It seems inevitable that, at some point in our careers, we face the prospect of having to pursue, or respond to, a threat of Rule 11 sanctions.  The situation always raises questions about how to approach your opponent in an effective way so as to achieve an amicable resolution to what otherwise may be an ugly, vitriolic battle.  One strategy that seems universally accepted is the Rule 11 “warning letter,” wherein you politely advise opposing counsel that you believe her client’s claims are completely frivolous and request an immediate dismissal or face the prospect of Rule 11 sanctions.  While certainly an appropriate, professional approach, it is important to be mindful of the limited effectiveness of such a letter should the formal pursuit of sanctions become necessary.

Fed. R. Civ. P. 11(c)(2) is the “safe harbor” provision.  It requires a party to serve a Rule 11 motion on opposing counsel without filing it.  The party served then has 21 days to withdraw or correct the pleading to address the violation.  Only after a party fails to do so may the serving party seek sanctions. So, the question arises whether a Rule 11 warning letter satisfies the triggering of the safe harbor provision for purposes of pursuing sanctions.

The 6th Circuit recently answered this question in the negative in Penn, LLC v. Prosper Business Development Corp., 773 F. 3d 764 (6th Cir. 2014). The Court ruled that the safe harbor provision very clearly requires the service of a motion and a warning letter does not meet that definition.  In its ruling, the Court stressed that allowing more informal notices would improperly undermine the policy goals of Rule 11 to ensure appropriate due process, require a precise description of the allegedly improper conduct, and to stress the seriousness of such sanctions. The Court noted that all circuits except the 7th have adopted this approach.

So, it is sometimes difficult to balance the desire for professional courtesies with what may ultimately be required by the rules should the path of amicable resolution not bear fruit. Food for thought.


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The United States District Court for the Southern District of Florida in Humana Medical Plan, Inc. v. Western Heritage Insurance Company, No. 12-20123 (S.D., Florida, March 16, 2015) allowed Humana, a Medicare Advantage Organization (“MAO”), to pursue a private cause of action under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b) against Western Heritage, a primary payer.  In doing so, the court adopted the Third Circuit’s analysis in In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012) where the court held that MAOs have a private cause of action against a primary plan under the statutory text of the Act.  The court further determined that Humana was entitled to recover double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

The factual background of the case is fairly straight forward.  Mary Reale was enrolled in a Humana Medicare Advantage Plan when she sustained injuries in a slip-and-fall accident at a condominium complex that was insured by Western Heritage.  Ms. Reale subsequently entered into a settlement agreement with Western Heritage and its insured.  In funding the settlement, Western Heritage attempted to include Humana as a payee on the settlement check.  However, Ms. Reale objected because the amount of Humana’s lien was disputed between the parties.  In response, the state court judge ordered the tender of the entire settlement amount to Ms. Real without including any lien holder on the settlement check.  After Humana and Mrs. Reale were unable to agree on the amount Humana was to be reimbursed, Humana sued Western Heritage seeking reimbursement for conditional payments it made on behalf of Ms. Reale, along with double damages under the MSP Act.

In reaching its decision, the court distinguished the Ninth Circuit’s holding in Parra v. Pacificare of Arizona, 715 F.3d 1146 (9th Cir. 2013).  There, the Ninth Circuit found that the MSP Act does not create a private right of action in favor of MAOs, but rather only allows MAOs the right to establish such rights within their contracts.  The court noted that the facts of Parra (in particular, the fact that the MAO’s claim was not against a primary payer) were distinguishable from the facts of the case, as well as from the facts of the Avandia case.

This decision follows a recent ruling by a Texas federal district court, Humana v. Farmers Texas County Mutual Insurance Company, et al, No. 13-CV-611-LY (W.D. Texas, September 24, 2014), where the court denied the defendants’ motion to dismiss and allowed Humana to pursue a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b).

