Category: Consumer Protection

Catch of the Day: Tuna Fish Brand StarKist Swims into a Sea of Trouble After Agreeing to Settle Claims Against It

StarKist Co. recently agreed in principle to a $12 million settlement with a putative class of plaintiffs concerning alleged under-filling of tuna fish cans. But agreeing on the dollar figure seems to have been the easy part; the parties in this bitterly-fought case have become embroiled in motion practice about the allocation of that $12 million payout.

The case under discussion is Hendricks v. StarKist Co., No. 3:13-cv-0729-HSG in the Northern District of California. Plaintiff alleged that StarKist had been under-filling its cans of tuna fish, resulting in a product weight that fell below the federally mandated minimum averages of 2.84 to 3.23 ounces of tuna per 5 ounce can. This practice, plaintiff alleged, violated California’s Consumer Legal Remedies Act, California’s False Advertising Law, California’s Unfair Competition Law, and plaintiff also brought various common law claims.

StarKist moved to transfer or dismiss the case, and the Court denied the motion to transfer and mostly denied StarKist’s motion to dismiss. The Court also denied StarKist’s motion for reargument. Plaintiff subsequently moved to certify a nationwide class for his common law claims, moved for sanctions relating to alleged discovery misconduct, and several interested parties sought to intervene and certify statewide sub-classes under other states’ laws. On the morning that all those motions were to be argued, the parties signed a binding settlement term sheet under which StarKist would make available $8 million in cash and $4 million in vouchers to the settlement class.

There was a catch, however, over how to allocate payments from the settlement fund. Plaintiff proposed a flat-rate payout of $25 in cash or $50 in vouchers to class members. Plaintiff’s proposal would potentially exhaust the settlement fund quickly, and Starkist objected to it. Specifically, StarKist argued that it is “arbitrary and bear[s] no relationship to the number of StarKist products each class member purchased or the extent of purported injury” (emphasis in original). By contrast, StarKist’s allocation proposal would award each class member $1.00 for up to ten products purchased, and an additional $1.00 for every ten cans of StarKist tuna fish purchased with an upper limit set at 250 cans or $25.00. StarKist also proposed that vouchers be available in lieu of cash at a value of $1.50 per ten cans of StarKist tuna fish purchased with a maximum value of $37.50.

It remains to be seen whether StarKist’s arguments will persuade the Court to can plaintiff’s flat-rate payout. We will, of course, monitor developments in this case, but in the interim it bears repeating that sometimes the dollar figure is the easy part of settling a putative class action.

ARTICLE BY

Lawrence I Weinstein & Benjamin M Rattner of Proskauer Rose LLP
© 2015 Proskauer Rose LLP.

Home Depot Moves to Dismiss Consumer Data Breach Claims for Lack of Standing

Home Depot has staked its defense of consumer claims arising from the 2014 theft of payment card data from the home improvement retailer on the asserted absence of injuries sufficient to confer standing to sue.  Because consumers rarely sustain out-of-pocket losses when their payment card numbers are stolen, lack of standing is typically the primary ground for seeking dismissal of consumer data breach claims. While many courts have been receptive to arguments seeking dismissal of consumer data breach claims for lack of standing, decisions in recent cases – including, most significantly, the Target data breach case – have found that non-pecuniary harms constitute sufficient injury to confer standing.  The survival of the consumer claims will depend on which line of precedent the Home Depot court follows.

Arguments as to standing are grounded in Article III, Section 2 of the United States Constitution, which limits the jurisdiction of federal courts to “cases” or “controversies.”   To constitute a case or controversy, a claim cannot arise from a speculative or potential harm, but rather must concern an actual or imminent injury.  Thus, in Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013), the Supreme Court ruled that mere interception of private data – in that case, by the National Security Agency, through its wiretaps of telephone and email communications – did not confer standing to sue.  Clapper held that speculation that intercepted data might be misused did not confer Article III standing; actual use or misuse of the intercepted information was required.  Defendants in privacy cases, citing Clapper, have succeeded in dismissing data breach claims for lack of standing where data breach plaintiffs have not alleged actual misuse of their data.  See, e.g., Polanco v. Omnicell, Inc., 988 F. Supp. 2d 451 (D.N.J. 2013); In re Barnes & Noble Pin Pad Litig., No. 12-8617, 2013 WL 4759588 (N.D. Ill. Sep. 3, 2013); Yunker v. Pandora Media, Inc., No. 11-3113, 2013 WL 1282980 (N.D. Cal. Mar. 26, 2013).

