Category: Consumer Protection

Heavy Metal Murder Machines and the People Who Love Them

What is the heaviest computer you own?  Chances are, you are driving it.

And with all of the hacking news flying past us day after day, our imaginations have not even begun to grasp what could happen if a hostile person decided to hack our automotive computers – individually or en masse. What better way to attack the American way of life but disable and crash armies of cars, stranding them on the road, killing tens of thousands, shutting down functionality of every city? Set every Ford F-150 to accelerated to 80 miles an hour at the same time on the same day and don’t stick around to clean up the mess.

We learned the cyberwarfare could turn corporal with the US/Israeli STUXNET bug forcing Iran’s nuclear centrifuges to overwork and physically break themselves (along with a few stray Indian centrifuges caught in the crossfire). This seems like a classic solution for terror attacks – slip malicious code into machines that will actually kill people. Imagine if the World Trade Center attack was carried out from a distance by simply taking over the airplanes’ computer operations and programing them to fly into public buildings.  Spectacular mission achieved and no terrorist would be at risk.

This would be easy to do with automobiles. For example, buy a recent year used car on credit at most U.S. lots and the car comes with a remote operation tool that allows the lender to shut off the car, to keep it from starting up, and to home in on its location so the car can either be “bricked” or grabbed by agents of the lender due to non-payment. We know that a luxury car includes more than 100 million lines of code, where a Boeing 787 Dreamliner contains merely 6.5 million lines of code and a U.S. Airforce F-22 Raptor Jet holds only 1.7 million lines of code.  Such complexity leads to further vulnerability.

The diaphanous separation between the real and electronic worlds is thinning every day, and not enough people are concentrating on the problem of keeping enormous, powerful machines from being hijacked from afar. We are a society that loves its freedom machines, but that love may lead to our downfall.

An organization called Consumer Watchdog has issued a report subtly titled KILL SWITCH: WHY CONNECTED CARS CAN BE KILLING MACHINES AND HOW TO TURN THEM OFF, which urges auto manufacturers to install physical kill switches in cars and trucks that would allow the vehicles to be disconnected from the internet. The switch would cost about fifty cents and could prevent an apocalyptic loss of control for nearly every vehicle on the road at the same time. (The IoT definition of a bad day)

“Experts agree that connecting safety-critical components to the internet through a complex information and entertainment device is a security flaw. This design allows hackers to control a vehicle’s operations and take it over from across the internet. . . . By 2022, no less than two-thirds of new cars on American roads will have online connections to the cars’ safety-critical system, putting them at risk of deadly hacks.”

And if that isn’t frightening enough, the report continued,

“Millions of cars on the internet running the same software means a single exploit can affect millions of vehicles simultaneously. A hacker with only modest resources could launch a massive attack against our automotive infrastructure, potentially causing thousands of fatalities and disrupting our most critical form of transportation,”

If the government dictates seat belts and auto emissions standards, why on earth wouldn’t the Transportation Department require a certain level of security of connectivity and software invulnerability from the auto industry.  We send millions of multi-ton killing machines capable of blinding speeds out on our roads every day, and there seems to be no standard for securing the hackability of these machines.  Why not?

And why not require the 50 cent kill switch that can isolate each vehicle from the internet?

50 years ago, when Ralph Nader’s Unsafe at Any Speed demonstrated the need for government regulation of the auto industry so that car companies’ raw greed would not override customer safety concerns.  Soon after, Lee Iacocca led a Ford design team that calculated it was worth the horrific flaming deaths of 180 Ford customers each year in 2,100 vehicle explosions due to flawed gas tank design that was eventually fixed with a tool costing less than one dollar per car.

Granted that safety is a much more important issue for auto manufacturers now than in the 1970s, but if so, why have we not seen industry teams meeting to devise safety standards in auto electronics the same way standards have been accepted in auto mechanics? If the industry won’t take this standard-setting task seriously, then the government should force them to do so.

And the government should be providing help in this space anyway. Vehicle manufacturers have only a commercially reasonable amount of money to spend addressing this electronic safety problem.  The Russian and Iranian governments have a commercially unreasonable amount of money to spend attacking us. Who makes up the difference in this crital infrastructure space? Recognizing our current state of cyber warfare – hostile government sponsored hackers are already attacking our banking and power systems on a regular basis, not to mention attempting to manipulate our electorate – our government should be rushing in to bolster electronic and software security for the automotive and trucking sectors. Why doesn’t the TSB regulate the area and provide professional assistance to build better protections based on military grade standards?

Nothing in our daily lives is more dangerous than our vehicles out of control. Nearly 1.25 million people die in road crashes each year, on average 3,287 deaths a day. An additional 20-50 million per year are injured or disabled. A terrorist or hostile government attack on the electronic infrastructure controlling our cars would easily multiply this number as well as shutting down the US roads, economy and health care system for all practical purposes.

We are not addressing the issue now with nearly the seriousness that it demands.

How many true car–mageddons will need to occur before we all take electric security seriously?

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.

This article was written by Theodore F. Claypoole of Womble Bond Dickinson (US) LLP.
For more on vehicle security, please see the National Law Review Consumer Protection law page.

