California Court of Appeal refuses to honor jury trial waiver

In today’s business world, companies frequently enter into contractual provisions with their customers to limit jury trial exposure as part of managing future risks. However, if you think that agreeing that any dispute can be resolved without a jury trial is enough to insulate you and your business from this threat – THINK AGAIN.

Just last month, the California Court of Appeal overturned a contractual provision waiving the parties’ right to a jury trial, despite the fact that such waiver was fully enforceable under New York, the law agreed to in the contract’s choice of law section.

In Rincon EV Realty LLC et al. v. CP III Rincon Towers, Inc., et al., plaintiffs entered into a loan agreement for the purchase of real estate. Ultimately, the parties disagreed as to the terms of the loan maturity date, and plaintiffs filed suit in California state court alleging, among other things, breach of the loan agreement.

The initial loan agreement included a New York choice-of-law provision, specifying that plaintiffs waived any claim that California law (or the law of any state other than New York) govern their agreements. The agreement also expressly waived any parties’ right to seek a jury trial.

Nevertheless, plaintiffs filed a jury demand in California state court, which was challenged by the defendant. The trial court agreed with defendants’ motion to strike the jury demand based on the contractual agreement, but the Court of Appeal overturned this ruling, applying choice of law principles set forth in section 187 of the Restatement Second of Conflict Laws.

Although the Court of Appeal recognized that New York had a substantial interest in the transaction (plaintiffs’ principal place of business was in New York, the agreements were negotiated in New York, the loan was made, accepted, and the proceeds were distributed there),it held that the New York law on jury waivers was contrary to California’s fundamental policy of granting an “inviolate right” to a jury trial, waivable in only six specific ways. The Court then found that, California, the forum state, had a greater interest in having its law applied because of its interest in “enforcing its policy that only the Legislature can determine the permissible methods for waiving the right to jury trial….”

The take away from this decision is that jury trial waivers in contracts and agreements are likely unenforceable should a lawsuit be filed in California. Here, it didn’t matter that the relevant actions took place in New York, that the parties (arguably sophisticated) specifically agreed that New York choice of law should apply. Nor did it matter that the parties knew and understood that they were waiving the right to a jury trial. By simple virtue of the fact that the case was filed in California, a state deemed to have the greater interest in have its jury waiver laws applied, the parties’ express agreement was invalidated.

Bottom line: don’t get too comfortable that you’ve made an agreement to waive a jury trial in advance of litigation. If the lawsuit is filed in California, you may very well find yourself conducting voir dire.  It also remains to be seen whether this holding is expanded to find other “procedural” contract provisions unenforceable.

Chicago checkout bag tax set to begin

For retailers and other companies doing business in the Windy City, the Chicago Checkout Bag Tax Ordinance implements a $0.07 tax on “the retail sale or use” of paper or plastic checkout bags. It goes into effect on February 1, 2017. The new tax accompanies the repeal of the city’s reusable bag ordinance.

The tax operates like a typical product stewardship fee – wholesalers of paper or plastic checkout bags must collect the tax when supplying checkout bags to stores in the city and then pass the additional cost down the supply chain.  Wholesalers are responsible for remitting the tax to the city and filing required tax returns.  Retailers who sell checkout bags to customers must assess the tax at checkout and separately state it on the receipt with a line item “Checkout Bag Tax.” Retailers who give checkout bags to customers must either charge the tax and separately state it on the receipt, or not charge the tax and absorb it themselves.

The city has established a webpage with information on the tax.

Who’s covered

The tax applies to stores, which the ordinance defines as any person who “engages in the business of selling tangible personal property.” This means that anyone who sells a physical good is subject to the ordinance – unlike most existing checkout bag restrictions, Chicago’s is not limited only to grocery stores or drugstore chains.

