Connecting Corporate Counsel

Readers who are in corporate law departments may be interested in a conversation I had recently with the editors of Corporate Counsel Connect, a Thomson Reuters publication focusing on corporate law departments.  The focus of the piece was the development and 30 year history of the Association of Corporate Counsel (ACC), where I served as its first executive director.  You can find the interview in the October issue of Corporate Counsel Connect, here.  In a separate article I discussed with the editors the challenges that corporate counsel face in the current regulatory environment.

Corporate counsel who are not members of ACC may want to check out the resources it offers.

 

Questionable Recalls–Will Consumers Just Tune Out?

Through all the controversial statutory and regulatory changes that have occurred at the CPSC over recent years, the product recall has remained the most reliable mechanism to provide consumers protection from hazardous products that find their way into the marketplace and into their homes.  When I was a commissioner, I was both impressed and proud of the herculean work that the agency compliance staff did to identify the true hazards warranting recalls and to winnow out the incidents that did not warrant further investigation or action.

But a recall will not accomplish its purpose unless the consumer pays attention and either takes advantage of the remedy being offered or otherwise alters behavior to avert the risk.  And consumers will not pay attention if they think that recalls do not affect them, are of no consequence, or, worse, are just silly.  And, if they think that, they will be less likely to pay attention in the future.

This past week, I was traveling abroad, and being stuck in an airport with limited reading material, I read the recent CPSC recall press releases.  One caught my eye, but because I was several time zones away from Bethesda, MD, I could not call anyone at the agency or any practitioners in Washington to ask about it. In other words, I was just an average consumer reading the recall notice.

The recall involved a small folding table that was being recalled because it collapsed when sat upon. The company reported that four consumers sustained injuries after the tables collapsed when the consumers sat on the table tops.  Note that the recalled products are tables, not chairs or benches; they are designed to hold plates and glasses, not people’s derrieres.  From the picture in the press release, these are the kind of small tables that are pulled up beside a chair to hold a plate or glass and then are folded away when not needed.

Apparently four consumers misused the product and were injured as a result.  Foreseeable consumer misuse can be a justification for a recall.  The agency has not really defined when consumer misuse will justify a recall but hauls that rationale out when needed.  Is four consumers being injured by sitting on what is clearly a small table foreseeable consumer misuse or is it just four consumers acting without care or perhaps negligently?  Does this matter in the agency’s eyes?

And why would the company agree to do such a recall?  Perhaps given the hostile climate at the agency right now, it is easier and cheaper to just do a recall than to risk an investigation and the threats of seven or eight figure penalties because four people were injured sitting on a table you sold.  But while this rationale may be understandable, it leads to recalls of dubious merit.  And consumers may stop listening.

It used to be that the agency did not accept such recalls but times have changed.  With this recall, it would appear that now almost any misuse can justify a recall and this seems to be a pretty broad expansion of the notion of foreseeable consumer misuse.  But that is only how it looks to this average consumer.

Import Workshop–Searching for Answers

Since 2008, consumer product manufacturers and importers have been required by law to certify that their products meet applicable safety standards. The CPSC now proposes to answers sign_Resized_300x239require the electronic filing of those certificates with Customs and Border Protection (CBP) prior to import and to expand the information that must be included on the certificates.  At a workshop two weeks ago, the agency explained its proposal and heard from various stakeholders about the impact of its proposal.

The workshop certainly gave participants much substantive information. But it also left the distinct impression that there is much misunderstanding of the proposal among the various parties, much misinformation within the agency about many aspects of the import process, and much back-to-the-drawing-board analysis that needs to be done before this proposal goes live.

The session started with the agency explaining the need for the proposal.  While the agency did not exactly say, “we are from the government and we are here to help you,” the agency did say that the intent of the proposal was to facilitate trade and make the import process more efficient as the agency carries out its regulatory function.

The agency then heard from importers who told it in some detail how its proposal grossly underestimated the numbers of certificates that would need to be processed and the burden and costs of complying.  They questioned the need to change a system that was working now to target unsafe cargo and criticized the lack of flexibility in the proposed system.  Common carriers and custom brokers noted that they had no way of efficiently taking on the burden of filing certificates since they had no knowledge of applicable regulations or products.

Several other government agencies that have certification programs discussed their experiences but it was obvious that those programs are of a narrower scope or not apposite to what is being proposed by the CPSC.  The CBP asserted, in spite of what stakeholders had earlier said about CBP’s capabilities, that it was ready to handle the data that would be coming in from the electronic filing of certificates, although, should those certificates come in PDF form, that might cause a hiccup.

Finally at the end of the presentations, several pragmatists from the audience suggested that the agency rethink its objectives, giving concrete suggestions for simplifying the approach the agency was taking.  The meeting concluded with vague suggestions of a pilot program sometime in the future.

What the agency did not address at the workshop was how this proposal relates to its current budget request to Congress for millions of dollars to expand its risk assessment methodology (RAM) project to cover all imports under its jurisdiction and its proposal to charge importers user fees to pay the down-stream costs of this expansion.  Obviously electronic filing of certificates is a required first step before the expanded RAM and user fees can be put into place.

