Archive for the 'Recalls' Category

$375,000: The Price for Peace

Yesterday the CPSC announced that it has reached a settlement with Craig Zucker, in the litigation to force a recall of Buckyballs.  The Commission alleged that 0727_buckyballs_630x420Buckyballs, although designed and marketed for adults, were defective because a number of children had sustained serious injuries after swallowing the tiny powerful magnetic balls.  The settlement calls for the CPSC staff to establish a recall trust fund to manage the recall. Mr. Zucker will fund an escrow account to dole out money to the trust fund up to $375,000.  In its press release, the CPSC trumpets that this is “a win for safety.”  Mr. Zucker, on the other hand, says that he hopes “the settlement will discourage the CPSC from wrongfully pursuing . . . entrepreneurs in the future.”

Who, then, won and who lost?  In the most simplistic terms, perhaps one could say that the agency won since it accomplished a recall that would not otherwise have occurred.  But what is that recall worth and at what price was the recall obtained?

Left on the table is the question of whether Buckyballs are defective.  The government’s theory of defect was that warnings are not sufficient to prevent injury to an unintended user group and therefore the product cannot be made and sold, even though there were no injuries to the intended user group.  In the settlement Mr. Zucker does not concede that Buckyballs are defective, and the settlement leaves unresolved the agency’s apparent philosophy that a product can be banned if warnings do not work.

Also left on the table is the question of whether the agency even had jurisdiction over Mr. Zucker in his personal capacity. The agreement makes clear that Mr. Zucker is not conceding the issue of jurisdiction and so the applicability of the Responsible Corporate Doctrine is not addressed by this agreement except to say that Mr. Zucker personally is released from all agency liability (assuming it existed in the first place).

The recall itself is very curious.  The CPSC staff will implement the corrective action plan and claims (accompanied by proof of purchase or an affidavit attesting to purchase location and price) must be presented within six months of the recall trust being established and consumers notified of the recall.  Refunds will be made in the order they are received and any consumers who either file after the six month period ends or after the funds have been depleted are out of luck.  A web site paid for out of the recall fund will be established and maintained by the Commission for five years. The escrow account funding the recall will be closed after 12 months with any remaining funds reverting back to Mr. Zucker.  But since the government does not have experience administering recalls and will, no doubt, have to hire a third party (paid for out of recall funds) to administer the fund and oversee the recall, it is pretty unlikely that there will be any monies going back to Mr. Zucker.

The settlement agreement does raise a side issue that may be interesting to lawyers or students of regulatory policy.  The Antideficiency Act prohibits a federal agency from obligating the government to pay out money before funds have been appropriated and a real question exists as to whether this agreement violates the Antideficiency Act.  Further, administering recalls is not within the specified functions of the Commission and the act is rather specific in stating that recalls will be undertaken by the product seller.  It is not clear to me that the agency has the authority to take the actions specified in the agreement but it is also not clear who (other than the agency’s inspector general) would be in a position to object.

Going back to the question of winners and losers, it seems that there are lots of losers but I don’t see any winners.  The agency lost since it has spent substantial public resources (would it not be interesting to know how much the government has spent on this?) to reach an agreement that is about half a percent of what it initially wanted.   The agency lost because the issues that were central to the litigation were left unresolved.  Mr. Zucker lost because he, no doubt, ended up spending more in legal fees than the value of the recall and basically paid the government to get them off his back.

But at the end of the day, consumers lost. Scarce public resources were spent to achieve a recall that cannot be effective both because of how it is structured and what it is trying to accomplish.   Past experience shows that very few of these products will be returned, thereby achieving little added safety even if the government’s theory of hazard is correct.  And if the past is prologue, then the government achieved very little at a very great cost with consumers footing the bill.

 

 

Recall the Recall Rule

Earlier this week I was at St. Louis University to present at its product safety management program, an intensive executive education course offered by the University’s business school for product safety professionals.  I have done this several times before and, as always, the students were smart, insightful and articulate as they posed practical questions about complying with the complex CPSC rules that have been issued over the past several years.

It was interesting to me that the class participants were all aware of the CPSC’s proposed changes to the voluntary recall rule.  Quite a bit of concern was expressed by the class about how those rules, if finalized, would change the recall process.  I was very impressed that company compliance professionals are watching what happens with this rule—clearly, this is not inside baseball.

Much has been written about this proposed rule—how it is a solution in search of a problem; how it will fundamentally change the voluntary recall process; how it will slow down recalls to the detriment of consumers.

The Washington Legal Foundation recently asked me for my thoughts on how the proposed rule would impact the voluntary recall process.  Today they published my article and you can find it here:

http://www.wlf.org/upload/legalstudies/legalbackgrounder/042514LB_Nord.pdf.

