Much of the recent discussion regarding Prop 65 has been focused on the regulatory changes going into effect in August of 2018. And that makes sense since there will be significant changes to the warnings, responsibility, and labeling obligations on product websites. There is, however, other activity that may result in a more profound change as to which chemicals require Prop 65 warnings. As we have discussed in the past (see prior post here), there has been litigation in California state court addressing the appropriateness of adding the pesticide ingredient Glyphosate to the Prop 65 list. Continue Reading A Federal Court Gets Opportunity to Weigh In on Prop 65 With a Little Help from Some Friends
California’s Safe Drinking Water & Toxic Enforcement Act of 1986 (affectionately known as “Proposition 65”) has long been the subject of discussion, both pro and con. Much of the conversation is on various issues surrounding the enforcement of Proposition 65 (for example, see a prior post here). In March 2017, a California trial court in Monsanto Co. v. Office of Environmental Health Hazard Assessment (“OEHHA”), No. 16-CE CG 00183, addressed a much more basic issue: should a chemical – here Glyphosate, a key ingredient in Monsanto’s Round-Up® product – even be on Prop 65’s list of cancer-causing chemicals? Continue Reading California’s Prop 65: More Form Over Substance
Some of our colleagues from Mintz Levin’s Class Action Practice, Joshua Briones, Crystal Lopez, and Grace Rosales, recently authored an interesting and timely article in the Bloomberg BNA Product Safety & Liability Reporter. The article examines certain defenses in consumer fraud class actions over product labeling – specifically, defenses based on faulty damages models. Beyond proving the factual truth of the allegedly misleading labeling claims, the authors tell us, food and other consumer product companies can combat meritless suits by showing that the plaintiff’s damages-calculation model does not meet the requirements established under Rule 23 of the Federal Rules of Civil Procedure.
When reviewing a purported class action lawsuit, Federal Rule 23(b) requires the court to determine that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Generally, a consumer’s damages in a false advertising case are equal to the amount of money needed to make the consumer “whole” — that is, to compensate the consumer for the harm caused by the false claim. But measuring the actual value received by a consumer and the but-for value that consumer would have received absent the false labeling by the product’s manufacturer requires a fact-intensive economic inquiry (for example, questions related to individual consumers’ behavior and preferences, the actual amount consumers paid for the product, time frame of the purchase, etc.). As a result, according to our expert litigators, defendants in product labeling lawsuits can oppose class certification or even file an early motion to decertify by showing that the plaintiffs’ damage model cannot be calculated with proof that is “common” to the class.
Joshua, Crystal, and Grace’s full article can be viewed here. Any manufacturer or retailer of consumer products that is facing a false labeling suit should give it a quick read!
We do not get many court decisions in the CPSC world, but yesterday we received one. Last evening, a Wisconsin federal district court essentially held in the Government’s case against Spectrum Brands, Inc. (Spectrum) that (1) Spectrum failed to timely report defective coffee pots in violation of Section 15(b) of the Consumer Product Safety Act (CPSA) because they could create a substantial product hazard, and (2) the Government’s imposition of a civil penalty pursuant to the CPSA was not in violation of Spectrum’s statutory or constitutional due process rights. In doing so, the Court rejected Spectrum’s procedural and substantive arguments, including that the CPSC’s claims were time barred and that the CPSA’s reporting requirements are unconstitutionally vague.
The Department of Justice and CPSC alleged that a company acquired by Spectrum (Applica Consumer Products) knowingly failed to timely report under Section 15(b) of the CPSA a hazardous defect relating to certain coffee pot handles. The Complaint alleged that the Company had received approximately 1,600 consumer complaints over a four year period (2008-2012) related to the breakage of the pots’ handle resulting in coffee spillage and burns on consumers.
In response to the filing of the lawsuit, Spectrum asserted, among other arguments, that (1) the Commission’s claims against it were time barred under the so-called Gabelli doctrine; (2) the CPSA’s reporting requirements are unconstitutionally vague; (3) the CPSC failed to provide fair notice that a report was required in light of its finding that other Spectrum coffeemakers with similar issues did not present a substantial product hazard; (4) the CPSC’s late-reporting determination was arbitrary and capricious; (5) Spectrum had no duty to report because the CPSC had already been “adequately informed” of the handle failures and (6) the CPSA did not authorize the CPSC to seek certain forms of injunctive relief including the establishment of a compliance program and prospective liquidated damages in the event of noncompliance.