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I have previously reported on the Vermont Supreme Court’s strict adherence to the Economic Loss Rule (ELR), and noted that some observers might find this surprising, since the  Vermont Supreme Court is generally regarded as “liberal” and sympathetic to claimants/victims/plaintiffs.  Yet the Court has repeatedly denied tort-based recovery to claimants, citing the ELR.  The Court’s adoption and adherence to the ELR goes back as far as 1998.  In Paquette v. Deere & Co., 168 Vt. 258, 719 A.2d 410 (1998), the Court rejected the negligence claim of owners of a defective motor home.  The plaintiffs there had not suffered any physical injury, but claimed that they had suffered economic damages – recoverable in tort, according to them – because of the defective and unsafe nature of their mobile home.  The Court held that allowing a negligence claim in such circumstances would vastly expand tort liability and completely subsume warranty law into tort law.  And that adherence continues unabated in a series of decisions up to 2012.  In Long Trail House Condominium Assoc. v. Engelberth Construction, Inc., 2012 VT 80 (Sept. 28, 2012) the Court affirmed the complete dismissal of a condominium owners association’s defective construction claims against the building contractor, because their only claim was a negligence claim, which the Court found to be barred by the rule. 

Now, in Walsh v. Cluba, the Court has arguably taken the ELR even further.  In Walsh, the Court applied the rule to bar the plaintiff’s negligence claim even though the claim involved  physical damage to real property.  Walsh was a commercial landlord.  Cluba was his tenant.  After signing the lease, Cluba formed the corporation Good Stuff, Inc., a retail company, and turned over possession of the leased premises to Good Stuff.  But Walsh never formalized the lease arrangement with Good Stuff – Cluba remained the tenant on the lease.  After Cluba and Good Stuff vacated the premises, Walsh sued Cluba under the lease (i.e., in contract) for unpaid rent, attorneys’ fees, and physical damage to the premises.  Walsh also sued Good Stuff in negligence (as noted, there was no lease/contract with Good Stuff) for the unpaid rent and for damaging the premises.  At the close of Walsh’s case at trial, the court granted Good Stuff’s motion for judgment as a matter of law, on the grounds that the Economic Loss Rule precluded Walsh’s tort claims against Good Stuff because the parties’ dispute was completely covered by Walsh’s and Cluba’s contractual relationship (i.e., the lease), which required Cluba to leave the premises in the same condition in which he took them.  Walsh argued that the ELR should not bar his negligence claims against Good Stuff because there was more than purely economic harm at issue – there was real physical damage to Walsh’s property.  The trial court was unpersuaded by this argument.  Walsh appealed. 

The Vermont Supreme Court was similarly unmoved by Walsh’s argument.  The Economic Loss Rule generally bars tort claims where the parties have a contractual relationship.  Even though Walsh had no lease (contract) with Good Stuff, the Vermont Supreme Court found that his claim for damages to the premises was governed exclusively by his lease with Cluba.  As he had below, Walsh argued that the ELR does not apply because there was physical damage.  The Vermont Supreme Court was unpersuaded and affirmed the trial court’s grant of judgment as a matter of law to Good Stuff.  The Court reasoned that the well-recognized “other property” exception to the ELR does not apply where there is a contract (i.e., the lease) that touches upon the “other property.”  In other words, the provision in the lease that required Cluba to return the premises to Walsh in the same condition as when they were leased, barred a separate negligence claim by Walsh for damage to his property.

A vigorous dissent argued that the existence of a lease (contract) between Walsh (the landlord) and Cluba (the tenant) should not preclude a tort claim by Walsh against a stranger to the contractual relationship (Good Stuff) where Good Stuff caused real physical damage to Walsh’s property.  Indeed, the dissent’s position seems to be that Walsh should have a tort claim not only against Good Stuff, but against Cluba, where Cluba and Good Stuff caused physical damage to Walsh’s property.

As the dissent argued, this decision by the Vermont Supreme Court is arguably much more than merely a reaffirmation of the Economic Loss Rule.  It is arguably a broad expansion of the rule; essentially a holding that the existence of a contract between A and B negates any independent tort duty by B not to damage A’s property. 

This is an interesting decision from the Vermont Supreme Court given that other state supreme courts have recently cut back on the application of the ELR. 

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The Centers for Medicare and Medicaid Services (CMS) released a revised version of the MMSEA Section 111 NGHP User Guide on April 6, 2015.  The revised User Guide is version 4.6.  The revisions are the results of an NGHP Section 111 Alert issued on November 25, 2014, regarding Section 111 querying with partial Social Security Numbers (SSNs).  The revisions were made to Chapter IV: Technical Information (pp. 1-1 (summary of revisions), 8-6) and Chapter V: Appendices (p. 1-1 (summary of revisions) and Table F-1).  The revisions inform Responsible Reporting Entities (RREs) of the steps they need to take to remain in compliance with the NGHP Section 111 reporting requirements when RREs or their agents query using partial SSNs and receive a response indicating the information they submitted identified multiple Medicare beneficiaries.  When this occurs, RREs will receive the disposition code “DP” (for duplicate) or other messaging on the Beneficiary Not Found page indicating multiple Medicare beneficiaries were identified.  When RREs receive a response indicating multiple beneficiaries have been identified based on the partial SSN and other required query information, RREs are instructed to:
 
1) verify that the SSN, name, gender, and date of birth were entered accurately and re-submit; and
2) resubmit the individuals information using the full 9-digit SSN (if available).
 
