What to expect from CPSC (at least for a little while)

Today at the International Consumer Product Health & Safety Organization annual meeting, U.S. Consumer Product Safety Commission Acting Chairman Bob Adler delivered the keynote address. Adler provided some insight into his priorities for the Commission for the foreseeable future, recognizing that he is currently the Acting Chairman and a Democrat—with the presidential election coming in November, it is unclear how much longer he will be in this role. Overall, he intends to focus on providing stability to the Commission for however long he is the Acting Chairman. Beyond this,  here is a rundown of his comments and his specific priorities, with his statement on increased use of civil penalties and unilateral safety warnings topping the list of worrisome developments:

  • Increased use of unilateral safety warnings: in an effort to more quickly communicate CPSC’s belief that a product is dangerous, he has instructed staff to more readily issue unilateral safety warnings when a company will not agree to take corrective action (for context, CPSC has already issued three safety warnings this year after having rarely used this communications tool for many years).
  • Increased use of civil penalties: after what looks like a dramatic decline in the use of civil penalties since 2017 (especially for Section 15(b) failure to report), Adler has directed CPSC staff to make sure it uses every tool at its disposal to promote public safety, which includes civil penalties. He echoed his own prior statements and those of former Chairman Elliott Kaye that Congress’s increase of civil penalty thresholds in 2008’s Consumer Product Safety Improvement Act was a clear message to CPSC to increase the use of this tool.
  • Section 6(b) frustration: He expressed his continued displeasure with Section 6(b) of the Consumer Product Safety Act, which sets forth a procedure CPSC must follow before releasing product/manufacturer-specific information to the public. Adler said that no other comparable regulatory agency is forced to get manufacturer consent prior to releasing specific safety information, and the “endless and frivolous objections” delay the dissemination of product safety information to the public.
  • New mandatory standards: addressing a product safety issue that CPSC has focused on over the years, Adler stated that writing of a mandatory standard addressing furniture tip-over is “well underway.” Beyond this CPSC priority, Adler noted that the Commission will continue progress on standards for crib bumpers, inclined sleepers, and other children’s products.
  • Creation of Consumer Ombudsman position: acknowledging that consumer access to CPSC is paramount, Adler announced the creation of this role, tasked with creating a central place for consumers to contact and interact with the Commission.
  • Increased inclusion of all stakeholder groups in the creation of voluntary standards: Adler expressed admiration for the effectiveness and seriousness of voluntary standards organizations (e.g., ANSI, ASTM), but still noted disappointment that voluntary standards do not always reflect the consensus of all stakeholders. He advocated for greater inclusion of consumers, NGOs, and small businesses.  

Class actions against CBD companies proliferate under federal and state law

On the heels of FDA sending out a tranche of warning letters to sellers of cannabidiol (CBD) products, enterprising plaintiffs lawyers have filed a spate of consumer class actions over these types of products. The complaints put forth a number of different theories tied to the current illegality of these products due to FDA regulation. These include allegations that companies:

  • misled consumers by marketing their products as dietary supplements,
  • inaccurately listed CBD dosages or product content; and
  • made unsubstantiated claims about CBD’s ability to treat, prevent, or cure human disease.

Is it worth the risk?

Hemp-derived CBD was legalized in 2018 under the Agriculture Improvement Act of 2018, or Farm Bill. However, according to the federal Food, Drug & Cosmetic Act and FDA regulations and guidance, CBD products cannot be marketed as food additives, dietary supplements, or for therapeutic uses and treatment of diseases.

Plaintiffs filed two[2] of these lawsuits in California, with one involving a company that received an FDA warning letter. These California suits allege violations of the California Unfair Competition Law, California False Advertising Law, California Consumer Legal Remedies Act, breach of express and implied warranties, and the state’s Declaratory Judgment Act. Plaintiffs claim damages in excess of $5 million.

Other cases were filed in Colorado, Florida, Illinois, and Massachusetts. These  jurisdictions are among the few that have legalized Marijuana-sourced CBD for both medical and recreational uses, with the exception that Marijuana-sourced CBD remains illegal in Florida for recreational uses. Plaintiffs seek damages comparable to those in the California suits.

