Does the Compelled-Speech Doctrine Limit the Duty to Disclose Product Defects?

In recent years, plaintiffs’ lawyers have filed countless class actions under statutes like California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) alleging consumers were “deceived” because they bought a product with a “defect” that the manufacturer or retailer did not disclose. These cases share a common fact pattern: consumer buys product X and experiences a problem after some period of use. The consumer goes online and sees others have complained about something similar. Sometimes the consumer makes a claim under the product warranty but often does not. Eventually, a class action lawyer gets involved and files a complaint alleging that product X is “defective,” defendant knew of the defect (pointing to publicly available complaints), and defendant should return the “price premium” associated with the alleged defect.

But consider the perspective of the manufacturer. No product is perfect or lasts forever, and products can have problems unrelated to design or manufacture, including from misuse or overuse. The company already provides a limited warranty covering actual defects in materials or workmanship and remains strictly liable for defects that cause physical injury. Does the company also have a duty to disclose or highlight problems that could occur in a small subset of products, which in effect, would require the company to criticize itself? As explained below, the answer, which may surprise some, is: “in certain situations, yes.”

Yet one issue that has received little attention is whether the First Amendment has any bearing on this type of consumer-fraud theory. The compelled-speech doctrine generally limits what the government can require someone to say, with regulations that require controversial or nonfactual speech often violating the First Amendment. This paper explores the developing law on the duty to disclose product defects in California and how the compelled-speech doctrine may limit such a duty.

I. Origins of the Duty to Disclose

In California, the duty to disclose can be traced to Outboard Marine Corp. v. Superior Court, a 1975 decision involving a partial representation claim under the CLRA,^[1] as well as LiMandri v. Judkins, a 1997 decision explaining when there is a duty to disclose material facts about a transaction.^[2]

The Outboard Marine decision involved a defendant that manufactured off-road vehicles and represented they were “designed to operate within the parameters” of certain specifications, including gradeability (100 percent grade or 45 degrees plus); side hill ability of 45 degrees; traction “to get . . . up grades as steep as 100 percent and even greater;” and smooth runs “over rocks, stones and rough places[.]”^[3] The defendant allegedly knew, but did not disclose, that the vehicle would not operate within its design criteria, was unstable, would roll over (forward) on a downgrade, and had a “totally defective” braking system.^[4] Comparing the affirmative representations with the undisclosed limitations, the court explained that the CLRA’s proscription against “[r]epresenting that goods . . . are of a particular standard . . . if they are of another” includes a prohibition on “concealment of the characteristics . . . contrary to that represented.”^[5]

Although the case did not involve CLRA or UCL claims, the LiMandri court explained that there are:

four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.^[6]

The court emphasized that, for there to be a duty, there must be a transaction: a “duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement.”^[7] All of these relationships “are created by transactions between parties from which a duty to disclose facts material to the transaction arises under certain circumstances.”^[8]

II. Scope of the Duty to Disclose

Building on these standards, consumers continued to test the bounds of the CLRA and UCL with nondisclosure theories like those asserted in Bardin v. DaimlerChrysler Corp.^[9] There, plaintiffs alleged consumer fraud because the defendant used tubular steel in the exhaust manifolds of certain vehicles instead of more durable and expensive cast iron, knowing that the tubular steel could crack and fail prematurely.^[10] In other words, plaintiffs claimed that the manufacturer had a duty to disclose that the steel used in its vehicles could fail earlier than if it used different, more expensive metal. Rejecting this theory, the court found no basis for a duty of disclosure, because defendant had made no representations about the steel quality in the exhaust manifolds, and plaintiff did not allege that the consuming public had any reasonable expectations about the steel used in the manifolds.^[11]

Other theories have had more success, including those alleging a failure to disclose defects creating a potential safety hazard. For example, in Garcia v. Harley-Davidson Motor Co., plaintiff alleged that defendant’s motorcycle included a defective antilock braking system (“ABS”) prone to premature failure during normal operation.^[12] Plaintiff alleged this created a safety hazard that defendant had a duty to disclose, because the defect disabled the ABS system—which is intended to prevent a motorcycle from skidding when braking hard—thus increasing the chances of a motorcycle crashing when the rider attempts to stop quickly.^[13] Rejecting defendant’s argument that the risk was speculative, the court found the allegations plausibly alleged “a safety risk as a result of the purported defect” in the motorcycle that, at least at the pleading stage, defendant needed to disclose.^[14]

The Ninth Circuit, however, reached a different conclusion in Williams v. Yamaha Motor Co.^[15] There, plaintiff alleged that defendant’s motorboat had inherent design defects that caused severe, premature corrosion in the motor’s dry exhaust system and posed an unreasonable safety hazard, including a risk of onboard fires and steering loss.^[16] The court explained that, to state a claim for failing to disclose a defect, a party must allege “(1) the existence of a design defect; (2) the existence of an unreasonable safety hazard; (3) a causal connection between the alleged defect and the alleged safety hazard; and [4] that the manufacturer knew of the defect at the time a sale was made.”^[17]

