In This Issue:

  • Regulatory Whack-a-Mole: A Renewed Focus on Non-Hazardous Waste Recycling
  • Court Tosses Comparative Pricing Suit for Lack of Injury
  • Misclassification Suit Against Lyft Brakes Into Settlement Deal
  • A Sticky Situation: Glue Company Faces Suit From FTC
  • Challenge to Handmade Vodka Moves Forward in New York
  • New TCPA Suit Focuses on Texts Sent After Opt-Out, Extra Messages
  • Complimentary Breakfast and Briefing: Tracking the 2016 Initiatives From the EEOC, the DOL and the NLRB

Regulatory Whack-a-Mole: A Renewed Focus on Non-Hazardous Waste Recycling

Authors: Matt Dombroski and Ted Wolff

Why it matters

In part due to a string of high-profile enforcements in multiple states, retailers by and large have evaluated the need to implement hazardous waste management regimes and, where necessary, have implemented sophisticated hazardous waste training and environmental management programs to ensure compliance with federal and state hazardous waste laws. In the game of regulatory whack-a-mole, however, retailers must keep one eye looking forward to emerging areas of regulatory focus while simultaneously keeping one eye looking back to ensure continuing compliance in existing areas of regulatory focus. Indeed, while regulatory attention has been focused on hazardous waste management for some time, retailers should be aware that some states are beginning to turn their attention to the management—specifically, recycling—of non-hazardous waste items such as cardboard, paper, glass, plastic, and metal.

Detailed discussion

Several states—including California, Connecticut, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Wisconsin, among others—maintain some sort of mandatory non-hazardous waste recycling requirement.

California's mandatory commercial recycling law is implemented largely by local governments and requires businesses—including retailers—that generate four or more cubic yards of solid waste (including plastic, glass, cardboard, and metal) per week to recycle such waste. Compliance with California's law can be accomplished by self-hauling or arranging for the pickup of such materials by a third party. Likewise, Connecticut's mandatory recycling law requires businesses and individuals to recycle bottles, cans, newspaper, and cardboard. In New Jersey, no fewer than 35 different categories of materials are subject to mandatory recycling by commercial entities—including retailers—on a county-by-county basis. There is significant variability among counties. For example, while every county requires mandatory recycling of corrugated cardboard and glass containers, most (but not all) counties require recycling of plastic and mixed paper, one county requires recycling of polystyrene, and one county requires recycling of food waste.

In addition to the states mentioned above, we are aware of mandatory non-hazardous waste recycling requirements in the District of Columbia, Maine, Pennsylvania, Rhode Island, Wisconsin, and certain municipalities in Massachusetts, New Hampshire, New York, Vermont, and West Virginia.

As mentioned above, various states, including California and Connecticut, are currently engaged in environmental enforcement initiatives targeting retailers and are raising questions regarding those companies' recycling program compliance. Connecticut regulators, for example, are identifying and enforcing violations of both hazardous waste management and non-hazardous waste recycling requirements as part of waste enforcement inspections.

To ensure compliance with these requirements, retailers should ensure that all locations in jurisdictions with mandatory recycling requirements are implementing an appropriate non-hazardous waste recycling program. Such a program should include, at a minimum, display materials identifying the types of materials that must be recycled and containers for the collection of such wastes (either as "single source" or separated streams, as appropriate). Retailers may also consider preparing and implementing brief written non-hazardous waste recycling training materials, as well as maintaining metrics of recycled waste volumes to demonstrate compliance with the recycling requirements.

Court Tosses Comparative Pricing Suit for Lack of Injury

Why it matters

In an important development for retailers coping with the new trend of deceptive pricing class actions, a Massachusetts federal court judge threw out a suit against Kohl's Department Stores over "comparison prices."

Given the trend of deceptive pricing litigation sweeping courts across the country, the decision in this case is a positive sign for retailers facing such cases. The court was clear: even if the plaintiff regretted her purchase, "it appears that she paid $40.78 for items that were, in fact, worth $40.78," the judge wrote. "The fact that plaintiff may have been manipulated into purchasing the items because she believed she was getting a bargain does not necessarily mean she suffered economic harm."

Detailed discussion

Ellen Mulder visited a Kohl's store in Hingham, Massachusetts, in November 2014. According to her complaint, she observed at least two price tags that displayed comparison prices: one represented the manufacturer's suggested retail price as having been $55 and another displayed an undefined comparison price of $26. The products were listed as being on sale for $29.99 and $17.99, respectively.

"Enticed by the idea of paying significantly less than the comparison pricing price," Mulder purchased both items. She then filed suit alleging violations of the Massachusetts state law and the Federal Trade Commission Act as well as fraud, breach of contract, and unjust enrichment. In response, Kohl's filed a motion to dismiss.

Finding that Mulder suffered no harm, U.S. District Court Judge F. Dennis Saylor granted the motion.