The Court rejected all of these arguments and handed almost a total victory to the CPSC that may have future ramifications in the product safety community. For example, the decision certainly lends new credence to the CPSC’s common refrain to regulated entities “when in doubt, report” when deciding whether a product defect could present a substantial product hazard. The Court even went so far as to cite this common CPSC advice in the opinion. It’s also noteworthy that the Court concluded that the CPSC does not need to articulate its reasoning for a civil penalty amount in writing and provide more transparency in the process generally—a complaint often raised by industry defendants.
“…Clowns to the right of me, jokers to the left, here I am…”
-Stealers Wheel (1972)
Legal actions regarding “Made in the USA” claims, whether prosecuted by the Federal Trade Commission (FTC) or through various state unfair trade practices acts, often settle early in the proceedings. For example, in 2014, the FTC issued 16 “closing letters” wherein the target company agreed to revise its “Made in the USA” claim to clarify that its products, even those assembled in the United States, included imported components. In 2015, the FTC issued 28 such “closing letters”; and in 2016, to date, the FTC has issued 18.
Earlier this month, Chemence, Inc., the Ohio maker of Kwikfix, Hammer-Tite and Flash Glue, entered into a settlement with the FTC. Chemence was the third glue company that has resolved its claims issues with the FTC since 2015. Toagosei America, Inc., makers of the Crazy Glue brand, and Gorilla Glue both previously reached agreement with the FTC, with FTC issuing closing letters after both companies agreed to make clear that their products included some imported materials.
Chemence’s path to resolution with the FTC was different. Continue Reading Stuck in the Middle with the FTC
Last month, the California Office of Environmental Health Hazard Assessment (“OEHHA”) adopted new Proposition 65 warning regulations. Much of the discussions regarding these new regulations have centered on the warning requirements that become effective, after an approximately two-year phase-in period, in August 2018.
There were, however, amendments to Prop 65 settlement terms, penalty amounts and attorney’s fees in civil actions filed by private persons that became effective on October 1, 2016. These amendments have “flown under the radar” but actually may be more problematic than the proposed new warnings.
Proposition 65 permits private citizens (known by the plaintiff’s bar as “citizen enforcers”) to initiate enforcement actions, and, when they do, they are entitled to 25% of any penalties assessed by the courts and attorney’s fees. Continue Reading California Prop 65: More Unintended Consequences
Yesterday, CPSC Chairman Elliot Kaye and Commissioner Robert Adler issued a lengthy joint statement vigorously defending the Commission’s current approach to civil penalties against various criticisms voiced by Commissioners Joe Mohorovic and Ann Marie Buerkle as well as stakeholders in the business community. Their overarching message: such criticisms are without merit and are, in reality, a call for lesser penalties; there will be no change in the Commission’s current approach.
Over the past few months, we have written extensively about the Commission’s approach to seeking civil penalties against companies for failure to report violations—and the ongoing debate surrounding that process. Chuck Samuels even testified on the subject last month at the CPSC’s Annual Priorities Hearing (watch here).
According to Kaye and Adler, “agency critics have urged an enormous undertaking by the Commission to prioritize exploring and redesigning its civil penalty system, effectively displacing work intended to save lives and prevent injuries.” They expressed disappointment at the “distortion” of Chairman Kaye’s remarks at the ICPHSO conference last year, and pushed back at the idea that the Commission somehow operates without transparency when assessing civil penalties. Specifically, Kaye and Adler assert the following points in their joint statement against the common civil penalty criticisms:
- critics of the Commission’s current policy want more information shared related to the facts and factors that enter civil penalty valuations, but hamstring the agency in doing so by seeking (or supporting) stringent Section 6(b) confidentiality protections;
- there is ample regulatory guidance to determine when to file a Section 15(b) report;
- both the Commission and companies need flexibility when negotiating a civil penalty settlement, thus counseling against a matrix or formulaic approach to applying the civil penalty factors;
- companies are afforded full due process protections and procedures when the Commission seeks civil penalties including the opportunity to be heard; and
- the Commission carefully tracks the information available to firms at each and every step in time and does not rely on hindsight regarding companies’ obligation to file.
