Jenner & Block

Consumer Law Round-Up

May 20, 2019 SDNY Decision Blocks National Bank Charters for FinTech

By William S. C. Goldstein

FintechEarlier this month, a federal district court in New York handed a win to the New York State Department of Financial Services (DFS) in its long-running, closely watched suit seeking to block the Office of the Comptroller of the Currency (OCC) from issuing national bank charters to non-bank financial technology (FinTech) companies that don’t receive deposits.  Judge Victor Marrero denied most of OCC’s motion to dismiss and found the agency’s interpretation of the National Bank Act, 12 U.S.C. § 21 et seq., to be unpersuasive.  Vullo v. Office of the Comptroller of the Currency, No. 18-cv-8377, 2019 WL 2057691, at *18 & n.13 (S.D.N.Y. May 2, 2019).  DFS’s suit has significant stakes for the FinTech industry: under the United States’ dual banking system, nationally chartered banks are regulated primarily by OCC and avoid the application of most state laws and regulations through federal preemption, while financial institutions without national bank charters are generally subject to state oversight—and non-bank institutions are often regulated by multiple states. Id. at *8.  Judge Marrero’s decision casts doubt on whether comprehensive, uniform regulation of FinTech companies can be achieved without congressional action.

The OCC allegedly first began considering whether to accept applications from FinTech companies for special purpose national bank (SPNB) charters in early 2016, pursuant to a 2003 regulation authorizing such charters for entities engaged in “at least one” core banking function: receiving deposits, paying checks, or lending money. Id. at *2 (quoting 12 C.F.R. § 5.20(e)(1)(i)).  DFS first sued OCC in 2017, arguing that the National Bank Act (NBA) prohibits charters from issuing to entities that don’t receive deposits and that to issue them would violate the Tenth Amendment of the Constitution.  That suit was dismissed without prejudice in December of 2017 on justiciability grounds after Judge Naomi Reice Buchwald found that DFS had not suffered an injury in fact and that its claims were not ripe. Id. at *3.  After OCC announced in July of 2018 that it would begin accepting applications from non-depository FinTech companies for SPNB charters, DFS sued again, under the Administrative Procedure Act (APA) and the Tenth Amendment, to prevent OCC from issuing any charters and to invalidate the underlying regulation.  OCC moved to dismiss this past February, arguing that DFS lacked standing, its claims weren’t ripe or timely, and that on the merits it failed to state a claim. Id. at *4.  Judge Marrero issued a decision on OCC’s motion on Thursday, May 2.

Judge Marrero first addressed OCC’s justiciability arguments.  He found that DFS had standing based on two distinct alleged harms: i) the loss of “critical financial protections” for the citizens of New York that would result if non-depository financial institutions were no longer subject to DFS regulation; and ii) direct financial harm to DFS due to the loss of assessments levied on institutions it licenses and regulates. Id. at *8.  As to constitutional ripeness, the Court found that OCC “has the clear expectation of issuing SPNB charters,” and thus that “DFS has demonstrated a ‘substantial risk that harm will occur,’” making its claims ripe. Id. at *9 (quoting Clapper v. Amnesty Int’l USA, 568 U.S. 398, 414 n.15 (2013)).  Judge Marrero also rejected OCC’s argument that, insofar as DFS was challenging the validity of the underlying regulation authorizing SPNB charters—issued in 2003—its claims were untimely. Id. at *10-11.  The Court noted that DFS’s claims “cannot be both unripe and untimely,” and that to hold otherwise would allow agencies to insulate their actions from judicial review by promulgating rules and then waiting out the limitations period before taking any actions under those rules. Id. at *10.  The Court also invoked several administrative law doctrines and decisions allowing review of agency action where an agency claims broad new authority derived from an older regulation. Id. at *10-11.  OCC is free to re-raise its timeliness defense on a more fully developed record. Id. at *11.

On the merits, OCC’s chief argument was that the scope of the phrase “business of banking” in the National Bank Act is ambiguous, and thus that OCC’s interpretation is entitled to Chevron deference. Id. at *13.  The Court was not persuaded by this argument, concluding instead that the text, structure, purpose, and history of the statute all supported a conclusion that the NBA “unambiguously requires receiving deposits as an aspect of the business.” Id. at *13-16.  The original version of the NBA “is replete with provisions predicated upon a national bank’s deposit-receiving power,” and was based heavily on New York’s experience with a state banking law, under which deposit-receiving was always a core, unchallenged power of banks. Id. at *15.  The Court emphasized that OCC had never before chartered a non-depository institution in reliance on the “business of banking” clause; rather, the previous two times OCC began issuing national charters to such institutions, it acted in reliance on congressional amendments to the NBA explicitly authorizing it do so. Id.  The Court was reluctant to find a broad new agency power, with the potential to significantly disrupt the banking industry, in 140-year-old statutory language—the “Congress doesn’t hide elephants in mouse holes” canon. Id. at *16.  Judge Marrero acknowledged a significant line of authority finding ambiguous the “outer bounds” of the “business of banking,” but found those cases inapposite to determining what the necessary core activities of banking are, what he called the “threshold requirements” or “inner limits” of banking. Id. at *17.  In light of all these and other “interpretive clues,” the Court concluded that only depository institutions are eligible for national charters under the NBA’s “business of banking” clause, and that OCC cannot issue such charters to non-depository institutions without specific statutory authorization. Id. at *18.  Accordingly, DFS’s arguments that OCC’s plan to charter FinTech companies would violate the National Bank Act stated claims under the APA. Id. at *18.  However, the Court did dismiss DFS’s Tenth Amendment claim.  DFS argued that OCC violated the Tenth Amendment by exceeding its statutory authority and acting contra to congressional intent. Id.  The Tenth Amendment allows litigants to object to exercises of federal authority that exceed “the National Government’s [constitutionally] enumerated powers.” Id. at *19 (citation and quotations omitted).  The authority to regulate national banks has long been recognized as within the scope of the powers granted to Congress by the Constitution’s Commerce and Necessary and Proper Clauses. Id. at *18.  The court observed that DFS did not allege that it would “categorically lie beyond federal authority” for Congress to authorize OCC to issue national bank charters to non-depository institutions. Id. at *19.  DFS therefore did not state a Tenth Amendment claim. Id.

