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Home Depot Dreams California Lawsuits Go Away

By Rich Duprey - Apr 1, 2013 at 5:31PM

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The retailer reaches an agreement in a case accusing it of knowingly selling smog-causing products.

If someone is going to claim their products are "free of" a certain chemical, then the Federal Trade Commission requires it actually not have the chemical in the product or at best have just trace amounts of it. It's a reasonable assumption that goes beyond the boastful claims marketers are allowed to make, such as that their products are "best" or "most loved."

But if you're a store owner that simply sells products that claim to be free of those chemicals, how far are you required to go to prove the manufacturer's claims are true? If you're in California, apparently pretty far.

The desolation of smog
In yet another instance of why it's difficult to do business in the state, do-it-yourself superstore Home Depot (HD -0.20%) just reached an $8 million settlement in a lawsuit with California's South Coast Air Quality Management District, admitting that it knowingly sold paint, wood lacquers, and other coatings containing excessive levels of smog-forming chemicals.

The SCAQMD says paints and coatings are a major source of air pollution, equal to an amount greater than that emitted by 1.5 million cars. Volatile organic compounds, or VOCs, combine in the atmosphere with nitrogen oxides to form ground-level ozone, also known as smog, which can cause a wide range of illnesses.

Something's in the air
According to its lawsuit, the agency checked the claims made on paints Home Depot sold by reading the labels and then tested the contents. When the retailer was notified of the violations, the stores continued selling the paints and even discounted the cans for a quick sale. Home Depot says it fully cooperated after being advised of the violations.

Whereas similar VOC-related lawsuits in southern California have been also brought against Lowe's and Wal-Mart totaling more than $3 million, the SCAQMD sought more than $30 million against Home Depot. In the annual report filed just ahead of the holiday weekend, Home Depot said a tentative settlement had been reached for $6.9 million plus $1.1 million in fees and costs.

It's not the DIY chain's first run-in with the law in California, though. It paid $10 million to the city of Los Angeles in 2007 for improper handling of hazardous waste.

Tainted paint tint
The FTC itself has pursued VOC complaints against paint manufacturers like Sherwin-Williams (SHW -0.55%) and PPG Industries (PPG -2.44%). In those cases, the paint makers' base paints were VOC-free as claimed, but once retailers tinted the base, it no longer met the definition. Both manufacturers settled with the FTC and were allowed to state that it was their base paints that were VOC-free.

Yet for both Home Depot and the paint makers, the defendants were caught in a hard spot not necessarily of their making. Sherwin-Williams and PPG were correct that their paints were VOC-free, but retailer actions put them out of compliance. In Home Depot's case, the retailer was being held liable for trusting the claims of the product makers.

Of course, it could be argued that a base paint isn't meant to be sold as-is, but is expected to have tints added in. And if the air-quality folks are to be believed, the retail shop thumbed its nose after being warned.

In any case, if there's any California dreaming going on, it's that these lawsuits will finally go away.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$287.19 (-0.20%) $0.57
The Sherwin-Williams Company Stock Quote
The Sherwin-Williams Company
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$257.95 (-0.55%) $-1.42
PPG Industries, Inc. Stock Quote
PPG Industries, Inc.
PPG
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