Category: Product Liability

REI PFAS Consumer Fraud Lawsuit Continues Trend of Similar Lawsuits

On October 28, 2022, a PFAS consumer fraud class action lawsuit was filed in Washington against REI over alleged PFAS content in various articles of waterproof clothing sold by the company. The REI PFAS consumer fraud lawsuit is but the latest in a growing line of PFAS lawsuits that allege that certain consumer goods contain PFAS, that the products or company’s values were marketed as healthy or environmentally friendly, and that consumers would not have purchased the products if they knew that the products contained PFAS.

As we predicted in early 2021, the increased attention on PFAS content in consumer goods in the scientific community and media presented significant risks to various industries, including the apparel and cosmetics industry, and our prediction was that the developments would lead to a significant number of lawsuits alleging consumer fraud. Consumer goods industries, insurers, and investment companies interested in the consumer goods vertical with niche interest in cosmetics companies must pay careful attention to the cosmetics lawsuits and the increasing trend of lawsuits targeting the industry.

REI PFAS Consumer Fraud Lawsuit

On October 28, 2022, plaintiffs Jacob Krakauer and Joyce Rockwood filed a lawsuit in Washington federal court seeking a proposed class action against REI. The lawsuit alleges that REI markets the company and its products as environmentally friendly and sustainable. Further, the lawsuit cites to statements made by REI that the company is taking proactive steps with respect to chemical use in its products to argue that such statements were false, misleading or induced consumers to purchase products when the presence of PFAS in the products was not disclosed.

In the Complaint, plaintiffs allege the following counts against REI:

  • Violation of state consumer protection laws and the federal Magnuson-Moss Warranty Act

  • Breach of warranty (implied and express)

  • Fraud (actual and constructive)

  • Fraudulent inducement

  • Money had and received

  • Fraudulent omission or concealment

  • Fraudulent misrepresentation

  • Negligent misrepresentation

  • Unjust enrichment

  • Negligent failure to warn

The plaintiffs seek certification of a nationwide class action lawsuit, with subclasses defined as consumers n Washington and Arizona. In addition, the lawsuit seeks damages, fees, costs, the establishment of medical monitoring, and a jury trial.

Just the Beginning For Consumer Products Companies

With studies underway, legislation pending that targets consumer goods, and increasing media reporting on PFAS in consumer goods and concerns over human health, product manufacturers should be increasingly wary of lawsuits similar to the REI lawsuit being filed against them. There are an increasing number of PFAS consumer fraud cases being filed, with some of the below as representative of recent trends:

  • Cosmetics industry:

    • Brown v. Cover Girl, New York (April 1, 2022)

    • Anderson v. Almay, New York (April 1, 2022)

    • Rebecca Vega v. L’Oreal, New Jersey (April 8, 2022)

    • Spindel v. Burt’s Bees, California (March 25, 2022)

    • Hicks and Vargas v. L’Oreal, New York (March 9, 2022)

    • Davenport v. L’Oreal, California (February 22, 2022)

  • Food packaging industry:

    • Richburg v. Conagra Brands, Illinois (May 6, 2022)

    • Ruiz v. Conagra Brands, Illinois (May 6, 2022)

    • Hamman v. Cava Group, California (April 27, 2022)

    • Azman Hussain v. Burger King, California (April 11, 2022)

    • Little v. NatureStar, California (April 8, 2022)

    • Larry Clark v. McDonald’s, Illinois (March 28, 2022)

  • Feminine hygiene products:

    • Gemma Rivera v. Knix Wear Inc., California (April 4, 2022)

    • Blenis v. Thinx, Inc., Massachusetts (June 18, 2021)

    • Destini Canan v. Thinx Inc., California (November 12, 2020)

As the above is indicative of, several major companies now find themselves embroiled in litigation focused on PFAS false advertising, consumer protection violations, and deceptive statements made in marketing and ESG reports. The lawsuits may well serve as test cases for plaintiffs’ bar to determine whether similar lawsuits will be successful in any (or all) of the fifty states in this country. Companies must consider the possibility of needing to defend lawsuits involving plaintiffs in all fifty states for products that contain PFAS.

It should be noted that these lawsuits would only touch on the marketing, advertising, ESG reporting, and consumer protection type of issues. Separate products lawsuits could follow that take direct aim at obtaining damages for personal injury for plaintiffs from consumer products. In addition, environmental pollution lawsuits could seek damage for diminution of property value, cleanup costs, and PFAS filtration systems if drinking water cleanup is required.

