Hunton Retail Law Resource

On July 3, 2018, Governor David Ige of Hawaii signed SB 2571 into law, banning the sale or distribution of any “SPF sunscreen protection personal care product” that contains chemicals oxybenzone or octinoxate without a prescription issued by a licensed healthcare provider. “SPF sunscreen protection personal care product” is broadly defined to include, without limitation, any lotion, paste, balm, ointment, cream, solid stick applicator, brush applicator, roll-on applicator, aerosol spray, non-aerosol spray pump, and automated and manual mist spray. The ban, which Governor Ige indicated is intended to protect marine ecosystems including coral reefs, will go into effect on January 1, 2021. Estimates indicate that at least 70 percent of sunscreen products contain oxybenzone or octinoxate.

It has been a quiet month in the world of recalls with only 13 product recalls issued in June. Still, other CPSC-related news is noteworthy.

Last month, the U.S. Senate confirmed President Trump’s appointment of Dana Baiocco to serve as a CPSC commissioner. If political ideology translates into voting trends on consumer safety issues—and it may not—Baiocco’s appointment creates a potential 2-2 voting “tie” at the CPSC, with two Republican and two Democratic commissioners. Now, Trump seeks to add a third Republican to the CPSC. On June 4, 2018, Trump nominated Peter Feldman to be a commissioner. Feldman is senior counsel to the U.S. Senate Committee on Commerce, Science and Transportation, and therefore advises on consumer protection, product safety, data and privacy issues. If confirmed, Feldman will complete the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019. Feldman’s confirmation would mean that for the first time in nearly 12 years, Republican appointees would outnumber Democratic appointees at the CPSC. 

The CPSC experienced a political shake-up this month when the U.S. Senate confirmed Dana Baiocco as the newest commissioner. In September, President Trump nominated Baiocco, a Republican and former partner at Jones Day, but the Senate did not act on the nomination by the end of the 2017 calendar year. So President Trump resubmitted his nomination of Baiocco in January. On May 22, 2018, the Senate confirmed Baiocco by a vote of 50-45, mostly along party lines. Her seven-year term will run through October of 2024.

April was an historic month for the CPSC. The agency approved a $27.25 million civil penalty—the largest in CPSC history. The significance of this record amount cannot be overstated. The previous record was held by a $15.45 million civil penalty approved in March of 2016. In fact, except for in 2016, the CPSC has never approved civil penalties that totaled $27.25 million in each of the last ten calendar years. Now, it is has done so in 2018 with just one civil penalty.

There is plenty of recall activity to report but no civil penalty news to report for November. Perhaps the holiday spirit prevails at the CPSC in this holiday season.

Hoverboards were last year’s hottest toy during the holiday season, but they also caused alarm due to the tendency of their lithium-ion battery packs to overheat while charging, causing the hoverboards to catch fire or explode. This year, the CPSC is taking a proactive approach to hoverboards. In May and again this month, hoverboards by the same manufacturer caused house fires and prompted the CPSC to warn consumers to stop using those hoverboards altogether. Further, a hoverboard by a different manufacturer recently caught fire and caused $40,000 of property damage to a consumer’s home. These serious reports culminated in the CPSC issuing seven recalls this month for hoverboards by different manufacturers due to their potential fire and explosion hazards.

October ushered in a case that might, on one hand, provoke a sigh of relief for manufacturers, distributors and retailers concerned about the upward trend in multimillion dollar civil penalties from the CPSC or, on the other hand, raise some eyebrows of concern about the extent of a court’s authority to prospectively impose auditing, compliance and training measures. See United States v. Spectrum Brands, Inc., No. 15-CV-371-WMC, 2017 WL 4339677 (W.D. Wis. Sept. 29, 2017).

In a move affecting manufacturers, distributors and retailers in the furniture and other wood-based industries, the Environmental Protection Agency (“EPA”) recently issued a series of amendments to its Final Rule implementing the Formaldehyde Standards for Composite Wood Products Act (the “Formaldehyde Final Rule”), which added Title VI to the Toxic Substances Control Act (“TSCA”). The Formaldehyde Final Rule, 40 CFR Part 770, sets formaldehyde emissions standards for composite wood products and includes requirements for the testing, third-party certification, import certification and labeling of covered products by manufacturers of those products. The Final Rule also imposes requirements on downstream fabricators, distributors and retailers to keep records for at least three years demonstrating that covered products they use, distribute and/or sell are TSCA Title VI-compliant.

Last month, the solar eclipse captivated the United States and many consumers flocked to purchase solar eclipse glasses to safely observe the astronomical phenomenon. We previously reported how NASA issued a safety alert advising consumers on the proper eye protection they should seek. Now, some consumers have filed a class action lawsuit against a major online retailer for allegedly selling “unfit, extremely dangerous, and/or defective” solar eclipse glasses. As a result, the consumers allege “varying degrees of eye injury ranging from temporary discomfort to permanent blindness.”

