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Saturday, April 5, 2008

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Costco, Kinko's Battle Trial Lawyers Over Credit-Card Receipts by Cynthia Cotts

April 5 (Bloomberg) -- Costco Wholesale Corp., FedEx Corp.'s Kinko's unit and scores of other retail companies are under siege by lawyers pursuing them for billions of dollars in damages through a new federal identity-theft law.

Lawyers are filing suits that put retailers at such financial risk, to the point of threatening bankruptcy, that some judges are refusing to certify them as class actions. Defendants are settling cases to avoid the cost of attorney fees and the risk of damages, according to court papers and defense lawyers.

``The plaintiffs have not actually been injured,'' the Pacific Legal Foundation, a Sacramento, California-based public interest group, wrote in a brief. ``The defendants have not profited from the infraction.'' It dubbed the cases ``legal extortion.''

The law prohibits retailers from showing credit-card expiration dates or more than five digits of account numbers on printed receipts, with penalties of $100 to $1,000 for each infraction. More than 300 suits alleging violations have been filed since the law took effect in December 2006, the U.S. Chamber of Commerce says.

At least 12 California judges have refused to grant class- action status to customer complaints bundled by lawyers, calling the cases potentially bankrupting. No cases have been tried yet, and many are on hold pending an appeal to the 9th U.S. Circuit Court of Appeals in San Francisco.

Swamping Profit

Costco, the largest U.S. warehouse-club chain, might have to pay as much as $17 billion without having harmed anyone, U.S. District Judge A. Howard Matz said in January, refusing to certify a class action. That's 15 times the Issaquah, Washington-based company's 2007 profit. Joel Benoliel, Costco's chief legal officer, didn't return calls seeking comment.

Cost Plus Inc., an Oakland, California-based home- furnishings retailer, and StubHub, an EBay Inc. ticket-sales unit, are among companies that settled. Coffee Bean Tea & Leaf, a Los Angeles-based coffee-shop chain, agreed to give customers free drinks and pay customer lawyers $110,000.

``Plaintiffs' lawyers are taking the smaller companies and squeezing them, saying, `You guys will be bankrupt if this goes to trial, so give away a free drink and pay us off,''' said Lance Orloff, an attorney for Taps Fish House & Brewery in Brea, California, which was also sued.

StubHub said in court papers that it might face liability of as much as $2 billion. Cost Plus put its exposure as high as $3.4 billion. Both settled for undisclosed terms. Michelle Doolin, an attorney for StubHub, and Marcy Bergman, a lawyer who represents Cost Plus, declined to discuss the lawsuits.

A class action against the Adidas Promotional Retail Operations unit of Adidas AG, based in Herzogenaurach, Germany, was approved by U.S. District Court Judge Gary Allen Feess in California. The company said it faced at least $10 million in damages.

Toys `R' Us

The Costco and Adidas cases are on hold until the appeals court rules, as are suits against Kinko's, part of Memphis, Tennessee-based FedEx, and Toys ``R'' Us Inc. of Wayne, New Jersey.

``The minute we file these cases, every one of the defendants has changed their practices,'' said Greg Hafif of Herbert Hafif Law Offices in Claremont, California. ``Every consumer out there is now protected from identity theft.''

Jenny Robertson, a spokeswoman for FedEx Kinko's, declined to say whether the company was in compliance with the law when the suit was filed. Congress wrote the rules into the Fair and Accurate Credit Transactions Act, which allows consumers to obtain credit reports for free, in 2003.

The issue before the appeals court is whether the so-called annihilating-damages defense can be used to protect Taps, the California brewery, from a class action. The appeal previously included Coffee Bean, which said it might owe $48 million.

`Horrendous' Damage

That would be a ``horrendous, possibly annihilating punishment unrelated to any damage,'' U.S. District Judge R. Gary Klausner in Los Angeles wrote last year, rejecting a Coffee Bean class action.

Hafif called the defendants' claim that they could be wiped out ``pure spin.'' If a jury awards disproportionate damages, the court can reduce the amount, he said. The judge in the Taps case approved a class action. Taps said it could be liable for as much as $46 million in damages. ``It's a crapshoot, and it's going to be tough on small businesses if they come down the wrong way,'' said Orloff, the Taps lawyer.

New Tactic

A Florida judge in February gave some retailers a new defense in a ruling for, a joint venture of companies including AMC Entertainment and Viacom Inc. The court said the law doesn't apply to Internet sales because receipts aren't printed.

That decision could be adopted in other cases, said Richard Levine, a lawyer with New York-based Weil Gotshal & Manges who represents It already has been cited in suits against Macy's Inc. and Inc. Judges in all other such suits have ruled that the law applies to Internet sales, said Miami lawyer Matthew Sarelson, who sued

``Congress gave companies a three-year grace period,'' Sarelson said. ``How in the world does a large company that makes millions or billions of dollars annually based on Internet transactions not know what the law is?'' If the class actions proceed and plaintiffs can prove willfulness, it's likely that significant damages will be assessed, said Amar Sarwal, a lawyer with the U.S. Chamber of Commerce. ``No one's going to risk their companies on these kinds of cases,'' Sarwal said. ``They're all going to have to settle.''

Martin Fineman, an attorney for Adidas, did not respond to a request for comment. Richard Hoffman, an attorney for Toys ``R'' Us, and David Block, an attorney for Inc., declined to comment on the pending litigation. The appeals case is Soualian v. International Coffee & Tea, 07-56377, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

To contact the reporter on this story: Cynthia Cotts in New York at


Anonymous said...

this is another example of greedy lawyers behaving badly. Guys like this will kill the goose that laid the golden egg for ALL OF US LAWYERS! Get rid of these PIGS!

Anonymous said...

I'm fed-up with these trial attorneys! All they do is drive up the prices that we pay for things and they line their pockets! They also put people out of business and jobs go bye bye! Put them all in a reeducation camps and allow them to learn how to dig ditch!

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See Video of Senator John L. Sampson's 1st Hearing on Court 'Ethics' Corruption

The first hearing, held in Albany on June 8, 2009 hearing is on two videos:

               Video of 1st Hearing on Court 'Ethics' Corruption
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