Conclusion

It is of the utmost importance that businesses along the whole supply chain in the consumer products industry evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate PFAS at an ever-increasing pace. Similarly, state level EPA enforcement action is increasing at a several-fold rate every year. Now, the first wave of lawsuits take direct aim at the consumer products industry. Companies that did not manufacture PFAS, but merely utilized PFAS in their manufacturing processes, are therefore becoming targets of costly enforcement actions at rates that continue to multiply year over year. Lawsuits are also filed monthly by citizens or municipalities against companies that are increasingly not PFAS chemical manufacturers.

For more Environmental Law news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.

Inflation Woes: Four Key Ways for Companies to Address Inflation in the Supply Chain

The U.S. economy is grappling with the highest inflation in decades, with extensive inflation in the supply chain affecting companies worldwide. Supply chain disruptions undoubtedly have contributed to rising inflation, as extensive delays and skyrocketing costs continue to plague the industry.

In March 2022, the consumer-price index (or CPI) — a measure of the prices consumers pay for products — rose at an annual rate of 8.5%, which is the highest increase in 47 years.1 Meanwhile, the producer-price index (or PPI) — a measure of inflation meant to gauge the impact on suppliers — similarly rose significantly at an annual rate of 11.2%.2 Finally, the employer cost index (or ECI) demonstrates that, from March 2021 to March 2022, total compensation rose 4.5%, wages and salaries rose 4.7%, and benefit costs rose 4.1%.3

Because inflation increases the prices of goods or services, negotiations about who bears that risk in business partner relationships and the consequences of that risk allocation will have significantly greater financial impacts than we have seen in recent memory. As a result, ensuring your business teams are well versed on the impacts of and means of mitigating inflation in new contracts has a direct impact on your bottom line.

In this article, we provide ways for companies in the supply chain to address high inflation and alleviate associated pressures, including (1) how to revisit and use existing agreement provisions to address inflation risk, (2) approaches to negotiating new agreements and amendments to existing agreements, (3) approaches to limit inflationary exposure, and (4) strategies for cost reduction.

Figure 1:

Percent Change in CPI March 2021 versus March 2022

CPI March Chart

Bureau of Labor Statistics, U.S. Department of Labor, Consumer Price Index – March 2022, issued April 12, 2022

Four Key Ways to Mitigate the Effects of Increasing Inflation in the Supply Chain

1. Revisit and Use Provisions in Existing Agreements

Companies faced with rising costs must review their supply agreements to determine if they already contain mechanisms the company can use to address inflation. On the buy side, companies should look in their agreements for terms relating to fixed prices. On the sell side, companies should investigate ways to pass increased costs on to customers. Most supply contracts contain a variety of provisions that may assist in combatting inflationary pressures.

(a) Pricing Provisions

From a seller’s perspective, a contract may include index-based price escalation provisions, which tie contract prices to one or more indices. The underlying indices may be (i) broad economic indices such as the PPI or “market basket” indices tied to all items and all urban consumers, (ii) targeted indices such as ECI for a specific location, or (iii) tied to the cost of a specific commodity used in the underlying product. Contracts will sometimes incorporate several commodity indices based on the percentage those commodities are used in the product that is the subject of the agreement, in order to accurately reflect the costs associated with producing the good.

Allocations under these pricing provisions vary depending on negotiation power. They could put all of the risk on one party, share the risk equally, or share the risk according to particular percentages. The latter two options represent ways to avoid a “win/lose” approach.

Sellers will want to see whether their agreements allow for periodic negotiations for updated prices and take advantage of those opportunities. A buyer, meanwhile, may look for provisions that allow it the flexibility to limit the quantities ordered, enabling it to reduce costs as necessary or to seek a more cost efficient alternative. A buyer also will want to determine if the contract prohibits the seller from changing prices.

Regardless of the existing provisions, the real impact of inflation is likely to trigger commercial discussions to address rising costs; this is true both for hard goods supply agreements and indirect services agreements with longer terms such as outsourcing and managed services relationships.

(b) Force Majeure as a Mechanism to Adjust Price?