How Social Media Impacted the Teenage Juul Epidemic: Study Recommends Strict FDA Control

BMJ’s journal, Tobacco Control, just released a study recommending that the FDA do more to control Juul’s e-cigarette advertising in social media. The study included a review of over 15000 posts in a three-month period during 2018. Approximately 30% of reviewed posts were promotional, e.g., leading to Juul purchase locations, and over half the posts included “youth” and “youth lifestyle” themes. Because many of these posts were re-posts or user-generated, rather than ads specifically placed by Juul, the company protested that 99% were third-party content over which Juul had no control. However, the intended goal for social media advertising is to “share” and to inspire creation of third-party user-generated content that is also shared. Juul’s public comments weirdly suggest they don’t understand social media advertising. That is quite unlikely.

Juul first came under fire for its youth-focused advertising back in 2016, but has only recently made changes to restrict it. Not until late 2018, long after being called-out by educational and government agencies for targeting youth, did it begin to materially limit its social media accounts and social media messaging.

Juul’s chief administrative officer, Ashley Gould, was quoted last year telling CNN that Juul was “completely surprised by the youth usage of the product.” (Source: CNN.) In response, Dr. Robert Jackler, founder of the Stanford Research into the Impact of Tobacco Advertising, said, “I don’t believe that, not for a minute, because they’re also a very digital, very analytical company,” he added. “They know their market. They know what they’re doing.”

Gould’s obfuscation about underage users doesn’t fool people in the know—and it certainly doesn’t generate trust that Juul will voluntarily follow ethical practices. Juul only instituted its recent changes to restrict youth advertising after FDA scrutiny and bad press.

Juul also advertises its products are for smoking cessation. Last week, in response to San Francisco’s imminent ban on e-cigarette sales, Juul raised concerns that people would resort back to traditional cigarettes—implying this would further negatively impact the health of San Franciscans.

Unfortunately for Juul, the internet remembers everything. In a 2015 Verge interview at the beginning of Juul’s meteoric rise, one of Juul’s R&D engineers made it clear that Juul didn’t care about smoking cessation nor had any concerns about creating an addictive product. The engineer (Atkins) was quoted saying, “We don’t think a lot about addiction here because we’re not trying to design a cessation product at all,” he said, “anything about health is not on our mind.”

Juul’s public “feint and parry” strategy tends to mirror the traditional tobacco industry—a group with a sordid history of youth-focused advertising, concealment, lying to officials, and purposely creating highly addictive products in order to boost sales. It took multiple lawsuits and the Master Settlement Agreement of the nineties for big tobacco to materially comply with government regulations.

Courtesy of Trinkets & Trash Rutgers School of Public Health

Unfortunately, despite all of that history, the tobacco industry’s disregard for consumer protection has spread into the e-cigarette industry. As late as 2017, big tobacco-owned e-cigarette, Blu, launched its “Something Better” advertising campaign. The campaign mocked government-mandated package warnings on traditional cigarettes. The ads included variations of the following text and were designed to look like cigarette warning labels:

“Important: Contains flavor;”
“Important: Vaping blu smells good”
“Important: No ashtrays needed”

The parody on government-mandated safety warnings mocks consumer protection efforts by government agencies—a tactic not surprising coming from a tobacco company. Right now, there is very little regulation over e-cigarettes despite the fact that the FDA was granted oversight in 2016. Like Blu, Juul also has heavy ties to big tobacco. Altria, parent company to Phillip Morris, the maker of Marlboro, is heavily invested in Juul.

If Juul truly intends to address social media advertising, consumer protection, and youth e-cigarette use, it must do more than spew rhetoric through the media. It must take incisive, prophylactic action to reduce exposure of its products to underage users. If history is any indication, that won’t happen without strict FDA regulation.

If you or someone you know has become seriously addicted to nicotine in e-cigarettes, has health problems associated with e-cigarettes, or has been injured by a malfunctioning e-cigarette, you should contact an experienced e-cigarette injury attorney to advise you on the ability to seek compensation for your injuries.

COPYRIGHT © 2019, STARK & STARK
For more on nicotine product regulation see the National Law Review Consumer Protection page.

Is Electric Scooter Safety Next on the Regulatory Menu?

A few years ago, hoverboards drew a lot of attention from the U.S. Consumer Product Safety Commission (CPSC). Formally known as self-balancing electric scooters, hoverboards became an instant success because they combined practical mobility and enjoyment. But that success was not without some setbacks. When news stories in 2015 linked hoverboards to fires (which we wrote about here), the same popularity that drove sales also attracted public and government scrutiny.

While the CPSC typically does not discuss ongoing investigations, in January 2016, the attention around hoverboards drove then-Chairman Elliot Kaye to make public statements about the agency’s inquiries. And in February 2016, then-Acting Director of Compliance Robert Howell issued a public letter to manufacturers, urging them to test their products according to Underwriters Laboratories (UL) 2272, which would not become a formal voluntary consensus standard for another nine months. These statements were unusual. The public and congressional attention on alleged hoverboard fires drove the CPSC to be more public in its efforts.

Poised for the Next New Thing

With the hoverboard memory fresh in its mind, the CPSC is likely to get ahead of future potential emerging technology issues. One product that the agency may see as ripe for early intervention is a cousin of hoverboards: electric scooters. We last wrote about how scooter manufacturers have provided a roadmap for other technology companies to respond to complaints. Scooters share some features of regulatory interest with hoverboards – they’re both powered by lithium ion batteries, for instance – but they also have some unique features. Specifically, the wildly popular scooter-sharing rental model means scooters carry riders with varying levels of ability and knowledge about the product, presenting companies with the challenge of addressing rider safety without a readily available opportunity to warn or instruct them on scooters’ use.