It may be that expansion of the RAM to assess the risk of all imports in the way the agency proposes makes sense.  Or it may be that an expansion can be better accomplished, if it needs to be done, by a staged process.  Perhaps user fees assessed against importers to pay for the system is the fairest way to assure that those whose products are subject to the system pay for it.  On the other hand, virtually everyone imports these days so user fees have a taxation aspect to them that needs to be considered.  These are all questions that the agency has not asked stakeholders.  Instead they will be debated through the appropriations process in the Congress. Rather than the agency first trying to educate and then get consensus on important policy issues, real potential for divisive debate now exists.

Would not the agency have been wise to tee up some of these important issues for discussion as well?  Many people asked why the agency wants to change a system that seems to be working well.  They deserve the full answer.

Process is Important

This week’s CPSC Commission briefing on the proposed final rule for high powered magnet sets was as notable for what did not happen as for what did.  As the Chairman explained, Commissioner Buerkle declined to participate in the briefing and in the upcoming vote because she believes that it is inappropriate for the agency to vote on a rulemaking addressing the same issues that are currently before a judge in a litigation to which the agency is a party, and which may come back to the commissioners for further review. How refreshing–a public servant who believes that process is important.

The case is being litigated before an administrative law judge against Zen Magnets, and seeks a recall, alleging that the company’s product is defective because it presents a substantial product hazard–children can sustain serious injuries if they swallow small powerful magnets like those Zen sells as adult desk toys.  Zen is the only company currently selling such a product, according to the agency.  While this case is ongoing, the agency plans to issue a final rule to prevent anyone from selling such a product in the future. (It is currently scheduled to vote on the final rule before the end of the month.)

At the hearing at least one commissioner argued that this two-pronged attack against tiny Zen was appropriate because (i) the statute allows for rules to be issued only on a prospective basis for product manufactured in future; and (ii) the statute allows for the agency to get dangerous product already manufactured out of the market through recalls, including those resulting from administrative litigation.  Therefore, the argument goes, the agency’s actions are perfectly proper. That analysis is disingenuous because it is incomplete.

The agency initiated rulemaking in 2012.  It is true that rules are prospective.  However, the agency does have a mechanism for getting products it believes to be unsafe off the market while a rule (or a litigation) is pending and it is not the coercive tactics agency used.  Under section 12 of the statute, the agency may go to court and seek an injunction against the sale of such a product while it undertakes rulemaking if the product poses an imminent hazard.  Of course, the problem, from the agency’s point of view, is that it would have to actually convince a judge.   But that is what the notion of due process is all about.

Instead of seeking an injunction while it pursued rulemaking, the agency “requested” retailers not to sell magnets, destroying the retail market, and tried to negotiate voluntary recalls with as many companies as possible.  Those that did not agree were sued.  The purpose of the agency’s actions was never to get product out of consumer’s hands.  The paltry return rate of the recalls that were done demonstrates that consumers were not going to send the product back.  Instead the purpose was to stop the sale of the product on an on-going basis and on an across-the-board basis, picking the companies off one by one.

At this point in the saga, the only player to withstand the government is Zen which is insisting on its right for a judge to determine whether its products pose a substantial product hazard because they are defective.  While some may say this is a quixotic quest on Zen’s part, that is its right under our system of justice.  If the agency believes that Zen’s products pose an imminent threat to consumers while this litigation is going on, it could seek an injunction under section 12 of the statute but it has not done that.

The commission now seeks to put its very heavy thumb onto the scales of justice by finding that the magnets Zen sells pose an unreasonable risk and therefore are illegal.  This decision by the commission cannot help but have an impact on the litigation before the administrative law judge.  The agency cannot argue that risk to consumers justifies this action since it has not taken the action it could have under section 12 to actually protect consumers.  Add to all this the fact that the same commissioners who are so anxious to vote on the rule will hear any appeals that might come out of the ALJ’s decision and you hardly have to wonder what that outcome will be.

Commissioner Buerkle seems to understand that process is important.  Too bad her colleagues are in such a hurry to throw it out the window.

Happy (?) Birthday

Perhaps someone, somewhere celebrated the 6th birthday of the CPSIA 10 days ago, but it sure blew right by me.  It took the Product Safety Daily publication to remind me that it had occurred. ?????????????????????????????????????????????????????????????????????????????????

The American Apparel and Footwear Association posted a short, thoughtful blog about the significance of the CPSIA’s anniversary, noting that the law did achieve some important safety benefits but not without some very significant and unnecessary costs.  And it is my position, as a commissioner who lived through the internal debates at the agency, that the CPSC was complicit in exacerbating those unnecessary costs and complexities.  The good things in the law could have been achieved without the heavy toll extracted.  That the agency has not moved to reduce testing burdens as instructed by Congress is either regulatory incompetence or arrogance run amuck.  But I repeat myself.

It Will Take More Than A Workshop

In an apparent fit of good sense, the CPSC staff has announced a workshop to explore with stakeholders issues presented by its proposal to require that importers of electonicfilingcabinetproducts under its jurisdiction file electronic certificates of compliance with CPB prior to importation.  This electronic filing requirement was only one of many controversial proposals found in the agency’s notice of proposed rulemaking to amend 16 CFR 1110 dealing with certifications of compliance.  The agency received many comments to the NPR, almost all of them very critical of the proposed amendments.

