Category: Consumer Protection

OCR Announces $300,000 Settlement Related to Improper Disposal of Physical PHI

On August 23, 2022, the U.S. Department of Health & Human Services, Office for Civil Rights (“HHS”) announced that it had settled a case involving the disposal of physical protected health information (“PHI”).

OCR alleged that, on March 31, 2021, a specimen containing PHI was found by a third-party security guard in the parking lot of the New England Dermatology and Laser Center (“NEDLC”). The PHI included patient name, patient date of birth, date of sample collection, and the name of the provider who took the specimen, in violation of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).

As part of the settlement, NEDLC agreed to pay HHS $300,640. According to NEDLC’s Resolution Agreement and the Corrective Action Plan, there were two potential violations by NEDLC. First, NEDLC allegedly failed to maintain appropriate safeguards to protect the privacy of PHI,” as required by 45 C.F.R. § 164.530(c). Second, NEDLC allegedly permitted the impermissible disclosure of PHI, in violation of Rule 45 C.F.R. § 164.502(a). The Corrective Action Plan requires NEDLC to develop, maintain and appropriately revise written policies and procedures in accordance with HIPAA.

Several highlights of the settlement include:

  1. Changes to Policies and Procedures. NEDLC must develop, maintain and revise, as necessary, its written HIPAA policies and procedures, and provide such policies and procedures to HHS for review and approval. NEDLC also must assess, update and revise, as necessary, such policies and procedures at least annually, or as needed, and seek HHS’s approval of the revised policies and procedures.
  2. Designation of Privacy Official. NEDLC must designate a privacy official who is responsible for the development and implementation of NEDLC’s HIPAA policies and procedures, and a contact person or office who is responsible for receiving relevant complaints.
  3. Training Requirements. NEDLC must provide HHS with training materials for its workforce members and seek HHS’s approval of such training materials. NEDLC must also distribute the HIPAA policies and procedures to its workforce members and relevant business associates, and obtain a written compliance certification from all such individuals. NEDLC must provide HIPAA training for new workforce members, and all workforce members at least every 12 months. Each workforce member must certify, in electronic or written form, that they received training. NEDLC must review the training at least annually, and update the training where appropriate. NEDLC must promptly investigate, review, report to HHS, and sanction any workforce member that does not comply with its HIPAA policies and procedures.
  4. Implementation Report and Annual Report.  NEDLC is required to submit to HHS a written report summarizing the status of its implementation of the requirements provided set forth in the settlement, and annual compliance reports.

For more Health Care legal news, click here to visit the National Law Review.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

USDA To Declare Salmonella An Adulterant in Some Raw Poultry

  • On August 1, the USDA’s FSIS announced that it will declare Salmonella an adulterant in breaded and stuffed raw chicken products. Breaded and stuffed raw chicken products will be considered adulterated when they exceed 1 colony forming unit (CFU) of Salmonella per gram. Products that exceed the limit would be subject to regulatory action. FSIS believes the limit of 1 CFU/gram will significantly reduce the risk of illness from consuming such products.
  • Breaded and stuffed raw chicken products have been associated with up to 14 food safety outbreaks and approximately 200 illnesses since 1998. The products at issue are those found in the freezer section and that appear to be cooked, but are only heat-treated to set the batter or breading; the products contain raw poultry. FSIS has found that continual efforts to improve product labeling have not reduced consumer illnesses.
  • FSIS is expected to publish a notice in the Federal Register in the fall and will be seeking public comments on whether a different standard for adulteration (i.e., zero tolerance or one based on specific serotypes) would be more appropriate, an implementation plan, and a verification testing program.
  • This announcement is part of FSIS’ effort to reduce Salmonella illnesses associated with poultry. In October 2021, USDA announced that it was reevaluating its Salmonella control strategy. USDA plans to present a proposed framework for a new comprehensive strategy to reduce Salmonella illnesses attributable to poultry in October and convene a public meeting to discuss in November.

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

FTC Takes First Actions Under New Made in USA Labeling Rule, Fining Battery Companies for Violations

The Federal Trade Commission (FTC) recently cracked down on Lithionics Battery, LLC, and Lions Not Sheep Products, LLC, for violating the FTC’s Made in USA Labeling Rule. These are some of the first enforcement actions after the FTC codified its longstanding informal Made in USA guidance, which makes it easier for the FTC to seek damages and levy fines. Under the proposed settlement, Lithionics will pay a $100,000 fine for falsely labeling batteries as US-made, while Lions Not Sheep will be required to pay $211,335 for falsely labeling clothing as US-made.