As these cases are all in the early stages, we do not have a sense of likelihood of success, or the magnitude of any potential settlements.

Can regulation mellow it out?

FDA’s inaction in implementing clear regulations for the production, labeling, testing, and sale of CBD products has facilitated a largely unregulated marketplace that is ripe for consumer class actions. Product testing and sampling protocols are not uniform across the country, and scientific data supporting the safety and efficacy of these products is under-developed. This uncertainty across the country leaves manufacturers and sellers open to the types of consumer protection claims we see in these cases.

To bring order to the chaos, federal statutory revisions or regulations could be imminent. In January 2020, a bipartisan group of representatives introduced H.R. 5587, a bill that would provide the FDA the authority to regulate CBD as a dietary supplement and food additive, and would require a study and report from the U.S. Department of Agriculture.

One court has even shelved a class action pending FDA regulation. In Snyder v. Green Roads of Florida LLC, 2020 WL 42239 (S.D. Fla. Jan. 3, 2020), a suit alleging the company misrepresented the amount of CBD in its products, the Florida district court held that the public interest in the litigation justified a stay in the case. The judge explained that the regulations currently in place provide little guidance with respect to CBD labeling requirements, but “the FDA rulemaking process is ongoing, [and] the FDA is under considerable pressure from Congress and industry to expedite the publication of regulations and policy guidance regarding CBD products.”

And, just last week, a California defendant in a CBD class action filed a motion to dismiss on the grounds that the plaintiffs’  claims are preempted by federal law. In its motion, the defendant asked the court in the alternative to stay the case since the FDA is actively considering how to regulate the CBD marketplace.

Unless and until the regulatory status of CBD as a therapy or dietary supplement is settled, everyone in the CBD-infused product business is at risk of a run in with a consumer class action as well as FDA enforcement.

The mysterious world of Prop 65 reloaded, part 5: the notice

Editor’s Note: Since our original post, there have been two significant changes:

  • In 2017, the California Legislature amended the certificate of merit requirements. The amendments require the Attorney General to notify a private enforcer and the alleged violator if the AG finds no merit to an action.  The amendments also make the basis for the certificate of merit discoverable in litigation (to the extent not otherwise privileged).
  • The 2016 revised warning regulation created the “five business day exemption” for retailers. The five business day period is triggered by “actual knowledge,” which presumably is established by the 60-day notice, as discussed in more detail below.

The infamous “60-day Notice” is the smoke before the Prop 65 fire. A 60-day Notice is often followed by a settlement demand, and then a complaint if you don’t settle the claims within the notice period.

The 60-day notice

Prop 65 authorizes public and private enforcement. Public enforcement is straightforward–the California Attorney general, any district attorney, and any city attorney of a city with 750,000 residents may bring a suit.

Private enforcement is where it gets complicated. Any person can bring a Prop 65 claim “in the public interest” if:

  • The private enforcer files the complaint more than 60 days after she has given notice of the alleged violation…to the Attorney General and the district attorney, city attorney, or prosecutor in whose jurisdiction the violation is alleged to have occurred, and to the alleged violator.
  • After giving notice, none of the public enforcers has commenced and is diligently prosecuting an action.

In the Final Statement of Reasons for the 60-day Notice regulation, OEHHA explains that the notice requirement serves to not only

enable[e] law enforcement officials to investigate a notice, but [also]…[to define] the scope of the private person’s right to sue under the statute.  A 60-day Notice provides an opportunity for public enforcers to decide whether they should pursue the action in lieu of private enforcement. It also provides the alleged violator an opportunity to cure the violation, at least cutting off continuing penalties. Finally, it operates as a limitation on a private plaintiff’s right to bring claims on behalf of the public. Without the notice provisions, private plaintiffs could have open-ended enforcement authority.