CATEGORIES: FinTech

May 20, 2019 SDNY Decision Blocks National Bank Charters for FinTech

By William S. C. Goldstein

FintechEarlier this month, a federal district court in New York handed a win to the New York State Department of Financial Services (DFS) in its long-running, closely watched suit seeking to block the Office of the Comptroller of the Currency (OCC) from issuing national bank charters to non-bank financial technology (FinTech) companies that don’t receive deposits.  Judge Victor Marrero denied most of OCC’s motion to dismiss and found the agency’s interpretation of the National Bank Act, 12 U.S.C. § 21 et seq., to be unpersuasive.  Vullo v. Office of the Comptroller of the Currency, No. 18-cv-8377, 2019 WL 2057691, at *18 & n.13 (S.D.N.Y. May 2, 2019).  DFS’s suit has significant stakes for the FinTech industry: under the United States’ dual banking system, nationally chartered banks are regulated primarily by OCC and avoid the application of most state laws and regulations through federal preemption, while financial institutions without national bank charters are generally subject to state oversight—and non-bank institutions are often regulated by multiple states. Id. at *8.  Judge Marrero’s decision casts doubt on whether comprehensive, uniform regulation of FinTech companies can be achieved without congressional action.

The OCC allegedly first began considering whether to accept applications from FinTech companies for special purpose national bank (SPNB) charters in early 2016, pursuant to a 2003 regulation authorizing such charters for entities engaged in “at least one” core banking function: receiving deposits, paying checks, or lending money. Id. at *2 (quoting 12 C.F.R. § 5.20(e)(1)(i)).  DFS first sued OCC in 2017, arguing that the National Bank Act (NBA) prohibits charters from issuing to entities that don’t receive deposits and that to issue them would violate the Tenth Amendment of the Constitution.  That suit was dismissed without prejudice in December of 2017 on justiciability grounds after Judge Naomi Reice Buchwald found that DFS had not suffered an injury in fact and that its claims were not ripe. Id. at *3.  After OCC announced in July of 2018 that it would begin accepting applications from non-depository FinTech companies for SPNB charters, DFS sued again, under the Administrative Procedure Act (APA) and the Tenth Amendment, to prevent OCC from issuing any charters and to invalidate the underlying regulation.  OCC moved to dismiss this past February, arguing that DFS lacked standing, its claims weren’t ripe or timely, and that on the merits it failed to state a claim. Id. at *4.  Judge Marrero issued a decision on OCC’s motion on Thursday, May 2.

Judge Marrero first addressed OCC’s justiciability arguments.  He found that DFS had standing based on two distinct alleged harms: i) the loss of “critical financial protections” for the citizens of New York that would result if non-depository financial institutions were no longer subject to DFS regulation; and ii) direct financial harm to DFS due to the loss of assessments levied on institutions it licenses and regulates. Id. at *8.  As to constitutional ripeness, the Court found that OCC “has the clear expectation of issuing SPNB charters,” and thus that “DFS has demonstrated a ‘substantial risk that harm will occur,’” making its claims ripe. Id. at *9 (quoting Clapper v. Amnesty Int’l USA, 568 U.S. 398, 414 n.15 (2013)).  Judge Marrero also rejected OCC’s argument that, insofar as DFS was challenging the validity of the underlying regulation authorizing SPNB charters—issued in 2003—its claims were untimely. Id. at *10-11.  The Court noted that DFS’s claims “cannot be both unripe and untimely,” and that to hold otherwise would allow agencies to insulate their actions from judicial review by promulgating rules and then waiting out the limitations period before taking any actions under those rules. Id. at *10.  The Court also invoked several administrative law doctrines and decisions allowing review of agency action where an agency claims broad new authority derived from an older regulation. Id. at *10-11.  OCC is free to re-raise its timeliness defense on a more fully developed record. Id. at *11.

On the merits, OCC’s chief argument was that the scope of the phrase “business of banking” in the National Bank Act is ambiguous, and thus that OCC’s interpretation is entitled to Chevron deference. Id. at *13.  The Court was not persuaded by this argument, concluding instead that the text, structure, purpose, and history of the statute all supported a conclusion that the NBA “unambiguously requires receiving deposits as an aspect of the business.” Id. at *13-16.  The original version of the NBA “is replete with provisions predicated upon a national bank’s deposit-receiving power,” and was based heavily on New York’s experience with a state banking law, under which deposit-receiving was always a core, unchallenged power of banks. Id. at *15.  The Court emphasized that OCC had never before chartered a non-depository institution in reliance on the “business of banking” clause; rather, the previous two times OCC began issuing national charters to such institutions, it acted in reliance on congressional amendments to the NBA explicitly authorizing it do so. Id.  The Court was reluctant to find a broad new agency power, with the potential to significantly disrupt the banking industry, in 140-year-old statutory language—the “Congress doesn’t hide elephants in mouse holes” canon. Id. at *16.  Judge Marrero acknowledged a significant line of authority finding ambiguous the “outer bounds” of the “business of banking,” but found those cases inapposite to determining what the necessary core activities of banking are, what he called the “threshold requirements” or “inner limits” of banking. Id. at *17.  In light of all these and other “interpretive clues,” the Court concluded that only depository institutions are eligible for national charters under the NBA’s “business of banking” clause, and that OCC cannot issue such charters to non-depository institutions without specific statutory authorization. Id. at *18.  Accordingly, DFS’s arguments that OCC’s plan to charter FinTech companies would violate the National Bank Act stated claims under the APA. Id. at *18.  However, the Court did dismiss DFS’s Tenth Amendment claim.  DFS argued that OCC violated the Tenth Amendment by exceeding its statutory authority and acting contra to congressional intent. Id.  The Tenth Amendment allows litigants to object to exercises of federal authority that exceed “the National Government’s [constitutionally] enumerated powers.” Id. at *19 (citation and quotations omitted).  The authority to regulate national banks has long been recognized as within the scope of the powers granted to Congress by the Constitution’s Commerce and Necessary and Proper Clauses. Id. at *18.  The court observed that DFS did not allege that it would “categorically lie beyond federal authority” for Congress to authorize OCC to issue national bank charters to non-depository institutions. Id. at *19.  DFS therefore did not state a Tenth Amendment claim. Id.

