April 14, 2012

Read the fine print; Florida high court rules consumers disputing contracts can’t join class-action lawsuits

The Florida Supreme Court on Thursday delivered a blow to consumers who want to fight companies that charge usury, unjustified or illegal fees, advocates said.

Saying the U.S. Supreme Court gave it no choice, the state’s high court ruled that a Fort Pierce single mother had signed away her ability to join a lawsuit to challenge hefty fees she paid to McKenzie Check Advance of Florida. The decision will affect anyone who signs contracts with myriad companies — cable, credit card, cellphone, payday loan — without reading the fine print.

“It really drives a stake through the hearts of consumers in terms of having their matters litigated,” said Palm Beach Gardens attorney Ted Leopold, who represents thousands of consumers who he claims unwittingly paid exorbitant fees to borrow money from McKenzie (better known to consumers as National Cash Advance) before state lawmakers reined payday loan companies in.

The case turns on a provision that is in contracts consumers sign with millions of companies, according to the U.S. Chamber of Commerce. The provision, which few people notice, prohibits them from joining a class-action lawsuit if they want to contest a fee. Instead, they agree they will pursue any complaints through arbitration.

The problem, Leopold and others say, is that building a successful case can be difficult. But, because the amounts for each individual are often small — well under $1,000 — no attorney will take the case. The only way lawyers will get involved is if they can bundle small claims together into a class-action suit. The contract provision, however, prohibits consumers from joining a class-action suit.

For that reason, in 2008, former Palm Beach County Circuit Judge Elizabeth Maass and the West Palm Beach-based 4th District Court of Appeal said such contract provisions were “against public policy” because they effectively prevented people from seeking redress against companies they believe have wronged them. The appellate court asked the Florida Supreme Court to weigh in.

However, it ruled Thursday, since the U.S. Supreme Court in 2011 upheld the contract provision it had no choice but to follow suit. “In other words, even if the 4th District is correct that the class-action waiver in this case is void under state public policy, this court is without authority to invalidate (it) on that basis because of federal law and the authoritative decision of the U.S. Supreme Court,” Justice Barbara Pariente wrote for the unanimous court.

Attorneys representing McKenzie said they don’t comment on pending litigation. But, in a brief filed with the U.S. Supreme Court, the U.S. Chamber of Commerce said arbitration, rather than class-action litigation, benefits both businesses and consumers.

Further, it said, there are many ways to protect consumers by keeping bad companies in check. Attorneys general can sue companies and force them to pay civil penalties. Regulators, such as the Federal Trade Commission, can go after businesses that engage in unfair or deceptive practices. Law enforcement agencies can file criminal charges.

“Litigation is enormously expensive to businesses,” chamber attorneys wrote. “That is true of individual lawsuits alone. But, if the action is brought on behalf of not one plaintiff but hundreds or thousands or more, the stakes skyrocket.”

Often, companies are forced to settle unfounded or frivolous lawsuits to avoid the enormous costs of litigation, they said. The chamber also filed a brief in the Florida case.

Leopold said he is talking to other lawyers who specialize in class-action lawsuits about challenging the U.S. Supreme Court’s decision. In the meantime, he said, his long-running suit against McKenzie isn’t dead. Some of his clients used the payday loan company before the contract provision was inserted and so can join a class-action suit, he said.

He is unlikely to get any new clients complaining about the check-cashing stores. Bombarded with horror stories about the high fees, the Florida Legislature in 2001 set limits on fees loan companies could charge, required them to give borrowers a grace period to repay loans and limited borrowers to one loan at a time. Leopold said he is seeking redress for those who got ensnared before the law was passed.

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