Notice contents

A 60-day Notice must contain certain information to be valid:

  • Copy of the Proposition 65 statute
  • Description of the violation
  • Identification of the private enforcer
  • Time period of the violation
  • Listed chemicals involved
  • Route of exposure (inhalation, ingestion, dermal contract)

A 60-day Notice is not required to provide the exact location or time or date of purchase, the alleged level of exposure, or the UPC/SKU, model, or style number of the product purchased. Because the regulation requires little specificity, plaintiffs often send a 60-day Notice identifying a single product within a larger category of products. Then they seek discovery into all of a company’s products within that category, without purchasing any of the products or otherwise having a basis for alleging violations.

Certificate of merit

Proposition 65 also requires that the copy of the 60-day Notice provided to the Attorney General contain a “certificate of merit.”  The enforcer must certify that she “has consulted with one or more persons with relevant and appropriate experience or expertise who has reviewed facts, studies, or other data regarding the exposure to the listed chemical that is the subject of the action, and that, based on that information, the person executing the certificate believes there is a reasonable and meritorious case for the private action.”  The factual information relied upon as the basis for the certificate of merit must also be attached. The certificate of merit requirement is one of several modest Prop 65 reforms the Legislature enacted in 2001 to curtail abuses by private enforcers. Ideally, the certificate requirement mandates that a private plaintiff obtain facts supporting a violation and consult with an expert on exposure. However, many plaintiffs push the envelope, and the Attorney General is required to notify a private enforcer and the alleged violatore when a 60-day Notice lacks merit.

The basis of the certificate of merit is discoverable in litigation (prior to 2017, it was not), subject to any objections a private enforcer could make about relevance or privilege. Defendants have a prima facie right to seek discovery of the factual basis for the certificate. The burden then shifts to the private enforcer to justify any privilege or work product objections, as is the case with any other assertion of privilege. If a defendant challenges the merit of a claim, and a judge finds the case frivolous because there “was no credible factual basis for the certifier’s belief that an exposure to a listed chemical has occurred or was threatened,” the defendant may be able to obtain attorney’s fees.

Time to act

If you receive a 60-day Notice, don’t ignore it. The notice starts the clock ticking on enforcement, and taking action early can lessen the costs, expense, and burden of resolving Prop 65 claims. If a claim really seems bogus, the notice period also provides an opportunity to consult with the Attorney General and head off claims before they become full blown litigation. For retailers that meet the conditions of the five business day exemption, in the absence of other exposure information, the 60-day Notice almost certainly constitutes actual knowledge for any products specifically identified in the notice.

California selects nail products containing MMA for Priority Product list

California’s Department of Toxic Substances Control (DTSC) has proposed listing nail products containing methyl methacrylate (MMA) as its latest Priority Product under its Safer Consumer Products regulation.

DTSC has gone after nail products before–nail products with toluene are already a proposed Priority Product awaiting adoption by the California Legislature.  

If the newest proposal is adopted, responsible parties will need to remove impacted products from sale in California or undertake an alternatives analysis in order to continue selling in California.

The California Safer Products Regulation

As a refresher, the Safer Consumer Products regulation restricts the use of certain chemicals when used in specified products, based on various human health and the environmental risk factors. These product-chemical combinations are called “Priority Products.”

When DTSC finalizes a Priority Product, manufacturers, distributors, and retailers must either conduct an alternatives analysis of the chemical, or remove the product from sale in California. The alternatives analysis can lead to identification of a safer alternative, or determine that there is no safer alternative–at which point DTSC can impose restrictions on use.

What is methyl methacrylate?

MMA is a volatile monomer used in a number of nail products. According to DTSC, MMA can be released from these products into air and can be inhaled. Dermal and oral exposure to MMA from nail products can also occur, either directly from the product or as a residue/contaminant in polymers made using MMA (e.g., acrylic nails). MMA is not noted as a carcinogen or reproductive toxin a la Proposition 65, but it can be a skin and respiratory irritant.

DTSC also notes that MMA has been detected in retail nail products for home use as well as in indoor air in nail salons. The Food and Drug Administration undertook a campaign to remove nail products containing 100 percent MMA from the market in the 1970s (via court proceedings—there is no formal FDA regulation on MMA). In 2014, California’s Board of Barbering and Cosmetology prohibited the use of MMA-containing nail products in licensed hair and nail salons and cosmetology schools.