The Made in USA Labeling Rule

Under the Made in USA Labeling Rule, marketers suspected of making unqualified Made in USA claims must prove that their products:

  1. are all or virtually all made in the US;
  2. that all significant processing occurred in the US; and
  3. that the final assembly occurred in the US.

Although Congress enacted legislation authorizing the FTC to seek relief for Made in USA fraud almost thirty years ago, the FTC long remained silent on enforcement due to a general consensus that this specific type of fraud should not be penalized. The 2021 Made in USA Labeling Rule alters this perspective, codifying the FTC’s enforcement policy. With the Commission now being allowed to levy fines, seek damages, penalties, and/or redress on marketers who deceptively and fraudulently represent that their products are made in the US, the FTC has stepped up its enforcement efforts.

The FTC’s Recent Allegations with Lithionics and Lions Not Sheep

Lithionics

Lithionics is a Florida-based company best known for its battery products. The company has become a regular brand throughout American households. It designs and sells products for vehicles, as well as amusement parks.

The FTC alleged that Lithionics has been in violation of the Made in USA Labeling Rule since at least 2018 by intentionally misrepresenting the origin of Lithionics products. According to the Complaint, Lithionics’ products are labeled “Proudly Designed and Built in the USA” and feature an American flag. The claims were also featured across company websites, social media platforms, videos, and printed catalogs. However, according to the FTC, “all Lithionics battery and battery module products contain imported lithium ion cells” and “other significant imported components,” which, if true, would render Lithionics’ Made in USA claims false or unsubstantiated under the Made in USA Labeling Rule.”

Under the proposed order, Lithionics and its owner must stop making these claims unless they can prove their statements are true. As noted above, the company must also pay $100,000 for the alleged activity.

Lions Not Sheep

Lions Not Sheep is a self-proclaimed lifestyle brand that sells sweatshirts, hats, and shirts online.

In its allegations against Lions Not Sheep, the FTC alleged that the company has violated the Made in USA Labeling Rule since May 2021. According to the Complaint, the company intentionally removed tags disclosing that items were made in a foreign country. Instead of leaving the original tags, the FTC alleged that the company replaced them with Made in USA tags despite the products being “wholly imported with limited finishing work performed in the United States.” To make matters worse, the FTC found a video posted on the internet featuring the company’s owner blatantly claiming he could hide the fact that his shirts were made in China.

In addition to charging the company with violating the Made in the USA Labeling Rule, the FTC charged the company with violating mandatory country-of-origin labeling rules, which require all products covered by the Textile Act to include labels disclosing the manufacturer or marketer name and country where the product was manufactured. The company will be prohibited from making these claims and forced to pay $211,335.

Primary Takeaway

With the FTC now levying significant fines under the new Made in USA rule, the potential cost of non-compliance has also significantly increased. Companies should provide notice to their marketing teams and carefully review any existing claims to ensure that Made in USA claims are adequately substantiated and that marketing materials are not conveying unintended implied claims.

Article By Anthony V. Lupo, Dan Jasnow, and Destiny Planter of ArentFox Schiff LLP

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

© 2022 ArentFox Schiff LLP

Gerber Argues FDA Preemption in Baby Food Lawsuit

  • In February 2021, the U.S. House of Representatives subcommittee on Economic and Consumer Policy released a report on the levels of heavy metals found in baby foods and the respective manufacturers. The report findings described “significant levels of toxic heavy metals” based on internal documents and test results submitted by baby food companies.  Lawsuits quickly followed, including many actions against Gerber Products Co., that allege Gerber falsely and deceptively failed to disclose the presence of unsafe levels of heavy metals in their baby foods.
  • Gerber argues in a recent motion to dismiss  that the primary jurisdiction doctrine should control. For background, the primary jurisdiction doctrine is a judicial doctrine used when courts and an agency have concurrent jurisdiction, but the court favors administrative discretion and expertise in deciding the issue.   In this case, Gerber argues that the Food and Drug Administration (FDA) is in a better position to decide “acceptable levels of heavy metals in baby foods” because of the need for expertise in issues of infant nutrition.
  • Gerber further alleges that Plaintiff’s claims are preempted by the Food, Drug, and Cosmetic Act (FDCA). Gerber argues that Plaintiff’s demand for mandatory disclosures on packaging is preempted by FDA because it is the Agency’s role to establish national policy on food safety and labeling.  Finally, Gerber says the Plaintiffs fail to plead deception, pointing to a lack of misleading statements on their packaging and no legal requirement to disclose heavy metals on a product label.
  • Keller and Heckman will continue to monitor and report on this litigation and any responsive regulatory actions or developments.

