Hunton Retail Law Resource

This past week, several consumer actions made headlines that affect the retail industry.

App Operator Im-Pacted by FTC Settlement

The Federal Trade Commission has reached a $948,788 settlement with app developer Pact, Inc. over claims that it engaged in unfair and deceptive business practices. Pact users enter into “pacts” to exercise and/or eat better. The app charges between $5 and $50 per missed activity for users who fail to meet their weekly goals. Users who meet their weekly goals were supposed to be rewarded with a share of the money collected from those who did not.

The FTC alleged that Pact charged “tens of thousands” of consumers even if they met their goals or cancelled their participation in the service. Customers had a difficult time getting refunds or even determining how to cancel. The FTC’s complaint alleged violations of the FTC Act and the Restore Online Shoppers’ Confidence Act.

Under the terms of the settlement, Pact must disclose its billing practices, and is prohibited from misrepresenting its billing practices or engaging in unfair billing practices. A judgement of $1.5 million will be partially suspended upon Pact’s payment of $948,788. 

On September 8, 2017, New York City Comptroller Scott Stringer and the New York City Pension Funds announced the second phase of their Boardroom Accountability Project, which will focus on board diversity and composition. Stringer sent a letter to the nominating and governance committee chairs of 151 portfolio companies held by the New York City Pension Funds, requesting board engagement regarding the director refreshment process and disclosure of a director qualification matrix that identifies directors’ relevant skills and experience and their gender and race/ethnicity. The list of companies included several major retailers and consisted of companies that have adopted proxy access in response to shareholder proposals from the NYC Pension Funds and those where the NYC Pension Funds’ proxy access proposals received majority support in 2017. 

Hurricanes Harvey and Irma have devastated portions of Texas, Louisiana and Florida. For retail insureds in particular, the losses due to property damage and business interruption will be staggering. In an article published September 12, 2017, in South Florida’s Daily Business Review, Hunton Insurance lawyers Walter Andrews and Andrea DeField explain why it is critical that policyholders act fast to maximize insurance recovery for their hurricane-related losses. They also provide a checklist to guide policyholders through the claim process and to ensure maximum recovery for any property damage and business interruption losses. As Andrews and DeField explain, business interruption and related coverage endorsements may cover loss resulting from (1) an inability to open for business; (2) reduction in business income when the business remains open but cannot operate at full capacity; (3) civil authority orders barring access to an insured business; and (4) service and utility outages effecting business interruptions — an important coverage in light of Florida’s ongoing power outages.

Earlier this month, the Department of Labor (“DOL”) dropped its defense of an Obama-era regulation that sought to increase the salary level for overtime-exempt employees from $23,660 per year to $47,476 per year. The regulation had been set to take effect in November 2016, but a last-minute preliminary injunction issued by a federal district court in Texas stayed the implementation of the regulation.

In the preliminary injunction ruling, the district court ruled that the new $47,476 salary threshold exceeded the scope of the DOL’s authority because such a high salary level had the effect of making an employee’s salary—and not their primary duty—the determinative factor in the exemption inquiry. Importantly, the district court’s preliminary injunction ruling went well beyond the appropriateness of the particular salary level at issue in the new regulation, and instead expressed the broader view that the DOL lacked the authority to impose any salary level requirement (regardless of the level of salary chosen) because the relevant provision of the FLSA focused on an employee’s duties, not their salary. 

As consumers celebrated lower avocado prices at Whole Foods during the last week in August, views were mixed regarding the FTC’s decision not to challenge the Amazon/Whole Foods merger.

On August 23, 2017, the FTC’s Bureau of Competition issued a short statement that read, in its entirety: “The FTC conducted an investigation of this proposed acquisition to determine whether it substantially lessened competition under Section 7 of the Clayton Act, or constituted an unfair method of competition under Section 5 of the FTC Act. Based on our investigation we have decided not to pursue this matter further. Of course, the FTC always has the ability to investigate anticompetitive conduct should such action be warranted.”

On September 7, 2017, the FTC announced its first-ever case against social media influencers. In its complaint, the FTC alleged that two widely followed gamers, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, posted messages endorsing online gaming service CSGO Lotto without disclosing that the two jointly owned the company. In addition to deceptively endorsing the service, the two are alleged to have paid thousands of influencers to promote the CSGO Lotto on social media without requiring those influencers to disclose the payments, which ranged between $2,500 and $55,000. The consent agreement requires Cassell and Martin to clearly and conspicuously disclose material connections between any endorser and promoted products and services. 

On September 5, 2017, the FTC announced that Lenovo, Inc. (“Lenovo”) agreed to settle charges that its preloaded software on some laptop computers compromised online security protections in order to deliver advertisements to consumers. The settlement agreement (the “Settlement”) is between Lenovo, the FTC and 32 State Attorneys General. 

Retailers are increasingly relying on drones to further automate delivery systems and inventory management, among many other uses. The Federal Aviation Administration recently predicted that nearly 4 million drones will be operating in the U.S. by the year 2021.

Hunton & Williams Insurance Coverage attorneys Syed Ahmad and Geoffrey Fehling, with co-author Robert Hopson of Lockton Companies, recently published an article in Unmanned Aerial Online providing an overview of available insurance coverage for commercial drones and several coverage issues to consider when buying ...

In March of this year, consumer electronics and home appliance retailer Gregg Appliances, Inc., better known as H.H. Gregg, filed for Chapter 11 bankruptcy in Indianapolis, Indiana. H.H. Gregg, which took over many of the retail spaces previously occupied by Circuit City, is one of many big-box retailers that have sought Chapter 11 bankruptcy over the past several years. Like Circuit City, H.H. Gregg was unsuccessful in reorganizing in bankruptcy and is now seeking to recover payments made to vendors and other creditors within 90 days prior to the bankruptcy filing.

August was a busy month in the world of recalls. First, the end of August ushered in a hefty $5.7 million civil penalty against a major retailer in the United States. The retailer was allegedly selling and distributing recalled products and has agreed, in addition to the civil penalty, to maintain a compliance program and a system of internal controls and procedures. The CPSC voted 4 to 1 to accept the settlement, with Acting Chairman Buerkle voting to accept a lower civil penalty.

On August 21, 2017, New York Attorney General Eric T. Schneiderman announced that Simon Property Group settled claims that it used anticompetitive tactics to prevent development of competing outlet centers close to Woodbury Common center in New York. Leases with retailers at Woodbury Common included a clause preventing the retailers from opening another location within a 60 mile radius of the outlet center—a radius that encompassed the entire New York City area.