The New York Times article highlights two recent cases focusing on the behavior of banks in the loan administration and collection process and ruling in favor of borrowers. In one case the judge concluded the bank “abused” the borrowers and in another that it “forged” documents. Both cases, however, seem to essentially come back to a consistent theme: David usually prevails over Goliath.
It takes a few years for cases to get to the point of written decisions. The Great Recession is now spawning its share of rulings that support the maxim that bad facts make bad law. From a legal perspective, these cases really highlight that thoughtful attention to loan administration is initially important to a Lender’s success in collecting on “bad” loans.
A California Court of Appeals recently opined on what appear to be fairly normal yield maintenance provisions. The Borrower defaulted. The bank accelerated the note and later foreclosed. The note provided that the prepayment fee was due whenever the “debt was paid.” By contrast, the deed of trust said that the prepayment fee was due when the loan was accelerated. The loan documents provided that the language of the note would prevail.
While the language of the note, deed of trust and related guaranty were all similar, the court held that the prepayment fee accrued when the bank foreclosed on the property at which point payment was made and that the bank was not owed from the date upon which the loan was accelerated.
Lesson learned – precision is required of the lender and ambiguity favors the borrower and guarantor.
Next: Recent Guaranty Developments
The California Office of Environmental Health Hazard Assessment’s (OEHHA) 2014 proposed regulations to revise Proposition 65 warnings has been widely panned by industry critics. The overhaul was requested by Governor Brown last year when a related effort to gain a consensus on proposed rules was unsuccessful. The proposed rules contain requirements for identification of specific chemicals in the warnings, warnings for food products, pharmaceutical and medical devices as well as creating a global web site for information.
Industry believes that the specific labeling will create additional litigation opportunities for plaintiffs, and create conflicts with FDA labeling for drugs and medical devices. Further the specific language for “Environmental Exposures” includes language that admits exposure (“will expose” as opposed to the current “may contain” ) and will perhaps trigger personal injury type liability that was previously not an issue. Another sector of industry that has voiced concerns is the automotive industry as the new regulations requiring specific warnings would eliminate the ability to provide a single warning for a “complex durable good” like a car that is made up of a series of individual products. Finally the proposed use of pictograms in the warnings will, according to industry, create confusion for consumers as the pictograms have already done in other contexts.
Despite the expansive opposition it is not clear whether OEHHA will have additional workshops as the regulations progress.
The USDA has issued a new “strategy” document that outlines the agency’s direction with regard to implementing the Food Safety Modernization Act (“FSMA”). The document is intended to “to guide the next phase of FSMA implementation by outlining broadly the drivers of change in FDA’s approach to food safety and the operational strategy for implementing that change.” The strategy includes agency internal changes as well as purporting to be a guide to the rules regarding food and feed facilities, produce safety and the new food import system.
The Appendix of the strategy ccontains the FDA Guiding Principles which are mostly set out below:
Inspection and Surveillance
FDA will significantly expand its inspection and surveillance tools to include a wider range of inspection, sampling, testing, and other data collection activities conducted through its own field force and through collaboration with partner agencies and the food industry.
- Efficiently screening firms for food safety performance to guide risk-based inspection priority, frequency, depth, and approach
- Providing firms incentives for compliance through enhanced presence in and targeted scrutiny of high-risk firms and products and reduced scrutiny of firms with records of demonstrated good performance
- Assessing the compliance of individual firms through a range of inspection and sampling techniques used in a strategic, risk-based way to maximize coverage of priority sectors and firms
- Making in-depth assessments of individual firms when needed to increase the incentive for compliance and determine the need for compliance or enforcement actions
- Collecting data to inform understanding and analysis of sector-wide hazards, practices, and preventive control deficiencies
- Collecting data on compliance rates to evaluate program performance and plan future efforts Continue Reading
David Gabor is a shareholder at Weintraub Tobin. He is a trial lawyer and represents production companies, infomercial companies, direct response companies and multi-level marketing organizations asto both operational and compliance matters. In particular, David is focused on advertising and compliance issues, including FTC counseling and litigation, class actions, and multi-agency governmental compliance involving the marketing and sale (over multiple media platforms) of various products including educational and health-related products.
Thomas Jefferson once famously warned that, “The natural progress of things is for liberty to yield and government to gain ground.” In the current political climate, this certainly seems to be the case. Businesses are being encroached by increasing regulatory scrutiny of what they can and cannot do. This manifests itself most readily in consumer protection laws and proposed regulations that affect, among other things, the way products need to be advertised and disclaimed.
As anyone who read Upton Sinclair’s The Jungle in grade school can readily attest, some regulation is necessary as a reasonable check on unfettered commercial forces and the often unfortunate “race to the bottom” in terms of public health and safety. This article does not mean to suggest that all regulation is inherently wrong.
However, as anyone who runs a business today, particularly in California, is acutely aware, the tendency of government regulators to regulate in what is already seen as a “nanny state,” is increasing. To a certain degree, this is only logical: if a regulator’s job is to regulate, the regulator will aggressively seek to enlarge her portfolio by offering ever increasing and ever more detailed regulations. It’s a matter of self-created job security. Continue Reading
DTSC on Thursday March 13, 2014 announced the first three Priority Products under the Green Chemistry Regulations. The manufacturers of these products that sell into California are now on a regulatory time schedule to try to find alternatives to the use of the identified chemicals in the specified products. We have set out this timetables from some of our prior blogs below.
