CommissionerBuerkle370x500This morning it was announced internally at the CPSC that Commissioner Ann Marie Buerkle has become the Acting Chairman of the agency. The CPSC has not yet released a statement concerning the transition of the chairmanship from Elliot Kaye to Ann Marie Buerkle, but we have confirmed the change in leadership with multiple sources inside the agency. In a move largely seen as a precursor to this change in leadership, the Commission recently voted to install Buerkle as the Vice Chairman of the agency — ensuring that she would become the Acting Chairman of the agency once Kaye vacated the Chairman’s office.

Continue Reading CPSC Begins Transition: Ann Marie Buerkle is Now the Acting Chairman of the Agency

We have had a huge election result, perhaps the most significant in our lifetime, potentially even exceeding what was called the Reagan Revolution.  It is critical, particularly for anybody from Washington DC, to have a great deal of modesty and humility in prognosticating the future under the Trump administration even in the CPSC world.  We assume, but really do not know, what the attitudes of the new Trump administration and the Republican-led Congress will be in our parochial, but critical, little product safety world.

We can understandably assume that within a year or less there will be a new CPSC Chairman and a new Republican majority on the Commission. We can also assume that this will change the direction and substance of many regulatory initiatives and maybe even some of the approaches to compliance and civil penalties.
Though we may be unsure about the future, I can say confidently that what we badly need from the outgoing Democratic majority and the yet to be defined incoming Republican majority is some perspective, restraint, and Aristotelian moderation.  I hope that the current majority commissioners will not take advantage of their present but fleeting power to push through ill-conceived regulatory or compliance and enforcement initiatives.  Such actions will be bitterly opposed and this Commission’s reign will end on a sour note and be subject to regulatory and congressional reversal.

vote-pins-CPSC-Post-Election On the other hand, all five of the current commissioners swore to uphold the Constitution and the laws of the United States.  Those laws absolutely include CPSIA and other governing statutes of the CPSC.  So the Commissioners need to, and I am confident that they will, continue to do their jobs.

There are some very important initiatives which will enhance safety and not be politically controversial.  For example, I welcome Chairman Kaye’s interest in a comprehensive and interagency review of the lithium ion battery problem.  We do not need to have any more spectacular safety problems to recognize that even without hoverboards and cell phones catching on fire, the increasing use and push-the-envelope application of products which use lithium ion batteries is causing lots of problems.

Indeed, the situation with respect to lithium ion batteries is even worse for smaller companies which don’t have vertical integration, don’t design batteries or battery packs, don’t have much control over their vendors, and basically have to take solutions off the shelf.  Everybody in the product safety community will benefit from figuring out what combination of standards, practices, and designs we need to protect the public and thousands of businesses.

Nevertheless, the business community and the future leaders of the CPSC need to show some restraint as well.  It would be a mistake to take advantage of the present politics to fundamentally reverse the key elements of the Consumer Product Safety Act, to strangle the agency with inadequate funding, or tie the agency up in knots so it cannot adequately function.  This is a formula for exponentially increasing an already problematic patchwork of state and local government regulation of consumer products.  It would also potentially allow for cheap, unsafe imports to flood our country and undermine significant product safety investments already made by U.S. companies.

This does not mean that nothing should be done or that the statute shouldn’t be revisited in some regards.  There are plenty of ways the business community can achieve meaningful regulatory improvements and burden relief that would not cause larger issues.

I do not support crippling the CPSC.  No members of industry that I have spoken with support such drastic action either.  It will not be in the long term benefit of the business community and it leaves American consumers, our families and friends, less protected.

I’ve been involved in the product safety world for 30-plus years and have seen the political pendulum swing on multiple occasions. One constant is that most reasonable, informed people, whether business executives or consumer advocates, agree that a well-functioning CPSC is a critical part of a vibrant economy for consumer products in this country.

 

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.

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.

Conclusion

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.

USCPSC RecallThe 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.”

Teavana Record of Commission ActionOn May 26, 2016 the U.S. Consumer Product Safety Commission (“CPSC”) announced through a Record of Commission Action (“RCA”) that Teavana Corporation (“Teavana”) has agreed to pay a $3.75 million civil penalty to resolve charges that it knowingly failed to immediately report that certain glass tea tumblers could “explode, shatter or break during normal use.”  While the Commission has not yet published the provisional Settlement Agreement and Final Order in the Federal Register, or issued a press release as is customary, the RCA indicates that the vote was 3-2 in favor of accepting the settlement.

Notably, Commissioner Joe Mohorovic, who has voted for some civil penalties in the past, issued a strongly worded dissent explaining his vote against acceptance of this civil penalty and outlining his concerns about how the agency “calculates, imposes, and settles civil penalty demands for alleged violations” of CPSC statutes.  Mohorovic’s dissent comes on the heels of a statement by Commissioner Ann Marie Buerkle, which expresses similar sentiment over how the Commission pursues civil penalties against firms.

Mohorovic’s dissent further explains many of the concerns that he has vocalized regarding civil penalties during his tenure on the Commission.  The overarching theme of his statement can 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 statutory and regulatory framework.  Mohorovic asserts that the Commission continues to miss opportunities by failing to meet such a standard, and he worries that the Commission’s “growing opacity” in its approach to civil penalties will create distrust between the CPSC and its stakeholders—resulting in an increase in litigation when companies refuse to settle the Commission’s civil penalty demands (see our previous posts on the CPSC’s civil penalty litigation against Michaels Craft Stores and Spectrum Brands).