Scooters are everywhere in many cities, creating both opportunities and litigation challenges for companies. States and municipalities have struggled to figure out how they can address the safety of riders and others, including pedestrians, cyclists, and motorists. They have set a variety of rules on issues like how many scooters can operate, where they can go, and how fast they can move. Some cities are testing the waters carefully, using pilot programs to see how scooters could integrate with other modes of transport. These debates are usually about how scooter riders should ride – the rules of the road/sidewalk – but not about how scooters should be designed and built.

The CPSC has the authority to regulate the safety of scooters. In addition to the question of battery safety, CPSC staff and commissioners have expressed concerns about falls or other mechanical hazards, such as the consequences of potential structural failures. And while the agency is engaged, so far its activities have been modest. CPSC staff have collaborated on UL 2272 since it was issued in 2016. The standard now includes electric scooters under the term “Light Electric Vehicles,” but the standards committee has not adopted any scooter-specific provisions.

However, consumer advocacy groups are asking the government to pay more attention to allegations of injuries associated with scooters, which may pressure the CPSC to be more assertive. The Consumer Federation of America (CFA) has urged the agency to conduct more research and seek recalls of scooters associated with injuries. The CFA has also asked Congress to give the CPSC a nudge. So far, groups like the CFA have not called for a mandatory product safety standard, but that possibility always exists.

How Scooter Companies Can Engage the CPSC

What’s going on in Washington presents scooter companies with the opportunity to ensure their voices are heard in these conversations. As with any CPSC-regulated industry, companies should comply with their obligations to report potential hazards and, as appropriate, recall products. Some companies have already conducted recalls, though seemingly without the CPSC’s public involvement. Companies should also continue to go beyond these case-by-case actions and ensure product safety issues are on their policy agenda in conversations with the CPSC, Congress, and other stakeholders.

For example, companies may want to set up introductory meetings with CPSC commissioners to build positive working relationships long before commissioners have a vote on a recall or a rule. Scooter companies may also want to engage at safety-related events to present themselves as thoughtful, responsible innovators.

Companies should also maintain their active involvement in voluntary standards bodies, namely with UL with respect to its 2272 standard on hoverboard and scooter electrical systems. Voluntary standards both help protect consumers and protect responsible companies against undercutting by less safety-minded market players. Currently, safety practices vary between companies. More uniformity can build consumer confidence and help establish the kind of “reasonably prudent company” benchmark that is key to litigation defense. Moreover, when companies work alongside the CPSC’s technical experts on the voluntary standards, they can build trust and rapport that can help future discussions.

Electric scooters are not going away. Their enormous potential in urban transportation is too valuable. But discussions about how to regulate scooters are just getting started. Scooter companies should make sure they are seated at the table; that is, as always, the best way to avoid being on the menu.

 

© 2019 Schiff Hardin LLP
More on CPSC regulation in the National Law Review Consumer Protection page.

Cleaning Product Manufacturers Gear Up for Compliance with State Ingredient Disclosure Laws

Over the next year, California and New York will begin phasing in requirements for manufacturers of cleaning products – including household cleaners, as well as and clothes and dish detergents – to make extensive ingredient disclosures. This will eventually require disclosures on both product labels and manufacturer websites. Both laws involve complex questions regarding which ingredients must be disclosed, whether certain chemical identities may be withheld to protect confidential business information (CBI), and what else must be publicly disclosed (e.g., certain manufacturer studies). Manufacturers of in-scope products should gear up for compliance now.

Scope of Cleaning Products Covered

The California Cleaning Products Right to Know Act applies to general cleaning products (e.g., soaps and detergents for fabric, dishes, counters, and appliances); polish or floor maintenance products; certain air care products (e.g., indoor air fresheners); certain automotive products (e.g., cleaning, polishing, or waxing products for the exterior or interior of automobiles). The law does not apply to food; drugs; cosmetics (including personal care items such as shampoo, hand soap, and toothpaste); or industrial products specifically manufactured for, and exclusively used in, certain industries.

The New York law applies to products “containing a surfactant as a wetting or dirt emulsifying agent and used primarily for domestic or commercial cleaning purposes, including but not limited to the cleansing of fabrics, dishes, food utensils, and household and commercial premises.” The definition contains exclusions for food; drugs; cosmetics; and pesticides.

California Disclosure Requirements

The California law will impose separate disclosure requirements applicable to product labels (effective January 1, 2021) and manufacturer websites (effective January 1, 2020).

Label Requirements

The product labeling requirements go into effect on January 1, 2021. Determining whether the chemical identity of an ingredient needs to be disclosed on the label can be a complicated process necessitating answers to the following questions.

  • Is the ingredient on a designated list? The law requires disclosure of certain ingredients that appear on one or more lists maintained by environmental agencies worldwide, including California’s Proposition 65 list; the European Union list of Substances of Very High Concern (SVHCs); chemicals for which neurotoxicity is indicated by EPA’s Integrated Risk Information System; chemicals with certain EU classification (carcinogens, mutagens, or reproductive toxicants); chemicals identified as persistent, bioaccumulative, and toxic under the Canadian Environmental Protection Act; etc.
  • Has the ingredient been intentionally added to the product? The law defines “intentionally added ingredient” as: “a chemical that a manufacturer has intentionally added to a designated product and that has a functional or technical effect in the designated product, including, but not limited to, the components of intentionally added fragrance ingredients and colorants and intentional breakdown products of an added chemical that also have a functional or technical effect in the designated product.”
  • Is the ingredient a listed fragrance allergen? The law requires disclosure of certain fragrance allergens included on Annex III of the EU Cosmetics Regulation No. 1226/2009, as required by be labeled by the EU Detergents Regulation No. 648/2004.
  • Is the ingredient eligible for CBI protection? The law provides certain disclosure protections for ingredients that appear on the Toxic Substances Control Act Confidential Inventory or for which the manufacturer or its supplier claim protection under the Uniform Trade Secrets Act. CBI claims are not available for certain ingredients, including intentionally added ingredients that appear on a designated list.

