Fruit Juice MDL Court Dismisses Claims

The Massachusetts federal court overseeing multidistrict litigation against 11 beverage companies, including Coca-Cola Co. and Del Monte Corp., alleging that their fruit juices contained trace amounts of lead, dismissed the claims last week.  In re Fruit Juice Products Marketing and Sales Practices Litigation, No. 11-2231 (D. Mass., 12/21/11).

Plaintiffs alleged that the defendants misled them into believing that certain of their products were safe, whereas the products in fact contained lead and posed a health risk, especially to children.  The issue had caught the attention of the FDA, which concluded that while several of the products contained trace amounts of lead, in each case the level found would not pose an unacceptable risk to health.  (The FDA’s conclusion was based in part on a guidance report it issued in 2004. The agency concluded that many food products contain small amounts of lead because the substance is in the environment naturally and also released through many human activities.)

The majority of plaintiffs’ claims were for violations of the consumer protection laws of states in which defendants maintained their principal places of business. Plaintiffs also brought claims under the consumer protection laws of all states in which potential class members purchased the  products. Finally, the plaintiffs alleged breach of the implied warranties of merchantability and fitness for a particular purpose and for unjust enrichment.

Defendants moved to dismiss on several grounds, but the foundational argument that plaintiffs lacked standing was fatal to all of plaintiffs’ claims, and was in the eyes of the court so compelling that it was unnecessary for the court to reach the numerous satellite theories that defendants offered.

To establish Article III standing, a plaintiff must first demonstrate that he has suffered an injury in fact.  Whitmore v. Arkansas, 459 U.S. 149, 155 (1990). The injury must be concrete and the alleged harm actual or imminent, and not conjectural or hypothetical. Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983). If a plaintiff fails to allege sufficient facts to satisfy this requirement, the case must be dismissed.

In this case, plaintiffs did not allege a sufficient injury in fact. Plaintiffs offered two potential theories of injury in fact. First, they alleged that the lead in defendants’ products posed a health risk and that, by consuming these products, they placed themselves and their children at risk of future harm from lead poisoning. Second, plaintiffs alleged that they suffered economic injury when they purchased products that defendants advertised as safe, but that in fact contained allegedly dangerous amounts of lead. Both theories, according to the court, ran into the same problem -- plaintiffs
failed to allege any actual injury caused by their purchase and consumption of the products.

The claim of exposure to “potential adverse health effects” or “potential harm” was insufficient for Article III standing. A threatened future injury must be “certainly impending” to grant Article III
standing.  In product liability cases, courts have held that to establish standing based on a threat of future harm, plaintiffs must plead a credible, substantial threat to their health.  E.g., Herrington v. Johnson & Johnson Consumer Cos., Inc., 2010 WL 3448531, at *3 (N.D. Cal. Sept. 1, 2010); see also Public Citizen, Inc. v. Nat’l Highway Traffic Safety Admin., 489 F.3d 1279, 1293-96 (D.C. Cir. 2007); Sutton v. St. Jude Medical S.C., Inc.,419 F.3d 568, 570-75 (6th Cir. 2005).  But the complaint here contained no allegations that either plaintiffs or anyone else ever suffered any type of injury from consuming the products. The products were not recalled, and in fact, the FDA found that at least some of the specific products did NOT pose an unacceptable risk to human health.

Plaintiffs made no allegations as to the amount of lead actually in these products, did not claim that any particular amount in the products is dangerous, and did not allege that any specific amount had caused actual injuries to any plaintiff. The court also stressed that plaintiff did not allege that the levels of lead in the products violated any FDA standards. Under these circumstances, the allegations of risk of future harm to class members were insufficient to meet the “credible or substantial threat” standard. The claim of potential future injury was simply too hypothetical or conjectural to establish Article III  standing.

The court cited a series of cases involving lead in lipstick, which we have posted on, making clear that the type of speculative future injury here cannot form the basis of a lawsuit. See Koronthaly v. L’Oreal USA, Inc., 374 F. App’x 257(3d Cir. 2010), aff’g 2008 WL 2938045 (D.N.J. July 29, 2008); Frye v. L’Oreal USA, Inc., 583 F. Supp. 2d 954 (N.D. Ill. 2008).

Plaintiffs’ second theory of injury in fact was equally flawed. Plaintiffs alleged that defendants promised to provide products that were safe for consumption, but that plaintiffs received products that posed a health risk to them and their children. Consequently, the products were unsuitable for their intended purpose -- consumption -- and supposedly valueless. Because plaintiffs supposedly would not have purchased these products if they had known the products contained any lead, they suffered an economic injury -- the price of the product -- when they purchased the products.

But because plaintiffs were unable to show that any actual harm resulted from consumption of the fruit juice products, their allegation of “economic” injury lacked substance. The fact is that plaintiffs paid for fruit juice, and they received fruit juice, which they consumed without suffering harm. Again, the products were not recalled, did not cause any reported injuries, and did not violate any federal standards. The products thus had no diminished objective value due to the presence of the lead. These plaintiffs received the benefit of the bargain, as a matter of law, when they purchased these products and were able to consume them.

Other courts that have addressed similar “benefit of the bargain” standing arguments agree that plaintiffs who have not been injured by an allegedly defective product generally do not have standing to sue the product’s manufacturer. See, e.g., Rivera v. Wyeth-Ayerst Labs., 283
F.3d 315 (5th Cir. 2002).  Plaintiffs’ allegations only support the contention that the levels of lead in the products were unsatisfactory to them. This allegation was simply insufficient to support a claim for injury in fact. 

