Consumer Financial Protection Bureau Releases Its 2020 Supervisory Highlights Report
By: Felicitas L. Reyes
The Consumer Financial Protection Bureau (CFPB) recently released the latest version of its Supervisory Highlights report, which summarizes the findings of the Bureau’s supervisory examinations in 2020. The CFPB identified four findings from the report as “particularly concerning”:
- Consumer Reporting Companies’ Use of Data From “Unreliable” Furnishers: The CFPB reported that its examiners found that consumer reporting companies have accepted and reported consumer data received from third-party furnishers, while ignoring signs that the data furnishers were unreliable. The CFPB warned that it “will remain diligent and consumer reporting companies are on notice with respect to risks posed by accepting data from furnishers where there are indications of unreliability.”
- Redlining: The report states that CFPB examiners found evidence of redlining, including direct mail marketing materials showcasing pictures of only white people and locating credit loan offices “almost exclusively” in majority-white neighborhoods. CFPB examiners found that these actions “lowered the number of applications from minority neighborhoods relative to other comparable lenders.”
- Regulation X Foreclosure Issues: The report states CFPB examinations identified “several violations” by mortgage servicers of the servicing rules in Regulation X, including filing for a foreclosure before evaluating borrower’s appeals or initiating a foreclosure prior to the date that they told consumers they would. On June 28, 2021, the CFPB issued a final rule that it contends will help consumers avoid foreclosures as the emergency federal foreclosure protections expire.
- Student Loan Servicing for the PSLF Program: CFPB examiners found violations in the type of information that student loan servicers gave consumers about the Public Service Loan Forgiveness (PSLF) program. Examiners found that student loan servicers were giving consumers incorrect information that could potentially bar access to the program and could result in thousands of dollars lost for these consumers.
If you would like to read more about the areas mentioned above and other consumer law violations that the CFPB report discusses, please click here for access to the full supervisory highlights report and press release.
EU Guidance on Forced Labour in Supply Chains
By: Paul Feldberg, Lucy Blake, and Karam Jardaneh
Earlier this week, the European Commission published its Guidance “On Due Diligence For EU Businesses To Address The Risk Of Forced Labour In Their Operations And Supply Chains”.
The document, which is not legally binding, provides practical guidance on how to use existing international, voluntary, due diligence guidelines and principles when dealing with the risk of forced labour in supply chains.
The European Commission made clear in its press release, that the Guidance forms part of the EU’s wider strategy to defend human rights and strengthen the resilience and sustainability of the EU supply chain. The European Commission sees the Guidance as encouragement for EU businesses to take appropriate measures regarding their supply chains ahead of the EU’s introduction of a mandatory due diligence duty for businesses operating in the EU. As set out in our previous Client Alert, the due diligence duty will require certain businesses operating in the EU to identify, prevent, mitigate and account for adverse human rights and environmental impacts in their operations and supply chains. We will also cover this in more detail as well as other developments in Europe in a separate Client Alert.
Who should consider the Guidance?
Although the Guidance is directed at EU companies, it is based on international instruments aimed at companies globally. This includes the OECD Due Diligence Guidance For Responsible Business Conduct (the OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UNGPs). While the UNGPs are not “legally binding” and are often referred to as “soft-law”, there are growing expectations for companies worldwide to adhere to them. This “soft law” has been evolving into “hard law” in multiple jurisdictions (the anticipated EU mandatory due diligence laws being a prime example). Therefore, we believe that this Guidance will be a helpful resource for companies globally.
Why is the guidance helpful?
Repository of International Guidance
The Guidance pulls together existing general international guidelines on effective due diligence of supply chains (which is not only limited to forced labour) and is therefore a useful source of guidance in this area for companies. In particular, the Guidance highlights the six-step supply chain due diligence process set out in the OECD Guidelines; namely to
- Embed responsible business conduct into the company’s policies and management systems
- Identify and assess actual or potential adverse human rights, societal and environmental impacts in the company’s operations, supply chains and business relationships
- Cease, prevent and mitigate adverse impacts
- Track implementation and results
- Communicate how adverse impacts are addressed
- Provide for or cooperate in remediation when appropriate
We provide a more detailed explanation of the due diligence process in our previous Client Alert, which covers the “six best practices to promote and support human rights and corporate social responsibility in supply chains”.
The Guidance also adds value by tailoring existing guidance to address forced labour risks in supply chains. The Guidance identifies practical considerations in the implementation of due diligence processes for the purposes of dealing with forced labour risk. For example, the Guidance sets out a list of “red-flags” for forced labour to be taken into account when scoping supply chain due diligence. These risk factors broadly fall into three categories:
- Country risk factors
- Risk factors linked to migration and informality
- Risk factors linked to presence of debt risk
The Guidance also singles out the following cross-cutting issues which should be taken into account in a business’ due diligence:
- Gender: the Guidance acknowledges that risks of harm in the supply chain often differ for men and women and sets out considerations that need to be taken into account in applying a “gender-responsive due diligence”.
- Ethnic or Religious minorities: the Guidance acknowledges that instances of forced labour targeted against a particular ethnic or religious group, may be part of a wider policy of discrimination, either by government or company policy. However, significantly (particularly in light of the issues in Xinjiang), the Guidance provides that
“EU companies should still take action to ensure that their businesses or supply chains are neither directly nor indirectly contributing to such policies or practices and to seek to cease, prevent or mitigate adverse impacts (through using leverage or disengagement, for example) to which they are directly linked, even if they have not contributed to those impacts”.
We will also cover US guidance relating to Xinjiang-specific supply chain due diligence in another Client Alert.
- Raw materials of unknown or high-risk origin: the Guidance highlights the importance of a business credibly obtaining and verifying information on the origin of raw materials. It notes that if a business is unable to identify the origin of raw materials or their origin is from high-risk countries then it should assess whether independent access to evaluate worksites is feasible. If not feasible, businesses should direct suppliers to source materials from commodity traders outside of high-risk areas.
The Guidance reflects the growing expectations for companies to follow the voluntary global standards in the UNGP and the OECD Guidelines. It also serves as a reminder that companies operating in the EU should start to get ready for the mandatory due diligence requirements that will follow.
Ninth Circuit Not Sweet on Plaintiffs’ Interpretation of Trader Joe’s Honey Label
By: Alexander M. Smith
On July 15, 2021, the Ninth Circuit issued a published decision in Moore v. Trader Joe’s Company in which it affirmed the dismissal of a lawsuit alleging that Trader Joe’s mislabeled its Manuka honey as “100% New Zealand Manuka Honey.” While the plaintiffs alleged that this statement was misleading because the honey was derived from floral honey sources other than Manuka flower nectar, the Ninth Circuit found that the labeling was not likely to mislead a reasonable consumer because it satisfied the FDA’s regulations governing the labeling of honey. Because “Trader Joe’s Manuka Honey is chiefly derived from Manuka flower nectar,” the Ninth Circuit concluded that “Manuka is therefore the chief flower source for all of the product’s honey under the FDA’s definition, even if some of it is derived from nectar from other floral sources.” Thus, “there is no dispute that all of the honey involved is technically manuka honey, albeit with varying pollen counts.”
The Ninth Circuit also rejected the plaintiffs’ argument “that ‘100% New Zealand Manuka Honey’ could nonetheless mislead consumers into thinking that the honey was ‘100%’ derived from Manuka flower nectar.” Although it acknowledged that “there is some ambiguity as to what ‘100%’ means in the phrase, ‘100% New Zealand Manuka Honey,’” the court nonetheless found that this ambiguity was unlikely to mislead a reasonable consumer, as “other available information about Trader Joe’s Manuka Honey would quickly dissuade a reasonable consumer from the belief that Trader Joe’s Manuka Honey was derived from 100% Manuka flower nectar.”
This decision builds upon other recent decisions in which the Ninth Circuit has rejected product mislabeling claims based on decontextualized and therefore implausible interpretations of product labels. See, e.g., Becerra v. Dr Pepper/Seven Up, Inc., 945 F.3d 1225 (9th Cir. 2019) (holding that a reasonable consumer would understand the word “diet” on a soda label in context to make a comparative claim only about the product’s caloric content, not to make a claim that the soda promotes weight loss generally). Although the Ninth Circuit has historically been viewed as friendly to plaintiffs in food-labeling litigation, Becerra and Moore signal that courts in the Ninth Circuit are becoming increasingly skeptical of these claims.