Home Depot’s brief in support of its motion to dismiss relies heavily on Clapper to support its argument that none of the named plaintiffs have suffered actionable injuries.  Home Depot contends that consumers could not have been injured when card issuers hold consumers harmless for fraudulent charges and Home Depot offered free credit monitoring to affected customers.  The Home Depot brief dismisses plaintiffs’ attempts to plead non-monetary harms, alleging that none of the alleged harms constitute injuries that are cognizable under Article III.  For example, some plaintiffs alleged that they suffered inconvenience and embarrassment as a result of temporarily frozen bank accounts.  According to Home Depot, in the absence of any out-of-pocket losses such alleged harms are not actionable injuries.  Some plaintiffs incurred out-of-pocket credit monitoring costs, but Home Depot takes the position that doing so was gratuitous in light of the free services offered by Home Depot.  Some plaintiffs also alleged out-of-pocket costs associated with fraudulent charges on their payment cards, but Home Depot contends that such injuries are not fairly traceable to Home Depot because such charges should have been covered by the card issuers.

There are also plaintiffs who alleged that they suffered identity theft.  Home Depot argues that such allegations should be rejected as implausible because, based on plaintiffs’ own allegations, the data theft did not result in the theft of social security numbers or date of birth information, both of which would be required to successfully steal an identity was not compromised in the HD data breach.

Although Home Depot makes strong arguments why plaintiffs lack standing, it is constrained to admit in its brief that the court hearing the Target data breach cases rejected an identical standing argument that and been advanced by Target.  In the opinion denying Target’s motion to dismiss, the court gave Target’s standing arguments cursory treatment, finding that “Plaintiffs have alleged injury” in the form of “unlawful charges, restricted or blocked access to bank accounts, inability to pay other bills, and late payment charges or new card fees.”  Although Target, like Home Depot, contended that such alleged injuries are insufficient to confer standing because “Plaintiffs do not allege that their expenses were unreimbursed or say whether they or their bank closed their accounts . . . ,” the court rejected this argument, stating that Target had “set a too-high standard for Plaintiffs to meet at the motion-to-dismiss stage.”

Home Depot characterizes the Target decision as an outlier that offers no support for its rejection of Target’s standing arguments.  Further, the Target decision did not rule out the possibility injuries alleged would not be fairly traceable to Target’s conduct, stating that, “[s]hould discovery fail to bear out Plaintiffs’ allegations, Target may move for summary judgment on the issue.”  Although the settlement of Target’s consumer claims means that the proposition will not be tested in that case, the Target court’s recognition that injury matters for standing purposes provides some support for Home Depot’s position that the Target decision should be disregarded if it is apparent at the pleading stage that no injury has occurred.

ARTICLE BY Kevin M. McGinty of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

FCC Chairman Proposes New TCPA Rules

The FCC is ready to rule on long-standing petitions seeking clarifications of the Telephone Consumer Protection Act and related FCC regulations. On May 27, 2015, FCC Chairman Tom Wheeler circulated a proposed regulatory ruling to fellow commissioners, which would address issues raised in more than 20 pending petitions. The fact sheet summarizing the chairman’s proposal foreshadows bad news for legitimate businesses using automatic telephone dialing technology.

FCC_Logo

The fact sheet lumps scammer calls like those from perky “Rachel” of the mysterious and ambiguous “Cardholder Services” with those from legitimate businesses. The fact sheet cites the 214,000 consumer complaints about robocalls. No breakdown is given as to how many of these complaints involved con artists and how many related to businesses calling, for example, to collect debt. The tone of the fact sheet provides no comfort. Its preamble states the plan is to “close loopholes and strengthen consumer protections.”

