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Thursday, August 22, 2019

Consumer advocates, business interests form rare alliance to block American Law Institute project

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By Daniel Fisher | May 21, 2019


WASHINGTON - An unusual coalition of consumer advocates and business interests joined to delay and possibly defeat a controversial “restatement” of consumer contract law that critics said presents a misleading picture of how courts are actually deciding cases in the rapidly evolving area of “clickwrap” and “browsewrap” agreements.

After four hours of vigorous debate and parliamentary maneuvering, members at the Philadelphia-based American Law Institute’s annual meeting in Washington voted to approve just the initial section of the 134-page proposed Restatement of the Law, Consumer Contracts. The session exposed fundamental disagreements among the group of practicing lawyers, judges and legal scholars, over whether consumer contracts should be considered different from business-to-business contracts and how vigorously courts should police the agreements. 

The ambitious Restatement project, years in the making, was essentially shelved until next year’s annual meeting. The ALI’s Restatements are written as guides to how courts tend to decide questions of common law in areas such as torts and contracts. They can be controversial, especially when critics believe they have moved beyond stating what the law is to what the authors think it should be - a situation that has arisen because of the ALI's proposed liability insurance Restatement.

The more than 300 members at Tuesday’s meeting agreed on one thing: Consumers don’t read the fine print. It was that fact that helped motivate the Restatement and it drove much of the debate. 

Consumer advocates including Adam Levitin of Georgetown Law School and U.S. Sen. Elizabeth Warren oppose the Restatement because it affirms the idea that consumers can assent to a contract simply by clicking the “I agree” box on a website. While the Restatement’s authors – called reporters – say that is the consensus of courts today, consumer advocates would prefer to leave such questions open for a few years in hopes that courts drift closer to their position.

“Courts are just beginning to wrestle with these things. Predictably, they will set some sort of limits on how far such agreements can reach,” said George P. Slover, senior policy counsel with Consumer Reports. “They just need time and space to get there.”

Business lawyers oppose the proposed Restatement because it creates a new body of law just for consumer contracts, and they believe it would increase the power of judges to invalidate contract terms or entire agreements they don’t like. The Restatement bolsters unconscionability, for example, an ill-defined doctrine that courts have used to strike down clauses banning class actions or requiring arbitration. 

Some business critics believe the Restatement would open the door for courts to strike down contracts because they include a price the judge thinks is too high.

Critics on both sides also raised questions about the methodology of the reporters -- Harvard law professor Oren Bar-Gill, University of Chicago law professor Omri Ben-Shahar and NYU professor Florencia Marotta-Wurgler – who created a statistical database of decisions they say represent the consensus on questions of consumer contract law. 

After opening at 9:15 a.m. the meeting quickly became mired in arguments over proposed changes to the Restatement, including wholesale edits and proposals to change it from a Restatement to a Principles project, a non-authoritative work designed to discuss emerging areas of the law. The Reporters listened mostly in stoic silence. 

Some of the proposals appeared to be poison pills designed to prevent the Restatement from being approved. Levitin, for example, proposed replacing Section 2, a discussion of how so-called standard form contracts are presented to consumers and approved, with language that would invalidate any contract terms “a reasonable consumer would not expect.” The concept of “reasonable expectations,” a favorite with consumer advocates, has been adopted by few courts so far.

“As a judge, there is literally no way that I am going to be able to accurately determine whether a particular consumer with a particular contract was reasonably able to anticipate the consequences of these particular contract terms,” said Lee Rosenthal, a federal judge from Houston.

Levitin’s proposal was defeated, but consumer advocates then advanced a second, similar one: To refer to Section 211(3) of the Restatement (Second) of Contract Law, which invalidates contract terms if the drafter has “reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term.” 

Critics, including the Reporters, said there was no reason to refer to the main Restatement on contract law since it is already authoritative and courts have been reluctant to embrace Section 211(3) anyway. After more discussion the group voted 144-142 effectively to end debate without approving Section 2.

Sticking to a hard deadline, the meeting ended at 1:15 p.m. without reaching the more contentious provisions later in the Restatement, including one that appears to loosen the so-called “parole evidence” rule prohibiting courts from looking beyond the language in the contract itself. Consumer advocates want courts to examine sales promises, advertising and other materials that may contradict the fine print in a contract, while business lawyers say that would make it difficult to write a binding contract at all.

Looming over the entire discussion was the question of arbitration clauses, which plaintiff lawyers and many judges oppose because they remove litigation from court and place it in the hands of arbitrators who are typically selected by businesses. 

The U.S. Supreme Court has repeatedly ruled in favor of enforcing arbitration clauses under the Federal Arbitration Act, a 1925 law that critics say was never intended to apply to business-to-consumer agreements. The court has specifically struck down attempts to invalidate arbitration clauses as unconscionable. 

“Arbitration was hanging over this body like a shadow,” said Deepak Gupta, a senior enforcement lawyer at the Consumer Financial Protection Bureau during the Obama administration and opponent of the Restatement in its current form. He said the proposal drew an unusually diverse group of opponents, including 23 state attorneys general, who say it would diminish consumer rights, and well-known torts scholar Victor Schwartz, who says the opposite. 

Frustration over this project was expressed perhaps best by U.S. District Judge Yvonne Gonzalez Rogers of the Northern District of California, who acknowledged that many want to push the law in the direction of making it harder for businesses to impose unilateral contract terms on consumers. Judges have leeway to do that under traditional concepts of contract law, including policing agreements after the fact for unconscionable terms and practices. 

“If I want to move the needle, I first need to know what the law is,” Rogers said. “Then, whether through policing or other methods, I can move the needle. But I first must know what the law is.”

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Organizations in this Story

Consumer Reports Georgetown University Law School Harvard Law School New York University School of Law The American Law Institute The University of Chicago University of Chicago Law School

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