After the Recall – The Class (Action) Is Now In Session
March 1, 2012 - San Francisco, CA- Your company is nearing the end of a tough year. You had to recall a substantial number of products due to levels of lead that exceeded the CPSC’s tough standards for toys and children’s products. In so doing, your company incurred damage to its reputation, its brand and its products that may take years to repair; you had to swallow the cost of taking back what were thought to be perfectly good products; you had to reimburse retailers for recall-related costs; and you had to pay attorneys’ fees and other associated costs.
Now your sales are moving up again, new product has been well received by retailers, and you’re looking at the recall from the rear view mirror. But wait, it’s not over. In walks a process server with a lawsuit, brought by a high-powered plaintiff’s firm on behalf of a putative national class. The plaintiffs allege that the remedies approved by the CPSC aren’t good enough; they want full refunds for all customers, even those whose products are several years old or who no longer have the product at all, and they are asking for reimbursement of medical monitoring expenses for children who allegedly were exposed to your products.
Can they really do this? Aren’t the rights of consumers limited by the CPSC recall?
Well, the answer is yes, they really can do this, and no, the CPSC cannot and will not limit other consumer rights and remedies. Read on.
The Problem: CPSC sanctioned recalls do not pre-empt other consumer remedies.
The Consumer Product Safety Act preempts less stringent inconsistent state regulations (CPSA § 26, 15 U.S.C. § 2075), but the CPSA expressly provides that “[c]ompliance with consumer product safety rules or other rules or orders under this Act shall not relieve any person from liability at common law or under State statutory law to any other person.” CPSA § 25(a), 15 U.S.C. § 2074(a).
Class actions are rarely, if ever, approved by courts for claims involving personal injury or emotional distress because of the highly individualized nature of such claims, but creative plaintiffs have identified other avenues of relief, usually involving some form of economic damages or violations or consumer protection statutes, that potentially are amenable to class treatment. Claims other than those seeking compensation for personal injuries may include:
- Refunds for recalled products when a CPSC recall does not provide unconditional refunds to all class members;
- Claims to expand the scope of refunds or other compensation to products not subject to the CPSC recall;
- Diminution in value of products for which refunds are not offered;
- Damages for misrepresentation or breach of warranty;
- Costs of medical monitoring for people allegedly exposed to toxic substances in recalled products; and
- Statutory penalties, injunctive relief and other remedies under state consumer protection laws.
A court ruling arising from a well-publicized recall of toys illustrates the problem aptly. In re Mattel, Inc., Toy Lead Paint Products Liability Litigation, 580 F.Supp. 1111 (C.D. Cal. 2008) (“Mattel”), arose from widely-publicized recalls of toys with allegedly unsafe levels of lead paint, toys that included small, swallowable magnets that allegedly pose a hazard to children, and a toy blood pressure cuff that allegedly contained high levels of lead, but was not specifically alleged to contain lead paint. The lead paint toys and magnet toys were subject to voluntary recalls announced by the CPSC. The recalls offered replacement toys but not refunds.
Plaintiffs filed suit for strict products liability, negligence, breach of express and implied warrantees, and for alleged violations of a variety of California consumer protection laws. Multiple lawsuits were consolidated in the U.S. District Court in Los Angeles.
The plaintiffs sued to recover full refunds for recalled products (as opposed to the exchange remedy offered in the CPSC recalls), as well as costs of diagnostic screening for children exposed to the toys, costs of appropriate treatment for those who test positive for lead, various forms of injunctive relief, and, of course, attorneys’ fees.
The court refused to dismiss the claims, citing CPSC regulations to the effect that actions taken in a voluntary recall plan have “no legally binding effect,” and that the CPSC “reserves the right to seek broader corrective action.” (16 C.F.R. § 1115.20(a).
The Mattel cases settled before going to trial, and the settlement included various levels of compensation for the cost of the recalled merchandise, plus limited reimbursement for lead-testing costs for their children, contributions to a children’s health organization, an agreement by the defendants to institute beefed up quality and safety programs, the plaintiffs’ attorneys were paid nearly $11 million for attorneys’ fees and costs. Actual injury claims were relegated to individual lawsuits.
