A Contract Provision Often Overlooked By Manufacturers

Most manufacturers scrutinize indemnification clauses in contracts to determine what liability they might be taking on if something goes wrong in a transaction or sale.  A typical indemnification clause will also provide that the party that indemnifies the other must pay that other party’s legal fees if a lawsuit is brought by a third party.

Over the past several years, however, there is a growing trend in business to business disputes that warrants attention.  Companies are starting to use these indemnification clauses (and their requirement that the other side pay fees) in direct actions against the other contracting party.  For instance, imagine that your customer alleged that you breached their supply contract and then demanded not only damages under the contract but that you have to pay their legal fees in suing you!

Unfortunately, absent some language prohibiting such an argument, the courts are split on this issue.  In New York, for instance, the courts have held that the parties are responsible to pay their own fees absent clear language in the contract to the contrary.  Other states, however, take the opposite approach and impose the requirement that the contract must limit indemnification to “third party” claims.

For that reason, we have developed specific language that we include in manufacturing contracts that provides that intra-party claims are not covered by the indemnification provision.  If you have any questions on this topic, please feel free to contact me at jwhite@rc.com.


Top 10 OSHA Violations of 2016

Every year, OSHA releases a list of the 10 most frequently cited violations, which, for 2016, were accumulated by reviewing the nearly 32,000 workplace inspections conducted by OSHA staff. The list for 2016 looks a whole lot like the list for 2015 and the preceding years. As OSHA notes, “it rarely changes.” The top 10 violations for 2016 were:

  1. Fall protection
  2. Hazard communication
  3. Scaffolds
  4. Respiratory protection
  5. Lockout/tagout
  6. Powered industrial trucks
  7. Ladders
  8. Machine guarding
  9. Electrical wiring
  10. Electrical, general requirements

While this list might not look new, it is a good reminder of the issues OSHA will focus on during its next inspection. As we previously reported, the fall protection standards for general industry were recently revised to allow for greater flexibility by allowing a variety of fall protection measures in different circumstances, so manufacturers may want to inform themselves of these new options.

Other violations on this list often arise out of insufficient planning, communication, and/or training. By implementing and carrying out better training and communication, manufacturers may be able to reduce the likelihood of any number of the violations on this list.

Keurig Settlement An Expensive Reminder About Product Defect Reporting Obligations

This week, we welcome a post from Jim Ray, a partner in the Hartford office of Robinson & Cole LLP.  Jim’s practice includes environmental and product liability litigation and counseling, and he has assisted a number of clients implementing voluntary corrective actions under the CPSC Fast Track recall program.

The United States Consumer Product Safety Commission (CPSC) recently announced a $5.8 million agreement with Keurig Green Mountain, Inc. settling claims that Keurig failed to report a product defect that posed an unreasonable risk of serious injury to consumers.  The CPSC alleged that Keurig’s MINI Plus Brewing Systems could spray users with hot water, coffee, and coffee grounds.

Between 2010 and 2014, Keurig received about 200 reports of hot water and coffee spraying out of the machines, more than half of which resulted in injury.  A number of users sought medical treatment for severe burns, one was seen by a plastic surgeon, two had facial scarring, and one had an eye injury.  In two instances, retailers asked Keurig to conduct a product safety investigation.

It was not until June 2014 that Keurig initiated an investigation of the brewers.  However, Keurig did not submit a full report with the CPSC until the end of November 2014.  In December 2014, Keurig and the CPSC jointly announced a recall of more than 6 million brewers.

Section 15 of the Consumer Product Safety Act (CPSA) requires manufacturers, distributors and retailers of consumer products to immediately notify the CPSC when they learn that a product, among other things, “contains a defect which could create a substantial product hazard” or “creates an unreasonable risk of serious injury or death.”  A product defect can create a substantial product hazard when it poses a substantial risk of injury to the public.  In evaluating this, the company should consider the number of products in commerce, the pattern of the defect, and the severity of the potential injuries that could result.  Section 37 of the CPSA, though not implicated in the Keurig matter, also requires reporting to CPSC when at least 3 lawsuits have settled or gone to judgment in favor of the plaintiff in a 24 month period in which allegations were made that use of a product resulted in death or grievous bodily injury.  The CPSA provides for penalties of up to $100,000 per violation for knowing violations.