"[I]t is superficially appealing to conclude that plaintiff has suffered a cognizable 'injury' under the law," the court said. "The requirements of misrepresentation and causation have been met: plaintiff alleges that she was unfairly induced into making a purchase that she would not have made, but for the misrepresentation. And the transaction was arguably to her detriment; she would rather have her money—which she could use to purchase other things—than the items." But this was insufficient, Judge Saylor wrote.

"The law requires more than misrepresentation, causation, and a potential remedy: it requires a legally cognizable 'injury,' " the court said. "There does not appear to be such an injury here. Plaintiff has not suffered an economic injury; among other things, she has suffered no loss, and there is no sum of money that could be awarded to her that could 'compensate' her without providing a windfall."

For similar reasons, the court dismissed Mulder's claims of breach of contract, fraud, and unjust enrichment. Because proposed amendments to the complaint would be futile, the court also denied Mulder's request to file an amended version and granted Kohl's motion to dismiss on all counts.

To read the order in Mulder v. Kohl's Department Stores, Inc., click here.

Misclassification Suit Against Lyft Brakes Into Settlement Deal

Why it matters

To settle charges in California federal court that its drivers were mischaracterized as independent contractors and not employees, ride-sharing company Lyft has agreed to pay $12.25 million—but refused to alter the classification of its drivers going forward. Requesting preliminary approval of the deal, the class revealed that Lyft also promised to make changes to its terms of service that will provide drivers with greater protections, such as removing the current at-will termination provision and providing that Lyft will bear the costs of arbitration for claims brought by drivers related to certain issues (deactivation of driver status, payment, or employment relationship). The non-reversionary settlement fund will be paid out to class members at different rates, with those who drove for 30 hours or more each week for more than half of the weeks at issue receiving larger payments than those with fewer hours.

In a statement, class counsel acknowledged that the deal "does not achieve everything we had hoped for," but said it "will result in some significant changes that will benefit the drivers." Lyft's general counsel said the company was "pleased to have resolved this matter on terms that preserve the flexibility of drivers to control when, where and for how long they drive on the platform and enable consumers to continue benefitting from safe, affordable transportation." Competitor Uber is facing similar litigation, with trial set for June.

Detailed discussion

In 2013, a group of drivers filed suit against Lyft, Inc., accusing the ride-sharing company of violating multiple provisions of California's Labor Code. In addition to misclassifying them as independent contractors and not employees, the plaintiffs alleged, Lyft failed to reimburse them for work-related expenses, pay the required minimum wage, and neglected to furnish accurate wage statements.

The parties engaged in discovery and pretrial motions before mediating the case and reaching a settlement agreement. The deal features a non-reversionary payment in the amount of $12,250,000 as well as forward-looking nonmonetary relief in the form of changes to Lyft's business practices.

Specifically, the employer agreed to remove the current at-will termination provision and replace it with one that allows Lyft to deactivate drivers from its system only for specific, delineated reasons or after notice and an opportunity to cure. In addition, the revised terms of service will provide that Lyft will pay for the arbitration fees and costs unique to arbitration for claims brought by a driver against the employer related to a driver's deactivation, pay-related issues, or alleged employment relationship with Lyft.

Other protections for drivers include the creation of an option that will allow riders to designate their "favorite" driver, a selection that will entitle the driver to additional benefits. "Together, the non-monetary changes provide Drivers a real benefit and a practical mechanism through which they can challenge terminations that they contend violate Lyft's contract and disputes relating to compensation," according to the plaintiff's motion for preliminary approval of the settlement agreement.

As for payment of the fund, the plan of allocation is based on a points system to reflect the amount of work performed by drivers. Each driver that submits a claim will be allocated a number of points reflecting the amount of time he or she was in "Ride Mode," including the time when a driver was en route to pick up a rider, after accepting a ride request, and the time spent actually transporting a rider.

This base number of points will be enhanced under two circumstances: a 50 percent increase for drivers who worked more than 30 hours per week in at least 50 percent of their weeks worked (class members who arguably have the strongest claims on the merits) and a 20 percent bump for those who drove during a specified time period when payments for rides were voluntary.

The decision to settle was based in part upon the risks of continued litigation, the motion noted, including the challenges presented by Lyft's arbitration provision. Approximately 75 percent of the drivers are subject to an arbitration agreement that features an express class action waiver, presenting a "roadblock" in the case and "hurdles" to class certification.

The plaintiffs acknowledged that the settlement did not resolve the central issue of the dispute but argued it offered a positive deal for the drivers. "While the agreement does not require Lyft to reclassify its Drivers as employees, it will provide significant benefits and added protections to Lyft Drivers that they do not currently have, require changes to Lyft's business practices that are more consistent with an independent contractor relationship, and provide monetary relief proportional to both the strength of the Drivers' claims and the amount of time they have driven for Lyft," according to the motion.