Outside of pricing provisions such as the above, however, a party may look to other contract provisions, such as force majeure, to see if its performance under the contract could be excused; increased costs alone are not enough to constitute a force majeure event. In order for a force majeure to arguably apply, the increase in costs must be caused by an event that itself is a qualifying force majeure event under the terms of the applicable contract (which may include events like a labor strike or pandemic).

Force majeure provisions are intended to excuse performance under a contract but not to act as a pricing adjustment mechanism. However, force majeure and its extra-contractual cousin, commercial impracticability, can be used as tools to bring the parties to the negotiating table where events beyond either party’s reasonable control are impacting the ability to produce and deliver products.

2. Negotiate Amendments to Existing Agreements

To the extent sellers have fixed-price contracts with their customers, sellers should consider negotiating with such customers to adjust these contracts in order to keep the prices they charge their customers in line with their input costs. When entering these discussions, companies that wish to implement a price adjustment, or eliminate fixed pricing entirely, should consider meaningful ways to incentivize their customers to agree to such changes. Would the customer be willing to agree to a price adjustment in order extend the agreement or adjust the quantity? Any items that maintain the relationship between the parties while also allocating cost increases in an equitable way should be considered.

Conversely, buyers faced with price-increase requests should carefully consider their options:

  • First, a customer receiving a price-adjustment request should confirm the request is actually tied to inflation and not just an attempt by a supplier to increase its bottom line. Seek detailed calculations supporting the price adjustments, and require suppliers to demonstrate how much their costs have increased above expectations.
  • Second, customers should consider what items they would like to request in return for accepting a given price-adjustment request, such as whether they would like to adjust their quantity or timing of delivery.
  • Third, a customer faced with a price increase request should consider whether the request should include the opportunity for the customer to obtain pricedowns in the future, in the event there are changes in the pricing environment.

3. Pricing Tied to Indexing and Other Ways to Limit Future Inflationary Exposure when Drafting New Agreements

When drafting new agreements, companies should consider how best to mitigate the effects of inflation.

For nearly 40 years, we have enjoyed relatively low and steady levels of inflation, which explains why existing agreements may not adequately address the allocation of significant and unexpected economic change.

Many of those at the upper echelons of leadership today have never dealt with a high inflationary environment. To put it in perspective, the CEO of Walmart, the No. 1 company on the Fortune 500 list for 2021, was 19 years old when inflation was last a newsworthy topic.

In the future, however, we expect far fewer agreements to have long-term fixed prices, as sellers negotiating agreements will want to incorporate a variety of strategies that allow for pricing flexibility and avoid longstanding, fixed prices. One such strategy is tying prices to an index. As discussed above, this could be a general index such as the CPI or PPI or be much more specific depending on the item sold. There are numerous indices for various products and commodities that parties may use to reflect accurately the costs of producing the goods that are the subject of their agreement. Parties may consider incorporating a mechanism for revisiting these provisions, especially in the event that inflation slows. Caps on inflation risk also may be incorporated as a backstop.

If not tying prices to an index, selling parties will want to shorten the term of their agreements or require the parties to renegotiate prices at set points throughout the duration of their agreements. Alternatively, parties may consider price increases of a certain percentage that are automatically implemented periodically. The seller may even want to leave the pricing open and establish pricing at the time the order is placed.

On the other hand, customers will want to incorporate provisions that cause the supplier to bear the inflationary risk. Principally, this means locking in prices for as long of a period as the seller will agree to and ensuring prices are fixed upon the issuance of purchase orders.

If and when sellers push back on extended fixed-pricing provisions, there are a variety of methods parties may use to meet in the middle:

  • Pricing arrangements that are tied to one or more indices may be capped to a certain percentage, ensuring the customer will know its upward exposure.
  • Include thresholds of index movement such that the price remains static unless and until the percentage threshold is exceeded.
  • Allocate increased cost exposure so a certain percentage range of index movement is allocated to one party and then the next percentage range is allocated to the other party. Parties then may share any exposure above those ranges.
  • Additionally, index-based pricing can be clarified to include both upward and downward movement, ensuring that customers, while risking inflationary costs, may also receive the benefits of deflationary environments.

4. Think Strategically to Reduce Costs

Aside from considering purely contractual methods to combat inflation, companies should think strategically about ways to reduce costs more efficiently.

