Trade Association Liability

Plaintiffs rely on a number of theories of liability to challenge trade associations. This article discusses some areas of potential liability for trade associations when they choose to set industry standards or engage in an informational advertising campaign.

'Baring' a Standard

One of the more important roles trade associations play is sharing technical expertise and know-how to establish safety standards and best practices within their industry. While this provides clear benefits to the association, its members, and consumers, plaintiffs have nonetheless tried to co-opt standards by setting them as a basis for association tort liability.

Whether or not plaintiffs can successfully impose liability on a trade association based on its establishing safety standards turns on whether the association takes a role in enforcing or otherwise imposing those standards on its members or other manufacturers. Where the association merely proposes standards, most courts have found that there is no duty owed. See Beasock v. Dioguardi Enterprises, Inc., 130 Misc. 2d 25, 494 N.Y.S.2d 974 (N.Y. Sup. Ct. 1985), reversed on other grounds, 117 A.D.2d 1015, 499 N.Y.S.2d 558 (summary judgment granted to defendant on claims of negligently setting standards; tire and rim trade association owed no voluntary duty and did not undertake duty to plaintiff); Howard v. Poseidon Pools, Inc., 133 Misc. 2d 50, 506 N.Y.S.2d 523 (N.Y. Sup. Ct. 1986), affirmed in relevant part, 134 A.D.2d 926, 522 N.Y.S.2d 388 (N.Y. Ct. App. 1987) (swimming pool trade association that set minimum safety standards did not owe duty to plaintiff and did not control manufacturers); Meyers v. Donnatacci, 220 N.J. Super. 73, 531 A2d 398 (N.J. Super. Ct. 1987) (trade association did not assume duty to warn of dangers associated with diving into shallow water when it established swimming pool safety standards); Friedman v. F.E. Myers Co., 706 F. Supp. 376 (E.D. Pa. 1989) (water pump manufacturers' association owed no duty to plaintiff regarding claims of negligence and concerted action); Bailey v. Edward Hines Lumber Co., 308 Ill. App. 3d 58, 719 N.E.2d 178, 241 Ill. Dec. 317 (Ill. Ct. App. 1999) (building materials trade association owed no duty to carpenters who relied on association's recommendations); Commerce and Industry Ins. Co. v. Grinnell Corp., 1999 U.S. Dist. LEXIS 11269, 1999 WL 508357 (E.D. La. July 15, 1999) (trade association that published fire safety codes owed no duty to owner or occupant of building that burned).

This line of cases embodies a consistent public policy message as well. “To punish those who voluntarily assist others would discourage benign acts of assistance in contravention of public policy.” Padilla v. Hunter Douglas Window Coverings, Inc., 2012 U.S. Dist. LEXIS 112344, 14 (N.D. Ill. Aug. 8, 2012).

More Traction for Plaintiffs

Plaintiffs have gained more traction, however, where they allege that the association took steps to promote or enforce its standards. See Murray v. Motorola, Inc., 2011 D.C. Super. LEXIS 3, 82-83 (D.C. Super. Ct. 2011). This action survived the pleadings stage where plaintiff alleged that the association “funds research into cell phones, sets the safety standards for them, has a program that tests these for safety, and then allows the manufacturers to place [the association's] seal of approval on the cell phones it has approved.”

The Murray court looked to the Restatement (Second) of Torts 324A as did other courts, finding that a duty may be created by an association's voluntary undertaking:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if (a) his failure to exercise reasonable care increases the risk of such harm, or (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking.

In Murray, the court found that “where the manufacturers who are its members allow it to control the safety of their cell phones by letting it test and certify them under its own standards, CTIA has 'undertaken to perform a duty owed [by the manufacturers to the plaintiffs],' and should bear the responsibility should a consumer be injured by an unsafe cell phone.” Id. at 86.

Plaintiffs have used this line of reasoning successfully in a number of cases. It has meant the bankruptcy of at least one trade association. The National Spa and Pool Institute was driven into Chapter 11 when it faced a series of lawsuits alleging it negligently promulgated swimming pool standards. See King v. National Spa & Pool Inst., Inc., 570 So.2d 612 (Ala. 1990) (“trade association's voluntary undertaking to promulgate minimum safety design standards for safe diving from diving boards installed in residential swimming pools ' and to disseminate those standards to its members for the purpose of influencing their design and construction practices, made it foreseeable that harm might result to the consumer)”; Meneely v. S.R. Smith, Inc., 101 Wn. App. 845, 5 P.3d 49 (Wash. Ct. App. 2000), review denied, 142 Wn.2d 1029, 21 P.3d 290 (Wash. 2001) (affirming jury verdict against swimming pool trade association, premised on its having “promulgat[ed] industry wide safety standards” upon which all pool manufacturers relied); see also Snyder v American Ass ' n of Blood Banks, 144 N.J. 269, 676 A.2d 1036 (N.J. 1996) (affirming summary judgment against blood bank trade association (AABB) for negligently enhancing a blood recipient's risk of contracting AIDS; unlike the AWS, the AABB “accredits member institutions” only if they comply with the association's standards.

