Mattel 2008 Annual Report Download - page 100

Product Liability and Related Claims in Brazil
Three consumer protection associations and agencies have filed claims against Mattel’s subsidiary Mattel do
Brasil Ltda. in the following courts in Brazil: (a) the Public Treasury Court in the State of Santa Catarina
(Associacao Catarinense de Defesa dos Cidadaos, dos Consumidores e dos Contribuintes (“ACC/SC”)—
ACC/SC v. Mattel do Brasil Ltda., filed on February 2, 2007); (b) the Second Commercial Court in the State of
Rio de Janeiro (Consumer Protection Committee of the Rio de Janeiro State Legislative Body (“CPLeg/RJ”)—
CPLeg/RJ v. Mattel do Brasil Ltda., filed on August 17, 2007); and (c) the Sixth Civil Court of the Federal
District (Brazilian Institute for the Study and Defense of Consumer Relationships (“IBEDEC”)—IBEDEC v.
Mattel do Brasil Ltda., filed on September 13, 2007). The ACC/SC case is related to the recall of magnetic
products in November 2006; the CPLeg/RJ case is related to the August 2007 recall of magnetic products; and
the IBEDEC case is related to the August and September 2007 recalls of magnetic products and products with
non-approved paint containing lead exceeding the limits established by applicable regulations and Mattel
standards. The cases generally state claims in four categories: (i) production of a defective product;
(ii) misrepresentations; (iii) negligence; and (iv) violations of consumer protection statutes. Plaintiffs generally
seek general and special damages; restitution of monies paid by consumers to replace recalled toys; disgorgement
of benefits resulting from recalled toys; aggravated and punitive damages; pre-judgment and post-judgment
interest; injunctive relief; and litigation costs and attorneys’ fees. The amount of damages sought by plaintiffs is
not generally specified, except that in the Public Treasury Court in the State of Santa Catarina action, ACC/SC
demands general damages of approximately $1 million, in addition to other remedies, and in the Sixth Civil
Court of the Federal District action, IBEDEC estimated the amount of approximately $21 million, as a basis for
calculating court fees, in addition to requesting other remedies.
On June 18, 2008, the court held that the action brought by IBEDEC was without merit, and on July 1, 2008,
IBEDEC filed an appeal. On July 23, 2008 Mattel do Brasil submitted its appellate brief. On September 15, 2008,
the Public Prosecutor’s Office submitted its opinion to the court, which supported upholding the original
decision, given that no reason had been cited for ordering the company to pay pain and suffering damages.
Moreover, just as the judge had done, the Public Prosecutor’s Office determined that the mere recall of products
does not trigger any obligation to indemnify any party. On November 4, 2008, the panel of three appellate judges
unanimously upheld the lower court’s decision. On November 18, 2008, IBEDEC filed a special appeal and on
January 5, 2009 Mattel do Brasil filed its response. On February 2, 2009, the special appeal lodged by IBEDEC
was rejected. IBEDEC is expected to file a new interlocutory appeal, although the schedule is not yet set.
On July 9, 2008, the court also rendered a decision concerning the action brought by CPLeg/RJ. The judge
rejected the claim for general damages, but Mattel do Brasil was ordered to provide product-exchange outlets in
certain locations for replacement of the recalled products, to publish in newspapers the provisions of the court
decision and to make available on its website the addresses of the outlets for replacement of recalled products
and the provisions of the court’s decision. The decision also allowed the consumers who were affected by the
recall to submit information to the court, so that the applicability of pecuniary damages can be analyzed later, on
a case by case basis. It finally ordered Mattel do Brasil to pay attorneys’ fees in an amount equal to 10% of the
value placed on the claim (with a value placed on the claim of approximately $12,500). Mattel do Brasil filed a
motion seeking to resolve apparent discrepancies in the court’s decision, but the judge sustained the decision, as
rendered, and Mattel do Brasil filed its appeal of such decision. On September 19, 2008, the appellate court
accepted Mattel’s appeal for purposes of remand, only, and not to stay the proceedings. Seeking to prevent
execution on the judgment, Mattel do Brasil filed an interlocutory appeal and requested the court grant a
preliminary injunction. On October 14, 2008 the injunction was granted. On February 5, 2009, the court heard
the interlocutory appeal and confirmed the injunction. The court date to hear the appeal for purposes of remand is
still pending.
Since August 20, 2007, the Department of Consumer Protection and Defense (“DPDC”), the Consumer
Protection Office (“PROCON”) of São Paulo, Mato Grosso and Rio de Janeiro, and public prosecutors from the
States of Pernambuco, Rio Grande do Norte, and Rio de Janeiro have brought eight administrative proceedings
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