  • Streamlining. In order to pursue this strategy, companies need to determine which areas are driving increased spending and consider ways those areas may be managed differently. For example, companies may consider whether there are different inputs that can be used to lower costs or processes that may be streamlined. Companies can review their inventory management, labor inputs, and other areas to determine where cost cutting may be an option without sacrificing product or service quality. This streamlining might include ending product lines with lower levels of profitability.
  • Technology & Innovation. In addition, with labor constituting such a high percentage of the cost increases companies are experiencing, a company may want to double down on technology and innovation that reduces headcount. Or, as prices rise, a company may pursue other pricing models. For example, a heavy equipment manufacturer may opt for a pay-per-use model in lieu of the traditional sale model.
  • Diversification of the Supply Chain. Another method companies may use is diversifying their supply chains, ensuring they provide the flexibility and sustainability needed to weather turbulent periods. Though adding links to supply chains will not lower costs in the near term, it can help ensure a business continues to function smoothly even in the event of price shocks, material shortages, or other disruptions.

The stressors driving inflation are unlikely to be relieved any time soon. Companies should use every resource available to leverage their current contracts and negotiate new terms to address inflation’s serious repercussions on their bottom line.

FOOTNOTES

1 How High Is Inflation and What Causes It? What to Know, Wall Street Journal (April 12, 2022).

2 Supplier Prices Rose Sharply in March, Keeping Upward Pressure on U.S. Inflation, Wall Street Journal (April 13, 2022).

3  Employment Cost Index – March 2022, U.S. Department of Labor, Bureau of Labor Statistics (April 29, 2022).

Article By Vanessa L. Miller, Kathleen E. Wegrzyn, Leah R. Imbrogno, James R. Kalyvas, and Austin R. Kissinger of Foley & Lardner LLP

For more financial institutions and banking news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Europol: More Than Half of Counterfeits Originate in China

On March 7, 2022, the European Union Agency for Law Enforcement Cooperation (Europol) and the European Union Intellectual Property Office (EUIPO) jointly released the Intellectual Property Crime Threat Assessment 2022. Per the Assessment, China (including Hong Kong) was the main source of counterfeits based on number of counterfeits and by value of the counterfeits seized at the EU external borders.  Almost 76% of the fake goods detained were for trademark infringement; design infringement was the second most reported at 23% while copyright was third with 15%.

China and Turkey remain the main countries of origins for counterfeit clothing, shoes, bags, watches, and jewelry seized at the EU’s border. These goods are mostly ordered online and discovered as part of postal shipments or on passengers entering the EU.

Similarly, China is the country of origin for most of the seized counterfeit electrical/electronic and computer equipment, mobile phones and accessories. With respect to mobile phones, the Assessment states,

…the visual appearance of the counterfeit devices is very convincing, closely mimicking the external characteristics of the original phones. However, typically some features and software characteristics are missing and the International Mobile Equipment Identity (IMEI) is often fake.  The use of cheap and substandard electric components, which can be found in fake batteries, headphones or chargers, pose safety risks.

“China and Turkey were among the most frequently reported non-EU countries of origin for counterfeit food and drink seized at the EU’s external border.” Similarly, counterfeit perfumes and cosmetic products often originate from China and Turkey.

In addition to ready-to-use IPR-infringing goods, product components, such as aroma compounds, fixatives and solvents, are increasingly being seized. These components are used to create the final counterfeit products in the EU.

More worrisome, China and Turkey were the main origin of counterfeit pharmaceutical products.

Toys round out the top 10 counterfeits with China also being main point of origin.

The full Assessment is available here: IP_Crime_Threat_Assessment_2022_FullR_en.

Article By Aaron Wininger of Schwegman, Lundberg & Woessner, P.A.

For more intellectual property legal news, click here to visit the National Law Review.

© 2022 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Sugar Association Files Supplemental Petition Urging Regulatory Changes for Artificially Sweetened Foods