While many could find much to dispute in the joint statement, the Commission’s majority has made their view clear.
Companies should take a very close read of this policy statement. It is now evident that the Commission will not change—or even revisit—its current approach to civil penalties in the coming fiscal year, as urged by some stakeholders in the product safety community. Barring a change in CPSC personnel, Congressional action, or judicial involvement through the litigation process, the ongoing “debate” over civil penalties has effectively ended for now.
On July 6, 2016, the Eighth Circuit Court of Appeals issued its ruling in United States v. DeCoster, in which it upheld prison sentences for two executives under the “responsible corporate officer” (RCO) doctrine of liability, also called the Park doctrine, for their role in introducing into interstate commerce eggs that had been adulterated with Salmonella. The two executives were sentenced last year for strict liability violations of the Federal Food, Drug, and Cosmetic Act (FDCA). Continue Reading Eighth Circuit Issues Decision Significant for All Executives of FDA-Regulated Businesses
This article originally appeared on Law360 on June 14, 2016 and provides additional analysis to our prior posts on civil penalties.
This past March, while speaking at a Consumer Federation of America luncheon, U.S. Consumer Product Safety Commission Chairman Elliot Kaye stated that he “was pleased to announce” that the agency had secured a $15.45 million civil penalty. Commissioner Joe Mohorovic, who voted in favor of the penalty, issued a statement expressing reservations that “too few of the compelling facts” were reflected in the public facing settlement documents for the regulated community to draw conclusions and lessons.
He has since issued two strongly worded dissents raising concerns about the overall transparency of the civil penalty demand process (here and here). Commissioner Ann Marie Buerkle has recently stated that “consumers will be safer if we help companies prevent violations rather than celebrate marquee penalties,” while Commissioner Marietta Robinson has defended the CPSC’s approach to civil penalties against such criticisms calling them “unwarranted” and “misguided.”
These four perspectives represent some of the dueling philosophies within the CPSC leadership about the role and purpose of civil penalties. The differences of opinion as to the commission’s approach to civil penalties have never been more pronounced. Over the past two weeks, the CPSC announced civil penalty settlement agreements with Teavana Corporation and Sunbeam Products (d/b/a Jarden Consumer Solutions) for $3.75 million and $4.5 million, respectively. These recent penalties come on the heels of the CPSC’s obtainment in March of the record-breaking $15.45 million civil penalty referred to above against various Gree Electric Appliances entities.
It is no secret that over the past two years the CPSC has sought higher civil penalties against companies for alleged violations of the requirement to report product safety issues to the agency in a timely manner — and has notably achieved that goal as announced penalties creep higher and higher into the millions of dollars. However, in pursuing such civil penalties, the commission’s approach has increasingly divided along partisan lines.
Since last May, the commission has accepted nine civil penalty settlement agreements presented to it by the agency’s professional staff that ranged from $2 million to $15.45 million. Five of those penalties received a 4-1 vote with Commissioner Buerkle dissenting, while four penalties received a 3-2 vote with Commissioners Mohorovic and Buerkle dissenting.
Approach of the Chairman and Commission’s Democratic Majority
Chairman Elliot Kaye
Last year, CPSC Chairman Elliot Kaye made waves in the product safety world when he remarked at the 2015 annual International Consumer Product Health and Safety Organization product safety conference that he was directing staff to seek significantly higher civil penalties against companies for violations of the CPSC’s product safety statutes. Chairman Kaye doubled down — literally — on those remarks earlier this year when, at the same conference, he stated that he wanted to see “double digit” civil penalties based on certain fact patterns that he was seeing. Kaye reasoned that Congress had intended such increases when it significantly raised the civil penalty ceiling in the Consumer Product Safety Improvement Act of 2008 (CPSIA) from $1.825 million to $15 million. A few weeks later, Chairman Kaye announced the $15.45 million civil penalty against the Gree entities.
