In light of the Federal Reserve's proposed new credit card regulations, are we looking at the next frontier in unfair practice class actions?

On May 2, 2008, the Federal Reserve Board proposed rules "to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances."  (See, May 2, 2008 Press Release.)The proposed revisions to the FTC Act include five key protections for consumers that use credit cards:

  • Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
  • Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
  • Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
  • Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
  • Banks would be required to provide consumers a reasonable amount of time to make payments.

The proposed rule revisions would also address subprime credit cards by limiting the fees that reduce the available credit to the consumer. In addition, banks that offer credit by advertising multiple rates or credit limits would be required to disclose in their solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

Looking at the detailed regulations governing mortgage lending (TILA and Regulation Z), and the decisional law that followed, it appears that even sophisticated banks routinely fail to implement practices and procedures that are fully compliant with regulatory requirements.  Assuming similar difficulty by lenders in adjusting their practices to comply with new credit card-related regulations, we may be looking at the "next thing" in consumer class action litigation.  After all, we're still waiting to see what the Seventh Circuit will do with the trial court decision in Andrews v. Chevy Chase Bank FSB (E.D.Wis. 2007) 474 F.Supp.2d 1006, a case holding that a declaration of the right to rescind under TILA was available on a class-wide basis.  If that question still isn't settled under TILA to this day, you can safely wager your home that new credit card practices regulations will leave much for Courts to decide.

[Via Consumer Law & Policy Blog]

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COMPLEX TECH: Are you protecting your (and your client's) data with encryption?

Well?  If you aren't entirely clear on what is meant by "encryption," you need to be.  If you understand encryption and aren't using it, are you waiting for a data breach or loss before you actually implement any form of encryption security?  Depending upon your level of tech know-how, you should either be learning about encryption or using it.

Consider the recent Ninth Circuit decision in United States v. Arnold.  In that opinion, the Ninth Circuit held that border patrol agents can search your laptop or other digital device without limitation when you are entering the country.  The Electronic Frontier Foundation suggest encryption as one solution: "If you encrypt your hard drive with strong crypto, it will be prohibitively expensive for CBP to access your confidential information."  (Jennifer Granick, Protecting Yourself From Suspicionless Searches While Traveling (May 1, 2008) www.eff.org.)

But you don't travel outside the country with a laptop, so United States v. Arnold doesn't impress.  So consider this hypothetical that probably hits close to home for many attorneys.  You are at Big Firm's offices for endless days of deposition testimony in a massive toxic chemical spill case.  Big Firm graciously provides an open wireless network for you to access while in their offices.  You don't know anything about WiFi, other than your Windows laptop is set to look for open WiFi networks and connect automatically.  It seems to work every time you go to offices like Big Firm's, so you don't worry about it.  You surf the Internet during breaks, you log onto your office e-mail server, you check your bank account balance online, all with not a care in the world.  But did you know that all your wireless data is flying through the air in an unencrypted format that any junior high school hacker could capture and analyze.  You might luck out if some of the sites you visit use SSL encryption for password submission, but you are basically operating your computer out in the open.  Even Big Firm's IT staff could be reading and recording your transmissions...

Subsequent posts in the COMPLEX TECH series (i.e., those posts that follow after this very first post under the COMPLEX TECH moniker) will identify some specific encryption options.  But for now, a simplified explanation of what is meant by "encryption."  In grade school you likely discovered the substitution cypher.  A simple substitution cypher is created by writing down the alphabet and then writing a second copy of the alphabet under the first shifted over by an arbitrary number.  For example, if you shift two letters right, your second alphabet's "A" appears under the "C" of the first.  Your second alphabet's "B" appears under the "D" of the first, and so on.  When you get to the end of the first alphabet, you wrap back around to the beginning.  The second alphabet is used to encode a message.  First, you write out your message.  Next, you find each letter of your message in your first alphabet and record those letters.  The result is that the original message is replaced with a set of letters that have been shifted using your "key."  The problem with substitution cyphers is that they are incredibly easy to crack, even without computers.