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

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

© 2022 Keller and Heckman LLP

Colorado PFAS Act Likely Just the Beginning of New PFAS Chemical Regulation

Key Takeaways

  • How does the recent increase in state regulation of PFAS chemicals in consumer products impact your business?
  • Potential federal regulations of PFAS chemicals
  • Need for implementation of quality control practices
  • How best to identify and correct improper use of PFAS chemicals in consumer products

Introduction

Colorado has become the most recent state to regulate the use of PFAS chemicals in consumer products. It is important that manufacturers and retailers become aware of these restrictions now to avoid future compliance issues since the state regulations of PFAS chemical use are not the same state to state. Further the compliance issues imposed by state regulations will be compounded if the federal government fulfills its promise to regulate PFAS chemicals. Multiple federal agencies have indicated that such federal regulations may be forthcoming in the near future.

Definition of PFAS

Per- and polyfluoroalyyl substances (PFASs, CnF2n+1–R) are a group of man-made chemicals that includes PFOA, PFOS and GenX chemicals.1 These chemicals are widely used, long lasting chemicals that contain components that break down very slowly over time. PFAS chemicals are used to make fluoropolymer coatings and products that resist heat, oil, stains, grease, and water. These can include clothing, furniture, adhesives, food packaging, and many other products.2 Because of their widespread use and persistence in the environment, many PFAS are found in the blood stream of people and animals all over the world and are present at low levels in a variety of food products and in the environment.

Colorado Joins a Growing List of States to Implement PFAS Regulations for Consumer Products

Colorado recently adopted into law the Perfluoroalkyl and Polyfluoroalkyl Chemcials Consumer Protection Act (the “Colorado PFAS Act”)3, which regulates the use of perfluoroalkyl and polyflupralkyl substances (“PFAS chemicals”) in certain consumer products. The Colorado General Assembly concluded that such regulation is necessary upon the determination that “PFAS chemicals pose[] a significant threat to the environment of the state and the health of its residents.”4 Accordingly, by its terms, the Colorado PFAS Act was implemented into law in order “to create a regulatory scheme that phases out the sale or distribution of certain products and product categories in the state that contain intentionally added PFAS chemicals.”5 In furtherance of this goal, the Colorado PFAS Act will phase out the sell and distribution of certain consumer products that contain “intentionally added PFAS chemicals” from January 1, 2024 through January 1, 2027.6

These phase out regulations within the Colorado PFAS Act are consistent with a national trend of states regulating the sale and distribution of consumer products containing PFAS chemicals. For example, the Colorado PFAS Act establishes that Colorado is now one of at least 8 states that will regulate the sale and distribution of “food packaging” that contains intentionally added PFAS chemicals.

Beyond the differing timeline in the above chart, it is important to note these regulations are not synonymous since the term “food packaging” is defined differently by each regulating state.

Ignorance Is No Defense

The Colorado PFAS Act also does not allow ignorance on the contents of a commercial product as prohibiting the enforcement of its regulations. It is true that the Colorado PFAS Act prohibits the sell and distribution of certain products that contain “intentionally added PFAS chemicals.”7 However, the Colorado PFAS Act defines “intentionally added PFAS chemicals” as “PFAS chemicals that a manufacturer has intentionally added to a product and that have a functional or technical effect on the product.”8 Here the “intent” element necessary to trigger the regulations of the Colorado PFAS Act is the intent to add any chemistry which includes any listed PFAS chemicals. The Colorado PFAS Act defines “product” to “include” any product components.”9 Thus, a “manufacturer” of consumer goods must understand all additive materials to its products through each stage of the supply chain.