Most recently, after the CPSC announced the Teavana civil penalty, Chairman Kaye made the following remarks regarding Section 15(b) reporting obligations and civil penalties:
All companies who do business before the CPSC must understand that they cannot withhold information from the commission that impacts public safety. If consumers are suffering product-associated cuts by broken glass and burns by hot liquid then that type of information needs to be reported to the CPSC — immediately. The $3.75 million penalty agreed to by Teavana is appropriate and is another sign that the CPSC will consistently hold companies accountable when they do not comply with the law …
In short, it is evident from his remarks that Chairman Kaye believes that companies have a heightened duty to report potential defects to the commission, intends to pursue higher civil penalties against companies who violate their obligations and responsibilities under the product safety laws, and supports the general process and procedures currently followed by the Commission and its staff in prosecuting civil penalty demands.
Commissioner Marietta Robinson
One of Chairman Kaye’s Democratic colleagues, Marietta Robinson, has supported the commission’s general approach to civil penalties and has voted in favor of all of the recent civil penalties levied against companies. In a recent statement, Robinson stated that the following criticisms against the commission’s current approach — the settlement was too high, the CPSC is penalizing a company that made an honest mistake, and too little information was provided to the public on precisely how the CPSC calculated the civil penalty demand — are “unwarranted, misguided and belied by the facts.” According to Robinson, the commission is using an important tool given to it by Congress to do something about those “rare occasions” when the agency determines that a company has failed to report a potentially hazardous product in a timely manner, and is “hardly pursuing an overzealous enforcement agenda.” Commissioner Robinson’s full statement can be found here.
Commissioner Robert Adler
Although Commissioner Adler has not made any official statements regarding civil penalties recently, he has shared some insight of his thinking on civil penalties in prior years. For example, in 2012, Adler voted against a civil penalty agreement with Hewlett-Packard. In a dissenting opinion, Adler stated that the size of the penalty ($425,000) was “infinitesimal” in relation to the size and revenues of the company. He also rejected the idea that the amount of the penalty could serve as precedent in future cases, specifically citing the new $15 million civil penalty ceiling authorized in the CPSIA.
Approach of the Agency’s Republican Commissioners
While the Commission’s Republican members, Joe Mohorovic and Ann Marie Buerkle, have some differences in their respective approaches to civil penalties, both have expressed concerns over how the agency calculates, imposes and settles civil penalty demands for alleged violations of CPSC statutes, such as Section 15(b) of the CPSA.
Commissioner Joe Mohorovic
Commissioner Mohorovic has voted for some civil penalties in the past, including Gree, although he has consistently and repeatedly expressed concerns over the way by which the commission seeks and then publicizes such penalties. Recently, Mohorovic voted against the Teavana and Sunbeam civil penalties and issued strongly worded dissents setting forth his perspective on civil penalties in greater detail (see Teavana statement here and Sunbeam statement here).
In the Teavana case, for example, Mohorovic stated that he is “unpersuaded by any of the facts … that [the] settlement amount is appropriate or that a penalty is justified at all,” and that he believes the commission is “failing in [its] duty to tell people why [it is] imposing the penalty [it is] imposing.” Mohorovic’s perspective could be summarized as follows: settlements of civil penalty demands are teachable moments to educate the regulated community, yet that can only be accomplished through public facing settlement documents that provide sufficient case facts and the commission’s analysis of how those facts are applied to its civil penalty framework. The commission, according to Mohorovic, is not doing so and missing an important opportunity.
Most recently, Mohorovic has asked the commission to add to its annual agenda and priorities hearing some potential elements of a way forward on “what should be our highest priority: the fair, just, and orderly calculation and imposition of civil penalties for alleged violations of our rules.” Such steps include, among others, directing the CPSC’s Office of General Counsel to produce a publicly available report comparing the CPSC’s statutory and regulatory penalty constructs with those of peer agencies and holding one or more open meetings or workshops on “CPSC penalties, their purposes and their ideal function and present dysfunction.” This statement can be found here.