Supreme Court Limits Article III Standing for Class Action Plaintiffs: Implications for Data Breach Class Actions
By: Clifford W. Berlow, Alexander E. Cottingham, and Lindsay C. Harrison
On June 25, 2021, the US Supreme Court in TransUnion LLC v. Ramirez narrowed the scope of Article III standing for plaintiffs who allege the violation of a statute but cannot show they otherwise suffered harm. Though decided in the context of a Fair Credit Reporting Act (FCRA) class action, the decision has major implications for parties litigating state and federal statutory claims of all varieties in federal courts. In particular, TransUnion seems poised to limit the viability of class actions arising from data breaches. The decision likely means, for example, that plaintiffs lack Article III standing when their information may have been accessed but was not misused in a manner causing concrete harm—a subject on which the courts of appeals previously had split. The decision also will limit plaintiffs’ ability to assert Article III standing merely based on the violation of privacy statutes alone without any resulting harm.
Defendants litigating data breach class actions can take advantage of this new precedent in federal court to seek dismissal of data breach class actions for lack of Article III standing. But doing so is not without consequence. If federal courts are not available to adjudicate these claims, plaintiffs likely will pursue them in state courts, where standing precedent may be more lenient for plaintiffs. Defendants thus will need to be strategic about how aggressively they pursue TransUnion-based dismissals.
A class of 8,185 individuals sued TransUnion under the FCRA for failing to use reasonable procedures to ensure the accuracy of their credit files. Each of their credit reports contained inaccurate information added by TransUnion that mislabeled them as matches for potential terrorists, drug traffickers, or other serious criminals from a list maintained by the Treasury Department’s Office of Foreign Assets Control (OFAC). The parties stipulated that TransUnion actually provided credit information to potential creditors for just 1,853 of those class members, and maintained in its database but did not share with anyone inaccurate credit file information for the remaining 6,332 class members. The question presented was whether the mere existence of inaccurate information, absent dissemination, constituted sufficient harm to supply the basis for Article III standing.
The Court, with Justice Kavanaugh writing for a five-justice majority, held that the class members whose credit reports were distributed had Article III standing because they demonstrated a concrete harm, but the 6,332 class members whose erroneous credit reports were never distributed lacked standing.
The Court’s decision focused on the requirement for Article III standing that the plaintiff allege an injury-in-fact that is “concrete.” In Spokeo v. Robbins, the Court held that a “bare procedural violation” of a statute was not enough to plead a concrete harm. But recognizing that Congress could “elevate” legally cognizable injuries that were previously inadequate, the Court left open exactly when a statutory violation may reflect the kind of concrete harm necessary to confer standing. As a result, courts remained divided over how to evaluate standing where a plaintiff alleged the violation of a state or federal statute. Some circuits focused on whether the harm alleged was a “bare procedural” violation of the statute or an intrusion on a “substantive” statutory right. Other circuits focused on whether the statutory harm alleged bore a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts.
In TransUnion, the Court reaffirmed that “Article III standing requires a concrete injury even in the context of a statutory violation” and that a plaintiff does not automatically satisfy the injury-in-fact requirement by pleading the violation of a statute. Then, the Court held that for a harm to be “concrete,” the harm attributable to the claimed statutory violation must bear a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts. That test narrows the path for Article III standing in those circuits that had previously rejected the “close relationship” test, though lower courts have some room to determine how to apply this test moving forward.
The Court also addressed when a risk of future harm may be sufficiently concrete to supply a plaintiff with Article III standing—another question on which courts remained divided following Spokeo. Although the plaintiffs had urged the Court to hold that a risk of future harm is sufficiently concrete, the Court rejected that theory. In a suit for damages, the Court held that the “mere risk of future harm” does not confer standing unless exposure to the risk of future harm causes a separate concrete harm or the risk of harm materializes into actual harm.
Takeaways for Data Breach Class Actions
While TransUnion addressed standing in the context of the FCRA, its holding on risk of future harm and concrete injury is broadly applicable to data breach class actions. Defendants litigating data breach class actions in federal court regularly move to dismiss for plaintiffs’ lack of Article III standing. In many of those cases, courts face the perennial question of a tree falling in the forest: if a plaintiff’s data is accessed but not misused in a manner causing concrete injury (such as for identity theft), was that person harmed? Courts in different circuits have resolved that question differently, with some accepting broader theories of standing related to risk of future harm than others. Courts deciding those motions now have clear direction from the Supreme Court as to two key issues: a plaintiff’s ability to demonstrate standing based on the mere risk of future harm, and a plaintiff’s ability to demonstrate standing based purely on the violation of a statute.
First, in the context of suits for damages, TransUnion appears to foreclose Article III standing where plaintiffs claim only the risk of future harm from a data breach without actual misuse of their data to cause injury. In TransUnion, the plaintiffs had attempted to demonstrate a risk of future harm, but the Court rejected each of their theories, explaining that they could not plead a “sufficient likelihood” that third parties would request their personal information or that TransUnion would intentionally or accidentally release their information. Those theories are remarkably similar to those pled by plaintiffs in data breach class actions, such as the risk that they will suffer identity theft, or that their information may be sold on the dark web and used to blackmail them. Just as the TransUnion class could not demonstrate standing by theorizing about hypothetical future harms, so too will data breach plaintiffs fail to satisfy Article III by pleading an imaginary parade of horribles yet to befall them.
Second, after TransUnion, plaintiffs may no longer rely on a violation of a statutory right alone to demonstrate Article III standing. In data breach cases, plaintiffs sometimes invoke state privacy statutes to bolster their standing claims, arguing that the violation of a state data breach notification or consumer protection law provides them with standing. Those sorts of arguments are likely to face greater resistance following TransUnion because plaintiffs will have to identify some historical common-law analogue to the statutory violation—a tall task in a data breach suit. Accordingly, TransUnion appears to close the door on several of the more creative arguments plaintiffs have used to assert Article III standing in data breach suits.
What to Look for Now
TransUnion is a clear win for corporate defendants, in particular corporate defendants seeking to dismiss federal class actions arising from data breaches on standing grounds. But the legacy of TransUnion may prove to be more complex, including in data breach cases.
It is important to remember that the Court’s decision places a limit only on the jurisdiction of federal courts. The states remain free to define the parameters for standing to sue in their own courts. At present, roughly half the states do not have lockstep Article III standing rules. And, as Justice Thomas noted in dissent, courts in states with more lenient standing requirements may still adjudicate statutory claims that now cannot proceed in federal courts under TransUnion. As a result, moving to dismiss federal class actions for lack of standing under TransUnion is not a panacea. Instead, in cases where Article III standing may be lacking under TransUnion, plaintiffs may be able to proceed in state court. And if defendants attempt to remove a state court lawsuit to federal court only to dismiss for lack of standing, courts may not only remand the case, but also may force the defendant to pay the plaintiffs’ attorney’s fees.
In short, as the doors to the federal courthouse close, companies can expect plaintiffs to cross the street to state court, at least when companies are subject to the jurisdiction of a state that is not in lockstep with federal Article III standing rules. Companies therefore will want to be strategic about how they advocate for the application of TransUnion, bearing in mind local conditions in the states where they are amenable to suit and local standing rules in those states. As a result, the ultimate consequence for corporate defendants of the Supreme Court’s decision to limit Article III standing remains to be seen.
 TransUnion LLC v. Ramirez, No. 20 - 297, slip op. (U.S. June 25, 2021).
 TransUnion, slip op. at 1.
 Id. at 4.
 Id. at 5 - 6.
 Id. at 6.
 578 U.S. 330 (2016).
 Id. at 341.
 TransUnion, slip op. at 1 (quoting Spokeo, 578 U.S. at 341).
 Id. at 9.
 Id. at 20–22.
 Some courts have accepted broader theories of standing. See, e.g., Attias v. Carefirst, Inc., 865 F.3d 620, 629 (D.C. Cir. 2017); Galaria v. Nationwide Mut. Ins. Co., 663 F. App’x 384, 387–89 (6th Cir. 2016); Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688, 692, 694–95 (7th Cir. 2015); Krottner v. Starbucks Corp., 628 F.3d 1139, 1142–43 (9th Cir. 2010). Other courts have limited standing more narrowly. See, e.g., Tsao v. Captiva MVP Restaurant Partners, LLC, 986 F.3d 1332 (11th Cir. 2021); Beck v. McDonald, 848 F.3d 262, 273–76 (4th Cir.), cert. denied sub nom. Beck v. Shulkin, ––– U.S. ––––, 137 S. Ct. 2307, 198 L.Ed.2d 728 (2017); Whalen v. Michaels Stores, Inc., 689 F. App’x 89, 90–91 (2d Cir. 2017); In re SuperValu, Inc., 870 F.3d 763, 770–72 (8th Cir. 2017); Reilly v. Ceridian Corp., 664 F.3d 38, 42–44 (3d Cir. 2011).
