other side of the ledger, consumer fraud claims have become staples of our opponent’s litigation strategy, and thus banes of our existence. Twenty years ago practically nobody ever encountered them. So that’s not so good. Still, since consumer fraud claims are limited to economic damages, they’re not worth very much unless the plaintiffs can find some way of aggregating them. See our earlier discussion of class actions. So the jury’s still out on how useful those claims will be for the other side in the long run.

New Jersey, a drug tort hotbed, recently put the kibosh on consumer fraud claims in product liability actions – that’s good.

Even better, our side's been able to convince most courts that such statutes can’t be enforced extraterritorially, outside of the state that enacted a particular statute. That cuts down on the size of any attempt to aggregate claims.

The learned intermediary rule helps, too, since physicians make individualized risk/benefit decisions in deciding to prescribe drugs and devices. That fact tends to preclude litigating these cases as class actions. So does the additional fact that most drugs and devices – how shocking! – actually help people. People who took a drug or used a device, got the benefit, and didn’t suffer an adverse side effect haven’t been injured. Fact of injury thus becomes another individualized determination that has prevented class actions.

We’ve also had a see-saw battle with negligence per se claims based upon alleged FDCA violations. Most of the older cases that were around when we were getting started allowed those claims without a lot of discussion, because after all the FDCA was enacted to make products safer, wasn’t it? However, the principle that the FDCA prohibits plaintiffs from privately enforcing the statute against violators, enunciated by the Supreme Court in Buckman, has helped our clients defeat those claims more often in recent years. But negligence per se hasn't yet gone the way of the dinosaurs, and some courts have allowed such claims.

Something else we didn’t see much of twenty years ago was the so-called post-sale duty to warn. That’s proliferated quite a bit, as even the Third Restatement included it. Fortunately, we don’t see all that much of post-sale claims in our neck of the woods.

Another negative we have to admit is that on our watch medical monitoring went from a legal peculiarity to, if not a majority rule, at least being allowed by a fair number of states, as our 50-state survey shows. So we haven’t been able to stop that one either.

All this adds up to a mixed record in beating back the various novel theories of liability that plaintiffs have invented over the years. We’ve gotten rid of some altogether, and limited others. But some geniis have escaped from the bottle despite the best efforts of our generation of defense lawyers.


Grade: D. Two words: “electronic discovery.” Twenty years ago, when we were starting to move into responsible positions, nobody had ever heard of it.

Now electronic discovery has gotten entirely out of hand. It’s hideously expensive, ridiculously intrusive, and almost entirely a one way street. Tort plaintiffs don’t often have large, frequently upgraded computer systems.

Everything else that our side’s been able to accomplish in limiting or streamlining discovery – routinized plaintiff questionnaires, federal-state coordination, restrictions on apex depositions, the inadvertent production doctrine, etc. – pales by contrast to the constantly metastasizing disaster that is electronic discovery.


Grade: F. It hasn’t happened. The other side has been more efficient in soliciting large numbers of plaintiffs to populate the ever growing number of pharmaceutical and medical device mass torts than our side has been in stopping them. The racket that mass torts have become is so downright predictable that we parodied it a while back.

But beneath that parody is lies the simple fact that, since the Supreme Court’s first benighted decision in Bates v. State Bar of Arizona, 433 U.S. 350 (1977), extending First Amendment protection to lawyer advertising, the other side’s solicitation machines have become more and more effective, and there’s not a constitutional thing we can do about it. Even when our side gets a crumb from the Supreme Court, such as Florida Bar v. Went For It, Inc., 515 U.S. 618 (1995), upholding a trivial 30-day cooling off period from personalized solicitations, the vote was only 5-4.

As long as society tolerates virtually unlimited lawyer solicitation as a constitutional right, there’s not a lot of ways for our side to close the litigation floodgates.

Not that we haven’t tried; it’s just our side’s efforts to stop the onslaught of boilerplate, virtually uninvestigated filings hasn’t accomplished very much. Lone Pine orders are a handy invention, but they have yet to become routine, as, say, the litigation hold memos our side has to put up with. Rule 11 once had possibilities, but too many lawyers on both sides played games with it, so in 1993 the Advisory Committee defanged it. That rule hasn't been a significant factor since.

Maybe we’ll have better luck requiring individualized showings of “plausibility under Iqbal/Twombly, but that’s still in the future.

For the present, and over the past twenty years, the number of mass torts, and the number of plaintiffs involved in mass torts, has grown steadily. The list of federal court product liability MDLs maintained by the Judicial Panel on Multi-District litigation is one way to measure it. There was never more than one new drug/device MDL created per year (and in a lot of years, none) until 2001, when Baycol, PPA, Silzone, and ProteGen were all created. Then: 2002-0; 2003-1, 2004-2, 2005-4, 2006-8; 2007-3; 2008-10. Not a trend to be proud of.