If a match is still not located after resubmission, RREs must call the Benefits Coordination & Recovery Center (BCRC) at 855-798-2627 and file a self-report with the BCRC customer service representative to remain in compliance.
 
NGHP Section 111 Alert:
 
CMS also issued an NGHP Alert on April 8, 2015.  The Alert reminds RREs that beginning on October 1, 2015, RREs will be required to report ICD-10-CM diagnosis codes on claim reports with a CMS Date of Incident (DOI) on or after October 1, 2015.  The Alert encourages RREs and their reporting agents to commence testing with ICD-10-CM codes if they have not already done so.  While testing is not required, it is strongly encouraged.  Testing is the only way for RREs to ensure they will be able to beginning reporting with ICD-10-CM diagnosis codes on October 1, 2015.
 
Additional information regarding NGHP Section 111 reporting is available at http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Overview.html, including links to the revised NGHP Section 111 User Guide and all NGHP Section 111 Alerts.

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Sometimes our lessons come in more bizarre ways than others. As reported by Law360 last week (subscription required), three Florida lawyers were charged by disciplinary authorities over a January 2013 incident involving the firm’s paralegal. The three lawyers were defending defamation claims against their client, who was a local radio talk show host known as “Bubba the Love Sponge Clem.” The plaintiff was another radio personality.

Reports at the time suggested that, on the evening after the media-focused defamation trial started, the defense firm’s paralegal spotted plaintiff’s counsel at a local bar near his home. She contacted lawyers at her firm, returned to the bar with a friend, and sat down next to opposing counsel.  Over the next two hours, the paralegal is reported to have lied about where she worked, flirted with opposing counsel and ordered drinks, including buying defense counsel a vodka cocktail and shots of Southern Comfort. She also stayed in touch with the three lawyers from her firm, sending them more than 90 texts and emails over the course of the evening.  Later, opposing counsel’s lawyer stated that it was clear that the paralegal was in an undercover role and was making sure “all the parties knew exactly what was transpiring virtually every minute.”

Shortly after she first reported what was going on at the bar, a call was made by one of the lawyers to an acquaintance in the police department and an officer was posted outside the bar to wait for the plaintiff’s lawyer’s departure. When he eventually left, the paralegal convinced him to drive her car several blocks from a parking garage to a new parking space. As he did, he was arrested for DUI. The next morning, defense counsel touted the arrest to the media.  Bar charges (a disciplinary complaint, not the tab for cocktails) accused the three lawyers of being involved in what appeared to be using the paralegal to set up opposing counsel.

The ethics problems for the three lawyers included failing to instruct the paralegal not to have contact with opposing counsel. Under Florida’s version of Model Rule 5.3, a lawyer with direct supervisory authority over a non-lawyer must make reasonable efforts to ensure that the non-lawyer’s conduct is compatible with the lawyer’s own professional obligations.

One of the lawyers also admitted to having made inaccurate, statements to the media about opposing counsel’s arrest.  Florida’s version of Model Rule 3.6 bars extrajudicial statements that a reasonable person would expect to be disseminated by means of public communication if the lawyer knows or reasonably should know that it will have a substantial likelihood of materially prejudicing an adjudicative proceeding — in this case, the defamation case involving opposing counsel’s client and “Bubba the Love Sponge Clem.”

Oh yes, and when opposing counsel was arrested for DUI, he left his briefcase full of confidential trial documents in the back of the paralegal’s car. This led to the three lawyers also being charged with failing to immediately notify opposing counsel that they had the briefcase.

One of the lawyers agreed to surrender his license for five years in an agreed disposition of the ethics charges, and the other two agreed to 91-day suspensions; but on March 26, a judge rejected that deal as too lenient.  A new hearing schedule will be set.

