Despite FDA Warning, Fluoroquinolone Litigation Crawls Forward in Minnesota

cipro, levaquin, FluoroquinoloneIn the multi-district ligitation docket MDL 1943, defense counsel reported that there are currently 18 cases pending before the federal court in Minneapolis. Of the cases transferred or remanded 52 had settled, 19 were dismissed, and 19 remained open.

  • The DeFelice case is active and in the process of discovery.
  • The Watson case is settled and paperwork is being prepared for dismissal.
  • Ten other cases are waiting for paperwork and will soon be ready for dismissal.

On May 13, 2016, the FDA advised that the serious side effects associated with fluoroquinolone antibacterial drugs generally outweigh the benefits for patients with sinusitis, bronchitis, and uncomplicated urinary tract infections who have other treatment options. For patients with these conditions, fluoroquinolones should be reserved for those who do not have alternative treatment options.

Defense counsel reported that in six pending cases, the parties previously reached a settlement, but defense counsel never received final paperwork. Defense counsel sent plaintiffs’ counsel letters requesting that they attend the next status conference. In four out of the six cases, defense counsel successfully made contact with counsel for the plaintiffs, and they hoped to finalize the paperwork soon.

With regard to the remaining two cases, Castillo and Ditolla, defense counsel did not hear back from plaintiffs’ counsel. The Court agreed that defense counsel should prepare the papers for orders to show cause and submit them to the Court. If plaintiffs’ counsel in those cases do not respond to defense counsel before March 1, 2016, the Court will issue the orders to show cause at that time.

Plaintiffs’ counsel reported on the status of the Tummolo case. She stated that a few years ago certain documents were not sent to the defendants, which resulted in dismissal. Plaintiffs’ counsel stated that she would like the case put back on active calendar and intended to apply to have the case restored. Defense counsel stated that the case is currently dismissed and that plaintiff would need to file a motion to vacate the dismissal, which defense counsel would decide whether to oppose. The Court stated that plaintiff should file a motion to vacate with supporting reasons within the next two weeks, after which the defense counsel would have an opportunity to respond.

The Fluoroquinolone Antibacterial Drugs MDL 2642 which includes complaints related to Levaquin, Cipro and Avelox related to peripherial neruropathy have been transfered to the District of Minnesota before Judge John R. Tunheim, the same as as the Levaquin MDL 1943 related to tendon ruptures. At the time of this post (11/02/2015) Judge Tunheim has not issued any orders specific to MDL 2642. It is not yet clear if Judge Tunheim intends to expand any orders or special forms from MDL 1943 for use in MDL 2642.

The next status conference is scheduled for Monday, March 28, 2016 at 3:00 PM.

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First Xarelto Trials Set in Federal Court in Louisiana

XARELTOTrial dates have been set for the first four bellwether trials for blood thinner Xarelto, by Judge Eldon Fallon in multidistrict litigation docket MDL 2592 in the Eastern District of Louisiana.

Bellwether cases are designed to provide plaintiffs and their attorneys with a perspective on how the juries will react to the testimony provided and the evidence presented. More than 2,800 cases have been filed against the manufacturers of Xarelto:

  • Janssen Research & Development LLC F/K/A Johnson and Johnson Pharmaceutical Research and Development LLC
  • Janssen Ortho LLC
  • Janssen Pharmaceuticals Inc. F/K/A Janssen Pharmaceutica Inc. F/K/A Ortho-Mcneil-Janssen Pharmaceuticals Inc.
  • Johnson & Johnson Company Bayer Healthcare Pharmaceuticals Inc.
  • Bayer Pharma Ag
  • Bayer Corporation
  • Bayer Healthcare LLC
  • Bayer Healthcare Ag
  • Bayer Ag

The first two of the bellwether cases were taken from a pool of 40 cases, and will be tried in 2017. The cases have been scheduled for trial on February 6, March 13, April 24 and May 30.