August was a busy month in the world of recalls. First, the end of August ushered in a hefty $5.7 million civil penalty against a major retailer in the United States. The retailer was allegedly selling and distributing recalled products and has agreed, in addition to the civil penalty, to maintain a compliance program and a system of internal controls and procedures. The CPSC voted 4 to 1 to accept the settlement, with Acting Chairman Buerkle voting to accept a lower civil penalty.

On July 26, 2017, an amusement ride named “Fire Ball” at the Ohio State Fair broke apart, killing one passenger and injuring seven others. This deadly incident may trigger a CPSC investigation into the matter.

Prior to 1981, the CPSC exercised jurisdiction over all amusement rides. But after several high-profile cases challenged the CPSC’s jurisdiction over amusement rides with mixed results, an amusement parks trade group successfully lobbied Congress to exempt stationary amusement rides from the CPSC’s jurisdiction. In 1981, Congress passed the Consumer Product Safety Amendments, which amended the definition of “consumer product” to explicitly exempt stationary amusement rides.

June commenced with another massive civil penalty. A manufacturer agreed to pay a $5.2 million civil penalty and maintain a compliance program for allegedly failing to immediately report defective floorboards in recreational off-highway vehicles. In a three-year period, the manufacturer received over 400 reports of floorboards cracking or breaking in one vehicle model and over 150 similar reports in two other models. Once the manufacturer filed its report, it allegedly underreported the number of floorboard incidents associated with one model and failed to identify altogether the floorboard incidents associated with the two other models. These omissions, according to CPSC staff, constituted a material misrepresentation. The CPSC accepted the settlement by a 4-to-1 vote.

This past week, several regulatory and self-regulatory actions made headlines that affect the retail industry.

On June 19, 2017, the United States Supreme Court announced important constitutional limitations on state courts’ ability to exercise specific jurisdiction over nonresidents’ claims against out-of-state defendants. The Court’s nearly unanimous decision in Bristol-Myers v. Superior Court, 582 U.S. (2017) has potentially far-reaching implications for companies facing claims brought by nonresident and resident plaintiffs in states in which those companies are neither incorporated nor maintain their principal place of business. In holding that mere joinder of nonresident plaintiffs’ claims with those of resident plaintiffs does not permit a state court to exercise specific jurisdiction over an out-of-state defendant, the Court’s decision is the latest in a trend of important personal jurisdiction decisions rendered by the high court in recent years which provide companies with significant constitutional protections in terms of where plaintiffs may force companies to litigate.

May’s 30 recalls—more than any month thus far in 2017—cover furniture, toys, appliances, lithium batteries, recreational vehicles, kitchen gadgets and more. Conspicuously absent so far from the list are fidget spinners, the now viral children’s toy making headlines recently for choking-related dangers. Retailers catching up to the hot demand should keep an eye on those warnings to see if they convert into recall activity in case the gadget is deemed worthy of a market exit that rivals the pace of its entry. In light of the CPSC’s willingness to impose penalties on retailers who sell recalled items, retailers should take stock of their recall plans of action.

This past week, several consumer actions made headlines that affect the retail industry.

FTC Action Forces Advertiser to Withdraw Claims Regarding Efficacy of Herbal Opioid Cure

The FTC has settled charges against the sellers of the herbal remedies “Withdrawal Ease” and “Recovery Ease,” which claimed to alleviate symptoms of opioid addiction. According to the complaint, Catlin Enterprises and the founder/CEO claimed their products significantly increased the likelihood of a person overcoming opiate dependency. The FTC’s complaint alleged that these claims were unfair and deceptive and were unsubstantiated by clinical studies. The defendants also allegedly misrepresented that clinical studies proved Withdrawal Ease’s effectiveness.

April served as a microcosm for recent trends in the world of recalls. A gas range manufacturer agreed to pay a $4.65 million civil penalty to the CPSC. In a six-year period, the manufacturer received 170 incident reports that the gas ranges had turned on spontaneously and could not be turned off using the control knobs. But the manufacturer knowingly failed to notify the CPSC immediately. The manufacturer agreed to pay the massive penalty, maintain an enhanced compliance program and maintain a related system of internal controls and procedures.

The Maui County Liquor Control Commission, which regulates licenses for the importation, manufacture and sale of alcohol within Maui County, has liberalized certain County rules on the sale of alcohol: holders of liquor licenses are now generally permitted to sell alcohol to customers 24 hours per day. Retailers had previously been restricted to selling alcohol during the hours of 6:00 a.m. to 11:00 p.m., while hotels were permitted to serve until 4:00 a.m. Under the new rules, both are subject to the same standards.