CATEGORIES: FinTech

PEOPLE: William S. C. Goldstein (Billy)

May 10, 2019 The CFPB Rolls Out New Regulations for Debt Collection

By Amy Egerton-Wiley

CallDebt collectors have for years sought guidance on how and when digital messages could be sent to contact consumers.  On Tuesday, the Consumer Financial Protection Bureau (CFPB) announced a notice of proposed debt collection regulations that would provide that guidance.  The new regulations would expand the potential avenues by which debt collectors could contact consumers and would establish a host of other regulations that would alter debt collection practices.  The proposed rulemaking announced by the CFPB is more than 500-pages long and would be the first substantive rules to interpret the Fair Debt Collection Practices Act, which regulates the debt collection industry. 

The CFPB identified several main highlights that the proposed rulemaking would achieve, including establishing a bright-line rule limiting call attempts and telephone conversations, clarifying consumer protection requirements for certain consumer-facing debt collection disclosures, clarifying how debt collectors can communicate with consumers, prohibiting suits on time barred debts, and requiring communication before credit reporting. 

The new regulations would allow debt collectors to expand methods of communicating with consumers, such as exploring WhatsApp or other online models.  They also, however, restrict the abilities of debt collectors to contact consumers.  For example, the proposed rules would cap the number of times a debt collector could call a consumer to seven times in one week, and once the debt collector reached the consumer, it would not be able to contact the individual again for another week.  The bureau cited increased clarity and modernizing the legal regime as its goal for the new regulations. 

The CFPB’s statement and proposed rules can be found here.

CATEGORIES: Decisions of Note

May 10, 2019 The CFPB Rolls Out New Regulations for Debt Collection

By Amy Egerton-Wiley

CallDebt collectors have for years sought guidance on how and when digital messages could be sent to contact consumers.  On Tuesday, the Consumer Financial Protection Bureau (CFPB) announced a notice of proposed debt collection regulations that would provide that guidance.  The new regulations would expand the potential avenues by which debt collectors could contact consumers and would establish a host of other regulations that would alter debt collection practices.  The proposed rulemaking announced by the CFPB is more than 500-pages long and would be the first substantive rules to interpret the Fair Debt Collection Practices Act, which regulates the debt collection industry. 

The CFPB identified several main highlights that the proposed rulemaking would achieve, including establishing a bright-line rule limiting call attempts and telephone conversations, clarifying consumer protection requirements for certain consumer-facing debt collection disclosures, clarifying how debt collectors can communicate with consumers, prohibiting suits on time barred debts, and requiring communication before credit reporting. 

The new regulations would allow debt collectors to expand methods of communicating with consumers, such as exploring WhatsApp or other online models.  They also, however, restrict the abilities of debt collectors to contact consumers.  For example, the proposed rules would cap the number of times a debt collector could call a consumer to seven times in one week, and once the debt collector reached the consumer, it would not be able to contact the individual again for another week.  The bureau cited increased clarity and modernizing the legal regime as its goal for the new regulations. 

The CFPB’s statement and proposed rules can be found here.

May 9, 2019 US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It

   

By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

The Lower Courts Order Classwide Arbitration Based on an Ambiguous Contract

The Lamps Plus case began when a hacker obtained access to tax information for 1,300 Lamps Plus employees.  The purloined information was used to file a fraudulent federal income tax return on behalf of one of company’s employees, Frank Varela.  Varela then sued his employer in federal court, asserting state and federal claims on behalf of a putative class of employees whose tax information had been disclosed.  Lamps Plus moved to compel individual arbitration based on an employment agreement Varela had signed, which said that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.”  The district court agreed that the language compelled arbitration but authorized arbitration on a classwide basis.[5]

Lamps Plus appealed, and the Ninth Circuit affirmed.[6]  The panel recognized that the agreement did not expressly address classwide arbitration but found that failure rendered the agreement ambiguous rather than silent.  Therefore, the panel found its decision was not controlled by Stolt-Nielsen S. A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010), which held that a court may not compel classwide arbitration when an agreement is silent on the subject.  Instead, the Ninth Circuit followed California law to construe the ambiguity against the drafter.  Because Lamps Plus had drafted the ambiguous agreement, the court accepted Varela’s interpretation and allowed classwide arbitration.

The Supreme Court granted cert and reversed.  The majority framed the central question as “whether, consistent with the FAA, an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling class arbitration.”[7]  No, it held:  “Class arbitration is not only markedly different from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration.  The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.”[8]  “Like silence,” the majority explained, “ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’”[9]  Nor can the doctrine of interpreting ambiguities against the drafter.  In the majority’s view, that canon of construction is a rule of public policy that “is by definition triggered only after a court determines that it cannot discern the intent of the parties,” and therefore “cannot be applied to impose class arbitration in the absence of the parties’ consent.”[10]

Justices Ginsburg, Breyer, Sotomayor and Kagan each wrote a dissent.  Across nearly three times the number of pages as the majority, they contended that the Court lacks jurisdiction; the FAA is inapplicable for contracts where the parties had unequal bargaining power; classwide arbitration is not fundamentally different from bilateral arbitration; and neutral state-law rules of contract interpretation are not preempted by the FAA because they do not conflict with it.

What’s Next for Arbitration at the Court?

