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Federal Court Approves for First Time Computer-Assisted Document Review
On February 24, a Southern District of New York Magistrate Judge held that computer-assisted review is an acceptable way to search for electronically stored information. Da Silva Moore v. Publicis Groupe, No. 11-1279, 2012 WL 607412 (S.D.N.Y. Feb. 24, 2012). The court explained that computer-assisted coding is the use of sophisticated algorithms to enable the computer to determine relevance, based on interaction with a human reviewer. The court then described traditional e-discovery keyword searches and manual review as, in some cases, “over-inclusive,” “quite costly,” and “not very effective.” In certain cases, the court concluded, computer-assisted review is the better approach. The judge then detailed the factors that favored computer-assisted predictive coding in this case: (i) the parties' agreement to use predictive coding; (ii) the size of the entire data set (more than 3 million documents); (iii) the accuracy of predictive coding compared to traditional methods; (iv) the need for cost effectiveness and proportionality under Rule 26(b)(2)(C); and (v) the “transparent” review process proposed by the defendant.
U.S. Supreme Court Upholds Pre-Emptive Power of the Federal Arbitration Act
On February 21, the U.S. Supreme Court upheld the Federal Arbitration Act’s (FAA) pre-emptive power over conflicting state laws and vacated a West Virginia Supreme Court of Appeals decision in which the West Virginia court found that arbitration clauses in nursing home contracts were unenforceable if adopted prior to an occurrence of negligence that resulted in personal injury or wrongful death. Marmet Health Care Center, Inc. v. Brown, 565 U.S. __ (2012) (per curiam). The three plaintiffs—family members of patients who had died in nursing homes—sued the homes in state court alleging negligence. The trial court dismissed two of the suits based on agreements to arbitrate that were found in the contracts. The Supreme Court of Appeals of West Virginia consolidated all three cases, and held that the arbitration clauses in the contracts were unenforceable “as a matter of public policy.” The U.S. Supreme Court, citing recent decisions in which the FAA pre-emptive power was reinforced, reversed the West Virginia court, stating, “[t]he West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.” The Court explained that whenever a state law prohibits outright the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA. Because West Virginia’s prohibition against predispute agreements to arbitrate negligence claims in nursing home suits was a categorical rule prohibiting arbitration, the rule was contrary to the terms and coverage of the FAA and could not be used to avoid arbitration.
Nineteen States Settle With Debt Collector Over Collection Practices
On February 6, nineteen state attorneys general announced a multi-state settlement with NCO Financial Systems, a debt collection company, to resolve allegations of misleading and deceptive debt collection practices. Under the agreement, the company must set aside $950,000 ($50,000 for each state) for consumer restitution, and will pay $575,000 for state consumer protection enforcement efforts. Restitution will go to consumers who paid the company for debts the consumers did not owe, who overpaid interest, or who overpaid a debt beyond what the company had agreed to settle an account. The company also agreed to (i) comply with the Fair Debt Collection Practices Act, the federal Fair Credit Reporting Act, and all applicable state laws, (ii) notify credit reporting agencies within 30 days of consumer disputes and results of investigations into disputes, (iii) provide notice to consumers about their debt collection rights under federal and state law, and (iv) monitor compliance, create written policies and procedures for handling consumer complaints, and submit periodic compliance reports.
The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher
In the February 2012 volume of The Banking Law Journal, BuckleySandler partner Jeff Naimon published "The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher", in which the authors review the text of the Fair Housing Act, its legislative history, and past federal appellate court decisions holding that the FHA permits disparate impact claims. They argue that recent Supreme Court decisions cast doubt on the past federal appellate court decisions, and show that the statutory text of the FHA, unlike the text of some other civil rights laws, does not permit disparate impact claims. They also discuss the case currently pending before the Court in which the Court may address for the first time whether the FHA permits disparate impact claims.
U.S. Supreme Court Holds TCPA Litigation Not Confined to State Courts
On January 18, the U.S. Supreme Court unanimously held that the Telephone Consumer Protection Act (TCPA) does not require that private actions seeking redress under the TCPA be heard only by state courts. Mims v. Arrow Financial Services, LLC, No. 10-1195, 2012 WL 125429 (Jan. 18, 2012). The decision reversed an Eleventh Circuit decision upholding a district court’s finding that Congress had placed exclusive jurisdiction over private TCPA actions in state courts. In so reversing, the Supreme Court contravened prior decisions from the Second, Third, Fourth, Fifth and Ninth circuits. Unlike those decisions, the Supreme Court found no reason to convert the TCPA’s permissive grant of jurisdiction to state courts into an exclusive grant barring the federal-question jurisdiction of U.S. district courts. According to the Supreme Court, in the TCPA Congress enacted “detailed, uniform, federal substantive prescriptions” related to telemarketing and “provided for a regulatory regime administered by a federal agency.” Congress could have, but did not, seek only to fill gaps in states’ enforcement capability.