Commissioner Anne Marie Buerkle
Finally, Commissioner Buerkle has been, perhaps, the most strident critic of civil penalties generally and the commission’s approach to pursuing such penalties against companies. According to Buerkle, she does not oppose civil penalties as a “matter of course;” rather, her opposition has “been for a variety of reasons.” From Buerkle’s viewpoint, the defect reporting requirements of Section 15 are vague, civil penalties for failure to immediately report are difficult to evaluate and value, and, like Mohorovic, Buerkle has concerns with the CPSC’s lack of transparency throughout the civil penalty process. Commissioner Buerkle’s recent statement on civil penalties can be found here.
These recent civil penalty settlement agreements illustrate the commission’s desire to increase the amount of penalties assessed against companies for late reporting violations. But they also illustrate another trend: a commission increasingly divided along party lines with respect to civil penalties. This division, however, is not focused on “whether” the agency will impose multi-million dollar civil penalties. At least four commissioners have recently supported multi-million dollar civil penalties in cases where they thought a penalty was warranted. Rather, the major policy divide on civil penalties relates to the role of such penalties in CPSC enforcement, how they are calculated, and the ability of stakeholders to be guided by previous settlements.
Based on the current dynamic, it seems that a robust public debate on the role of civil penalties will continue to unfold at the commission over the next few months. Although this commission has found middle ground more consistently than in recent years, it remains to be seen whether the various sides of the debate will reach a middle ground on these questions. In the meantime, companies should expect the CPSC’s current practices for civil penalties to remain much of the same.
The U.S. Consumer Product Safety Commission (CPSC) is set to announce yet another civil penalty settlement. Sunbeam Products d/b/a Jarden Consumer Solutions (Sunbeam or the Company) has agreed to pay a $4.5 million civil penalty to resolve charges that it knowingly failed to immediately report certain defects and an unreasonably risk of serious injury involving some of the company’s coffeemakers. The monetary amount of this civil penalty continues to illustrate the Commission’s desire to increase the amount penalties levied against companies for late reporting violations of product safety statutes.
In this case, CPSC staff alleged that Sunbeam failed to report immediately to the Commission that it had information which reasonably supported that certain of its coffeemakers could experience a build-up of steam pressure forcing the brewing chamber to open and expel hot water and coffee. Such a situation, according to staff, could (and allegedly did) create a burn risk to consumers. In response to the CPSC’s allegations, Sunbeam asserted that after an extensive investigation, the Company determined that these incidents were related to circumstances that it had not anticipated and not within the subject product’s instructions, and that it did voluntarily report to the Commission after its investigation.
Along with paying the $4.5 million civil penalty, Sunbeam has agreed to “maintain” a product safety compliance program with the common program elements to ensure that the Company complies with product safety standards and regulations enforced by the Commission. Interestingly, it appears from Paragraphs 20 and 21 of the agreement that the Company already has such a program in place.
As has been the case recently, the Commission voted 3-2 to provisionally accept the settlement with the Commission’s Democratic majority (Kaye, Adler, and Robinson) voting to approve the agreement and Republican Commissioners Mohorovic and Buerkle voting against it. As he did last week in the Teavana case, Commissioner Joe Mohorovic filed a statement explaining his dissent stating “[w]here I fail to agree is in the calculation of the amount the company will pay in punishment for its tardiness. That amount, in my view, is far too high.”
Companies in the consumer products arena should remain mindful of and attentive to their Section 15(b) reporting obligations under the Consumer Product Safety Act. This is particularly true after CPSC Chairman Kaye’s most recent statements on Section 15(b) reporting and civil penalties. Last week, in connection with the CPSC-Teavana civil penalty settlement, the Product Safety Letter and BNA reported the following Kaye statement:
“All companies who do business before CPSC must understand that they cannot withhold information from us that impacts the safety of the public. If consumers are suffering product-associated cuts by broken glass and burns by hot liquid then that type of information needs to be reported to CPSC – immediately. The $3.75 million penalty agreed to by Teavana is appropriate and is another sign that CPSC will consistently hold companies accountable when they do not comply with the law – a law intended to minimize harm to consumers.”