What’s covered

The ordinance limits the definition of “checkout bags” to paper or plastic carryout bags “provided by a store to a customer for the purpose of carrying goods out of a store.” The ordinance exempts bags used inside the store to:

  • Package loose bulk items, including fruit, vegetables, nuts, grains, candy, cookies or small hardware items
  • Contain or wrap frozen foods, meat or fish
  • Contain or wrap flowers, potted plants or other damp items
  • Separate food or merchandise that could damage or contaminate other food or merchandise if placed together in a single bag
  • Contain unwrapped prepared foods or bakery goods.

The tax also exempts the following categories:

  • Prescription drug bags
  • Packages of garbage bags
  • Dine-in “doggie bags” or take-out restaurant bags for food or drink purchased by customers
  • Newspaper bags
  • Dry cleaning or garment bags
  • Plastic liners permanently fixed or intended to be permanently fixed to the inside of a bag
  • Plastic bags with a retail price of at least $0.50 each
  • Checkout bags used to carry items under governmental food assistance programs like SNAP.

Collecting the tax

Of the $0.07 collected, retail stores may keep $0.02, while the wholesaler must remit the remaining $0.05 cents to the city. If a wholesaler does not collect from retailers, retail stores must still collect the tax, with the added burden of remitting it to the city themselves. If the wholesaler sells checkout bags to a purchaser that is not a retail store, the wholesaler must still obtain the $0.07 tax, but it is eligible to retain $0.02 per bag as a commission.

For exempt bags, the city’s FAQ states that retailers should take credits on their payments to wholesalers on a going forward basis to account for exempt bags from the prior month, and in turn wholesalers should claim a credit when submitting their tax payments.

In an added wrinkle, the ordinance requires stores to ascertain their on-hand inventory of paper and plastic checkout bags by COB on Tuesday, January 31, 2017 and pay $0.05 for the existing inventory by mail, postmarked on or before Friday, March 3, 2017 (a late fee of $100 applies). Wholesalers and retailers must keep detailed records and make them available for inspection upon request.

Trump administration ices EPA formaldehyde in composite wood rule

Following up our recent post on EPA’s publication of its formaldehyde in composite wood rule, the Trump administration has delayed the rule’s effective date from February 10, 2017 to March 21, 2017. This delay is part of the administration’s “Regulatory Freeze Pending Review.” It is unclear what impact this freeze will have on the rule’s implementation, as the “manufactured by” date that triggers compliance is based on EPA publication (December 12, 2016), not the original effective date (February 10, 2017). But the “freeze” is intended to prevent implementation of EPA regulations without review, and directs agencies to:

…consider proposing for notice and comment a rule to delay the effective date for regulations beyond … [the current delay]. In cases where the effective date has been delayed in order to review questions of fact, law, or policy, you should consider potentially proposing further notice-and-comment rulemaking. Following the delay in effective date

  1. for those regulations that raise no substantial questions of law or policy, no further action needs to be taken; and
  2. for those regulations that raise substantial questions of law or policy, agencies should notify the OMB Director and take further appropriate action in consultation with the OMB Director.

We assume that until further notice, implementation is on hold. We will continue tracking this issue and providing updates as they develop.

EPA publishes formaldehyde in composite wood rule – Dec. 2017 compliance dates

EPA recently published its final rule restricting formaldehyde emissions from composite wood. The publication now triggers the rule’s effective date (Feb. 10, 2017) and the first compliance dates (December 12, 2017). The rule implements the formaldehyde standards found in Title VI of TSCA. EPA has expressly stated that the rule is “consistent, to the extent EPA deemed appropriate and practical considering TSCA Title VI, with the requirements currently in effect in California” under CARB’s ATCM Phase 2, but there are some differences that are bound to cause compliance headaches.

Emission Standards

EPA’s final rule contains the same emissions limits as CARB Phase 2:

  • 0.05 ppm – hardwood plywood (veneer and composite cores)
  • 0.09 ppm – particleboard
  • 0.11 ppm – medium density fiberboard
  • 0.13 ppm – thin medium density fiberboard.