 

 

Supreme Court Passes on Case Involving State Retention of Private Counsel

The U.S. Supreme Court declined last week to review a California Supreme Court ruling that permitted cities and counties to engage private attorneys for public nuisance litigation against lead paint defendants on a contingency fee basis.  See Atlantic Richfield Co. v. Santa Clara County, Calif., No. 10-546 (U.S. cert. denied 1/10/11).

Readers may recall our previous posts on the important issue of  the power of government agencies to retain private plaintiffs attorneys on a contingency fee basis to prosecute nuisance litigation.  One case we posted on was County of Santa Clara v. The Superior Court of Santa Clara County, Cal., No. S163681 (7/26/10), in which a group of public entities composed of various California counties and cities were prosecuting a public-nuisance action against numerous businesses that manufactured lead paint.

The state supreme court permitted the use of contingency fee counsel with restrictions. To pass muster, neutral government attorneys must retain and exercise the requisite control and supervision over both the conduct of private attorneys and the overall prosecution of the case. Such control of the litigation by neutral attorneys supposedly will provide a safeguard against the possibility that private attorneys unilaterally will engage in inappropriate prosecutorial strategy and tactics geared to maximize their monetary reward. Accordingly, when public entities have retained the requisite authority in appropriate civil actions to control the litigation and to make all critical discretionary decisions, the impartiality required of government attorneys prosecuting the case on behalf of the public has been maintained, said the court. 

We noted that the list of specific indicia of control identified by the court seem quite strained, and to elevate form over substance, written agreements over human nature. Defendants sought cert review. In amicus filings, various trade organizations including the American Chemistry Council, the American Coatings Association, and the National Association of Manufacturers, argued that the financial incentives inherent in contingency-fee agreements simply distort the decision-making of both the government lawyers and the private attorneys they retain. Inadequately grounded contingency fee arrangements distort the state's duty of even-handedness not only to defendants, but also to the public. The amici argued that public nuisance cases are not typical tort lawsuits because they claim to be pursued in the public interest. It violates due process for the type of personal financial assessment made by contingency fee private lawyers to impact the decisions in a public nuisance action brought in the government's sovereign capacity. The briefing also raised another important practical issue: the attorney-client privilege and work-product doctrines will block any meaningful inquiry into whether the government is actually exercising the appropriate control that he state court said would solve these issues.

These kinds of contingency fee prosecutors threaten to diminish the public's faith in the fairness of civil government prosecutions. These arrangements frequently result in allegations that government officials are doling out contingency fee agreements to lawyers who make substantial campaign contributions.


 

California Supreme Court Amends Rules for Government Retention of Private Contingent Fee Counsel

The California supreme court has taken a major step backward by modifying a 1985 decision that had properly limited the power of government agencies to retain private plaintiffs attorneys on a contingency fee basis to prosecute nuisance litigation. County of Santa Clara v. The Superior Court of Santa Clara County, Cal., No. S163681 (7/26/10). 

A group of public entities composed of various California counties and cities were prosecuting a public-nuisance action against numerous businesses that manufactured lead paint. Defendants moved to bar the public entities from compensating their privately retained counsel by means of contingent fees. The lower court, relying upon People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985), ordered that the public entities were barred from compensating their private counsel by means of any contingent-fee agreement, reasoning that under Clancy, all attorneys prosecuting public-nuisance actions must be “absolutely neutral.”

The supreme court acknowledged that Clancy arguably supported defendants' position favoring a bright-line rule barring any attorney with a financial interest in the outcome of a case from representing the interests of the public in a public-nuisance abatement action. The court proceeded to engage in a reexamination of the rule in Clancy, however, finding it should be "narrowed," in recognition of both (1) the wide array of public-nuisance actions (and the corresponding diversity in the types of interests implicated by various prosecutions), and (2) the different means by which prosecutorial duties may be delegated to private attorneys supposedly without compromising either the integrity of the prosecution or the public's faith in the judicial process.

The court had previously concluded that for purposes of evaluating the propriety of a contingent-fee agreement between a public entity and a private attorney, the neutrality rules applicable to criminal prosecutors were equally applicable to government attorneys prosecuting certain civil cases. The court had noted that a prosecutor's duty of neutrality stems from two fundamental aspects of his or her employment. As a representative of the government, a prosecutor must act with the impartiality required of those who govern. Second, because a prosecutor has as a resource the vast power of the government, he or she must refrain from abusing that power by failing to act evenhandedly.

But now, the court concluded that to the extent Clancy suggested that public-nuisance prosecutions always invoke the same constitutional and institutional interests present in a criminal case, that analysis was "unnecessarily broad" and failed to take into account the wide spectrum of cases that fall within the public-nuisance rubric. In the present case, found the court, both the types of remedies sought and the types of interests implicated differed significantly from those involved in Clancy and, accordingly, invocation of the strict rules requiring the automatic disqualification of criminal prosecutors was unwarranted.

The court described a range of cases; criminal cases require complete neutrality. In some ordinary civil cases, neutrality is not a concern when the government acts as an ordinary party to a controversy, simply enforcing its own contract and property rights against individuals and entities that allegedly have infringed upon those interests. The present case fell between these two extremes on the spectrum of neutrality required of a government attorney. The case was not an “ordinary” civil case in that the public entities' attorneys were appearing as representatives of the public and not as counsel for the government acting as an ordinary party in a civil controversy. A public-nuisance abatement action must be prosecuted by a governmental entity and may not be initiated by a private party unless the nuisance is personally injurious to that private party. The case was being prosecuted on behalf of the public, and, accordingly, the concerns identified in Clancy as being inherent in a public prosecution were, indeed, implicated.