Product recalls are on the rise in many industries. As regulatory and consumer protection standards get tougher, product supply chains are becoming more complex. This increases the risk of errors, defects and contamination at all levels of operation. Too often, these problems do not manifest themselves until after a product hits the market. All of this can lead to staggering expenses for food and product manufacturers facing the risks and realities of product recalls.

March was an eventful month in the world of recalls. Children’s products have always been a CPSC focus, and for good reason. A recent study by Nationwide Children’s Hospital examined data over a 21-year period and found that a young child visits the emergency room for an accident involving a nursey product about every eight minutes. That is roughly 66,000 children annually. Last month alone, children’s products were the subject of six recalls. That trend continued in March as six children’s products were again recalled—infant caps, toys, games, sleepwear, bibs and rattles. The CPSC also approved unanimously a new federal safety standard for infant bath tubs. This serves as a notable development because, under the 1981 Amendments to the Consumer Product Safety Act, the CPSC must defer to an existing industry standard if it adequately addresses the risk and fosters adequate compliance. Accordingly, the CPSC has only issued 37 safety standards and roughly one-third of them (14) are for children’s products. The new standard serves as additional evidence that the CPSC is taking a more proactive approach to regulating children’s products.

The CPSC extracted another steep civil penalty this month from a manufacturer of coffee brewers that agreed to pay $5.8 million after it knowingly failed to report a defect or unreasonable risk of serious injury to the CPSC. Specifically, the manufacturer received roughly 200 reports in a four-year period about its coffee brewers spraying out hot liquids and coffee, inflicting burn-related injuries to consumers. As part of the settlement, the manufacturer also agreed to develop, implement and maintain a compliance program to avoid failure-to-report problems in the future. Perhaps the recent change in CPSC leadership will impact the frequency or amount of these civil penalties in the future.

The beginning of the New Year experienced a drop off in recalls as the busy holiday season came to a close. Nevertheless, two important trends developed throughout January.

On January 31, 2017, Acting SEC Chairman Michael Piwowar issued a statement instructing the SEC staff to reconsider whether its 2014 guidance on the conflict minerals disclosure rule is still appropriate and whether any additional relief for public companies is appropriate. Chairman Piwowar also opened a 45-day public comment period on all aspects of the SEC rule and subsequent guidance.

On January 9, 2017, Hunton & Williams LLP announced the formation of a global cross-disciplinary legal team to advise corporations and investors on issues related to sustainability and efforts to increase utilization of renewable energy in connection with clean power procurement goals. The Hunton team brings together lawyers with experience in transactional, finance (including “green bonds” and similar programs), corporate, securities, tax, environmental and real estate law to counsel clients on the complex legal issues arising out of participation in the market for ...

On October 19, 2016, Chemence, Inc., the manufacturer of products such as Hammer Tite, Krylex Glues and Kwik Fix, agreed to resolve an FTC challenge of the company’s “Made in USA” and “Proudly Made in USA” claims. The settlement  requires Chemence to pay $220,000 and substantiate any future “Made in USA” claims.

Since the U.S. Supreme Court’s 2014 decision in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), numerous courts across the country have applied its holding to narrow the permissible bounds of the exercise of general jurisdiction over companies in jurisdictions without a connection to the specific claims in the case. On August 29, 2016, in Bristol-Myers Squibb v. Superior Court, No. S221038 (Calif. 2016), the California Supreme Court left many wondering what Daimler may mean for the exercise of specific jurisdiction in cases involving nationwide courses of business conduct affecting both resident and nonresident plaintiffs. 

This past week, several consumer protection and regulatory actions made headlines:

Class Plaintiffs Just Keep Swimming Against Safeway in Underfilled Tuna Case

On July 13, 2016, Safeway escaped negligent misrepresentation claims in a putative class action consumer suit alleging that Safeway violated federal guidelines when it chronically underfilled two of its private label canned tuna products. Safeway filed a limited motion to dismiss the class plaintiffs’ unjust enrichment and negligent misrepresentation claims. The court found that, though duplicative, unjust enrichment was properly plead, but the negligent misrepresentation claim failed because class plaintiffs could not show that they suffered any loss other than an economic loss. Unfortunately for the grocer, eight other claims in the suit survived, including various breaches of warranty, unjust enrichment and California unfair competition counts. 