Moral of this odd tale? The usual:

 

  • remember your supervisory duties;
  • don’t put yourself in a position where your conduct can be questioned;
  • watch what you say to the media; and
  • if someone leaves a brief case full of legal documents in the back seat of your paralegal’s car after being pulled over for DUI, return it — fast!
This blog was originally posted on The Law for Lawyers Today blog on April 2. Click here to read the original entry. 

 


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In the pilot episode of Fox’s smash-hit series Empire, Cookie Lyon, explaining why, after her release from jail, she’s returning to her husband Lucious Lyon’s fictional record label, Empire Entertainment, says simply: “I’m here to get what’s mine.”  This is, of course, in reference to the formerly-jailed matriarch having taken the rap for Lucious to the tune of 17 years behind bars for drug-running while he built his music “empire.” Coincidentally, it also may sum up the thinking over the last couple of months by real-life label, Empire Distribution, Inc. (“Empire Distribution”) which, in asserting that its alleged intellectual property rights have been improperly appropriated by the record-breaking show, appears to also be similarly attempting to “get what’s mine.”  But in doing so, it appears to have awoken another sleeping empire, Fox, and now faces an uncertain fate of its own.

According to the declaratory judgment complaint (the “Complaint”) filed by Twentieth Century Fox and its television subsidiaries (collectively, “Fox”) in the Central District of California last week (No. 15-cv-02158), on February 16th  of this year, three days after Empire broke viewership ratings records for its fifth consecutive week, Fox received a cease and desist letter from Empire Distribution alleging that Fox, by using the word “Empire” in conjunction with the title of the show and its fictional record label, coupled with the fact that the show’s fictional label was run by Lucious Lyon, a “homophobic drug dealer prone to murdering his friends,” was committing trademark infringement and diluting Empire Distribution’s brand through tarnishment.  In a follow-up telephone call with Fox, Empire Distribution demanded $8 million dollars to resolve its potential claims.  Fox executives must have rejected this initial settlement pitch out-of-hand, because on March 6th, Empire Distribution sent a second letter, not only reiterating its claims, but adding a claim for unfair competition as against Fox.  This time, according to the Complaint, Empire Distribution gave Fox three possible options — (a) pay $5 million dollars to the label and include the artists it represents as guest stars on Empire; (b) pay the full $8 million dollars previously demanded; or (c) stop using the word “Empire.”

Perhaps Empire Distribution should have paid heed to what Jamal Lyon once told his brother Hakeem, “You always coming to me for advice. I’m going to give you some. Don’t ever underestimate me, little brother.”  Empire Distribution clearly underestimated Fox here, sensing Fox may just pay the label off rather than duke it out in the legal system.  But rather than being bullied into paying the ransom, Fox chose option (d): “Ignore the patently-ridiculous claims in the attempt at a shakedown, and file a declaratory judgment action in federal court seeking the vindication of rights to continue use the word “Empire” in conjunction with the show.”  Besides seeking the Court’s agreement with its contention that it has not committed the claims it was accused of in the cease and desist letters, Fox also seeks a permanent injunction against Empire Distribution and its employees from “making false statements and representations to third parties asserting that Fox has violated its trademark rights, if any,” as well as attorney’s fees for having to file the action at all.

Well, does Empire Distribution have a case here?  Fox alleges that despite claiming rights to three separate marks, “Empire Distribution,” “Empire Recordings” and “Empire,” and even though Empire Distribution may have been using its name in commerce prior to the show’s conceptualization and premiere (they claim they started using “Empire” in conjunction with the record company back in 2010), that it’s not clear Empire Distribution will be able to prove any of its claims here.  To boot: (1) Empire Distribution has never applied for a federal trademark for “Empire”; and, more importantly, (2) the still-pending, renewed application for registration of the marks “Empire Distribution” and “Empire Recordings” was originally denied due to likelihood of confusion with other existing “Empire” marks.  Indeed, the Empire Distribution logo apparently does not even appear on the company’s album covers and Google searches performed on the filing date of the Complaint show that Empire Distribution’s webpage fails to provide a “hit” until the sixth page of a search for “empire record label.”  Adding insult to injury for Empire Distribution, the “hit” also turned up after “hits” for several other record labels containing “Empire” in their names, as well as pages related to, you guessed it, the 1995 movie Empire Records, as well.  Ouch.