But, the court found that the interests affected in this case were not similar in character to those invoked by a criminal prosecution or the nuisance action in Clancy.  This case would not result in an injunction that prevents the defendants from continuing their current business operations. The challenged conduct (the production and distribution of lead paint) has been illegal in the state since 1978. Accordingly, whatever the outcome of the litigation, no ongoing business activity would be enjoined. Nor would the case prevent defendants from exercising any First Amendment right. Although liability may be based in part on prior commercial speech, the remedy would not involve enjoining current or future speech, said the court.

With the public-nuisance abatement action being prosecuted on behalf of the public, the attorneys prosecuting this action, although not subject to the same stringent conflict-of-interest rules governing the conduct of criminal prosecutors or adjudicators, were held to be subject to a heightened standard of ethical conduct applicable to public officials acting in the name of the public — standards that would not be invoked in an ordinary civil case.  That is,  to ensure that an attorney representing the government acts evenhandedly and does not abuse the unique power entrusted in him or her in that capacity — and that public confidence in the integrity of the judicial system is not thereby undermined — a heightened standard of neutrality is required for attorneys prosecuting public-nuisance cases on behalf of the government.

The court then determined that this heightened standard of neutrality is not always compromised by the hiring of contingent-fee counsel to assist government attorneys in the prosecution of a public-nuisance abatement action.  Use of private counsel on a contingent-fee basis is permissible in such cases if neutral, conflict-free government attorneys retain the power to control and supervise the litigation.  In so finding, the court downplayed the reality that the public attorneys'  decision-making conceivably could be influenced by their professional reliance upon the private attorneys' expertise and a concomitant sense of obligation to those attorneys to ensure that they receive payment for their many hours of work on the case.

To pass muster, neutral government attorneys must retain and exercise the requisite control and supervision over both the conduct of private attorneys and the overall prosecution of the case. Such control of the litigation by neutral attorneys supposedly will provide a safeguard against the possibility that private attorneys unilaterally will engage in inappropriate prosecutorial strategy and tactics geared to maximize their monetary reward. Accordingly, when public entities have retained the requisite authority in appropriate civil actions to control the litigation and to make all critical discretionary decisions, the impartiality required of government attorneys prosecuting the case on behalf of the public has been maintained, said  the court.

The list of specific indicia of control identified by the court seem quite strained, and to elevate form over substance, written agreements over human nature. The authority to settle the case involves a paramount discretionary decision and is an important factor in ensuring that defendants' constitutional right to a fair trial is not compromised by overzealous actions of an attorney with a pecuniary stake in the outcome. The court found that retention agreements between public entities and private counsel must specifically provide that decisions regarding settlement of the case are reserved exclusively to the discretion of the public entity's own attorneys. Similarly, such agreements must specify that any defendant that is the subject of such litigation may contact the lead government attorneys directly, without having to confer with contingent-fee counsel.

But in reality, even if the control of private counsel by government attorneys is viable in theory, it fails in application because private counsel in such cases are hired based upon their expertise and experience, and therefore always will assume a primary and controlling role in guiding the course of the litigation, rendering illusory the notion of government “control”.  The concurring opinion questioned whether public attorneys under all foreseeable circumstances will be able to exercise the independent supervisory judgment the majority concludes is essential if private counsel are to be retained under contingent fee agreements. 

The court noted that the issues all arose under its authority to regulated the practice of law, and no statutes or state constitutional provisions were at issue, which may distinguish the case from the issue in other states.

Latest Round in Lipstick Wars Goes to Defendants

We previously posted about a case in which a federal judge threw out  a purported class action against L’Oreal USA Inc. and Procter & Gamble Distributing LLC that accused the companies of selling Cover Girl and Maybelline lipsticks containing lead. Koronthaly v. L’Oreal USA, Inc., et al., No. 07-5588 (D.N.J. July 29, 2008).

The U.S. Court of Appeals for the Third Circuit has affirmed the decision. Koronthaly v. L'Oreal USA,  No. 08-4625 (3d Cir. 3/26/10).

Koronthaly purchased lipstick products manufactured, marketed, and distributed by appellees L’Oreal. and P&G. She alleged these lipstick products contained lead. The FDA does not regulate the presence of lead in lipstick, but Koronthaly asserted that the lipstick contained lead in greater amounts than permitted in candy by the FDA. Koronthaly alleged that she did not know when she purchased the products that they contained any lead, and when she learned of the lead content she immediately stopped using them. Moreover, had she known of the lead she claims she would not have purchased the products.

To prove constitutional standing, said the court of appeals, a plaintiff must demonstrate (1) an injury-in fact that is actual or imminent and concrete and particularized, not conjectural or hypothetical, (2) that is fairly traceable to the defendant’s challenged conduct, and (3) is likely to be redressed by a favorable judicial decision. Summers v. Earth Island Inst., 129 S. Ct. 1142, 1149 (2009). In this case, standing foundered on the first requirement, injury-in-fact, said the court.

Koronthaly’s argument that she was misled into purchasing unsafe lipstick products was belied by an FDA report finding that the lead levels in the defendants’ lipsticks were not dangerous and therefore did not require warnings. Moreover, Koronthaly conceded that she has suffered no adverse health effects from using the lipsticks. Koronthaly therefore had to fall back on only a subjective allegation -- that the trace amounts of lead in the lipsticks were unacceptable to her, not an injury-in-fact sufficient to confer Article III standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 564 (1992)(injury-in-fact must be accompanied by “continuing, present adverse effects”); Georgine v. Amchem Prods., Inc., 83 F.3d 610, 636 (3d Cir. 1996) (Wellford, J., concurring) (“Fear and apprehension about a possible future physical or medical consequence . . . is not enough to establish an injury in fact.”).