Likely Federal regulation by the end of the year (2022)10

The EPA is expected to propose a regulation for groups of PFAS in drinking water in the Fall of 2022 before the Agency’s statutory deadline in March 2023. A final rule is anticipated in Fall 2023 after considering public comments on the proposal. In a new health advisory, EPA reduced the acceptable levels for two PFAS (perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA)) in drinking water from 70 parts per trillion down to just 0.004 parts per trillion for PFOA and 0.02 parts per trillion for PFOS.11 Issuing a health advisory is generally considered to be a preliminary step in the process of setting maximum contaminant levels.12 Some states have set their own enforceable drinking water standards for PFOA and PFOS. Vermont, Michigan, and New Jersey have all set limits ranging from 8 to 20 parts per trillion for both chemicals.13 The issuance of the health advisory by the EPA will have States reevaluating their own regulations to conform with the standards set by the Agency.14

By Winter 2022 the EPA plans to leverage federally-issued NPDES permits to reduce PFAS discharges and will propose monitoring requirements at facilities where PFAS are expected or suspected to be present in wastewater and storm water discharges, using its recently published analytical method 1633, which covers 40 unique PFAS. EPA will issue new guidance recommending that state-issued permits that do not already include monitoring requirements for PFAS use the method 1633 at facilities where PFAS is expected or suspected to be present in wastewater and storm water discharges. In addition, the new guidance will recommend the full suite of permitting approaches that EPA will use in federally-issued permits. The EPA expects to publish a multi-laboratory validation method to detect up to 40 specific PFAS compounds in eight environmental matrices with the Department of Defense online by Fall 2022.

Discussion of Proposed RCRA and CERCLA changes

a. Proposed RCRA Changes15

In recent months, EPA has set the stage for greater regulation and firm federal standards PFAS chemicals that could significantly impact cleanup requirements. In October of 2021, the EPA responded to a petition from Governor Michelle Lujan Grisham of New Mexico to tackle PFAS contamination under the Resource Conservation and Recovery Act (RCRA). EPA outlined plans to initiate rulemaking process for two new actions under the hazardous waste law. The first rulemaking effort will initiate the process to propose adding four PFAS chemicals as RCRA Hazardous Constituents under Appendix VIII, by evaluating the existing data for these chemicals and establishing a record to support a proposed rule. The four PFAS chemicals EPA will evaluate are: perfluorooctanoic acid (PFOA), perfluorooctane sulfonic acid (PFOS), perfluorobutane sulfonic acid (PFBS), and GenX. Adding these chemicals as RCRA hazardous Constituents would ensure they are subject to corrective action requirements and would be a necessary building block for future work to regulate PFAS as a listed hazardous waste. The second rulemaking effort will clarify in EPA regulations that the RCRA Corrective Action Program has the authority to require investigation and cleanup for wastes that meet the statutory definition of hazardous waste, as defined under RCRA section 1004(5). This modification would clarify that emerging contaminants such as PFAS can be cleaned up though the RCRA corrective action process.

b. Proposed CERCLA Changes16

In June 2021, EPA restarted the process to designate PFOA and PFOS as Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) hazardous substances. A proposed rule was expected in the Spring of 2022, no such rule has been proposed. According the EPA’s “PFAS Strategic Roadmap” a final rule is expected in the Summer of 2023 and EPA is currently developing a Notice of Proposed Rulemaking to designate PFOA and PFOS as CERCLA hazardous substances. Such designations would require facilities across the country to report on PFOA and PFOS releases that meet or exceed the reportable quantity assigned to these substances. The hazardous substance designations would also enhance the ability of federal, Tribal, state, and local authorities to obtain information regarding the location and extent of releases. EPA or other agencies could also seek cost recovery or contributions for costs incurred for the cleanup.

The designation PFOA and PFOS as a hazardous substance under CERCLA could substantially impact existing and new cleanup sites. Site owners and responsible parties who release PFOA or PFAS, and possibly other PFAS chemicals will be obligated to report releases, quantify the location and amounts released to stakeholders, and may be liable for partial or total cleanup. Regulatory changes may also delay cleanup and add significant analytical costs for companies who need to evaluate PFAS in various media prior to releases of any kind to waste streams. The designation of PFAS as hazardous substances has not yet been ratified at a federal level. However, several states (e.g., Washington DOE) have enacted Public Health Goals for surface and drinking waters and cleanup standards – several that incorporate federal hazardous substances lists, ensuring that the impending PFAS regulations will extend beyond federally designated cleanup sites.