Despite these significant historical restrictions on MMA, DTSC stated that “MMA continues to be detected in indoor air in nail salons. MMA exposure has been linked to adverse health effects including dermal toxicity and respiratory tract effects.”

Next Steps

DTSC has released a draft technical report that discusses the scientific basis for listing nail products containing MMA. A public workshop will be held on February 24, 2020.

This proposal is only the beginning of the process. Assuming DTSC adopts this as a Priority Product, it then has to go through the rule making process to be an official regulation. This could take 12 months, and likely more.

California modifies Prop 65 warning regulations

The California Office of Environmental Health Hazard Assessment (OEHHA) has adopted amendments to its 2016 Proposition 65 warning regulations. These amendments address issues that arose regarding how manufacturers and distributors communicate with retailers and other downstream businesses about the need to provide warnings. The amendments also revise the definition of the “actual knowledge” that creates a duty to warn for retailers in certain circumstances under the warning regulations. The changes become effective on April 1, 2o20.

The 2016 amended warning regulation

In August 2016, OEHHA adopted a regulatory package that made sweeping changes to Prop 65’s warnings regulations (mandatory for products manufactured after August 30, 2018). One portion of the amendments allocated responsibility for providing warnings among retailers on the one hand, and manufacturers, importers, and distributors on the other hand. Upstream suppliers could now meet their warning obligation “either by affixing a label to the product bearing a warning…, or by providing a written notice directly to the authorized agent for a retail seller.” 

Under the 2016 changes, retailers are responsible for providing warnings when their suppliers send them warnings to be used for the supplier’s products, or under other limited circumstances. One such circumstance is if no upstream supplier could be held responsible in court because the suppliers were all exempt from Proposition 65 or not subject to jurisdiction in California. In that circumstance, retailers are deemed responsible for providing warnings five business days after they received “actual knowledge” of an exposure requiring a warning.

Practical difficulties

Once in effect, practical difficulties with the regulations became apparent. In particular, the complexity of supply chains led to concerns about requiring manufacturers, importers, or distributors to provide warning materials to retailers with whom they did not directly supply their products. Industry also raised questions about what the “actual knowledge” standard meant for retailers with exempt or offshore suppliers.

Changes

The recent amendments were directed to these two issues. OEHHA modified the requirements relating to providing notices to downstream customers (and ultimately to retailers) and modified the definition of the “actual knowledge” sufficient to impose a duty on a retailer to provide a warning for exempt/offshore suppliers:

​The revised notification requirements

In recognition of the complexity of product supply chains, OEHHA revised the regulation to allow companies to communicate with their direct customers, instead of requiring them to provide warning materials all the way to the ultimate retailer. Now, an upstream supplier may comply with Prop 65 by providing notice only to the business to which it is selling the product, or to the retailer, so long as that business is not exempt from Prop 65.

OEHHA also responded to concerns that many businesses had not identified “authorized agents” for receiving Prop 65 communications, and the ensuing confusion about how to address communications. Under the amended regulation, if a business has not designated an authorized agent, the supplier may serve the notice on the business’s legal agent for service of process.

We do not expect the amendments to change much in actual practice, as many upstream suppliers remain unable to provide warning notices to all of their downstream customers. However, the amendment makes clear that providing a notice to direct customers will comply with the regulation in most circumstances.

​The revised definition of “actual knowledge”

The original definition of ”actual knowledge” was “specific knowledge of the consumer product exposure received by the retail seller from any reliable source.” While this was intended to mirror the level of specificity required in 60-day notices, OEHHA recognized that further definition was required, and the amended regulation now provides:

‘Actual knowledge’ means the retail seller receives information from any reliable source that allows it to identify the specific product or products that cause the consumer product exposure.