In WWII, the Germans created the Enigma machine, which created encoded messages that were very hard to break.  Essentially, the machine used a substitution cypher that changed every time a key was typed on the keyboard.   In other words, every letter was encoded with a different substitution cypher.  But even that complex encoding system was cracked without the use of the computing power available today.

Encryption techniques used today take data and either divide it into blocks, scrambling and obscuring each block individually, or convert a block of text into a large number and perform mathematical operations on that number with other huge numbers.  The important piece of information that you should take from this discussion is that secure encryption methods, like PGP, are believed at present to be secure from all decryption techniques, or so secure that only governments with the highest level of technical know-how could every crack the encryption technique (it is generally believed that if PGP is breakable, perhaps only the NSA is capable of doing so).

Stay tuned for more encryption discussions in the COMPLEX TECH series.

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Profit Concepts Management, Inc. v. Griffith provides further guidance on "prevailing party" definition

Greatsealcal100 In complex litigation, as jurisdictional and factual circumstances become increasingly complicated, it is regularly difficult to ascertain the identity of prevailing parties.  In Profit Concepts Management, Inc. v. Griffith, the Court of Appeal (Fourth Appellate District, Division Three) offers some additional guidance on the concept.  Specifically, the Court considered whether a defendant that successfully quashed service for lack of personal jurisdiction was a "prevailing party" entitled to recover attorney's fees pursuant to a fee recovery clause in a contract underlying the dispute.

The Court first established the framework for its analysis: "Attorney fees are allowable as costs under Code of Civil Procedure section 1032 when they are authorized by contract. (Code Civ. Proc., § 1033.5, subd. (a)(10)(A).)" (Slip op., at p. 3.)  Next, the Court noted that authority cited in the trial court by appellant (Berard Construction Co. v. Municipal Court (1975) 49 Cal.App.3d 710) relied upon a prior version of Civil Code section 1717 that had been amended subsequently.  The Court than analyzed the outcome of the matter before it to determine if Griffith prevailed:

The only claims before the trial court were contained in Profit Concepts’s complaint, which sought compensatory and punitive damages in an amount to be determined, as well as preliminary and permanent injunctive relief. The case in California has been finally resolved. What was awarded on Profit Concepts’s complaint? Zero. Thus, the contract claim was finally resolved within the meaning of Hsu v. Abbara, and that case does not use the term “merits.”

(Slip op., at 7.)  Here's the real catch to all of this:  "Griffith moved to quash service of summons for lack of personal jurisdiction. Profit Concepts filed a notice of nonopposition to the motion to quash, and the trial court granted the motion."  (Slip op., at 3.)  You'd have to imagine that Profit Concepts would have opposed the Motion to Quash if it knew that the granting of the Motion would have resulted in Griffith obtaining attorney's fees as the "prevailing party."  While this action isn't complex, you can certainly imagine situations like this arising in complex actions with dozens of defendants and cross-defendants.  Moral:  Be careful who you name as a party in a contract-based action.  You might be writing them a check for their attorney's fees.

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Breaking (Unpleasant) News: U.S. federal courthouse in San Diego closed Monday due to bombing

Wage Law, a usually pleasant read on developments in California's wage & hour litigation-scape, is the source for the unfortunate news on this blog that a pipe bomb exploded outside the federal courthouse in San Diego (Southern District of California).  According to FOXNews, the pipebomb exploded at 1:40 a.m. on Sunday, May 4, 2008.  Fortunately no injuries resulted from the late night detonation.  You can view the notice regarding the courthouse closure on the Southern District's homepage.

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Large majority of Am Law 200 firms not yet fully sold on blogging

LexBlog, a company that helps build and maintain law blogs, conducted a survey of blogging activity by Am Law 200 firms.  As reported via a Law.com article, as of mid-March, 53 Am Law 200 firms were blogging in some manner, either through a blog the firm itself sponsored or a blog run on the side by one of its lawyers.  (Alan Cohen, Cutting a Winning Edge in Law Firm Blogs (May 2, 2008) www.law.com.)  The blogging activities of Am Law 200 firms is relatively new: "A little more than a third of those firms started blogging in the last six months alone, according to LexBlog."  (Ibid.)  Most Am Law 200 firms offer very targeted blogs, focusing on a specific area of law.