Let me know what you think.

The $57 Million Shakedown

The CPSC’s action to force a recall of Buckyballs–small powerful magnets the Commission believes to be unsafe but which are still being legally sold by others—has raised many serious questions about whether the agency acted properly.  But its efforts to blow up the concept of limited liability by individually suing one of the company’s founders–absent any allegation of wrongdoing–has elevated this action into one that could impact all businesses. 

Recently Craig Zucker, a founder of the now-defunct company that sold Buckyballs and the object of CPSC’s ire, and I discussed this case with the U.S. Chamber of Commerce. Calling the long-term implications of this case shocking, the Chamber has now produced a video that details the concerns this case poses for American businesses.  As a former safety regulator, a mother and, of course, a consumer, I strongly believe the agency could have addressed any safety concerns with this product without the unprecedented overreach taken in this case.

Go to FreeEnterprise.com to see the video for yourself.  Here is a link:

The Side Effects of Tweaking

Much has been written here and in other publications about the substantive impacts of the CPSC’s proposed changes to the rules dealing with voluntary recalls.  The substantive nature of the proposed amendments cannot be discounted even though certain commissioners persist in describing them as only “tweaks.”

As commenters analyze the impacts of the proposed changes, it is important to look at how these changes impact other rules that stakeholders and the commission operate under, specifically those dealing with submission of information under §15(b) and disclosure of information under §6(b) of the Consumer Product Safety Act.  Former CPSC general counsel Cheryl Falvey has written an interesting piece that discusses that interrelationship.  It is worth reading and thinking about.

Information submitted to the agency under §15(b) is exempt from disclosure except under limited circumstances as described in §6(b)(5).  This protection is to provide incentive for companies to fully report information the agency needs to analyze a risk without having to worry that sensitive product information is made public unfairly or prematurely.  One of the exemptions to this protection is when the Commission has accepted in writing a “remedial settlement agreement” (see §6(b)(5)(B)).

Here is the question:  is the voluntary recall (or specifically the recall’s corrective action plan) a remedial settlement agreement?  The regulations currently say that the recall agreement is not enforceable.  The agency now proposes to make the recall agreement enforceable.  Is the effect of that to make any information submitted under §15(b) subject to disclosure where it otherwise would not have been?

What is the Commission’s current position on this issue?  Reading the NPR or listening to the debate does not provide any answers.  But one thing is clear:  with all this tweaking, some transparency is called for.

Listening to Constructive Criticism

Yesterday, I met with representatives of the National Association of Manufacturers Product Safety Coalition. Participants at the meeting represented a broad spectrum of businesses that make and sell consumer products, and so are under the jurisdiction of the CPSC, and they shared their concerns over the direction the agency is headed. Here is a summary of some concerns expressed at the meeting:

  • A perceived breakdown in communications between the agency and business stakeholders is causing great frustration among those trying to comply with CPSC requirements.
  • The proposed rule setting out voluntary recall procedures was labeled as “a solution in search of a problem.” Great concern was expressed that this rule could make the process more time-consuming and resource intensive, both for the companies and the agency.
  • The move to mandate corporate compliance programs as a part of a penalty settlement or as part of a voluntary recall is viewed as excessively intrusive. If the agency insists on these programs as part of recall corrective action plans (as allowed by the proposed voluntary recall rule), this insistence will slow down the recall process greatly.
  • There seems to be no logic or systematic rationale about how penalties are being assessed so that past penalties are not predictive of future penalty demands. The process for referring cases to the Department of Justice is opaque.
  • While agency participation in the voluntary standards process is welcome and helpful, there is concern that technical discussions need to be held in an environment that fosters and encourages full participation from corporate technical experts. There is also concern that voluntary standards are becoming de facto mandatory standards.
  • Questions were raised about why the agency is moving forward with a wholesale change to the certification requirements (as proposed in the rule changes to 16 CFR 1110).  Companies have already set up systems to implement existing certification requirements and changing those systems will be resource intensive and is not justified.
  • There is ongoing concern that the agency is not moving forward with addressing the burdens that are associated with its testing and certification regime. There is a great deal of unnecessary testing being done, especially with respect to phthalates. A plea was made for aligning our standards with other international standards.

While a number of other issues were raised, the participants also reaffirmed their underlying support for the agency and its important safety mission. The message I took away is that we need to interact with our business stakeholders in a more collaborative and cooperative manner. Obviously, the range of issues we deal with is so broad that without this collaboration, we will not succeed in carrying out our mission to protect consumers.