OEHHA noted in its Final Statement of Reasons that “these modifications reflect OEHHA’s intent that the primary responsibility for providing warnings is not on the retailer who likely will have no knowledge at all that a warning is required for a given exposures.” It stated its intent that the new language “remains consistent with the level of specificity required in [60-day] notices, . . . [which] must be of ‘sufficient specificity to inform the recipients of the nature of the items allegedly sold in violation of the law and to distinguish those products or services from others sold or offered by the alleged violator for which no violation is alleged.’”

The original regulation also did not define how a retailer could obtain actual knowledge. As OEHHA said in the Initial Statement of Reasons for the amendments, “as written, the regulation could be interpreted to mean that a retail seller will have ‘actual knowledge’ of an exposure from information provided to any employee in the organization from any reliable source, including lower-level employees who could not reasonably be expected to evaluate the information and take action on behalf of the retail seller.”

In the amended regulation, actual knowledge is limited to information received by the retailer’s “authorized agent or a person whose knowledge can be imputed to the’ retailer.” According to the Initial Statement of Reasons, such an person is “an employee in a position of sufficient responsibility that his or her knowledge can be imputed” and the amendment was intended to “clarify OEHHA’s intent to incorporate existing case law and legal principles under which knowledge gained by an agent or employee with a legal relationship may be attributed to the business.”

New York follows Illinois with new lead-content warning requirement for children’s jewelry

In the final week of 2019, New York governor Andrew Cuomo signed into law Assembly Bill A6041 (S4046) to regulate children’s jewelry that contains specified levels of lead. The new law, which will take effect January 1, 2021 (without a “manufactured by” or sell-through date), prohibits the offer for sale or sale in the state of children’s jewelry with lead content greater than 0.004% (40 parts per million [ppm]) but less than 0.01% (100 ppm)* unless it contains a label with the warning language listed below

The bill’s text argues that “stringent controls on the amount of lead in jewelry are necessary to protect public health, especially the health of children.” And, according to the bill’s text, “random samples of jewelry in New York state have been found to contain up to 60,000 ppm of lead,” or 100 times the federal standard.

How to comply with the law

The law applies only to accessible component parts of jewelry for children under 12 years of age.

The warning label can either be placed on the jewelry itself or on its immediate packaging, and must, at a minimum, contain the following language:

WARNING: CONTAINS LEAD. MAY BE HARMFUL IF EATEN OR CHEWED. COMPLIES WITH FEDERAL STANDARDS

According to the definitions in the new law, jewelry means any of the following ornaments worn by a person:

  • An ankle bracelet, arm cuff, bracelet, brooch, chain, crown, cuff link, hair accessory, earring, necklace, decorative pin, ring, body piercing jewelry, jewelry placed in the mouth for display or ornament
  • A charm, bead, chain, link, pendant, or other component in point 1 above
  • A charm, bead, chain, link, pendant, or other attachment to shoes or clothing that can be removed and may be used as a component of an ornament in point 1 above
  • A watch in which a timepiece is a component of an ornament in point 1 above, excluding the timepiece itself if the timepiece can be removed from the ornament

Violations of any of the law’s provisions will result in a civil penalty of up to $500 for the first violation and up to $2,500 for any subsequent violation.

Isn’t this the Illinois Lead Poisoning Prevention Act?

The requirements of the New York law may sound familiar to many of you, as it effectively is the same as the Illinois Lead Poisoning Prevention Act, which has been in effect in Illinois for nearly ten years. It remains to be seen whether New York will aggressively enforce this law—we are aware of virtually no enforcement of its Illinois counterpart, whether because Illinois has not prioritized it or because with the lead certification standards under CPSIA, there is very little lead-containing children’s jewelry left in the market. And of course, there remains a very significant question as to whether these children’s jewelry warning laws are subject to federal preemption, although to date, we are not aware of anyone challenging the Illinois statute.

*The bill technically states the warning is required for children’s jewelry with lead content up to 600 ppm, but children’s jewelry containing more than 100 ppm lead would violate the federal Consumer Product Safety Improvement Act (CPSIA)).

Braille on gift cards: ADA accessibility issue or novel shakedown?

