Did Peloton Dodge Product Liability Lawsuits With Its Latest Recall?
On May 5, Peloton announced a recall of all its treadmills in the wake of reports of dozens of injuries, including the death of a 6-year-old. Initially, however, the New York-based exercise equipment company — to the surprise of many lawyers — denied there were safety problems.
Peloton announced the recall of its Tread+ and Tread treadmills nearly a month after the U.S. Consumer Product Safety Commission warned Peloton owners not to use its Tread+ around small children or pets, who could get pulled underneath the machine.
At the time, Peloton CEO John Foley called the commission’s safety warning “inaccurate and misleading.”
Foley then abruptly switched gears, admitting that Peloton had “made a mistake.” The recall of 125,000 treadmills advised consumers to stop using the products altogether.
Peloton’s initial reaction to the commission’s safety concerns is a “complete head-scratcher,” said defense attorney Jonathan Judge, a partner at Schiff Hardin in Chicago.
“The whole strategy here makes no sense at all,” he said.
But could the recall prompt a race to the courthouse? Probably not, lawyers said.
“I think they reversed action quick enough that they probably avoided a lot of lawsuits,” said John Kelly of Kelly Law Team in Phoenix. “But I do think they have a lot of egg on their face, and stocks may have been affected by it, and obviously, this huge recall may affect them.”
Did Peloton make a mistake?
In its recall announcement, the commission cited 72 reports of adults, children, pets, or other objects being pulled under the Tread+.
That’s an “eyebrow-raising number,” said Judge, who handles product liability defense of consumer products, particularly involving children. The commission also referenced 29 incidents in which children had been seriously injured, including the death of that 6-year-old.
That made Peloton’s initial reaction all the more alarming.
“If you deal with CPSC and with children’s products,” Judge said, “when there is a child’s death involved, they take those extraordinarily seriously and are extremely unlikely to just let it go. And they’re also extremely unlikely to accept that putting better warnings on it is good enough when, as they pointed out, other treadmills don’t have this problem.”
Foley has been unusually vocal about the safety concerns, writing letters on Peloton’s website to consumers and shareholders. Last month, he denied any suggestion that Peloton was attempting to impede the commission’s investigation.
“We were simply standing behind our members’ right to maintain their privacy, and we remain committed to providing this type of information only with a member’s consent or pursuant to a subpoena,” he wrote, noting that some members had already been subject to “personal attacks.” “Government agencies shouldn’t have unfettered access to consumers’ private information, and I am proud that we took a stand to protect these members’ privacy.”
But, days later, U.S. Sen. Richard Blumenthal, D-Conn., and U.S. Reps. Jan Schakowsky and Bobby Rush, both Illinois Democrats, introduced legislation that would grant more power to the commission to warn consumers about dangerous products without risking retaliation by the manufacturer.
Then, on Friday (May 7), two days after announcing the recall, Foley appeared on the ABC News program ”Good Morning America,” admitting that Peloton “did make a mistake” in its initial statements to the commission but insisted its treadmills had met safety standards when used properly.
Foley’s public statements could be fodder for plaintiffs lawyers who might pursue such lawsuits while making it harder for defense attorneys to argue that the CEO should not face depositions.
“The bigger concern is the CEO is out there giving all these statements,” Judge said. “To have the CEO, on top of that, come out and say you’re not going to do anything, and then personally admit they were wrong a few weeks later, is utterly bizarre. It’s the worst of both worlds.”
The likelihood of litigation
Foley’s actions also could open the door for plaintiffs lawyers to question the authenticity of his safety assurances and Peloton’s products overall.
“We always look at what actions are taken in trying to ensure safety of products,” Kelly said. “And when you have the CEO, the higher-up people in the company, making public statements that seem to be tone-deaf to those needs of the public, it can tell a compelling story for these plaintiffs’ cases of ‘look, jury, you’ve got someone who refuses to admit they have an issue.’”
Yet, lawyers are not convinced that Peloton could face an onslaught of litigation. For one thing, the company, as part of its recall, is providing full refunds to consumers through Nov. 6, 2022, and software updates to the treadmills, which it offered to move to a safer room in a consumer’s house. Peloton also waived subscription fees for three months.
Although consumers who were physically hurt by the treadmills could have a claim, there isn’t enough there for a lawsuit brought on behalf of those whose damages are limited to the inconvenience of getting a new product, Kelly said.
Still, at least two lawsuits have already been filed: One for consumers and one for shareholders.
On April 20, three days after the commission’s warning, plaintiffs attorney John Parker, of Cutter Law in Sacramento, California, filed a class action alleging that consumers, who paid $4,295 for the Tread+, were financially harmed by advertisements and statements misleading them into believing the product was safe to use at home with children when, in reality, its design is defective. Among other things, the complaint sought refunds.
Parker, who filed the case in the Northern District of California, did not respond to a request for comment.
On the day of the recall, for which Peloton expected to take a $165 million reduction in sales, its shares dropped from $98.03 to $82.62.
A shareholder lawsuit, filed on April 29 in the Eastern District of New York, alleges that Peloton, Foley and Jill Woodworth, the chief financial officer, misled consumers and shareholders about the safety issues with its treadmills. On the day after the commission’s warning, Foley wrote on the company’s website that Peloton had “no intention” to stop selling its Tread+, sending shares falling more than 14%, closing at $99.93 on April 21, the suit says.
The case seeks a proposed class of shareholders who traded securities from Sept. 11, 2020, to April 16, 2021.
Phillip Kim, of The Rosen Law Firm, who filed the shareholder lawsuit, did not respond to a request for comment.
On “Good Morning America,” Foley acknowledged that Peloton could face lawsuits, stating it was “absolutely something we’re ready for.”
“They seem to have taken the right steps at this point to inoculate themselves against what they know about,” Judge said. “But if more things pop up in the future, which is a likelihood, it’s more difficult to protect against product liability claims.”
From: Property&Casualty 360