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LaGrou’s cold storage warehouse in Chicago kept raw, fresh & frozen meat, poultry and other food products. LaGrou stored products for commercial customers. 2,000,0000 lbs. of food went in and out daily.
Manager knew of rats – talked to company president, Stewart, about the problem. Rats were caught daily; food the rats gnawed on thrown away.
Customers not told of rats – rather told that food damaged in shipment and destroyed.
Expert said structural changes in the building needed to eliminate holes for rats. Stewart said that was too expensive. Two USDA inspectors saw rodent droppings, etc.
Next day 14 USDA inspectors came along with inspectors from FDA and IL Dept. of Public Health
Night before the inspectors came, LaGrou threw away lots of food and did big cleaning. Employees told inspectors what had gone on. Huge number of violations found. Warehouse ordered to closed; 22 million lbs. of food destroyed.
LaGrou convicted of 3 felonies; on probation for 5 years; ordered to pay $8.2 million restitution and $2 million in fines. President and manager of company were also convicted. LaGrou appealed.
HELD: Affirmed. Situation at the warehouse was dire. Inspector said “worst
case” she had seen in her 28 years with the USDA. Poor ventilation system – pathogens and viruses could have
become airborne. Also leaking roofs and dripping pipes carried food-borne pathogens all over.
NUTRITION LABELING The Nutrition Labeling and Education Act 1990 Required new regulations
Apply to hundreds and thousands of products Prevent misleading product claims Help consumers make informed decisions Dept. of Agricultures (regulates meat and poultry) Works with FDA to have foods consistent with FDA rules
Nutrients by serving size Labels must show certain components in foods by realistic
serving size Over 100 categories of food
Standards for health claims Words must have certain meanings
Phenergan is drug approved by FDA in 1955; so was label. One form of Phenergan is used to treat nausea. Administered either by “IV-push” method (drug injected intravenously) or “IV-drip” (drip feed & saline solution).
Diane Levine had Phenergan by IV-push to treat nausea. Needle penetrated an artery; she developed gangrene (known from IV-push injections); forearm and hand were amputated.
Levine sued Wyeth in state court for failure to warn. Requested damages for medical expenses and loss of livelihood as a professional musician. Contended drug labeling defective.
Label warned of gangrene risk from IV-push but did not instruct that IV-drop method should be used. Wyeth had duty to instruct on different methods. Wyeth argued claims pre-empted by federal law.
Trial court reject the argument; found for Levine. Affirmed by Vermont Supreme Court Wyeth appealed, saying approval of drug use label under Food, Drug,
and Cosmetic Act (FDCA) prevents the claim under state law.(Continued)
Judgment of Vermont Supreme Court affirmed. Issue: Does FDA’s drug labeling “preempt state law product liability
claims?” Wyeth said impossible to comply to both sate law duties and FDA
labeling duties. Wyeth can change a drug label after FDA approves a supplemental application.
Can make “changes being effected” (CBE) if label change adds or strengthens a warning, precaution, contraindication or adverse reaction, dosage, administration – anything that will increase safe use of product. Wyeth can do this without FDA approval
Risk information accrues over time – FDA allows for changes when info. is discovered. FDA does not bear responsibility for drug labeling – Wyeth does.
FDA can reject labeling and review supplemental application. Stronger state law warning does not pre-empt Congress’s authority – state laws are complementary to FDA regulation.
In 2004, several “wealth-creation” products sold via infomercials on Internet. One was “John Beck System.” Promised to teach buyers to get real estate cheap
Consumers paid $39.95/month by credit cardReceived information kit and were members of a
“club” unless took steps to cancel membership In 2009 FTC moved to shut it down Alleged multiple violations of FTCA. Sought injunctive relief and $300 million in monetary
damages for customers FTC moved for summary judgment. Defendants
Representation likely to mislead: (1) Representation is likely to mislead; (2) Advertiser lacked reasonable basis for its claims
Expressly or implicitly represented that consumers who use the system are likely able to (1) Purchase homes, at gov’t tax sales “free and clear” of mortgages
or liens for very low prices (2) Earn lots of money renting or selling home they purchase (3) Quickly & easily earn lots of money with little investment.
FTC said these representations were either false or unsubstantiated Falsity: Purchaser of tax lien or certificate doesn’t get deed at sale
Doesn’t have right to sell the property Instead have right to collect delinquent taxes
Exceptional when purchaser has title/possession sells property. Sales are once a year, bidding is high % of FMV of property HELD: Summary Judgment Granted.
Some people many misunderstand an advertisement – not a concern. I.e. if someone believes Danish pastry is made form Denmark Hair dye advertised as “permanent” and someone things color will stay forever
– no deception
Gateway Educational Products: Settled FTC charges about ability of its “Hooked on Phonics”, teaching reading, including those with learning disabilities – unsubstantiated.
FTC sued Haagen-Dazs about fat and calorie claims on frozen yogurt products Company said each with just ‘1 gram of fat & 100 Calories” – in fact contained
12 grams of fat and up to 230 calories per serving
FTC ordered Kellogg to stop claiming that Frosted Mini-Wheats cereal improved attentiveness in children
Also Kellogg had to stop claiming Rice Krispies improved immunity for diseases in children
FDA ordered General Mills to stop making health claims Cheerios or have it classified as a drug
Advertise products cost less than others on the market.