The Importance of Following the Discussion Leading up to New TSCA Regulations17

The Toxics Release Inventory (TRI) helps the EPA compile data and information on releases of certain chemicals and supports decisions by companies, regulatory agencies, and the public. The EPA intends to implement a rulemaking in 2022 to categorize the PFAS on the TRI list as “Chemicals of Special Concern” and remove the de minimis eligibility from supplier notification requirements for all “Chemicals of Special Concern.” It is expected for the EPA to continue to update and add to the list of PFAS subject to the TRI. EPA’s proposed rule would require all manufacturers (including importers) of PFAS in any year since 2011 to report information related to chemical identity, categories of use, volumes manufactured and processed, byproducts, environmental and health effects, worker exposure, and disposal. There is still opportunity for public comments as the rule is not set to finalize until January of 2023.

Industries Should Take Protective Measures

Both the implementation of the Colorado PFAS Act and the recent actions of the EPA establish that the time for manufacturers and retailers to act is now. Specifically, manufacturers and retailers should implement quality control practices directed towards identifying—and where necessary altering—the chemical contents of their consumer products.

To implement such quality control practices, manufacturers and retailers should review their wastewater handling processes and insurance policies for periods of past PFAS chemicals use. These previous processes and insurance policies likely identify the specific components of PFAS chemicals that were deemed to violate state waste water regulations, as well as the internal changes implemented to eliminate the use of such chemicals. Similar practices can likely be implemented in the sale and distribution of consumer products that include PFAS chemicals. Manufacturers and retailers should implement practices now to limit exposure and costs once regulation of PFAS consumer products become both effective and more prevalent. If you have any questions regarding PFAS regulations, please contact the authors of this article.

ENDNOTES

1 Zhanyun Wang et al., A Never-Ending Story of Per- and Polyfluoroalkyl Substances (PFASs)?, 51 ENV’L SCI. TECH. 2508.

2 CTR. FOR DISEASE CONTROL AND PREVENTION, https://www.cdc.gov/biomonitoring/PFAS_FactSheet.html (last visited June 24, 2022).

3 C.R.S.A. § 25-15-601 et seq.

4 C.R.S.A. § 25-15-602(1)(a).

5 C.R.S.A. § 25-15-602(2).

6 C.R.S.A. §§ 25-15-604(1), (3)-(4).

7 C.R.S.A. § 25-15-604(1), (3), and (5).

8 C.R.S.A. § 25-15-603(12)(a).

9 C.R.S.A. § 25-15-603(20)(b).

10 All information gathered in this section coms from: ENV’L PROT. AGENCY https://www.epa.gov/system/files/documents/2021-10/pfas-roadmap_final-508.pdf (last visited June 24, 2022).

11 Juan Carlos Rodriguez, 3 Takeaways from EPA’s Guidance on PFAS in Drinking Water, Law360 (June 22, 2022, 8:48 PM EDT).

12Id.

13Id.

14Id.

15 Information on RCRA changes comes from: EPA Press Release, responding to New Mexico Governor’s petition to tackle PFAS contamination under RCRA (Oct. 26, 2021).

16 All information gathered in this section coms from: EPA, PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024 (Oct. 2021).

17 Information comes from: EPA (last visited June 24, 2022).

 

Article By Daniella D. Landers, Michael J. Sullivan, and Brendan H. White of Womble Bond Dickinson (US) LLP. Audrey Capra, Summer Associate, also contributed to this alert.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.

Beyond Meat Sued Over Protein Content Claims

  • A proposed consumer class action lawsuit was filed against Beyond Meat, Inc. on June 10, alleging that the plant-based meat manufacturer embellished the amount of protein contained in its line of plant-based sausages, breakfast patties, meatballs, ground beef, and chicken products.

  • In the complaint, plaintiff Mary Yoon alleges that Beyond Meat falsely labels and advertises its products as providing “equal or superior protein” to animal-derived meat. Her claim is based on the fact that “two different U.S. laboratories have independently and separately conducted testing on a wide range of Beyond Meat products. The test results were consistent with each other: the results of both tests show that Beyond Meat products contain significantly less protein than what is stated on the product packaging.”

