SCOTUS Appears Ready To Screw The Little Guy Again

Supreme Court Hears Arguments In Insurance, Bankruptcy Cases

The US Supreme Court heard oral arguments Tuesday in the consolidated cases of Safeco Insurance v. Burr and GEICO General Insurance v. Edo, cases in which plaintiffs claim the insurance companies GEICO and Safeco breached the dictates of the Fair Credit Reporting Act when they failed to notify customers that poor credit reports were the reason they had been denied favorable rate coverage. The case is on appeal from the US Ninth Circuit Court of Appeals which held in January 2006 that the requisite state of mind the plaintiffs must prove to establish a violation of the act is reckless disregard, while defendants urged the standard of knowledge would be more appropriate. Justice Samuel Alito indicated at argument that he did not favor the notification requirements urged by plaintiffs.

Apparently Justice Alito has not met a consumer he did not want to screw to the wall, a big corporation he did not owe a favor, or a situation where common sense justice and basic decency could be a guide to a case. The ultra-conservatives on the bench seem ready to align themselves with Alito on this one.

But let us examine the basic concept. In all commercial transactions, under the FRCA, consumers have a statutory right to know why they were approved or disapproved for credit transactions. Since the vast majority of insurance transactions are done on a payment plan (a.k.a. "credit"), the provisions of the FCRA should apply. Further, since insurance ratings in the vast majority of states are based on a consumer's credit rating rather than just the driving record, the FCRA should rightly apply. But the lobbying arm and influence peddling of the insurance companies have a long reach... even into the hallowed halls of our highest court.

Also on Tuesday, the Court heard oral arguments in Travelers Casualty v. Pacific Gas & Electric Co., a case which addresses whether a creditor in a federal bankruptcy case can recover the costs of attorneys fees. The issue turns on whether the Supreme Court is willing to overturn the "Fobian Rule" established by the Ninth Circuit in the 1991 case of Fobian v. Western Farm Credit Bureau in which the court held that the federal bankruptcy law did not authorize the recovery of attorneys fees. Justices Ruth Bader Ginsburg and Anthony Kennedy hinted they may be willing to abandon the Fobian precedent.

While on its face this case appears to be a matter of one big corporation going after another, the precedent, if set by SCOTUS, would mean that in Chapter 7, 11 and 13 cases creditors that made an appearance in court, or before the trustee, to respond to bankruptcy applications could pass along legal fees to the person or entity filing for bankruptcy protection. Given the recent changes to the bankruptcy laws that already create a more stringent set of criteria and a more cumbersome burden on the bankruptcy applicant in individual cases, adding the cost of legal fees--which could add up to thousands of dollars because some lawyers charge $300-$800 per hour for appearing in such proceedings--is just too much to bear for those that have already suffered some form of financial catastrophe.

And it must be pointed out that 90% of those filing for individual bankruptcy have suffered either a long-term loss of employment, traumatic divorce (vastly women in this instance), or some family medical catastrophe, that turned their financial status into a ruinous situation.

So, if the SCOTUS bench decides to void precedent--which in and of itself violates the common law standard of stare decisis--and nullify the Fobian Rule, the least among us will be the most harmed... and the lawyers win all the way around once again.