GM Ignition Switch Plaintiffs Litigation: Not So Free and Clear

In an opinion issued yesterday, the Second Circuit provides a scintillating account of the astonishing events leading up to GM’s flop into bankruptcy in 2009 and its “surgical” sec. 363 sale of assets to New GM  “free and clear” of liabilities of Old GM.   The 2d Cir. decides whether plaintiffs who learned of failed GM ignition switches in 2014 could sue New GM under a successor liability theory, or were stuck with just Old GM as a defendant because of the 2009 section 363 sale.  I won't give away the exciting conclusion.  The opinion is here. 

Erin Andrews's Stalker Gets No Forgiveness in Bankruptcy

Erin Andrews’s claim against the stalker guy who videotaped her through a hotel door peephole got a $55 million judgment jointly against the stalker (Barrett) and the hotel.  Barrett filed for bankruptcy to discharge his debt to her (51% of the $55 million, the hotel was liable for the balance). Erin objected to discharge of her claim on grounds that under section 523(a)(6) it was for “willful and malicious injury.”  (Section 526(a) is  my personal favorite exception to discharge, however  sec. 523(a)(4) “fraud or defalcation while acting in a fiduciary capacity” is a close second).  Anyhoo—the bankruptcy court agreed with Ms. Andrews.  Creeper Barrett gets no forgiveness in bankruptcy.

How Are Americans Really Doing Financially?

FINRA Investor Education Foundation released the results of a study on the financial status of people living in the United States. View the report titled "Financial Capability in the United States 2016" to see findings nationally and by state.  The percentage of survey responders who report no difficulty covering their monthly bills increased from 36% in 2009 to 48% in 2015.  Those who report having emergency funds on hand increased from 35% in 2009 to 46%.  The percentage of responders who fall into the "high" financial literacy category (could answer 4 of 5 basic financial questions correctly) dropped from 42% in 2009 to 37% in 2015.   (Test your financial literacy skills by trying to answer these three questions correctly (no peeking at the answers).

Education makes a difference in financial resilience.  Almost half  of the responders with a high school education or less say they could not raise $2,000 in 30 days in case of an emergency.  Among responders with a college degree, the percentage was 18%.

Harrisburg's Parking Bonds Drop to Junk

In more bad news for Harrisburg, the  bonds issued by the Pennsylvania Economic Development Financing Authority (PEDFA) to fund parking operations in Harrisburg dropped to the top rank  of speculative grade,  BB+ , per S&P.  The parking system failed to make the revenue the bonds required for the past two years and is likely to fall short this year.  The parking bonds were part of a fiscal recovery plan for Harrisburg following a near insolvency crisis from its failed incinerator project.  Under a court approved plan, PEDFA took over Harrisburg's parking system under a long term lease.  In 2013, it issued about $285 million in bonds backed by parking revenue and used the cash to help pay off creditors.

Twinkies and Ho Ho's Find a New Owner

The current owner of Hostess Brands will announce later today an agreement to sell control of the company to an affiliate of the Gores Group for about $725 million.  Four years ago Hostess's former parent filed for bankruptcy, but Twinkies and Ho Ho's survived. The snack cake business got snapped up by corporate turnaround firms, who did just that by arranging a sale to Gores Group.

These iconic treats have an unlimited shelf life, both in the market and in kids' lunch bags.

Amazon is Crushing Mall Stores

Retail stores are closing at the highest rate since the 2010, and industry observers think the worst is yet to come.  Department store retailers and national chains that sell clothing got hit the worst.  Amazon, with its easy online interface and next day delivery, is growing.  It's easy to comparison shop online so department stores can't raise prices to cover overhead as sales volume drops. So  stores close.

In 2015, the states that were hid hardest by retail store closings were Arizona, California, Florida, Pennsylvania and Ohio.  

2d Circuit Rejects Class Action Settlement in Case against Visa and Mastercard

Here is the 2d Circuit opinion dismissing the $5 billion plus settlement of class action litigation by retailers against Visa and Mastercard over swipe fee policies.  The problem with the settlement was that some retailers in the class of plaintiffs were not adequately represented.  Judge Leval wrote:  “This is not a settlement, it is a confiscation.”

Sweet Opportunity to Grab Hershey

The Hershey Co. (NYSE-HSY) appears to be too sweet to resist for Mondolez (NASDAQ-MDLZ), owner of Oreo, Nabisco and Cadbury brands.  On Thursday, Mondolez sent a tasty offer to Hershey that valued the company at a 10% premium over its market price.  Hershey's board turned the offer down with a thump, noting in the press release that it "provided no basis for further discussion."  But Hershey's stock price spiked above the per share offer price, which may indicate that investors think sweeter bids are on the way, either from Mondolez, or another snack food suitor.

ABA Gets Spanked by NACIQI for Failure to Implement Student Achievement Standards

The American Bar Association Council on Legal Education is the accrediting agency for US law schools. Yesterday, the federal higher education accreditor watchdog, the National Advisory Committee on Institutional Quality and Integrity (NACIQI) , voted to suspend the ABA’s authority to accredit new law schools for one year due to the ABA’s lack of attention to student achievement/bar outcomes/employment and failure to assess student-loan default rates in assessing programs.  At the same meeting NACIQI voted to remove the recognition of the Accrediting Council for Independent Colleges and Schools (ACICS) for one year (pending correction of several shortcomings) primarily because of its failure to halt Corinthian’s and other for-profit colleges’ student admissions/financial aid practices.  This is an embarrassment to the ABA and to the legal academy.  The ABA has one year to comply with NACIQI's expectations regarding its accreditation practices. 