  • This week the Sugar Association submitted a Supplemental petition (“Supplement”) to FDA to further support the Association’s June 2020 petition Misleading Labeling Sweeteners and Request for Enforcement Action (“Petition”).  As noted in a previous post, the Association’s petition asks FDA to promulgate regulations requiring additional labeling disclosures for artificially sweetened products, which it believes are necessary to avoid consumer deception. Other than acknowledging accepting the petition for filing on Nov. 30, 2020, (see Regulations.gov), the agency has not responded.
  • The Supplement provides new data and information that the Association believes supports its original Petition, alleging that misleading labeling is “getting more prolific in the absence of FDA action.”  According to the Association, the number of new food product launches containing non-sugar sweeteners has increased by 832% since 2000, with 300% growth in just the last five years.  To further support its position, the Association references consumer research that it commissioned, suggesting that consumers think it is important to know if their foods contain sugar alternatives.
  • The Association is urging FDA to mandate significant additional disclosures on labels of artificially sweetened food products, including the following requirements to —
    • Clearly identify the presence of alternative sweeteners in the ingredient list;
    • Indicate the type and quantity of alternative sweeteners, in milligrams per serving, on the front of package of food and beverage products consumed by children;
    • Disclose the sweetener used on the front of package for products making a sugar content claim, such as “Sweetened with [name of Sweetener(s)]” beneath the claim;
    • Disclose gastrointestinal effects of various sweeteners at minimum thresholds of  effect;
    • Require that no/low/reduced sugars claims be accompanied by the disclosure “not lower in calories” unless such products have 25% fewer calories than the comparison food.

Article By The Food and Drug Law Practice Group at Keller and Heckman LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Keller and Heckman LLP

Legal Considerations for Ready-to-Drink Cocktails

The ready-to-drink cocktail or “RTD” category has exploded in recent years, and it’s occupied by more than merely craft distillers familiar with a carefully made cocktail. Brewers, distillers and even vintners have joined in, capitalizing on consumers’ desires for pre-made, no-fuss beverages. The most unexpected development to emerge with RTDs, however, is the legal complexity surrounding these products—something the industry is only beginning to understand.

Many of these legal issues stem from the fact that the legal regulatory landscape in most states has not caught up with the rapidly evolving alcohol industry. That leaves ready-to-drink cocktails, much like hard seltzers, as not having a specific class or type in certain states. Suppliers looking to enter the space have plentiful options when creating a new product, subject to what licenses the manufacturer holds and what those licenses allow them to produce.

Ready-to-drink cocktails can be spirits, malt, sugar, cider or wine-based. The base of the RTD product, nonetheless, is the key federal factor. It is also an important factor in most states when determining how the product will be treated from a legal perspective in the following areas:

  • Licensing needed to manufacture, distribute and sell the product;
  • Applicable franchise law (Do beer franchise laws apply to low-proof spirits?);
  • Available channels of distribution (Can you sell this product in grocery or convenience store?);
  • Excise tax rate charged to the manufacturer (Does state law have a lower excise tax rate for low ABV products?);
  • Labeling and advertising considerations (Is your product a modified traditional product?); and
  • Trade practice considerations/promotions (Do spirits laws apply?).

Industry members dabbling in a sphere that is relatively new to the market, state regulators and legislatures should be mindful of the patchwork of emerging regulations. Like hard seltzer, ready-to-drink cocktails are not a clearly defined category under existing alcohol law. Meanwhile, states are working quickly to legislate in this domain. New Jersey is considering a reduced alcoholic beverage tax rate on low-ABV liquors to align with the beer tax rate (NJ SB 701), Vermont is considering legislation to define “low alcohol spirits beverage” and treat it as a “vinous beverage” (VT HB 590) and the Washington State Senate has a bill pending that would establish a tax on low-proof beverages (WA SB 5049).

From franchise issues to excise tax, the issues discussed here are only a glimpse of the nuanced and complicated legal landscape that governs the distribution of RTDs and alcoholic beverages across all categories.

Article By Nichole D. Shustack and Isabelle R. Cunningham of McDermott Will & Emery

For more food and beverage legal news, click here to visit the National Law Review.

© 2022 McDermott Will & Emery

Eliminating Use of PFAS at Airports May Be Harder Than Congress Thought

Per- and polyfluoroalkyl substances (PFAS) are emerging contaminants that are subject to increasing environmental regulation and legislation, including legislation to outright ban their use in certain products. Congress directed the Federal Aviation Administration (FAA) to stop requiring PFAS in the foams used to fight certain fires at commercial airports, and to do so by Oct. 4, 2021. In complying with this order, FAA shows the difficult tightrope it has to walk to meet the “intent” of Congress’ directive, while not really meeting the goal Congress had hoped for.

