Hunton Retail Law Resource

The CPSC has flexed its regulatory muscle during the first months of 2018 with respect to products that pose risks to children. With the U.S. Department of Justice’s (“DOJ’s”) help, the CPSC secured a $5 million civil penalty against a drug company for its allegedly deficient child-resistant packaging. In December, the DOJ filed a complaint in federal court against the drug company alleging that it knowingly violated the Poison Prevention Packaging Act and the Consumer Product Safety Act by distributing five household prescription drugs with non-compliant child-resistant packaging and failing to report the noncompliance to the CPSC. The complaint alleges that the drug company’s engineers drafted a “risk analysis” memo identifying the packaging as non-compliant. Rather than halt distribution and immediately report the non-compliance to the CPSC, the drug company continued distribution with non-compliant packaging while concurrently developing compliant packaging. The company also waited nearly 15 months before notifying the CPSC of its non-compliant packaging. In January, the federal court entered a consent decree for the matter. The drug company agreed to pay a $5 million civil penalty, implement and maintain a compliance program, and maintain and enforce a system of internal controls and procedures.

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

TA Sciences Prohibited from Making False and Unsubstantiated Health Claims

Telomerase Activation Sciences, Inc. (“TA Sciences”) has agreed to stop making certain claims as to the anti-aging and other health properties of two of its supplement products, in response to FTC allegations that it made false or unsubstantiated claims regarding the products’ health benefits. The FTC’s order prohibits TA Sciences from misrepresenting that its products are clinically proven to reverse human aging, prevent or repair DNA damage, restore aging immune systems or increase bone density, or misrepresenting that such evidence or studies exists. The order also prohibits the company from (1) representing that paid commercial advertising is independent programing; (2) failing to disclose material connections between a product endorser and the company; (3) representing that any endorser is an independent user of the product; or (4) helping anyone else make false or misleading health and efficacy claims about its products.

This was a breakout year for blockchain, the technology providing the platform for cryptocurrencies and the emerging market for initial coin offerings and token sales. With bitcoin capturing headlines because of its soaring price, blockchain’s impact is often misunderstood as narrowly affecting the financial sector. Hunton & Williams LLP’s corporate lawyers Scott H. Kimpel and Mayme Beth Donohue discuss with Law360 why “retail and consumer products companies can no longer afford to ignore blockchain as a passing trend.”

In a highly anticipated opinion, a Federal Judge in California ruled in favor of GrubHub, an internet food ordering service, finding it properly classified a delivery driver as an independent contractor.

In Lawson v. GrubHub, the plaintiff, a delivery driver, alleged that GrubHub violated California’s minimum wage, overtime and employee expense reimbursement laws by misclassifying him as an independent contractor when he was really an employee. He brought the case on behalf of himself and as a representative action pursuant to the California Private Attorney General Act.

A local newspaper, The Desert Sun, has reported that downtown Palm Springs is in the midst of an economic revitalization. Locals have noticed an increase in foot traffic with the opening of several new stores (including Starbucks, MAC Cosmetics and H&M), and further development is planned. The city held a “grand opening” for the area in late 2017, and Palm Springs city council member Christy Holstege has even referred to a “Palm Springs renaissance.”

On February 15, 2018, by a vote of 225 to 192, the House of Representatives passed the ADA Education and Reform Act (HR 620). Title III of the Americans with Disabilities Act (“ADA”) was enacted to ensure access for persons with disabilities to public accommodations. Too often, however, serial litigants have abused Title III to shake down businesses for quick settlements over minor, technical violations without actually seeking to improve access. By amending the ADA to include a notice and cure provision, proponents of HR 620 say this bill will curb predatory public accommodations lawsuits brought by serial plaintiffs and their lawyers against businesses. 

Two recent decisions out of California—one in state court and one in federal—provide defendants new ammunition for defeating class certification. The Ninth Circuit’s decision in In re Hyundai & Kia Fuel Economy Litigation and the Fourth District Court of Appeal’s decision in Apple Inc. v. Superior Court have important implications for California retailers opposing class certification. But Hyundai also poses challenges to retailers looking to settle class claims on a nationwide basis.

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

Advertising Agency Pays $2 Million to FTC and State of Maine to Settle Unsubstantiated Weight-Loss Claim

The FTC and the State of Maine have settled a case against ad agency Marketing Architects, Inc. (“MAI”) for MAI’s role in creating and disseminating deceptive radio ads replete with unsubstantiated claims for weight-loss products. MAI had been retained to create the ads by dietary supplement supplier, Direct Alternatives, Inc., whom the FTC and Maine had sued in 2016. Under the agreement with MAI, the ad agency is banned from making any of the seven “gut check” weight-loss claims that the FTC has publicly advised are always false. MAI also must have competent and reliable science to support weight-loss claims and must not misrepresent facts relating to return and cancellation policies of the products marketed. Finally, the order imposes a $2 million judgment on MAI, which may be used to provide refunds to consumers harmed by the conduct.

Once the sole province of hedge funds and special interest groups, many mainstream institutional investors have now also embraced a more activist perspective with regard to their portfolio companies. In his most recent letter to CEOs, Blackrock chairman Larry Fink advocated in favor of a series of Environmental-Social-Governance (“ESG”) issues and rhetorically asked companies, “What role do we play in the community?” Other institutional money managers, like New York City’s Comptroller Scott Stringer, have also accelerated their ESG-focused shareholder activism in recent years, targeting well-known retailers such as Kroger, Walmart and Home Depot in the process. 

Recently, President Trump announced that he sent names of four nominees to serve as commissioners on the five-member Federal Trade Commission (“FTC”) to the Senate for approval. If all four of the nominees are confirmed, it will still leave one remaining vacant seat on the FTC, which has been operating as a bipartisan two-member interim agency since early last year. The nominees, three of whom were announced last fall, consist of three Republicans—Joseph Simons, Noah Phillips and Christine Wilson—and one Democrat, Rohit Chopra.