The Mattel cases involved exceptional circumstances, a high profile defendant, and a large number of products. Arguments for a different outcome in some aspects of the Mattel case can now be made in light of the Consumer Product Safety Improvement Act of 2008, Pub. L. 110-314 (“CPSIA”), which gave the CPSC broader authority to order manufacturers, distributors, importers and retailers to provide any combination of repair, replace and refund remedies, as well as a host of other remedies that the CPSC determines to be in the public interest. CPSA § 15, subsections (c) and (d) (15 U.S.C. § 2064, subsections (c) and (d).
Nevertheless, all companies remain vulnerable to class action litigation when they announce a product recall.
A Possible Solution: Refund and replacement recall programs may moot class action remedies or defeat class certification.
Planning the scope, cost and logistics of a recall – and negotiating those issues with the CPSC and other agencies – has always been important. Many of the same considerations are increasingly important in planning for and defending class action suits that often follow recalls.
In some cases, a more generous range of recall remedies may cause the class action lawyers to reconsider their claims, or may provide a basis for defending a class action if one is brought. In addition to safety and cost, many other factors may be relevant when considering recall remedies. These may include product life cycles, use patterns, who is the manufacturer (e.g., domestic or foreign), who is the distributor or retailer, who is the end user, distribution methods (sold at retail versus give-away goods), etc.
In some cases, providing unconditional refunds in addition to exchanges can short-circuit a class action. In Harrington v. Daiso Japan, 2011 WL 2110764 (N.D. Cal. 2011), the defendant, a retailer and importer, recalled a variety of children’s products and entered into a consent decree that called for payment of a substantial civil penalty to the CPSC. Unlike some recalls, however, Daiso’s recall and consent decree provided for unconditional refunds for recalled products, with or without proof of purchase.
When the inevitable class action lawsuit was filed, Daiso filed a motion to dismiss the complaint that included arguments the economic remedies sought by the putative class were moot, because the refund remedy had already been provided by the CPSC recall. The court observed that “those remedies have already been granted” and “[as] such, an action for such injunctive relief would be subject to dismissal on mootness grounds.” Id. at *5. The complaint ultimately was dismissed.
In other cases, courts have held that the fact that a government-supervised recall already is providing substantially the same benefits that are being sought in a class action renders the class action mechanism (or the proposed class representative) unsuitable. After all, why should the court endorse an expensive class action lawsuit when benefits already are being given to the proposed class through the recall? In the Matter of Aqua Dots Prods. Liab. Litig., 270 F.R.D. 377 (N.D. Ill. 2010), aff’d at 654 F.3d 748 (7th Cir. 2011); Webb v. Carter’s Inc., 272 F.R.D. 489 (C.D. Cal. 2011); In re ConAgra Peanut Butter Prods. Liab. Litig., 251 F.R.D. 689, 700–01 (N.D. Ga. 2008); and In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 214 F.R.D. 614, 622 (W.D. Wash. 2003).
Not all recall situations can be tied up so neatly, and unconditional refunds are not suitable for all recalls, but all recall situations are amenable to financially feasible remedies that may establish defenses in class action litigation.
Careful planning, consideration of the needs and perceptions of consumers, retailers and other constituents, as well as careful communication with government agencies when fashioning a recall remedy, will go a long way in mitigating the negative impacts of a recall. Many of the same factors can also defeat class actions at the pleading and class certification stages, and they deserve consideration in that context whenever a recall is being planned.
For More Information.
This issue and many other legal topics germane to the sporting goods industry will be addressed by the SGMA Legal Task Force at SGMA’s 5th Annual Litigation & Risk Management Summit (LRMS) in Las Vegas, NV, on Monday, April 9, 2012 - Tuesday, April 10, 2012. For more information, and to register for the Summit, go to http://www.sgma.com/lrms.
About the Author:
Paul S. Rosenlund is a member of the SGMA Legal Task Force Steering Committee, and a partner in the San Francisco office of Duane Morris LLP, a full-service law firm with more than 700 attorneys in offices across the United States and around the world. He advises and represents manufacturers, importers and distributors of sporting goods, electronics, appliances, jewelry, apparel, toys and other consumer products in claims, litigation and risk management involving product liability, product recalls involving the U.S. Consumer Product Safety Commission (CPSC) and other agencies, and California Proposition 65. He recently concluded a settlement of the largest penalty proceeding ever instituted by the CPSC, which involved alleged violations of federal law involving toy safety and toxic chemicals in children's products and art materials. He subsequently resolved related Proposition 65 claims brought by a consortium of county district attorneys and won dismissal of a class action suit in U.S. District Court that sought to obtain damages and medical monitoring costs related to the recalled products.