So, Empire Distribution has no registrations for its word marks, none of its alleged marks are particularly distinctive, nor have they acquired any secondary meaning for Empire Distribution (see, e.g. the other record companies that use “Empire” in their name).  As such, there really is no argument that a likelihood of confusion could exist here either. What does the Insider expect to happen in this one?  Well, perhaps we should break it down like this — while the power struggle for Lucious Lyon’s fictional “empire” will continue for a record-breaking Season Two, it appears that Empire Distribution’s claims will not even last until the new season’s premiere.  Indeed, as Cookie Lyon also once said, “The streets ain’t made for everybody.  That’s why they made sidewalks.”  Empire Distribution tried to hit the streets and make the big time here.  In the end, unfortunately, it appears it won’t be long until its right back on the sidewalks where it came from.

This blog was originally published on March 31. Click here to read the original entry. 

 

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Did You Make a Record in Your Own Office?

Posted on April 2, 2015 05:46 by Steve Crislip

My handwriting was so bad that my mother always asked me to call from college, not write.  We all had to develop some way of keeping readable to us notes once we got to college, and certainly in Law School.  In the pre-computer days, we even had fancy leather-bound law notebooks with room to annotate the notes and attach the case briefs to match.

Reading California lawyer Megan Zavich’s article on taking better notes in our offices made me think of the need to re-assert this as a loss prevention item in all law firms.  Most of us have a strong background in taking some form of notes, but I have observed they are often lacking in the routine claims against lawyers I examine. Perhaps it is the classic “Cobbler’s Children Have No Shoes” Syndrome.  Many files just lack documentation of the legal mission or advice given.

As a trial lawyer, I got to the point where mock jury responses no longer surprised me.  I had the opportunity to view a number of live, and also taped, jury deliberations in legal malpractice cases.  The theme there that surprised the non-litigators was that jurors believed it did not happen unless the lawyer wrote it down.  “They are lawyers, aren’t they?” was a frequent comment by jurors.  The failure of the defendant lawyer to document events or advice to the client often decided the case, and always against him or her.  

Trial lawyers learn to make a record, and to vouch the record to avoid the void of what would have been offered if allowed.  Business lawyers document for their clients by due diligence, but many lawyers do not have notes in their files of what they did, decided not to do, or advised a client not to do.  We probably did a little better in the days when we routinely dictated letters on so many issues.  

Megan Zavich pointed out there are many ways to do it now.  We just need to get lawyers to re-start the discipline of making notes and in reality, making their own record for their files in their own office.  

We all know lawyers tend to be an independent lot and they often resist the idea of anyone telling them what to do (despite the fact we all operate under extreme sets of laws and regulations in our occupation).  After the claim has been filed training is not a great way to learn.

In firms, for many reasons, I advocate a peer review of files on a periodic basis.  If you have, or are developing, a culture of preventing claims and losses, this is just good quality control.  If such spot reviews show a lack of documentation of key decisions, actions or inactions, you have a good teaching moment and the opportunity to repair.  The best example is to question the attorney how he/she would defend themselves if the client made a claim that was contrary to the work shown in the file.

Unfortunately, defensive law is needed in the modern world.  When you do not take a case, a communication to that effect is the great exhibit.  I have advised you to do X, but have made the decision to do A, B and C instead sure will help when that train goes off the track and they blame you.  Why the inaction?  A note to the file might just convince the Disciplinary Committee there was an external reason at play.  In other words, lawyers do a better job to defend yourselves.  Keep a good file that you could show before a jury.  Remember the lay jurors comment: “If they did not write it down, it did not happen.  They are lawyers.” 

This entry was posted on April 2 on the Lawyering for Lawyers blog. Click here to read the original entry. 


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More and more jurisdictions are requiring retailers use eco-friendly containers, packaging, etc.  In addition, business are voluntarily switching to those products as part of their sustainability strategy.  An important concern in the future will be whether these eco-friendly containers adequately and safely protect the public.  It wouldn't surprise me in the very near future to see a lawsuit arise out of a customer injury due to a weaker, biodegradable container that failed in some respect.  Many of our clients could find ourselves in the "chain of liability" lawsuit, including the retailer, the maker of the container, the maker of the materials, etc.  Exterior lighting of a retail establishment is another "green" issue retailers are facing.  Many cities and municipalities are requiring retailers to use less energy lighting their properties.

What has your company done or what have you advised your clients to do to protect against this liability?  What should trump...public safety or the environment? 

