Hunton Retail Law Resource

On the heels of a recent $5 million civil penalty, the CPSC recently secured a $1.5 million civil penalty with help from the U.S. Department of Justice (“DOJ”). The civil penalty concludes a long saga between the CPSC and a large arts and crafts retailer about vases with allegedly defective thin glass that rendered them prone to shattering.

The CPSC has flexed its regulatory muscle during the first months of 2018 with respect to products that pose risks to children. With the U.S. Department of Justice’s (“DOJ’s”) help, the CPSC secured a $5 million civil penalty against a drug company for its allegedly deficient child-resistant packaging. In December, the DOJ filed a complaint in federal court against the drug company alleging that it knowingly violated the Poison Prevention Packaging Act and the Consumer Product Safety Act by distributing five household prescription drugs with non-compliant child-resistant packaging and failing to report the noncompliance to the CPSC. The complaint alleges that the drug company’s engineers drafted a “risk analysis” memo identifying the packaging as non-compliant. Rather than halt distribution and immediately report the non-compliance to the CPSC, the drug company continued distribution with non-compliant packaging while concurrently developing compliant packaging. The company also waited nearly 15 months before notifying the CPSC of its non-compliant packaging. In January, the federal court entered a consent decree for the matter. The drug company agreed to pay a $5 million civil penalty, implement and maintain a compliance program, and maintain and enforce a system of internal controls and procedures.

With the arrival of 2018, President Trump resubmitted his nominations for CPSC leadership vacancies to the Senate. In 2017, Trump nominated Commissioner Ann Marie Buerkle to serve as CPSC Chair and Dana Baiocco to serve as a commissioner replacing Democrat Commissioner Marietta Robinson, whose term expired. But, under Senate rules, nominations not acted on are returned to the President. At the end of the Senate’s 2017 session, this meant that roughly 120 nominations were returned to Trump. Both nominees—Buerkle and Baiocco—are expected to receive Senate confirmation this year.

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.

On June 13, 2017, Judge Andrea R. Wood of the Northern District of Illinois dismissed with prejudice a putative consumer class action filed against Barnes & Noble. The case was first filed after Barnes & Noble’s September 2012 announcement that “skimmers” had tampered with PIN pad terminals in 63 of its stores and exposed payment card information. The court had previously dismissed the plaintiffs’ original complaint without prejudice for failure to establish Article III standing. After the Seventh Circuit’s decision in Remijas v. Neiman Marcus Group, the plaintiffs filed an almost identical amended complaint that alleged the same causes of action and virtually identical facts. Although the court found that the first amended complaint sufficiently alleged Article III standing, the plaintiffs nevertheless failed to plead a viable claim. The court therefore dismissed the first amended complaint under Rule 12(b)(6). 

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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.

Recently, the Fourth Circuit affirmed a $31 million dollar jury award in favor of retailer Lord & Taylor for lost profits in connection with a breach of its reciprocal easement agreement (“REA”) with D.C.-area mall owner White Flint, LP. The court found White Flint’s efforts to redevelop the regional mall into a mixed-use project violated the terms of the REA under which the mall landlord agreed to maintain the site as a “first-class high fashion regional Shopping Center.”

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.

Companies across all industries, including retail, are seeing a significant uptick in software audits and similar software license compliance reviews. These audits can disrupt the day-to-day operations of even the most efficient IT departments and result in additional license fees, back-maintenance payments, penalties for noncompliance and external legal fees. The more aggressive software licensors may also threaten breach of contract claims, infringement claims, remote disabling of software, suspension of maintenance and other more disruptive practical measures. However, there are ways to limit exposure to such costly software audits and the associated risks, and to even prevent them from occurring in the first place.

Large-scale food safety issues have been hard to miss in the news lately. Chipotle’s multi-state E. Coli outbreak and listeria monocytogenes found in samples of Blue Bell Creamery ice cream products are some of the recent examples. After a product recall, retailers and other companies involved must focus resources on finding out what went wrong, remedying the problem and rectifying the company image. Hunton & Williams Insurance Coverage Counseling and Litigation attorneys recently authored an article, Insureds Find Place to Roost in Foster Poultry Contamination Case

The en banc US Court of Appeals for the Federal Circuit issued its opinion today in SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products, LLC, et al., Case No. 2013-1564. In a 6-5 decision, the court reaffirmed that laches is a defense to a suit for damages for patent infringement. In reaching this decision, the Federal Circuit distinguished Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), in which the US Supreme Court held that laches is not a defense to a suit for damages under the Copyright Act.

As reported in the Privacy & Information Security blog, the U.S. District Court for the Central District of California recently granted, only in part, a motion to dismiss a data breach class action against Sony Pictures Entertainment, Inc. (“Sony”) in Corona v. Sony Pictures Entertainment, Inc. The case therefore will proceed with some of the claims intact.

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Yesterday, the US Supreme Court in Kimble v. Marvel Enterprises, No. 13-720 (June 22, 2015), upheld the longstanding precedent provided by Brulotte v. Thys Co, 379 U.S. 29 (1964), which stated that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” Id. at 32. Justice Kagan, writing the opinion of the Court, stated that stare decisis requires the Court to adhere to the decision in Brulotte.

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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.

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