As retailers and restaurants are well aware, the proliferation of website accessibility claims filed by serial plaintiffs’ counsel is not slowing down. But now a new wave of lawsuits—Braille on gift cards—is flooding the New York federal courts.

Recent cases

Starting in October 2019, a handful of plaintiff’s counsel have filed more than 200 putative class action lawsuits on behalf of visually impaired plaintiffs in the Southern and Eastern Districts of New York against retailers and restaurants based upon their failure to sell gift cards with Braille. These lawsuits allege that blind or visually-impaired consumers are deterred from visiting retailers and restaurants because they are unable to purchase or use a gift card to purchase goods or services. Plaintiffs claim that they cannot fully and equally use and enjoy the facilities, goods, and services that are afforded to the general public. Plaintiffs allege claims for violations of the ADA, the New York State Human Rights Law, and the New York City Human Rights Law.

Novel claims

These lawsuits raise the novel claim that a means of payment offered at a retail store must be equally accessible to vision-impaired individuals. Complaints allege that to blind patrons, store gift cards are indistinguishable from credit cards and other store gift cards. The failure to include Braille requires the vision-impaired user to rely upon a sighted person to purchase a gift card and utilize it.

Are gift cards “public accommodations?”

The ADA prohibits discrimination “on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation.” 42 U.S.C. § 12182(a). The ADA requires public accommodations to provide at no additional cost “auxiliary aids and services where necessary to ensure effective communication with individuals with disabilities,” unless the public accommodation “can demonstrate that taking those steps would fundamentally alter the nature of the goods, services, facilities, privileges, advantages, or accommodations being offered or would result in an undue burden, i.e., significant difficulty or expense.” 42 U.S.C. § 12182(b)(2)(A)(iii); 28 C.F.R. § 36.303(a).

There would appear to be serious obstacles to imposing liability under the ADA for the failure to sell gift cards with Braille. It is unclear how a gift card is itself a place of public accommodation; a gift card is simply a method of payment. To the extent that the complaints include claims that the retailers are selling gift cards without Braille for use in their stores, again, it is unclear how that fact establishes liability under the ADA, when the good itself is simply a means of payment, equivalent to cash and credit cards, neither of which have been held to be subject to the ADA; nor are these other forms of payment typically marked in Braille. The ADA requires that vision-impaired customers have equal access to a place of public accommodation; no court has said that all customers must be able to use all goods or services sold to the public.

While we do expect retailers to vigorously challenge these claims, certainty in the form of published appellate decisions may take some time. For the foreseeable future, retailers should be prepared to respond to these claims, as it may be that they comprise the next generation of ADA shakedowns.

 

FDA clarifies position on CBD, cracks down on 15 online stores

The U.S. Food and Drug Administration issued a revised consumer alert on Cannabidiol (CBD), warning that the agency is aware that some companies are marketing CBD products in ways that violate the federal Food, Drug and Cosmetic Act (FD&C Act), and that may put the health and safety of consumers at risk. The FDA also sent a new round of warning letters to 15 companies in an effort to crack down on illegal selling practices.

The CBD industry is one of the fastest growing markets in the US. CBD-infused ointments, gummy bears, beauty creams, baby oil, dog treats—you name it, they have it—have been widely adopted by many mainstream retailers as the stigma surrounding the cannabis industry fades.

CBD, a chemical component of the Cannabis sativa plant, is believed to not cause the intoxication or “high” that comes from tetrahydrocannabinol (THC). Hemp is a strain of the Cannabis sativa plant that is grown specifically for the industrial uses of its derived products and, in contrast to marijuana, is known for its low concentrations of THC.

Congress appeared to give hemp-derived CBD sales a green light for the first time in December 2018, when President Trump signed theAgriculture Improvement Act of 2018, known as the Farm Bill, into law. This legislation granted general retail stores the right to sell hemp-derived CBD products by removing “hemp”—defined as cannabis and cannabis derivatives with very low concentrations of THC (no more than 0.3% on a dry weight basis)—from the definition of marijuana in the Controlled Substances Act.

Marijuana-derived CBD remains classified as a controlled substance.

Are CBD products now legal to sell in the US?