The FCC will vote on the new proposal during its Open Commission Meeting scheduled for June 18, 2015. In the meantime, companies using automatic telephone dialing technology should plan to take action to comply with whatever comes from the FCC. There will be no notice and comment period and whatever passes at the Open Commission Meeting will become effective immediately upon release.

New Provisions

If Chairman Wheeler’s proposals are adopted without changes, the new rules will provide:

  • Wireless and wired telephone consumers will have the right to revoke their consent to receive calls and text messages sent from autodialers in any reasonable way at any time. Many courts have concluded that consumers have a right to revoke consent. Some have said that revocation must be in writing. Some have said consent, once given, cannot be taken back. If this proposal passes, all courts likely will hold that consent may be revoked in any reasonable way at any time. This rule will have consequences beyond TCPA exposure. For example, it is likely to increase the cost of credit because creditors and debt collectors will have to employ more people to manually dial debtors who have failed to meet their obligations and utter the words, “Stop calling me!”

  • To prevent “inheriting” consent for unwanted calls from a previous subscriber, callers will be required to stop calling reassigned wireless and wired telephone numbers after a single request. It is not clear from the fact sheet what the individual on the other end of the line must say to notify the caller that they are not the person they seek to reach.

  • The TCPA currently prohibits the use of automatic telephone dialing systems to call wireless phones and to leave prerecorded telemarketing messages on landlines without consent. The current definition of an “automatic telephone dialing system” under the TCPA is “equipment which has the capacity to (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” A 2003 FCC ruling focused on the use of the word “capacity” in the definition and broadly extended the definition to cover autodialers used to dial specific numbers. This ruling has resulted in inconsistent court decisions over whether a dialer must have a present capacity to so dial or whether a future capacity is sufficient for to trigger TCPA coverage. The new proposal appears to attempt to resolve the ambiguity by amending the definition of an “automatic telephone dialing system” to mean “any technology with the capacity to dial random or sequential numbers.” That is not much help. The industry needs an answer on the present versus future capacity issue. As it stands now, a court could conclude that a smartphone is an automatic telephone dialing system. The tone of the fact sheet suggests that this problem is not going to be solved in a way that is favorable to industry.

Existing Provisions Under TCPA

Chairman Wheeler’s proposal also provides for some very limited and specific exceptions for “urgent circumstances,” which may include free calls or text messages to wireless devices that alert consumers of potential fraud or that remind them of urgent medication refills. Consumers will still have an opportunity to opt-out of these types of calls and texts.

  • The new proposal will also leave many of the existing provisions of the TCPA intact:

  • The FTC will continue to administer the National Do-Not-Call Registry to prevent unwanted telemarketing calls

  • Wireless and home phone subscribers can continue to prevent telemarketing robocalls made without prior written consent

  • Autodialed and prerecorded telemarketing and information calls and text messages to mobile phones will still require prior consent

  • Political calls will still be subject to restrictions on prerecorded, artificial voice, and autodialed calls to wireless phones, but will continue to not be subject to the National Do-Not-Call Registry because they do not contain telephone solicitations as defined by FCC regulations

  • Consumers will still have a private right of action for violations of the TCPA along with statutory penalties

Implications

If adopted, the new regulations may significantly restrict the use of autodialing technologies by business. However, the devil will be in the details. Organizations should review the owners’ manual that came with their dialer. What can it actually do? In other words, what is its present and future capacity? Have those answers ready so you can act when the FCC rules. Companies should also have proper processes and systems in place to meet the consumer opt-out requirements of any new regulations. Policies should address steps to take when a called party claims that the number called no longer belongs to your intended recipient.

One thing is certain about these new rules, they will not stop scammers who use spoofed caller IDs and originate calls from outside of the United States and, therefore, outside of the jurisdiction of the FCC and/or FTC. They will just make to harder and more expensive for legitimate businesses to reach their customers.

