Federal Judge Hauls Federal Government into Private Civil Litigation to Explain Its Purported Failure to Regulate
It's not often that one encounters a judge with the chutzpah to order the federal government to appear in his courtroom in a private civil case and then attempt to shame a federal agency -- or even Congress -- into action. But anyone with more than a passing background in class actions, torts and consumer fraud already has figured out that I am writing about Judge Jack B. Weinstein, who possesses an abundance of creativity and is unafraid to use it in addressing legal problems.
Recently Judge Weinstein issued an advisory opinion -- which he called a "Preliminary and Provisional Draft Memorandum and Order" -- in a putative consumer fraud class action against telephone service providers who supply services to holders of pre-paid telephone cards. See Ramirez v. Dollar Phone Corp., 2009 WL 3171738 (E.D.N.Y. Oct. 1, 2009). From his advisory opinion, it is clear that Judge Weinstein sees an injustice that he believes needs correcting. He noted that his class action was one of 22 pending since 2003 involving prepaid calling cards, which had been before 15 different judges in 6 different district courts. Slip op. at *10.
In such cases, it is typically alleged that the following information is not adequately disclosed to consumers: (1) the price a consumer pays per billing increment, (2) the "per call" fee typically imposed, (3) the higher rate often charged for calls to mobile phones, and (4) that providers often charge a weekly fee and the circumstances in which that fee applies. Id. at *6. The consumers "are typically low-income consumers who cannot obtain traditional phone service, many of them recent non-English-speaking immigrants who use the cards to call home." Id. at *2. According to Judge Weinstein, the Federal Trade Commission has not issued any comprehensive national regulations governing phone cards, and although there is a bill pending in Congress on the subject, Congress to date has not passed a statute addressing the problems. Moreover, a handful of states have enacted statutes imposing a patchwork of different obligations on those who sell pre-paid phone cards, making compliance difficult for those who market the cards.
In Ramirez, the plaintiff claimed to have lost $2 in fees and charges on his phone card, and he sought to represent a Rule 23(b)(2) and (b)(3) class of phone card consumers from 11 states with allegedly similar consumer fraud acts. The defendant moved to dismiss, citing a failure to meet Rule 9(b)'s pleading standard, a lack of standing under most states' consumer fraud acts, and failure of subject matter jurisdiction for certain states' consumer fraud acts. As only Judge Weinstein can do, he told the parties to treat the motion as one for summary judgment and "requested" the federal government to appear to answer questions.
An AUSA from the Eastern District of New York appeared at an August 31 hearing in this private civil class action:
He stated that the FTC has been active in bringing deceptive practices cases against prepaid calling card distributors. . . . No information was available at the time of the hearing regarding applicable federal regulations or federal agency policies concerning the prepaid calling card industry. . . . The government was requested to submit a report within 45 days of the hearing regarding any applicable federal regulations, federal enforcement activity, and the policies of the FTC, the Federal Communications Commission, and any other concerned federal agency. Id. at 35-37 (requesting "a comprehensive discussion of what they have done and what they plan to do about this and what they -- by 'they,' I mean the Federal Government, Department of Justice and the administrative agencies -- suggest that this Court do about it.").
Slip op. at *8 (citations omitted). The court set a hearing for October 16 "at which time the government, the parties, and any other interested person who wishes to be heard may appear orally or by written submission." Id. at *19.
Judge Weinstein's advisory opinion is careful to say that is not actually a ruling on the motion to dismiss nee summary judgment motion, but indicated that the court is "disinclined to allow plaintiff's class action to go forward." Id. at *8. The court explained that the defendant service providers are not the proper parties to be sued because they do not make the calling cards or the packaging with the allegedly deceptive statements. That is done by third party distributors. Borrowing from the precedent of handgun litigation, Judge Weinstein reasoned that "it is doubtful whether [defendants] would be liable for inadequate disclosures if third-party distributors, rather than [defendants], determined the material printed on the cards." Id.
Ultimately, the Judge Weinstein advised that any class would fail the superiority requirement:
In the present case, the amount that would be recovered by any class members is small, to the point that it would probably not even warrant submitting a claim form were the class certified and successful in obtaining a recovery. Moreover, many members of the class are undoubtedly illegal immigrants who would be afraid to participate in a legal proceeding that might reveal their presence. The only real immediate monetary beneficiaries of handling the claims of class members through a class action would be the attorneys who hope to collect fees. That does not seem a sufficient basis for certification.
A more appropriate way to protect the rights of the Rule 23(b)(3) class is through regulation and enforcement activity by a federal administrative agency. The only effective remedy for the harms alleged would be a uniform system of regulation of the prepaid calling industry based on legislation or public administrative rulemaking, including public hearings, resulting in rules that would cover the entire country and take account of international implications. The court system cannot efficiently carry the burden of protecting this class. To use the truncated powers of a misshapen Rule 23(b)(3) class action to address the issues raised in plaintiffs' complaint would be unfaithful to the premise and reason for the class action -- considerations of equity and good judgment.
. . . It is industry-wide federal regulation, rather than any injunctive relief the court could provide in this limited civil action concerning only some of the many conflicting state laws, which is required effectively to address the conduct alleged in plaintiff's complaint.
Id. at *9-*10.
Describing the patchwork of state laws and limited federal enforcement actions, Judge Weinstein also advised:
This sprawling, hit-or-miss, repetitive, costly, and confusing series of civil litigations across many states is an absurd way to control a vital national and international form of communication. It is intolerable for a multi-billion dollar industry affecting the lives of millions of consumers, many of them low-income or recent immigrants to whom telephone contact with loved ones abroad is vital to their own and their families' health and happiness. . . . The present chaotic situation is also harmful to the service providers and distributors, who face widely varied state regulatory regimes, in the absence of clearly announced federal regulations.
Id. at *17; see also id. at *18 ("While the federal administrative system dithers, the courts and states struggle -- unsuccessfully -- to meet a serious set of national and international communication problems that require a uniform national approach. Piecemeal civil litigation alone cannot address these issues.").
Unfortunately I am presenting on a panel at the time of Judge Weinstein's October 16 hearing. But I would welcome a report from a reader who attends. Two things are certain: it won't be boring, and it will be unlike any motion to dismiss hearing you've ever seen in a civil class action case.