  • Plaintiff Yoon alleges that Beyond Meat’s quantitative declaration of protein and percent Daily Value (%DV) are false and misleading because the quantitative amount was calculated using the nitrogen method. According to the complaint, “the nitrogen method is not the most accurate way to describe protein content” and that “[b]y law, Beyond Meat is required to use the PDCAAS calculation for the products rather than some other less-sophisticated method.”

  • In opposition to plaintiff Yoon’s claims, 21 CFR 101.9(c)(7) specifically provides for two different methods to determine protein values, including the nitrogen method. The FDA recently issued a clarifying Q&A supporting the use of either method to calculate protein content (i.e., nitrogen or PDCAAS), but noted that manufacturers are still obligated to include a %DV when protein claims are made and that %DV should be adjusted for protein quality.

Article By 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

CFTC Wades Into Climate Regulation

On June 2, 2022, the Commodities Futures Trading Commission (CFTC) issued a Request for Information (“RFI”) for “public comment on climate-related financial risk to better inform its understanding and oversight of climate-related financial risk as pertinent to the derivatives markets and underlying commodities markets.”  According to the RFI, the CFTC is contemplating “potential future actions including, but not limited to, issuing new or amended guidance, interpretations, policy statements, regulations, or other potential Commission action within its authority under the Commodity Exchange Act as well as its participation in any domestic or international fora.”

Specifically, the RFI issued by the CFTC is quite wide-ranging, and engages with numerous aspects of the CFTC’s authority, focusing on both systemic and narrow issues.  For example, the CFTC has, among other things, issued a broad request for comment on how “its existing regulatory framework and market oversight . . . may be affected by climate-related financial risk” and “how climate-related financial risk may affect any of its registered entities, registrants, or other market participants, and the soundness of the derivatives markets.”  It is hard to imagine a broader request by the CFTC–it is effectively asking for input on how “climate-related financial risk” may impact any portion of its regulatory purview.  Conversely, the CFTC has also posed very specific questions, including as to how the CFTC “could enhance the integrity of voluntary carbon markets and foster transparency, fairness, and liquidity in those markets,” and how it could “adapt its oversight of the derivatives markets, including any new or amended derivative products created to hedge-climate-related financial risk.”  In short, based upon the RFI, the CFTC could conceivably adopt a narrow or broad view of how it should adjust its regulations to account for climate-related financial risk.  Notably, however, the CFTC also asked if there were “ways in which updated disclosure requirements could aid market participants in better assessing climate-related risks,” which suggests that the CFTC may echo the SEC’s recent proposed rule for mandatory climate disclosures.

Most significantly, the fact that yet another financial regulatory agency is focused on “climate-related financial risk” suggests that the Biden Administration is willing to expend significant resources and energy in engaging in this type of regulation to advance its climate agenda.  When considered in tandem with the SEC’s recent proposed rules for mandatory climate disclosures and to combat greenwashing, it is apparent that there is a significant regulatory focus on climate issues and the financial markets.  This move by the CFTC also suggests that the Biden Administration will fully support the SEC’s proposed rules against the inevitable legal challenge.  (And, based upon the concurrences of the Republican CFTC commissioners to this RFI, it is likely that any climate-related regulation proposed by the CFTC will also be subject to legal challenge, likely on the grounds that such a regulation exceeded the CFTC’s authority.)  Most importantly, this move by the CFTC–that seeks to “understand how market participants use the derivative markets to hedge and speculate on various aspects of physical and transition [climate] risk”–demonstrates that the regulatory focus on climate and the financial markets will remain a top priority for the foreseeable future.

The Commodity Futures Trading Commission today unanimously voted to release a Request for Information (RFI) to seek public comment on climate-related financial risk to better inform its understanding and oversight of climate-related financial risk as pertinent to the derivatives markets and underlying commodities markets.

Article By Jacob H. Hupart of Mintz

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

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

THE OLD 9999 SCAM?: Plaintiff Alleges Defendant Made 5000 Illegal Phone Calls to his Number–But is it a Set Up?

So ostensiby the case of Mongeon v. KPH Healthcare, 2022 WL 1978674 Case No. 2:21-cv-00195 (D. Vt. 06/06/2022) is simply a case about the definition of “consumer” under the Vermont Consumer Protection Act (“VCPA”), 9 V.S.A. § 2453.