Many dangerous side effects

The drug is prescribed for atrial fibrillation (AFIB), deep vein thrombosis (DVT) and pulmonary embolism (PE). However, it causes brain/cerebral hemorrhage, death, gastrointestinal bleeding, heart attack, kidney bleeding, nosebleeds, rectal bleeding, respiratory failure, hemorrhagic and ischemic strokes, vaginal or uterine bleeding, and other internal bleeding.

The drug was approved by the FDA in 2011. So many lawsuits have filed that the U.S. Judicial Panel on Multidistrict Litigation consolidated these cases into the MDL in Louisiana. Meanwhile, many additional cases have been consolidated in the Philadephia Court Of Common Pleas.

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Severe FDA Warning Against Use of Fluoroquinolone Antibacterial Drugs

ruptured achilles tendon
Side effects of Fluoroquinolones include a ruptured achilles tendon.

The FDA advised on May 13, 2016 that the serious side effects associated with fluoroquinolone antibacterial drugs (Levaguin, Cipro and Avelox) generally outweigh the benefits for patients with sinusitis, bronchitis, and uncomplicated urinary tract infections that have other treatment options. For patients with these conditions, fluoroquinolones should be reserved for those who do not have alternative treatment options.

An FDA safety review has shown that fluoroquinolones when used systemically (i.e. tablets, capsules, and injectable) are associated with disabling and potentially permanent serious side effects that can occur together.

Severe Side Effects

These side effects can involve:

  • Tendon, joint and muscle pain
  • A “pins and needles” tingling or pricking sensationssion
  • Confusion
  • Hallucinations
  • Damage to the central nervous system
John-Ray“The words  ‘serious side effects’ are powerful words for plaintiffs cases,” said John Ray, a leading consultant to the Mass Tort industry for over a decade. “This is a statement of conclusion by the FDA with no equivocation. It is rare for the FDA to make such a definitive statement.”

More than 26 million Americans receive a prescription for a fluoroquinolone antibiotic like Cipro, Levaquin or Avelox each year.

As a result, FDA is requiring the drug labels and Medication Guides for all fluoroquinolone antibacterial drugs to be updated to reflect this new safety information. FDA is continuing to investigate safety issues with fluoroquinolones and will update the public with additional information if it becomes available.

Inadequate warnings

Patients should contact their health care professional immediately if you experience any serious side effects while taking fluoroquinolone medicine. Health care professionals should stop systemic fluoroquinolonetreatment immediately if a patient reports serious side effects, and switch to a non-fluoroquinolone antibacterial drug to complete the patient’s treatment course.

Lawsuits charge that fluoroquinolone antibiotics – principally, Levaquin, Avelox, and Cipro – cause or substantially contribute to the development of irreversible peripheral neuropathy and that defendants’ warnings concerning the alleged risks were inadequate. The involved manufacturers and distributors are 2 Bayer (Cipro and Avelox), Janssen (Levaquin), and McKesson (a distributor).  Minneapolis before Judge Chief Judge John R. Tunheim in MDL No. 2642.

At one time, more than 2,000 Levaquin cases against Johnson & Johnson sat before U.S. District Judge John R. Tunheim in multidistrict litigation (MDL) in Minnesota. Several were settled for confidential amounts, according to court documents. As of March 2015, about 100 were pending in the federal MDL.

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Bard CEO Flees Cameras when NBC Asks about Defective IVC Filters

Fast forward to 3:40 in the video to see John H. Weiland, President, CEO and Director of CR Bard Inc., flee an NBC reporter with questions about the company’s defective IVC filter.

At least 27 deaths have been associated with Bard’s Recovery filter — a spider-shaped apparatus that is inserted into the largest vein in the body — over the course of a decade, according to NBC News. Government data shows approximately 300 other non-fatal problems have also been reported with the Recovery.

Even as death and injury reports were climbing, the company decided not to recall the Recovery. Instead, Bard sold about 34,000 of them for nearly three years before replacing them with a modified version with a new name, G2.

Multi District Litigation

Lawsuits from across the country have been consolidated in MDL 2641 docket in Arizona federal court.  Fact discovery is under way. The parties reported that they have scheduled seven depositions and are in the process of scheduling more.

