Chicago Business Litigation Lawyer Blog

Dismissal of Scottie Pippen Libel and Slander Suit Affirmed by 7th Circuit

February 16, 2014 | Peter S. Lubin and James V. DiTommaso

Many employers will not hire an employee if it is known that the employee has filed for bankruptcy or is suffering from debt. This can then harm the employee’s ability to make money in order to escape her debt.

This allegedly happened with the famous basketball player, Scottie Pippin. Since his retirement from playing basketball in 2004, Pippin has lost a large portion of his fortune through bad investments. As a result, he has filed multiple lawsuits against some of his former financial and legal advisors, whom he feels misled him. When the media heard of Pippin’s financial problems, several news organizations reported that the basketball star had filed for bankruptcy, which is not true.

Pippin then filed a lawsuit against some of these news organizations for defamation, alleging that the reports have had a negative impact on his ability to acquire product endorsements and personal appearances.

The Northern District of Illinois, in which the suit was initially filed, dismissed the case, stating that the complaint contained falsehoods which did not fit into any category of statements which are recognized by Illinois law as being so innately harmful that damages can be assumed.

Because Scottie Pippin is a public figure, he bears a heavier burden of proof in order to file a claim for defamation than a private citizen would. This is because public figures have greater access to the media through which they can refute defamatory statements. Private citizens are less likely to have the same level of access, thereby rendering defamation innately more harmful to a private citizen than to a public figure.

The court also found insufficient evidence that the statements had been published with actual malice, rather than ignorance. Because Pippin is a public figure, he needed to prove that the false statements were a product of actual malice in order to file claims. In order to qualify for actual malice, the defendant must have known that the statement was false and published it anyway. When a media outlet fails to confirm that a statement is false, a plaintiff might be able to sue them for negligence, but not actual malice. Although Pippin alerted the defendants to the falsity of their statements after publication, it was not enough to prove that actual malice existed at the time that the statement was published.

Additionally, cases of defamation in the state of Illinois are subject to the Single Publication Act, which provides that a claim for defamation is complete after the first publication. The Act was put in place to protect speakers and writers from facing multiple lawsuits regarding a single statement which was mass-produced.

Pippin argued that the Single Publication Act does not apply to material posted on the Internet. This, according to Pippin, is because those who publish on the Internet, as the defendants in this lawsuit did, can more easily post and delete material. Therefore, Pippin argued that every day that the defamatory material remains on the website after the publisher knows that it is false constitutes a republication of the material.

The Single Publication Act does not deal directly with statements published online, so the court was forced to infer from decisions made in similar cases in other courts. Based on these past decisions, the court ruled that the Single Publication Act does apply to material published on the Internet. As a result, the news organizations can only be held responsible for the first publication of the defamatory statement.

Supreme Court Rules That Reports to TSA Are Protected Speech Which Cannot Become the Subject of a Defamation Suit

February 12, 2014 | Peter S. Lubin and James V. DiTommaso

While the law can protect citizens against defamation, there are limits to the kinds of statements which are considered defamatory. Generally speaking, a statement must be made publicly in order to be actionable under defamation law. Under most circumstances, any reports that an airline makes to the Transportation Security Administration (TSA) have immunity from defamation lawsuits. Despite this fact, William Hoeper, a former pilot for Air Wisconsin, filed a defamation lawsuit against the airline for making a report to the TSA which stated that they were concerned about his mental stability and that he may be armed.

The airline filed a report after Hoeper failed a final flight simulator test which he needed to pass in order to continue working for the airline. Hoeper admits that, upon his failure, he tossed his headset, exchanged words “at an elevated decible level”, and accused the instructor of creating an unrealistic test. As a pilot, Hoeper was authorized to carry a gun and airline officials worried that he would be able to bypass security while carrying a weapon.

Because it is in the public’s best interest for airlines to report suspicious behavior to the TSA, airlines are granted immunity from defamation lawsuits when filing these reports. Only if the airline makes these reports with reckless disregard for the truth can it be held accountable under relevant defamation law. The Colorado Supreme Court found that, in this instance, the airline did not have immunity and so it awarded Hoeper $1.2 million in damages.

The decision was appealed and the United States Supreme Court agreed to hear the case. The Supreme Court found that, because the airline’s report to the TSA was not materially false, the airline still had immunity regarding that report. The Court therefore reversed the ruling of the Colorado Supreme Court.