Unlike CARB, the rule does not provide a blanket exemption for laminated products with a compliant core (although CARB is apparently reconsidering this). The rule exempts from testing and certification any laminated products made by attaching a wood/woody grass veneer with 1) a phenol-formaldehyde resin or 2) a resin formulated with no added formaldehyde as part of the resin cross-linking structure to a compliant core or platform. But it only delays the compliance date for other laminated products to Dec. 12, 2023, on the theory that the type of resin used to attach the veneers could increase formaldehyde emissions.

Third party certification and testing

The rule mirrors CARB compliance testing. Manufacturers must certify compliance through an EPA-approved third party testing lab. After certification, the third party certifier must test the products quarterly. Existing CARB-approved third party certifiers may certify to TSCA Title VI for up to two years. After that, EPA-approved certifiers must perform the certification.

Manufacturers must implement a quality control testing system for each product line with frequencies dependent upon the type of product and the production schedule (e.g., once-per-shift for MDF and particleboard to weekly for hardwood plywood depending upon the quantity produced). Like CARB, the rule adopts compliance test methods ASTM E1333-10 or ASTM D6007-02 for certification testing, and these same methods or their equivalents for quality control testing. The rule also requires testing of panels in unfinished condition, prior to application of a finishing or topcoat, no later than 30 calendar days after production.

Labeling

The new rule requires that panels or bundles of panels sold or offered for sale in the United States be labeled with the following information, which is largely equivalent to CARB labeling except for the certification statement:

  • Panel producer’s name
  • Lot number
  • Third-party certifier number
  • A statement that the products are TSCA Title VI certified.

EPA has stated that “entities are free to combine the TSCA Title VI labels with CARB labels so long as all the required information is present, legible, in English and accurate.” This unfortunately means new labels need to comply with both rules.

Fabricators must label finished goods made with composite wood, or the boxes in which they are sold, with the following:

  • Fabricator’s name (or downstream entity)
  • Date of fabrication (in month/year format)
  • Statement that the finished goods are TSCA Title VI compliant.

Fabricator labels can identify the name of a responsible downstream entity if they obtain and maintain written consent. There is a de minimis exemption for finished goods – composite wood must not exceed 144 square inches based on the surface area of the largest face.

Like CARB, a manufacturer, distributor or importer must also include compliance information on the bill of lading or invoice.

Recordkeeping – manufacturers

Recordkeeping requirements are comparable to CARB, although records must be kept for three years instead of two.

Manufacturers must keep records of:

  • All quarterly emissions testing
  • All quality control testing
  • Production records, including product identification, manufacture dates, and tracking information
  • Records of changes to production methods that could impact compliance (e.g., resin use, composition, changes in press time)
  • Purchaser and transporter contact information
  • Corrective action/disposition of non-complying lots
  • Representative copies of labels.

Manufacturers must also provide their third party certifiers with monthly production data and maintain copies of these production reports for three years.

Recordkeeping – importers, fabricators, distributors, and retailers

Importers, fabricators, distributors and retailers must take “reasonable precautions” to ensure compliance, much like CARB. This means that each member of the supply chain must obtain bills of lading, invoices, or comparable documents that include written certification from the supplier that either the panels/products comply or were manufactured prior to the compliance deadline.

In addition, importers must be able to provide EPA with records showing the following within 30 days of a request:

  • The panel producer and date of production
  • The supplier (if different) and the date of purchase.

Importers must also maintain an import certification under TSCA section 13 for imports after Dec. 12, 2018.

Enforcement Mechanism

Failure to comply is a prohibited act under TSCA section 15, subject to civil penalties of up to $37,500 per day and criminal penalties of up to $50,000 per day. It is unclear how EPA will enforce the limits, as it has not released an enforcement document like CARB did with its “Standard Operating Procedure” that emphasizes sample deconstructive testing to determine compliance.

Compliance Dates

The rule establishes “manufactured by” dates for implementation that apply to both composite wood products and finished goods. The EPA rule does not contain the elaborate system of sell-through dates like the CARB rule. But it does prohibit stockpiling.