Each year, about a quarter of a million blood clot filters are implanted in patients who can’t tolerate blood thinners, most without incident. Eleven companies sell them in the U.S., but Bard’s Recovery filter stood out early as a risky device.

Bard officials declined NBC News’ requests for interviews but in a statement said all its filters have been “appropriately cleared by [the] FDA based on required and accurate documentation and that when used as instructed they demonstrate “significant benefits to patients.”

 

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FDA Warns About Rare But Serious Skin Reactions from Olanzapine

FDA warningThe FDA is warning that the antipsychotic medicine olanzapine can cause a rare but serious skin reaction that can progress to affect other parts of the body. FDA is adding a new warning to the drug labels for all olanzapine-containing products that describes this severe condition known as Drug Reaction with Eosinophilia and Systemic Symptoms (DRESS).

Olanzapine is an antipsychotic medicine used to treat mental health disorders schizophrenia and bipolar disorder. It can decrease hallucinations, in which people hear or see things that do not exist, and other psychotic symptoms such as disorganized thinking. Olanzapine is manufactured by Eli Lilly under the brand names Zyprexa , Zyprexa Zydis, Zyprexa Relprevv, and Symbyax, and also as generics.

Eli Lilly agreed to pay $1.4 billion in January 2009 for promoting the anti-psychotic drug Zyprexa for behavioral problems among children and the elderly.

Information about multi-district litigation against drug companies is available on Mass Tort Nexus.

A search of the FDA Adverse Event Reporting System (FAERS) database identified 23 cases of DRESS reported with olanzapine worldwide since 1996, when the first olanzapine-containing product was approved. FAERS includes only reports submitted to FDA, so there are likely to be additional cases about which FDA is unaware. One patient taking olanzapine experienced DRESS and died; however, this patient was taking multiple medicines that could also have contributed to death.

DRESS may start as a rash that can spread to all parts of the body. It can include fever and swollen lymph nodes and a swollen face. It causes a higher-than-normal number of infection-fighting white blood cells called eosinophils that can cause inflammation, or swelling. DRESS can result in injury to organs including the liver, kidneys, lungs, heart, or pancreas, and can lead to death. DRESS is a potentially fatal drug reaction with a mortality rate of up to 10%.

RECOMMENDATIONS: Patients taking olanzapine-containing products who develop a fever with a rash and swollen lymph glands, or swelling in the face, should seek medical care right away. The combined symptoms together are commonly seen in DRESS. Talk with your health care professional about any questions or concerns. Do not stop taking olanzapine or change your dose without first talking with your health care professional. Sudden stopping of the medicine can be harmful without your health care professional’s direct supervision.

Health care professionals should immediately stop treatment with olanzapine if DRESS is suspected.  There is currently no specific treatment for DRESS. The important ways to manage DRESS are early recognition of the syndrome, discontinuation of the offending agent as soon as possible, and supportive care. Treatment with systemic corticosteroids should be considered in cases with extensive organ involvement. When prescribing the medicine, explain the signs and symptoms of severe skin reactions to your patients and tell them when to seek immediate medical care.

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750 Lawsuits Filed Against Manufacturers of IVC Filters

IVC Placement Below KidneyTwo women from Kentucky are the newest members of a massive litigation accusing Cook Medical and other device-makers of failing to warn about the risks of vena cava filters.

Cook is facing about 350 lawsuits in a centralized federal litigation in Illinois. Approximately 400 additional federal lawsuits are pending against C.R. Bard in Arizona.

Boston Scientific is only facing a handful of cases, but the number continues to grow. Katherine Milan, a woman from Kentucky, was severely injured when her Greenfield IVC filter became clogged with blood clots after remaining implanted for over a decade.

Her case is Katherine Milan v. Boston Scientific (Case No. 5:16-cv-65TBR) in the U.S. District Court for the Western District of Kentucky.