Justice Antonin Scalia wrote a dissenting opinion where he partially disagreed with the Court’s ruling. He argued that the case should have been remanded for further proceedings once it was determined that the material falsity standard was applicable in this case. He also argued that the award for damages could be justified given the report’s association of Hoeper’s conduct with mental illness.

Justice Sonia Sotomayor disagreed, arguing that fretting over word choice could delay reports of suspicious behavior to the TSA. Sotomayor also pointed out in her majority opinion that Hoeper “cannot dispute the literal truth of the airline’s report to the TSA, leaving him with no room to sue for defamation. She further wrote that the statement that the airline’s supervisors were concerned about Hoeper’s mental stability conveyed the gist of the situation.

Sotomayor took issue with Scalia’s assertion that Hoeper’s “display of anger” made him no more of a threat than “millions of perfectly harmless travelers.” Sotomayor argued that “Hoeper did not just lose his temper, he lost it in circumstances that he knew would lead to his firing, which he regarded as the culmination of a vendetta against him. And he was not just any passenger; he was [authorized to carry a firearm]”.

Marketing Company Cannot Escape Class Action Through Arbitration 9th Circuit Rules

February 10, 2014 | Peter S. Lubin and James V. DiTommaso

While the law has struggled to catch up with the swift progression of technology in recent years, particularly the increase in internet use, many companies have taken advantage of the ease of acquiring consumers’ information. It is easier than ever for companies to gain access to an individual’s credit card information. Many companies make deals with each other to share this information, despite the fact that such agreements are illegal.

Many laws, though, remain relevant regardless of whether the transaction took place online or in person. This was demonstrated in one recent class action lawsuit against an online marketing company. The named plaintiffs filed their class action lawsuit against a company which performs background checks. The plaintiffs noticed that regular monthly charges appeared on their credit card for a report which they allege they did not intend to buy. The company performing the background checks said that the consumers were misled into purchasing the subscription of the online marketing company. As a result, the marketing company was added as a third defendant.

The background check company provided space on its website for the marketing company and used a “data pass” method of sharing credit card information which is now allegedly illegal. The marketing company used that shared information to enroll customers in free trial subscription offers which were then converted into a monthly billed subscription.

The marketing company moved to force the lawsuit into arbitration.

The district court ruled that the consumers had entered into a contract with the marketing company, but the court denied the motion to force arbitration.

The plaintiffs appealed and the case went to the Ninth Circuit Court of Appeals. The appellate court noted that, under Washington law, a contract requires mutual assent to its essential terms in order to be considered legally binding. Those essential terms include the names of the parties involved in the contract. The appellate court found that the web page which the consumers used to buy the subscription service did not sufficiently identify the marketing company as the party making the contract with the consumers. The appellate court also remained skeptical as to whether providing an email address and clicking a “yes” button is sufficient to agree to a contract. Such clicks are still new enough that many courts don’t quite know how to handle them.

The appellate court also denied the marketing company’s motion to force the case into arbitration. The court decided that, since the arbitration provision was on another hyperlink which the consumers did not click on, no valid arbitration agreement took place.

Arbitration agreements have grown increasingly popular with companies in recent years. Consumers and employees alike are both being asked to sign more and more contracts containing arbitration agreements. These agreements tend to favor the company over the individual as they make class actions impossible and the arbitrator is often chosen and paid for by the company. The higher courts have upheld many arbitration agreements in recent years, but not all of the appellate courts have been as favorable to the agreements. Many have been found to be unenforceable and the likelihood of such a finding can only increase if the consumer never even saw the arbitration agreement.

Guess Jeans Sued in TCPA Class Action

February 7, 2014 | Peter S. Lubin and James V. DiTommaso

While many of us have come to accept annoying advertisements as part of our daily lives, few of us expect to pay money out of our own pocket in order to be annoyed by promotional advertising. It was with this fact in mind that the Telephone Consumer Protection act (TCPA) was enacted to protect consumers from paying for phone calls that companies make to advertise their products or services.

While calling current and potential customers has long been an advertising method for companies, consumers began complaining with the advent of cell phones. This is because cell phone users are charged for each call that they receive, or get a deduction of minutes from their plan, regardless of whether or not the call is authorized. The TCPA was therefore enacted, making it illegal for companies to make unauthorized calls to consumers except in the case of an emergency.

Along with cell phones came the invention and the increasing popularity of text messages. As technology evolves, the law is forced to change in order to accommodate it, especially when our forms of communication are affected. A court is San Diego will soon determine if text messages should be treated the same as phone calls under the TCPA.