Because the definition of manufacture includes import, this is effectively an “imported-by” date for imported composite wood products. The dates for compliance are:

  • Composite wood products manufactured/imported before Dec. 12, 2017 are outside the rule.
    • These products can be incorporated into finished goods indefinitely, as long as they are not stockpiled.
    • Retailers, fabricators, and distributors can continue to buy and sell these products, as long as they are not stockpiled.
  • Laminated products manufactured/imported before Dec. 12, 2023 are not subject to the emissions standards.
    • But, laminated products manufactured/imported after Dec. 12, 2017 must be made from compliant composite wood cores.

Entities must maintain records to demonstrate manufactured-by dates.  EPA’s rule document contains a complete list of compliance date, but it is not particularly user-friendly:

EPA Chart

Clamshell compliance: California’s Rigid Plastic Packaging Container law

California remains on the forefront of sustainability and recycling requirements. A key restriction in California is the Rigid Plastic Packaging Container Law, which targets hard plastic product packaging (namely “clamshells”).  The law requires that product manufacturers reduce waste from covered packaging through several methods.

The California Department of Resources Recycling and Recovery, referred to as CalRecycle, administers the law and enforces its requirements. Non-compliance can subject a manufacturer to up to $100,000 in fines per year.

What the law covers

The law applies to packaging that is:

  • Made entirely of plastic (except for incidental portions of the packaging);
  • Inflexible in shape or form;
  • Capable of holding between eight ounces and five gallons of product;
  • Capable of at least one closure (i.e., being sealed shut during packaging).

These criteria exclude, for example, blister packs, plastic bags, plastic sleeves covering products (like an umbrella cover), and very small or very large product packaging.

The law also exempts specific types of products, including packaged hazardous material subject to US Department of Transportation Regulations, and foods, drugs, and cosmetics.

Who the law covers

The law applies to “product manufacturers,” defined as the company that “through its own action or through contract or control, is primarily responsible for causing a product to be produced…”  CalRecycle has issued regulations to clarify this definition, applying the following hierarchy for determining the manufacturer:

  • The brand holder;
  • The company with “control or influence over the design of the product”; and
  • The company with “primary control or influence over the design specifications” of the container.

Based on these criteria, it is likely that it many situations, the actual product manufacturer is not responsible for compliance – instead, it will fall to the private labeler (even if a manufacturer is supplying the same product to multiple private labelers).

How to comply

The law requires that manufacturers reduce waste from packaging through any of three methods:

  • Use of post-consumer recycled material in the packaging (at least 25% of the package);
  • Source reduction (reducing the size/amount of packaging by 10% over prior iterations of the same packaging); and
  • Packaging products in reusable containers (refillable at least five times).

Product manufacturers must be able to substantiate compliance with data on the packaging used. The regulations implementing the law provide detailed requirements for doing so.

The RPPC’s unusual enforcement approach

The law’s enforcement approach is highly unusual: CalRecycle annually audits randomly selected manufacturers, requiring them to certify compliance for the coming year. Here’s how the process works:

  • First, CalRecycle notifies a manufacturer that the law applies to it. After notification, the manufacturer must register with CalReycle within 90 days. Note that the law requires compliance whether a manufacturer has received this notification or has registered – but if a manufacturer has not received this notification and registered, it cannot be selected for a compliance audit.
  • Second, CalRecycle randomly selects several manufacturers from the pool of registered entities and provides notice that they may be required to certify compliance. CalRecycle sends these notices out one year in advance of the audit year (by January 31st of the preceding year).  Selected manufacturers are in the “Precertfication Phase,” and must acknowledge receipt of the the Precertification Notice within 90 days.
  • Third, from the pool of precertification manufacturers, CalRecycle selects the manufacturers it will audit. CalRecycle provides the lucky winners with notice of selection by March 31st of the year preceding the audit year.
  • Finally, audited manufacturers must certify compliance by April 1 of the year following the audit year. The regulations provided detailed information for calculating compliance for each of the compliance methods.

Timeline

While the phased nature of the certification process allows for time to come into compliance, a company failing to meet any deadlines, or ultimately being out of compliance, will be fined.  The maximum amount a company can be fined is $100,000 in a calendar year.  Companies have been fined tens of thousands of dollars for missing deadlines or failing to comply, and some have been fined multiple times.