The plaintiff alleges his receipt of 4000 calls from the Defendant after the Defendant promised to stop calling was an act of “fraud” and “deceit” under the VCPA. But since the Plaintiff has not alleged facts establishing he is a “consumer” within the meaning of the Act the Court dismissed the case, without prejudice.

Pretty blasé.

But let’s back up. Why would Defendant–seemingly a local pharmacy–blast the Plaintiff’s number so many times?

Well the Plaintiff’s full number is not set forth in the decision–but the last four digits are “9999.”

Many years ago before I became a TCPA class action defense lawyer I–like many out there–had a very low impression of the TCPA. I remember a guy in law school who made tuition bring junk fax cases. And I had a colleague who was locked in mortal battle with some clown who was bringing a series of small claims TCPA suits in Southern California arising out of calls to a “designer phone number”: 999-999-9999.

Hmmmmm.

Much like the old case of Stoops in which the Plaintiff had over 80 cell phones–or the recent case of Barton in which the Plaintiff had a cell phone purchased specifically to set up TCPA suits–a 9999 scammer will pick up a “designer number” like 999-999-9999 and wear it is for a legitimate purpose. “I run a real estate agency, etc.” Looking deeper there is rarely any utility behind the number–although other designer numbers like (800) 444-4444 are very helpful–and the numbers are often just used to net TCPA lawsuits.

The reason it works is rather obvious.

When I walk into my local Sports Clips for my monthly trim there is no way I’m going to give them my private cell phone number. So I give them 999-999-9999. (Of course, I also give them my email of no@no.com.) It works perfectly well for check in, and I never receive any texts or calls from them reminding me to come back to style my luscious used-to-be-black locks.

Apart from folks providing the number 999-999-9999 to a business, many companies will knowingly have their agents enter the number as a default when the customer does not otherwise provide their number. This was the case in the old “small claims bandit” run of suits I mentioned earlier–apparently a local hospital group was engaging in this practice, which lead to an endless number of TCPA suits being filed against them by an enterprising Plaintiff.

Well Mongeon appears to be the same issue. Per the ruling: , Defendant’s representatives advised Plaintiff “that his phone number was attached to multiple other customers who had prescriptions at the pharmacy” because Plaintiff’s phone number, XXX-XXX-9999, is “the ‘default’ number for all new or current customers in [Defendant’s] system without a phone number.” 

Pro tip: the 9999 play is arguably the oldest manufactured lawsuit trick in TCPAWorld. Don’t fall for it. Never use 999-999-9999 (or any other series of numbers) as a “default” setting for customer phone numbers. And if you do, you definitely want to suppress dialing to those numbers.

Stay safe out there TCPAWorld.

Article By Eric J. Troutman of Troutman Firm

For more communications, media, and internet news, click here to visit the National Law Review.

© 2022 Troutman Firm

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

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© 2022 Foley & Lardner LLP

Hackers Go Phishing in Beeple’s Deep Pool of Twitter Followers

“Stay safe out there, anything too good to be true is a … scam.” Beeple, a popular digital artist, tweeted to his followers, addressing the phishing scam that took place on May 23, 2022, targeting his Twitter account. The attack reportedly resulted in a loss of more than US$400,000 in cryptocurrency and NFTs, stolen from the artist’s followers on the social media website.

After hacking into Beeple’s Twitter account, perpetrators tweeted links from the artist’s page, promoting a fake raffle for unique art pieces. The links would reportedly take the user to a website that would drain the user’s cryptocurrency wallet of their digital assets.

Phishing scams for digital assets, including NFTs or non-fungible tokens, have steadily increased, with funds as large as $6 million being stolen. Various jurisdictions have adopted privacy and security laws that require companies to adopt reasonable security measures and follow required cyber incident response protocols. A significant part of these measures and protocols is training for employees in how to detect phishing scams and other hacking attempts by bad actors. This incident is a reminder to consumers to exercise vigilance, watch for red flags and not click on links without verifying the source.

The remaining summaries of news headlines are separated by region for your browsing convenience. 

UNITED STATES

Relaxed Deaccessioning COVID-19 Exemptions Expire

The global COVID-19 pandemic brought many changes, including dire financial consequences of the shutdowns for museums. In April 2020, the Association of Art Museum Directors (AAMD) made a decision to ease the rules that dictate how museums may use proceeds from art sales. Until April 2022, museums were permitted to use the funds for “direct care of collections” rather than to procure new artworks for their collections.