The law also requires that a product label include the manufacturer’s phone number and website. If the list does not disclose all intentionally added ingredients in the product, the label must contain a statement similar to “For more ingredient information, visit [manufacturer’s website].”

Website Requirements

The website disclosure requirements go into effect on January 1, 2020. These are broader than the product label requirements, i.e., there may be some ingredients that must be disclosed on a website but need not be disclosed on the product label. Generally, all intentionally added ingredients must be disclosed on the manufacturer’s website (with certain exceptions, e.g., for CBI ingredients), as must any of 34 substances listed in the law if they are present at or above 100 parts per million, whether intentionally or not. Manufacturers’ websites also must contain additional information, for example Chemical Abstract Service numbers, the purpose of certain ingredients (e.g., fragrance, color, etc.), certain regulatory information, and links to safety data sheets.

New York Disclosure Requirements

New York law has long empowered the Department of Environmental Conservation (DEC) to require manufacturers of household cleaning products to disclose certain information. N.Y. Envtl. Conserv. Law § 35-0103. Until recently, DEC’s disclosure requirements were largely limited to phosphorous-containing ingredients and to other ingredients above 5% concentration. In 2017, DEC proposed expanded disclosure requirements and solicited stakeholder input on the proposal. Future reporting requirements, to be phased in starting this year, will significantly expand the scope of disclosures manufacturers must make.

DEC originally announced the deadline for initial disclosures to be July 1, 2019. DEC recently announced, however, that it would not begin enforcing any violations until October 2, 2019, making the new de facto compliance deadline October 1, 2019. By that date, manufacturers of in-scope products should complete and submit DEC’s Certification Form, as well as make the required disclosures on its website. The Certification Form must be re-submitted at a minimum every two years thereafter, and additionally when a triggering event occurs (e.g., change in formulation).

The first round of disclosure will require the identification of all intentionally added ingredients other than fragrance ingredients, as well as all nonfunctional ingredients present above trace quantities. The law allows manufacturers to assert CBI claims to protect the identity of certain chemicals. Disclosure requirements for additional ingredients will be phased in on July 1, 2020 and January 1, 2023.

Manufacturers must also disclose additional information, including:

  • Whether ingredients are present on one or more lists of concern (e.g., certain substances regarded by the EU as SVHCs, etc.), regardless of whether the identity of the chemical is withheld due to a CBI claim;
  • Whether ingredients are nanoscale materials;
  • The function of ingredients (e.g., fragrance, color, etc.); and
  • Information regarding investigations and research the manufacturer has conducted or directed regarding environmental or health effects of ingredients.

Due to the complexity of the questions surrounding these disclosures, manufacturers would be wise to begin gathering the relevant information now.

 

© 2019 Beveridge & Diamond PC

As Electric Scooters Barrel Their Way into the Sharing Economy, Manufacturers and Their Insurers Should Prepare for an Influx of New Claims

Electric scooters and the shared economy

If you have spent any time in Los Angeles or New York City recently, you may have noticed adults riding two-wheeled electric scooters − the type we are more accustomed to seeing kids ride. These scooters are the latest transportation tools in the ever-evolving sharing economy.

The sharing economy, a term used to describe the growth of an economy based on sharing goods and services, just witnessed the newest heavyweight enter the ring – motorized electric scooter companies. All you have to do is download an app on your smartphone, enter your credit card information, find an electric scooter using the app, and scan a barcode. Typically, rental scooters cost $1 to start and 15 cents a minute thereafter. When you reach your destination, simply leave the scooter in a public space and tap your screen to end the ride.

The scooters can reach speeds of up to 15 miles per hour, and there are almost no regulations in place to ensure their safe use. Additionally, it is not always clear whether the scooters should be driven on sidewalks, in bike lanes, or on roadways. In fact, some cities do not require riders to wear helmets. Finally, few riders are clear on whether they are subject to traffic laws (they are in most, if not all, cities).

Recently, scooter-sharing companies have drawn the ire of plaintiffs’ lawyers across the country. Both riders and pedestrians injured on or by scooters are making waves in courthouses and the media, calling for increased regulation or, in some cases, prohibition of the scooters altogether. Complaints have been filed against scooter-sharing companies based on allegations of gross negligence, aiding and abetting assault, and creating a public nuisance. These companies are not alone, however, in facing potential liability for injured riders and pedestrians. Scooter manufacturers also have been named for any number of alleged defects with the scooters.

Scooter and parts defects

Scooter manufacturers may soon face a number of product defect claims. While not an exhaustive list, these claims could include the following:

  • Failed brakes – At 15 miles per hour, functioning brakes are essential to riders and pedestrians. And, the 15 mile-per-hour maximum speed does not account for scooters going downhill. The scooters can reach even higher speeds and, consequently, create a higher risk of serious injury or death.

  • Stuck throttles – Likewise, riders and pedestrians face an increased risk of injury when throttles get stuck, making the rider unable to slow down.

