Litigation Trends Across the Country

This week, we are taking a second to learn more about some trends in litigation across the country. NASCUS recently held a great webinar on this topic, which went into even greater detail but below are some of what I see as key takeaways relating to this topic.

Arbitration at the forefront.

The newest tactic that we are seeing in the litigation space is a shift to mass arbitration. That’s not to say that plaintiffs’ lawyers are not still filing class action lawsuits, that is still happening, but with the increased inclusion of arbitration clauses in contracts we are seeing an increase in mass arbitration actions.

What is mass arbitration?

There are two definitions for mass arbitration that I was able to find. The first, from the American Arbitration Association, defines mass arbitration as arbitration, typically 25 individuals or more, coming into arbitration and making individual demands against the same respondent for the same claim. The same law firm or firms will represent the group of claimants to assist in the coordination of the mass arbitration.

The Judicial Arbitration and Mediation Services, Inc. (JAMS), which is the largest private provider of alternative dispute resolution services in the world, puts that individual threshold at 75 or more similar demands for arbitration filed against the same party or related parties by individual claimants represented by either the same law firm or law firms acting in coordination.

The main difference between class action lawsuits and mass arbitration is that when someone files or joins in on a mass arbitration, they must file their demands for arbitration separately. In a class action lawsuit, plaintiffs who are filing or joining the action are lumped together.

Potential bright side?

Mass arbitration is usually less costly and assists in keeping the action(s) out of court. Actions also tend to be resolved in a more timely manner. There has been a move by many companies to include arbitration clauses in their contracts to push actions in this direction.

Technology is playing a bigger role.

Attorneys in this space have been turning to technology platforms to help them find the numbers needed for both mass arbitration actions and class action lawsuits. Technology advancements have really made it easy for those looking to find individuals to add to their actions easier. Sites like Leverage Law (leverage.law) are an example of what these types of websites look like. Another one to check out to see the “trending” class action lawsuits is Top Class Action on Instagram. There are obviously others but again, this just goes to show the lengths that lawyers will go to collect from a credit union.

Class action litigation is still out there.

Class action litigation is not going away, at least not any time soon. In fact, we continue to see class action lawsuits in the financial services industry pertaining to overdraft protection, NSF fees, data privacy, the list goes on and on. In addition to those usual suspects, we are also seeing new theories of litigation emerge from the Electronic Fund Transfers Act (Reg E).

Reg E denial claims are gaining some traction in the class action arena. The basis of these claims stems from the denial letters that financial institutions send to their members after the member has filed a claim that the transaction(s) was unauthorized. The plaintiffs in these suits are demanding that the financial institution provide them with a substantive explanation of why their claim was denied and how the financial institution came to that conclusion. However, we know that the regulation does not require this, the regulation only requires that the financial institution provide the member with written explanation of their findings, which would be the letter that is sent by the financial institution to the member following their investigation.

The other Reg E theory gaining some traction deals with “Burden of Proof.” Plaintiffs in these cases are arguing that the denial letters they receive from the financial institution shift the burden of proof from the institution to the member to prove that the transaction was, in fact, unauthorized. However, this is not the case. The Electronic Fund Transfers Act (EFTA) does mention burden of proof in Section 1693g(b), but this is specific to when there is an action regarding consumer liability brought. At that point the burden of proof is on the financial institution to prove that the transfer was authorized and even if the transaction was unauthorized, the EFTA states that the burden of proof to establish liability is still with the financial institution per the language of the section.

The other theory being tested by class action is one where the member signs up for an account with Venmo, Square, PayPal or another third party and agrees to a “micro-transaction” immediately, followed by a withdrawal for the same amount. This is done to show that the account is active/valid. There would be no issue if the members account is not overdrawn; however, an issue arises if the members account is negative, and a micro-transaction generates an overdraft on the account. The argument from plaintiffs in these situations is that the third party put the money in the account and then removed the same amount. The money was “in” the account and therefore an overdraft shouldn’t be assessed on the transaction.

To sum it up, class action lawsuits are not going away, and plaintiffs’ lawyers will continue to use their creativity and all the tools at their disposal to ensure that their clients get paid. This should serve as a reminder to regularly review your documents and disclosures. Sometimes litigation can be avoided by simply ensuring that you continue to monitor trends and make updates to documents and disclosures on a regular basis.

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about this topic and/or the possible implications, you should contact your attorney for advice.

Hope to see you next time when we take a second to discuss another legal topic in the financial services industry!

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