Concluding that plaintiff had not alleged enough to show an “unreasonable safety hazard,” the court explained that the purported defect merely accelerated the normal and expected process of corrosion in outboard motors. “Were we to conclude that [plaintiff’s] allegations of premature but otherwise normal wear and tear plausibly establish an unreasonable safety hazard, we would effectively open the door to claims that all of [defendant’s] outboard motors eventually pose an unreasonable safety hazard.”^[18] Finding that “the alleged safety risk [wa]s speculative and unsupported,” the court noted that plaintiff failed to allege “that any customer, much less any plaintiff, experienced such a fire—a notable omission if the alleged unreasonable safety hazard arises in all [defendant’s] outboard motors sooner or later.”^[19] The court also ruled that the “loss of steering power, while plausibly hazardous, is a potential boating condition of which [defendant] expressly warns consumers.” And “the nature of the alleged defect as being primarily one of accelerated timing rather than the manifestation of a wholly abnormal condition weighs against its characterization as ‘unreasonable.’”^[20]

III. Is the Duty Limited to “Safety Issues”?

Picking up on these “safety hazard” cases, defendants have argued that the duty to disclose is limited to product defects that create such a hazard. For example, in Hodsdon v. Mars, Inc., plaintiffs alleged that California’s consumer protection laws required food manufacturers to disclose, on their products’ labels, that the products’ supply chain may involve child or slave labor.^[21] Defendants responded by arguing that the duty was limited to defects that created an unreasonable safety hazard. Rejecting this argument, the Ninth Circuit reviewed California state court decisions applying LiMandri to find a duty to disclose when “[first,] plaintiff alleges that the omission was material; second, the plaintiff . . . plead[s] that the defect was central to the product’s function; and third, the plaintiff . . . allege[s] one of the four LiMandri factors.”^[22] Although the court rejected the “safety hazard” limitation, the court ruled for defendants, holding that “in this pure omissions case concerning no physical product defect relating to the central function of the chocolate and no safety defect, Plaintiff has not sufficiently pleaded that [defendant] had a duty to disclose on its labels the labor issues in its supply chain.”^[23]

Since Hodsdon, courts have tried to clarify this duty and how it may be affected by product warranties. For example, in Taleshpour v. Apple Inc., plaintiffs alleged that defendant failed to disclose a defect that caused the screens on their laptop computers to stop working properly, thus shortening the useful life of the computers.^[24] The court explained that “[w]hen a defect does not relate to an unreasonable safety hazard, a defendant has a duty to disclose when (1) the omission is material; (2) the defect is central to the product’s function; and (3) at least one of the following four [LiMandri] factors is met: the defendant is the plaintiff’s fiduciary; the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; the defendant actively conceals a material fact from the plaintiff; or the defendant makes partial representations that are misleading because some other material fact has not been disclosed.”

Reviewing Hodsdon and other omission cases, the court explained that “a manufacturer has a duty to disclose any defects that fall within the warranty period, whether relating to safety or to costly repairs, that would have caused the consumer to not purchase the [product] if they had been disclosed.”^[25] But if the defect “arises outside of the warranty period, however, then the manufacturer only has a duty to disclose ‘safety issues.’”^[26] “The purpose of this limitation in the post-warranty context is to ensure that durational limits on express warranties are not rendered meaningless.”^[27] Because the plaintiff in Taleshpour did not allege that the screen defect arose during the warranty period or created a safety issue, there was no duty to disclose.

IV. But What About Compelled Commercial Speech?

The First Amendment affords protection to both commercial and noncommercial speech.^[28] The Supreme Court has defined commercial speech as speech that “does no more than propose a commercial transaction.”^[29] For commercial speech to receive First Amendment protection, it must concern lawful activity and not be inherently or actually misleading.^[30] Thus, the First Amendment “accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.”^[31] And because of its subsidiary status, commercial speech can be subjected to modes of regulation that might be impermissible in the realm of noncommercial expression. For instance, “there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about lawful activity.”^[32]

Two different tests may apply to regulation of commercial speech. First, under Central Hudson Gas & Electric Corp. v. Public Service Commission of N.Y., the government may restrict commercial speech “that is neither misleading nor connected to unlawful activity, as long as the governmental interest in regulating the speech is substantial.”^[33] Under this intermediate level of scrutiny, the law at issue must “‘directly advance the governmental interest asserted’ and must not be ‘more extensive than is necessary to serve that interest.’”^[34] Second, under Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, the government may require commercial speakers to disclose “purely factual and uncontroversial information” about commercial products or services, as long as the disclosure requirements are “reasonably related” to a substantial government interest and are neither “unjustified [n]or unduly burdensome.”^[35]