Federal Court Strikes CFPB's Investigation of For-Profit College Accreditor

Yesterday was a bad day for the CFPB.  The case is CFPB v. Accrediting Council for Independent Colleges and Schools (ACICS).   The CFPB issued a Civil Investigative Demand (CID) to ACICS in August.  After ACICS's lawyers objected, the CFPB sued ACICS in DC federal district court for enforcement of the CID.  ACICS responded that it would not comply with the CID on grounds that investigation of college accreditation processes is outside the scope of the CFPB's authority. The court agreed with ACICS.

A court's role in deciding whether to order compliance with an administrative CID is limited to determining whether the information requested in the CID is relevant to an investigation for "a lawfully authorized purpose."  The court must accord the agency that issued the CID with deference as to the scope of their authority and their estimation of the relevance of the information they request.

The court applied the provisions of the Dodd-Frank Act that set out the authority of the CFPB, inter alia, to take action "to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service."  The Act authorizes the CFPB to issue a CID to a person it believes possesses or controls information relevant to a violation of federal consumer financial laws. The CID must specify both the conduct the CFPB believes is a violation and the federal consumer financial law that conduct would violate.

In the CID it issued to ACICS, the CFPB identified the purpose of its investigation:  "to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges."(Emphasis added.)  ACICS argued that none of the federal consumer financial laws within the CFPB's authority address or implicate the process of accrediting for-profit colleges.  The CFPB argued that because it has statutory authority to investigate for-profit schools in relation to their lending and financial advisory services (activity covered by consumer financial laws), it also has authority to investigate whether an accreditor of a for-profit school engaged in any unlawful act relating to accreditation of such a school.

The court called the CFPB's assertion of authority "a bridge too far."  ACICS asserted that is not involved in the financial aid decisions of the schools it accredits. Although the CFPB may be entitled to investigate whether this assertion is true, the CFPB's stated purpose and the information it demanded was not limited to the narrow question of ascertaining the existence or scope of ACICS's role in accredited schools' financial aid decisions.  Rather, the CFPB's investigation of ACICS was directed to its accreditation process generally, a subject outside the CFPB's statutory enforcement authority.

Senator Elizabeth Warren (D) has publicly criticized ACICS for approving accreditation of several for-profit colleges, including Corinthian, which has since closed.  Senator Lamar Alexander (R) Chair of the Senate Comimttee on Health, Education,Labor, & Pensions wrote to CFPB director Richard Cordray reuqesting that the CFPB withdraw the CID and asserting that "[determining the role of accreditors for federal purposes is a congressional responsibility, not yours."  Of the 14 campuses formerly owned by Corinthian that were the subject of the CFPB investigation, many were purchased by Zenith Education Group, with the support of the Department of Education.

Lawyers are the Big Winners in "No-Injury" Class Actions

In a no-injury class action case, the plaintiff class alleges that the defendant violated a legal requirement under a statute (typically a consumer protection statute), and sues for "statutory damages"-- provided as the penalty for violation, even though the violation doesn't cause any actual injury or loss to anyone.  Law professor Joanna Shepherd studies 432 no-injury class action settlements and trial awards from 2005-2015.  Her study showed that about 60% of the total monetary award paid by defendants in these cases was allocated to the plaintiff class, and 39.7% to attorneys fees.  But, much of the money allocated to members of the plaintiff class is never claimed.  Actual consumers typically receive less than 9% of the total. The unclaimed money goes to a "cy pres" fund which gets distributed to not for profit organizations.   Lawyers for the plaintiff class recover over 4 times the amount actually distributed to the class.  Professor Shepherd concludes:  "A result in which plaintiffs recover less than 10 percent of the award, with the rest going to lawyers or unrelated groups, clearly does not achieve the compensatory goals of class actions.  Instead, the costs of no-injury class actions are passed on to consumers in the form of higher prices, lower product quality, and reduced innovation."

Rethinking Expiration Dates to Reduce Food Waste

Here is an interesting op ed by a lawyer and director of the Harvard Law School Food Law and Policy Clinic.  The author explains the inconsistent ways states regulate "sell by," "best by" and "expires on" dates on food.  She supports federal regulation to make use of these labels consistent, and clearly indicate to consumers whether and when they need to worry about the safety of their food-- which in turn will reduce food waste in the US. She writes:

Date label confusion harms consumers and food companies, and it wastes massive amounts of food, which harms the planet. The U.S. wastes 160 billion pounds of food, or nearly 40% of food produced in this country, annually. Twenty-five percent of our freshwater is used to grow food we throw away. What gets tossed out goes into landfills, releasing hazardous methane into an already stressed atmosphere. Making date labels clear and uniform offers a relatively low-cost way to eliminate confusion and save consumers money, and it would make a big dent in the unnecessary waste of wholesome food.