If everything that we do is ultimately supposed to deter future litigation against our clients, then it hasn't worked at all.

So we flunk ourselves on that one. Maybe the next generation of defense lawyers can do better.

James Beck and Mark Herrmann are respectively lawyers in the Philadelphia office of Dechert, and the Chicago office of Jones Day, and defend drug and medical device litigation for a variety of clients. They publish the widely known Drug and Device Law Blog, where this essay first appeared.

By Randy J. Maniloff

FACTA litigation and all its abusiveness have been chronicled in detail at Point of Law. Here's the elevator pitch. Identity theft is a serious problem. So Congress set out to reduce the amount of financially sensitive paper floating around by prohibiting merchants from printing identifying credit and debit card information on receipts. But the Fair and Accurate Credit Transaction Act went awry.

When it comes to identity theft, the receipts to worry about are those that contain more than the last five digits of a customer's card number. However, the law was drafted in such a manner that it is violated if a merchant prints a receipt containing nothing more than a card's expiration date—even if the card numbers were properly truncated. It turned out that many merchants assumed that they were in compliance with FACTA by simply truncating their customers' card numbers on receipts, and didn't realize they needed to omit the expiration date as well. That seems like an honest mistake, and one without likely consequences most of the time: after all, knowing the card's expiration date will not enable identity theft if the would-be thief lacks access to sufficient accompanying card numbers. But the statute says what it says. As a result, many thought-to-be-complaint merchants found themselves being sued for issuing non-compliant receipts.

The question here was not whether stores would pay for someone's actual experience of identity theft. FACTA eliminates the need to prove actual injury by allowing for an award of statutory damages in an amount between $100 and $1,000 for a willful violation. That doesn't sound like much. But the law also allows for the recovery of attorney's fees—the magic provision that can turn lawyers into social activists. Not to mention that where there is one FACTA violation there are sure to be many (many, many). Enter the class action lawyers, coupon settlements and six-figure attorney's fees awards. See, for example, Palamara v. Kings Family Restaurants, 2008 U.S. Dist. LEXIS 33087 (W.D. P.A. April 22, 2008) (court approves FACTA settlement that awards each class member their choice of ice cream, soup, salad or homemade pie from the defendant's restaurant, with a value of up to $4.68. As for the plaintiffs' attorney's fees: an amount not to exceed $75,000).

There is nothing new in itself about this type of litigation business model. But most of the time the laws invoked in attorney's-fee-driven suits at least address some genuine wrong to be righted or injury to be recompensed, and the exploitation is (one hopes) just an unfortunate and unintended consequence. FACTA is different. It has been the Olympics of gaming the system. In many instances it serves no purpose whatsoever. Federal judges have said so; but they have also said that they are powerless to do anything about it.

FACTA: The Congressional Fix

FACTA is unique for another reason. Avoiding the political divisiveness that so often accompanies any effort at tort reform, Congress stepped in relatively quickly to close the loophole that allowed for basing liability on nothing more than an expiration date violation. That it did so with virtually no attempts at opposition—the House voting 407-0 and the Senate by unanimous consent—speaks volumes about just how abusive the litigation was.

This summer President Bush signed into law the Credit and Debit Card Receipt Clarification Act (Public Law No. 110-241). The Act states that any person who printed an expiration date on a receipt that was provided to a consumer between December 4, 2004 and June 3, 2008, but which otherwise complied with the card number truncation requirement, shall not be deemed in willful noncompliance with FACTA.

The Act does not do away with the basing of FACTA violation solely on expiration dates. Rather, by deeming that an expiration date violation taking place during this window will not be considered "willful," it does away with the customer's ability to recover statutory damages (which, of course, are the only damages that matter since actual damages can't be sustained). The Act went into effect, and poof, a boatload of FACTA cases disappeared.

FACTA - The Insurance Fix

The Receipt Clarification Act served to retroactively eliminate the potential for damages in likely hundreds of FACTA cases. But any merchant that commits an expiration date violation after the Act's effective date of June 3rd is back in the soup, subject to statutory damages if "willfulness" can be proven.

So despite Congress's efforts, FACTA lives on and the possibility of a second wave of litigation looms. At this point, however, it seems likely that those retailers that are still printing expiration dates on receipts are the proverbial mom and pops, such as—to cite personal experience—the kids' shoe store and deli in my neighborhood. The national franchise retailers and restaurants have already been put through the drill. If the remaining FACTA malefactors are small retailers and restaurants (which, small though they may be, might have printed thousands of non-compliant receipts at $100 to 1,000 a pop), then the availability of insurance to fund the litigation will likely become a crucial factor in determining how FACTA litigation evolves from here.