The Court’s pro-arbitration bent is by now well-known and well-established.  Earlier this term, the Court surprised some by handing down unanimous decisions in two different arbitration cases.[11]  Lamps Plus demonstrates that the Court’s trend of issuing sharply divided, defendant-friendly arbitration decisions is not likely to change any time soon.  The Court has not yet added any arbitration-related cases to its docket for October Term 2019,[12] and no notable petitions are currently pending.[13]  But a footnote in Lamps Plus may light the way to at least one open issue the Court could address in the future:  “whether the availability of class arbitra­tion is a so-called ‘question of arbitrability,’” and is thus a gateway issue to be decided by a court rather than an arbitrator.[14]

Jenner & Block has substantial experience in arbitration and class action disputes and appeals.  Partner Adam Unikowsky represented the Retail Litigation Center as amicus curiae at the Supreme Court in Lamps Plus.  Both Mr. Unikowsky and Associate Gabriel Gillett, members of Jenner & Block’s Appellate and Supreme Court Practice, have represented clients in cases involving arbitration and class actions across the country.  Partners Michael Brody and Howard Suskin, co-chairs of Jenner & Block’s Class Action Practice Group, have represented many clients in efforts to enforce and limit arbitration clauses.  Mr. Suskin serves as an arbitrator for the American Arbitration Association, FINRA, CBOE and NFA and has substantial experience interpreting the scope of arbitration clauses. 

 

 

[1]  -- S. Ct. --, 2019 WL 1780275 (Apr. 24, 2019).

[2]  Slip op. 8.

[3]  See id. at 9-12.

[4]  Id. at 8 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348, 350 (2011)).

[5]  Varela v. Lamps Plus, Inc., 2016 WL 9110161 (C.D. Cal. Jul. 7, 2016).

[6]  Varela v. Lamps Plus, Inc., 701 F. App’x 670 (9th Cir. 2017).

[7]  Slip op. at 6.

[8]  Id.

[9]  Id. at 8 (quoting Concepcion, 563 U.S. at 348).

[10]  Id. at 10-12.

[11]  See New Prime v. Oliveira, 139 S. Ct. 532 (2019); Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).

[12]  See https://www.scotusblog.com/case-files/terms/ot19/.

[13]  See https://www.scotusblog.com/case-files/petitions-were-watching/.

[14]  Slip op. at 9 n.4 (citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, n. 2 (2013)).

CATEGORIES: Arbitration, Decisions of Note, US Supreme Court

May 9, 2019 US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It

   

By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

The Lower Courts Order Classwide Arbitration Based on an Ambiguous Contract

The Lamps Plus case began when a hacker obtained access to tax information for 1,300 Lamps Plus employees.  The purloined information was used to file a fraudulent federal income tax return on behalf of one of company’s employees, Frank Varela.  Varela then sued his employer in federal court, asserting state and federal claims on behalf of a putative class of employees whose tax information had been disclosed.  Lamps Plus moved to compel individual arbitration based on an employment agreement Varela had signed, which said that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.”  The district court agreed that the language compelled arbitration but authorized arbitration on a classwide basis.[5]

Lamps Plus appealed, and the Ninth Circuit affirmed.[6]  The panel recognized that the agreement did not expressly address classwide arbitration but found that failure rendered the agreement ambiguous rather than silent.  Therefore, the panel found its decision was not controlled by Stolt-Nielsen S. A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010), which held that a court may not compel classwide arbitration when an agreement is silent on the subject.  Instead, the Ninth Circuit followed California law to construe the ambiguity against the drafter.  Because Lamps Plus had drafted the ambiguous agreement, the court accepted Varela’s interpretation and allowed classwide arbitration.

The Supreme Court granted cert and reversed.  The majority framed the central question as “whether, consistent with the FAA, an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling class arbitration.”[7]  No, it held:  “Class arbitration is not only markedly different from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration.  The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.”[8]  “Like silence,” the majority explained, “ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’”[9]  Nor can the doctrine of interpreting ambiguities against the drafter.  In the majority’s view, that canon of construction is a rule of public policy that “is by definition triggered only after a court determines that it cannot discern the intent of the parties,” and therefore “cannot be applied to impose class arbitration in the absence of the parties’ consent.”[10]

Justices Ginsburg, Breyer, Sotomayor and Kagan each wrote a dissent.  Across nearly three times the number of pages as the majority, they contended that the Court lacks jurisdiction; the FAA is inapplicable for contracts where the parties had unequal bargaining power; classwide arbitration is not fundamentally different from bilateral arbitration; and neutral state-law rules of contract interpretation are not preempted by the FAA because they do not conflict with it.

What’s Next for Arbitration at the Court?

The Court’s pro-arbitration bent is by now well-known and well-established.  Earlier this term, the Court surprised some by handing down unanimous decisions in two different arbitration cases.[11]  Lamps Plus demonstrates that the Court’s trend of issuing sharply divided, defendant-friendly arbitration decisions is not likely to change any time soon.  The Court has not yet added any arbitration-related cases to its docket for October Term 2019,[12] and no notable petitions are currently pending.[13]  But a footnote in Lamps Plus may light the way to at least one open issue the Court could address in the future:  “whether the availability of class arbitra­tion is a so-called ‘question of arbitrability,’” and is thus a gateway issue to be decided by a court rather than an arbitrator.[14]

Jenner & Block has substantial experience in arbitration and class action disputes and appeals.  Partner Adam Unikowsky represented the Retail Litigation Center as amicus curiae at the Supreme Court in Lamps Plus.  Both Mr. Unikowsky and Associate Gabriel Gillett, members of Jenner & Block’s Appellate and Supreme Court Practice, have represented clients in cases involving arbitration and class actions across the country.  Partners Michael Brody and Howard Suskin, co-chairs of Jenner & Block’s Class Action Practice Group, have represented many clients in efforts to enforce and limit arbitration clauses.  Mr. Suskin serves as an arbitrator for the American Arbitration Association, FINRA, CBOE and NFA and has substantial experience interpreting the scope of arbitration clauses. 

 

 

[1]  -- S. Ct. --, 2019 WL 1780275 (Apr. 24, 2019).

[2]  Slip op. 8.

[3]  See id. at 9-12.

[4]  Id. at 8 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348, 350 (2011)).

[5]  Varela v. Lamps Plus, Inc., 2016 WL 9110161 (C.D. Cal. Jul. 7, 2016).

[6]  Varela v. Lamps Plus, Inc., 701 F. App’x 670 (9th Cir. 2017).

[7]  Slip op. at 6.

[8]  Id.

[9]  Id. at 8 (quoting Concepcion, 563 U.S. at 348).