Chronic pain and severe blood clots

Another lawsuit was filed by Olenda Holmes, a woman from Graves County, Kentucky. Two years after she was implanted with the Cook Celect, it tilted and caused chronic pain and severe blood clots in her legs. According to the complaint:

“Defendants knew or should have known that its Cook Filter when used as expected and intended, had the possibility of shifting, breaking free its implantation site, migrating, perforating the vena cava, and causing serious injury and/or death to patients.”

Her case is Olenda Homes et al. v. Cook Medical Inc. et al. (Case No. 5:16-cv-00066).

The women are represented by Mark P. Bryant and Emily Ward Roark of Bryant Law Center PSC.

Serious dangers

The FDA has received hundreds of complaints about intravenous filters, which catch blood clots in patients who can’t take blood-thinning medications. Recently, concerns have been raised about the serious dangers about these filters and what the company knew.

First of all, an IVC filter is a medical device that prevents pulmonary embolisms (blood clots in the lungs). It looks sort of like a spider with metal legs that anchor it inside the inferior vena cava (IVC), one of the largest blood vessels in the body. It catches blood clots traveling upward from the legs before they enter the lungs.

What manufacturers did was take a permanent filter with a sturdy design and weakened it to make it retrievable. In the 1990s, the popularity of “temporary” filters skyrocketed — but so did the number of complaints.

The weaker the design, the higher the risk of complications like migration, organ perforation, and broken pieces of the filter traveling to the heart or lungs. Patients may need emergency surgery to remove the filter. In some cases, broken pieces are too dangerous to remove.

Unfortunately, doctors frequently implant “temporary” filters and then never remove them. This is a problem because retrievable IVC filters were never designed to be permanent or studied for long-term use.

In 2010, the FDA reminded doctors about the importance of removing temporary filters as soon as possible. The agency had received over 900 complaints in the last five years. In 2014, the agency advised removing them between 23 and 54 days after implantation.

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$11.4 Million Award Affirmed in Johnson & Johnson Vaginal Mesh Suit

By Starkeisha Tucker
prolift kitA New Jersey appeals court affirmed an $11 million award to a woman who claimed a defective vaginal mesh product produced by Johnson & Johnson caused unbearable nerve pain.

The company was aware that the Prolift vaginal mesh could disintegrate in the vaginal wall and cause pain from the mesh arms. A French physician had notified the company of the defect before marketing materials were sent to doctors across the country. However Johnson & Johnson decided not to add the warnings to the label because the printing job was already at the printer.

J&J is also under fired in MDL 2327, supervised by US District Judge Judge Joseph R. Goodwin in the Southern District of West Virginia.

Catastrophic reaction

The plaintiff, Linda Gross, had the Prolift product inserted in 2006. Her doctor described her reaction to the mesh as catastrophic.

Within two months of the surgery Gross complained of pelvic pain. After six months with the mesh, the doctor performed a second surgery to remove the mesh and found a “wrinkled bulge” and discovered that the mesh had shrunk overtime.

Physician Kevin Benson testified he trusted Johnson & Johnson to provide fair, balanced, and truthful information about Prolift. He further testified that he would not have recommended the procedure had the additional warnings were present.

Gross continued to suffer complications even after multiple surgeries for the mesh. She was unable to have an intimate relationship with her husband, lost her job as a nurse, and suffers from severe depression and anxiety.

On appeal, the defendant argued that under the learned intermediary doctrine, the lower court erred by:

  1. Failing to bar Gross’ claim for deceit as a matter of law; and
  2. Misapplying the learned intermediary doctrine to the failure to warn claim.

Learned Intermediary Doctrine

The learned intermediary doctrine imposes a duty on a manufacturer to warn physicians of any risks involved with its products. The physician becomes the intermediary between the manufacturer and communicates warnings to patients.

The purpose of the doctrine is to allow patients to make well-informed decisions and balance the benefits against the risk of procedures. Johnson & Johnson failed to notify the physicians of the issues until years after Gross sustained complications from the mesh.

Regarding J&J’s claim of deceit, the court stated the plaintiff is required to prove the manufacturer intentionally concealed or misrepresented of a fact which the plaintiff would rely and caused the injury.