Because this litigation is driven by attorneys' economic self-interest, there will be far less enthusiasm for pursuing it if insurance proceeds are not available for FACTA damages and in particular for the attorney's fees needed to settle. If insurance money is available, FACTA will remain, as it has been, low-hanging litigation fruit. Plaintiffs will file suit and seek to settle, using as leverage the insurers' exposure to defense costs as well as the always-present risk of a runaway verdict. But it is much more difficult to reach a settlement with or collect a judgment from a small business when there is no insurer to deal with. Therefore, resolution of the insurance coverage questions will likely go a long way toward determining FACTA's future.

That process has now begun. When FACTA litigation first proliferated, many insurers faced the question of whether it posed a kind of liability included within the scope of commercial general liability coverage, especially as to the costs of defense. That assessment had to be undertaken without the benefit of case law on the subject. Now, at last, a FACTA coverage case has caught up to the litigation, with a Pennsylvania federal court issuing what is apparently the first decision to address insurance coverage for a FACTA action.

On September 29th, the Western District of Pennsylvania issued a decision in Whole Enchilada, Inc. v. Travelers Property and Casualty, No. 2:07-cv-1533, finding that no coverage was available to a policyholder under a commercial general liability (CGL) policy for an alleged violation of FACTA. The business in question, a restaurant in Pittsburgh, had provided the plaintiff in the underlying putative class action with an electronically printed receipt that included the expiration date of his credit or debit card. The question addressed by the court was whether coverage was available under the "Personal Injury" section of a CGL policy issued by Travelers Insurance to Big Burrito Holding Company.

Of note for insurance coverage mavens, the Travelers policy at issue initially contained a standard Insurance Services Office definition of "personal injury," which defined the term as "injury, including consequential 'bodily injury,' arising out of one or more of the following offenses:...e. Oral or written publication, in any manner, of material that violates a person's right of privacy."

However, the Travelers policy was amended by endorsement to define "personal injury" as "injury, other than 'bodily injury' arising out of one or more of the following offenses:...e. Oral, written or electronic publication of material that appropriates a person's likeness, unreasonably places a person in a false light or gives unreasonable publicity to a person's private life." (emphasis added).

The Whole Enchilada decision is lengthy (50 pages). In general, the court concluded that, based on the nature of a FACTA violation—stemming for a one-on-one transaction between customer and merchant—it does not involve the kind of public communication to which the terms "publication" and "publicity" refer. The money paragraphs are as follows:

Here, however, the Reed Complaint does not allege publication that gives unreasonable publicity to a person's private life. It does not allege that Whole Enchilada displayed the plaintiff's information to the public or took any action designed to disseminate the information to the public at large. Rather, the Complaint alleges factual allegations stating that the Reed plaintiffs' credit or debit card information was printed on a receipt that was handed back to them, in violation of FACTA. While the Complaint alleges that Whole Enchilada printed information, this Court finds it does not allege the kind of public communication to which the term "publicity" refers, thereby triggering coverage.

* * *
In the context of the factual scenario surrounding Whole Enchilada's alleged violation of this provision of FACTA, the Court's reasoning becomes clear. At the point of sale transaction, a cardholder gives his or her credit or debit card to the individual at the cash register. The credit information is exchanged between the cardholder, Whole Enchilada and the cardholder's bank. There is no violation of a privacy right, insofar as the cardholder willfully gives over his or her credit information to Whole Enchilada so that the information can be used to process the sale. This factual scenario does not meet the requirement of publicity under the policies.

Whole Enchilada. at 36-37.

The Whole Enchilada court addressed coverage under a non-standard definition of "personal injury," namely, publication of material that gives unreasonable publicity to a person's private life. But most FACTA claims will test whether coverage is available for "personal injury" that is defined as oral or written publication, in any manner, of material that violates a person's right of privacy. However, while it addressed "publicity," the Whole Enchilada court also concluded that FACTA does not violate a person's "privacy right," when such policy language was not even before it.

Given the court's additional conclusion that a FACTA violation does not involve "publication" and its determination that the "statutory damages" being sought for a FACTA violation are not compensatory, and, therefore, do not satisfy the policy's "damages" requirement, Whole Enchilada is broad enough to encompass those claims that are brought under the standard ISO definition of "personal injury." That is the take-away point from the case. Also of great practical importance for the future, insurers have been adding specific FACTA exclusions to their policies and ISO has such an exclusion in the pipeline. So plaintiffs' lawyers are on notice that likely wellsprings of insurance money are drying up.