Drone requirements continue to evolve

Back in 2015, the FAA promulgated various rules and regulations regarding the use of drones, which included a requirement to register all such aircraft. The FAA has subsequently finalized its rule for Small Unmanned Aircraft Systems, which took effect on August 29, 2016. The new rule offers safety regulations and limitations for unmanned drones weighing less than 55 pounds that conduct “non-hobbyist operations.”

This is particularly relevant because the past year has seen the rapid rise of unmanned aircraft, and various companies are experimenting with the use of drones in their commercial ventures.

This post provides a quick overview of the new rules and regulations relating to drones for commercial and recreational use. Keep an eye on this space for updates and further insight as FAA continues to implement the new rule.

Operational Requirements

The FAA’s final rule implements safety regulations for non-recreational use of unmanned aircraft weighing less than 55 pounds. Users who want to fly for commercial or other business uses must now comply with the following:

  • Weight limit of 55 pounds (inclusive of cargo)
  • Yield to other aircraft
  • Maximum limits on speed and altitude
  • Hazardous materials prohibited
  • Must remain within visual sight of the pilot – pilot cannot be mobile
  • No operation over individuals not directly participating in the flight
  • Only operated in daylight or twilight (if the drone has anti-collision lighting)
  • Flight may not cross state boundaries (with certain exceptions)

Pilot Certification

Drone operators must have a remote pilot airman certificate or be under the direct supervision of one who holds that certificate. To qualify for the certificate, a person must be at least 16 years old and pass a knowledge test and other training requirements.

FAA has issued a summary of the guidelines that is helpful.

Waiver Process

FAA also plans to implement a waiver process for some restrictions if the operator proves the proposed flight will be conducted safely under a waiver. The new FAA rule also allows drones to be legally used for commercial purposes without an approval process if the drones are operated by specified certified pilots in compliance with safety requirements. FAA expects to roll out a waiver and approval process in the coming months.

Drones for Recreational Use

The FAA’s new rule does not apply to drones flown as a hobby or for recreational purposes weighing between 0.55 and 55 pounds, so long as the drone is registered and flown in accordance with the Special Rule for Model Aircraft. Hobby or recreational drones weighing less than 0.55 pounds need not be registered. The FAA has interpreted “model aircraft” to exclude both commercial operations and flights “in furtherance of a business, or incidental to a person’s business.”

Congress expressly limits FAA’s authority over model aircraft so long as:

  • The aircraft is flown strictly for hobby or recreational use;
  • The aircraft is operated in accordance within specified safety guidelines;
  • The aircraft is no more than 55 pounds, unless otherwise certified;
  • When operated, the aircraft does not interfere with manned aircraft; and
  • When flown within 5 miles of an airport, prior notice is given to the airport operator and air control tower.

Second Circuit guts jury verdict with post-trial decertification

Given the low probability that a class action will go to trial and the high probability that a settlement favorable to plaintiffs and their attorneys will be reached after class certification, there is a consistent “race to certification” in many consumer class action matters. The plaintiffs’ bar frequently frames claims with an eye towards meeting Rule 23 requirements, with little regard to whether or not the evidence actually exists to prove the merits of the claims.

While many defendants are disheartened when a class is certified, a recent decision out of the Second Circuit reminds that certification is not the coup de gras of any defense, and plaintiffs are always at risk (even after trial), of losing this status.

In Mazzei v. The Money Store, plaintiff Joseph Mazzei brought claims against The Money Store (a loan servicer and mortgage lender), alleging breach of contract for the assessment of late fees after his defaulted loan was accelerated (i.e., the entire sum of principal and interest was due). Mazzei argued that “post-acceleration” late fees violated the terms of the mortgage loan.

Based on these claims, Mazzei sought and obtained certification of a national class of borrowers whose loans were either owned or serviced by The Money Store. He prevailed on his late fee claims at a jury trial, obtaining a class award of approximately $32 million plus prejudgment interest. However, after the jury verdict and before entry of final judgment, The Money Store successfully moved to decertify the class, on the grounds that Mazzei’s failure to prove privity of contract for absent class members failed to meet Rule 23 requirements of typicality and predominance. This ruling left Mazzei, although successful at trial, an award of only $133.80.