FTC Enhances Confidentiality of Investigations and Proposes Rule to Expedite Investigatory Processes
On January 13, by a vote of 5-0, the FTC adopted a new rule of practice (Rule 2.17) that streamlines internal procedures for staff seeking a court order to prevent investigation targets from learning about subpoenas and civil investigative demands issued by the FTC. The rule allows individual FTC Commissioners or the FTC’s general counsel to authorize the filing of a court action to delay notification to individuals required under the Right to Financial Privacy Act and the Electronic Communications Privacy Act when the FTC is seeking records from financial institutions or service providers.
Also on January 13, the FTC proposed additional changes to Parts 2 and 4 of its Rules of Practice to expedite Commission investigations and ensure that the FTC’s investigatory processes keep pace with electronic discovery advances. Among the proposed changes is a requirement for an accelerated meet-and-confer schedule to resolve electronic discovery disputes, as well as a proposal to relieve parties of their obligations to preserve documents after a year passes with no written communication from the FTC. The public can comment on the proposed rule changes through March 23, 2012.
Massachusetts District Court Says Zip Codes Constitute Personal Identification Information
On January 6, the U.S. District Court for the District of Massachusetts found that a retailer’s collection of ZIP codes during a credit card transaction can constitute a violation of Mass. Gen. Laws ch. 93, §105(a) (the Act), but held that a plaintiff must allege actual harm. Tyler v. Michaels Stores, Inc., No. 11-10920, 2012 WL 32208 (D. Mass. Jan. 6, 2012). The complaint, filed on behalf of a putative class, alleged that a retailer’s request for customer ZIP codes when processing credit card transactions violates the Act because ZIP codes constitute protected personal identification information (PII). Noting that the plaintiff alleged only that she had received unwanted mail, not that the information was sold or otherwise exposed her to an increased risk of fraud, the court agreed with the retailer and held that the plaintiff failed to allege actual injury. However, the court found that ZIP codes are PII under the Act, and that plaintiff had alleged a per se statutory violation. The court warned that "[s]ince retailers so routinely request a customer's ZIP code at the point-of-sale in a credit card transaction, they ought note here that this Court holds [the retailer] potentially to have violated [the Act] if such request was made during a transaction in which the credit card issuer did not require such disclosure.” The court’s decision also distinguished the Act as "much narrower in scope” than California’s Song-Beverly Act, which is intended not only to prevent fraud like the Act, but also to "prevent[] retailers from directly or indirectly obtaining personal identification information for marketing purposes," which was the subject of the California Supreme Court’s holding in Pineda v. Williams Sonoma, Inc., 246 P.3d 612 (Cal. Sup. Ct. 2011). On January 13, plaintiff moved the court to certify the question of law at issue in this case to the Massachusetts Supreme Court.
Ninth Circuit Holds That California Law Cannot be Applied to a Nationwide Class
On January 12, the U.S. Court of Appeals for the Ninth Circuit reversed the certification of a forty-four state class of consumers, finding that California’s consumer protection laws could not be applied to a nationwide class, and that even a California-only class failed the rigorous analysis required for certification recently affirmed in the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Mazza v. American Honda Motor Co., Inc., No. 09-55376, 2012 WL 89176 (9th Cir. January 12, 2012).
In Mazza, plaintiffs sued a California vehicle manufacturer for violations of California’s unfair competition and false advertising laws as well as unjust enrichment, alleging that the manufacturer misrepresented and concealed material information in its marketing of vehicles equipped with a collision safety system. The court found that under California’s choice of law rules, each state had an interest in the application of its own laws to the claims of those putative class members who purchased or leased vehicles in those states. Further, material differences among the forty-four states’ laws required that each state’s law must be applied to the transactions that occurred in-state. The court noted that each state has an interest in determining the level of liability faced by companies operating in-state, such that “[m]aximizing consumer and business welfare, and achieving the correct balance for society, does not inexorably favor greater consumer protection; instead, setting a baseline of corporate liability for consumer harm requires balancing the competing interests” in each state. Accordingly, the class could not be maintained under Federal Rule of Civil Procedure 23(b)(3) because the material variations in the laws of the multiple states “overwhelm common issues and preclude predominance for a single nationwide class.” The court also held that even a California-only class failed the predominance requirement of Rule 23(b)(3) because class members could not be presumed to have relied on the manufacturer’s “very limited” advertisements of the collision safety system. According to the court, unlike the sort of “extensive and long-term” fraudulent advertising campaign that could justify a presumption of reliance by members of the class, the manufacturer’s campaign was neither temporally expansive nor affirmatively dishonest. Thus, the individual factual issues regarding whether each class member had actually seen the advertising prior to purchasing or leasing the vehicle precluded class certification.