 TransUnion, slip op. at 22–23.
 State courts “are not bound by the limitations of a case or controversy or other federal rules of justiciability even when they address issues of federal law.” ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (1989).
 See Bennett, The Paradox of Exclusive State-Court Jurisdiction Over Federal Claims, 105 Minn. L. Rev. 1211 (2021).
 TransUnion, slip op. at 18 n.9 (Thomas, J., dissenting).
Supreme Court Gives More Tools for Defendants to Challenge Class Certification in Securities Fraud Cases
By: Ali M. Arain, Stephen L. Ascher, Howard S. Suskin, and Reanne Zheng
On June 21, 2021, the US Supreme Court issued its decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, providing guidance to lower courts regarding class certification in securities fraud class actions. On balance, the opinion favors defendants, and potentially signals a backlash against the tide of securities fraud class actions based on vague and generic misstatements. Importantly, the Court instructed that all relevant evidence should be considered when making the class certification decision, sending a message that lower courts must grapple with and cannot ignore relevant evidence at the class certification stage simply because it overlaps with the merits-related evidence. The Court also stressed that the generic nature of a misrepresentation is often important evidence of lack of price impact, which lower courts should consider when deciding whether to grant or deny a class certification motion.
Although the Supreme Court’s decision was not as sweeping as the defendants wanted, it does signal the Supreme Court’s concern that companies are too frequently held liable for securities fraud as a result of adverse legal or business developments, even where the company had never made any specific statements about the matters in question.
The underlying facts of this case relate to Goldman’s now well-publicized involvement in the Abacus CDO transaction and subsequent settlement with the SEC in the aftermath of the 2008 financial crisis. In the consolidated complaint, which was filed in 2011, plaintiff shareholders alleged that Goldman had violated securities laws by making repeated misrepresentations in its SEC filings and other public statements in connection with the Abacus CDO transaction, beginning in late 2006/early 2007. The alleged misrepresentations were generic statements regarding Goldman’s conflict of interest policies and business practices, including statements like: “We have extensive procedures and controls that are designed to identify and address conflicts of interest”; “Our clients’ interests always come first”; and “Integrity and honesty are at the heart of our business.” According to the plaintiffs, these alleged misrepresentations allowed Goldman to maintain an inflated stock price until 2010, when the SEC filed a complaint against Goldman for securities fraud. Goldman later disclosed that it had agreed to pay $550 million as part of a settlement with the SEC and acknowledged that it should have disclosed certain conflicts of interest in 2007 when underwriting the Abacus CDO that cost its clients $1 billion. The plaintiffs argued that once the SEC enforcement action and related news reports revealed that Goldman in fact engaged in conflicted transactions, the stock price dropped and caused Goldman shareholders to suffer losses.
The Southern District of New York denied Goldman’s motion to dismiss, and the plaintiffs moved for class certification. The plaintiffs argued that Goldman’s generic statements regarding its business practices and conflict of interest procedures artificially maintained an inflated stock price. Goldman argued that the alleged misstatements were too generic to have any impact on stock price. Following extensive expert testimony on the issue, the District Court certified the class. The Second Circuit vacated the class certification order, holding that the burden was on Goldman to prove a lack of price impact by a preponderance of the evidence, but that the District Court erred by holding Goldman to a higher burden of proof. On remand, the District Court certified the class again, finding that Goldman’s expert testimony failed to establish by a preponderance of the evidence that the alleged misrepresentations had no price impact. The Second Circuit affirmed in a divided decision, holding the District Court’s price impact determination was not an abuse of discretion.
The Supreme Court’s Decision
On appeal, the Supreme Court was asked to resolve two questions: first, whether the generic nature of Goldman’s alleged misrepresentations is relevant to the price impact inquiry; and second, whether Goldman has the burden of persuasion to prove lack of price impact.
On the first question, Goldman argued that the Second Circuit erred in holding that the generic nature of alleged misrepresentations was irrelevant to the price impact question. Goldman’s initial position was that generic statements could not impact stock price, while the plaintiffs argued that the generic nature of the alleged misrepresentations had no relevance to the price impact inquiry at all. The parties later agreed that the generic nature of the statements was relevant to price impact and should be considered at the class certification stage. The Court agreed, holding that district courts should consider all probative evidence in assessing price impact and clarifying that courts may consider the generic nature of misrepresentations at class certification “regardless whether the evidence is also relevant to a merits question like materiality.” The Court further explained that the generic nature of an alleged misrepresentation “often will be important evidence of a lack of price impact, particularly in cases proceeding under the inflation-maintenance theory” where it is less likely that a specific, negative disclosure actually corrected a prior generic misrepresentation. Ultimately, the Court remanded on this issue and instructed the Second Circuit to “take into account all record evidence relevant to price impact” because the Court concluded the Second Circuit’s decision left “sufficient doubt” that it properly considered the generic nature of the statements.
On the second question, Goldman argued that the Second Circuit erred in placing the burden of persuasion on Goldman, as a defendant, to prove a lack of price impact. According to Goldman, the presumption of fraud on the market, articulated in the Court’s seminal Basic v. Levinson ruling, only shifts the burden of production to the defendant, but the defendant can rebut the presumption by producing any competent evidence of a lack of price impact, while the plaintiff carries the burden of persuasion to prove price impact. The Court rejected Goldman’s argument, concluding that a defendant “bears the burden of persuasion to prove a lack of price impact” and agreeing with the Second Circuit that the defendant carries that burden by a preponderance of the evidence. However, the Court noted that, because the parties in most securities fraud class actions typically submit competing expert evidence on price impact, its decision regarding the allocation of the burden was “unlikely to make much difference on the ground.”
Overall, the Court’s decision favors defendants by holding that all relevant evidence, including merits-based evidence, should be considered when evaluating price impact at the class certification stage, which gives a lower court more discretion to deny class certification based on the entire record before it.
In addition, in cases premised on generic misstatements, the Court’s holding should make it easier for defendants to rebut the Basic presumption, given that the Court expressly recognized that the general nature of a misstatement “will often be important evidence of lack of price impact.” Importantly, the Court noted that this is especially true in cases based on the “inflation maintenance” theory, where price impact is the amount of price inflation maintained by an alleged misrepresentation. The Court emphasized that in these type of cases, there is less of a reason to infer front-end price inflation based on a back-end price drop. In doing so, the Court seemed to reject the idea that negative disclosures or allegations of wrongdoing necessarily “correct” prior generic statement by the defendant company. While defendants still bear the burden of disproving price impact, this should make it harder for plaintiffs to succeed in cases relying on inflation maintenance theory unless they can show a link between the front-end price and the back-end price drop.
Finally, on the burden issue, the Court made clear that its holding is unlikely to have much practical effect, noting that the defendant’s burden of persuasion would only become dispositive “in the rare case” in which the parties’ evidence of price impact is perfectly balanced. In most cases, however, the “district court's task is simply to assess all the evidence of price impact — direct and indirect — and determine whether it is more likely than not that the alleged misrepresentations had a price impact.”
 Goldman Sachs Grp. Inc. v. Arkansas Tchr. Ret. Sys., No. 20–222, slip op. (U.S. June 21, 2021).
 Goldman, slip op. at 7.
 Id. at 8.
 Id. at 9.
 Basic v. Levinson, 485 U.S. 224 (1988).
 Id. at 11.
 Id. at 12.
 Id. at 8.
 Id. at 3.
 Id. at 12.
Future of Fintech Charter Unclear
By: Lindsey A. Lusk
A legal battle over a charter to allow Fintech companies to become special purpose national banks has been put on pause. But for how long will the future of the charter remain in limbo? On June 16, 2021, the Conference of State Bank Supervisors (the CSBS) and the Office of Comptroller of the Currency (OCC) agreed to stay the litigation, and the district court approved a motion formalizing the parties’ agreement to put the litigation on hold for 90 days, though some analysts have warned that the fate of the charter still may not be easily resolved.
The pause follows the recent dismissal of a similar case in the Southern District of New York. In Lacewell v. Office of the Comptroller of the Currency, the New York Department of Financial Services (DFS) was attempting to block the OCC’s special purpose national bank charter (the “Fintech charter”). The Fintech charter would allow certain non-depository Fintech companies to operate as “special purpose national banks” under the National Bank Act (NBA). Accordingly, the Fintech companies would not be subject to state-by-state regulation and licensing. DFS argued that the charter is unlawful because it exceeds the OCC’s authority under the NBA.