The FAA issued Certification Alert (CertAlert) 21-05, “Part 139 Extinguishing Agent Requirements,” addressing the continued use of aqueous film-forming foam (AFFF) in order to meet the Oct. 4 deadline. In Section 332 of the FAA Reauthorization Act of 2018, Congress directed that after this date, FAA “…shall not require the use of fluorinated chemicals to meet the performance standards referenced in chapter 6 of AC No: 150/5210–6D and acceptable under 139.319(l) of title 14, Code of Federal Regulations.”

The CertAlert directs airports to continue using AFFF with PFAS unless they can demonstrate another means of compliance with the performance standards stablished by the Department of Defense (DoD) for extinguishing fires at commercial airports. The FAA alert also reminds airports about the need to test their firefighting equipment. Airports can perform the required testing by using a device that has been available since 2019 which does not require the discharge of any foam. Finally, the FAA also reminded airports to comply with state and local requirements for management of foam after it has been discharged.

The FAA reported in its communication that it began constructing a research facility in 2014 that was completed in 2019 and that it has been collaborating with DoD in the search for fluorine-free alternatives for AFFF. The FAA reported that it has tested 15 fluorine-free foams and found that none of them meet the strict DoD performance specifications that also are imposed on commercial airports. More specifically, FAA said the tested alternative foams had the following failings:

  • Increased time to extinguish fires
  • Not as effective at preventing a fire from reigniting
  • Not compatible with the existing firefighting equipment at airports

AFFF was developed to fight fuel fires on aircraft carriers where the ability to suppress fires as rapidly as possible and keep them suppressed is vital to the health and safety of pilots, crews, firefighters and the ship. The military specification (commonly known as MilSpec) for effective firefighting foams for fuel fires is in place for both military and civilian airports.  For many years, the consequences of the use of AFFF to fight aircraft fuel fires – most specifically, the adverse impact on groundwater and surface water – was not fully appreciated. Only recently has this threat been understood and only even more recently has the management of firefighting debris been directly addressed.

Congress may have thought it was eliminating a threat with the legislation directing the FAA to no longer require airports to use AFFF. But FAA’s latest messaging on AFFF highlights just how difficult it is to find suitable replacements, especially when they also have to meet the DoD’s stringent performance standards. The FAA did invite any airport, if they identify a replacement foam that meets the performance standards, to share that discovery with the FAA. However, it is unclear what that would accomplish when it is the DoD and not the FAA that certifies a particular foam’s performance.

In essence, FAA could not solve the challenge that Congress gave it (approve a fluorine-free foam) and instead used the CertAlert to approve airports to use such foams if they can find them on their own. The bottom line is that inadequate progress has been made to fulfill congressional intent to stop using AFFF at commercial airports, and airports are left with no choice but to use PFAS containing foams.

There is legislative activity in many states to ban products with PFAS and at the federal level there have been legislative actions targeting the same – like removing them from MREs. The FAA’s removal of its mandate to use AFFF without offering a PFAS-free alternative is a particularly visible example of the challenge in transitioning away from reliance on PFAS chemicals.

© 2021 BARNES & THORNBURG LLP
For more on travel and transportation, visit the NLR Public Services, Infrastructure, Transportation section.

The Hot Coffee Case Revisited: Has Proximate Cause Changed in the 25 Years Since Liebeck v. McDonald’s Restaurants?

Two cases decided 25 years apart, but there were some facts in common: a hot drink, a consumer alleging that she was burned by the drink, and a lawsuit. These are the facts of the 1994 case Liebeck v. McDonald’s Restaurants that resulted in an award of millions to the consumer, but also the facts from Shih v. Starbucks, a case decided last year. In Shih, however, the court found in favor of the product supplier. What’s different about these cases? The answer: how the courts interpreted proximate cause.

In 1994, Liebeck v. McDonald’s Restaurants sparked a nationwide tort reform debate after a jury found McDonald’s liable for a consumer’s injuries after she spilled McDonald’s coffee on herself. At the time, many commentators predicted a wave of frivolous lawsuits and large judgments against businesses. But 25 years later, those predictions have not materialized. While consumers continue to sue, the doctrine of proximate cause limits the liability that businesses face from claims for injuries related to hot drinks.

Liebeck v. McDonald’s Restaurants

In 1992, Stella Liebeck bought a cup of hot coffee from a McDonald’s drive-through in New Mexico. While parked, she placed the cup of coffee between her legs and attempted to peel the cap off. The coffee spilled and Ms. Liebeck sustained second- and third-degree burns.