The CPSC alleged that Keurig failed to notify CPSC despite having “information reasonably supporting the conclusion that the Brewers contained a defect and created an unreasonable risk of serious injury.”  The CPSC also alleged that once Keurig initiated an investigation to evaluate its reporting obligations, it took more than 4 months to complete it (considerably longer than the 10 days CPSC considers reasonable.)  Keurig denied the CPSC’s allegations, claiming that the voluntary recall was done out of an abundance of caution without the firm having concluded that the product contained a defect or posed an unreasonable risk of injury.

The Keurig case serves as reminder to those manufacturing, distributing or selling consumer products of the serious nature of product defect reporting obligations.  Those entities should also be aware of the CPSC Fast Track recall program, under which companies can quickly implement a corrective action program to remove potentially unsafe products from the marketplace.  For those companies considering such a recall, CPSC will provide significant assistance and will refrain from making a preliminary determination that the product contains a defect that creates a substantial product hazard.

Surpassing Even My Expectations, Predictions Come True

Last month, in my “Manufacturing Law Predictions for 2017: Labor and Employment” posting, I wrote:  “Expect at least some high-profile workplace ‘raids’ to round up undocumented workers and substantial fines on the employers which have hired them.”  On Monday, the Department of Homeland Security announced that it had concluded the round-up of 680 undocumented workers in multiple states.  “680 Immigrants Arrested in Week-Long Roundup, DHS Chief Says.”  While these arrests do not appear to have targeted manufacturers or other employers hiring undocumented workers, backlash from civil rights and other advocacy groups likely will pressure the administration to punish those companies profiting from such unlawful hiring.

This would be a good time for manufacturers and the subcontractors which supply services to them to make sure their own paperwork is all in proper order.


Lawsuit Proceeds Against Monsanto for Manufacture of PCBs

Last year, we told you about a lawsuit brought by three California cities against Monsanto Company, alleging that Monsanto is liable for PCB (polychlorinated biphenyl) contamination in San Francisco Bay. The cities—San Jose, Berkeley, and Oakland—sued Monsanto for allegedly creating a public nuisance not by discharging PCBs, but just by manufacturing them.

In September 2016, the court dismissed the suit, holding that the cities had not alleged a property interest in the contaminated water in question, a requirement of California public nuisance law. However, the court allowed the cities to amend their complaint, and the cities took advantage of that opportunity.

The cities filed an amended complaint, setting forth their property interest in the water in greater detail. Once again, Monsanto moved to dismiss the complaint. This time, however, Monsanto was not successful. Not only did the court hold that the cities sufficiently alleged a property interest in the water, but it held that the cities had adequately pled that Monsanto caused the nuisance.

In their amended complaint, the cities allege that “Monsanto knew PCBs were dangerous, concealed that knowledge, promoted the use of PCBs in a range of applications, and gave disposal instructions that were likely to cause contamination.” The cities allege that Monsanto provided an incinerator for the disposal of liquid PCB waste, but it just instructed customers to dispose of solid PCB waste in “a well operated, properly operated landfill . . . .”

Monsanto countered these allegations noting that there were no regulations at the time to prevent disposal of PCB waste in landfills, and that its recommendations regarding disposal were not mandatory. Despite that, the court found that the cities allegations were “sufficient to show a causal connection between Monsanto’s actions and the alleged public nuisance.”

Monsanto further argued that any alleged contamination was caused by third parties who were actually responsible for the disposal of the PCBs. The court disagreed. According to the court, under California law, third party actions do not preclude Monsanto’s liability if the acts are “reasonably foreseeable, and should have been anticipated.” And, based on the cities’ allegations, widespread PCB contamination was reasonably foreseeable. In addition, the court distinguished other cases in which manufacturers were not held liable by noting that the cities allege that Monsanto is directly liable for the nuisance because they gave improper disposal instructions.

Ultimately, the court denied Monsanto’s motion to dismiss, but granted Monsanto the opportunity to file another motion to dismiss or stay the case based solely on whether the cities had exhausted their administrative remedies.

Unfortunately for manufacturers, this case is not an anomaly. There is a growing trend in the pursuit of public nuisance claims against manufacturers, in part as a way to side-step traditional products liability laws. And with this victory, plaintiffs may gain some traction—at least for now—to pursue similar claims against other manufacturers.

The cases, pending in the U.S. District Court for the Northern District of California, are City of San Jose v Monsanto Co. et al., No. 5:15-cv-03178; City of Oakland v Monsanto Co. et al., No. 5:15-cv-05152; and City of Berkeley v. Monsanto Co. et al., No. 5:16-cv-00071.