The case had been pending on appeal in the Second Circuit since April of 2020, after the district court denied the OCC’s motion to dismiss and found that DFS had standing to sue. The Second Circuit heard oral argument in March 2021, and reversed the lower court’s ruling on June 3, holding that DFS lacked standing to challenge the Fintech charter. It remanded the case to the district court with instruction to dismiss without prejudice.
The dismissal of Lacewell and the agreement between the CSBA and OCC comes at a time when the acting Comptroller, Michael Hsu, has signaled that he may slow down efforts to implement the Fintech charter, noting that the OCC needs to determine how to charter Fintech firms in a “safe and sound way, where we can adapt to the innovation.”
While the future of the Fintech charter is unclear, were the OCC to succeed in court and move forward with the charter, it could have significant implications for both Fintech companies as well as consumers. For example, the charter would preempt state money transmitter and lender licensing laws, among other state laws. This would also mean that Fintech companies operating pursuant to this charter would be subject to a single regulator and with a single set of regulatory requirements. On the other hand, these regulatory requirements may be more onerous than their state-law counterparts. Additionally, because a Fintech company operating under the charter would be a special purpose national bank, it may be considered a “bank” within the meaning of that term under the Securities Act of 1933. If so, securities issued by a Fintech company operating pursuant to this charter would be exempt from the registration requirements of the Securities Act.
For consumers, the charter could potentially expand access to financial services. In its white paper on the Fintech charter, the OCC concluded that the charter would expand banking services to the underserved. Notably, applicants for the charter are encouraged to explain how they intend to foster financial inclusion. Comments the OCC received to its white paper revealed that the market reaction was one of agreement “that the innovation that has occurred and is occurring in the financial services marketplace is moving the market toward affordability and ease of access in a manner that is much more tailored to the needs of individual consumers and small businesses, leading to inclusion of many more consumers and small business owners.”
 Conference of State Bank Supervisors v. Office of the Comptroller of the Currency, et al., No. 1:20-cv-03797-DLF (D.C. 2020).
 Brendan Pedersen, OCC, States Declare Cease-fire in Fintech Charter Case. Will it Hold?, Am. Banker (June 18, 2021), https://www.americanbanker.com/news/occ-states-declare-ceasefire-in-fintech-charter-case-will-it-hold.
 Vullo v. Off. of Comptroller of Currency, 378 F. Supp. 3d 271, 280 (S.D.N.Y. 2019), rev’d and remanded sub nom. Lacewell v. Off. of Comptroller of Currency, No. 19-4271, 2021 WL 2232109 (2d Cir. June 3, 2021).
 Id. at 300.
 Lacewell v. Off. of Comptroller of Currency, No. 19-4271, 2021 WL 2232109, at *13 (2d Cir. June 3, 2021)
 ABA Banking J., OCC’s Hsu Says Fintech Firms Should Be Chartered in ‘Safe and Sound Way’ (May 19, 2021), https://bankingjournal.aba.com/2021/05/occs-hsu-says-fintech-firms-should-be-chartered-in-safe-and-sound-way/.
 15 U.S.C. § 77a et seq., available at https://www.govinfo.gov/content/pkg/COMPS-1884/pdf/COMPS-1884.pdf.
 Office of the Comptroller of Currency, Exploring Special Purpose National Bank Charters for Fintech at 2 (Dec. 2016), https://www.occ.gov/publications-and-resources/publications/banker-education/files/exploring-special-purpose-nat-bank-charters-fintech-companies.html.
 Id. at 12.
 Christina Gattuso, How an OCC Fintech Charter Could Benefit the Underserved, BankDirector.com (April 17, 2017), https://www.bankdirector.com/issues/how-occ-fintech-charter-could-benefit-underserved/.
Two Recent Circuit Court Decisions Provide Insight Into How Attorneys’ Fee Awards Can Impact Class Settlement Approval
By: Elizabeth Avunjian
Earlier this month, and just two days apart, the Ninth and Eleventh Circuits reached opposite conclusions regarding two class action settlements: the Ninth Circuit overturned approval of a class settlement related to the alleged mislabeling of cooking oil in Briseno v. Henderson, while the Eleventh Circuit upheld all but one element of a class settlement related to the 2017 Equifax data breach in In Re Equifax Inc. Customer Data Sec. Breach Litig. Despite the courts’ divergent holdings, their analyses provide insight into how federal courts review fee awards in assessing the reasonableness of class settlements.
Notably, the Ninth Circuit took one step further than the Eleventh Circuit in applying newly-revised Federal Rule of Civil Procedure 23(e)(2) to impose a “heightened inquiry” obligation on district courts “to scrutinize attorneys’ fees for potential collusion that shortchanges the class, even in post-class certification settlements.” Briseno v. Henderson, No. 19-56297, 2021 WL 2197968, at *6, 13 (9th Cir. June 1, 2021).
The Ninth Circuit’s Decision in Briseno
The Ninth Circuit previously held in In re Bluetooth Headset Products Liability Litigation that district courts must apply a heightened level of scrutiny to pre-certification class settlement agreements to root out “subtle signs that class counsel have allowed pursuit of their own self-interests . . . to infect the negotiations.” 654 F.3d 935, 947 (9th Cir. 2020). Those signs include (1) “when counsel receive[s] a disproportionate distribution of the settlement”; (2) “when the parties negotiate a clear sailing arrangement,’’ under which the defendant agrees not to challenge a request for an agreed-upon attorney’s fee award; and (3) when the agreement contains a kicker or reverter clause that returns unawarded fees to the defendant rather than the class funds. Id.
However, the Ninth Circuit in Bluetooth left open the question of whether such heightened scrutiny applies to post-certification class settlements. The court’s recent decision in Briseno answered that question in the affirmative, holding that “[u]nder the newly revised Rule 23(e)(2), courts should apply the Bluetooth factors even for post-class certification settlements.” Id. at *5, 6. The Ninth Circuit went on to specify that under this revised text, district courts are obligated to consider “’the terms of any proposed award of attorneys’ fees’ when determining whether ‘the relief provided for the class is adequate.’” Id. at *6 (quoting Fed. R. Civ. P. 32 (e)(2)(C)(iii)). Recognizing that its sister circuits have yet to directly address the requirements of this provision, the Ninth Circuit nonetheless held that “the plain language indicates that a court must examine whether the attorneys’ fee arrangement shortchanges the class” and “makes clear that courts must balance the ‘proposed award of attorney’s fees’ vis-à-vis the ‘relief provided for the class’ in determining whether the settlement is ‘adequate’ for class members.” Id. at *6.
Applying this heightened scrutiny to the settlement in Briseno, the Ninth Circuit found that the settlement structure prompted concerns about the amount of funds awarded to class counsel versus the class. Specifically, the court noted that where “[t]he lion’s share of the money – almost $ 7 million – will end up in the pockets of attorneys, while the class receives relative scraps, less than a million dollars,” and the injunctive relief was virtually valueless, the “gross disparity in the distribution of funds between class members and their class counsel raises an urgent red flag demanding more attention and scrutiny.” 2021 WL 2197968, at *8. The Ninth Circuit was unpersuaded by the fact that the attorneys’ fees award “amounted to less than half of [plaintiffs’ counsel’s] lodestar,” since “even attorneys’ fees based on a reasonable percentage of an unreasonable number of hours … are still unreasonable.” Id. at *8. In addition to the “gross disparity” in funds, the Ninth Circuit noted that the settlement agreement also included the other two Bluetooth red flags, and thus raised concerns of collusion that required reversal of the district court’s approval.
In short, Briseno calls on district courts to “balance the ‘proposed award of attorney’s fees’ vis-à-vis the ‘relief provided for the class’ in determining whether the settlement is ‘adequate’ for class members,” even in post-certification class settlements and even where the attorneys’ fees are less than counsel’s lodestar amount. Id. at *6.
The Eleventh Circuit’s Decision in In Re Equifax Inc.
In In Re Equifax Inc. Customer Data Sec. Breach Litig., the Eleventh Circuit upheld class certification, and all but one element of a classwide settlement: incentive fees for class representatives, on the basis that it has previously held that such awards are prohibited. Id., No. 20-10249, 2021 WL 2250845, at *1 (11th Cir. June 3, 2021). The district court described this settlement as “the largest and most comprehensive recovery in a data breach case in US history by several orders of magnitude.” Id. at *2. The settlement provided an initial $380.5 million into a fund to benefit the class members and to pay attorney’s fees and expenses and incentive awards, as well as notice and administration costs. Id. at *2. The terms of the settlement awarded $77.5 million in attorneys’ fees. Equifax also agreed to pay an addition $125 million, if necessary, to satisfy claims for out-of-pocket losses and potentially $2 billion more if all 147 million class members signed up for credit monitoring. Id. at *3. Notably, the settlement agreement provided that “[i]n no circumstance does money in the settlement fund revert back to Equifax.” Id.