Unsurprisingly, Mazzei appealed the decertification, arguing that 1) decertification is unavailable after a jury trial, 2) decertification findings were incompatible with the Seventh Amendment, and 3) Rule 23 elements were satisfied. The Second Circuit ruled against Mazzei on all three grounds.

First, the Court found that decertification could be granted at any time prior to final judgment. The panel cited the “affirmative duty” of the district court to monitor its class decisions because the results of class proceedings are “binding on absent class members.” Rule 23, the Court held, not only authorized decertification after trial, but the process was “corollary” to the rule’s purpose.

The Court was also not persuaded that decertification after trial impugned any parties’ Seventh Amendment right to a jury trial. Mazzei was able to present his claims to the jury. And absent class members’ right to a jury trial was not impaired because they were still able to file individual claims, since the statute of limitations on any action was tolled up until decertification.

Finally, decertification was justified because the district court had the power to determine that the jury’s factual findings supporting certification were “seriously erroneous,” a “miscarriage of justice,” or “egregious.” The Second Circuit panel agreed with the district court’s assessment that Mazzei was not typical of class members whose loans were serviced (not owned) by The Money Store, and common issues did not predominate because fact-finders would have to look at every class member’s loan documents to determine whether there was privity of contract. Based on the lack of classwide evidence of privity of contract, Rule 23 was not satisfied.

The Court further refused to create subclasses of individuals whose loans were owned by The Money Store, and those whose loans were merely serviced by the company. There was no evidence in the record to enable the Court to determine what types of loans each of the class members had, making subclasses impossible to determine.

This decision is a powerful reminder that a class can be decertified at any stage in a litigation, enabling defendants to snatch victory from the jaws of defeat after a disfavorable jury verdict. Hopefully, plaintiffs will become more thoughtful about their cases, with the realization that making factual allegations to get past class certification will do them no good if they can’t back them up.

New PCI requirements for retailers

For retailers that accept credit or debit cards and use service providers, a new version of the PCI Data Security Standards (PCI DSS v3.2) will impose new requirements as of November 1, 2016.

The Payment Card Industry (PCI) Security Standards Council issued “clarifications” and “evolving requirements” in the new version. Clarifications are changes to ensure “that concise wording in the standard portrays the desired intent of the requirements.” Evolving requirements aim to “ensure that the standards are up to date with emerging threats and changes in the market.”  The Council also issued guidance as part of the new standards.

Altogether, there are 44 clarifications and 12 evolving requirements. Although every change can be  important, this post focuses on the 12 evolving requirements.

November 1, 2016 Compliance Date

  • Section 3: adopts a “minimum necessary” standard for Permanent Account Number (PAN) display. The display would usually be limited to only the last 4 digits of the PAN or, if a bank identification number is needed, only the first 6 digits of the PAN.
  • Section 8.3: requires multi-factor authentication for all access that is “individual non-console administrator access” and all remote access to the cardholder data environment. Note that the guidance specifies that multi-factor authorization is not required at both the system level and application level for any particular system component.
  • Section 8.3.2: requires multi-factor authentication for “all remote network access originating from outside the entity’s network [both user and administrator, and including third party access for support or maintenance].” Per the guidance, this requirement applies to any remote access “when that remote access could lead to access to the cardholder data environment.”  The guidance also recommends (but does not require) multi-factor authentication for all remote access to the entity’s network.

January 31, 2018 Compliance Date

While these new requirements have a long lead time, the new standards describe them as “best practices” until the compliance date.