  • Exploding batteries

  • Flat tires

  • Inoperative lights

  • Broken tubes – If the tubes that transmit power within the vehicle suddenly break, riders risk being thrown off.

  • Defective handlebars

  • Failure to warn of hidden dangers associated with the use of this unique electric vehicle.

The potential of such claims should be enough to capture the attention of astute product liability insurers.

Why electric scooters?

An array of products are used as part of the sharing economy – cars, houses, bicycles, cameras, kitchenware, musical instruments, boats, construction equipment, outdoor gear, and more. So why should insurance companies pay particularly close attention to scooters?

The answer is because the popularity of electric scooters is growing at an unprecedented pace. Adoption rates in metro areas across the United States are accelerating faster than other players in the ride-sharing economy (i.e., cars). In addition to the incredible adoption rates, public support is high among people from anywhere on the socioeconomic spectrum, with the greatest support from low-income groups, presumably because scooters require much fewer infrastructure investments. And, scooter-sharing companies are not going away. On the contrary, major scooter-sharing companies such as Bird and Lime have begun expanding internationally. So, what should risk advisors expect with regard to claims and lawsuits?

What to expect

The leading electric scooter company, Bird Rides, Inc.’s robust liability waiver has so far limited the number of cases plaintiffs’ lawyers are willing to take. The waiver provides that all riders, in exchange for the use of “Bird Services, [v]ehicles, and other equipment… [,] agree[ ] to fully release, indemnify, and hold harmless Bird…from liability for all ‘Claims’ arising out of or in any way related to … use of the Bird Services, [v]ehicles, or related equipment…[,] except for [c]laims based on … gross negligence or willful misconduct.” Nonetheless, the class-action lawsuit filed in Los Angeles County Superior Court on October 19, 2018 – case number 18-STCV-01416 – has garnered enough attention from the public and media that an influx of claims should be expected.

The Los Angeles County lawsuit names, in addition to Bird, leading competitor Lime (formerly LimeBike), and manufacturers Xiaomi USA, Inc. and Segway, Inc. The plaintiffs’ claims include Strict Products Liability, Negligence, Negligence Per Se, Gross Negligence, Breach of Implied Warranty of Fitness for a Particular and/or Intended Purpose, and Breach of Implied Warranty of Merchantability. The blanket of negligence theories cast against the manufacturers is broad. They allege manufacturing defects, design defects, and a charge of inadequate user warnings. It is to be determined how much protection, if any, manufacturers will receive under Bird’s liability waiver. It is very likely, though, that the plaintiffs will be allowed to pursue lawsuits under a theory of, at least, gross negligence.

Another big question is whether and how many of these suits will get to a jury. The comprehensive waiver in Bird’s user agreement includes an administrative dispute resolution process, followed by a binding arbitration provision in the event the parties are unable to settle a claim. It also includes a class action waiver. However, the opt-out provision in the same section of the agreement provides: “You have the right to opt-out and not be bound by the arbitration and class action waiver provisions … by sending written notice of your decision to opt-out to the [Bird] address…. The notice must be sent within 30 days of the effective date or your first use of the Service, whichever is later….”

Whether claims are brought in court or moved into arbitration, a rigorous defense is called for on behalf of the manufacturers. Because scooters are often left at the scene of an incident wherein injuries were suffered, there may be no physical evidence of a defect in the scooter and/or parts. Even if there were some malfunction, mechanical or otherwise, plaintiffs must prove that any injuries were the direct and proximate result of the scooter, rather than user error. These factual hurdles also have served to limit the number of lawsuits brought thus far.

There is an array of issues, legal and factual, that must be scrutinized upon receiving notice of a claim or suit. And, it is not simply the electric scooter companies that need to brace for an influx of claims – scooter and parts manufacturers are being sued right along with them.

© 2018 Wilson Elser

ARTICLE BY

Michael P. Manfredi
Wilson Elser Moskowitz Edelman & Dicker LLP

What Investors Need to Know About the New $6.2 Billion Visa, Mastercard Settlement

Visa, Inc., Mastercard, Inc., and other financial institutions have agreed to pay merchants between $5.56 billion and $6.26 billion to settle a 13-year old antitrust litigation. For years, the case has driven shrewd investors to transact with retailers seeking to monetize their claims against the card companies. With a much-anticipated settlement now on the table, would-be investors should take note.

On September 18, an amended settlement agreement (the “Settlement”) was filed in the US District Court for the Eastern District of New York. The Settlement signals possible resolution of a long-standing lawsuit brought in 2005 by approximately 12 million retailers accusing Visa and Mastercard of improperly inflating interchange fees (also known as swipe fees) charged to retailers. The Settlement modifies a prior settlement agreement approved by the District Court in December 2013.1

The agreement, reached after a year of active mediation, seeks to remedy the flaws of the prior agreement. Notably, the Settlement limits both the scope and duration of the release. Additionally, it addresses only monetary damages associated with the lawsuit and is not contingent on the resolution of injunctive relief claims, which may be pursued separately.

Under the Settlement, the value of a merchant’s claim will be based on the amount of interchange fees attributable to that merchant’s Mastercard and Visa payment card transactions during the time period beginning January 1, 2004 up until the preliminary approval date of the Settlement. Pro rata payments to merchants who file valid claims will be determined by the amount remaining in the monetary fund after deductions for “opt outs” (as described below) and administrative costs, and by the aggregate dollar amount of claims filed.2

Similar to the prior agreement, the Settlement provides that the monetary fund may be reduced based on the number of merchants that opt out of the class. Up to $700 million may be returned to the defendants if more than 15 percent of the merchants opt out. If more than 25 percent of merchants opt out, the Settlement may be terminated.