What Will 2017 Bring For Manufacturers: Environmental, Health & Safety Edition

This post is the last in our three-part series about what manufacturers can expect in 2017. In my humble opinion, we saved the best for last – Environmental, Health & Safety.

Citizen Science

With increasing awareness of environmental issues and advancing monitoring technologies comes a rise in citizen science. Citizens—be it a single person or a community group—are increasingly relying on their own data and devices to evaluate a host of environmental and product issues. Readily available and portable monitoring technology allows citizens to test the air at a factory fence line, water discharges, even product contents, in a quick and efficient manner.

While many citizens are not actually using this data to bring lawsuits, they are at least using it to for screening purposes. The citizen-gathered data may lack the reliability that comes from professionally collected data, but it is not entirely inaccurate. At the very least, citizens are and will continue to use this data as a negotiating tool, and it may lead to the collection of further—and more reliable—data that may be presented to a government agency or used against manufacturers in a lawsuit.

Novel Theories of Liability for Manufacturers

We all know that there is an extensive network of environmental laws in the United States that, for a number of environmental problems, defines unlawful behavior, the liable parties, and even the policies and procedures to remedy a potential problem. But when that network of environmental laws does not provide a satisfactory solution, public entities have not hesitated to turn to alternative methods to protect human health and the environment. We have previously reported on the cases being advanced by a number of west coast cities against Monsanto Company, alleging that Monsanto created a public nuisance solely by manufacturing polychlorinated biphenyls (PCBs). And a California court has already held lead pigment manufacturers liable for creating a public nuisance by manufacturing lead pigment, which was subsequently used to manufacture lead paint, which was subsequently used in buildings throughout the state.

If the laws and regulations do not provide a mechanism to bring a claim against a manufacturer, the question of legal liability will not stop there. In 2017, we can expect manufacturers to be subject to claims for liability, perhaps from where we least expect it.

Increased Visibility of Violations, Worker Injuries and Illnesses

It is 2017, and the federal government is finally making its way into the digital age. Across the board, more agencies are requiring electronic submission of information, and they also plan to publicize this information electronically. From environmental permit monitoring requirements to Occupational Safety and Health injury and illness reports, 2017 will usher in increased visibility of a company’s data and information. The agencies have all announced varying rationales for this increased transparency, from nudging business towards better health and safety practices to increasing public outcry. But whatever the motive, with increased information will likely come increased enforcement.

Rise of NGO Enforcement

It goes without saying that it is hard to crystal ball where we will be in the regulatory arena a year from now. Just yesterday, President Trump signed an executive order announcing that, for every new regulation, any agency must identify at least two existing regulations to be repealed. While we have yet to see this order implemented, it is clear that this administration is intent on reducing regulations across the board.

A reduction in regulations, however, will not necessarily mean a lack of enforcement; it may just mean a change in the enforcer. Since Trump’s victory, money has been pouring in to non-governmental organizations (NGOs) aimed at protecting the environment. These organizations may face legal challenges in the face of a lax regulatory environment, but we can expect them to get creative with novel legal theories to protect the environment. And while many of these theories will likely be advanced against the current administration, the business community will be part of the mix as well.

Manufacturing Law Predictions for 2017:  Labor and Employment

As has been our tradition, January is the time to predict the big developments in the coming year which will impact on manufacturers.  Notwithstanding my “Lawyer’s Shrug,” here is my take on 2017.

Minimum Wages.  Even though President Trump ran on a populist platform to raise wages for American Workers, I believe it unlikely Congress will raise the minimum wage in 2017 and I believe the Department of Labor will halt its efforts to revise upward the minimum salary threshold for white collar workers.  I expect to see more states, however, raise the mandated minimum wage for hourly workers and (like the New York recent wage order) raise the salary threshold for exempt employees.  These changes impact greatest on manufacturers with multi-state locations and in lower wage localities.  Expect greater enforcement actions by state governments and the private plaintiffs’ bar.

The National Labor Relations Board.  President Trump will likely nominate two Republican conservatives to fill vacant positions on the NLRB.  Additional vacancies which arise during the next four years may be filled by either conservative Democrats or conservative unaffiliated or third party nominees.  Expect to see the beginning of the roll-back on the pro-labor initiatives of the Obama-era.  I do not expect to see a repeal of the NLRB’s “Quickie Election Rule” in 2017, although I would not be surprised if the amendment process was begun toward the middle or end of 2017.  I just do not think there is enough time to complete the appointment and amendment process in the remaining eleven months.