  • Section 3.5.1: requires service providers to maintain a documented description of their cryptographic architecture. This documentation includes details of algorithms, protocols, and keys (key strength, expiry date, and usage). It also includes hardware security modules and secure cryptographic devices for key management. Service providers must maintain current documentation to help service providers detect missing keys and identify unauthenticated additions to the cryptographic architecture.
  • Section 6.4.6: mandates updated documentation, including network diagrams, system configurations, and vulnerability scanning for any new or changed systems and networks.
  • Section 8.3.1: requires multi-factor authentication for administrator non-console access into the cardholder data environment. Per the guidance, this requirement does not apply to application or system accounts performing automated functions.
  • Section 10.8: requires service providers to establish processes for timely detection and reporting of failures of critical security control systems, such as firewalls, anti-virus systems, physical access controls, and audit logging.
  • Section 10.8.1: requires service providers to respond in a timely fashion to failures of the critical security control systems.
  • Section 11.3.4.1: requires service providers that elect to use segmentation to test every six months and after changes to segmentation controls/methods. The tests are reviews of the twice-yearly (at least) penetration tests.
  • Section 12.4.1: requires service provider executive management to establish responsibility for protection of cardholder data and a PCI DSS compliance program, including a charter and communication to executive management.
  • Section 12.11: requires service providers to perform reviews (at least quarterly) to confirm that personnel are following security policies and operational procedures. These reviews must include:  (1) daily log reviews; (2) firewall rule-set reviews; (3) applying configuration standards to new systems; (4) responding to security alerts; and (5) change management processes.  Testing procedures include interviews of responsible personnel.
  • Section 12.11.1: requires service providers to document the quarterly review process in Section 12.11, including the results of the reviews and sign-off by the personnel assigned responsibility for the PCI DSS compliance program.

The mysterious world of green chemistry: Maine’s green chemistry law

Continuing our review of state green chemistry laws, Maine’s Safer Chemicals in Children’s Products Act primarily requires reporting the use of specified chemicals in certain children’s products based on risk and hazard criteria, although it may be used to restrict or ban use. Manufacturers of certain children’s products that contain specified chemicals must submit a one-time report to the Maine Department of Environmental Protection. The SCCP defines “manufacturers” as the domestic manufacturer or brand holder, and the importer or first domestic distributor if the manufacturer does not have a US presence.

Chemical Lists

The Department maintains three chemical lists based on risk and hazard criteria. The first list, “chemicals of concern,” includes approximately 1400 chemicals identified by other lists (such as those from EPA, the EU, and Proposition 65) as carcinogens, reproductive toxins, or endocrine disruptors. From this list, 49 chemicals make the second list, called “chemicals of high concern,” because they are found to be (1) present in human blood, breast milk, urine, or tissue; or (2) present in a home environment (e.g., in dust, indoor air, drinking water); or (3) added to or present in consumer products used in the home. Chemicals of high concern may then be placed on the third list, “priority chemicals,” based on factors such as pervasiveness of use, presence in the environment, and prohibition of use in other states.

Priority Chemicals

Priority chemicals are subject to reporting requirements and possibly other restrictions. The Department publishes these requirements in conjunction with adding a chemical to the priority chemicals list. Reports are required either for an intentionally-added priority chemical or the presence of a priority chemical above de minimis levels, defined as 100 parts per million. Please note that priority chemicals in a product above 100 ppm as the result of contamination do not require a report if the manufacturer has legitimate manufacturing control processes in place.

The current priority chemicals and requirements are:

  • Arsenic
  • Cadmium
  • Mercury

Manufacturers must report the presence of any of these chemicals above 100 parts per million in children’s accessories, bedding, childcare articles, clothing, cosmetics, costumes, craft supplies, footwear, games, jewelry, personal care products, safety seats, school supplies, and toys.

  • Bisphenol A

The sale of reusable food and beverage containers, baby food packaging, and infant formulate packaging made with BPA is prohibited.

Manufacturers must report the presence of BPA above 100 parts per million in toys, child care articles, and tableware.

  • Formaldehyde

Manufacturers must report the presence of any intentionally-added formaldehyde in children’s accessories, bedding, childcare articles, clothing, cosmetics, costumes, craft supplies, footwear, games, jewelry, personal care products, safety seats, school supplies, and toys.