Commissioner Buerkle’s statement sets forth her own concerns with civil penalties and the Commission’s approach in pursuing them.  Although more general in nature and not directly related to the Teavana settlement, its timing and purpose was clear.  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.

These thoughtful statements regarding civil penalties offered by Commissioners Mohorovic and Buerkle are helpful in encouraging a robust, public debate on the role of civil penalties in CPSC enforcement, how they are calculated, the ability of stakeholders to be guided by previous settlements, and how the CPSC and the regulated community interact with respect to reporting and certain violations.

Last year, CPSC Chairman Elliot Kaye issued a statement regarding the CPSC’s civil penalty agreement with Office Depot (see here).  Kaye also shared his perspective regarding civil penalties at ICPHSO earlier this year, in which he stated his desire to seek significantly higher civil penalties for some of the fact patterns that he has been seeing.  Kaye also asserted that higher penalties were what Congress intended to see when it raised the penalty cap from $1.825 million to $15 million in the CPSIA of 2008.

We will certainly share any written statements offered by the Commission’s majority members regarding the Teavana settlement or in response to Commissioner Mohorovic’s dissent or Commissioner Buerkle’s statement.

According to the Philadelphia Inquirer, CPSC Chairman Elliot Kaye announced in a meeting with consumer advocates that the agency will never again allow a company conducting a voluntary corrective action to call it anything other than a “recall.”  Last year, after the announcement of a joint CPSC-IKEA “repair program” to address a furniture tip-over hazard involving the company’s popular Malm dresser, we  asked whether the announcement indicated that the agency was possibly softening its practice of labeling every corrective action a recall.

The answer, according to Chairman Kaye, is a firm “no.”   Continue Reading CPSC Chairman Vows that Every CPSC Voluntary Corrective Action Will Be Called a “Recall”

HoverboardOver recent weeks, national media outlets have reported extensively on multiple claims from consumers that hoverboards—self-balancing scooters growing immensely in popularity, particularly over the holiday period—have caught fire.  Much of the focus of these claims has been related to the overheating of the hoverboards’ lithium ion batteries.  In the wake of these reports, major airlines are now starting to prohibit hoverboards from being transported on flights and some retailers, such as Amazon, have stopped selling certain models of the product online.

In response to the ever-increasing publicity and concern expressed over the product, U.S. Consumer Product Safety Commission (CPSC) Chairman Elliot Kaye released a statement about hoverboards, in which he stated, in part, the following: Continue Reading The Future of Hoverboards: Federal Safety Standard or Voluntary Safety Standard?

phil&teds civil penalty for failure to report defective clip on high chairsAt the very beginning of this year, we wrote that we expected the CPSC to remain active in bringing enforcement actions against companies for violations of the Consumer Product Safety Act (CPSA). About one month later, CPSC Chairman Elliot Kaye remarked at a product safety conference (ICPHSO 2015) that he was directing staff to seek significantly higher civil penalties against companies for such violations as provided for in the Consumer Product Safety Improvement Act. Since the beginning of the year, the CPSC has levied close to $25 million in total civil penalties against multiple companies for alleged reporting violations of product safety hazards—significantly more than any previous year.

Last week, the CPSC announced that phil&teds USA (“phil&teds”) agreed to pay $3.5 million to settle charges that it knowingly failed to report a product defect and unreasonable risk of serious injury to the Commission stemming from its “MeToo high chair.” Notably, in a rare occurrence and as part of the settlement agreement, the Commission agreed to temporarily suspend all but $200,000 of the $3.5 million civil penalty.

In doing so, the Commission relied upon phil&teds’ representations through financial statements that it has insufficient cash or other liquid assets to satisfy a civil penalty payment in excess of $200,000 without ceasing business operations. The company will be obligated to pay the suspended portion of the civil penalty if it fails to pay the non-suspended $200,000 payment or otherwise breaches its duties to implement an internal compliance plan and accurately report information to the Commission. Continue Reading CPSC Suspends Over 90% of $3.5 Million Civil Penalty Due to Company’s Inability to Pay; phil&teds USA to Pay $200,000

Children's Product Safety Nationwide Insurance Super Bowl Ad

Last Sunday, during the Super Bowl, Nationwide Insurance ran a controversial commercial entitled “Make Safe Happen.”  The advertisement features a young child experiencing memorable moments growing up.  However, viewers are informed that the child would not actually experience these moments because he “died from an accident.”  The commercial then cuts to a series of [common] household accidents, all involving consumer products.   The commercial has been panned by many in the media as the “worst Super Bowl commercial in history.”

We could not disagree with these critics more.  Although the commercial was certainly a “downer” and pulled at the heart strings during an otherwise festive event, Nationwide Insurance should be applauded for raising the safety consciousness of the largest viewing audience in television history (114.4 million viewers).  The Super Bowl was the perfect opportunity to run such an impactful piece.  The fact that so many people are talking about the commercial one week later only underscores its value.

Simply put, every scenario in the commercial in which a child has died as a result of an accident in the home is real.  The good news, as the commercial states, is that these accidents are preventable.  CPSC Chairman Elliot Kaye stated today: Continue Reading Nationwide Should be Applauded for Pro-Safety Super Bowl Ad