Immigration.  I do not expect Congress will provide any meaningful guidance on immigration.  Expect at least some high-profile workplace “raids” to round up undocumented workers and substantial fines on the employers which have hired them.

Multi-Employer Pension Plans.  Several multi-employer pension plans are expected to become insolvent in 2017.  Under the current statutory scheme, once insolvent, the Pension Benefit Guarantee Corporation (PBGC) assumes management of the fund and cuts benefits for all participants.  As the first funds begin to fail, the PBGC will again warn Congress and the President that it does not have sufficient funds to cover the expected shortfall in subsequent years.  My hope is that these events will cause Congress to revisit the impending crisis and develop a plan for the long term.  While that may be my hope, I do not expect it to happen in 2017.  Rather, I expect the Treasury Department to begin approving so-called “Rescue Plans” submitted under the 2014 Multi-Employer Pension Reform Act.  (None of the plans to have been submitted under that law have been approved as of yet.)

I think these predictions are reasonably safe bets.  That said, I can also safely predict that after the last eight years of the Obama Administration, the sudden change in governing philosophy will come with some unexpected surprises.

Things Manufacturers Should Be Watching In 2017 In The Areas of Corporate Compliance / Litigation

As is our annual tradition, this is the first in a series of posts that provide industry and legal outlooks for manufacturers as we head into 2017.  I will start with corporate compliance and litigation.  Matt will follow with labor/employment.  And, Megan will conclude the series with Environmental Health & Safety (EH&S).

Here are issues I will be watching in 2017.

  • Will Conflict Minerals Compliance Become More Complicated? 

In 2017, we will be watching as the European Union continues down the path of adopting comprehensive conflict minerals regulations relating to the importing of certain materials.  The EU proposal is broader in geographic scope than the U.S. law, but applies to a narrower set of companies (mostly, importers).  In addition, we will see if Congress amends the U.S. law, which continues to be heavily scrutinized.

  • What will be the ultimate impact of the Volkswagen Scandal?

As 2016 ended, Volkswagen continued to reach agreement on billions of dollars of fines and continue to face widespread litigation.  This past week, there was word that one of the company’s in-house lawyers could be implicated in the criminal investigation.  What remains to be seen is whether the scandal is an isolated incident or a warning bell to manufacturers across the world.

  • Is IoT Here To Stay?

One of the hottest industry issues in 2016 was the IoT or the “Internet of Things.”  Led by General Electric, manufacturers continue to redefine themselves as technology companies.  In 2017, not only will I be watching how manufacturers use IoT to support finished products, but also whether cyber attacks will continue.

  • Will Business to Business Disputes Continue To Increase?

There continued to be a substantial uptick in disputes in 2016 with respect to commercial contracts in the supply chain.  While these disputes almost never end in litigation, manufacturers and     distributors (regardless of their leverage) are taking a hard look at their contract review protocols.  We are helping many manufacturers develop “playbooks” that help identify risk irrespective of the size of the contract.

The 2017 “Manufacturers’ Lawyer’s Shrug”

I am a really big fan of the NPR radio show, “Car Talk,” where two Boston auto mechanics took callers’ questions and tried to answer them.  Since the November 8 election, I have freely adapted one of their signature phrases – I call it the “Manufacturers’ Lawyers’ Shrug.”  Basically, when I attend any event and someone asks me what will happen with labor and employment policy in the next four years under the Trump Administration, I simply shrug my shoulders and mutter, “I have no idea!”

When asked, “what is the government planning to do with the multi-employer pension plans facing insolvency, some as early as February 2017?”  I shrug.

When it is said, “Do you think the NLRB will overturn the ‘Quickie Election Rule’?”  I shrug.

“How does the Amended White Collar Exception Rule look going forward?”  Another shrug.

During the campaign, neither candidate addressed these or numerous other policy issues.  The Trump Administration will hit the ground with a broad range of issues and can be expected to make some unpredictable choices.