The Settlement is still subject to approval by US District Judge Margo Brodie. If the Court grants preliminary approval, known class members will receive written notice concerning their legal rights. Claim forms are not available at this time.

Katten will keep you apprised of settlement developments and trading considerations. The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, case number 1:05-md-01720, in the US District Court for the Eastern District of New York.

1 In June 2016, the US Court of Appeals for the Second Circuit invalidated the original settlement on the grounds that certain merchants were not adequately represented because the same counsel had represented separate settlement classes with conflicting interests. The Court of Appeals also took issue with the broad release that would preclude merchants from pursuing certain future claims indefinitely. In March 2017, the Supreme Court declined to hear the case, remanding it back to the District Court for further proceedings.

2 The original settlement of $7.25 billion was, at the time, the largest in history. However, thousands of merchants ultimately opted out, reducing the monetary fund to approximately $5.3 billion.

©2018 Katten Muchin Rosenman LLP

TCPA Consent Medley: Third New Decision Enforcing TCPA Consent Provision in Consumer Agreement Has “Robocallers” Humming

After a long period of quiet on the issue, TCPAland has seen three swift decisions on good-Reyes (Reyes v. Lincoln Auto. Fin. Servs., 861 F.3d 51 (2d Cir. 2017), as amended (Aug. 21, 2017)) all aligning to enforce contractual TCPA consent provisions. First, Navient scored a big win, but that was within the Second Circuit so it didn’t make much of a stir. But then a real breakthrough: the Chief Judge of the Northern District of Alabama held that TCPA consent provisions in consumer agreements could not be revoked–the first such ruling from within the Eleventh Circuit. And now the trifecta. A court within the Middle District of Florida–seemingly the most consumer-friendly TCPA jurisdiction in the country as of late– granted summary judgment on a TCPA claim to a Defendant today holding that a consumer cannot stop robocalls after agreeing to receive such calls as a term in a written contract.

Woah.

The case is Medley v. Dish Network, Case No. 8:16-cv-2534-T-36TBM, 2018 U.S. Dist. LEXIS 144895 (M.D. Fl. Aug. 27, 2018) and it represents the first decision out of the Middle District of Florida to apply Good Reyes and hold that TCPA consent is irrevocable in certain circumstances. As shown below, Medley took no prisoners in distinguishing and declining to follow decisions that had held otherwise.

After first determining that the contractual consent provisions survived Plaintiff’s bankruptcy discharge because Medley failed to include her debt to Dish on its schedules, the Court deftly articulated the governing rule of Good Reyes as follows:

“Although voluntary and gratuitous consent could be revoked under the common law, which was recognized by the Eleventh Circuit in Osorio, the Second Circuit explained that consent could ‘become irrevocable when it is provided in a legally binding agreement, in which case any attempted termination is not effective.’”

Medley at *29

The Medley court next tips its hat to the decision in Few, citing the Northern District of Alabama decision for the proposition that where a “plaintiff g[i]ve[s] consent to be called ‘as part of a bargained-for exchange and not merely gratuitously, she was unable to unilaterally revoke that consent’” (Medley at *30) before remarking simply: “This Court agrees.” Id. 

The Court goes on to find that “it is black-letter contract law that one party to an agreement cannot, without the other party’s consent, unilaterally modify the agreement once it has been executed” and “[n]othing in the TCPA indicates that contractually-granted consent can be unilaterally revoked in contradiction to black-letter law.” Medley at *30. How sweet is that?

The Medley court also distinguished Gager v. Dell Financial Services, LLC, 727
F.3d 265, 270-71 (3d Cir. 2013), Target National Bank v. Welch, No. 8:15-cv-614-T-36, 2016 WL 1157043 (M.D. Fla. Mar. 24, 2016) and Patterson v. AllyFinancial, Inc., No. 3:16-cv1592-
J-32-JBT, 2018 WL 647438 (M.D. Fla. Jan. 31, 2018) as cases involving application consents and opposed to contractual consent provisions. Medley also noted that the consent clause in Patterson did not apply to the type of calls being made in that case, a rather solid basis to distinguish and decline to follow the decision.

The Court also takes issue with the reasoning in Ammons v. Ally Financial, Inc.,
No. 3:17-cv-00505, 2018 WL 3134619 (M.D. Tenn. June 27, 2018)–refusing to apply Good Reyes despite contractual consent terms in an automotive finance agreement–and declines to follow it. In Medley’s view Ammons over reads Osorio and under analyzes Patterson and Welch. 

Accordingly the court concludes that Defendant is entitled to summary judgment and sums up matters succinctly in this clean-as-a-whistle conclusion:

“[T]he Court finds that in the absence of a statement by Congress that the TCPA alters the common-law notion that consent cannot be unilaterally revoked where given as part of a bargained for contract, the Court will decline to do so.”

Medley at *36.

Notably, as was the case in Harris, the contract in Medley did not include a revocation provision and was simply silent on the issue of whether consent could be revoked. As in Harris the Medley court–correctly–interpreted that silence to mean that consent could not be revoked at all.

Since many will ask, Medley was decided by the Hon. Charlene Honeywell who is no stranger to TCPA claimants appearing before her. With Medley she as certainly made her TCPAland mark.