  • Nonylphenol and Nonylphenol Ethoxylates

Manufacturers must report the present of NP/NPE above 100 ppm in household and commercial cleaning products, cosmetics, personal care products, and home maintenance products.

  • Phthalates

Manufactures must report the presence of any intentionally-added DEHP, DBP, DEP, or BBP in children’s clothing, footwear, craft supplies, cosmetics and personal care products, home cleaning products, furniture and furnishing, and accessories and jewelry, as well as building and home maintenance products with which children may have direct contact.

Reporting

If a report is required, manufacturers have 30 days after the product first becomes available for purchase in Maine to submit the report.

Report information includes:

  • Name and address of the manufacturer
  • Name, address, and phone number of a contact person for the manufacturer
  • A description of the product, including size of the product/component that contains the chemical
  • Whether it is mouthable (less than 5 cm)
  • Units sold/distributed in Maine
  • The amount of formaldehyde in the product
  • The function of formaldehyde in the product
  • Any other relevant information (e.g., exposure assessments of the product).

The Department has published guidance on reporting and chemical-specific reporting forms.

The Department also imposes an unspecified “reporting fee” intended to cover the cost of collecting and managing the information. There is little information about this fee, and the Department’s guidance suggests contacting Kerri Malinowski, kerri.malinowski@maine.gov, with any questions regarding the applicability and amount of the fee.

Enforcement

If the Department identifies an unreported product containing a priority chemical, it will first send a notification to the manufacturer. The manufacturer then has an opportunity to rebut the Department’s position. The manufacturer could, for example, identify the chemical as a contaminant and describe its manufacturing control processes.

No fines or penalties are specified in the statute or guidance, but the statute expressly prohibits the sale of products within the state if not reported. The Department’s public enforcement reports contain no enforcement actions to date. Although not specified, the Department could pursue penalties under Maine’s general enforcement provisions for environmental laws, which authorizes civil penalties of up to $10,000 per violation per day.

Update: FTC gets $13.4 million judgment against BlueHippo

 

Updating a prior post, on May 2, 2016, the Federal Trade Commission (FTC) announced its receipt of a $13.4 million judgment against the CEO of BlueHippo, after the Second Circuit overturned the district court’s determination that BlueHippo’s damages were limited to $600,000 in 2014.

BlueHippo marketed computers and electronics to consumers regardless of their credit history, using an installment payment method. If a consumer missed an installment payment, BlueHippo represented that consumers could convert installments already paid to credits, with which they could buy other products from BlueHippo’s online store. The catch is that allegedly, consumers’ use of the credits was significantly restricted and the credits could not be used to cover shipping and other similar fees.

As a result, the FTC charged BlueHippo with deception under Section 5 of the FTC Act, and the parties entered into a consent order to resolve the charge.

The FTC later alleged that BlueHippo violated the consent order by misrepresenting its consumer financing of the computers, its failure to disclose its store credit policy, and its conditioning sales upon mandatory pre-authorized electronic funds transfer from consumers. The FTC sought $14 million in damages, based upon the gross receipts of BlueHippo’s 55,892 customers.

The Second Circuit upheld the FTC’s $14 million claim in 2014, holding that the “FTC is entitled to a presumption of consumer reliance upon showing that (1) the defendant made material misrepresentations or omissions that ‘were of a kind usually relied upon by reasonable prudent persons’; (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products.”

The Second Circuit remanded the matter to the trial court, and in April of 2016, the trial court found that BlueHippo and its CEO were in contempt of the court’s order, entering a judgment against the CEO for $13.4 million.

Why not the full $14 million? Certain amounts were deducted from the total. Ultimately, the parties agreed on the amount BlueHippo paid in cash refunds, and the court convinced the FTC to agree with the defendant’s computation of state settlement payments. The court also dismissed as “speculative” the defendant’s claim for discovery that there were some states in which no consumers were charged fees.

That last point is an important one. The FTC’s presumption of consumer harm not only resulted in the original $14 million court order, but also formed the basis of the $13.4 million contempt order as well as the denial of discovery on whether consumers were charged fees.

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