Archive for the 'Penalties' Category

Groundhog Day at the CPSC

In the 1993 classic movie, Groundhog Day, the protagonist is caught in a time loop and forced to repeat things over and over again.  This year, on February 2, the CPSC celebrated Groundhog Day by agreeing to settle a timeliness action brought against Michaels Stores.  For the CPSC, in true Groundhog Day-style, the Michaels’ settlement represents a situation that seems to repeat over and over again.

As I have written before, the pre-2017 political management of the agency was pressuring its staff to insist on large penalties that often seemed detached from the seriousness of the underlying violation.  The underlying policy driving penalties was nothing more sophisticated than “bigger is better” with escalating penalty demands that were not linked to more egregious behavior.  However, in September 2017, a court called out this behavior, (in the Spectrum Brands case involving coffee makers) refusing the agency’s demand for maximum penalties ($15+ million) and instead imposed a penalty just shy of $2 million.  Basically, the court found that the agency did not prove its case that such penalties were warranted.

Now comes the settlement in the Michaels Stores case.  Here the agency alleged that Michaels did not report in a timely manner the fact that nine glass vases, out of almost 300,000 in inventory, over the course of a year, broke causing lacerations.[1]  The agency demanded $7.1 million as an appropriate penalty and the company countered with an offer to pay $ 1.5 million to settle the case.  When the company did not cave to the agency’s insistent demands, the Commissioners agreed to send the matter to the Department of Justice to begin litigation.  After several years of hearings, discovery and the expenditure of who-knows-how-much resource by both the government and the company, the parties have now agreed to a settlement—of $1.5 million.

Both the Michaels settlement and the court’s decision in the Spectrum case illustrate the need for the CPSC to reassess how it imposes penalties.  The arrogant posture of demanding the maximum (or close to it) and curtailing negotiations when a company objects needs to change.  Trying to peg the amount demanded to the seriousness of the conduct would be a good place to start and is what the statute and the regulations demand.

The CPSC plays a critical and central role in assuring that American consumers are not harmed by the products they use every day. The CPSC staff does important and very hard work to carry out the agency’s safety mission.  Unfortunately, the agency’s political leadership has made this job more difficult by imposing policies that are often arbitrary and seem to be motivated by headlines to be garnered or records to be broken.  The agency’s mission cannot be realized without the cooperation of all parties in the marketplace, including product manufacturers.  Marquis penalties, imposed for their own sake, in the end do not engender the collaboration needed for effective compliance and, instead, consign the agency to more Groundhog Days.

 

[1] The agency also alleged that Michaels mislead it by not acknowledging it was the importer of the vases even though the supplier of the vases publicly agreed that it was the importer, labeled the vases with its name as the importer and agreed to recall the vases.

Advertisements

A Wish for the Holidays

 

I have been reading with growing dismay articles that question the commitment of CPSC Acting Chairman Ann Marie Buerkle to protect consumer safety.  Those articles are ill-informed, mean-spirited personal attacks that push an agenda that has more to do with partisan politics than it has to do with consumer safety.

What is especially distressing is that some of this is coming from within the Commission itself.  Consumer safety has always—and it should—engender deep emotion and strong commitment. However, it is critical to the formation of good public policy that differences in points of view are listened to and respected.  Civil and respectful debate must be a part of our process for formulating public policy.  I worry that some, in their zeal to push a position, have forgotten that civil discourse and honest disagreement are the foundation of our government.

Some have accused Acting Chairman Buerkle of being an “extreme outlier” and “very extreme”.  They say that she represents a “radical departure” from the agency’s safety mission.  They also accused her of voting with industry 100% of the time. What silliness!