And with Few and Medley working in their favor Defendants seeking to enforce contractual TCPA consent provisions suddenly have a lot to be optimistic about. But this is TCPAland and, in the words of the Grand Duchess, its best to never get too comfortable.

Copyright © 2018 Womble Bond Dickinson (US) LLP All Rights Reserved.

ARTICLE BY

Eric Troutman
Womble Bond Dickinson (US) LLP

Tackling Evictions: BYU And UA Law Schools Partner On Legal Research Project

The nationwide trends of stagnating wages and increasing housing costs has led to an increased risk of evictions for renters across the country. According to Matthew Desmond’s 2017 book Evicted, “Today, the majority of poor renting families in America spend more than half of their income on housing, and at least one in four dedicates more than 70% to paying the rent and keeping the lights on.”

Most evictions happen informally, and even formal evictions are rarely contested in court. Less than 20 percent of tenants served with an eviction notice come to court, and so viable legal defenses often go unheard. A new initiative is trying to help tenants facing eviction find appropriate legal assistance.

Legal Innovation: LawX & Innovation for Justice

The J. Reuben Clark Law School (BYU Law) at Brigham Young University and the James E. Rogers College of Law at the University of Arizona have joined forces to create a program focused on tackling the legal complexities of eviction law. BYU’s LawX legal design lab, and UA’s Innovation for Justice (I4J) program are working together to reduce the number of evictions in and help tenants find quality legal representation.

“Given the sheer volume of evictions in America, we believe this is the right issue for LawX to tackle in its second year, and we welcome collaboration with the University of Arizona Law School,” said Gordon Smith, Dean of BYU Law School. “This past year, our LawX students uncovered some sobering statistics on hurdles in the legal system that make it extremely difficult for a non-lawyer to respond to lawsuits, particularly in the areas of debt collection, evictions and divorce.”

The program will focus on tackling the eviction crisis in Arizona and Utah, with hopes the collaboration could result in solutions applicable beyond the region. In 2016, Utah averaged 7.61 evictions per day and Pima County, Arizona, where the UA is located, averaged 22.01 evictions per day, according to Eviction Lab.

Kimball Parker, LawX director and president of Parsons Behle Product Lab, will lead the initiative at BYU, while Stacy Butler, director of I4J, will lead the project at UA. With a primary focus on technology, design and system thinking, and collaboration, both classes will focus on resolving the current status of eviction law, especially the lack of legal representation for an underserved community.

Eviction Law: A Focus On Underserved Communities

“The goals of the Innovation for Justice program are to expose students to the fact that not everyone is able to use the civil legal system as it’s designed, and to empower students to close that gap,” Butler said. “LawX’s focus on reaching people who are not engaging with the civil legal system is critical to making the system work the way it should.”

LawX will highlight the difficulties non-lawyers would have in dealing with different areas of law including divorce, debt collection, and eviction laws. One of the particular challenges is the difference in how each state–and municipality–handles evictions. Often the laws are weighted heavily in favor of the landlord. For example, in Utah, a tenant has just three days to respond to an eviction notice, so often landlords give notice on a Friday, further limiting a tenant’s options

“An eviction can be life-changing to an individual or family, and it can result in homelessness; our research determined that evictions have one of the highest rates of default among those who can’t afford an attorney,” said Parker. “I am excited to work with Stacy on this project and believe her extensive experience with expanding the reach of civil legal services to those in need will be incredibly valuable.”

A Tangible Solution For Renters

Parker says the goal is to create a tangible solution for renters, whether that is a product or some other solution, but the students will start by surveying. One of the first questions they hope to answer: why don’t more tenants seek relief in the legal system?

This collaboration project comes on the heels of LawX’s previous project to assist debtors facing debt collections lawsuits who couldn’t afford legal representation. That project resulted in creation of an award-winning software program, SoloSuit, which helps debtors respond to collections notices.

“This past year, our LawX students uncovered some sobering statistics on hurdles in the legal system that make it extremely difficult for a non-lawyer to respond to lawsuits, particularly in the areas of debt collection, evictions and divorce,” said Gordon Smith, Dean of BYU Law School. “With this legal design lab in a classroom, we are committed to identifying the best possible solutions to help close the gap for people who feel overwhelmed by the legal system.

Hands-on Legal Experience for Law Students

“Programs like Innovation for Justice and LawX offer important learning experiences for our undergraduate and graduate students. They represent a movement in legal education to adapt and to be more interdisciplinary in how we approach the world,” said UA Law Dean Marc Miller. “Students get to take a deep dive into a specific project to produce a community deliverable. They engage with the community and in doing so, begin to understand how their learning can be applied outside of the classroom.”

Using a design thinking approach, up to six LawX students and 12 Innovation for Justice students will start work on the project in the fall 2018 semester with three goals:

  • understand why tenants disengage with the civil legal system

  • identify innovative approaches to educating and engaging tenants

  • develop strategies for delivering possible solutions into the hands of those who need help most.

By working in a law school classroom setting, the program strives to help provide answers and solutions to under-represented communities, who find difficulties in understanding the law, or finding appropriate resources to help them tackle impending hurdles.

Findings and shared information will eventually lead to solutions which can extend beyond Utah and Arizona’s borders. Conversely, the program might lead to separate projects addressing regional barriers to help reduce eviction totals.