Christian Hardigree of Kennesaw State University will be addressing many of these issues during his discussion at the Retail and Hospitality Litigation and Claims Management Seminar in Chicago (May 7–8) titled The Legal Pitfalls of Going Green in the Food and Beverage Industry.


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Plaintiffs have made food labeling class actions a rapidly-growing field in recent years, particularly in the Northern District of California.  They typically rely on California’s regimen of consumer fraud statutes when bringing those claims. California also has Proposition 65, which requires labeling of substances that a state agency concludes may cause cancer or birth defects.  The threshold for labeling is quite low, meaning that even the most mundane items often include—or should include—warnings.  Indeed, plaintiffs recently have used the “lack” of a Proposition 65 label on food products as a basis for consumer fraud and other claims even though the Food and Drug Administration finds no health risk from the relevant ingredient and already dictates labeling requirements regarding the ingredient.  Such lawsuits are irreconcilable with the purpose of federal food labeling requirements.  

Proposition 65 and Its Relationship To 4-MeI in Beverages.      

In the past year, interest has grown in 4-methylimidazole (“4-MeI”) and its possible link to cancer.  4-MeI is formed as a byproduct in some foods and beverages as part of the cooking process. It also forms in trace amounts when manufacturing certain types of caramel coloring frequently used in some dark beverages, such as cola and dark beer.  

At this point, it is useful to address some of the science regarding 4-MeI.  A 2007 study by the National Toxicology Program (“NTP”) seems to be the genesis of this recent concern. That study did not find any increased cancer risk in rats exposed to high doses of 4-MeI but did see an increased rate of lung tumors in mice.  In broad strokes, a human would need to drink approximately 300 cans of soda every day for two years to consume the same amount of 4-MeI given to the mice and rats in the NTP study. The FDA has monitored available data and states on its website: “Based on the available information, FDA has no reason to believe that there is any immediate or short-term danger presented by 4-MeI at the level expected in food from the use of caramel coloring.”  The FDA is currently reviewing “all available data on the safety of 4-MeI,” but “is not recommending that consumers change their diets because of concern about 4-MeI.”

Much of the interest and litigation activity arose after Consumer Reports published an article in February 2014. Consumer Reports noted that its tests showed that customary servings of some popular soft drinks contain 4-MeI above the limits set by the California Office of Health Hazard Assessment (“COHHA”) under Proposition 65. That law requires labeling substances that COHHA concludes have a 1 in 100,000 chance of causing cancer or birth defects. That list of substances is quite long and includes things such as “Salted fish, Chinese-style,” “Oral contraceptives,” and “Alcoholic beverages, when associated with alcohol abuse.” Under the law, substances with more than 29 micrograms (a microgram is one-millionth of a gram) of 4-MeI must have a warning label; this means that COHHA believes that one excess cancer case will arise per 100,000 people exposed to more than 29 micrograms of 4-MeI daily for a lifetime.    

Putative Class Actions Regarding 4-MeI.

Class actions against PepsiCo and Goya Foods soon followed the Consumer Reports article. The article identified those companies’ products as having more than 29 micrograms of 4-MeI per serving. We now have inconsistent rulings in those cases. The most recent decision in the Goya Foods matter, moreover, shows how difficult it can be when a court may not understand the underlying science. 

Riva: There is not Sufficient Exposure to or Toxicity of 4-MeI in These Drinks.

In Riva v. PepsiCo, Inc., No. C-14-2020-EMC (N.D. Cal. Mar. 4, 2015), the court granted a motion to dismiss with prejudice. That decision addressed a putative medical monitoring class action in which the named plaintiffs alleged that consuming Pepsi products caused them to experience an increased risk of bronchioloalveolar cancer. Those plaintiffs cited the NTP report in their amended complaint, so the court analyzed that report closely.  First, even the NTP report concludes that the amounts of 4-MeI ingested from such beverages may not be significant.  Absent sufficient exposure for 4-MeI from consuming Pepsi products, those plaintiffs could not establish a credible risk of cancer from that consumption. The court was also reluctant to apply the NTP study to humans because it only found an increased risk of cancer in mice; that study implied that any effect may be species specific because rats did not experience a similar increase in that type of cancer. As the NTP study recognized, various species absorb, distribute, metabolize, and excrete the substance differently.  Of course, it was also difficult to conclude that humans would be exposed to 4-MeI at the same level as the mice in the NTP study (i.e., approximately 300 cans of soda per day). Moreover, because so many different products contain 4-MeI, those plaintiffs did not establish that consuming Pepsi products (as opposed to consuming other products) would have been the source of any alleged increased risk of that cancer.

