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State AGs protest ALI consumer contract restatement ahead of May 21 vote

(Reuters) - Twenty-three state attorneys general sent a letter Tuesday to members of the American Law Institute, criticizing a draft restatement of the law of consumer contracts that is set for a final vote next week at ALI’s annual meeting. The AGs, as I'll explain, argue that the ALI's proposed rules will effectively allow businesses to impose contracts on customers without consumer consent. Their letter – as well as an odd copyright kerfuffle between ALI and a Georgetown law professor leading opposition to the restatement – is the latest controversy over a project that has somehow managed to displease both consumer and business groups.

ALI restatements, as you know, are intended to describe and clarify developing law for courts and practitioners. They don’t carry the force of law or precedent but can be very influential, especially as a resource for judges. (ALI restatements are held in sufficiently high regard that U.S. Supreme Court Justice Antonin Scalia thought it necessary, in a 2015 dissent to caution against relying on those that “have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be.”)

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ALI’s effort to restate the law of consumer contracts, in the age of e-commerce and mandatory arbitration, is meant to reflect the reality that, as the draft restatement notes in its introduction, “it is both irrational and infeasible for most consumers to keep up with the increasingly complex terms provided by businesses in the multitude of transactions, large and small, entered into daily.”

The restatement effort is led by Harvard law professor Oren Bar-Gill, Chicago law professor Omri Ben-Shahar and NYU professor Florencia Marotta-Wurgler, who are advised by nearly three dozen law professors, judges and practitioners. The advisory council, which includes plaintiffs’ bar luminaries Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein and NYU law professor Samuel Issacharoff, unanimously approved the draft restatement last fall.

Council member Steven Weise of Proskauer Rose told me the goal of the six-year project has been to provide order and clarity for consumers, businesses and courts. On the threshold question of consumer assent to contracts, said Weise, who posted a defense of the draft restatement last month at ALI’s website, that meant reading dozens of judicial opinions and law review articles addressing online consent to discern a set of rules for what constitutes a valid consumer contract.

The draft restatement itself is incredibly dense, but generally speaking, Weise said, it advises that consumers must receive conspicuous notice of the terms of the contract; must have an opportunity to review those terms and assent to them; and must be informed that they are entering a legal contract by assenting. Weise’s published defense of the restatement’s assent provisions cited leading rulings that address online consent to argue that judges have already converged around those principles.

“I think the restatement ably and conscientiously takes these cases and extracts four or five points,” Weise told me. “I don’t think the restatement weakens anything for consumers.”

The 23 AGs who signed Tuesday’s letter clearly disagree. Led by New York AG Letitia James, they contend that the restatement would encourage judges to abandon the doctrine of mutual assent, in which parties to a contract are only bound to terms to which they assented. The doctrine requires courts to engage in specific fact-finding, the AGs said. The restatement would eliminate that need, replacing it with a presumption that consumers “have assented to whatever terms the business included in the contract, provided the barest notice requirements are met.”

In essence, according to the AGs and other consumer critics of the draft restatement, ALI is proposing a fundamental shift away from the traditional contract-law premise that silence does not amount to assent. By their reading of the restatement, merely visiting a website, making an online purchase or entering a store could bind consumers to contract terms that might include mandatory arbitration and business-friendly warranties.

If you think businesses are therefore lined up behind the restatement, think again. In a letter to council members in January, groups including the U.S. Chamber of Commerce’s Institute for Legal Reform, the American Bankers Association and the Restaurant Law Center slammed the draft restatement. They said it amounted to a dramatic departure from ALI’s traditional process, creating new common law rather than restating existing law – and in a way “that consistently operates against businesses that contract with consumers.”

According to the critics from the business lobby, many of the restatement’s flaws lie in its analysis of unconscionable contracts between businesses and consumers. They say, for instance, that the restatement improperly borrows from state consumer protection laws to establish a new theory of “deceptive contracts” that would disadvantage businesses. Overall, they argue, the proposed rules would give judges “unprecedented authority to reform contracts involving consumers.”

In an email Tuesday, Institute for Legal Reform spokesman Bryan Quigley said the group continues to oppose the draft restatement ahead of next week’s vote. “The proposed restatement recommends separate ‘consumer contract’ rules that do not exist in current common law,” he said.

Council member Weise addressed that criticism in his April defense against consumers’ criticisms of the restatement’s analysis. The ALI draft did not propose to create new consumer contract rules, he said, but to synthesize common law holdings. “A review of the decisions … confirms that the blackletter follows the common law of contracts,” Weise wrote.

Georgetown professor Adam Levitin, an ALI member and a leading critic of the consumer contracts restatement, has documented opposition at his Credit Slips blog. He told me that although other ALI restatements have generated controversy, none has been as embattled as this one. Earlier this year, for example, the draft spurred an online symposium at the Yale Notice & Comment Blog in which academic critics described apparent discrepancies in the empirical evidence backing some of the restatement’s proposals. Proskauer’s Weise responded that the criticisms had either already been addressed in the editing process or ultimately were not relevant.

“We were somewhat puzzled as to why this was a controversy – their conclusions are basically the same as ours,” said restatement reporter Marotta-Wurgler of NYU in an interview Wednesday.

In what seems to be a mark of the contentious tone of the debate over the restatement, Levitin also had an odd copyright run-in with ALI this week. He posted the entire draft restatement in his Dropbox account. ALI leaders demanded that he take down the link. Levitin refused the demand, citing fair use. ALI issued a take-down notice to Dropbox, which blocked access to Levitin's post. But on Wednesday, ALI publicly posted the draft restatement on its site. In a letter to Levitin’s counsel, the group said it disagreed with the prof’s fair use assertion but did not want this copyright dispute to distract from discussion of the proposed restatement.

So what will happen at next week’s vote on the restatement? Levitin, who will be attending the ALI meeting, said consumer opponents of the proposals plan to file motions to amend the draft and to speak up against it. He predicted that the AGs’ letter could sway undecided voters. “There are a lot of people who are unhappy and I have found very few who believe in the restatement,” he said.

Council member Weise and restatement reporter Marotta-Wurgler seem to be braced for opposition – “nothing would surprise me,” Weise said – but hopeful that the restatement will be approved by ALI. (The process calls for a voice vote, although the ALI chair can call for a show of hands.)

“The goal ought to be to fix it rather than toss it away,” Weise said.

This story has been corrected because earlier version incorrectly reported the date of the vote.