For those looking to try to plan for 2017 and beyond, the U.S. Chamber of Commerce has published a comprehensive set of recommended policy changes.  Read the Report.  Among other things, the Chamber recommends:

  • Re-examination of the NLRB’s new (and more strict) joint employer test;
  • Repeal of the NLRB’s “Quickie Election Rule;”
  • Overturning of the “micro-bargaining units” approach of Specialty Healthcare;
  • Overturning of the line of NLRB cases banning the waiver of class actions in arbitration (the D. R. Horton Rule);
  • Overturning the NLRB’s decision making unlawful employer policies prohibiting the use of company email systems to for unauthorized purposes (the Purple Communications Rule);
  • Revision of the standards for deferring to arbitration decisions under the NLRB’s Collyer decision and its progeny;
  • Adoption of new rules mandating that unions return employee signed authorization cards on demand and honor employee “do not call” and “do not contact” instructions;
  • Rules banning unions from accessing private property without the property owners’ permission; and
  • Rules strengthening the principles of federal preemption of state labor laws in conflict with employer rights under the NLRA.

Even if only a few of these broad changes come to pass, 2017 promises to be another “Year of Change.”

EPA Identifies First Ten Chemical Substances For Evaluation Under New TSCA

Thank you to my colleague, Emilee Mooney Scott, for her contributions to this post. Emilee is an associate in our Environmental & Utilities Practice Group.

As we outlined earlier this year, the Toxic Substances Control Act (“TSCA”) was recently updated to provide EPA with much broader authority to regulate “existing” chemical substances (i.e., those that are already in use in commerce).

In general, EPA’s review of existing chemical substances under its new TSCA authority will follow these three steps:

  • Prioritization: screening process to identify chemical substances that may pose an unreasonable risk of injury to health or the environment and designate them as “high priority” for further study.
  • Risk Evaluation: evaluation of a high priority substance to evaluate whether it does in fact pose an unreasonable risk of injury to health or the environment.
  • Risk Management: for substances that do present an unreasonable risk of injury to health or the environment, EPA will develop a rule to mitigate such risk.

In the TSCA reform bill, EPA was also directed to identify the first ten substances for risk evaluation (skipping over the prioritization step) by December of this year. EPA released that list on November 29.  The first ten substances to be evaluated are:

  • 1,4-Dioxane (solvent, stabilizer)
  • 1-Bromopropane (solvent)
  • Asbestos (wide variety of uses, e.g. building materials)
  • Carbon Tetrachloride (precursor in refrigerant manufacturing, solvent)
  • Cyclic Aliphatic Bromide Cluster (flame retardant)
  • Methylene Chloride (solvent)
  • N-methylpyrrolidone or “NMP” (solvent)
  • Pigment Violet 29 (pigment)
  • Tetrachloroethylene, also known as perchloroethylene or “perc” (dry cleaning)
  • Trichloroethylene or “TCE” (solvent)

These substances were selected from EPA’s 2014 Update to the TSCA Work Plan for Chemical Assessments (“TSCA Work Plan”).  As EPA identifies further chemical substances for prioritization and risk evaluation, it must select at least half of them from the TSCA Work Plan.  By December of 2019, EPA must have at least 20 risk evaluations in progress at a time.

By June of 2017, EPA must publish the scope of the risk evaluations on each of the ten chemical substances above, which will trigger a public comment period allowing stakeholders to weigh in.  The risk evaluations must be completed within three years (i.e., by December 2019) and if EPA determines that any of the substances pose an unreasonable risk to human health or the environment, then EPA must issue a risk management rule within two years of the completion of the risk evaluation.  In short, while EPA has identified its first ten substances, the final rules resulting from this process are approximately five years away.

EPA Issuing Rules on TCE, NMP and methylene chloride

Separately, EPA had been using its pre-existing TSCA authority to evaluate risks posed by substances on the TSCA Work Plan.  EPA is expected to release proposed rules on NMP and methylene chloride in the coming weeks. The proposed rule on TCE was issued on December 7.  The proposed TCE rule would prohibit the manufacture, import, processing, and distribution in commerce of TCE for use in aerosol degreasing and for use in spot cleaning in dry cleaning facilities.

The fact that EPA has also identified TCE, NMP and methylene chloride for review under its new TSCA authority suggests that the new risk evaluations may address different use scenarios, and/or that EPA is providing itself some insurance in the face of a change in administrations.

So, what does this mean for you?  You may wish to take a look at your chemical use to see if you use any of the ten chemical substances listed above, or any other chemical substances listed in the TSCA Work Plan.  If you do use any TSCA Work Plan substances, watch for opportunities to provide comment as EPA develops the scope for its risk evaluation and any eventual risk management rule.  Alternately, remain alert to opportunities to transition away from at-risk substances on your own time, before new regulations force a transition.