[10]  Id. at 10-12.

[11]  See New Prime v. Oliveira, 139 S. Ct. 532 (2019); Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).

[12]  See https://www.scotusblog.com/case-files/terms/ot19/.

[13]  See https://www.scotusblog.com/case-files/petitions-were-watching/.

[14]  Slip op. at 9 n.4 (citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, n. 2 (2013)).

CATEGORIES: US Supreme Court

May 8, 2019 The Consumer Welfare Standard on Shaky Ground?

 

By: Lee K. Van Voorhis and Eugene Lim

City-community-crossing-109919For the past forty years, the consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action.  The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978.[1]  The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers. The US Supreme Court quickly solidified Bork’s views in Reiter v. Sonotone Corp.[2]  The CWS has since provided more predictability in antitrust enforcement, narrowing its focus purely on consumer prices.[3]

However, critics are now voicing concerns that it is time to broaden the factors analyzing what benefits consumers.  Critics have advocated that antitrust enforcement should be determined by a “total welfare standard" (TWS) instead.[4]  Note that it is not clear whether the TWS is best for any particular political point of view.  On the one hand, the standard considers whether mergers could lead to higher unemployment, or harm the environment.  On the other hand, the standard would allow some mergers that result in higher prices to consumers, but have benefits that outweigh those higher prices.

Although the FTC has not clearly stated if actual changes will come, there is now a debate on the appropriate standard that has not seriously occurred for several decades.

Recent Moves by Congress Indicate Skepticism for the Consumer Welfare Standard

Earlier this year in the Staples-Essendant decision, dissenting Democratic Commissioners may have suggested Congress step in, and possibly create a regulatory role for US antitrust.[5]  Though Congress has not affirmatively signaled this type of action, some members of Congress have suggested modifications to the mainstream standard governing anticompetitive behavior.[6]

On March 4, 2019, the House Subcommittee on Antitrust, Commercial and Administrative Law added Lina Khan, a former legal fellow for the FTC, to its ranks to work on committee priorities related to competition and business regulation.[7]  Khan created quite a buzz in her January 2017 law review article criticizing the CWS and “Amazon’s Antitrust Paradox.”[8]  In the article, she argued that the CWS is currently “unequipped to capture the architecture of market power in the modern economy,” because the “current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anti-competitive.”[9]  Further, on March 5, 2019, the Senate Judiciary Committee solicited testimony from experts on whether the CWS is outdated and whether the United States should return to this earlier era of antitrust enforcement.[10]

Commissioner Wilson’s Speech Suggesting a Potential Move Away From the Consumer Welfare Standard

Earlier this year, Republican Commissioner Wilson addressed the benefits of the TWS in a speech at an antitrust symposium at George Mason University’s Antonin Scalia Law School on February 15, 2019.[11]

Wilson held out the standard as a potential alternative to the CWS.  She explained that the TWS looks beyond customer impacts to consider all participants in the market, including both producers and consumers, and suggests that the TWS comes with other benefits.  One of the purported benefits is a focus on maximizing efficiency, instead of how surplus (or financial benefits) should be distributed across a market.  In Wilson’s view, this would ensure markets are as productive as possible—yielding the maximum gains from trades.  “Speaking colloquially, we would expand the size of the pie,” she said.

Wilson also highlighted that the FTC’s expertise lies in economics and efficiency, which fits better under the TWS.  Other agencies with expertise on making “judgments about the distribution of wealth,” would be better suited to analyze issues under the current CWS.

Further, she said criticism that the TWS would harm consumers fails to see that some markets have consumers that are also producers and distributors.  For instance, in the sportswear market, athletes may be consumers, employees and direct or indirect shareholders through vehicles like 401(k) programs—though not always simultaneously.

At the same time, the TWS raised questions such as whether it could clear conduct and mergers with benefits in one area, but also downsides in another.  She noted that policymakers, academics and antitrust practitioners should soon be considering the multiple benefits of the TWS in the coming months as they debate what should be the governing legal standard in modern antitrust law. 

Wilson also spent time defending the mainstream CWS, stating that recent criticism of it fails to see that it does include other consumer impacts such as quality, innovation and labor.

This talk by Commissioner Wilson only adds more fuel to the fire that the FTC and policymakers are considering a move away from the mainstream CWS and will begin to considering other standards.

 

 

[1] The Antitrust Paradox: A Policy at War with Itself, Robert Bork, (Basic Books, 1978).

[2] Reiter v. Sonotone Corp., 442 U.S. 330 (1979).

[3] Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L. Rev. 2405, 2406-07 (2013).

[4] See, e.g., “Welfare Standards and Merger Analysis: Why not the Best?” Kenneth Heyer, DOJ-EAG 06-8, March 2006, https://www.justice.gov/sites/default/files/atr/legacy/2007/09/28/221880.pdf

[5] See, e.g., Commissioner Rebecca Kelly Slaughter, In the Matter of Staples, Inc. / Essendant, Inc., File No. 181-0180, January 28, 2019, at *1.

[6] See, e.g., “Here’s How we can Break up Big Tech,” Sen. Elizabeth Warren, March 8, 2019,https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c.

[7] “House Panel Picks Amazon Critic as Antitrust Counsel,” Christopher Cole, March 5, 2019,https://www.law360.com/articles/1135174/house-panel-picks-amazon-critic-as-antitrust-counsel.

[8] See Lina M. Kahn, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2016).

[9] Id.

[10] “Does America Have a Monopoly Problem?: Examining Concentration and Competition in the US Economy,” Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, March 5, 2019,https://www.judiciary.senate.gov/meetings/does-america-have-a-monopoly-problem-examining-concentration-and-competition-in-the-us-economy.

[11] “Welfare Standards Underlying Antitrust Enforcement: What You Measure is What You Get,” Christine S. Wilson, February 15, 2019,
https://www.ftc.gov/system/files/documents/public_statements/1455663/welfare_standard_speech_-_cmr-wilson.pdf.

CATEGORIES: Antitrust

May 8, 2019 The Consumer Welfare Standard on Shaky Ground?