To read the motion in support of preliminary approval of the settlement in Cotter v. Lyft, Inc., click here.

A Sticky Situation: Glue Company Faces Suit From FTC

Why it matters

The Federal Trade Commission has been active in enforcing national origin claims in recent years, reminding advertisers that the FTC's Enforcement Policy Statement on U.S. Origin Claims requires that products labeled or advertised as "Made in the USA" must be "all or virtually all" made in the United States. State regulators, particularly in California where the state amended its national original law last year, may also institute enforcement actions.

Recently, "Made in the USA" claims were at issue in another FTC lawsuit, this time filed against Chemence, Inc., the maker of glue products such as Kwik Frame, Kwik Fix, and Krylex.

Detail discussion

Although Chemence touted its fast-acting glues as "Made in the USA" and "Proudly Made in the USA," approximately 55 percent of the product cost is attributable to imported chemicals that are essential for the glue to function, the agency said.

In addition to its own unqualified deceptive claims, Chemence assisted third parties in duping consumers, the FTC alleged. The defendant also manufactures cyanoacrylate glues marketed under the brand names of other retailers, and by supplying "Made in the USA" marketing materials to those sellers to promote the glue products, the company provided others with the "means and instrumentalities" to deceive consumers in violation of the Federal Trade Commission Act.

The complaint, filed in Ohio federal court, requests monetary relief and an injunction that would permanently prohibit the defendant from making claims in violation of the Federal Trade Commission Act.

"For many shoppers, a claim that a product is made in the USA is a big selling point," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement about the action. "Companies should not overstate the amount of U.S. content their products actually contain."

To read the complaint in FTC v. Chemence, Inc., click here.

Challenge to Handmade Vodka Moves Forward in New York

Why it matters

A reasonable consumer could be misled by the label on Tito's Handmade Vodka, a New York federal court judge ruled in denying the manufacturer's motion to dismiss a putative class action suit alleging false advertising. The court determined that United States Alcohol and Tobacco Tax and Trade Bureau (TTB) approval does not create a safe harbor. Just because the federal agency reviewed the label, it did not conclusively determine that every claim that appeared on it complied with state law, the court found. The court allowed the false advertising suit to move forward, as the record failed to reveal that the TTB evaluated the merits of Tito's use of the term "handmade."

However, the ruling conflicts with other recent orders regarding the use of the term "handmade" in spirits advertising. For example, in Nowrouzi v. Maker's Mark Distillery, Inc., California Judge John A. Houston determined that the "handmade" claim was not a specific and measurable claim that could reasonably be understood to mean that "no equipment or automated process was used to manufacture the whiskey." Similarly, in September 2015, Florida Judge Robert Hinkle largely dismissed Shalinus Pye et al. v. Fifth Generation, Inc., case number 4:14-cv-00493 (N.D. Fla.), a proposed class action against Tito's after finding that the Oxford English Dictionary definition of "handmade" could not be used to literally describe vodka. Judge Hinkle also tossed a similar class action against Maker's Mark Distillery with similar allegations (Salters et al. v. Beam Suntory Inc. et al., case no 4:14-cv-00659 (N.D. Fla.)).

Detailed discussion

New York resident Trevor Singleton accused the company of deceiving consumers with label claims that its vodka is "Handmade" and "Crafted in an Old Fashioned Pot Still by America's Original Microdistillery." In addition, according to the complaint, the company's website repeatedly used the term "handcrafted" and explained the vodka is "made in small batches in an old fashioned pot still" and uses a "time honored method of distillation [that] requires more skill and effort than modern stills."

Singleton alleges, however, that Tito's vodka is actually manufactured and produced in "massive buildings containing ten floor-to-ceiling stills and bottling 500 cases per hour," and that the company misled consumers in an effort to capitalize on their preference for higher-quality vodka by charging a premium for its products. Singleton also alleged that the Distilled Spirits Council of the United States defines "craft spirits" as spirits produced in quantities under 40,000 cases a year—far fewer than Tito's allegedly produces.

Tito's countered with a motion to dismiss, arguing that federal and state regulatory approval of the Tito's Handmade Vodka label created a safe harbor that barred all of the plaintiff's claims. Failing that, the defendant told the court the plaintiff failed to state a claim under New York's prohibition on deceptive acts or practices.

New York General Business Law Section 349(d) states: "In any such action it shall be a complete defense that the act or practice is, or if in interstate commerce would be, subject to and complies with the rules and regulations of, and the statutes administered by, the federal trade commission or any official department, division, commission or agency of the United States as such rules, regulations or statutes are interpreted by the federal trade commission or such department, division, commission or agency or the federal courts."

Because TTB approved Tito's label, the company was safe from suit, it said.