Commentators have well recognized that these lines of cases should be questioned on doctrinal and public policy grounds. These cases over-stretch the rationale behind the Restatement and have a chilling effect; discouraging associations from developing consistent and reliable safety standards. See Robert H. Heidt, Damned for Their Judgment: The Tort Liability of Standards Development Organizations, 45 Wake Forest L. Rev. 1227 (2010); Richard C. Ausness, Liability of Standards Development Organizations: A Response to Professor Heidt, 1 Wake Forest L. Rev. Online 86 (2011).

Standard Bearing

Trade associations are champions, standard-bearers for their industries and their members' products. They lobby government agencies, as well as the public regarding issues important to their members. These actions, however, can give rise to legal liability.

The Corn Refiners Association embarked on a public awareness campaign in mid-2008 to promote high-fructose corn syrup or HFCS as “corn sugar,” essentially equivalent to cane sugar. The Western Sugar Cooperative, among others, filed a false advertising claim against the CRA and a number of its members. The suit alleged that the CRA's advertising campaign “co-opt[s] the goodwill of 'sugar'” and “constitutes paradigmatically false and misleading advertising ' ” Western Sugar Cooperative, et al. v. Archer-Daniels-Midland Company, et al., No. 11-cv-03473-CBM-MAN (C.D. Cal., Nov. 18, 2011) (Second Amended Complaint).

Western Sugar represents a particularly rancorous matter between bitter commercial rivals. This action is also not the first salvo in the sweetener wars. In early 2005, McNeil Nutritionals, which markets sucralose, or Splenda, brought a false advertising suit against The Sugar Association for an advertising campaign it called the “Truth About Splenda.” See McNeil Nutritionals, LLC v. Sugar Ass'n, 2005 U.S. Dist. LEXIS 7628 (D. Del., Apr. 29, 2005).

These particular lawsuits were the patently foreseeable result of the associations' actions. In these cases, the associations set out to educate consumers about their own products by drawing unfavorable comparisons to their competitors' products. Their competitors were not prepared to sit back and take it on the chin.

In addition to competitors, trade associations also attract the ire of individual plaintiffs. This is particularly so in today's legal environment where plaintiffs are aggressively challenging various food products' labeling. Trade associations become vulnerable in this regard when they endorse or support certain manufacturers or products.

Trade associations often look to supplement their revenue by selling product endorsements. Take the example of the American Heart Association and its Heart-Check Mark. Food manufacturers that meet the AHA's nutritional standards are able to license the Heart Check Mark and display the mark on their products. This simultaneously enables consumers to quickly and easily make healthier food choices, and generates much needed revenue for the not-for-profit AHA.

Other Cases

In an action filed on Aug. 13, 2013, a New Jersey consumer filed a class action, false advertising lawsuit against the American Heart Association, claiming that its Heart-Check Mark “misleads consumers.” The Complaint alleges that the AHA has a double-standard ' the AHA allows manufacturers to label their product with the Heart-Check Mark where the product does not in fact meet the AHA's “general dietary and nutrition guidelines.” The plaintiff claims that the AHA, therefore, misleads consumers into believing products bearing the Heart-Check label meet the AHA's general standards when they allegedly do not. With the recent increase in false advertising and food labeling lawsuits, the case in particular bears watching to see if and how association liability is expanded.

Conclusion

Industry groups should be encouraged to foster legitimate collaboration among their members and they should advocate vigorously on their members' behalf. When this involves setting standards or otherwise making public statements, associations should do so with a good-faith, reasonable basis. When developing standards, trade associations should consider working with independent industry experts who can empirically validate the standards. Where associations make public statements, they should try to avoid sticking their fingers in a hornets' nest by antagonizing their competitors, and in all cases they should take reasonable steps to ensure the truth of their messaging.

Howard I. Miller is a senior associate in the San Francisco office of Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, PC. Reach him at 415-436-6001. E-mail: [email protected].

Trade associations represent retailers, distributors, and manufacturers in nearly every industrial sector in America. These associations create a single point of contact for their members ' a conduit through which members can efficiently advocate for their commercial interests, educate their market and their consumers, and cooperate to set safety standards and establish best practices. Indeed, they “serve many laudable purposes in our society.” Meyers v. Donnatacci , 220 N.J. Super. 73, 531 A2d 398, 404 (N.J. Super. Ct. 1987).