ARTICLE BY Chanley T. Howell, Michael C. Lueder & Steven Millendorf of Foley & Lardner LLP

© 2015 Foley & Lardner LLP

FDA Issues Draft Guidance on Mandatory Food Recalls Under the Food Safety Modernization Act

The Food and Drug Administration (FDA) recently issued a draft guidance titled, “Questions and Answers Regarding Mandatory Food Recalls.” FDA was given general mandatory food recall authority by the Food Safety Modernization Act (FSMA). The guidance is notable for its brevity, coming in at a total of seven pages including the cover. Although much of the content will be familiar to those with experience in food recalls, the guidance does discuss the procedure for FDA to order a mandatory food recall and the assessment of user fees for those subject to such a recall.

With respect to the procedure, the guidance states after FDA finds that the criteria for a mandatory recall have been met, it must first provide the responsible party with an opportunity to perform a voluntary recall of the food. FDA will provide this opportunity in writing using an expeditious method. If the responsible party does not voluntarily cease distribution and recall the food within the time and manner prescribed by FDA, FDA may order the responsible party to cease distributing the article of food, order the responsible party to give notice to certain other persons to cease distributing the article of food, and give the responsible party an opportunity for an informal hearing. After these steps are completed, FDA may order a recall if it determines that the removal of the food from commerce is necessary. Only the FDA Commissioner has the authority to order a recall.

As to user fees, the guidance observes that the FDA has the authority to collect fees from a responsible party for a domestic facility and an importer who does not comply with a food recall order. The fees would cover time spent by FDA conducting food recall activities, including technical assistance, follow-up effectiveness checks, and public notifications. FDA defines noncompliance to include (1) not initiating a recall as ordered by FDA, (2) not conducting the recall in the manner specified by FDA in the recall order, or (3) not providing FDA with requested information regarding the recall, as ordered by FDA. FDA publishes a Federal Register notice of fees for non-compliance with a Recall Order no later than 60 days before the start of each fiscal year.

Given that most parties will voluntarily recall food when the statutory conditions are satisfied to avoid a public relations disaster and harsh FDA action, it seems unlikely that FDA will have to resort often to the exercise of its mandatory recall authority or assessment of fees. The fact that FDA has this authority, however, helps ensure FDA will not have to exercise it.

A copy of the draft guidance document can be found here.

ARTICLE BY Hae Park-Suk & Lynn C. Tyler, M.S. of Barnes & Thornburg LLP
© 2015 BARNES & THORNBURG LLP

Are Cosmetics Gaining Higher Congressional and FDA Scrutiny?

Currently, FDA regulates cosmetics to ensure they are not adulterated or misbranded, but does not have the authority to order cosmetic recalls or require adverse event reporting.  Senators Dianne Feinstein (D-CA) and Susan Collins (R-ME) seek to change that.

On April 20, 2015, they introduced the Personal Care Products Safety Act (S.1014). The Act, if passed, would modify Chapter VI of the Federal Food, Drug, and Cosmetic Act (FDCA) to strengthen FDA’s oversight of, and regulatory authority over, cosmetic products.

Title I of the Act (“Cosmetic Safety”) gives FDA authority to order cosmetic recalls, as well as require manufacturers to:

  1. Report adverse events,

  2. Label ingredients not appropriate for children,

  3. Post complete label information (including ingredients and product warnings) online, and

  4. Register their facilities with FDA.

In addition to this significant new authority over manufacturers, the Act also requires FDA to work with industry and consumer groups to annually select and review at least 5 ingredients or non-functional constituents.

The first 5 ingredients, if the law is passed, will be:

  1. Diazolidinyl urea

  2. Lead acetate

  3. Methylene glycol/methanediol/formaldehyde

  4. Propyl paraben

  5. Quaternium-15

Title II of the Act (“Fees Related to Cosmetic Safety”) outlines the costs associated with enforcement of the new standards. With an annual implementation cost estimated at $20.6 million, it is to be funded by annual fees from all registered owners or operators of cosmetic facilities engaged in manufacturing or processing in the United States.

The Act has wide industry support, including the Personal Care Products Council (a 600+ member company trade association), large cosmetics manufacturers, and consumer groups.  Since it was introduced, it has gained two co-sponsors, Senators Barbara Boxer (D-CA) and Amy Klobuchar (D-MN).