The lawsuit involves a class of consumers who allege that Guess? Inc. contacted them through text messages in violation of the TCPA. According to the complaint, this is a result of the fact that marketers have recently been “stymied by federal laws limiting solicitation by telephone, facsimile machine and e-mail have increasingly looked to alternative technologies through which to send bulk solicitations to consumers easily and cheaply”. Advertisements sent through facsimile machines are also illegal, because the consumer is the one that has to pay for the paper and ink used to print the facsimile when it comes through.

Faridah Haghayeghi, the named plaintiff in the class action lawsuit, alleges that she received several unsolicited text messages from Guess? Inc. in 2013, but according to the complaint, the company has been sending these mass text messages to consumers since at least 2009, if not earlier. The aim of the text messages was allegedly to promote the defendant’s products to current and potential customers. Haghayeghi alleges that she did not provide Guess? Inc. or any of its agents with prior consent to send her these text messages and that the company never told her that it would use her cell phone number to send her promotional text messages.
The lawsuit alleges that each text message was created using equipment which had the ability to store or produce telephone numbers to be called, using a random or sequential number generator. Because of this, the lawsuit is claiming that these mass text messages are prohibited under the federal TCPA.

The TCPA entitles plaintiffs who file successful complaints under the statute to $500 for each violation of the TCPA. In accordance with the statute, Haghayeghi is filing the lawsuit in pursuit of $500 in statutory damages for herself and for each member of the class.

Libel Via Twitter Trial Ends With a Defense Win — Top Chicago Libel Attorney Near Oak Park and Evanston

February 7, 2014 | Peter S. Lubin and James V. DiTommaso

In the world of defamation, there have long been two categories, which until recently, have covered all forms of defamation: slander, which includes any verbal defamation of a person or entity and; libel, which covers any defamatory comments made in writing. Now, with the growth of communicating over the internet, it appears that a new category of defamation is developing.

As courts continue to struggle to adapt the law to new and changing technology, a lawyer, Rhonda Holmes, has filed a defamation lawsuit against her former client, Courtney Love, for comments made on Twitter. Holmes was representing Love in a case Love wanted to bring regarding the estate of her late husband, Kurt Cobain. Love allegedly sent a Twitter message which claimed that Holmes had been “bought off” concerning the case.

Love’s current attorneys have argued that the language used on Twitter is hasty and opinionated, and as such, should not be treated the same as language used in a more formal setting. That argument though, appears not to hold much weight given Holmes’s recent testimony. In a sworn statement, Holmes said that Love agreed to settle the case for $600,000 and make a retraction of her defamatory statement. Love then allegedly failed to pay up and republished the offending comment.Barry Langberg, the attorney representing Holmes in the present lawsuit, claims that Love’s tweet was part of “a concerted effort … to destroy Ms. Holmes and her law firm.”
The lawsuit also includes subsequent critical statements that Love made in an online article about an unnamed female attorney. The court will consider whether Holmes’s reputation and business could have been affected by those comments.

John Lawrence, one of Love’s attorneys in the current lawsuit, says that, at the time that she made the defamatory comments on Twitter, Love believed that she had been abandoned by Holmes and her firm. However, Love’s beliefs at the time that she made the comment may not count if she later republished the comment.

Langberg claims that Holmes was devastated when Love fired her, but Love says she never fired her. Instead, Love did say, “in my mind I let her go”.

This is the first lawsuit in the United States to reach a trial court based on alleged defamation happening on Twitter. Poynter Institute has called it the first “Twibel” trial in the country. The decision that the court reaches in this case will have far-reaching consequences for similarly cases all over the country. The Los Angeles Superior Court rejected the assertion that comments made by Love on Twitter should be treated any differently than comments made in a more formal setting. If other courts make similar rulings in line with that of the Los Angeles Superior Court, it could change the way defamation cases are argued in our court system.
Since defamation is, by definition, comments made which are public and harmful, it makes sense that a court would not be lenient with a defendant who made defamatory comments on a social media site as public as Twitter.

After the Court’s ruling the case went to trial. After just four hours deliberating, the jury determined that Love had published the tweet, and that it was false. 11 of the jurors concluded the false statements would harm Holmes’s reputation. But the jury ruled 9-3 that Holmes’s lawyers had failed to prove that Love knew at the time that the statement was false, and so could not be found liable of defamation.