Liebeck sued McDonald’s, alleging that the hot coffee was defectively manufactured, that it violated the implied warranties of merchantability and fitness for a particular purpose, and that the defect caused her injuries. At trial, Liebeck’s attorneys offered evidence that McDonald’s asked franchisees to brew coffee at 180-190 degrees Fahrenheit. Additionally, the attorneys offered evidence that McDonald’s had received more than 700 reports of burns resulting from coffee spills out of billions of hot coffees sold during the time period.

The jury ruled in favor of Liebeck and awarded her compensatory damages of $200,000 and punitive damages of $2.7 million. But the jury determined that Liebeck was 20 percent at fault for her own injuries, and the court reduced the punitive award significantly, resulting in compensatory damages of $160,000 and punitive damages of $480,000.

Shih v. Starbucks

Shih v. Starbucks presents a similar set of facts, but with a different outcome. In June 2016, Tina Shih went to Starbucks with a friend, and each ordered a hot tea. Each tea was given to Shih in a double-cup – one full cup placed within an empty cup. Neither cup had a sleeve. Shih carried both teas to her table and sat down.

Shih claimed that because the cup of tea was filled to the top and was very hot, she did not want to lift it. Instead, she pulled the lid off the cup and moved her chair back to sip from the cup while it was on the table. Shih pushed her chair back to lean over the cup, lost her balance, and put her hand on the table to steady herself – causing the hot tea to spill in her lap. Shih sustained second-degree burns from the incident.

Shih sued Starbucks. She alleged that the double-cup without a sleeve was a manufacturing defect, which – combined with the cup being filled to the brim with hot tea – caused her injuries. Starbucks moved for summary judgment on Shih’s claims, arguing that Shih could not prove the alleged manufacturing defect proximately caused her injuries. The court agreed, granted Starbucks’s motion, and entered judgment in favor of Starbucks. In 2020, the appeals court affirmed.

Proximate Cause is Key the Difference

The differences between Liebeck and Shih are the litigants’ defect claims and their respective theories of proximate causation. The proximate cause inquiry examines the relationship between the defendant’s alleged conduct and the plaintiff’s injury: if the defendant’s conduct is too attenuated from the consumer’s injuries, the defendant cannot be held liable for those injuries. Proximate cause exists when the defect in question increased the risk of harm to the consumer, and the consumer sustained injuries resulting from the increased risk. Courts generally test proximate cause by looking at whether the harm was a foreseeable result of the defect – meaning the business could reasonably have predicted the harm.

Liebeck’s attorneys successfully argued that the coffee was defective because it was served too hot and that the excessively hot temperature put Liebeck at an increased risk of burns. Liebeck established proximate cause by showing that her burn injuries were a foreseeable result of the alleged defect – the coffee being served very hot.

Shih could not establish proximate cause because the court held that the alleged defect was too attenuated from her injuries. Shih’s attorneys argued that the lack of a cup sleeve and the fact that the hot tea was full made it defective. Specifically, Shih would not have removed the tea lid, leaned forward, moved her chair, lost her balance and grabbed the table – causing it to wobble and spill the tea on her – if Starbucks had given her a cup sleeve or not filled the cup to the brim.

The court held that the alleged defect did not increase the risk of Shih being burned or otherwise injured by the hot tea; therefore, the defect was not the proximate cause of her injuries. The lack of a sleeve and the fullness of the tea did not increase Shih’s risk of losing her balance “while attempting to execute [this] kind of unorthodox drinking maneuver,” and spilling the tea on herself. The court’s use of “unorthodox” illustrates that, in the court’s view, Shih’s injuries were not a foreseeable result of the alleged defect. The court noted that while it is foreseeable that consumers could lose their balance and spill their drinks, losing one’s balance is not “within the scope of the risk” created by Starbucks’ decision to use a double cup and to fill the cup to the brim. Thus, Shih could not prove Starbucks’ actions proximately caused her injuries.

Twenty-five years after Liebeck sparked a national conversation about hot coffee and corporate liability, Shih demonstrates that courts continue to follow public policy limitations like proximate cause to protect businesses from unforeseeable consumer injuries.

© 2021 Schiff Hardin LLP

Article by Emilie McGuire and Jeffrey Skinner with Schiff Hardin LLP.