Johnson & Johnson staff testified it was aware of the risk and issues with the Prolift before it went onto the market. But, the risk were ignored because it believed surgeons were responsible for fixing the issues.

However, the impetus to have the product on the market and reluctance to reprint marketing materials was more important. The court held there was sufficient evidence to show Johnson & Johnson failed to inform physicians and the intermediary doctrine does not bar the deceit claim.

Failure to Warn Claim

The defendant argued the lower court erred in its jury instruction for the failure to warn claim. Johnson & Johnson stated the instructions allowed the jury to find causation based on reading the patient brochure.

There were multiple opportunities for the jury to make inferences that course of treatment for Gross would have been altered had appropriate warnings were provided.

The opinion states that Benson relied on the pamphlets and instructions for use provided with the mesh kits. Gross herself testified if all the risks, including information about multiple surgeries, chronic pain, and difficulty of removal was present, she would have declined the surgery.

The three-judge panel disagreed with the defense argument and ruled the plaintiff presented enough evidence for the jury to determine an inadequate warning was provided. The appeal was heard by Judges Fisher, Espinosa and Rothstadt. Charles Lifland (O’Melveny & Myers LLP) of the California bar, admitted pro hac vice, argued the cause for appellant.  Adam M. Slater argued for respondents (Mazie Slater Katz & Freeman, LLC, attorneys.

This case is Linda Gross and Jeffrey Gross v. Gynecare, Ethicon Inc, and Johnson & Johnson, Case No. A-0011-14T2, Superior Court of New Jersey

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Pfizer Wins Motions to Limit Witnesses in Lipitor Litigation

lipitor-lawyer-side-effects-of-blood-pressure-medicine-lipitor-infographicThe US District Court in South Carolina has issued four case management orders in the Lipitor (Atorvastatin Calcium) Products Liability Litigation, MDL No. 2:14-mn-02502-RMG. Plaintiffs allege that Lipitor caused their Type 2 diabetes, that Pfizer failed to adequately warn about the alleged risk of developing Type 2 diabetes while taking Lipitor, and that it misrepresented Lipitor’s effectiveness for primary prevention in women.

Plaintiffs also allege that:

  • Lipitor was negligently designed because, among other things, it “was not effective for women as a measure of primary prevention of CVD.”
  • Pfizer was negligent”[i]n its promotion of Lipitor in an overly aggressive, deceitful and fraudulent manner despite the lack of evidence demonstrating its effectiveness in women and despite the evidence as to the product’s defective and dangerous characteristics due to its propensity to cause Type 2 Diabetes.”

Plaintiffs have primarily focused on their failure to warn claim. However, the master complaint alleges 12 causes of action including negligence, negligent misrepresentation, negligent design, and fraud and misrepresentation —

Four Case Management Orders

Judge Richard Mark Gergel issued four case management orders on May 6:

  • No. 75, where the court excluded the expert testimony of Dr. Murphy, that Lipitor caused Ms. Hempstead’s Type 2 diabetes. The court found that while Dr. Murphy purported to use a five-part test, her opinion was only based on “(1) the fact that Lipitor increases the risk of diabetes and (2) that Ms. Hempstead developed diabetes after taking Lipitor.” The Court explained that neither Dr. Murphy nor counsel could point to evidence, specific to Ms. Hempstead, that supported Dr. Murphy’s opinion other than a temporal relationship. The Court held that while there are circumstances where temporal proximity is particularly compelling, such circumstances are not present here. The Court also noted that while Dr. Murphy discussed other risk factors, she never provided any explanation as to why these other risk factors, alone or in combination, were not sufficient to cause diabetes independent of Lipitor exposure.
  • No. 74, which grants in part and denies in part Pfizer’s Motion to Exclude the Testimony of Plaintiffs’ Regulatory Expert G. Alexander Fleming.
  • No. 73, which grants in part and denies in part Pfizer’s Motion to Exclude the Testimony of Dr. John Abramson.  He may opine on whether particular marketing materials are misleading and may opine as to whether physicians would want to know certain information in making prescribing decisions. He may not, however, opine that Defendant has a “duty” or “obligation” to take specific action.
  • No. 72, a 37-page opinion, grants in part and denies in part Pfizer’s Motion to Exclude Expert Testimony and Claims that Lipitor is Not Effective for and Should Not Be Approved for Primary Prevention in Women.  Defendant’s motion to exclude Dr. Wells’ re-analysis of the ASCOT data under rule 702 is denied.

