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Phone-card case tests D.C. consumer law

Fight over D.C. consumer protection law

Reprinted from The National Law Journal

Alan Grayson has never claimed he was harmed by AT&T Corp. or the other phone companies he sued in 2004. He thought they were stealing from the taxpayers of the District of Columbia. To get the money back, the future congressman from Florida brought a case in his own name.

Now his lawsuit has more than the phone companies concerned. A full panel of Washington’s highest local court is preparing to consider whether private attorneys general like Grayson — that is, private citizens who file cases solely on behalf of the public — should be able to sue corporations under the District’s wide-reaching consumer protection law.

The corporate defense bar is casting Grayson v. AT&T Corp. as a must-win battle for business. If Grayson has standing to take his case to trial, they say, the District is guaranteed to become a hotbed of frivolous litigation — from shakedowns of small businesses to harassment of huge corporations.

“This is either the door-closer or the door-opener,” said tort reform maven Victor Schwartz, a Washington partner at Kansas City, Mo.-based Shook, Hardy & Bacon who has been tracking the case. “If this D.C. Court of Appeals decision leaves the District’s law as it is, you will then see a rain of lawsuits.”

Consumer advocates respond that a victory for the defendants will strip them of an important tool for protecting the District’s residents, while flying in the face of the D.C. Council’s intentions.

“It’d be a shame if the Court of Appeals were to defy the plain words, the plain policy choice that the city council has made in crafting a consumer protection bill that not only has strong remedies but strong measures to address corporate wrongs,” said Washington practitioner Philip Friedman, who specializes in consumer law.

The question the court will confront in the en banc hearing, granted on Feb. 25, is whether plaintiffs need to show that they have personally suffered an injury to file a case under the D.C. Consumer Protection Procedures Act, a long-standing law that targets a wide range of unfair trade practices. As it now stands, the law allows uninjured plaintiffs — from major consumer groups, such as AARP, to individuals, such as Grayson — to file what are called representative actions on behalf of the public.

That wasn’t always the situation. Until 2000, the statute stated that only “consumers who suffer any damage” because of a company’s unfair trade practices could file suit under the law. Then the D.C. Council changed the wording to read that a person or group, “whether acting for the interests of itself, its members, or the general public,” could bring a case under the consumer protection law.

Four years later, Grayson filed his suit, alleging that phone companies were holding onto the balances from unused phone cards rather than giving the District the chance to recover the money as abandoned property. The case was tossed by a D.C. Superior Court judge for lack of standing. But in September 2009, a three-judge panel of the D.C. Court of Appeals ruled that the act’s revamped wording meant that Grayson could carry on. In doing so, the unanimous panel explicitly rejected the defense’s argument that D.C. courts should be bound by federal standing requirements.


If upheld by the full court, the decision will arguably give the District the country’s most expansive consumer protection law.

Unlike the laws of many states, the District’s law does not require plaintiffs to show “reliance” on a company’s marketing claims — a key hurdle to suits in many states. According to the National Consum­er Law Center, no other state consumer protection law, save Ohio’s, allows plaintiffs to sue for money damages without showing they’ve suffered some concrete injury. Minnesota and New Mexico permit individuals to seek injunctions against unfair trade practices but don’t provide statutory damages. Ohio offers statutory damages of $200 per violation. The District’s law provides statutory damages of $1,500 per violation, as well as treble and punitive damages and attorney fees.

In their petition asking the entire court to rehear the case, lawyers for the phone companies — including teams from Kirkland & Ellis, Crowell & Moring, Kelley Drye & Warren, Sidley Austin and Drinker Biddle & Reath — argued that the Graysonruling would transform the D.C. courts into a shooting gallery for plaintiffs’ lawyers.

“The ruling…will allow enterprising plaintiffs with no more than an academic or opportunistic interest to file endless nuisance lawsuits against District businesses,” they contended.

The defendants’ lawyers are not alone in their concern. In December, Archis Parasharami, a Washington partner at Chicago-based Mayer Brown, issued a client alert titled “The Nation’s New Lawsuit Capital? D.C. High Court Eliminates Standing Requirements For Consumer Protection Lawsuits, Threatening Flood Of Abusive Litigation.” The piece cautioned companies that Grayson could pave the way for “extreme litigation abuses” in the District and might even encourage plaintiffs’ lawyers to try to apply the District’s law to conduct in other states.

In an interview, Parasharami said that the Grayson case could make the District the heir to California, which once allowed injury-free consumer protection suits, too. Voters there curbed the state’s unfair competition statute in a 2004 referendum, after a scandal in which a small law firm used it to pressure thousands of small, often immigrant-owned businesses into settlements.

Worst case scenarios aside, Grayson has already set off ripple effects in other litigation. In January, Judge Henry Kennedy Jr. of the U.S. District Court for the District of Columbia cited the decision when he refused to transfer a lawsuit against General Mills Inc. into federal court. The case is very similar to several suits over the cereal maker’s Cheerios health claims that have been consolidated in New Jersey federal court. Kennedy noted the D.C. plaintiffs hadn’t suffered an injury and thus lacked federal standing. They did have local standing, he noted, under Grayson.

When the D.C. Court of Appeals agreed to rehear Grayson, it combined the case with a second dispute decided shortly afterward, Breakman v. AOL LLC. Paul Breakman accuses the Internet provider of misleading longtime customers about pricing options for the company’s services. Like Grayson, he does not claim to have been injured but instead seeks to bring the case on behalf of the public good. The plaintiffs in both cases are being represented by name partners from Washington’s Rubin, Winston, Diercks, Harris & Cooke — Frederick Cooke Jr. in Grayson, and Walter Diercks and Jeffrey Harris in Breakman. AOL is represented by a team from McGuireWoods.


One of the key questions the Court of Appeals will have to decide is what the D.C. Council intended when it amended the consumer protection statute a decade ago. Lawyers for the defense argue that it is impossible to infer the council meant to do away with the damages requirement.

At least one lawyer who helped draft the amendment says that was exactly the intent. Carl Messineo of the Partnership for Civil Justice, whose group worked on the changes with the D.C. Bar and the D.C. Office of the Corporation Counsel (now known as the Office of the Attorney General), said the goal was to create as broad a private right of action as possible.

At the time, the D.C. Department of Consumer and Regulatory Affairs’ enforcement arm had been defunded as a cost-saving measure, and the corporation counsel lacked the authority to prosecute consumer fraud. As a result, there was nobody to enforce the statute. The hope, Mes­sineo said, was that eliminating the damages requirement and the burden of proving personal standing would empower private groups to sue on behalf of the public.

“Until every last instance of people being ripped off in the District has been stopped, the law has not been overexercised,” Messineo said.

Defense lawyers in the two suits argue that the decision about who has access to the D.C. courts doesn’t lie with the D.C. Council. They contend that, because the D.C. courts were created by Congress under Article I, they must abide by the federal “case or controversy” requirements for standing, which oblige plaintiffs to show an injury. “Surely, laws passed by the thirteen members of the D.C. City Council (a body itself created by Congress) do not trump acts of Congress,” the lawyers in Breakman wrote in their petition for rehearing.

However the D.C. high court decides the standing question, the phone companies are not off the hook. In January, D.C. Attorney General Peter Nickles filed his own suit over the calling-card balances, telling The Washington Post he was inspired by the congressman’s case. Nickles could also have a direct influence on Grayson’s standing: The court has invited his office to weigh in as amicus curiae.