The three products include children’s foam padded sleeping products containing TDCPP (chlorinated Tris), Spray polyurethane foam systems containing unreacted diisocyanates, and paint strippers containing methylene chloride. A Priority Product is a consumer product that contains one or more chemicals – known as Candidate Chemicals – that have a hazard trait that can harm people or the environment. A proposed list of three product-chemical combinations was released on March 13, 2014.
The following is information that was provided in one of our prior blogs.
Sixty days after a product has been included on the Priority Products List, the entity responsible for the distribution of product (“Responsible Entity, RE”) must notify DTSC, and submit a Preliminary Alternatives Analysis Report (“Preliminary Report” (or “Alternatives Analysis”). The report is to be submitted no later than 180 days after the product’s listing.
If the Preliminary Report is accepted, the RE has 12 months to submit a Final Alternatives Analysis Report (“Final Report”). The report is reviewed by the DTSC to see if the conclusions in the report are supported by the date and that the chemical was properly reviewed. DTSC is to consider the following factors; alternatives that avoid or reduce adverse impacts through redesign of the product or the process; the degree the proposed report can addresses the potential adverse impacts; the ability of the ultimate user to understand information or directions provided with the Responsible Entity; and the cost of the alternatives.
The Office of Environmental Health Hazard Assessment (OEHHA) under the auspices of Governor Brown’s declaration in May 2013 (after a failed legislative effort) that he would further reform Prop 65, last week OEHHA released the proposed regulations with respect to Prop 65 warnings. Regulations can be found here. A workshop is scheduled for April 14, 2014. We would encourage all interested parties to appear and comment.
The legislative effort last year was stalemated by the struggle between the industry, environmental interests and the Prop 65 Plaintiff’s bar, which is not necessarily the same group.
The new proposals have the potential to actually create more litigation, as to date the majority of the litigation has not been related to warning content.
Further the proposals seem to have more in common with the non-industry view of warnings. There is some relief for small retailers, but they are not the major targets of litigation.
OEHHA descibes the proposal as:
The proposal would establish 3-5 minimum required elements for warnings:
1. Use of the signal word “WARNING”;
2. Use of the word “expose” to be consistent with the language in the statute;
3.The standard (Globally Harmonized System) pictogram for toxic hazards (only for consumer products other than foods, occupational and environmental warnings);
4. Disclosure of the names of up to 12 commonly-known chemicals that require warnings, such as lead and mercury, in the text of the warning;
5. A link to a new OEHHA website to allow the public to access more information relating to the warning, including additional chemicals, routes of exposure, and if applicable, any actions that individuals could take to reduce or avoid the exposure.
The following is a recap of trends as to targets of recent California Proposition 65 litigation. As anyone who has been named in such a suit can attest, it is important to understand the legal landscape so that a potentially affected entity can be in position to be ahead of the next potential wave of Prop 65 lawsuits. This is particularly true insofar as, historically, the enforcement bar (read: “bounty hunters”) finds one kind of product and then sues literally every company it can find that sells that type of product. By getting ahead of this, companies with forward-looking compliance programs can be proactive (either within their own operations or with their suppliers) so that they are not just “waiting to get sued” on various product lines.
Based on the California Attorney General’s 60-day notice website, there were 1,094 notices filed in 2013. As listed below, by far the biggest trend was DEHP cases for a wide variety of products. That was followed by a mid-year rush on upholstered furniture products (chairs, office chairs, ottomans, couches, etc.) that contained a certain kind of filling. Continue Reading
Professor Michael L. Marlow of Cal Poly San Luis Obispo recently published a preview of his paper on cancer rates and Proposition 65 entitled, “Too Much (Questionable) Information?” See Wall Street Journal, page A13, January 21, 2014.
Proposition 65 is the popular name for the California Safe Drinking Water and Toxic Enforcement Act of 1986, codified at California Health & Safety Code section 25249.7, et seq. This now-infamous California voter initiative is why California residents and visitors alike are accosted by signage on physical locations such hotel lobbies and parking garages as well as on certain commercial items such as screwdrivers and soldering paste, threatening that they are exposed to toxic levels of carcinogens or reproductive toxicants by entering the property or using the product. Continue Reading
According to the California Environmental Insider, Governor Brown’s 2014-15 draft budget contains a proposal to allocate almost $800,000 to OEHHA (Office of Environmental Health Hazard Assessment) to revise the Prop 65 regulations and to finance the development of a website to provide detailed information about listed chemicals. Also according to CEI there does not appear to be current plans by the Governor’s office to amend the statute as was attempted this year.
As we indicated in prior blogs, there was an initial attempt last year to revise the Prop 65 statute to clarify issues with respect to litigation that would have placed a more significant burden on the Plaintiffs with respect to proving their cases. In response there was an attempt by the plaintiff’s bar to require more stringent rules with respect to the scope, content and chemical specificity of label, which would likely have created additional litigation opportunities. In the end legislation was passed that primarily effects environmental/restaurant exposure and allows a cure period and a maximum on penalties. At that time there was a pledge by OEHHA that they would try to address these issues and perhaps some of the Naturally Occurring evidentiary issues in the regulations