Conclusion

On one hand, Whole Enchilada was a defeat for policyholders. Even those defendants that had their FACTA claims extinguished by the Receipt Clarification Act likely still have claims for defense costs and would have benefited from a finding of coverage. For such companies, there is no way to put a positive spin on the decision. On the other hand, if a second wave of FACTA claims is on the horizon aimed at small companies that have done no real injury to consumers, then the lack of insurance availability may help to prevent the claims from being brought in the first place. When it comes to collecting a settlement or judgment, plaintiffs seek the path of least resistance, most commonly via the insurance route. But if that road is blocked, plaintiffs may simply decide that the risk of being unable to settle a FACTA case or collect a judgment is too great and turn back. That would be an ultimate outcome much to be desired for insurance buyers, for insurers, and for our society as a whole.

Randy J. Maniloff is a partner at White and Williams, LLP in Philadelphia. He writes frequently on insurance coverage topics for publications that include Lexis/Nexis Mealey's Insurance.

By John Stossel

This piece originally appeared on RealClearPolitics.com, 2-28-07

We can scare ourselves stupid.

Consider vaccines. Robert F. Kennedy Jr. says the mercury in them has "poisoned an entire generation! It's causing IQ loss, mental retardation, speech delay, language delay, ADD, hyperactivity!"

The news media love this kind of story. They repeatedly invite Barbara Loe Fisher, who heads the Vaccine "Information" Center, to tell parents about vaccine risks. She warns of "seizures, brain inflammation, collapse shock, and of course the most serious effect is death."

Causing autism is the biggest accusation. "Before kids received so many vaccines," says Fisher, "you didn't see autistic children. ... We can't build the special-education classrooms fast enough now to accommodate all these sick and disabled children."

Do vaccines cause autism?

Almost certainly not. Dr. Paul Offit, chief of infectious diseases at Children's Hospital of Philadelphia told me, "It's perfectly reasonable to be skeptical about anything you put into your body, including vaccines. And vaccines do have side effects. But vaccines don't cause autism."

He speaks with confidence because the National Academy of Sciences recently reviewed the research and concluded that 19 major studies tracking thousands of kids show no link between vaccines and autism. "The question has been raised; it's been answered!" Dr. Offit says.

Then why are so many kids diagnosed as autistic today? Because kids we once said had other conditions now are being called autistic.

As March of Dimes researchers put it, "Changes in diagnosis account for the observed increase in autism." Sure enough, California data show the rise in autism diagnoses almost exactly matches a decline in cases of retardation.

"People that we once called quirky or geeky or nerdy are now called autistic," Dr. Offit said, "because when you give that label of, say, autistic spectrum disorder, you allow that child then to qualify for services."

Imagine that. A trendy diagnosis being driven by government-paid services.

Vaccine opponents are unconvinced. After my recent TV program "Scared Stiff," they have filled my mailbox with comments like, "how long will you keep sucking pharmaceutical ----?!" Calmer correspondents tell me they "know" that vaccines caused their child's autism. "Nothing else could have done it."

My heart goes out to parents struggling to help their autistic children, but I fear they have been misled by another anti-drug industry scare campaign.

I know something about those from personal experience. Twenty years ago, "20/20" interviewed Allen McDowell, a lawyer who said the whooping-cough vaccine was defective. After our alarming report, many parents told their kids' pediatricians they didn't want the vaccine. Some doctors became vaccine shy.

When my daughter got a fever after one of the vaccines, her doctor decided not to give her the final shot. He said my being a "20/20" correspondent made him even more anxious about giving her the vaccine.

And a short time afterward, my daughter got whooping cough. Luckily, she recovered.

But after media reports like "20/20's" and well-publicized lawsuits, many people refuse to vaccinate their children. And America now sees more cases of whooping cough, mumps, and measles.

Says Dr. Offit. "Watch a child come into the hospital and die of measles, knowing that it can be safely and easily prevented by vaccines. It's very hard to live with that."

But Barbara Fisher of the Vaccine Information Center is unmoved. When I asked if vaccines have done more good than harm, she said the matter is "complex."

Lawyer McDowell claims his lawsuits made the vaccine safer. "I'm doing a service for the public," he says.

Nonsense, says Dr. Offit. Lawyers didn't make the vaccines better: "There was always an interest in trying to make that vaccine safer, but the science had to catch up to that." He added, "There's a certain profiteering that comes with fear."

Lawyers, the media, and interest groups do profit from spreading fear. I call it the Fear Industrial Complex.

McDowell is now debating whether to file new lawsuits claiming that vaccines cause autism. I said to him, "You scare people and make money off it!" After a pause, he replied, "True."

In future columns I'll discuss other ways the Fear Industrial Complex makes money by scaring people stiff.