As with many good things however, trade associations come with a price. They have attracted the attention of the plaintiffs' bar, and have been named as defendants in a growing variety of cases including antitrust, product liability, and even false advertising.

Naming trade associations as defendants can provide plaintiffs additional sources of settlement funds; it may defeat federal diversity jurisdiction, and it will often provide plaintiffs with a wider scope of discovery that may involve the association's individual members. Not only are plaintiffs willing to pursue trade associations, but they are also challenging association members based on their links to the associations.

Plaintiffs rely on a number of theories of liability to challenge trade associations. This article discusses some areas of potential liability for trade associations when they choose to set industry standards or engage in an informational advertising campaign.

'Baring' a Standard

One of the more important roles trade associations play is sharing technical expertise and know-how to establish safety standards and best practices within their industry. While this provides clear benefits to the association, its members, and consumers, plaintiffs have nonetheless tried to co-opt standards by setting them as a basis for association tort liability.

Whether or not plaintiffs can successfully impose liability on a trade association based on its establishing safety standards turns on whether the association takes a role in enforcing or otherwise imposing those standards on its members or other manufacturers. Where the association merely proposes standards, most courts have found that there is no duty owed. See Beasock v. Dioguardi Enterprises, Inc. , 130 Misc. 2d 25, 494 N.Y.S.2d 974 (N.Y. Sup. Ct. 1985), reversed on other grounds, 117 A.D.2d 1015, 499 N.Y.S.2d 558 (summary judgment granted to defendant on claims of negligently setting standards; tire and rim trade association owed no voluntary duty and did not undertake duty to plaintiff); Howard v. Poseidon Pools, Inc. , 133 Misc. 2d 50, 506 N.Y.S.2d 523 (N.Y. Sup. Ct. 1986), affirmed in relevant part, 134 A.D.2d 926, 522 N.Y.S.2d 388 (N.Y. Ct. App. 1987) (swimming pool trade association that set minimum safety standards did not owe duty to plaintiff and did not control manufacturers); Meyers v. Donnatacci , 220 N.J. Super. 73, 531 A2d 398 (N.J. Super. Ct. 1987) (trade association did not assume duty to warn of dangers associated with diving into shallow water when it established swimming pool safety standards); Friedman v. F.E. Myers Co., 706 F. Supp. 376 (E.D. Pa. 1989) (water pump manufacturers' association owed no duty to plaintiff regarding claims of negligence and concerted action); Bailey v. Edward Hines Lumber Co. , 308 Ill. App. 3d 58, 719 N.E.2d 178, 241 Ill. Dec. 317 (Ill. Ct. App. 1999) (building materials trade association owed no duty to carpenters who relied on association's recommendations); Commerce and Industry Ins. Co. v. Grinnell Corp., 1999 U.S. Dist. LEXIS 11269, 1999 WL 508357 (E.D. La. July 15, 1999) (trade association that published fire safety codes owed no duty to owner or occupant of building that burned).

This line of cases embodies a consistent public policy message as well. “To punish those who voluntarily assist others would discourage benign acts of assistance in contravention of public policy.” Padilla v. Hunter Douglas Window Coverings, Inc., 2012 U.S. Dist. LEXIS 112344, 14 (N.D. Ill. Aug. 8, 2012).

More Traction for Plaintiffs

Plaintiffs have gained more traction, however, where they allege that the association took steps to promote or enforce its standards. See Murray v. Motorola, Inc., 2011 D.C. Super. LEXIS 3, 82-83 (D.C. Super. Ct. 2011). This action survived the pleadings stage where plaintiff alleged that the association “funds research into cell phones, sets the safety standards for them, has a program that tests these for safety, and then allows the manufacturers to place [the association's] seal of approval on the cell phones it has approved.”

The Murray court looked to the Restatement (Second) of Torts 324A as did other courts, finding that a duty may be created by an association's voluntary undertaking:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if (a) his failure to exercise reasonable care increases the risk of such harm, or (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking.

In Murray, the court found that “where the manufacturers who are its members allow it to control the safety of their cell phones by letting it test and certify them under its own standards, CTIA has 'undertaken to perform a duty owed [by the manufacturers to the plaintiffs],' and should bear the responsibility should a consumer be injured by an unsafe cell phone.” Id. at 86.