The Act is consistent with FDA’s current priorities related to cosmetics.  Two of these priorities have been reporting of adverse events (with the majority of issues seen in hair care products), and maintaining a distinct line between over-the-counter drugs and cosmetics, because cosmetics need not currently undergo the additional scrutiny that OTC drugs must.

More information on the Personal Care Products Safety Act can be found in Senator Feinstein’s statement upon its introduction.

ARTICLE BY Michelle Gillette & Katherine Fox of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Maker’s Mark Defeats “Handmade” Class Action Lawsuit

Could consumers have plausibly believed that one of the country’s top-selling bourbon brands is “handmade”?  Not according to one federal district court in Florida, which recently dismissed a class action alleging Maker’s Mark deceived consumers by labeling its whiskey as “handmade.” The decision by U.S. District Judge Robert Hinkle comes on the heels of a California federal court’s decision not to dismiss outright a similar consumer class action involving Tito’s Handmade Vodka.  Compare Salters v. Beam Suntory, Inc., 14-cv-659, Dkt. 31, (N.D. Fla. May 1, 2015) with Hofmann v. Fifth Generation, Inc., 14-cv-2569, Dkt. 15 (S.D. Cal. Mar. 18, 2015)).  These divergent opinions suggest that courts are still puzzling over just how much credence to grant putative class claims based on allegedly deceptive liquor labels at the motion to dismiss stage, particularly under the U.S. Supreme Court’s decision in Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007).  In Twombly, the Court made clear that plaintiffs must include enough facts in a complaint to make their claim to relief not just conceivable, but plausible—or else face dismissal.

Salters, the Florida case, is part of a wave of recently filed class actions accusing alcoholic beverage producers of violating state consumer protection statutes.  In the typical case, as here, the plaintiffs claim to have purchased the brand in reliance on allegedly deceptive labeling and contend they would not have purchased it or would have paid less otherwise.  The Salters plaintiffs claimed they were damaged because Maker’s Mark sold “their ‘handmade’ Whisky to consumers with the false representation that the Whisky was ‘handmade’ when, in actuality, the Whisky is made via a highly-mechanized process, which is devoid of human hands.”

Judge Hinkle flatly rejected the idea that this could support a claim.  Citing Twombly, he noted that although whether a label is false or misleading is generally a question of fact, a motion to dismiss should be granted if the complaint’s factual allegations do not “render plaintiffs’ entitlement to relief plausible.”  The court observed that taken literally, all bourbon is handmade, because it is not a naturally occurring product; construed less literally, which was apparently the plaintiffs’ approach, “no reasonable consumer could believe” that bourbon could be made by hand, presumably without commercial-scale equipment, “at the volume required for a nationally marketed brand like Maker’s Mark.”  In any event, court found the plaintiffs’ claims implausible under any definition of “handmade,” writing:

In sum, no reasonable person would understand “handmade” in this context to mean literally made by hand.  No reasonable person would understand “handmade” in this context to mean substantial equipment was not used.  If “handmade” means only made from scratch, or in small units, or in a carefully monitored process, then the plaintiffs have alleged no facts plausibly suggesting that statement is untrue.  If “handmade” is understood to mean something else . . . the statement is the kind of puffery that cannot support claims of this kind.

The court appears to have concluded that when applied to a product as popular as Maker’s Mark, the word “handmade” is more an unactionable “general, undefined statement that connotes greater value,” like describing a bourbon as “smooth,” than a factual representation easily capable of being false or misleading.  Though this may pass the common sense test, it is less clear whether other courts will agree.  In the Tito’s case, for instance, the court declined to accept at the motion to dismiss stage an argument similar to the one that persuaded the Maker’s Mark judge, holding that “the representation that vodka that is (allegedly) mass-produced in automated modern stills from commercially manufactured neutral grain spirit is nonetheless “Handmade” in old-fashioned pot stills arguably could mislead a reasonable consumer.”