Here are the specifics as announced by the agency.  The workshop will be held on September 18 at the agency headquarters in Bethesda, MD.  Those who wish to present needed to notify the agency by August 8, so the dogs and the ponies have already been chosen.  If you wish to attend in person, as opposed to viewing the webcast, you must notify the agency before September 5.  However, if you wish to file written comments, you may do so before October 31.

It is pretty clear, both from the number and tenor of the comments received and from the announcement of the workshop itself, that the agency is really struggling with the details of implementing an electronic filing system.  No doubt part of the struggle comes from the fact that the agency is trying to do way too much in the proposal.

For example, the current pilot-scale RAM (risk assessment methodology) program allows the CPSC to analyze CBP import data to identify high risk cargo for inspection.  The agency seeks to expand this pilot program and apply the RAM analysis to all imports under its jurisdiction and sees electronic filing as essential to this expansion.  Perhaps a more gradual roll-out would be a more rational approach.  As another example, the NPR seeks to support the President’s Executive Order 13659 calling for the modernization and simplification of the trade processing infrastructure, but again, the details of the NPR add complexity rather than simplicity.  Many comments made the point that CPB processes do not align with the NPR requirements and will not for some time, if at all.  And there is still no explanation why common carriers are being required to take on the legal burden of filing certificates when they have no way of policing their accuracy.

The staff recognizes that the proposal presents both practical and logistical problems and asks for suggestions and solutions for solving those problems.  My advice to those participating is to honor this request.  While the agency staff is very good at many things, here they are operating in waters where they are not expert.  Unfortunately, the staff also listed a number of issues that are off the table for discussion during the workshop.  Many of those items touch on the topic of electronic filing so, by walling off the topic in this narrow way, the staff may not get the value they need from this exercise.  (Of course this is the same approach that was taken in the recent workshop on phthalates determinations.)

It is pretty apparent that it is going to take more than just a workshop for the agency to come up with a sensible proposal that works efficiently within the bigger trade processing picture.  It is unfortunate that the collaboration that use to exist between stakeholders and the agency has been so weakened over the past several years, because honest dialog between trusted partners is what is needed to solve the many problems in the NPR.  An ongoing effort, organized by a trusted third party with trade expertise, could perhaps work through the many issues raised by the comments so that what comes out of the process is–to paraphrase Mick Jagger—not necessarily what the agency wants but what the agency needs.

 

 

When Reality Creeps Into Paradise

For fly fishermen, paradise has to be defined as casting for salmon in the pristine rivers and “loughs” of Ireland.  As a novice angler, I got a taste of paradise this past week fishingwhen I tried my hand “dapping” for salmon in a beautiful but utterly remote area of Connemara in western Ireland. (The salmon were quite safe while I was in the river.) At a totally-off-the-beaten-track fishing lodge, I meet an American couple who were also seeking a quiet corner of paradise.  As we talked, they told me they had sold their business and were taking a bit of time to decompress.  That is when reality came creeping in.

This couple had for many years imported toys which they sold in retail stores they owned in the middle and western part of the country. They also designed toys which were manufactured to their specifications in China and other parts of Asia for sale in their stores. With my gentle prodding, they told me that they took pride in being in compliance with all safety regulations and had never had a safety-related problem with any toy they designed or sold. They told me how much they loved their business and the joy their products brought to their customers.
When I asked them why they decided to sell their business, they said that they got out because of Proposition 65 and the CPSIA.  I was very surprised that they specifically mentioned those two laws so I pressed them further. They said testing and regulatory compliance costs had impacted the viability of the business.  This was exacerbated by marketplace confusion with complex regulations that were impossible to comply with with any certainty. They made a decision that they could not–and would not–deal with the potential compliance liability that the U.S. regulations had imposed.
I suppose that some will say that this couple was merely the unfortunate victim of a system designed to make the marketplace safer for all.  To those, I have to point out that the CPSC, in its testing and related regulations, made no attempt to find a balance between imposing regulations that address defined and documented risks as opposed to every conceivable risk, no matter how remote or undocumented, and, thus,  allow those businesses that sell safe products to flourish.  As evidence, just read the regulatory flexibility analysis that the agency economists did prior to promulgation of the testing rule which predicted that the regulation would result in market dislocations. Nevertheless, and not surprisingly, a majority of commissioners soundly ignored that predication. The testing regulation went much broader than the law required or that safety could justify. How does such a result benefit consumers?
I have not been shy in criticizing the inept efforts of the agency to identify and implement ways to reduce the burden of unnecessary testing.  The agency persists in nibbling around the edges of the problem rather than addressing the real problem  which is that the underlying regulations were written too broadly. Perhaps if the agency delays long enough, the casualties will have been taken and there will be no one left standing to complain about regulations that impose undue costs and burdens on American consumers.  But as most fishermen know, the reality is that if you cast too wide a net, you may end up killing more than you catch.

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