Furthermore, to the extent that Koronthaly contended that the injury-in-fact was the loss of her “benefit of the bargain,” she mistakenly relied on contract law, said the court. See Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315, 319-21 (5th Cir. 2002) (plaintiff, whose only claim was that she “would like her money back” for having purchased a product that failed to make certain disclosures and allegedly was defective, did not have an injury-in-fact sufficient to create standing). Her lipstick purchases were not made pursuant to a contract involving lead levels, and therefore she could not have been denied the benefit of any bargain. Absent any allegation that she received a product that failed to work for its intended purpose or was worth objectively less than what one could reasonably expect, Koronthaly had not demonstrated a concrete injury-in-fact.

The dismissal was affirmed. In the lipstick wars, attention now will focus on Stella v. LVMH Perfumes and Cosmetics USA Inc., N.D. Ill., No. 1:07-cv-06509, dismissed 4/3/09; which is currently on appeal before the Seventh Circuit.
 

 

State Supreme Court Issues Design Defect Ruling On Intrinsic Characteristics

The Wisconsin Supreme Court has affirmed a lower court's dismissal of strict liability and negligence claims against white lead carbonate pigment manufacturers, ruling that a product's characteristic ingredient cannot  constitute a design defect. See Ruben Baez Godoy v. E.I. du Pont Nemours and Co. et al., No. 2006AP2670 (Wisc. S.Ct.).

The court affirmed a circuit court's ruling that the complaint had failed to allege a design feature that rendered defective the design of white carbonate lead pigment, which can be found in white paint.
Plaintiff alleged lead poisoning from white lead carbonate pigment in the paint in his Milwaukee apartment, and sued DuPont, Armstrong Containers, Sherwin-Williams and American Cyanamid.
He asserted that despite alleged knowledge that lead is hazardous to human health, the manufacturers promoted the use of the pigment and marketed it as safe.

The lower court dismissed the design defect claims, finding  that lead is an inherent  characteristic of white lead carbonate, and thus the product cannot be designed without lead. The court of
appeals found that a product cannot be said to be defectively designed when that design is inherent in the nature of the product so that an alternative design would make the product something else.  This is the long-standing, but often misunderstood notion, that an alternative product is not an alternative design.  In those states in which a plaintiff must prove the existence of a feasible alternative design that would have avoided the injury, or in which the defendant may show the absence of any feasible alternative design, it is not enough for a plaintiff to point to a different product that might serve the same use. 

The state Supreme Court affirmed, noting that a claim for defective design cannot be maintained where the presence of lead is the alleged defect in design, and its very presence is a characteristic of the product itself.  Without lead, there can be no white lead carbonate pigment.  The court offered an analogy:  Foil for your kitchen use can be made using ingredients other than aluminum (gold, for example), but aluminum foil cannot be made without aluminum. The presence of aluminum is characteristic of aluminum foil. If the mere presence of aluminum posed a danger, a manufacturer might be liable based on the failure to adequately warn or other claims. However, the manufacturer
would not be liable based on the "design" of aluminum foil for including aluminum.

Interestingly, the court reaffirmed that Wisconsin strict products liability law does not require a
plaintiff to prove the feasibility of an alternative design.  However, the feasibility of an alternative design can be considered when evaluating a design defect claim. While plaintiff argued that it is inconsistent to reject a reasonable alternative design requirement and still maintain that characteristic ingredients of the product cannot support a claim for defective design, the court clarified that it was not requiring that a plaintiff affirmatively prove, through expert testimony, that an alternative design was commercially viable. The court was simply acknowledging that some ingredients cannot be eliminated from a design without eliminating the product itself. When the ingredient cannot be designed out of the product, the Restatement (Second) instructs that although other claims may be theoretically asserted, the proper claim is not design defect.  

That rationale would seem to apply to design defect claims in drug cases, where the characteristics of a chemical constituting an FDA-approved drug are challenged. The "design" of a typical drug cannot be changed without creating a different molecular structure, and hence  a different product, one which would require a second FDA approval.

Lead Paint Defendant Goes On Counter-attack

The Sherwin-Williams Co. has sued counsel for plaintiffs in past lead paint lawsuits, claiming that the attorneys for the Rhode Island attorney general and other claimants improperly obtained and used copies of internal documents discussing the paint manufacturers' strategy in the lead paint litigation. The complaint was filed against plaintiff counsel in state court in Ohio.

The complaint alleges that plaintiff counsel came into possession of confidential information from a 2004 board of directors meeting. Sherwin-Williams claims that the slides were created by its inside counsel in order to update the company's board on various issues in the lead paint and pigment litigation, including possible response to settlement overtures in dozens of public nuisance and private lawsuits.

We have posted on lead paint issues before. Properly viewed, state attorneys general typically fail to prove that the paint companies had control of the lead paint when it allegedly harmed children in their states. Control at the time the damage occurs is critical in any public nuisance cases, especially because the principal remedy for the harm caused by the nuisance is abatement. The responsibility for the harm that lead paint caused lies with property owners, as many state legislature have explicitly established. However grave the problem of lead paint may be, public nuisance law simply does not provide a remedy for this alleged harm. The proper means of commencing a lawsuit against a manufacturer of lead pigments for the sale of an allegedly unsafe product is a products liability action, with all the potential defenses to such a claim. Public nuisance and products liability are two distinct causes of action, each with rational boundaries that are not intended to overlap. Public nuisance focuses on the abatement of annoying or bothersome activities. Products liability law, on the other hand, has its own well-defined structure, which is designed specifically to allow plaintiffs to attempt to hold manufacturers liable for harmful products that the manufacturers have caused to enter into the stream of commerce.