These cases highlight the need to carefully examine product labeling and advertising claims and consider whether consumers (or plaintiffs’ attorneys) could challenge them as untrue.  This is relatively simple when claims involve factual issues such as where a product is produced, but less so with words like “handmade,” which could arguably qualify as either non-actionable “puffery” or a quantifiable claim.

ARTICLE BY Jennifer Aronoff of McDermott Will & Emery
© 2015 McDermott Will & Emery

Supreme Court to Decide Who Can Sue Under Privacy Law

Does a consumer, as an individual, have standing to sue a consumer reporting agency for a “knowing violation” of the Fair Credit Reporting Act (“FCRA”), even if the individual may not have suffered any “actual damages”?

The question will be decided by the U.S. Supreme Court in Spokeo, Inc. v. Robins, 742 F.3d 409 (9th Cir. 2014), cert. granted, 2015 U.S. LEXIS 2947 (U.S. Apr. 27, 2015) (No. 13-1339). The Court’s decision will have far-reaching implications for suits under the FCRA and other statutes that regulate privacy and consumer credit information.

FCRA

Enacted in 1970, the Fair Credit Reporting Act obligates consumer reporting agencies to maintain procedures to assure the “maximum possible accuracy” of any consumer report it creates. Under the statute, consumer reporting agencies are persons who regularly engage “in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.” Information about a consumer is considered to be a consumer report when a consumer reporting agency has communicated that information to another party and “is used or expected to be used or collected” for certain purposes, such as extending credit, underwriting insurance, or considering an applicant for employment. The information in a consumer report must relate to a “consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”

Under the FCRA, consumers may bring a private cause of action for alleged violations of their FCRA rights resulting from a consumer reporting agency’s negligent or willful actions. For a negligent violation, the consumer may recover the actual damages he or she may have sustained. For a “willful” or “knowing” violation, a consumer may recover either actual damages or statutory monetary damages of $100 to $1,000.

Background

Spokeo is a website that aggregates personal data from public records that it sells for many purposes, including employment screening. The information provided on the site may include an individual’s contact information, age, address, income, credit status, ethnicity, religion, photographs, and social media use.

Spokeo, Inc., has the dubious distinction of receiving the first fine ($800,000) from the Federal Trade Commission (“FTC”) for FCRA violations involving the sale of Internet and social media data in the employment screening context. The FTC alleged that the company was a consumer reporting agency and that it failed to comply with the FCRA’s requirements when it marketed consumer information to companies in the human resources, background screening, and recruiting industries.

Conflict in Circuit Courts

In Robins v. Spokeo, Inc., Thomas Robins had alleged several FCRA violations, including the reckless production of false information to potential employers. Robins did not allege he had suffered or was about to suffer any actual or imminent harm resulting from the information that was produced, raising only the possibility of a future injury.

The U.S. Court of Appeals for the Ninth Circuit, based in San Francisco, held that allegations of willful FCRA violations are sufficient to confer Article III standing to sue upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of the statute. In other words, the consumer need not allege any resulting damage caused by a violation; the “knowing violation” of a consumer’s FCRA rights alone, the Ninth Circuit held, injures the consumer. The Ninth Circuit’s holding is consistent with other circuits that have addressed the issue. See e.g., Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 705-07 (6th Cir. 2009). It refused to follow the U.S. Court of Appeals for the Eighth Circuit in finding that one “reasonable reading of the [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” Dowell v. Wells Fargo Bank, NA, 517 F.3d 1024, 1026 (8th Cir. 2008).

The constitutional question before the U.S. Supreme Court is the scope of Congress’ authority to confer Article III standing, particularly, whether a violation of consumers’ statutory rights under the FCRA are the type of injury for which Congress may create a private cause of action to redress. In Beaudry, the Sixth Circuit identified two limitations on Congress’ ability to confer standing:

  1. the plaintiff must be “among the injured,” and

  2. the statutory right must protect against harm to an individual rather than a collective.

The defendant companies in Beaudry provided check-verification services. They had failed to account for a change in the numbering system for Tennessee driver’s licenses. This led to reports incorrectly identifying consumers as first-time check-writers.