Despite objectors’ challenges to the $77.5 million attorneys’ fee award as unreasonable, the Eleventh Circuit affirmed the award using a “percentage method” to evaluate its reasonableness. Id. at *19. The “percentage method” stems from Eleventh Circuit precedent, and provides that attorneys’ fee awards in common fund settlements “shall be based upon a reasonable percentage of the fund established for the benefit of the class.” Id. (internal citations and quotations omitted). In applying this method, the district court found that the $77.5 million in fees was reasonable because it constituted approximately 20 percent of the common settlement fund.
Notably, the Eleventh Circuit rejected any requirement that the district court consider either the lodestar method or economies of scale – i.e., whether the percentage of attorneys’ fees should diminish as the settlement fund increases – when assessing the reasonableness of attorneys’ fees. In rejecting the economies of scale requirement, the Eleventh Circuit noted that such a factor may (1) “lack rigor because it provides no direction to courts about when to start decreasing the percentage award, nor by how much,” and (2) “create perverse incentives,” by “encourage[ing] class counsel to pursue quick settlements at sub-optimal levels.” Id. (internal citations and quotations omitted).
In short, the Eleventh Circuit upheld the attorneys’ fees awarded in the Equifax settlement because such fees constituted approximately 20 percent of the total class recovery. In so holding, the Eleventh Circuit – just like the Ninth Circuit in Briseno – rejected plaintiffs’ counsel’s lodestar amount as a controlling factor in its reasonableness analysis, and instead focused on the amount of attorneys’ fees as compared to the total relief provided for the class. While that analysis led to the rejection of the Briseno settlement due to the “gross disparity” between attorneys’ fees and class recovery, a similar analysis led to the affirmance of the Equifax settlement due to the court’s conclusion that the attorneys’ fees were proportional to the class recovery in that case.
Another Vanilla Bean Lawsuit is Nipped in the Bud
By: Madeline Skitzki
On June 14, 2021, Judge Jeffrey S. White of the Northern District of California dismissed yet another lawsuit challenging representations about vanilla on food products. In that lawsuit—Lisa Robie v. Trader Joe’s Company, Case No. 4:20-cv-07355-JSE—the plaintiff alleged that Trader Joe’s mislabels its Almond Clusters cereal as “Vanilla Flavored With Other Natural Flavors,” when in fact (1) the cereal contains only trace amounts of real vanilla, and (2) the predominant source of the vanilla taste is from the artificial flavors vanillin and ethyl vanilla.
The court dismissed the claims on several grounds, with leave to amend. First, the court found that, to the extent the plaintiff challenged the product’s flavors—as opposed to its ingredients—as unnatural, those claims were preempted by the FDA’s flavor regulations. Second, the court found that the statutory and common law claims failed as a matter of law because the plaintiff did not plausibly allege that a reasonable consumer would interpret the “vanilla” representation to mean that the product’s flavor is derived exclusively from the vanilla plant. In so holding, the court found that the plaintiff failed to plausibly allege that the vanillin in the cereal is necessarily artificial. The court also noted that the label did not include any words or pictures suggesting the cereal’s vanilla flavor is derived exclusively from the vanilla bean or plant. And even if the label’s reference to “vanilla” would lead consumers to believe that the product contains vanilla from the vanilla plant, the court found no deception because the plaintiff conceded that the product does contain some real vanilla. The court also dismissed the plaintiff’s equitable claims because she had not alleged that she lacked an adequate remedy at law.
Other courts have recently dismissed similar lawsuits challenging vanilla representations on various products for failure to plausibly plead consumer deception. See Steele v. Wegmans Food Mkts., Inc., 472 F. Supp. 3d 47, 50 (S.D.N.Y. 2020); Pichardo v. Only What You Need, Inc., No. 20-493, 2020 WL 6323775, at *3–5 (S.D.N.Y. Oct. 27, 2020); Cosgrove v. Blue Diamond Growers, No. 19-8993, 2020 WL 7211218, at *3–5 (S.D.N.Y. Dec. 7, 2020); Barreto v. Westbrae Nat., Inc., --- F.Supp.3d ----, 2021 WL 76331, at *2–6 (S.D.N.Y. Jan. 7, 2021); Clark v. Westbrae Natural, Inc., No. 20-3221, 2020 WL 7043879, at *2-4 (N.D. Cal. Dec. 1, 2020); Cosgrove v. Oregon Chai, Inc., No. 19-10686, 2021 WL 706227, at *12–14 (S.D.N.Y. Feb. 21, 2021).
At the same time, a handful of similar vanilla lawsuits have proceeded past the motion to dismiss stage. See Sharpe v. A&W Concentrate Co., 481 F. Supp. 3d 94, 101–04 (E.D.N.Y. 2020) (denying motion to dismiss and finding that plaintiffs “plausibly alleged that the ‘MADE WITH AGED VANILLA’ representation—prominently displayed underneath the A&W logo and on front of the bottle or box, bolded and in all capital letters—falsely implie[d] that any vanilla content derive[d] predominantly from the vanilla plant, instead of its artificial and synthetic counterpart”); Vizcarra v. Unilever United States, Inc., No. 20-2777, 2020 WL 4016810 (N.D. Cal. July 16, 2020) (in case concerning Breyers Natural Vanilla Ice Cream, denying motion to dismiss that did not challenge whether plaintiff plausibly pleaded deception); Dailey v. A&W Concentrate Co., No. 20-CV-02732-JST, 2021 WL 777114, at *1 (N.D. Cal. Feb. 16, 2021) (noting that the “case is ‘a near-duplicate’ of Sharpe” and finding “[f]or the reasons stated in Sharpe, Plaintiffs’ allegations are sufficient to withstand a motion to dismiss”). The plaintiff in Vizcarra filed a motion for class certification on June 11, 2021, which is scheduled to be heard on September 14, 2021. A denial of class certification in Vizcarra would tip the scales even further in favor of the defendants that have been prevailing in most of the vanilla cases thus far.
Courts Express Reluctance to Regulate Market Prices Via Consumer Protection Claims
By: Lindsey A. Lusk
Consumers seeking to hold companies accountable for differential pricing of allegedly materially identical products have recently faced push-back from several federal courts. In May 2021, two federal courts dismissed consumer-protection claims based on price differentials between such products.
In Schulte v. Conopco, et al., the Eighth Circuit affirmed the Missouri district court’s dismissal of a Missouri Merchandising Practices Act (MMPA) claim premised on allegedly discriminatory price differentials between women’s and men’s deodorant products (a so-called “pink tax” claim). 2021 WL1971957 at *1 (8th Cir. May 18, 2021). The appellate court held that the plaintiff failed to meet the plausibility pleading standard and was mistaking “gender-based marketing for gender discrimination.” Id. The court also noted that the plaintiff was “conflate[ing] marketing targeted to women with enforced point-of-sale pricing by gender,” and that the plaintiff’s choice not to purchase men’s antiperspirant “illustrates a difference in demand based on product preferences.” Id. Because “preference-based pricing is not necessarily an unfair practice,” the court held that the MMPA did not prohibit the defendants’ differential pricing.
Similarly, the Northern District of Illinois recently dismissed a claim based on the price differential between infant and children’s acetaminophen. In Harris v. Topco Associates, LLC, the plaintiff brought a putative class action alleging that the defendant “designed its [Infants’ Pain & Fever Acetaminophen and Children’s Pain & Fever Acetaminophen] to mislead parents into purchasing the infant medication at a higher cost,” despite the pharmacological identity of the two products. 2021 WL 1885981 (N.D. Ill. May 22, 2021). The court dismissed the plaintiff’s claim, finding that it was preempted by the federal Food, Drug, and Cosmetic Act (FDCA) because the plaintiff’s request for a disclosure on the label of the infant medication would impose an additional obligation not required by the FDCA. Id. *1.
Although decided on different grounds, the courts’ rejections of these types of claims suggest that courts may be hesitant to use consumer protection statutes to “regulate” pricing of materially similar yet differently-marketed products when those prices are otherwise set by consumer demand.