Here, the company’s complaint alleges that plaintiff counsel presented the confidential slides in a legal memorandum opposing a motion for costs, filed with the Rhode Island Superior Court during the public nuisance suit brought by the Rhode Island attorney general. The company includes a John Doe defendant, allegedly responsible for disclosing the documents. Plaintiff counsel allegedly acknowledged receipt of the documents and their confidential nature, but has thus far refused to return them, according to the complaint.

Sherwin-Williams is seeking a return of the documents, an order barring plaintiffs from using them, punitive damages, costs and court fees. 

 

UPDATE:  The plaintiffs' firm has apparently agreed not to use or disseminate the documents pending further order of the court.
 

CPSC Holds Public Meeting On New Legislation

The Consumer Product Safety Commission held a public meeting last week to discuss issues of testing and certification under the Consumer Product Safety Improvement Act (CPSIA). The meeting followed up on a September meeting regarding the accreditation of laboratories for third-party testing.

Readers of MassTortDefense will recall from other posts that the legislation increased CPSC budget, staff, and enforcement powers. The law mandates reduction of the amount of lead in toys; calls for third-party testing of certain children's products; raises allowable penalties for violations. And the Act has a number of potentially vexatious provisions for product sellers, including a broad protection of so-called employee whistleblowers. Such employees falling under the Act can seek to get their job back temporarily, and then after a hearing, permanently, with back pay, attorney fees, expert witness fees, and undefined compensatory damages. The former employee apparently needs to show that one, but not the only, reason for the firing was probably that the worker was or was about to start complaining about a product safety issue. It may be that prudent sellers will want train their management teams about the new provisions.

A second controversial provision was the move that state attorneys general can now take enforcement actions and seek the penalties that the commission could have. The aggressive approach of the National Association of Attorneys General (NAAG) members in the past may suggest that prudent national manufacturers who learn of a potentially substantial product safety situation will be better off negotiating a settlement with the federal agency rather than have the issue battled out in multiple state courts.

Third, the Act’s emphasis on independent lab certification of various products has caused some larger companies that have their own testing laboratories to consider divesting in-house laboratories.

At the meeting, participants discussed the requirement for certification of general conformity with all applicable requirements under any of the Acts administered by the CPSC, which becomes effective in November of this year. In response to questions on what the certificates should look like, CPSC plans to post a sample certificate on its Web site.

Officials of the CPSC assured attendees they are not out to play "gotcha" with manufacturers and importers, but the agency wants to ensure full compliance with the product certification requirements of the new law. There are significant penalties for noncompliance, including the destruction of imported goods that are not certified. When a product is imported, the foreign manufacturer and the importer both must certify that the product complies with all requirements, unless the commission exempts one or the other. Certification is required for products that are subject to a standard or ban, and are imported into the United States for consumption or warehousing. The Act provides that if there is no certificate, or a false certificate is furnished, the products will be refused entry. If the products are refused admittance into the United States, they may be destroyed, and the costs of destroying the products will be paid by the owner or consignee.

CPSC Acting Chairman Nancy A. Nord has agreed that the new law is "incredibly complex," and the agency will have to undertake about 40 new rulemakings to flesh out its provisions.  Among the likely forthcoming rules that will require certification are lead content, infant and toddler products, toys, phthalate, ATVs, drain covers for pools, and others.
 

Lipstick Wars: Latest Round

Recently, MassTortDefense posted about a proposed class action alleging lead in lipstick. See Stella v. LVMH Perfumes and Cosmetics USA Inc., No. 1:07-cv-06509, 2008 WL 2669662 (N.D. Ill. 7/8/08). The Northern District of Illinois denied the motion to dismiss consumer fraud claims. Now, a federal judge has thrown out a purported class action against L’Oreal USA Inc. and Procter & Gamble Distributing LLC that accused the companies of selling Cover Girl and Maybelline lipsticks containing lead. Koronthaly v. L’Oreal USA, Inc., et al., No. 07-5588 (D.N.J. July 29, 2008), opinion found here.

The plaintiff brought various claims, including unjust enrichment, breach of implied warranty and violations of the New Jersey Consumer Fraud Act. The plaintiff asked the court to enjoin the companies from carrying the lipsticks at issue and requested compensatory damages to recover the money she allegedly spent on the products. She also asked for damages to cover the costs of medical monitoring to detect lead poisoning. Plaintiff contended she would not have bought the lipsticks if the defendants had revealed that they contained the lead.

In contrast to the ruling in Illinois, the New Jersey District Court found the plaintiff lacked standing to sue since she had alleged no injury, harm or ascertainable loss from having purchased the lipstick. Plaintiff's allegations of a merely potential future injury were too remote and abstract to qualify as a concrete and particularized injury. Plaintiff had not alleged any present injury. Plaintiff's mere demand for damages did not establish injury-in-fact either. Plaintiff bought lipstick and used the lipstick, only complaining that the lipstick's alleged levels of lead were unsatisfactory to her. The FDA does not provide limitations on lead levels in lipstick. The FDA does not otherwise regulate lipstick. The plaintiff's analogy to lead in candy was insufficient. Plaintiff cannot seek a remedy for a harm that she has not actually or allegedly suffered.

