Liability for Allegedly Unnecessary Product Recall?
The conventional advice to manufacturers and retailers of consumer products when assessing a potential product safety issue is typically as follows: “When in doubt, report.” And while it is still generally good advice to err on the side of reporting potential product safety issues to the Consumer Product Safety Commission (CPSC), companies must be cognizant of the full magnitude of a decision to initiate a voluntary product recall. A new lawsuit filed last week in New York federal court illustrates why.
In a unique twist on the typical failure-to-recall liability scenario, Swiss home appliance maker Bodum Holding AG has sued Starbucks Corporation, alleging that it initiated an unnecessary recall when it “unilaterally” chose to recall over 250,000 French presses manufactured by Bodum and sold at the retailer’s stores under a co-branded label. See Bodum Holding AG et al. v. Starbucks Corporation, 1:19-cv-04280 (S.D.N.Y. 2019). In the suit, Bodum seeks a declaration that the retailer should be responsible for all costs associated with the recall, as well as additional damages for alleged product disparagement and reputational harm suffered by Bodum as a result of what it says was an unnecessary recall. Bodum alleges that the recall was not the result of any product defect, but was instead motivated by a desire to “repair a relationship with the CPSC,” in the wake of a $3.75 million civil penalty the agency assessed against the retailer in 2016 for allegedly failing to promptly report and recall Teavana tea tumblers. Bodum also alleges that the retailer published false information about Bodum in press releases announcing the recall and used the recall as an excuse to get out of existing purchase orders and exclusivity agreements between the parties.
Because the lawsuit was just commenced, Starbucks has not yet had a chance to respond to the allegations. Even though the lawsuit’s merits have yet to be examined, this case illustrates the precarious position retailers and manufacturers of consumer products can find themselves in when assessing potential product safety issues. On the one hand, companies seeking to avoid significant civil penalties from the CPSC may be quick to report and recall a potentially defective product, but on the other hand may face claims of liability from partners in their manufacturing and supply chain who believe that a recall was unnecessary. Some takeaways for retailers and manufacturers:
- Revisit your company’s agreements between product manufacturers, distributors, and retailers. Ensure that responsibility for product safety issues and recalls is clearly allocated and spelled out, and that appropriate indemnification obligations are included.
- Ensure that all entities within the supply chain are apprised of product safety reports and communications to the CPSC.
- Despite any contractual agreement allocating responsibility, manufacturers, distributors, and retailers each have independent obligations to assess product safety issues under the Consumer Product Safety Act and report product hazards to the CPSC.