Consumer class actions are on the minds of virtually all consumer product manufacturers and service providers. Class actions based on privacy and consumer protection statutes are increasing at a remarkable rate, and can be a challenge to predict, budget and defend, given the difficulty in valuing consumer privacy rights. In an article, “Second Circuit Reminds Consumer Product Companies That Insurance Options Exist for Big Data Blunders and Privacy Faux Pas,” published in FC&S Legal’s Eye on the Experts column, Hunton lawyers Syed S. Ahmad, Neil K. Gilman and Paul T. Moura

President Obama signed the Frank R. Lautenberg Chemical Safety for the 21st Century Act (“Lautenberg Act”) into law in June 2016, amending the core provisions of the Toxic Substances Control Act (“TSCA”) for the first time in nearly 40 years. Last month, Hunton & Williams detailed how the Lautenberg Act considerably broadens the Environmental Protection Agency’s (“EPA’s”) authority to evaluate chemical safety and regulate use of chemicals in all stages of the supply chain, including manufacturing, distribution and retail sale. Within six months, EPA must select at least 10 chemical substances and begin risk evaluations on them. EPA must also classify chemicals – including those currently in the retail supply chain – as “high priority” or “low priority” for review, and begin risk evaluations on 20 high priority chemicals within the next three and a half years.

As reported on the Hunton Insurance Recovery blog, in a June 1, 2016 decision, the Second Circuit Court of Appeals reminded retailers and product manufacturers to look to their insurance coverages when defending against consumer class actions. In National Fire Insurance Co. of Hartford et al. v. E. Mishan & Sons Inc., the Second Circuit required CNA Financial Corporation to defend E. Mishan & Sons, Inc.(“Emson”) – best known for its “As Seen on TV” products – in two class actions alleging a conspiracy to trap customers into recurring credit card charges and that Emson sold private consumer information that it obtained through its product sales.

On April 21, 2016, Hunton & Williams LLP announced the launch of a cross-practice 3D printing team to advise clients as they explore this revolutionary technology. Also known as additive manufacturing, 3D printing is being adopted by manufacturers in many industries, including consumer products, aviation, energy, medical, prosthetic and transportation, and is becoming integrated into the production process.

For retailers operating in California, the state’s Safe Drinking Water and Toxic Enforcement Act of 1986 (“Prop 65”) is a constant and often costly headache. Among other requirements, Prop 65 prohibits businesses with ten or more employees, including those that ship products into California, from exposing people in California to any of the over 800 listed chemicals without first providing a “clear and reasonable” warning. The statute also contains a prohibition against discharging or releasing listed chemicals to “sources of drinking water” in the state, but those provisions are not discussed here. The list of over 800 chemicals is revised and updated annually.

On February 29, 2016, News Corporation reached a $244 million settlement with a consumer product manufacturer class to end claims that it monopolized the market for third-party, in-store promotions by entering into long-term, exclusive contracts, and that it overcharged its advertisers by over $674 million in the last seven years. News Corp. acts as an intermediary between retailers and consumer product manufacturers by buying up advertising space on shelves and store floors and then reselling that space to consumer product manufacturers. Plaintiffs alleged that News Corp. used exclusive contracts to tie up nearly 90 percent of the in-store promotions market, and manufacturers, including Dial and Heinz, claimed News Corp. used that monopoly power to extract unfairly high prices.

An important Federal Trade Commission (FTC) decision was announced yesterday that trains a spotlight on claims of “biodegradability.” The FTC found that a manufacturer’s unsubstantiated claims regarding the biodegradability of plastic pellets used as product additives deceived industry and end-use customers. The case reemphasizes the FTC’s intent to enforce the FTC Act against unsupported “green” claims. For retailers and consumer product manufacturers, this case and the recent increase in consumer false advertising class actions emphasizes the importance of:

• due diligence regarding product claims made by vendors – ask for and maintain material to back up the claims and stick to the claims that can be supported; and
• strong indemnities against false and deceptive advertising claims.

Prolonged and torrential rains have caused widespread flooding in Texas, Oklahoma and surrounding areas. It is important that policyholders remain mindful of the substantial benefits that may be available to them for resulting economic and physical losses under ordinary business insurance policies.

The Pennsylvania Supreme Court has rejected a liability insurer’s attempt to overturn a Superior Court decision holding that insurers must defend product liability claims. See Indalex v. National Union Fire Insurance Co. of Pittsburgh, Pa., No. 126 WAL 2014 (Pa. Sept. 18, 2014). The decision confirms that loss arising from a defective product may constitute an “occurrence” triggering general liability insurance coverage under Pennsylvania law.

Read the full client alert.

California’s Safer Consumer Products (SCP) regulations became effective October 1, 2013. These regulations apply to any “product or part of the product that is used, bought, or leased for use by a person for any purposes.” Given this ample language, the regulations have the potential to affect a wide range of industries and parties in a distribution chain, including manufacturers, assemblers, importers, and even retailers.

Read the full client alert.