The plaintiff's allegation of economic injury in a products liability action is insufficient to establish an injury-in-fact. The plaintiff had suffered no ill effects from use of the product, and had not alleged that any future harm was expected. The so-called benefit of the bargain injury could not sustain a claim under these circumstances.

What is interesting is that the court's analysis focused not so much on the elements of the state statue, but the requirement of standing under Article III. The triad of injury in fact, causation, and redressability comprises the core of Article III's case or controversy requirement. Plaintiff's alleged injury was too conjectural and hypothetical to satisfy the injury in fact requirement. Plaintiff thus lacked standing to bring her claim. And standing cannot be "acquired through the back door of a class action."

 

Federal Court Denies Motion To Dismiss In Proposed Lipstick Class Action

A federal court earlier this month permitted a proposed class action to move forward with its central allegation that Christian Dior lipstick contains excessive levels of lead. See Stella v. LVMH Perfumes and Cosmetics USA Inc., No. 1:07-cv-06509, 2008 WL 2669662 (N.D. Ill. 7/8/08).

Named plaintiff Pamela Stella alleges that she purchased Christian Dior "Addict Positive Red" lipstick, manufactured by LVMH Perfumes and Cosmetics USA Inc., at a Nordstrom department store in June, 2007. The so-called “Campaign for Safe Cosmetics” group issued a report in October, 2007 claiming that tests showed a lead level in LVMH lipsticks which slightly exceeds the regulatory limit established by the Food and Drug Administration for lead content in certain products like candy.  In reality, the average amount of lead a woman would be exposed to when using cosmetics is 1,000 times less than the amount she would get from eating, breathing and drinking water that meets Environmental Protection Agency (EPA) drinking water standards, according to the Cosmetics, Toiletry and Fragrance Association (CTFA).

Plaintiff then sued LVMH in November, 2007 on behalf of a proposed nationwide class of lipstick purchasers. She alleged that the company violated the Illinois deceptive business practices statute and breached an implied warranty of merchantability. She also brought claims for strict liability, negligence per se, unjust enrichment, and injunctive relief.

Judge Elaine E. Bucklo of the U.S. District Court for the Northern District of Illinois denied defendant’s motion to dismiss. She determined that Stella sufficiently alleged a claim under the deceptive trade practices law, including its requirement of actual damages. Stella sought to recover actual damages, the court said, "in the form of pecuniary damages (the cost of the lipstick).” The court also noted that plaintiff had alleged that her reliance on defendant's omission caused her to buy the lipstick and become exposed to lead. “This sufficiently alleges proximate cause.”

The court also agreed with plaintiff that Illinois law would permit medical monitoring as a remedy. The Illinois Supreme Court has not ruled on the question. But in Carey v. Kerr-McGee Chemical Corp., 999 F. Supp. 1109, 1118-19 (N.D. Ill. 1998), the district court had predicted that medical monitoring would be recognized as cognizable under Illinois law.

MassTortDefense has posted on medical monitoring before, here and here. The clear trend has been away from recognizing these claims, see Lowe v. Philip Morris USA, Inc., 344 Or. 403, 183 P.3d 181 (2008), or to narrow their scope. See Sinclair v. Merck & Co., 195 N.J. 51, 948 A.2d 587 (2008).

Where recognized, medical monitoring plaintiffs typically must prove:
1. exposure greater than normal background levels;
2. to a proven hazardous substance;
3. caused by the defendant's negligence;
4. as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease;
5. a monitoring procedure exists that makes the early detection of the disease possible;
6. the prescribed monitoring regime is different from that normally recommended in the absence of the exposure; and
7. the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles.

Medical monitoring is almost always seen as a potential class action claim, for several reasons:
• First, the individual damages associated with periodic testing of a so-far healthy plaintiff may not be all that financially attractive to plaintiff attorneys.
• Secondly, a number of the elements of the claim (or remedy) of medical monitoring seem, on the surface, amenable to “common” proof in the form of epidemiological evidence. For example, the increased risk that typically must be shown.

When the issue is ripe, it should be clear that such claims are not appropriate for class treatment, as numerous individual issues will arise, including choice of law, properly viewed, in a nationwide class.

Defendant LVMH's also challenged the implied warranty claims, based on the absence of contractual privity between plaintiff and LVMH. But the court narrowly construed the privity requirement to say that Illinois law requires contractual privity as a prerequisite for breach of implied warranty claims only for recovery of economic losses. Voelker v. Porsche Cars North Am., Inc., 353 F.3d 516, 527 (7th Cir.2003). The medical monitoring claim, as "a form of personal injury claim," brought plaintiff out from under this privity requirement, said the court.



State Supreme Court Rejects Public Nuisance Lead Claim

In a unanimous decision, the Rhode Island Supreme Court has rejected the state's public nuisance suit against three former lead pigment makers. See Rhode Island v. Lead Industries Association, No. 2006-158-Appeal; No. 2007-121-Appeal (July 1, 2008).

The decision represents the latest round in the ongoing battle surrounding the misapplication by plaintiffs of the traditional tort of nuisance. The Rhode Island action was the first suit filed by a state against the lead paint industry. Since then, appeals courts in New Jersey, Missouri, and Illinois all have rejected public nuisance claims against former lead pigment manufacturers.