Analysis of Recent and Forthcoming State Legislation on Toxic Chemicals in Cosmetics and Personal Care Products and Preemptive Effects of Existing Federal Legislation
By: Matthew G. Lawson
According to a report released in February 2021 by the organization Safer States, at least 27 US states will consider proposed legislation to regulate toxic chemicals in 2021. While a large driver of the proposed state laws is growing public concern over drinking water contamination from “emerging contaminants,” including PFAS (per- and polyfluorinated alkyl substances) and 1,4-dioxane, a secondary focus has been to minimize the risk of adverse human health effects from exposure to these toxic chemicals in cosmetics and personal care products. Two states—New York and California—are spearheading these efforts through recently enacted laws to limit or prohibit certain toxic chemicals in cosmetics and personal care products that are set to take effect in 2022 and 2025, respectively. As other states consider their own bills to enact similar regulation of chemicals in cosmetics and personal care products, heightened attention will likely be paid to what extent the existing federal regulation of these products may preempt this new wave of state legislation.
Federal Regulation of Chemicals in Cosmetics and Personal Care Products
At the federal level, chemicals used in cosmetics and other personal care products are primarily regulated by either the Toxic Substrates Control Act (TSCA) or the Federal Food, Drug, and Cosmetic Act (FD&C Act). While TSCA broadly applies to any “chemical substance,” certain chemicals or uses of chemicals are exempt from TSCA if they are regulated by other federal statutes. Such products include “cosmetics” regulated by the FD&C Act, which are defined as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body...for cleansing, beautifying, promoting attractiveness, or altering the appearance.” While the distinction between a cosmetic and personal care product may not always be apparent to the consumer, the difference is crucial with respect to federal oversight of the chemicals contained in the product.
Non-cosmetic, personal care products are regulated under TSCA, as amended by the Frank R. Lautenberg Chemical Safety Act of the 21st Century, which requires the Environmental Protection Agency (EPA) to identify “high-priority chemicals” used in existing commerce and determine whether any current uses of the chemicals “present an unreasonable risk of injury to health or the environment.” Where an unreasonable risk is identified, the EPA has discretion to impose conditions on or outright ban the chemical use. Prior to introducing a new chemical or new use of an existing chemical into commerce, manufacturers are required to provide notice to the EPA so that the agency may assess whether the proposed chemical or use will pose an unreasonable risk. In contrast, chemicals used in cosmetic products are regulated by the Food and Drug Administration (FDA) pursuant to the FD&C Act and generally do not require registration or preapproval by the agency before being introduced into commerce. Moreover, the FDA does not have authority to require a recall where it identifies a potential health hazard in a cosmetic product. However, the FDA does have authority to regulate the labeling of cosmetic products and to outright ban specific ingredients from being used in cosmetics generally.
State Regulation of Chemicals in Cosmetics and Other Personal Care Products—Newly Enacted Laws and Anticipated Future Legislation
While the regulation of chemicals in cosmetic and personal care products has historically been left to the purview of the EPA and the FDA, in recent years a growing number of states have expressed interest in directly regulating chemicals in cosmetic and personal care products sold within their jurisdictions. In 2019 and 2020, state regulation of these chemicals took a significant step forward as New York and California signed into law two bills regulating chemicals used in cosmetic and/or personal care products. A brief description of both state laws is provided below.
New York: On December 9, 2019, Governor Cuomo signed into law New York Senate Bill 4389-B/A.6295-A, making New York the first and only state to set a maximum contaminant limit of 1,4-dioxane in consumer products. While there are no direct consumer uses of 1,4-dioxane, the compound may be present in cosmetics and personal care products as a byproduct of the manufacturing process (according to one 2007 Study, approximately 22% of cosmetic and other personal care products may contain 1,4-dioxane). New York’s legislation, which takes effect on December 31, 2022, prohibits the sale of personal care products containing more than 2 ppm of 1,4-dioxane and the sale of cosmetic products containing more than 10 ppm of 1,4-dioxane.
California: On September 30, 2020, Governor Newsom signed into law the Toxic-Free Cosmetics Act, California Assembly Bill 2762, banning 24 chemicals, including mercury, formaldehyde, and certain types of PFAS, from being used in cosmetic, beauty, and personal care products sold in California. California’s legislation is set to take effect in 2025 and will mark the first state-level prohibition on the various chemicals in cosmetic products.
In addition to New York and California’s recently enacted legislation, there are at least five bills currently being considered by various states that would further regulate chemicals in cosmetic and/or personal care products sold within the respective jurisdictions. A brief summary of these state bills is provided below:
Connecticut: SB 404—Prohibiting the sale or distribution of consumer products that contain PFAS (currently before the Joint Committee on Public Health).
Maryland: HB 0643—Prohibiting the sale or distribution of cosmetic products that contain PFAS, mercury, and other chemicals in certain instances (currently passed in both chambers and before the Governor).
New Jersey: A 189 / S 1843—Prohibiting the sale and distribution of nail salon products that contain dibutyl phthalates, toluene, or formaldehyde (currently before the Assembly Consumer Affairs Committee); A 1720—Prohibiting the sale of hand sanitizers and body cleaning products containing triclosan (currently before the Assembly Consumer Affairs Committee).
New York: A 143 / S 3331—Creating a list of “chemicals of concerns” known to exist in personal care products, requiring manufacturers of such products to disclose any chemicals of concerns contained in their products and prohibiting the sale of personal care products containing chemicals of concerns after three years (currently referred to Environmental Conservation Committee).
Federal Preemption of State Laws
As more states continue to adopt new legislation to regulate chemicals in cosmetic and personal care products, manufacturers and/or trade organizations will likely bring preemption challenges to these state regulations. In the context of cosmetic products, the FD&C Act prohibits state or local governments from enacting “any requirement for labeling or packaging of cosmetics that is different from or in addition to, or that is otherwise not identical with” the federal rules. Thus, state laws that do not directly regulate the labeling or packing of cosmetics products but instead regulate the contents of these products will likely not run afoul of the FD&C Act’s preemption clause.
In contrast, state legislation governing chemicals in personal care products may be at a higher risk of being preempted by TSCA. TSCA broadly prohibits the enforcement of any state chemical regulation of a particular substance once the EPA completes a risk evaluation for the substance and either: (1) determines that the chemical will not present an unreasonable risk; or (2) concludes that the chemical presents an unreasonable risk under the circumstances of use, and promulgates a rule that restricts manufacturing or use of the chemical to mitigate the identified risks. Notably, the scope of TSCA’s preemption extends only to chemical uses examined in the EPA’s risk evaluation—meaning that the EPA’s failure to examine the use of a chemical in personal care products would make state regulation fair game. In addition, even where a risk evaluation of a particular chemical has been completed, TSCA will not preempt state laws that (1) only impose reporting, monitoring, or information obligations; or (2) environmental laws that regulate air quality, water quality, or hazardous waste treatment or disposal.
Early insight into the full scope of TSCA’s preemption provisions will likely be provided by anticipated challenges to individual state’s regulation of 1,4-dioxane. As explained above, New York has already taken steps to regulate 1,4-dioxane in personal care products and other states may soon look to follow suit. However, on January 8, 2021, the EPA released its final risk evaluation for 1,4-dioxane under TSCA. See 86 Fed. Reg. 1495. The EPA’s initial risk evaluation identified a number of “use conditions” in which 1,4-dioxane posed an unreasonable risk to occupational workers, but did not consider “use conditions” involving 1,4-dioxane’s presence in consumer products. In response to protests from industry, EPA’s final risk evaluation included a supplemental analysis of eight use conditions for 1,4-dioxane as a byproduct in consumer goods, including use in hobby materials; automotive care products; cleaning and furniture care products; laundry and dishwashing products; paints and coatings; and spray polyurethane foam. No unreasonable risks for these consumer uses were identified. Because the EPA’s supplemental risk evaluation examined but did not find any unreasonable risks from 1,4-dioxane in consumer products, an argument could be made that states are preempted from enacting their own 1,4-dioxane limits in consumer products. However, because the EPA’s risk evaluation did not specifically exclude cosmetic or personal care products, individual states may be able to argue that the preemption scope is limited only to the specific uses of 1,4-dioxane that were specifically examined during EPA’s risk evaluation. The resolution of any challenges to New York and other states’ regulation of 1,4-dioxane in consumer products will likely provide key insights into the scope of TSCA’s preemption powers.
Federal Reserve Seeks Public Comment on Guidelines for Accepting Fintechs
By: Anthony L. Nguyen
The Federal Reserve is seeking public comment on proposed guidelines to regulate financial technology companies’ access to The Fed’s payment systems. The Fed has proposed guidelines to evaluate access requests from these “novel types of banking charters” with a “transparent and consistent process.”
According to Federal Reserve Board Governor Lael Brainard, the proposed guidelines intend to promote “a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system."
Public comments will be accepted for 60 days after publication in the Federal Register.