Lipitor has been implicated in a national epidemic of type 2 diabetes in women taking the drug. In August 2011, the FDA requested that Pfizer make labeling changes for Lipitor based upon the FDA’ s comprehensive review, including clinical trial data. The label change required Pfizer to warn of the changes in blood sugar levels when taking Lipitor.

Defective design, inadequate warnings, and inadequate instructions led to serious patient complications, including type 2 diabetes, among many women. Even though Pfizer knew of the risks for several years, medical providers were unaware that the use of Lipitor caused type 2 diabetes in female patients.

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3 Zofran Plaintiffs Dismissed in Massachusetts MDL

zofranJudge Dennis Saylor, US District Judge in Massachusetts, dismissed plaintiffs Tia Hancock, Joanna Tyler, and Dawn Barchiesi from multidistrict litigation that Zofran (ondansetron) causes birth defects.

The court dismissed the claims against GlaxoSmithKline for lack of personal jurisdiction. It sustained a complaint by Kierra Simmons of Missouri, ruling there was diversity jurisdiction because GSK is a citizen of Delaware. The case is In Re: Zofran (Ondansetron) )
Products Liability Litigation ) MDL No. 1:15-md-2657-fds.

Defendant GlaxoSmithKline, LLC manufactures the drug ondansetron under the brand name Zofran. It was first approved in 1991 for the prevention of post-operative nausea and vomiting associated with anesthesia and for nausea and vomiting caused by radiotherapy and chemotherapy.

In addition to those approved uses, GSK is alleged to have marketed Zofran “offlabel” for pregnancy-related nausea and vomiting, commonly known as “morning sickness.”

Birth defects

Plaintiffs in this multidistrict litigation allege that Zofran was in fact unsafe for use in pregnant women, and that in utero exposure to Zofran caused birth defects in children born to mothers who took the drug. All four plaintiffs bring eight counts against defendant GSK arising out of congenital heart defects suffered by their children and allegedly caused by the plaintiffs’ use of name-brand Zofran during pregnancy.

The FDA warned against Zofran use in pregnancy in 2013.  It  issued an updated warning against Ondansetran, better known by its brand name, Zofran, use in pregnancy discussed in OBGYN News. Zofran is a 5-HT3 receptor antagonist approved by the FDA for preventing nausea and vomiting related to cancer chemotherapy and surgery. It has been used off-label to treat nausea and vomiting in pregnancy.

Based on recent studies regarding the association between Zofran use in early pregnancy and congenital cardiac malformations and oral clefts (cleft lip and palate), the FDA has cautioned against its use in pregnancy. There are also potential maternal risks associated with taking Zofran especially in pregnant women with electrolyte imbalance due to severe nausea and vomiting. These risks include the Serotonin Syndrome which is a triad of cognitive or behavioral changes including confusion, agitation, autonomic instability, and neuromuscular changes. Therefore Zofran should not be taken during pregnancy.

 

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Feds: 3 Reasons to Ban Arbitration Clauses in Consumer Contracts


Bureau Seeks Comment on Proposal to Ban a Contract Gotcha that Prevents Consumers from Suing Consumer Financial Companies 

arbitration clause001Washington, DC — Today the Consumer Financial Protection Bureau (CFPB) proposed rules that would prohibit mandatory arbitration clauses that deny groups of consumers their day in court.

Many consumer financial products like credit cards and bank accounts have contract “gotchas” that generally prevent consumers from joining together to sue their bank or financial company for wrongdoing. These widely-used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts. With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers.