The state sued a number of paint makers and the trade group Lead Industries Association Inc., in 1999. The state alleged that the manufacturers or their predecessors-in-interest had
manufactured, promoted, distributed, and sold lead pigment for use in residential paint, despite
that they allegedly knew or should have known, since the early 1900s, that lead is hazardous to human health. The state also contended that the LIA was, in essence, a co-conspirator of one or more of the manufacturers from at least 1928 to the present. The state asserted that defendants failed to warn Rhode Islanders of the hazardous nature of lead and failed to adequately test lead pigment. In addition, the state maintained that defendants concealed these hazards from the public or misrepresented that they were safe. 

Paint manufacturers voluntarily stopped selling lead-based house paint in the 1990’s after evidence began to suggest that it posed serious health risks. Particular to the nuisance claim,  defendants assert that they did not control the lead pigment at the time it caused harm to Rhode Island children and that, therefore, they cannot be held liable for public nuisance. The defendants also argue that there was no interference with a public right, as that term has been recognized under public nuisance law.

The Rhode Island trial judge declined to dismiss the state's public nuisance claims. Defendants had asserted that the state had not alleged and could not show that defendants' conduct interfered with a public right, or that defendants were in control of lead pigment at the time it allegedly caused harm to children in Rhode Island. The first trial in the case ended in a mistrial in 2002. Following a 15-week trial, the longest civil jury trial in the state’s history, the jury in state Superior Court in 2006 found Sherwin-Williams Co., NL Industries Inc., and Millennium Holdings LLC responsible for the public nuisance posed by lead in buildings. The jury found that the defendants should be ordered to abate the nuisance, the first time in the United States that a trial resulted in a verdict that imposed liability on lead pigment manufacturers for creating a public nuisance. The state offered a $2.4 billion abatement plan in September 2007.

On appeal, defendants argued that argued that the trial justice erred by: (1) misapplying the law of public nuisance; (2) finding a causal connection between defendants’ actions and lead poisoning in Rhode Island; and (3) failing to hold that the action was barred by the constitutional provision concerning separation of powers. In an 81-page ruling, the state's top court reversed the judgment of abatement.

The Restatement (Second) defines public nuisance, in relevant part, as follows:
1) A public nuisance is an unreasonable interference with a right common to the general public.   2) Circumstances that may sustain a holding that an interference with a public right is unreasonable include the following: “(a) Whether the conduct involves a significant interference with the public health, the public safety, the public peace, the public comfort or the public convenience….” 4 Restatement (Second) Torts § 821B at 87.

The Rhode Island Court accordingly recognized three principal elements that are essential to establish public nuisance: (1) an unreasonable interference; (2) with a right common to the general public; (3) by a person or people with control over the instrumentality alleged to have created the nuisance when the damage occurred. After establishing the presence of the three elements of public nuisance, one must then determine whether the defendant caused the public nuisance."  Causation is a basic requirement in any public nuisance action." In addition to proving that a defendant is the cause-in-fact of an injury, a plaintiff must demonstrate proximate causation.

The Rhode Island attorney general failed to prove that the companies interfered with a public right or had control of the lead paint when it harmed children in the state. Control at the time the damage occurs is critical in public nuisance cases, especially because the principal remedy for the harm caused by the nuisance is abatement. The responsibility for the harm that lead paint caused lies with property owners, as the state Legislature has already established. “The General Assembly has recognized defendants' lack of control and inability to abate the alleged nuisance because it has placed the burden on landlords and property owners to make their properties lead-safe.”

However grave the problem of lead poisoning is in Rhode Island, public nuisance law simply does not provide a remedy for this harm. The proper means of commencing a lawsuit against a manufacturer of lead pigments for the sale of an unsafe product is a products liability action. The law of public nuisance never before has been applied to products, however harmful. "Undoubtedly, public nuisance and products liability are two distinct causes of action, each with rational boundaries that are not intended to overlap." Public nuisance focuses on the abatement of annoying or bothersome activities. Products liability law, on the other hand, has its own well-defined structure, which is designed specifically to hold manufacturers liable for harmful products that the manufacturers have caused to enter the stream of commerce.

Courts presented with product-based public nuisance claims have expressed their concern over the ease with which a plaintiff could bring what properly would be characterized as a products liability suit under the guise of product-based public nuisance. Courts in other states consistently have rejected product-based public nuisance suits against lead pigment manufacturers, expressing a concern that allowing such a lawsuit would circumvent the basic requirements of products liability law. See American Cyanamid Co., 823 N.E.2d at 134; Benjamin Moore & Co., 226 S.W.3d at 116; In re Lead Paint Litigation, 924 A.2d at 503-05 (N.J.).

The battle now shifts to pending cases in Ohio and California.

Recalls of Products Made in China (Part I)

The Cook County, Illinois Circuit Court gave preliminary approval recently to a proposed settlement related to RC2 Corporation’s recall of toys tainted with lead. (A hearing on final approval is set for August.) The settlement relates to claims of consumers who purchased a recalled Thomas & Friends Wooden Railway product. This is another step towards resolution of one of the major 2007 recalls of toys made in China.

RC2 Corporation had announced last summer that it was voluntarily recalling five toys from the Thomas & Friends Wooden Railway product line due to levels of lead in surface paint that may exceed U.S. Consumer Product Safety Commission requirements. There have been no reports of illness or injury related to any of the recalled toys.

This is a good reminder to readers of MassTortDefense concerning the risks of outsourcing to China, and an opportunity to comment on mitigation of those risks.