FTC Asks Congress: Restore Our Power to Protect Consumers
By: Anthony L. Nguyen and Jeremy M. Creelan
On April 27, 2021, the Federal Trade Commission (FTC) testified before the Subcommittee on Consumer Protection and Commerce to support proposed legislation that would revive FTC’s ability to seek restitution and disgorgement on behalf of consumers harmed by violations of the FTC Act.
From the 1980s until recently, the FTC took the position that Section 13(b) of the FTC Act, which permits injunctive relief, also authorized it to seek restitution, disgorgement, and other equitable monetary relief. FTC Testimony at 2. The FTC used Section 13(b) to reclaim and refund billions of dollars on behalf of consumers in various types of cases, including telemarketing, fraud, anticompetitive pharmaceutical practices, data security and privacy, scams that target seniors and veterans, deceptive business practices, and COVID-related scams. Id. at 1.
Rebecca Kelly Slaughter, acting Chairwoman of the FTC, testified that “the Supreme Court ruled that courts can no longer award refunds to consumers in FTC cases brought under 13(b), reversing four decades of case law that the Commission has used to provide billions of dollars of refunds to harmed consumers.” Id. She testified that in AMG Capital Management, LLC v. FTC, the Supreme Court “held that equitable monetary relief such as restitution or disgorgement is not authorized by the text of Section 13(b).” Id. at 3. She also noted that other appellate courts had reached similar conclusions. For example, she noted that the Seventh Circuit had held that “the word ‘injunction’ in the statute allows only behavioral restrictions and not monetary remedies.” Id. (citing FTC v. Credit Bureau Center, LLC, 937 F.3d 764 (7th Cir. 2019)). And she noted that the Third Circuit had reversed an award of “$448 million meant to repay overcharged consumers” because it found that the order exceeded the authority provided by the FTC Act. Id. (citing FTC v. AbbVie Inc., 976 F.3d 327 (3d Cir. 2020)).
Slaughter also testified that other court rulings held that the FTC “cannot seek injunctive relief under 13(b) in cases where the unlawful conduct is no longer occurring, even if there is a reasonable likelihood that it will re-occur.” Id. at 1. She testified that the Third Circuit held the FTC may only bring enforcement actions under Section 13(b) “when a violation is either ongoing or ‘impending’ at the time the suit is filed.” Id. at 4 (citing FTC v. Shire ViroPharma, Inc., 917 F.3d 147 (3d Cir. 2019)). In FTC v. AbbVie, Inc., the court cited Shire ViroPharma in dicta while holding the FTC cannot sue unless the conduct is “imminent or ongoing.” Id. Slaughter stated that decisions like this have hindered the FTC’s ability to settle cases because targets of investigations routinely argue they are immune to federal suits because they are no longer violating the law, even though they stopped after hearing the FTC is investigating them. Id. at 5. To that end, Slaughter encouraged Congress to enact legislation that would restore the FTC’s ability to seek equitable monetary relief on behalf of consumers.
Supreme Court Limits FTC Authority to Obtain Disgorgement or Restitution, Rejecting Decades of Precedent
By: Gabriel K. Gillett, Megan B. Poetzel, and Ariana Kanavy
In a high-profile decision in AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508 (Apr. 22, 2021), the US Supreme Court held that the Federal Trade Commission’s (FTC) statutory authority to obtain a “permanent injunction” does not permit it to obtain “equitable monetary relief” such as restitution or disgorgement. The Court’s unanimous decision interpreted Section 13(b) of the FTC Act to “mean what it says”—contrary to what the FTC and many courts have long read the statute to mean—and strips the FTC of a tool it has often used in antitrust and consumer protection cases. If the FTC wants that tool back, the Court explained, it must look to Congress.
The path to the Court’s decision is relatively straightforward. In 2012, the FTC sued a payday lender, alleging deceptive practices in violation of § 5(a) of the Federal Trade Commission Act. Invoking § 13(b), which authorizes the FTC to obtain a “permanent injunction” in “proper cases” where a party “is violating, or is about to violate, any provision of law” that the FTC enforces, the FTC asked the District Court to grant a permanent injunction and order $1.27 billion in restitution and disgorgement. The District Court granted the request. On appeal, the Ninth Circuit affirmed based on binding circuit precedent holding that § 13(b) permitted the relief the FTC sought. Two of the three judges on the panel “expressed doubt as to the correctness of that precedent” as well as of similar precedent in at least eight other circuits stretching back more than thirty years.
In a unanimous decision, the Court validated the judges’ skepticism, rejected “precedent in many Circuits,” and held that § 13(b) does not permit the FTC to seek disgorgement and restitution. Looking to the text, the Court reasoned that “the language refers only to injunctions,” contemplates prospective (not retrospective) relief, and “the words ‘permanent injunction’ have a limited purpose” which “does not extend to the grant of monetary relief.” In addition, other provisions of the FTC Act (§ 5(l) and § 19) explicitly provide for limited equitable monetary remedies—but only after the FTC undertakes administrative proceedings that are “more onerous” than simply filing a complaint in federal court, obtains a cease and desist order, and satisfies various other conditions and limitations. Reading § 13(b) to permit the FTC to obtain the same relief without that additional process or those additional requirements “would allow a small statutory tail to wag a very large dog.” By contrast, reading § 13(b) “to mean what it says … produces a coherent enforcement scheme.”
The decision may have a major practical impact on those within the FTC’s purview. With this decision, the Supreme Court has taken away the FTC’s long-used, self-proclaimed “strongest tool” for obtaining monetary relief in cases alleging deceptive business practices, anti-competitive conduct, and fraud. For example, in 2019, the FTC invoked § 13(b) in “49 complaints in federal court and obtained 81 permanent injunctions and orders, resulting in $723.2 million in consumer redress or disgorgement.” And the FTC has been using § 13(b) with increasing frequency. For instance, the FTC “sought disgorgement in anti-trust cases four times between 2012 and 2016,” after seeking that relief only four times “in the prior twenty years.”
Going forward, if the FTC wants disgorgement or restitution in federal court it must first pursue administrative proceedings—and must contend with the statutory limitations on the FTC’s authority and the protections for defendants in Sections 5(l) and 19. As the Supreme Court noted, however, the FTC remains “free to ask Congress to grant it further remedial authority.” The agency has recently done so, and following the decision’s announcement the FTC renewed its call on Congress “to act swiftly to restore and strengthen the powers of the agency.” Time will tell whether Congress heeds that call. Meanwhile State Attorneys General may step up their own efforts to use state law to obtain monetary awards, or to partner with the FTC. So while the AMG decision may be welcome for businesses, it does not immunize them from being targeted for alleged misconduct or from potentially being required to pay large sums as a result.
 Id. at *10.
 Id. at *7.
 Id. at *8-9.
 Id. at *10.
 Statement by FTC Acting Chairwoman Rebecca Kelly Slaughter on the US Supreme Court Ruling in AMG Capital Management LLC v. FTC, Federal Trade Commission (April 22, 2021), https://www.ftc.gov/news-events/press-releases/2021/04/statement-ftc-acting-chairwoman-rebecca-kelly-slaughter-us.
 Id. at *6.
 Id. at *6.
 FTC Statement, supra note 5, https://www.ftc.gov/news-events/press-releases/2021/04/statement-ftc-acting-chairwoman-rebecca-kelly-slaughter-us.
 See Brief Amici Curiae of States of Illinois, et al. (Dec. 7, 2020), https://www.supremecourt.gov/DocketPDF/19/19-508/156629/20201002130714167_19-508_19-825%20Chamber%20Of%20Commerce%20Amicus.pdf
 See, e.g., Brief Amici Curiae of Chamber of Commerce of the United States, et al. (Oct. 2, 2020), https://www.supremecourt.gov/DocketPDF/19/19-508/156629/20201002130714167_19-508_19-825%20Chamber%20Of%20Commerce%20Amicus.pdf
UK Establishes New Big Tech Watchdog
By: Michaela M. Croft
On 7 April 2021, the UK Government announced a new tech regulator to “curb the dominance of tech giants” in the digital advertising space to “promote dynamic and competitive digital platform markets” for the benefit of online consumers and small businesses. The newly formed Digital Markets Unit (the DMU) will sit as its own division within the Competition and Markets Authority (the CMA). The UK Government previously announced in November 2020 that it was creating a watchdog to tackle the perceived harm caused by the dominant market position of a small number of players in the online advertising space that hold strategic market status.