By: Lee K. Van Voorhis and Eugene Lim

For the past forty years, the consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action.  The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978.[1]  The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers. The US Supreme Court quickly solidified Bork’s views in Reiter v. Sonotone Corp.[2]  The CWS has since provided more predictability in antitrust enforcement, narrowing its focus purely on consumer prices.[3]

However, critics are now voicing concerns that it is time to broaden the factors analyzing what benefits consumers.  Critics have advocated that antitrust enforcement should be determined by a “total welfare standard" (TSW) instead.[4]  Note that it is not clear whether the TWS is best for any particular political point of view.  On the one hand, the standard considers whether mergers could lead to higher unemployment, or harm the environment.  On the other hand, the standard would allow some mergers that result in higher prices to consumers, but have benefits that outweigh those higher prices.

Although the FTC has not clearly stated if actual changes will come, there is now a debate on the appropriate standard that has not seriously occurred for several decades.

Recent Moves by Congress Indicate Skepticism for the Consumer Welfare Standard

Earlier this year in the Staples-Essendant decision, dissenting Democratic Commissioners may have suggested Congress step in, and possibly create a regulatory role for US antitrust.[5]  Though Congress has not affirmatively signaled this type of action, some members of Congress have suggested modifications to the mainstream standard governing anticompetitive behavior.[6]

On March 4, 2019, the House Subcommittee on Antitrust, Commercial and Administrative Law added Lina Khan, a former legal fellow for the FTC, to its ranks to work on committee priorities related to competition and business regulation.[7]  Khan created quite a buzz in her January 2017 law review article criticizing the CWS and “Amazon’s Antitrust Paradox.”[8]  In the article, she argued that the CWS is currently “unequipped to capture the architecture of market power in the modern economy,” because the “current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anti-competitive.”[9]  Further, on March 5, 2019, the Senate Judiciary Committee solicited testimony from experts on whether the CWS is outdated and whether the United States should return to this earlier era of antitrust enforcement.[10]

Commissioner Wilson’s Speech Suggesting a Potential Move Away From the Consumer Welfare Standard

Earlier this year, Republican Commissioner Wilson addressed the benefits of the TWS in a speech at an antitrust symposium at George Mason University’s Antonin Scalia Law School on February 15, 2019.[11]

Wilson held out the standard as a potential alternative to the CWS.  She explained that the TWS looks beyond customer impacts to consider all participants in the market, including both producers and consumers, and suggests that the TWS comes with other benefits.  One of the purported benefits is a focus on maximizing efficiency, instead of how surplus (or financial benefits) should be distributed across a market.  In Wilson’s view, this would ensure markets are as productive as possible—yielding the maximum gains from trades.  “Speaking colloquially, we would expand the size of the pie,” she said.

Wilson also highlighted that the FTC’s expertise lies in economics and efficiency, which fits better under the TWS.  Other agencies with expertise on making “judgments about the distribution of wealth,” would be better suited to analyze issues under the current CWS.

Further, she said criticism that the TWS would harm consumers fails to see that some markets have consumers that are also producers and distributors.  For instance, in the sportswear market, athletes may be consumers, employees and direct or indirect shareholders through vehicles like 401(k) programs—though not always simultaneously.

At the same time, the TWS raised questions such as whether it could clear conduct and mergers with benefits in one area, but also downsides in another.  She noted that policymakers, academics and antitrust practitioners should soon be considering the multiple benefits of the TWS in the coming months as they debate what should be the governing legal standard in modern antitrust law. 

Wilson also spent time defending the mainstream CWS, stating that recent criticism of it fails to see that it does include other consumer impacts such as quality, innovation and labor.

This talk by Commissioner Wilson only adds more fuel to the fire that the FTC and policymakers are considering a move away from the mainstream CWS and will begin to considering other standards.

 

 

[1] The Antitrust Paradox: A Policy at War with Itself, Robert Bork, (Basic Books, 1978).

[2] Reiter v. Sonotone Corp., 442 U.S. 330 (1979).

[3] Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L. Rev. 2405, 2406-07 (2013).

[4] See, e.g., “Welfare Standards and Merger Analysis: Why not the Best?” Kenneth Heyer, DOJ-EAG 06-8, March 2006, https://www.justice.gov/sites/default/files/atr/legacy/2007/09/28/221880.pdf

[5] See, e.g., Commissioner Rebecca Kelly Slaughter, In the Matter of Staples, Inc. / Essendant, Inc., File No. 181-0180, January 28, 2019, at *1.

[6] See, e.g., “Here’s How we can Break up Big Tech,” Sen. Elizabeth Warren, March 8, 2019,https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c.

[7] “House Panel Picks Amazon Critic as Antitrust Counsel,” Christopher Cole, March 5, 2019,https://www.law360.com/articles/1135174/house-panel-picks-amazon-critic-as-antitrust-counsel.

[8] See Lina M. Kahn, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2016).

[9] Id.

[10] “Does America Have a Monopoly Problem?: Examining Concentration and Competition in the US Economy,” Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, March 5, 2019,https://www.judiciary.senate.gov/meetings/does-america-have-a-monopoly-problem-examining-concentration-and-competition-in-the-us-economy.

[11] “Welfare Standards Underlying Antitrust Enforcement: What You Measure is What You Get,” Christine S. Wilson, February 15, 2019,
https://www.ftc.gov/system/files/documents/public_statements/1455663/welfare_standard_speech_-_cmr-wilson.pdf.

May 7, 2019 No Circuit Split Yet on Constitutionality of CFPB

By Jessica Ring Amunson

New-Development-IconIn a highly anticipated decision, the Ninth Circuit recently held that the target of a civil investigative demand from the Consumer Financial Protection Bureau (CFPB) could not avoid responding to the demand on the grounds that the CFPB itself is unconstitutional.  The Ninth Circuit thus joined the en banc DC Circuit in upholding the constitutionality of CFPB’s single-director, for-cause removal structure.  However, a circuit split may yet emerge with cases still pending before both the Second and Fifth Circuits raising the same issue.