Under current FDA guidance, CBD may only be marketed in FDA-approved drugs.

Despite the Farm Bill, it is illegal under the FD&C Act to market CBD as intended for therapeutic uses (the treatment or prevention of disease) in humans or animals.

CBD products are also excluded from the dietary supplement definition under the FD&C Act because purified CBD is the active ingredient in an FDA-approved prescription drug to treat two rare forms of epilepsy.

Following the passage of the Farm Bill at the end of 2018, then FDA Commissioner Scott Gottlieb stated:

[I]t’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements….

The companies recently targeted by FDA’s warning letters use online stores and social media to affirmatively market CBD as effective for treating serious diseases such as cancers, or for other therapeutic uses such as pain relief. Others marketed CBD products as dietary supplements and added CBD to human and animal foods. Combined with warning letters FDA has issued periodically throughout 2019, it appears FDA is focusing on CBD products making affirmative efficacy claims. Whether due to limited resources or less concern, FDA has not yet targeted products containing CBD that do not claim to treat maladies or provide pain relief.

It is clear that the FDA’s stance and enforcement efforts have had little effect on the growing popularity of these products. Enthusiasts avow CBD’s effectiveness as a remedy for insomnia, stress, anxiety, aches and pains, and other ailments—all claims that are unquestionably illegal according to the FDA.

The FDA plans to provide an update on its progress regarding the agency’s approach to CBD products in the imminent future. Lowell Schiller, FDA’s Principal Associate Commissioner for Policy, stated that

The CBD working group is evaluating all the data available to us, including data we received through the public hearing and the public docket, and evaluating our policy options. We’re asking not just ‘What should we do?’ but also ‘What can we do within our existing authorities and resources?’ And if we conclude that we need additional authorities or resources, we’ll need to think about going back to Congress.

Lurking danger ahead

Beyond FDA compliance issues, consumer class actions based on the alleged illegality of CBD products are proliferating. A number of cases have been recently been filed, claiming that sellers misled consumers when marketing CBD products as dietary supplements despite FDA’s position. This crop of class actions is still developing, and we will be tracking outcomes and trends.

Furniture tip-over remains in flux

A brief internet search shows that unambiguously, industry, regulators, and NGOs all agree that furniture tip-over is a priority in the consumer markets sector. However, there is little agreement on the best approach. Over the last year alone, we have seen the U.S. Consumer Product Commission announce that the Commission deems “clothing storage units” that do not meet ASTM F2057-17 as posing a “substantial product hazard” (presumably requiring a Section 15(b) report and perhaps recall). ASTM F2057-17 requires tip-over testing and permanent warning labels for any clothing storage unit over 30 inches in height. CPSC announced this arguably backdoor rulemaking despite initiating rulemaking at the end of 2017 to address tip-over. The public comment period for the proposed rule closed in mid-2018, but there has been no apparent action.

Shortly after CPSC’s announcement, the House of Representatives passed H.R. 2211, the STURDY Act (Stop Tip-overs of Unstable, Risky Dressers on Youth Act). Putting aside the acrobatics required to make that acronym, the STURDY Act would require the CPSC to promulgate a mandatory consumer product safety standard for “clothing storage units” to include testing to simulate real world use of products of any height by children up to 60 pounds, and establish uniform, permanent warning requirements. That legislation has been idling in the Senate Committee on Commerce, Science, and Transportation since September.

To further complicate matters, ASTM recently revised ASTM F2057 to expand its scope. ASTM F2057-19 now applies to clothing storage units 27 inches in height and higher. The revised standard states that it is “intended to reduce injuries and deaths of children associated with tipover of free-standing clothing storage units, including but not limited to chests, chests of drawers, drawer chests, armoires, wardrobes, bureaus, door chests and dresses, 27 in. (686 mm) and above in height.” ASTM F2057-19 does not cover bookcases or entertainment furniture, office furniture, laundry room storage, under-bed storage, dining room furniture, occasional accent furniture, nightstands, built-in units intended to be permanently attached to the building, or clothing storage chests that are already subject to ASTM F2589. The revised standard also adds new labeling requirements for media chests and for clothing storage units not intended to hold a television.