Double Entendre

Voluntary recalls are one of the main things that this agency does. We at the CPSC work with a company to get a potentially (or actually) dangerous product out of consumers’ hands. (Or that’s what it should be—sometimes the meaning of “recall” is squishy around here. See my blog post here for more details.) So everyone who works with the agency should be paying close attention to the draft interpretive rule that the Commission is considering.

We held a briefing on the draft yesterday, and what I heard concerned me. As staff explained it, the purpose of this draft is to give firms—and agency staff—“greater predictability” in working through the content of voluntary recall notices. To me, this sounds like we are considering a rule that would impose strictures tantamount to requirements that would limit the ability of the agency and a company to work collaboratively to design the most effective recall possible. When I pressed the staff on this point, I received assurances that the rule would not impose requirements, but would simply represent guidance from the Commission.

Balderdash. Citing “more efficient negotiations” is simply a way of saying that points of negotiation that traditionally have been on the table should be taken off. And “guidance from the Commission,” even “nonbinding” guidance, will translate into take-it-or-leave-it offers to companies. At a minimum, if the current draft is adopted, companies can expect that they will have to cite extraordinary justifications to deviate from the guidance.

I am not sure that this is a good idea. Recalls occur for many reasons, and the effort required to develop a good recall ensures that each recall is tailored to the circumstances. Some recalls will require broad notice, others may require only direct notice to affected consumers. (A side note: I am happy that the staff draft acknowledges that direct notice is the most effective method to inform consumers about a recall. Such notice is increasingly feasible in an age of Internet shopping.) Some recalls may not even be recalls. The elements laid out in the draft rule are troubling, because they cover such a broad swath of territory.

The draft interpretive rule would encourage staff to require companies to implement compliance plans as part of corrective action plans. While this may sometimes be appropriate, I question whether this is necessary or appropriate at the recall stage. That subject is usually more appropriate for negotiation after the recall, because it will often require more analysis than can feasibly be done when trying to get recall out.

In sum, I have many concerns about this draft of the voluntary recall rule. We are scheduled to vote on this notice of proposed rulemaking on October 23, 2013.  In the meantime, I will be working with my colleagues to improve it, and look forward to seeing the public’s comments on it, assuming the Commission approves the draft proposal.

Recalling the Meaning of Recall

When the CPSC issues a product recall, we are using the loudest megaphone we have to alert consumers of the need to take action.  Consumers know what the term “recall” means: that recall blog imagethere is a safety problem with a product and there is a responsible party who will correct that problem with a repair, replacement, or refund, the options our statute provides. However lately, we have been redefining the term “recall” to mean something rather different from what all of us understood it to mean.

For example, we have devised the concept of the “recall to warn,” which uses our recall mechanism to get businesses in touch with their customers to provide a warning, possibly  offering a warning label for consumers who wish that. Using the term “recall” is unnecessary to convey the message, and dilutes the word’s strength. But if this usage were not enough of a departure, we have added another flavor to the recall menu: a “recall to inspect.” We recently issued such a “recall” for an infant sleeper regarding mold growth.

Note well: This is not mold that was on the sleepers when they left the factory. Rather, we’ve had reports that the sleeper’s soft base and covering can grow mold if not properly cleaned after getting soiled. The thrust of our “recall” was to ask purchasers to check their products, clean up any mold, and keep the products clean. I don’t necessarily object to alerting consumers to the need for hygiene; I object to our using the recall device to do so.

Recalls suggest a product’s design or manufacture has a problem and consumers need to get the product fixed or return it. This case does not fit those criteria. The risk of mold growing in or around damp cloth is neither unique to this product, nor a flaw.  The “remedy” the consumer was offered through this recall was a reminder to clean the product thoroughly if it gets damp and dirty.  An instruction to clean a soiled product is not a manufacturer-delivered remedy like a return, a refund, or a repair.

This isn’t just semantics. When parents see headlines about recalls of baby products, they worry a manufacturer’s mistake could harm their children. They expect they’ll need to contact the manufacturer for a fix to the mistake—a repair kit, a new unit, or their money back. When consumers see this doesn’t fit their expectations for a recall, they may feel that our warning doesn’t match the label attached to it—that we cried, “Wolf!” At the next recall, they may assume it, too, is just a reminder about good habits and disregard it or file it away as something to check when they get around to it.

I understand and share the desire to make sure this information gets out, but doing so in a way that risks blunting our sharpest tool does not help consumers. If people are unaware of the risk of mold when this or any product is not properly cleaned, maybe we have a role to play in changing that. But that role is not “recalling” a product. Recalls are not warnings, and they are not inspections; they are recalls.


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