But U.S. District Court Judge Brenda K. Sannes disagreed.

To receive a certificate of label approval (COLA), an entity must satisfy regulations that include a prohibition on using misleading brand names, or using labels that contain any false or untrue statements. Although Tito's argued that by approving its label the TTB determined it had complied with federal regulations and found the term "handmade" to be neither false nor misleading, the plaintiff said the TTB simply took the term at face value.

No New York court has applied a COLA from the TTB to a false advertising suit, the court said, and a review of cases from other jurisdictions involving similar safe harbor provisions and TTB approval of labels for alcoholic beverages yielded mixed results. Courts in California and Florida agreed with defendants, while different California courts (including in a case with nearly identical facts) and another in Illinois have sided with plaintiffs.

"In this case, based on the COLAs before the Court, it is not clear whether the TTB has determined that each representation on Tito's labels complies with the relevant regulations, as required to apply the safe harbor," the court said. "The record does not reflect whether the TTB investigated or ruled upon the representations that Tito's vodka is 'handmade' and 'crafted in an old-fashioned pot still.' The COLAs filled out by Defendant and certified by Defendant to be true and correct are simply market approved by the TTB."

In contrast, when Tito's added the term "Gluten-Free" to its labels, the COLAs approved the label based on a specific TTB ruling, pending rulemaking on gluten-free references by the Food and Drug Administration, the court noted.

"Although Defendant claims that the TTB specifically investigated and approved the 'Handmade' representation on the Tito's label, those facts are not properly before the Court," Judge Sannes wrote. "Moreover, the COLA application form states that the issuance of a certificate does not relieve Defendant from liability for violations of the Federal Alcohol Administrative Act, which itself prohibits false and misleading labeling, suggesting that TTB approval is not intended to carry preemptive weight."

As for the sufficiency of the plaintiff's claims, the court found Singleton had met his burden to survive a motion to dismiss. Applying an objective standard, and using the plaintiff's definition of handmade to encompass a product made with "certain basic tools … without complex automated machinery," the judge found that a reasonable consumer could be misled by the "handmade" language.

In particular, the court noted that together with language about use of an "old-fashioned pot still," the "handmade" claim "may suggest a hands-on, small-batch process that is not automated," when it is allegedly mass-produced in a highly automated one. "At this stage of the case, Plaintiff has plausibly alleged that Defendant's labels are deceptive or misleading in a material way because Tito's vodka is not made in a hands-on, small-batch process," Judge Sannes said. The plaintiff had stated an actual injury, she added, by alleging he paid a premium for the vodka.

The court did throw out Singleton's claims for breach of express warranty and negligent misrepresentation but allowed a claim for intentional misrepresentation to move forward.

To read the decision in Singleton v. Fifth Generation, click here.

New TCPA Suit Focuses on Texts Sent After Opt-Out, Extra Messages

Why it matters

Telephone Consumer Protection Act suits show no signs of abating, with a new putative class action suit filed against Dick's Sporting Goods.

This complaint focuses on perhaps a new trend of litigation—a violation of the statute where a consumer opted out from his earlier consent to receive marketing materials, but continued receiving marketing messages by text.

Detailed discussion

In the suit, Philip Nghiem accused Dick's Sporting Goods of violating the TCPA by continuing to send text messages after he elected to stop receiving them. The California resident enrolled in Dick's mobile alert program by text messaging the word "JOIN" to the specified short code in May 2015. He opted out of the program on December 6, 2015, according to the complaint, by texting the word "STOP" to the same short code and received a confirmation message that he had been unsubscribed.

Despite his request, the defendant texted him eight more times, Nghiem said, in violation of the TCPA. Seeking to certify a nationwide class of "hundreds, if not thousands" of class members, the suit requests treble damages for each text. It's unclear whether the additional texts were sent because Dick's experienced technological problems.

To read the complaint in Nghiem v. Dick's Sporting Goods, click here.

Complimentary Breakfast and Briefing: Tracking the 2016 Initiatives From the EEOC, the DOL and the NLRB

2016 promises to be a challenging year for employment and wage and hour compliance. The Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) have been ramping up enforcement efforts, targeted investigations, audits and litigation. The EEOC recently unveiled changes to so-called employer information reports requiring federal contractors and other employers with more than 100 workers to report more compensation data than previously required in order to uncover incidents of potential wage discrimination. The DOL and the National Labor Relations Board (NLRB) have also increased their enforcement efforts, including those related to joint employer liability.

To explore the new and expanding initiatives undertaken by various state and government agencies, Manatt invites you to attend informative breakfast and briefings on March 24, 2016 (Orange County, California); April 13, 2016 (New York City); and April 20, 2016 (San Francisco, California). These programs will focus on some of the most relevant updates for employers and provide practical tips in minimizing risk and effectively responding to this changing landscape.

Please click here for more information about the events closest to you.