The Sixth Circuit did not require the plaintiffs in Beaudry to allege the consequential damages resulting from the incorrect information. Instead, it held that the FCRA “does not require a consumer to wait for consequential harm” (such as the denial of credit) before bringing suit under FCRA for failure to implement reasonable procedures in the preparation of consumer reports. The Ninth Circuit endorsed this position, holding that the other standing requirements of causation and redressability are satisfied “[w]hen the injury in fact is the violation of a statutory right that [is] inferred from the existence of a private cause of action.”

Authored by: Jason C. Gavejian and Tyler Philippi of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015

CPSC & DOJ Sue Michaels Stores for Failing to Report Product Safety Hazard and Filing Misleading Information

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

For the first time in recent memory, the Department of Justice (DOJ) and Consumer Product Safety Commission (CPSC) jointly announced the filing of a lawsuit in federal court for the imposition of a civil penalty and injunctive relief for violation of the Consumer Product Safety Act (CPSA). The lawsuit is against arts and crafts retailer Michaels Stores and its subsidiary Michaels Stores Procurement Co. Inc. (collectively, “Michaels” or “the Company”)  for failing to timely report a potential product safety hazard to the CPSC. Unlike other CPSC civil penalty actions involving DOJ, this penalty does not already have a negotiated consent decree in place and it appears that the case could be fully litigated.

The complaint alleges that Michaels knowingly violated the CPSA by failing to timely report to the CPSC that the glass walls of certain vases were too thin to withstand normal handling, thereby posing a laceration hazard to consumers.  According to the complaint, multiple consumers suffered injuries, including nerve damage and hand surgeries, from 2007 to late 2009.

Michaels allegedly did not report the potential defect to the Commission until February 2010.  Of course, we only know one side of the allegations, and Michaels will respond to those allegations in the coming weeks. The Company did state that “it believes the facts will show it acted promptly and appropriately.”

WaterNotably, the complaint also alleges that when Michaels filed an initial report with the CPSC in 2010, it provided “only the limited information required to be furnished by distributors and retailers” under the CPSA.  However, and critically, as the complaint sets forth in more detail, manufacturers—whose definition under the CPSA includes importers of record—are required to provide more information to the Commission than retailers.

According to the government, Michaels’ report conveyed the false impression that the Company did not import the vases, even though the Company was the importer of record and thus was required to submit significantly more information as themanufacturer of the vases.  The lawsuit alleges that Michaels made this misrepresentation in order to avoid the responsibility of undertaking a product recall.

As for the remedy, the government is seeking a civil penalty (in an unidentified amount) and various forms of injunctive relief, including the enactment of a stringent compliance program to ensure future compliance with CPSC reporting obligations.  This requested relief is similar to what the CPSC has required in almost all civil penalty agreements with other companies over the past few years.

What makes this complaint so newsworthy is that the government and Michaels plan to litigate the imposition of a civil penalty.  As noted above, this is not a frequent occurrence because companies tend to settle civil penalty claims rather than litigate. Given how infrequently civil penalties are litigated and the lack of any legal precedent guiding civil penalty negotiations under the heightened $15 million penalty limits, any judgment likely would have a wide-ranging impact on all future civil penalty negotiations between companies and the CPSC.

As we have previously stated, we expect the Commission to remain active in 2015 in bringing enforcement actions against companies for violations of the CPSA and other safety statutes.

We will watch this case closely and update our readers on any noteworthy developments.

ARTICLE BY

Matthew Cohen
Matthew R. Howsare
Charles A. Samuels
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Consumer Product Matters Blog

CPSC & DOJ Sue Michaels Stores for Failing to Report Product Safety Hazard and Filing Misleading Information

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

For the first time in recent memory, the Department of Justice (DOJ) and Consumer Product Safety Commission (CPSC) jointly announced the filing of a lawsuit in federal court for the imposition of a civil penalty and injunctive relief for violation of the Consumer Product Safety Act (CPSA). The lawsuit is against arts and crafts retailer Michaels Stores and its subsidiary Michaels Stores Procurement Co. Inc. (collectively, “Michaels” or “the Company”)  for failing to timely report a potential product safety hazard to the CPSC. Unlike other CPSC civil penalty actions involving DOJ, this penalty does not already have a negotiated consent decree in place and it appears that the case could be fully litigated.