In CFPB v. Seila Law LLC, the CFPB issued a civil investigative demand seeking to determine whether Seila violated the Telemarketing Sales Rule in the course of providing debt-relief service to its clients.  Seila refused to comply, arguing that the civil investigative demand was invalid because the CFPB is unconstitutionally structured.  According to Seila, not only was the civil investigative demand unlawful, but everything the agency has done is also unlawful because the agency’s structure violates the separation of powers.  The agency is headed by a single director who can be removed by the President only for cause.

Relying on the Supreme Court’s decisions in Humphrey’s Executor v. United States, 295 U.S. 602 (1935) and Morrison v. Olson, 487 U.S. 654 (1988), the Ninth Circuit rejected Seila’s argument, holding that “the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed.”  Slip Op. at 8.  Perhaps presaging the future, the Ninth Circuit commented that “the Supreme Court is of course free to revisit those precedents, but we are not.”  Id.

Given that the Ninth Circuit’s recent decision was in accord with the DC Circuit’s decision from last year in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) (en banc), as of yet there is no circuit split to present to the Supreme Court.  That could change though.  Last month, the Fifth Circuit heard oral argument in CFPB v. All American Check Cashing, Inc., an interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality.  And currently being briefed before the Second Circuit is CFPB v. RD Legal Funding, LLC, which comes to the court in the opposite posture, with the district court having held that the CFPB’s structure is unconstitutional. 

Interestingly, these cases pit agency lawyers against their own Department of Justice (DOJ).  While CFPB attorneys are defending the constitutionality of the agency before the various lower courts, DOJ is on record as stating that the position of the United States is that the for-cause removal restriction “impermissibly infringes on the President’s control of the Executive Branch, and unconstitutionally frustrates the President’s ‘responsibility to take care that the laws be faithfully executed.’”  See Brief in Opposition at 10, State Nat’l Bank of Big Spring v. Mnuchin, 139 S. Ct. 916 (2019) (No. 18-307), 2018 WL 6504249 (petition for certiorari denied).  One thing on which agency and DOJ lawyers do agree, however, is that “absent legislative action eliminating the restrictions on removal, the principal question presented in this case will ultimately need to be settled by th[e Supreme] Court.”  Id.

PEOPLE: Jessica Ring Amunson

May 7, 2019 No Circuit Split Yet on Constitutionality of CFPB

By Jessica Ring Amunson

New-Development-IconIn a highly anticipated decision, the Ninth Circuit recently held that the target of a civil investigative demand from the Consumer Financial Protection Bureau (CFPB) could not avoid responding to the demand on the grounds that the CFPB itself is unconstitutional.  The Ninth Circuit thus joined the en banc DC Circuit in upholding the constitutionality of CFPB’s single-director, for-cause removal structure.  However, a circuit split may yet emerge with cases still pending before both the Second and Fifth Circuits raising the same issue.

In CFPB v. Seila Law LLC, the CFPB issued a civil investigative demand seeking to determine whether Seila violated the Telemarketing Sales Rule in the course of providing debt-relief service to its clients.  Seila refused to comply, arguing that the civil investigative demand was invalid because the CFPB is unconstitutionally structured.  According to Seila, not only was the civil investigative demand unlawful, but everything the agency has done is also unlawful because the agency’s structure violates the separation of powers.  The agency is headed by a single director who can be removed by the President only for cause.

Relying on the Supreme Court’s decisions in Humphrey’s Executor v. United States, 295 U.S. 602 (1935) and Morrison v. Olson, 487 U.S. 654 (1988), the Ninth Circuit rejected Seila’s argument, holding that “the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed.”  Slip Op. at 8.  Perhaps presaging the future, the Ninth Circuit commented that “the Supreme Court is of course free to revisit those precedents, but we are not.”  Id.

Given that the Ninth Circuit’s recent decision was in accord with the DC Circuit’s decision from last year in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) (en banc), as of yet there is no circuit split to present to the Supreme Court.  That could change though.  Last month, the Fifth Circuit heard oral argument in CFPB v. All American Check Cashing, Inc., an interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality.  And currently being briefed before the Second Circuit is CFPB v. RD Legal Funding, LLC, which comes to the court in the opposite posture, with the district court having held that the CFPB’s structure is unconstitutional. 

Interestingly, these cases pit agency lawyers against their own Department of Justice (DOJ).  While CFPB attorneys are defending the constitutionality of the agency before the various lower courts, DOJ is on record as stating that the position of the United States is that the for-cause removal restriction “impermissibly infringes on the President’s control of the Executive Branch, and unconstitutionally frustrates the President’s ‘responsibility to take care that the laws be faithfully executed.’”  See Brief in Opposition at 10, State Nat’l Bank of Big Spring v. Mnuchin, 139 S. Ct. 916 (2019) (No. 18-307), 2018 WL 6504249 (petition for certiorari denied).  One thing on which agency and DOJ lawyers do agree, however, is that “absent legislative action eliminating the restrictions on removal, the principal question presented in this case will ultimately need to be settled by th[e Supreme] Court.”  Id.

PEOPLE: Jessica Ring Amunson

May 2, 2019 New Indictment a Reminder of CPSC’s Enforcement Capabilities

New-Update-IconOn March 29, 2019, the Department of Justice announced that it had indicted for the first time two corporate executives for failing to furnish information under the Consumer Product Safety Act (CPSA).  The government alleged that the two individuals – executives of companies that imported, distributed and sold dehumidifiers – had failed to timely report known defects in the products to the Consumer Product Safety Commission (CPSC).  In an article published by the New York Law Journal, Jenner & Block Partner Anthony S. Barkow and Associate Danielle Muniz discuss this recent indictment and the sometimes overlooked enforcement capabilities of the CPSC, the federal agency that enforces the CPSA. 

To read the full article, please click here.

May 2, 2019 New Indictment a Reminder of CPSC’s Enforcement Capabilities

New-Update-IconOn March 29, 2019, the Department of Justice announced that it had indicted for the first time two corporate executives for failing to furnish information under the Consumer Product Safety Act (CPSA).  The government alleged that the two individuals – executives of companies that imported, distributed and sold dehumidifiers – had failed to timely report known defects in the products to the Consumer Product Safety Commission (CPSC).  In an article published by the New York Law Journal, Jenner & Block Partner Anthony S. Barkow and Associate Danielle Muniz discuss this recent indictment and the sometimes overlooked enforcement capabilities of the CPSC, the federal agency that enforces the CPSA. 