Large firms examining the bloggin issue return to the same questions:

  • How much business will a blog generate?
  • What if something goes wrong as a result of a blog?
  • How much nonbillable time will a blog take?

While the big firms wrestle with these issues, the biggest returns on the blogging investment are being realized by small firms.  (Gina Pasarella, Am Law Firms Giving Blogs The Stamp Of Approval (April 17, 2008) www.law.com.)  "Blogs can be more effective than almost any other marketing tool in showing a clear return on investment, according to one legal marketer."  (Ibid.)

Blogging in the legal industry is rapidly evolving, and I'm willing to confront the risks that have about three quarters of the Am Law 200 sitting on the sidelines.  The last 5 weeks since this blog launched have been exciting, educational, nerve-wracking, and tiring.  But it has been worth it so far.  And just in case you didn't read my disclaimer, I'm not offering you any legal advice on this blog, and we don't have an attorney-client relationship just because you found and read this blog.  Oh, and my blogging is unrelated to my employment or my employer.  Just so we're clear on those details.

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e-DISCOVERY: Updated online resources

Rambrog100 In December 2007, Robert Ambrogi published a two-part article on his blog, Robert Ambrogi's Lawsites, that collected and reviewed e-discovery sites on the internet.  (See Part 1 and Part 2.) After the publication of that two-part article on Lawsites, two prominent e-discovery sites received substantial updates (one receiving a complete domain name change and makeover) that deserve follow-up coverage.  The first, DiscoveryResources.org, sets the standard as an e-discovery information repository.  According to Robert Ambrogi:

DiscoveryResources.org "may be the leading e-discovery portal" and that its Sound Evidence blog, written by e-discovery expert Mary Mack, is "one of the best known e-discovery blogs."

On May 1, 2008, the site relaunched with a number of updates and improvements.  Updates include: new navigation for tracking e-discovery best practices and case law; new "From the Experts" articles on current e-discovery issues and trends; RSS feeds for tracking the latest news and information; updated links to industry resources and judicial opinions; a newly designed monthly newsletter; and, links to industry blogs and other e-discovery community resources.

Another popular resource, Information Governance Engagement Area, has been discontinued in favor of a new site. The author, Rob Robinson, who has worked with several e-discovery companies, just launched Complex Discovery, which he describes as a source for "information, tools and tactics relevant to the growing discovery market." The site is organized around e-discovery stages, including collection, processing, review and production, and has a number of helpful resources. In addition to articles, news items, guidelines and the like, Robinson highlights several of the site's innovative features:

Scribd - iPaper Document Library: A growing online repository of interesting and applicable papers relevant to the field of electronic discovery.

Yahoo! Pipes EDD Mashup (RSS): An aggregation of key electronic discovery RSS feeds that serves to provide continuous updates on topics related to electronic discovery.

Twitter - ComplexDiscovery Updates: A Twitter feed that highlights the daily posting on the specific ComplexDiscovery RSS feed.

Mogulus - Video Learning on EDD: A video channel designed to share publicly available video presentations relating to electronic discovery.

Mofuse - Website Mobile Version: A mobile version of the ComplexDiscovery website designed specifically for mobile devices to include cell/iPhones.

(Robinson, InfoGovernance To ComplexDiscovery = More Robust And Objective eDiscovery Content (April 11, 2008) http://infogovernance.blogspot.com/.)

These sites are excellent springboards to e-Discovery resources online.

e-DISCOVERY posts will become a regular feature of The Complex Litigator.  Look for more on this rapidly changing subject soon.

[Via Robert Ambrogi's LawSites]  Aside:  Lawsites is a great way to learn about the evolving online legal community.

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