The complaint alleges that Michaels knowingly violated the CPSA by failing to timely report to the CPSC that the glass walls of certain vases were too thin to withstand normal handling, thereby posing a laceration hazard to consumers.  According to the complaint, multiple consumers suffered injuries, including nerve damage and hand surgeries, from 2007 to late 2009.

Michaels allegedly did not report the potential defect to the Commission until February 2010.  Of course, we only know one side of the allegations, and Michaels will respond to those allegations in the coming weeks. The Company did state that “it believes the facts will show it acted promptly and appropriately.”

WaterNotably, the complaint also alleges that when Michaels filed an initial report with the CPSC in 2010, it provided “only the limited information required to be furnished by distributors and retailers” under the CPSA.  However, and critically, as the complaint sets forth in more detail, manufacturers—whose definition under the CPSA includes importers of record—are required to provide more information to the Commission than retailers.

According to the government, Michaels’ report conveyed the false impression that the Company did not import the vases, even though the Company was the importer of record and thus was required to submit significantly more information as themanufacturer of the vases.  The lawsuit alleges that Michaels made this misrepresentation in order to avoid the responsibility of undertaking a product recall.

As for the remedy, the government is seeking a civil penalty (in an unidentified amount) and various forms of injunctive relief, including the enactment of a stringent compliance program to ensure future compliance with CPSC reporting obligations.  This requested relief is similar to what the CPSC has required in almost all civil penalty agreements with other companies over the past few years.

What makes this complaint so newsworthy is that the government and Michaels plan to litigate the imposition of a civil penalty.  As noted above, this is not a frequent occurrence because companies tend to settle civil penalty claims rather than litigate. Given how infrequently civil penalties are litigated and the lack of any legal precedent guiding civil penalty negotiations under the heightened $15 million penalty limits, any judgment likely would have a wide-ranging impact on all future civil penalty negotiations between companies and the CPSC.

As we have previously stated, we expect the Commission to remain active in 2015 in bringing enforcement actions against companies for violations of the CPSA and other safety statutes.

We will watch this case closely and update our readers on any noteworthy developments.

ARTICLE BY

Matthew Cohen
Matthew R. Howsare
Charles A. Samuels
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Consumer Product Matters Blog

Junk Fax Act Compliance: One Week Left to Request a Waiver for Non-Compliance

McDermott Will & Emery

Thursday, April 30, 2015, marks the last day a business can request a retroactive waiver for failing to comply with certain fax advertising requirements promulgated by theFederal Communications Commission (FCC). The scope of these requirements was clarified on October 30, 2014, when the FCC issued an Order (2014 Order) under the Junk Fax Prevention Act of 2005 (Junk Fax Act). The 2014 Order confirms that senders of all advertising faxes must include information that allows recipients to opt out of receiving future faxes from that sender.

The 2014 Order clarifies certain aspects of the FCC’s 2006 Order under the Junk Fax Act (the Junk Fax Order). Among other requirements, the Junk Fax Order established the requirement that the sender of an advertising fax provide notice and contact information that allows a recipient to “opt out” of any future fax advertising transmissions.

Following the FCC’s publication of the Junk Fax Order, some businesses interpreted the opt-out requirements as not applying to advertising faxes sent with the recipient’s prior express permission (based on footnote 154 in the Junk Fax Order). The 2014 Order provided a six-month period for senders to comply with the opt-out requirements of the Junk Fax Order for faxes sent with the recipient’s prior express permission and to request retroactive relief for failing to comply. The six-month period ends on April 30, 2015. Without a waiver, the FCC noted that “any past or future failure to comply could subject entities to enforcement sanctions, including potential fines and forfeitures, and to private litigation.”

ARTICLE BY

Julia Jacobson
Matthew R. Turnell
McDermott Will & Emery