The Year of the China Recall

The year 2007 has been dubbed the year of China recalls because of the significant recalls of toys with lead, as well as tainted pet food, and toothpaste with chemical contamination. In fact, toy recalls had been stable (at about 30 per year) until 2007, which saw a huge spike in toy recalls to more than 80, involving 25 million units. [There have been about 50 already in 2008.]

Overall product recalls have been on the rise for several years. China’s share of total product recalls in the U.S. rose significantly (to about 67% overall), and China accounted for about 98% of all toy recalls in 2007. As recently as 1999, China accounted for less than half of U.S. toy recalls. Overall U.S. imports from China have increased steadily, and China supplies most of our imported toys, but recently the recalls of China-made toys has outpaced the increases in imports of toys.

And the presence of lead was the leading cause of products made in China being recalled. Overall, lead-focused recalls increased 10x in the last 4 years.

The number of products removed from the European Union market in 2007 increased by 53 percent, with more than half of the items coming from China. The EU notes that toys were the products most often removed from markets in the 27 EU member states. About 80 percent of all toys sold in Europe come from a Chinese manufacturing facility. (The EU has a rapid alert system known as RAPEX. The RAPEX report on goods pulled from the market in 2007 can be found  here.


IMPACT OF RECALLS

Recalls have direct and indirect costs to product sellers. The costs of notice, labor costs, disposal costs, lost inventory value, refunds and repair costs, and legal fees are some of the direct costs. Indirect costs include bad publicity, damage to goodwill and reputation, loss of sales, increased production costs and testing costs in the future, diversion of management and employees from normal duties, potential legal liability (personal injury, medical monitoring, punitive damages), and increased insurance premiums. The recall may spawn shareholder derivative lawsuits if the stock price is affected by the recall. An interesting report from Lucy Allen at NERA looks at the market cap impact of recalls. Government fines are possible. The CPSC recently issued a $1 million civil penalty against athletic-shoe maker Reebok International Ltd. related to company-issued charm bracelets with toxic levels of lead. It is not unusual for recalls to cost companies tens of millions of dollars.

REGULATION
Congress has already taken steps in response to the spate of recalls. The House passed the Consumer Product Safety Modernization Act, H.R. 4040, in December, and the Senate passed its own CPSC Reform Act, S.2663 in March. The two bills will be reconciled, and the CPSC budget, staff, and enforcement powers will be increased. Both bills mandate reduction of the amount of lead in toys; third-party testing of certain children's products; raise allowable penalties for violations; and give state attorneys general enforcement authority. Empowering state attorneys general is likely to generate more enforcement claims against companies, as state AGs have been willing to take an aggressive stand on other recent issues, beginning with tobacco. This provision might also undermine uniformity of enforcement of the CPS Act. State attorney generals may simply create a confused patchwork of standards.

The Senate provision would require the CPSC to post on Internet-searchable database the reports it receives about product-related injuries. This seems of limited use to the average consumer, but may encourage additional litigation; just like plaintiffs’ attempt with ADE reports in pharmaceutical litigation, this could be misused in product liability litigation.


WHAT CAN BE DONE
In some quarters, there is a notion that the market will force China to make improvements in quality control to avoid a repeat of the year of recalls. That is, if the products cannot be trusted, then importers will stop buying them. But the fact remains that regulation of product safety in China is not as advanced as it is in Europe and the United States. In essence the growth of their economy may have outpaced their ability to regulate product quality control.

Is there an ability to hold the Chinese companies accountable for the QC issues? Frequently, mass litigation arising from a large product recall will involve numerous parties within the chain of distribution, if not originally, then through indemnification and contribution claims. The original manufacturer of the allegedly defective product rarely is not involved. But plaintiff attorneys/consumers rarely try to pursue Chinese companies, forcing the U.S. importer/seller to try to pursue them.  But U.S. companies invariably may have difficulty pursuing the chain to a Chinese company that doesn't have assets or an office in the United States. Most Chinese companies have no assets in the United States, and will ignore U.S. complaints.

In the case of Menu Foods, the pet food manufacturer whose China-sourced ingredients allegedly contaminated dozens of brands of American pet food, several putative class-action suits were filed. See In re Pet Food Products Liability Litig., MDL No. 1850. But the Chinese defendants reportedly have not responded.

  • There can be issues of personal jurisdiction. Asahi Metal Indus.. Co. v. Superior Court of Calif., 480 U.S. 102 (1987)(plurality suggesting that placement of product in stream of commerce, without more, may not be the substantial connection between defendant and forum state necessary for finding of minimum contacts). 
  • Second, especially if the manufacturer is state owned, Chinese defendants may also assert defenses based on principals of sovereign immunity and international comity. Service of a Chinese company must be conducted in accordance with the Hague Convention, which can be cumbersome. Authorities in China frequently cannot locate the accused companies because the firms are often dissolved and the factories are under new ownership.
  • Discovery is extremely limited in China. Even if a damage award is entered against a Chinese company, enforcement of the judgment may be impossible if the Chinese company does not have significant assets in the U.S.. There is no treaty between China and the United States that requires reciprocal enforcement of judgments. (Although a U.S. judgment may not be enforced in China, there may be assets of the Chinese company in other countries that enforce U.S. judgments...worth thinking about)

 

How about suits in China? Its nearly infeasible to file a lawsuit against a Chinese company in China. It can be impossible to get an expert to testify. There is limited discovery, if any. There is tolerance or lenient views of perjury.  Precedent can be irrelevant. The damages obtainable are often insufficient, with lost profits seemingly a lost concept. There are a variety of practical realities that favor the “home team.”  Foreign lawyers typically cannot be utilized.

More of what can be done in the next posting.