Currently set up in a shadow, non-statutory form pending the granting of full powers, the DMU’s first task is to draw up codes of conduct with a view to governing the relationship between tech firms and their users. According to Andrew Coscelli, the Chief Executive of the CMA, the DMU plans to oversee an overhaul of online advertising to ensure consumers “enjoy the choice, secure data and fair prices that come with a dynamic and competitive industry” with a view to creating a “level playing field in digital markets” in the UK. It is the latest step in a line of actions taken by the CMA to address the findings in its July 2020 market study into online platforms and digital markets, which found that “competition is not working well in these markets, leading to substantial harm for consumers and society as a whole”. The UK Business Secretary, Kwasi Kwarteng MP, has confirmed that the aim of the DMU is intended to be “unashamedly pro-competition”.
In its initial response to the CMA’s invitation to comment back in 2019, Facebook supported increased regulation but argued that a proper market definition analysis would identify that “competition between user platforms is [already] thriving in the UK”.
Whilst the DMU will need to wait for legislators to make any code of conduct law before action can be taken, it is envisaged that the DMU will work hand-in-hand with the CMA enforcement team to continue the CMA’s crack down on digital firms. It remains to be seen how the balance will be struck between the potentially competing demands of making the UK a post-Brexit friendly tech centre, and protecting online consumers.
The CMA’s full press release can be read here.
Supreme Court Answers the Call: Clarifies Meaning of “Automatic Telephone Dialing System” under the TCPA
By: Madeleine V. Findley and Emma J. O’Connor
On April 1, 2021, the Supreme Court of the United States unanimously reversed the Ninth Circuit Court of Appeals decision in Facebook Inc. v. Duguid et al., No. 19-511, and held that in order for a device to be an “automatic telephone dialing system” (ATDS), a key term in the Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C. § 227, it must have the capacity to use a random or sequential number generator to either store or produce phone numbers to be called. This decision represents a significant victory for entities defending against TCPA claims.
The TCPA prohibits making calls or sending text messages to mobile telephones using an ATDS (often simply referred to as an “autodialer”) without the prior express consent of the recipient. What precisely that means has become a heated dispute in TCPA litigation because using an ATDS to place a call is an essential component of many TCPA claims. The statute defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called using a random or sequential number generator; and (B) to dial such numbers.” Lower courts had split on the provision’s meaning. The Third, Seventh, and Eleventh Circuits interpreted the provision narrowly, holding that an ATDS must have the capacity to generate random or sequential phone numbers, not merely to store and dial the numbers automatically. The Second, Sixth, and Ninth Circuits had taken a broad approach, holding that an ATDS need only have the capacity to store numbers to be called and to dial those numbers automatically.The Supreme Court Duguid answered the question of whether a device constitutes an ATDS if it can “store” and dial telephone numbers, even if it does not “us[e] a random or sequential number generator.” It took the narrow view.
The Duguid plaintiff claimed Facebook, Inc. (Facebook) violated TCPA when it allegedly sent him text messages to alert him to login activity on a Facebook account linked to his telephone number, even though he never created that account (or any account on Facebook) and had not provided his phone number to Facebook. The text messages at issue were sent to the plaintiff using Facebook’s login notification system, which automatically sends users text notifications when someone attempts to log in to the user’s account from an unknown device or browser, but which does not use a random or sequential number generator.
In Duguid, the parties’ respective positions hinged on the syntax of the statutory definition of an ATDS. Facebook argued that to constitute an ATDS, the equipment must use a random or sequential number generator, because the clause “using a random or sequential number generator” modifies both verbs, “store” and “produce.” The plaintiff, however, argued that a number generator was not required for a device to be an ATDS, because “using a … number generator” applies only to “produce,” and therefore the statute prohibits the use of equipment with the capacity “to store … numbers to be called” and to dial them.
The Court sided with Facebook, reasoning that “[u]nder conventional rules of grammar, ‘[w]hen there is a straightforward, parallel construction that involves all nouns or verbs in a series,’ a modifier at the end of the list ‘normally applies to the entire series.’” The Court also concluded that the statutory context confirmed this reading, because the plaintiff’s proposed interpretation “would capture virtually all modern cell phones,” which can store and dial numbers. Therefore, in the Court’s view, the more expansive reading would mean that “ordinary cell phone owners” could face TCPA liability “in the course of commonplace usage, such as speed dialing or sending automated text message responses.”
Justice Sotomayor, joined by seven justices, wrote the Court’s opinion. Justice Samuel Alito concurred in the judgment, but wrote separately to opine on the limitations of the Court’s “heavy reliance” on the “series-qualifier canon,” noting that interpretive canons “are not ‘rules’ of interpretation in any strict sense but presumptions about what an intelligently produced text conveys.”
The Supreme Court’s decision will likely have a profound impact on TCPA litigation, as the use of an ATDS is a necessary element of many TCPA claims. But the decision is unlikely to “unleash” a “torrent of robocalls,” as Duguid had argued, because the TCPA’s other restrictions still stand, such as prohibiting artificial or prerecorded voice calls to residential and wireless numbers.
And backlash to the decision was swift. In an April 1 joint statement, Senator Edward J. Markey (D-Mass.) and Representative Anna G. Eshoo (CA-18) criticized Duguid as “toss[ing] aside” an “essential consumer protection,” and described it as “disastrous for everyone who has a mobile phone in the United States.” Further, the legislators—who had led 19 members of Congress in submitting an amicus brief supporting the Ninth Circuit’s broader reading of ATDS—stated that “
y narrowing the scope of the TCPA, the Court is allowing companies the ability to assault the public with a non-stop wave of unwanted calls and texts, around the clock.”
Senator Markey and Representative Eshoo declared an intent to introduce legislation to “fix the Court’s error” and amend the TCPA.
The Court’s ruling provides welcome clarity and uniformity on a contested issue. It notably also eliminates the need for the FCC to provide an interpretation of ATDS, as the 2018 remand of ACA Int’l v. FCC otherwise would have required. But it does not eliminate TCPA risks for callers. Companies must still be prudent about which technologies they use to contact consumers. Companies should also ensure they still comply with the other requirements of the TCPA, such as the ban on placing pre-recorded telemarketing calls to residential telephone numbers without the prior express written consent of the recipient or placing calls to numbers on the Do Not Call registry; and should still maintain proper records to demonstrate that they only market to consumers who have provided consent. Additionally, businesses should train employees on TCPA compliance, and must ensure that all of their third-party vendors comply with the TCPA, including by not using a proscribed ATDS to contact customers. Because Duguid applies only to the TCPA, companies must also confirm that they comply with other state and federal robocall laws.
 Duguid v. Facebook, Inc., 926 F.3d 1146 (9th Cir. 2019), cert. granted in part, 141 S. Ct. 193 (2020), and rev'd and remanded, No. 19-511, 2021 WL 1215717 (U.S. Apr. 1, 2021).
 Facebook, Inc. v. Duguid, No. 19-511, 2021 WL 1215717, at *2 (U.S. Apr. 1, 2021).
 47 U.S.C. § 227(a)(1). The TCPA is a strict liability statute that provides a private right of action for individuals to sue for and obtain $500 for each violation of the act, trebled to $1,500 for a willful violation. Id. at § 227(b)(3).
 Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 468 (7th Cir. 2020) (Barrett, J., for the court); Glasser v. Hilton Grand Vacations Co., 948 F.3d 1301, 1306–07 (11th Cir. 2020); Dominguez v. Yahoo, Inc., 894 F.3d 116, 119 (3d Cir. 2018).
 Duguid, 926 F.3d at 1151–52; Duran v. La Boom Disco, Inc., 955 F.3d 279, 290 (2d Cir. 2020); Allan v. Pennsylvania Higher Educ. Assistance Agency, 968 F. 3d 567, 579–80 (6th Cir. 2020).
 Facebook, Inc., 2021 WL 1215717, at *2.
 First Am. Compl. ¶¶ 21-37, Duguid v. Facebook, Inc., No. 3:15-cv-00985, 2016 WL 10518965 (N.D. Cal. Apr. 22, 2016).
 Facebook, Inc., 2021 WL 1215717, at *3.
 Id. at *3, *5.
 Id. at *4.
 Id. at *6.
 Id. at *8 (Alito, J., concurring).
 Id. at *7.
 Senator Markey and Rep. Eshoo Blast Supreme Court Decision on Robocalls as “Disastrous,” SENATOR EDWARD MARKEY OF MASSACHUSETTS (Apr. 1, 2021), https://www.markey.senate.gov/news/press-releases/senator-markey-and-rep-eshoo-blast-supreme-court-decision-on-robocalls-as-disastrous.
 ACA Int’l v. Fed. Commc’ns Comm’n, 885 F.3d 687 (D.C. Cir. 2018).