For more articles on class action lawsuits, visit the NLR Litigation section.

CPSC Staff Addresses IoT 2018 Hearing Feedback, IoT Project Plans in New Report

Connected products can make the world a safer place: electronic sensors in the home can detect problems and send smartphone notifications to the homeowner; smart alert devices can notify family members or home help companies that an elderly person has fallen and needs assistance. But with over 64 billion connected products in the marketplace, there is a concern that connected devices could introduce hazards that might lead to a risk of injury due to problems with software updates or customization, faulty connections, and even consumer modifications.

As the body charged with overseeing consumer product safety in the U.S., over the last few years, the Consumer Product Safety Commission (CPSC) has shown an increasing interest in defining its role with regard to connected products. In May 2018, the CPSC held a public hearing on IoT, obtaining feedback from a range of stakeholders on potential risks of connected consumer products and the agency’s role. In late September, CPSC staff submitted to the Commission a status report outlining the CPSC’s work on consumer product IoT issues since the public hearing. The report also outlines how CPSC staff understands the agency’s role, which is safeguarding consumers from potential physical product risks, as well as how its work intersects with the jurisdiction of other agencies as they oversee connected products.

The report notes that this is an ongoing process, stating that CPSC staff is working on “how to define consumer product safety in terms of the IoT, the intersection of, and interdependencies among, consumer product safety, data security and privacy, and how our traditional risk management approaches apply to connected products.” The report acknowledges that privacy and data security are not within CPSC’s jurisdiction, but noted that at least one participant in CPSC’s 2018 hearing warned that “CPSC should pay attention to certain cybersecurity threats that create opportunities for physical harm, a risk not previously considered, and resist creating any prescriptive rules for IoT devices.”

To increase institutional knowledge of IoT benefits and challenges, CPSC has dedicated resources to develop its staff’s expertise. CPSC has also participated in developing voluntary standards, has taken a leadership role in establishing an interagency IoT working group, and has been developing its capability to simulate home networks at its laboratory.

The staff report outlines three ongoing internal projects relating to IoT. The first involves developing a methodology for assessing safety-related implications arising out of software and firmware updates to connected products. This project is at what CPSC views as the intersection of product safety and data security and potential “hazardization” of connected products as a result of data vulnerabilities. CPSC is also looking at connected heating appliances and the risks associated with their remote activation. Finally, CPSC is studying smart toys “in an effort to identify physical safety hazards.” It is surprising that CPSC staff would dedicate resources to toys as opposed to other products, like in-home safety devices, since the physical safety of toys is strictly regulated by the mandatory toy safety standard, ASTM F-963. The likelihood of physical hazardization of toys is far lower than, for example, connected home security devices and sensors. In those categories, connectivity, and thus security breaches that affect the operation of those devices, may be directly related to both safety risks and advantages. Indeed, home safety devices is a category where we have actually seen CPSC recall activity.

The report notes that CSPC is engaging in product safety assessments of connected& shared e-scooters. This is likely in response to reports of e-scooters that were vulnerable to hacking. The emerging hazards of micro-mobility devices such as shared e-scooters are also a focus of CPSC’s Operating Plan for Fiscal Year 2020 and represent another product category that appears to be more vulnerable to hazardization than connected toys.

CPSC staff intended to develop a best practices guide for industry and consumers on connected products, which was an enumerated project in the proposed Operating Plan for Fiscal Year 2020. However, an amendment introduced by Commissioner Feldman focuses CPSC’s resources on IoT intergovernmental work instead. Given the report’s acknowledgment that the agency is still working to develop staff expertise in IoT, attempting to create such a guide appears premature at this juncture.

The sharp increase in the number of connected devices in the market means it is necessary and appropriate for CPSC to continue to build expertise on IoT issues, even though very few examples of actual product safety hazards attributable to some type of connectivity failures exist. It would be useful for CPSC to focus its efforts and resources on product categories that pose a higher potential risk to the physical safety of consumers through hazardization or failure as a result of connectivity, without overstating potential risks. It is encouraging that through the intergovernmental initiatives a variety of federal agencies are working collaboratively to better understand the various consumer protection issues potentially raised by connected products that fit within their respective jurisdictions.

© 2019 Keller and Heckman LLP

For more CSPC regulation, see the National Law Review Consumer Protection law page.