Ab Force is an electronic muscle stimulation abdominal (EMS) belt. Sends small electric current into abs.
Careful to say “the latest fitness craze to sweep the country” and “promise to get your abs into great shape fast—without exercise”
Well-muscled models used on TV to demonstrate product.
FTC sued for false and misleading advertising claims re: loss of weight, inches of fat, causing well-defined abs and an effective alternative to exercise.
FTC included a “fencing-in” provision against the same strategy for any other Telebrands products related to weight, exercise, etc. (i.e. dietary supplements or devices).
Entered order against Telebrands. It appealed.
HELD: Order enforced.
There was no substantiation that Ab Force could deliver advertised results. Telebrands later admitted results were “beyond the device’s capabilities,” and “does not cause loss of weight, inches or fat. . . .”
Telebrands was calculating in its fostering of beliefs about the product through visual images in their advertisements. Serious violations – 747,000 units with sales over $19 million.
Private parties can bring civil actions under the Lanham Act.
Usually similar to FTC cases, but can also get damages.
States play similar roles as FTC, bringing suit against those involved in scams and dubious business practices.
Example: Time Warner Cable won suit against DirecTV for stating views could not get “the best picture out of some fancy big screen” without satellite television service – no basis for such a claim.
See Issue Spotter “How Aggressive Can You Be in Advertising?”
Tweeter with many followers (movie star, famous athlete) tweets she used a product that worked great.
Tweets are short; disclaimers will not work.
FTC says that at start of the tweet, should say “Ad”.
Tweeters will not face prison time, but fines and injunctions could be in order IF Tweeters do not make clear they are compensated for peddling a product.
STATE DECEPTIVE PRACTICES LAWS All states give attorneys general powers similar to FTC. Can bring suit against those involved in scams/dubious business
practices. Most states have business code/consumer projection act. Restrict deceptive trade practices. EXAMPLE: Texas Business & Commerce Code:
• Consumer may maintain action where any of following constitute producing if there was cause of economic damage or damages for mental anguish.
1. Use or employment by any person of false, misleading or deceptive act or practice;
2. Breach of express or implied warranty;
3. Any unconscionable action or course of action by any person; or
Schuchmann bought heating and air conditioning unit for his house with “lifetime warranty” from Air Services in 1998. Air worked on system as needed, but in 2003, refused to honor warranty. Said warranty too costly.
Schuchmann sued, arguing that Air’s action violated the Missouri Merchandising Practices Act. Court awarded Schuchmann $1,047 plus costs. Air appealed.
HELD: Affirmed. Air contended that Schuchmann must prove that Air intended to
default on the warranty from the very beginning of the sale. Court disagreed. Law is violated “whether committed before, during
or after the sale. . . .” State law is to preserve “honesty, fair play and right dealings in
Usually called Consumer Credit Card Act Amended Truth-in-Lending Act effective 2010 Federal Reserve Board has primary duties of regulating
May not raise interest rates on exiting balance & promotional rates must last six months
When companies raise rates, give 45 days notice Restriction placed on late fees Cards not issued to consumers under age 21 (unless co-signed) Finance charges can’t be imposed on current and previous
balance (double-cycle billing) Payments on credit card must be applied to higher interest rate of
debt portion Statements must be sent at least 21 days before due date Gift cards may not expire for at least 5 years
Regulates credit bureaus Consumers can see credit reports that result in credit being denied Credit bureaus must:
Respond to consumer complaints within 30 days Tell consumers who have asked for their credit history Provide toll free service number Get permission before giving report to employer or that contains
medical info FTC’s Disposal Rule applies to all business and persons that use
consumer reports Must be properly destroyed Must be pulverized, shredded, or erased so info cannot be
reconstructed or read Applies to paper and electronic documents
FAIR AND ACCURATE CREDIT TRANSACTIONS ACT (FACT ACT)
FACT Act amended Fair Credit Reporting Act in 2003 Requires major credit reporting services (Experian, TransUnion and
Equifax) to allow consumers to see their credit reports annually for free Allows consumers to correct bad information Helps to deal with identity theft Has numerous requirements Red Flag Rule (Implemented in 2011)
All creditors must have pro-active protections in place Includes physicians, other service providers, etc. Alerts, notifications, or warnings from consumer reporting agency Suspicious documents related to credit accounts Dubious ID information, such as a peculiar address Unusual use of (activity on) particular account
Also notices from customers, victims of ID theft, law enforcement authorities, & others re: possible ID thefts on accounts
National Action, a debt collector, mailed Chuway a letter which identified the credit card company she owed money to.
Balance on debt was $367.52 Letter said the creditor
“has assigned your delinquent account to our agency for collection. Please remit the balance listed above in the return envelope provided. To obtain your most current balance information, please call 1-800-916-9006. Our friendly and experienced representatives will be glad to assist you and answer any questions you have.”
Chuway sued National Action for violating FDCPA – that communication was not proper
District court granted summary judgment for National Action, holding the letter stated “the amount of the debt” and no FDCPA violation. Chuway appealed.