“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”

Stifling Class Actions

In recent years, many contracts for consumer financial products and services – from bank accounts to credit cards – have included mandatory arbitration clauses. They affect hundreds of millions of consumer contracts. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for cases brought in small claims court.

With these clauses, corporations can generally block lawsuits from proceeding in court. These clauses also typically bar consumers from bringing group claims through the arbitration process. As a result, no matter how many consumers are injured by the same conduct, consumers must proceed to resolve their claims individually against the company.

Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also gave the Bureau the power to issue regulations that are in the public interest, for the protection of consumers, and consistent with the study.

Released in March 2015, the CFPB’s study showed that very few consumers ever bring – or think about bringing – individual actions against their financial service providers either in court or in arbitration. The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies.

According to the study, class actions succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct. The study showed that at least 160 million class members were eligible for relief over the five-year period studied. Those settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses. In addition, these figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. However, where mandatory arbitration clauses are in place, companies are able to use those clauses to block class actions.

3 Reasons to Prohibit arbitration clauses

The CFPB proposal is seeking comment on a proposal to prohibit companies from putting mandatory arbitration clauses in new contracts that prevent class action lawsuits. The proposal would open up the legal system to consumers so they could file a class action or join a class action when someone else files it. Under the proposal, companies would still be able to include arbitration clauses in their contracts. However, for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The proposal would provide the specific language that companies must use.

The proposal would also require companies with arbitration clauses to submit to the CFPB claims, awards, and certain related materials that are filed in arbitration cases. This would allow the Bureau to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers. The Bureau is also considering publishing information it would collect in some form so the public can monitor the arbitration process as well.

The benefits to the CFPB proposal would include:

  • A day in court for consumers: The proposed rules would allow groups of consumers to obtain relief when companies skirt the law. Most consumers do not even realize when their rights have been violated. Often the harm may be too small to make it practical for a single consumer to pursue an individual dispute, even when the cumulative harm to all affected consumers is significant. The CFPB study found that only around 2 percent of consumers with credit cards who were surveyed would consult an attorney or otherwise pursue legal action as a means of resolving a small-dollar dispute. With class action lawsuits, consumers have opportunities to obtain relief from the legal system that, in practice, they otherwise would not receive.
  • Deterrent effect: The proposed rules would incentivize companies to comply with the law to avoid group lawsuits. Arbitration clauses enable companies to avoid being held accountable for their conduct. When companies know they can be called to account for their misconduct, they are less likely to engage in unlawful practices that can harm consumers. Further, public attention on the practices of one company can affect or influence their business practices and the business practices of other companies more broadly.
  • Increased transparency: The proposed rules would make the individual arbitration process more transparent by requiring companies that use arbitration clauses to submit any claims filed and awards issued in arbitration to the CFPB. The Bureau would also collect correspondence from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to adhere to the arbitration forum’s standards of conduct. The collection of these materials would enable the CFPB to better understand and monitor arbitration. It would also provide insight into whether companies are abusing arbitration or whether the process itself is fair.

The proposed rules which the CFPB is seeking comment on would apply to most consumer financial products and services that the CFPB oversees, including those related to the core consumer financial markets that involve lending money, storing money, and moving or exchanging money. Congress already prohibited arbitration agreements in the largest market that the Bureau oversees – the residential mortgage market.

In October 2015, the Bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. In addition to consulting with small business representatives, the Bureau sought input from the public, consumer groups, industry, and other stakeholders before continuing with the rulemaking. That process concluded in December 2015 with a written report to the Bureau’s director, which is also being released today.

The public is invited to comment on these proposed regulations when they are published in the Federal Register. Written comments will be carefully considered before final regulations are issued.

The proposal is available at:http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_Rulemaking.pdf

The Small Business Review Panel report is available at:http://files.consumerfinance.gov/f/documents/CFPB_SBREFA_Panel_Report_on_Pre-Dispute_Arbitration_Agreements_FINAL.pdf

The March 2015 CFPB report on arbitration is available at:http://www.consumerfinance.gov/reports/arbitration-study-report-to-congress-2015/

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