Although the jury did not award Holmes the $8 million she was claimed Love should pay as damages, Holmes’s attorney, Mitchell Langberg told Reuters that Holmes felt pleased her reputation restored. “What she’s really happy about is when the jury found that she didn’t get bought off, that she didn’t abandon her client for money.”

2014 Outlook For Class Actions in the Supreme Court

February 6, 2014 | Peter S. Lubin and James V. DiTommaso

When the Supreme Court agrees to hear a case, the decision that the Court reaches in that case can have long-standing consequences for future rulings in similar cases made by courts all over the country. In recent years, class action lawsuits have been particularly contentious in the courts. In order to attain class certification, a class of plaintiffs is generally required to fulfill four requirements:

1. The class must be large enough to justify combining all of the claims into one lawsuit, generally, this means at least 100 class members;
2. The class must have questions of law or fact in common;
3. The claims of the representative parties must be sufficiently similar to the claims of the rest of the class; and
4. The representative parties must fairly and adequately protect the interests of the class.

Despite these clear requirements, various courts have ruled to certify classes of plaintiffs while other courts have denied certification based on a lack of ability to fulfill the above requirements.
Securities class actions in particular have faced an increasing number of challenges in recent years, leaving shareholders who have been the victims of fraud with little or not outlet for redress.

Halliburton Co. v. Erica P. John Fund

In this case, investors filed a lawsuit against the publicly traded energy company by claiming that it misled them about key information, including its liability in a recent asbestos investigation. The investors allege that such misinformation affected the company’s stock prices and ultimately harmed the company’s shareholders.

Halliburton is challenging the Supreme Court’s decision in 1988 in Basic v. Levinson, in which the Court determined the fraud-on-the-market theory, which has been the basis for most securities class actions ever since. The theory states that, when a public company makes a misrepresentation in an efficient market, that misinformation is carried through the market and affects the company’s stock price. An investor purchasing a security is thus presumed to have relied on that misinformation. However, the concept of an efficient market, while largely uncontested in the 1980s, has since come under scrutiny and has recently been questioned by some of the current justices of the Supreme Court. If the Court overturns its decision in Basic v. Levinson, each class member will have to prove that they relied on the misinformation when purchasing or selling company stock.

Plaintiffs’ attorneys fear that such a requirement will render class certification for such cases nearly impossible. Some of them have claimed that it could have consequences beyond just securities class actions. Consumer class actions, for example, might also be affected.

The “Washing Machine” Cases

Two separate consumer class actions alleging defective washing machines have made their way through the court system and are currently being petitioned to be heard by the Supreme Court. The defendants in the lawsuit, Whirlpool Corp, and Sears Roebuck & Co., are asking the Supreme Court to overrule the decisions made by lower courts to certify classes of consumers. The plaintiffs against Whirlpool allege that 21 different models of the company’s high-efficiency, front-loading Duet clothes washers sold since 2001 have a design defect that results in mold.
Both Whirlpool and Sears argue that the classes fail to meet the predominancy requirements of class certification and that most of the class members were not harmed.
If the Supreme Court agrees to hear the case and rules in favor of the defendants, the decision could have serious consequences on all issue-based class actions. It has the potential to severely limit consumers’ ability to bring their grievances against a company.

Securities Litigation Uniform Standards Act (SLUSA)

While rulings made by the Supreme Court can sometimes mean drastic changes in the law, it also frequently means simply clarifying older laws. For example, the SLUSA was enacted in 1998 as a way to prevent shareholders from evading the pleading standards of federal litigation by filing suit in state court, whose pleading standards are usually less rigorous. Specifically, SLUSA prohibits state-based suites alleging fraud “in connection with the purchase or sale” of covered securities.

The current lawsuit arose when investors bought securities which were not covered under SLUSA directly, but were certificates of deposits which were backed by SLUSA-covered securities.

When Robert Allen Standford’s $7 billion Ponzi scheme was revealed to the public, the shareholders filed a class action lawsuit alleging fraud. The law firms Proskaur Rose LLP and Chadbourne & Parke LLP were included as defendants in the lawsuit for allegedly aiding the Ponzi scheme.

A Texas federal judge ruled that the investors’ claims were precluded by SLUSA. The decision was appealed and went to the Fifth Circuit Court, which found that the claims were only “tangentially related” to SLUSA-covered securities trades. The attorneys representing the law firms are appealing the decision, arguing that the Fifth Circuit Court’s decision allows plaintiffs to avoid SLUSA.