Plaintiffs have used this line of reasoning successfully in a number of cases. It has meant the bankruptcy of at least one trade association. The National Spa and Pool Institute was driven into Chapter 11 when it faced a series of lawsuits alleging it negligently promulgated swimming pool standards. See King v. National Spa & Pool Inst., Inc. , 570 So.2d 612 (Ala. 1990) (“trade association's voluntary undertaking to promulgate minimum safety design standards for safe diving from diving boards installed in residential swimming pools ' and to disseminate those standards to its members for the purpose of influencing their design and construction practices, made it foreseeable that harm might result to the consumer)”; Meneely v. S.R. Smith, Inc. , 101 Wn. App. 845, 5 P.3d 49 (Wash. Ct. App. 2000), review denied, 142 Wn.2d 1029, 21 P.3d 290 (Wash. 2001) (affirming jury verdict against swimming pool trade association, premised on its having “promulgat[ed] industry wide safety standards” upon which all pool manufacturers relied); s ee also Snyder v American Ass ' n of Blood Banks , 144 N.J. 269, 676 A.2d 1036 (N.J. 1996) (affirming summary judgment against blood bank trade association (AABB) for negligently enhancing a blood recipient's risk of contracting AIDS; unlike the AWS, the AABB “accredits member institutions” only if they comply with the association's standards.

Commentators have well recognized that these lines of cases should be questioned on doctrinal and public policy grounds. These cases over-stretch the rationale behind the Restatement and have a chilling effect; discouraging associations from developing consistent and reliable safety standards. See Robert H. Heidt, Damned for Their Judgment: The Tort Liability of Standards Development Organizations, 45 Wake Forest L. Rev. 1227 (2010); Richard C. Ausness, Liability of Standards Development Organizations: A Response to Professor Heidt, 1 Wake Forest L. Rev. Online 86 (2011).

Standard Bearing

Trade associations are champions, standard-bearers for their industries and their members' products. They lobby government agencies, as well as the public regarding issues important to their members. These actions, however, can give rise to legal liability.

The Corn Refiners Association embarked on a public awareness campaign in mid-2008 to promote high-fructose corn syrup or HFCS as “corn sugar,” essentially equivalent to cane sugar. The Western Sugar Cooperative, among others, filed a false advertising claim against the CRA and a number of its members. The suit alleged that the CRA's advertising campaign “co-opt[s] the goodwill of 'sugar'” and “constitutes paradigmatically false and misleading advertising ' ” Western Sugar Cooperative, et al. v. Archer-Daniels-Midland Company, et al., No. 11-cv-03473-CBM-MAN (C.D. Cal., Nov. 18, 2011) (Second Amended Complaint).

Western Sugar represents a particularly rancorous matter between bitter commercial rivals. This action is also not the first salvo in the sweetener wars. In early 2005, McNeil Nutritionals, which markets sucralose, or Splenda, brought a false advertising suit against The Sugar Association for an advertising campaign it called the “Truth About Splenda.” See McNeil Nutritionals, LLC v. Sugar Ass'n, 2005 U.S. Dist. LEXIS 7628 (D. Del., Apr. 29, 2005).

These particular lawsuits were the patently foreseeable result of the associations' actions. In these cases, the associations set out to educate consumers about their own products by drawing unfavorable comparisons to their competitors' products. Their competitors were not prepared to sit back and take it on the chin.

In addition to competitors, trade associations also attract the ire of individual plaintiffs. This is particularly so in today's legal environment where plaintiffs are aggressively challenging various food products' labeling. Trade associations become vulnerable in this regard when they endorse or support certain manufacturers or products.

Trade associations often look to supplement their revenue by selling product endorsements. Take the example of the American Heart Association and its Heart-Check Mark. Food manufacturers that meet the AHA's nutritional standards are able to license the Heart Check Mark and display the mark on their products. This simultaneously enables consumers to quickly and easily make healthier food choices, and generates much needed revenue for the not-for-profit AHA.

Other Cases

In an action filed on Aug. 13, 2013, a New Jersey consumer filed a class action, false advertising lawsuit against the American Heart Association, claiming that its Heart-Check Mark “misleads consumers.” The Complaint alleges that the AHA has a double-standard ' the AHA allows manufacturers to label their product with the Heart-Check Mark where the product does not in fact meet the AHA's “general dietary and nutrition guidelines.” The plaintiff claims that the AHA, therefore, misleads consumers into believing products bearing the Heart-Check label meet the AHA's general standards when they allegedly do not. With the recent increase in false advertising and food labeling lawsuits, the case in particular bears watching to see if and how association liability is expanded.

Conclusion

Industry groups should be encouraged to foster legitimate collaboration among their members and they should advocate vigorously on their members' behalf. When this involves setting standards or otherwise making public statements, associations should do so with a good-faith, reasonable basis. When developing standards, trade associations should consider working with independent industry experts who can empirically validate the standards. Where associations make public statements, they should try to avoid sticking their fingers in a hornets' nest by antagonizing their competitors, and in all cases they should take reasonable steps to ensure the truth of their messaging.

Howard I. Miller is a senior associate in the San Francisco office of Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, PC. Reach him at 415-436-6001. E-mail: [email protected].