To read the full article, please click here.

April 29, 2019 HUD Brings Housing Discrimination Charge Against Facebook

By Emily A. Bruemmer

HousingOn March 28, 2019, the US Department of Housing and Urban Development (HUD) filed a Charge of Discrimination against Facebook, alleging that Facebook violated the Fair Housing Act “by encouraging, enabling, and causing housing discrimination through the company’s advertising platform.”  This is an administrative action filed by the Secretary of HUD, on behalf of complainant Assistant Secretary for Fair Housing and Equal Opportunity, before the Office of Administrative Law Judges at HUD.  Unless any of the parties chooses to have the case heard in federal district court, an administrative law judge will hear the charge and may award damages, in addition to injunctive or other equitable relief, attorney fees, and fines.  HUD previously announced a formal complaint, initiated by the Secretary of HUD, against Facebook in August 2018.  The formal complaint was the first step in a process that then moved to a fact-finding investigation.  Last month’s charge indicates that the investigation resulted in a determination that there was reasonable cause to believe that Facebook violated the Fair Housing Act.

The Fair Housing Act prohibits making, printing, or publishing (or causing to be made, printed, or published) notices, statements, or advertisements related to the sale or rental of a dwelling that indicate “any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familiar status, or national origin, or an intention to make any such preference, limitation, or discrimination.”  Here, HUD has alleged that Facebook violated that prohibition by allowing advertisers not only on its social media platforms but also across the Internet through its advertising services to select or exclude categories of recipients of housing-related advertising by making distinctions based on race, color, religion, sex, familial status, national origin, disability, and/or zip codes.  According to the charge, advertisers could use a map tool to exclude people who lived in specific areas by drawing red lines, evoking historical discrimination through “redlining.”

This enforcement action came just ten days after Facebook settled five lawsuits related to allegedly discriminatory advertising practices, including one by fair housing groups the National Fair Housing Alliance, Fair Housing Council of Greater San Antonio, Fair Housing Justice Center of New York, and Housing Opportunities Project for Excellence, Inc. of Miami related to Facebook’s housing advertisement practices, and one by the ACLU, the Communications Workers of America, and Outten & Golden LLP related to sex discrimination in employment advertisements.

As HUD General Counsel Paul Compton stated in the press release: “Fashioning appropriate remedies and the rules of the road for today’s technology as it impacts housing are a priority for HUD.”  Further, that HUD’s lawsuit follows Facebook’s settlements with private parties provides a reminder that settling lawsuits with private plaintiffs is no guarantee that a federal or state regulator will not bring its own, separate enforcement action.  The case will be an important one to watch.

CATEGORIES: Privacy Data Security

April 29, 2019 HUD Brings Housing Discrimination Charge Against Facebook

By Emily A. Bruemmer

HousingOn March 28, 2019, the US Department of Housing and Urban Development (HUD) filed a Charge of Discrimination against Facebook, alleging that Facebook violated the Fair Housing Act “by encouraging, enabling, and causing housing discrimination through the company’s advertising platform.”  This is an administrative action filed by the Secretary of HUD, on behalf of complainant Assistant Secretary for Fair Housing and Equal Opportunity, before the Office of Administrative Law Judges at HUD.  Unless any of the parties chooses to have the case heard in federal district court, an administrative law judge will hear the charge and may award damages, in addition to injunctive or other equitable relief, attorney fees, and fines.  HUD previously announced a formal complaint, initiated by the Secretary of HUD, against Facebook in August 2018.  The formal complaint was the first step in a process that then moved to a fact-finding investigation.  Last month’s charge indicates that the investigation resulted in a determination that there was reasonable cause to believe that Facebook violated the Fair Housing Act.

The Fair Housing Act prohibits making, printing, or publishing (or causing to be made, printed, or published) notices, statements, or advertisements related to the sale or rental of a dwelling that indicate “any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familiar status, or national origin, or an intention to make any such preference, limitation, or discrimination.”  Here, HUD has alleged that Facebook violated that prohibition by allowing advertisers not only on its social media platforms but also across the Internet through its advertising services to select or exclude categories of recipients of housing-related advertising by making distinctions based on race, color, religion, sex, familial status, national origin, disability, and/or zip codes.  According to the charge, advertisers could use a map tool to exclude people who lived in specific areas by drawing red lines, evoking historical discrimination through “redlining.”

This enforcement action came just ten days after Facebook settled five lawsuits related to allegedly discriminatory advertising practices, including one by fair housing groups the National Fair Housing Alliance, Fair Housing Council of Greater San Antonio, Fair Housing Justice Center of New York, and Housing Opportunities Project for Excellence, Inc. of Miami related to Facebook’s housing advertisement practices, and one by the ACLU, the Communications Workers of America, and Outten & Golden LLP related to sex discrimination in employment advertisements.

As HUD General Counsel Paul Compton stated in the press release: “Fashioning appropriate remedies and the rules of the road for today’s technology as it impacts housing are a priority for HUD.”  Further, that HUD’s lawsuit follows Facebook’s settlements with private parties provides a reminder that settling lawsuits with private plaintiffs is no guarantee that a federal or state regulator will not bring its own, separate enforcement action.  The case will be an important one to watch.

April 26, 2019 Facebook Announces Potential $5 Billion FTC Fine

By Emily A. Bruemmer

Facebook-privacyOn April 24, 2019, Facebook announced in its Q1 earnings release that it had set aside $3 billion and estimates that it may pay up to $5 billion in a fine related to the FTC’s ongoing inquiry into its “platform and user data practices.” Facebook entered into a settlement with the FTC related to its privacy practices in 2011, which has reportedly been re-opened. This would be the largest fine ever imposed by the FTC on a technology company. The possibility of a “multi-billion dollar fine” was first reported this February by The Washington Post.

CATEGORIES: Privacy Data Security