If the Supreme Court decides to rule in favor of the defendants, the result could have far-reaching implications on shareholders’ ability to file claims.

Mississippi ex rel. Hood v. AU Optronics Corp.

Consumers who have suffered as a result of fraud are not the only ones capable of bringing a lawsuit against a company for violating consumer rights. State attorneys general also have the option of bringing a lawsuit to recover damages on behalf of consumers. These are known as parens patriae cases. At issue in this lawsuit is whether a parens patriae case in which the attorney general is seeking to represent 100 or more consumers should be treated as a class action.

Mississippi’s attorney general, Jim Hood, filed a lawsuit against a group of electronics companies for allegedly fixing the price of liquid crystal display panels.
If the Supreme Court rules that parens patriae lawsuits count as class actions, it could give defendants the option of moving such cases to federal court. If the Court rules that these lawsuits cannot be treated as class actions, then the state attorneys’ general can keep them in their home courts, which are often more disposed to be favorable to the attorney general.

Carrera v. Bayer Corp. et al.

This lawsuit was filed against Bayer by a consumer who alleges that the pharmaceutical company engaged in deceptive practices by claiming that its One-A-Day WeightSmart could enhance metabolism. Since Bayer does not sell its products directly to consumers, the company has no records of who purchased the vitamin. The defendants therefore claim that the class cannot be certified because the plaintiffs have no way of finding every single class member, despite such a limitation never having been a requirement for class action certification.
The district court certified the class, but the Third Circuit Court of Appeals reversed that decision, saying that the difficulty in determining consumers who belong to the class rendered it ineligible for certification.

If the Supreme Court agrees to hear the case and makes a ruling in line with that of the Third Circuit Court, the decision could affect consumers’ ability to file claims. The plaintiffs in the case also argue that such a decision could encourage companies like Bayer not to keep a record of customer purchases.

Business Dispute at Brewery Leads to Hotly Contested Lawsuit on Shareholder Freeze Out Claims

February 4, 2014 | Peter S. Lubin and James V. DiTommaso

When someone decides to start a new company, it is natural that they should want people they already know and trust to invest in their new company. On the other hand, when those old relationships turn sour, it can lead to schemes to cheat other investors out of the true value of their shares of the company. This allegedly happened with one of the founders of a brewing company by the name of 5 Rabbit.

The brewery was founded in 2011 by Andres Araya and Isaac Showaki. Each founder had friends and family members help finance the company by becoming investors. In 2013, Showaki allegedly left the company following a dispute with Araya. The investors that Showaki brought to the company remained investors in the company and they are now the plaintiffs in the lawsuit against Araya and another investor.

Before Showaki left the company, Araya allegedly sold 11 shares of the company to “a friend and former colleague” who Araya met in Costa Rica, named Diego Foresi. The 11 shares were allegedly sold for a total of $250,000. The plaintiffs allege that they were never made aware of the sale of these shares. According to the allegations in the complaint that was filed, this sale of shares “was extremely important to (the) plan to artificially depress 5 Rabbit’s share value.”

The lawsuit further alleges that, when a company was hired by 5 Rabbit to determine the value of the brewery, 5 Rabbit “instructed the valuators to treat the investment as debt, not equity as it actually was.” The lawsuit claims that this alleged deception “significantly reduced 5 Rabbit’s fair market value and the implied value of its shares.” Clearly, this had a direct, negative impact on 5 Rabbit’s investors by giving the appearance that the shares they held in the company were worth less than what the investors initially paid for them.

A few months later, the lawsuit alleges that Araya, Randy Mosher, and other investors that Araya brought in as investors to 5 Rabbit (all of whom are named as defendants in the current lawsuit), set up a new company called Benjamin Thomas Inc. Allegedly, Araya, Mosher, and Araya’s other investors all transferred their shares of 5 Rabbit to the new company, making Benjamin Thomas Inc. the controlling shareholder of 5 Rabbit. Benjamin Thomas Inc. and 5 Rabbit then performed a short-form merger. The lawsuit alleges that the purpose of this merger was to force out Showaki’s investors at an artificially low price.

The investors who were allegedly forced out allegedly had their shares converted to cash at a rate of $3,019 per share. Since these investors had paid $5,000 per share, each of them received an alleged loss of about $2,000 for each share that they held.