Stated more simply, what does Riva mean? That court concluded that the study the plaintiffs relied on does not establish a significant risk of increased cancer from normal human consumption of beverages with 4-MeI. As we are about to see, however, a judge in the Southern District of California recently concluded that it was plausible that a different manufacturer misled consumers by not including a Proposition 65 warning on its beverages. So we have one judge finding that no increased health risk exists that would warrant medical monitoring but a second judge ruling that it may amount to consumer fraud to fail to warn consumers of this same “risk.”  

Cortina: Manufacturers may Need to Include Proposition 65 Warnings on Products With 4-MeI.

In Cortina v. Goya Foods, Inc., No. 14-CV-169-L(NLS) (S.D. Cal. Mar. 19, 2015), the named plaintiffs alleged several California consumer fraud claims because the defendant did not disclose “material facts about the levels of 4-MeI” in its beverages.  In essence, those plaintiffs argued that the beverages must contain a Proposition 65 notice because the caramel coloring adds more than 29 micrograms of 4-MeI to the products. That court rejected a federal preemption argument under the Nutrition Labeling and Education Act of 1990.  That federal statute expressly preempts state laws that would impose labeling obligations not imposed by the FDA.  Undeniably, federal law requires products with artificial flavoring, artificial coloring, or chemical preservatives to state that fact on the labels.  21 U.S.C. § 343(k).  The defendant argued that requiring additional labeling regarding 4-MeI (which arises from caramel coloring) would amount to an additional requirement beyond what federal law requires.  The court disagreed, reasoning that the allegations had nothing to do with caramel coloring. “Plaintiffs’ claims are based on a theory of omission—that defendant’s products failed to disclose the presence of substances known to the state to cause cancer.”  Apparently, under this reasoning, the state could compel a manufacturer to include a Proposition 65 warning about 4-MeI even though (1) federal law already dictates what a label must state regarding artificial coloring (the source of 4-MeI) and (2) the FDA states on its website that there is no reason to believe of any health risk from consuming foods with 4-MeI.  

The Cortina court also refused to defer to the FDA under the primary jurisdiction doctrine.  That is a prudential doctrine under which courts will await a regulatory agency’s actions regarding subject matter within the agency’s purview.  Such deference seems warranted here because the FDA is reviewing available data regarding the safety of 4-MeI to determine if it should take additional action.  Thus, this is not a situation of a defendant arguing hypothetically that a regulatory agency may look at the issue; quite the contrary, the FDA indicates it is actively doing so. Nonetheless, the court will not wait for the FDA’s ongoing review to conclude. Thus, the putative class action will plow forward even though the FDA may soon state that there remains no reason to believe a viable health risk exists.    

The Cortina court also concluded that the plaintiffs’ claims were plausible even though the FDA states that there is no reason to believe there is immediate or sort-term danger to consumers.  The court latched on to the FDA’s statement that it reached that conclusion “[b]ased on the available information . . . .”  The court inferred that meant some limit on the usefulness of the data.  Indeed, the court concluded that “it appears that the FDA is saying that it does not know whether, and in what amounts, 4-MeI presents a danger, but is looking into the situation.” That is an untenable interpretation of the FDA’s comments.  If that standard were sufficient, any plaintiff could always argue that one more test or one different analysis somehow may reach a conclusion different from what all existing analyses have reached. It will always be possible to suggest that some undefined additional testing should occur. It is not clear on what the FDA could base its statement other than “the available information.” It certainly could not base its conclusion on unavailable information.

These Cases Help Show That Proposition 65 Labeling Of Food Or Beverage Is Untenable.

At this point, we have one federal court in California holding that the science does not suggest any increased risk of cancer to humans from consuming beverages with 4-MeI in anticipated amounts.  Because of that lack of risk, there is no basis to order medical monitoring.  On the other hand, a different court in California concluded that it may amount to consumer fraud to fail to warn consumers about that same substance.