Understanding the interplay between these tests is important. Zauderer’s narrowly crafted exception does not dispense with Central Hudson’s intermediate scrutiny.^[36] Rather, the burden under intermediate scrutiny is effectively met when the government commands purely factual and noncontroversial disclosures to prevent deceptive advertising.^[37] In other words, Zauderer is a shortcut “where several of Central Hudson’s elements have already been established.”^[38]

Regardless of which standard applies, the party seeking to uphold a restriction on commercial speech carries the burden of justifying it,^[39] which in a case involving an allegedly undisclosed product defect, is the plaintiff.^[40]

In 2022, the Ninth Circuit applied these standards to uphold a preliminary injunction against a state law that would have required manufacturers of food containing acrylamide to provide a notice that the products contain a substance “known to the State of California to cause cancer.”^[41] Reviewing compelled-speech case law, the court explained that the relevant standard had three requirements: “whether the notice is (1) purely factual, (2) noncontroversial, and (3) not unjustified or unduly burdensome.”^[42] The court found that the required disclosure was not “purely factual” or “noncontroversial” based on evidence showing “robust disagreement by reputable scientific sources” about whether low levels of acrylamide in food may cause cancer in humans.^[43]

The D.C. Circuit reached a similar conclusion in National Association of Manufacturers v. Securities and Exchange Commission.^[44] There, the SEC enacted a rule mandating companies using certain minerals originating in the Democratic Republic of Congo to disclose on their website that their products have “not been found to be DRC conflict free.”^[45] The court explained that this was not a “purely factual” or “noncontroversial” disclosure: “We put it this way: Products and minerals do not fight conflicts. . . . By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”^[46] The SEC also could not rely on a statutory definition of “conflict free” to prove that the required disclosure was factual and noncontroversial, because otherwise “there would be no end to the government’s ability to skew public debate by forcing companies to use the government’s preferred language.”^[47]

Recently, the Ninth Circuit applied similar reasoning again in National Association of Wheat Growers v. Bonta, holding that California cannot require Proposition 65 warnings for exposures to glyphosate, a chemical commonly used in herbicides.^[48] The threshold question was what level of scrutiny applied to the glyphosate warning. Recognizing the scientific debate over glyphosate’s carcinogenicity and that “the overall message that glyphosate is unsafe” was “at best disputed[,]” the Ninth Circuit found that intermediate scrutiny applied.^[49] Applying intermediate scrutiny, the Ninth Circuit held that “compelling sellers to warn consumers of a potential ‘risk’ never confirmed by any regulatory body — or of a hazard not ‘known’ to more than a small subset of the scientific community” was unconstitutional.^[50] Although the decision involved California Proposition 65 and glyphosate, the principles applied could extend to compelled warnings more generally.

V. Applying the Compelled-Speech Doctrine to Omission Cases

Turning back to consumer-fraud cases involving claims that a business needed to disclose a product “defect,” the question is whether the evolving standards requiring such a disclosure are consistent with compelled-speech restrictions. One initial reaction to this question might be the familiar notion that “[m]isleading advertising may be prohibited entirely.”^[51] But this argument’s premise assumes the truth of the conclusion. And in the acrylamide, conflict minerals, and glyphosate cases discussed above, the courts could have resolved them using the same basic principle but did not. Consumers may find it material that the products they are consuming contain substances that may cause cancer or fund foreign wars, and thus argue that it was materially misleading not to disclose that information. Yet the courts focused on whether the required disclosures were “purely factual,” “noncontroversial,” “justified,” and “not unduly burdensome.”

Those same considerations should apply to omission claims based on an undisclosed product defect.^[52] In these cases, plaintiffs argue that consumers were misled because, had they known of the undisclosed “defect,” they would not have bought the product or would have paid less. Thus, plaintiffs are essentially arguing for a compelled disclosure that the product had a defect—one that creates an unreasonable safety hazard or may manifest during the warranty period to impair the product’s central function. Applying the compelled-speech cases would require that plaintiffs also show the disclosures they are demanding are “purely factual,” “noncontroversial,” and “not unduly burdensome.”

When the alleged defect is rare or the cause is uncertain (or potentially attributable to misuse or overuse), it may be difficult to prove that the disclosure is “purely factual” and “noncontroversial”—just like California could not prove that requiring a cancer disclosure for glyphosate or foods containing acrylamide was purely factual and noncontroversial because the science was uncertain. Similarly, when the plaintiff’s individual product has not manifested the alleged defect, it may be difficult to show that the disclosure is noncontroversial and not unduly burdensome. Defense counsel handling these cases may wish to explore arguments based on compelled-speech principles to help defend omission-based claims.