Once this was completed, Foresi’s “debt” was allegedly converted to equity, and according to the lawsuit, “the fair market value of 5 Rabbit increased significantly, providing a substantial windfall for Foresi.” As a result, not only did the plaintiffs of the lawsuit allegedly lose a substantial amount of money, but Foresi was also allegedly enriched unjustly.

Mosher, one of the defendants in the lawsuit, said that he believes the suit has roots in the argument which led to Showaki leaving the company. “We think we’ve acted fairly in these dealings,” Mosher said in a statement. “We don’t think we’ve created any of the problems. They’ve all come from the other side.”

“Road Kill” Theory of Damages No Defense to Libel According to Kennedy Counsin Skakel — Evanston and Wheaton Libel Slander and Defamation Attorneys Near Chicago

January 25, 2014 | Peter S. Lubin and James V. DiTommaso

When ruling in cases of alleged defamation, courts have a number of considerations to keep in mind. Whether or not the alleged defamation has any basis in truth is only the first consideration. Courts must also weigh factors such as whether the plaintiff is considered a public figure or a private citizen. Public figures are generally much more limited when filing a defamation lawsuit. This is because the law assumes that it is in the best interest of the public to be able to freely discuss public events, and such discussion often includes public figures. The law also assumed that, unlike private citizens, public figures have better access to the media, which they can use to address such rumors.

In addition to these considerations, courts must not forget to take into account the circumstances surrounding the defamation. For example, if the plaintiff has already been convicted of murder, is it safe to assume that a defamatory comment could not further damage that person’s reputation? This very question is at issue in a recent defamation lawsuit against Nancy Grace, a television personality. The defendant, Michael Skakel, was sentenced to 20 years to life for allegedly murdering his neighbor, Martha Moxley, when they were both fifteen years old.

In January 2012, Grace had a live broadcast program in which she asserted that Skakel’s DNA had been found in a tree near the victim. Skakel maintains that his DNA was never found at the scene and so he filed his defamation lawsuit against Grace, Beth Karas, a legal commentator who appeared on the program, and the producers of the program, Time Warner and Turner Broadcasting System.

The defendants argue that their statements cannot be considered defamation because they are “substantially true”. They point to statements that Skakel made to acquaintances and investigators that he had climbed a tree by Moxley’s home the night of the murder with the intention of masturbating. However, stating such an intention and claiming that a person’s DNA was found near a murder victim are two different things. According to Stephan Seeger, Skakel’s attorney, such as allegations “is not a minor misstatement”.

Stephan points out that “when you see the letters DNA and put that in any story and hang it around my defendant’s neck, the whole world believes that there is DNA evidence and that is lock, stock and done. … Anyone who is watching that show now forms the belief that the DNA was there”.

A Connecticut Superior judge, concluded that Skakel had ineffective counsel at his trial in 2002, and as a result, he overturned Skakel’s conviction. Another judge then released Skakel on $1.2 million bail, which his family provided. Skakel was released on the assurance that he would be returned to prison if a Connecticut appeals court reinstates the conviction. Far from being unable to do any more harm to Skakel, the defamation has the potential to influence the jurors who hear his case on appeal who will decide whether or not to reinstate his conviction.

Seeger points out that the defendants’ “roadkill theory of reputation” which assumes that their defamation cannot do any more harm to Skakel is false. He states that “Their position fails to acknowledge the Plaintiff’s reputational interest as germane to future parole applications, future trial prospects, and any and all other discretionary benefits that he may, as a matter of law or right, seek in prison or in our Courts.” Continue reading ›

Marketing Company Can’t Force Consumer to Arbitrate Claims When it Didn’t Disclose it was the Contracting Party in the Form On-Line Arbitration Provision

January 25, 2014 | Peter S. Lubin and James V. DiTommaso

While the law has struggled to catch up with the swift progression of technology in recent years, particularly the increase in internet use, many companies have taken advantage of the ease of acquiring consumers’ information. It is easier than ever for companies to gain access to an individual’s credit card information. Many companies make deals with each other to share this information, despite the fact that such agreements are illegal.

Many laws, though, remain relevant regardless of whether the transaction took place online or in person. This was demonstrated in one recent class action lawsuit against an online marketing company. The named plaintiffs filed their class action lawsuit against a company which performs background checks. The plaintiffs noticed that regular monthly charges appeared on their credit card for a report which they allege they did not intend to buy. The company performing the background checks said that the consumers were misled into purchasing the subscription of the online marketing company. As a result, the marketing company was added as a third defendant.
The background check company provided space on its website for the marketing company and used a “data pass” method of sharing credit card information which is now illegal. The marketing company used that shared information to enroll customers in free trial subscription offers which were then converted into a monthly billed subscription.