To be sure, Riva and Cortina present different legal theories—medical monitoring and consumer fraud, respectively. But the underlying premise is fundamentally the same.  In Riva, there is no need to test for cancer because 4-MeI does not lead to an increased risk of the disease.  In Cortina, however, it is deceptive to fail to warn consumers that beverages contain 4-MeI because that substance ostensibly is linked to an increase risk of cancer. And in both settings, the FDA knows that caramel coloring results in products containing 4-MeI; nonetheless, it permits using that coloring and only requires that the label note the use of “artificial coloring” in those situations.          

This morass points to the difficulties that Proposition 65 and questionable science create.  The standard for requiring Proposition 65 labeling is quite low—one more cancer in a population of 100,000 over a lifetime of exposure.  Put that into perspective. Using the most recent data available from the CDC (2011), the United States saw approximately 67 instances of lung cancer per 100,000 people.  Under Proposition 65, a manufacturer must label a substance that, with a lifetime of exposure, theoretically leads to 68 instances of lung cancer per 100,000 people—a 1.5 percent increase over the expected 67 instances.

Moreover, the science underlying these determinations is not always sound or certainly is questionable in terms of extrapolating to ordinary human exposure. Would anyone really consume 300 cans of soda a day for two years?  That is the approximate exposure required to replicate the 2007 NTP study. We know that “‘the dose makes the poison’; this implies that all chemical agents are intrinsically hazardous—whether they cause harm is only a question of dose.”  Bernard D. Goldstein and Mary Sue Henifin, Reference Guide on Toxicology, in Federal Judicial Center, REFERENCE MANUAL ON SCIENTIFIC EVIDENCE 636 (3d ed. 2011). Nonetheless, the reasonableness of the dose doesn’t seem to enter the calculus for these claims.  Even the NTP study only found increased incidence of cancer in mice; rats did not show such results. If such differences exist between those species, how can we reliably extrapolate to humans?

This is not an issue the FDA is ignoring. Rather than allow lawyer-driven litigation to proceed, we would be better served to leave these issues to that regulatory body and to real science.  

James D. Smith is a partner in the Phoenix office of Bryan Cave LLP.      


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This is a relatively new legal subject, so there isn’t much law out there.  In December, 2011, a Pennsylvania federal court answered this question in the negative.  In the case of Eagle v. Morgan, Linda Eagle, the founder of a company, Edcomm, had developed a significant LinkedIn presence closely connected to Edcomm. In 2010, Edcomm was purchased.  In 2011, she was terminated and Edcomm took over her LinkedIn account. She sued Edcomm.  Shortly thereafter, she regained control of her LinkedIn account and refused to return it to Edcomm. Edcomm counterclaimed against her in her lawsuit, contending that by regaining control of the LinkedIn account and refusing to return it to Edcomm, she had misappropriated Edcomm’s trade secrets.  She moved to dismiss Edcomm’s misappropriation claim. With little analysis, the court dismissed the claim, stating that the LinkedIn contacts on the Eagle/Edcomm account were “generally known . . . or capable of being easily derived from public information.”

In March, 2012, a Colorado federal court came to a different conclusion. In Christou, et al. v. Beatport, LLC, a nightclub company sued an ex-employee for stealing the company’s MySpace “friends” list.  The ex-employee moved to dismiss the lawsuit, arguing that a MySpace “friends” list couldn’t be a trade secret.  The court denied the ex-employee’s motion, holding that a company’s MySpace profiles and friends list can be a trade secret because, online, a MySpace profile contains a lot more information than just the “friend’s” name.  It gives the owner of the profile the “friend’s” personal information, including interests, preferences, and contact information that can have commercial value. It allows the “friend” to be contacted and advertised to.  This information goes beyond what is publically available. Duplicating all the information available from the “friends” list would be time-consuming and costly. The public can see the names of the company’s “friends” online, but the public does not have all the other information that the company gets by virtue of having these “friends.”  

In September, 2014, another federal court held that LinkedIn contacts could be a trade secret.  In Cellular Accessories For Less, Inc. v. Trinitas, LLC, a company sued an ex-employee who had left to form a competing company and taken his LinkedIn contacts with him. The ex-employee moved for dismissal of the lawsuit.  The court denied his motion, holding that the LinkedIn contacts that he had developed while working for his former company could be the company’s trade secret. The company had encouraged the employee to develop LinkedIn contacts during the employment.  The court said that the LinkedIn contacts may – or may not – have been viewable by other LinkedIn users; the ex-employee’s motion papers did not say whether the contacts were publically viewable.  Since they may not have been publicly viewable, they could be the company’s trade secrets.  

There you have it. What do you think?


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