This relaxed policy and some of the museums that followed it met with backlash on more than one occasion; others, however, advocate for its continuation, citing considerations of diversity and inclusion. Some further argue that a policy born out of financial desperation should be continued to provide museums with the means to overcome any future financial issues that may arise.

Given that “direct care” is vague and open to interpretation, opponents of the relaxed rules counter giving museums such latitude to decide on the use of the proceeds, as it can lead to abuses and bad decisions. While AAMD has returned to its pre-pandemic regulations, and museums have followed suit, it appears that the public debate around deaccessioning is far from over.

Inigo Philbrick Sentenced to a Prison Term

Former contemporary art dealer Inigo Philbrick was sentenced by a federal court in New York to serve seven years in prison for a “Ponzi-like” art fraud, said to be one of the most significant in the history of the art market, with more than an estimated US$86 million in damages. Philbrick stood accused of a number of bad acts, including forging signatures, selling shares in artworks he did not own and inventing fictitious clients.

New York Abolishes Auction House Regulations

As the U.S. government is studying whether the art market requires further regulations to increase transparency and to combat money laundering, New York City repealed its local law that required auctioneers to be licensed and required disclosures to bidders, including whether an auction house had a financial stake in the item being auctioned. While the abolition of the regulation was ostensibly to improve the business climate after the pandemic, some commentators note that the regulations were outdated and not serving their purpose in any event. As an illustration, a newcomer to an auction will likely struggle to understand the garbled pre-action announcements or their significance. Whether the old regulations are to be replaced with new, clearer rules remains to be seen.

EUROPE

Greece and UK to Discuss Rehoming of Displaced Parthenon Marbles

The Parthenon marbles, also known as the Elgin marbles, have been on display in London’s British Museum for more than 200 years. These objects comprise 15 metopes, 17 pedimental figures and an approximately 250-foot section of a frieze depicting the birthday festivities of the Greek goddess Athena. What museum goers might not know is that these ancient sculptures were taken from the Acropolis in Greece in 1801 by Lord Elgin.

Previously, the British government, seeking to retain the sculptures, relied on the argument that the objects were legally acquired during the Ottoman Empire rule of Greece. However, for the first time, the UK has initiated formal talks with Greece to discuss repatriation of the Parthenon sculptures. These discussions are expected to influence future intergovernmental repatriation negotiations.

ASIA

Singapore High Court Asserts Jurisdiction over NFTs after Ruling Them a Digital Asset

The highest court in Singapore has granted an injunction to a non-fungible token (NFT) investor, Janesh Rajkumar, who sought to stop the sale of an NFT that once belonged to him and was used as collateral for a loan. The subject NFT from the Bored Ape Yacht Club Series is a rarity, as it depicts the only avatar that wears a beanie. Rajkumar now is seeking to repay the loan and have the NFT restored to his cryptocurrency wallet. The loan agreement specified that Rajkumar would not relinquish ownership of the NFT, and should he be unable to repay the loan in a timely manner, an extension would be granted. Instead of granting Rajkumar an extension, the lender, who goes by an alias “chefpierre,” moved to sell the NFT. The significance of the Singapore court’s decision is two-fold: the court has (1) recognized jurisdiction over assets cited in the decentralized blockchain, and (2) allowed for the freezing order to be issued via social media platforms.

THE MIDDLE EAST

Illegal Trading Leads to Raiding of Antique Dealer by the Israeli Authorities

A recent raid on an unauthorized antiquities dealer in the city of Modi’in by the Israel Antiquities Authority recovered hundreds of artifacts of significant historical value, including jewelry, a bronze statue and approximately 1,800 coins. One the coins is a nearly 2,000-year-old silver shekel of great historical significance. The coin is engraved with the name Shimon, leader of the 132–136 C.E. Bar Kokhba revolt.

Investigations are ongoing to determine where the antiquities were obtained. The Antiquities Robbery Prevention Unit intends to charge the dealer and their suppliers upon obtaining this information.

Article By Jana S. Farmer and Meenka Maharaj of Wilson Elser Moskowitz Edelman & Dicker LLP

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© 2022 Wilson Elser