 

Copyright ©2018 National Law Forum, LLC
Article by:

California AG Leads Attack on Lead in Infant Formula

Fresh off a victory in the CA primary, California Attorney General Xavier Bacerra filed suit on June 7, 2018 against Nutraceutical Corporation of Park City, Utah and Graceleigh, Inc. dba Sammy’s Milk of Newport Beach, CA, alleging violations of California’s Proposition 65 and California’s consumer protection laws.

At issue are Sammy’s Milk Free-Range Goat Milk Toddler Formula, made by Graceleigh, and Peaceful Planet Toddler Supreme Formula, a rice formula made by Nutraceutical. The complaint, filed in Alameda County, CA, alleges that the levels of lead in both products result in exposures above the Provisional Total Tolerable Intake level for lead of 6 micrograms per day (“ug/day”) applicable to children 6 years of age and younger, as set by the U.S. Food and Drug Administration. A statement issued by the AG asserts that State testing showed that the products actually cause lead exposure between 13 and 15 times the maximum allowable dose under California law. The AG’s office also advised that both companies have voluntarily agreed to stop selling the products at issue in California.

Prop 65 Claims

Lead was placed on the Prop 65 list on two occasions: on February 27, 1987 for reproductive toxicity and on October 1, 1992 for cancer.

Nutraceutical said it intends to vigorously contest the suit, which it said lacks merit. The company has reported that its Toddler Supreme protein supplement’s ingredient levels comply with applicable laws and regulations and don’t pose any safety risk to consumers, based on an opinion from a former FDA toxicologist. An issue will be if the levels meet the safe harbor provisions for lead, which would preclude the requirements for a Prop 65 warning. Prop 65 safe harbors do not always align with FDA standards.  The no significant risk level (“safe harbor”) for a cancer warning regarding lead is 15 ug/day (oral exposure). The maximum allowable dose level (“safe harbor”) for a reproductive toxicity warning regarding lead is 0.5 ug/day.

Claims Under CA Consumer Protection Laws

The complaint further alleges that due to the excess levels of lead, the products are adulterated within the meaning of the California Sherman Food, Drug and Cosmetic laws and therefore violates the unlawful prong of CA Bus. & Prof. Code section 17200. The false and misleading statements  of the two companies are alleged to also violate  CA Bus. & Prof. Code sections 17200 and 17500 in the following ways:

  • With respect to Graceleigh, by asserting that its ingredients in Sammy’s milk are “selected for purity” and provide “clean nutrition.”
  • With respect to Nutraceutical, by asserting that its Peaceful Planet product is “CLEAN” and “PURE.”

The State has requested that the court award both injunctive relief and civil penalties (Prop 65 statute calls for $2500 per violation).

We will continue to follow this case and other actions in California related to the continued assault on lead contamination of consumer and children’s products.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
Read more on California legal updates on our California jurisdiction page.

CPSC Finalizes Ban on Certain Children’s Toys and Child Care Articles

On October 27, 2017, the U.S. Consumer Product Safety Commission (“CPSC”) issued a final rule prohibiting children’s toys and child care articles that contain concentrations of more than 0.1 percent of certain phthalates.

What’s Prohibited

The final rule states children’s toys and child care articles containing concentrations of more than 0.1 percent of diisononyl phthalate (“DINP”), diisobutyl phthalate (“DIBP”), di-n-pentyl phthalate (“DPENP”), di-n-hexyl phthalate (“DHEXP”), and dischyclohexyl phthalate (“DCHP”) are prohibited.

Section 108 of the Consumer Product Safety Improvement Act (“CPSIA”) prohibits the manufacture for sale, offer for sale, distribution in commerce, or importation into the U.S. of any children’s toy or child care article that contains these concentrations of certain phthalates.  Children’s toys include consumer products designed or intended by the manufacturer for a child 12 years or younger for use by the child when the child plays.  A child care article is a consumer product designed or intended by the manufacturer to facilitate sleep or the feeding of children age 3 and younger, or to help such children with sucking or teething.

What Are Phthalates

The most common phthalate, DINP, is added to some plastics to make them flexible and is commonly found in automobile interiors, wire and cable insulation, gloves, tubing, garden hoses, and shoes.  DINP is also found in flexible vinyl materials that are used in the production of bedding, garments, outdoor products such as tents and book binders.  Non-PVC or vinyl products include inks, adhesives, sealants, paints and lacquers.  DINP is also a listed substance known to cause cancer under California’s Proposition 65 and products must provide a warning about exposure.

The CPSC determined that because DIBP, DPENP, DHEXP, and DCHP aren’t widely used, few manufacturers will be impacted and need to reformulate their products.  Examples of products containing these phthalates are coating products, fillers, plasters, binding agents, paints, adhesives,

Who’s Affected

The final rule expanded the interim rule concerning DINP to cover all children’s toys, not just those that can be placed in a child’s mouth.  Children’s toys that can be placed in a child’s mouth and child care articles containing more than 0.1 percent of DINP have been prohibited since 2009.  Manufacturers won’t have to reformulate products in these categories.  Only manufacturers of children’s toys that cannot be placed in a child’s mouth will be affected by the final rule.

The final rule applies to both domestic manufacturers and importers and will not be a barrier to international trade.  The prohibition involving DINP applies regardless of the origin of the DINP or the phthalate formulation used.  Children’s toys and child care articles containing DINP in concentrations greater than 0.1 percent are prohibited even if DINP was not intentionally added.

The final rule becomes effective April 25, 2018 and applies to products manufactured or imported on or after that date.

This post was written by Ayako Hobbs of Squire Patton Boggs (US) LLP., © Copyright 2017
For more legal analysis go to The National Law Review