The impact of the revised standard is murky. Under normal circumstances, we would expect CPSC to consider ASTM F2057-19 as the applicable voluntary standard for any clothing storage unit manufactured more than 180 days after ASTM’s publication of the revised standard. But CPSC’s “substantial product hazard” announcement is tied to ASTM F2057-17, and CPSC has not issued any guidance clarifying this. We also have not seen a recall or enforcement trend that would help clarify the situation (as compared to similar CPSC “substantial product hazard” announcements, such as drawstrings and hoverboards). There have only been a handful of furniture tip-over recalls announced in 2019.

Unless and until somebody, anybody, clarifies the situation, we think it’s a safe bet that CPSC would consider ASTM F2057-17 to be the minimum required standard, but would not be surprised if in a reporting/recall situation, CPSC argued that inventory failing to meeting the revised 2019 standard constituted a substantial product hazard.

The mysterious world of Prop 65 reloaded, part 4: the penalties

Editor’s Note: Not much has changed since our original post regarding civil penalties. Unfortunately, Prop 65 enforcers are still out attempting to collect vast amounts of civil penalties (and attorney’s fees) in private enforcement actions.

The obvious concern for many companies facing potential exposure for a Prop 65 violation is what is this going to cost me? The short answer: a lot. The potential for high civil penalties is daunting to many companies, a fact of which private litigants are well aware and bank on to incentivize quick settlements.

Penalty amount

Prop 65 authorizes monetary penalties of up to $2,500 “per day for each violation …” In determining how much to assess for each violation, a trial court considers:

  • the nature and extent of the violation;
  • the number of, and severity of, the violations;
  • the economic effect of the penalty on the violator;
  • whether the violator took good faith measures to comply with this chapter and the time these measures were taken;
  • the willfulness of the violator’s misconduct;
  • the deterrent effect that the imposition of the penalty would have on both the violator and the regulated community as a whole; and
  • any other factor that justice may require.

The sliding scale of the penalty amount generally means that any violators who act quickly to remedy problems and are perceived as cooperating are unlikely to be on the hook for the full $2,500 per violation, which is reserved for actors that willfully disregard warning requirements. However, the multiple factors give courts considerable leeway in determining the amount of penalties.

Violation, defined (or not)

What is a violation? Surprisingly, neither the statute nor the regulations define a violation for the purposes of penalties, leaving the question somewhat ambiguous. Courts generally interpret one “violation” for each product unit that does not contain an adequate warning, although there is no controlling or definitive opinion on the subject. As you can well imagine, the amount of penalties can add up very quickly for even small inventories.

As we will discuss more in a future post about the parties that bring these lawsuits, private litigants can receive 25% of any civil penalties collected (not to mention attorneys’ fees), providing a large incentive for them to maximize the number of violations alleged and the amount of penalties assessed per violation.

Applicable statute of limitations

Penalties for Prop 65 violations are governed by California’s one year statute of limitations for statutory penalty actions, Code of Civil Proc. § 340. Plaintiffs will often argue that violations accrue for any units sold without warnings going back one year prior to the date of the Prop 65 60-day notice or the date of the complaint.

Lack of insurance coverage

One of the nasty little side notes for penalties is that insurance policies will usually not cover them, leaving the company to pay the penalties completely out of pocket.

Coverage claims brought under standard form commercial general liability (CGL) insurance policies, which typically cover claims arising from bodily or personal injury, will usually be denied by insurers who argue there is no coverage because Prop 65 claims almost never allege bodily injury.

Many policies will also not cover civil penalty actions based on the implication that the business has violated the law when civil penalties are sought.

Of course, an analysis should be made of existing insurance policies to determine whether coverage exists because there could be exceptions. For example, directors’ and officers’ (D&O) policies, which frequently provide coverage for a company’s own wrongful acts, could have provisions broad enough to encompass a failure to warn.

The bottom line, however, is that standard insurance policies will typically exclude coverage for civil penalties.

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