The marketing company moved to force the lawsuit into arbitration.
The district court ruled that the consumers had entered into a contract with the marketing company, but the court denied the motion to force arbitration.

The plaintiffs appealed and the case went to the Ninth Circuit Court of Appeals. The appellate court noted that, under Washington law, a contract requires mutual assent to its essential terms in order to be considered legally binding. Those essential terms include the names of the parties involved in the contract. The appellate court found that the web page which the consumers used to buy the subscription service did not sufficiently identify the marketing company as the party making the contract with the consumers. The appellate court also remained skeptical as to whether providing an email address and clicking a “yes” button is sufficient to agree to a contract. Such clicks are still new enough that many courts don’t quite know how to handle them.
The appellate court also denied the marketing company’s motion to force the case into arbitration. The court decided that, since the arbitration provision was on another hyperlink which the consumers did not click on, no valid arbitration agreement took place.

Arbitration agreements have grown increasingly popular with companies in recent years. Consumers and employees alike are both being asked to sign more and more contracts containing arbitration agreements. These agreements tend to favor the company over the individual as they make class actions impossible and the arbitrator is often chosen and paid for by the company. The higher courts have upheld many arbitration agreements in recent years, but not all of the appellate courts have been as favorable to the agreements. Many have been found to be unenforceable and the likelihood of such a finding can only increase if the consumer never even saw the arbitration agreement.

Lumber Liquidators Sued on Class Action Over Alleged Contaminated Chinese Flooring

January 16, 2014 | Peter S. Lubin and James V. DiTommaso

When a company is publicly owned, it needs to be aware that it has a responsibility, not only to its customers, but also to its shareholders. The recent class action lawsuits against Lumber Liquidators are good examples of this fact.

Shareholders filed a lawsuit against Lumber Liquidators when it came to light that the company had allegedly imported wood from the habitat of an endangered species and sold wood with elevated levels of formaldehyde. This lawsuit demonstrates the fact that selling unsafe materials has the potential to cause harm, not only to the customers who purchase the material, but also the people who have invested money in the company.

Shortly after the shareholders filed their lawsuit against Lumber Liquidators, customers who had purchased wood from the company filed a similar lawsuit.

Lumber Liquidators has been under investigation recently for importing wood from China which was allegedly harvested in Russia from the habitat of the endangered Siberian tiger. Taking lumber from the habitat of an endangered species is in direct violation of the Lacey Act, a conservation law which has been in existence in the United States since 1900. The Act was put in place to protect plants and wild animals from the hazards of industrialization. Among other things, the Act prohibits trading in wildlife, fish, and plants which have been illegally harvested, transported, or sold. In 2008, the Act was amended to include anti-illegal-logging provisions which makes it illegal to take wood from the habitat of an endangered species.
In addition to violating the Lacey Act, the lawsuits allege that Lumber Liquidators sold wood which contained unsafe levels of formaldehyde. According to the Environmental Protection Agency, formaldehyde is an important component in the production of processed wood products and other home goods. However, it has also “been shown to cause cancer in animals and may cause cancer in humans”. The gas also has the potential to cause other health problems, including eye, nose, and throat irritation, wheezing and coughing, fatigue, and severe allergic reactions. Because of these health concerns, the federal government has imposed limits on the amount of formaldehyde that it deems safe to use in wood products.

Needless to say, when consumers discovered that the wood they had purchased might not be safe, they expressed serious concerns regarding the matter. The consumers’ lawsuit was filed by three consumers who are petitioning the court to be named plaintiffs in the class action lawsuit against Lumber Liquidators. Each of these consumers purchased wood from Lumber Liquidators and had it installed in their homes. They all allege that, at the time that they bought the wood, it was represented as being in compliance with both the Lacey Act and formaldehyde standards. The three plaintiffs allege that they were entirely dependent upon Lumber Liquidators’s representation of the wood and that they would not have purchased it if they had known that the wood might contain unsafe levels of formaldehyde.

The consumers’ lawsuit has been filed on behalf of everyone in the United States “who purchased and installed wood flooring from Lumber Liquidators Holdings, Inc., either directly or through an agent, that was sourced, processed, or manufactured in China”.