An analysis of her votes and the statements explaining them shows that she has taken principled positions that are fully appropriate. Most of her votes diverging from her colleagues have been on procedural and process grounds.  For example, she has opposed certain civil penalties, not because she believed the company should get a pass but because of the lack of rigor and consistency in the way the agency imposes penalties. She has been critical of the commission’s penalty policy that seems to be based only on “bigger is better” and not on helping regulated entities understand how to comply with a statue that is judgement-laden and whose interpretation it seems changes with the political winds.   In no way can her positions be equated with “dismantling consumer protection,” but that is what critics say.  She criticized the commission’s rule on phthalates not because she wants to support chemical companies (oh, come on. . .) but because she is rightly concerned by the direction and willingness of earlier political leadership to ignore current data.  The portable generator rule raises real questions of jurisdiction and resources.  If a majority of commissioners wish to ignore these issues, so be it, but why is it wrong to point out the problem? Her critics have either not read her statements or do not wish to hear facts that get in the way of predetermined political views.

Acting Chairman Buerkle is perhaps the most qualified person ever to be nominated to be chairman of the CPSC.  While she brings solid legal skills to the office, notably, she is also a trained health professional—a skill set never before on the commission—and so brings a point of view that is essential to the important issues the agency must deal with.  Finally, she is the mom of six kids.  If there was ever a real consumer—as opposed to a political partisan—it is her.

My holiday wish is that the debate over the direction of the CPSC can be conducted honestly at a policy level.  Questioning the character of a dedicated public servant in order to advance a political agenda is dispiriting.  With respect to the CPSC, many have deserved coal in their stockings for too long.  It’s time to say these tactics are not right.

 

 

 

 

 

 

 

The Price of Hubris

Late last week, the CPSC community received one of its rarest gifts: A judicial opinion in a litigated civil penalty case. Judge William Conley of the U.S. District Court for the Western District of Wisconsin calculated the penalty Spectrum Brands owed for failing to report handles breaking off of Black & Decker SpaceMaker coffee pots and for selling 641 units after they had been recalled. The time Judge Conley took (over seven months) was surprising; the result was stunning. While the government argued that the maximum penalty of $30.30 million could be assessed for the two separate violations, Judge Conley determined that a much smaller number was appropriate: $821,675 for the failure to report and $1.115 million for the sale of recalled goods.

Pundits of CPSC enforcement policy will devour every morsel of the Spectrum case and I’ll be eager to read their work. But what I find most compelling is the extent to which this result highlights what, for the last eight years, has been the defining characteristic of CPSC’s attitude toward the companies it regulates: Hubris.

Judge Conley wrote that CPSC “failed to establish” the severity of the alleged defect, “introduced no admissible evidence regarding any injuries that a consumer actually sustained,” and “offered no evidence with respect to either [a history of non-compliance or a failure to respond to inquiries],” two factors CPSC calls out in its penalty rules. In short, CPSC phoned in its argument. The agency was so persuaded by the merits of its own position that it assumed Judge Conley would defer to its inherent – and, presumably, inerrant – wisdom.  Instead the trier of fact put the agency through its paces and demanded proof that the other side was as guilty as CPSC asserted it to be.

The agency’s arrogance is hardly new. In 2009, the CPSIA’s ten-fold penalty cap increase kicked in. Since then, CPSC’s political leaders have urged staff to drive penalty settlement totals ever higher, with little regard for tethering any penalty to the merits of the case. Last year, at the annual symposium of the International Consumer Product Health and Safety Organization (ICPHSO), then-Chairman Elliott Kaye called for a “double-digit millions” penalty. Mere weeks later, his attorneys delivered a $15.45 million settlement with Gree Electric Appliances, Inc. It is hard to escape the narrative of the then-Chairman driving for bigger numbers for the sake of bigger numbers.

At the same conference as Kaye’s “double-digit millions,” CPSC’s Office of General Counsel asserted that, because any product sold in any quantity could technically be subject to a maximum penalty, any demand below that already represented a magnanimous compromise on the agency’s part. Of course, if that had been Congress’ intent, there would have been no need for either statutory factors or a requirement for CPSC to interpret them, but this wasn’t enough to keep CPSC from expecting companies to be grateful any time it didn’t kick them quite as hard as it could. Bottom line is that the penalty amounts demanded by the agency have been steadily going up, with no attempt to link each higher penalty to more egregious behavior.

Chairman Buerkle and Commissioner Mohorovic consistently, but so far unsuccessfully, have been arguing for a penalty policy that is something more than “bigger is better.”  Now the court in Spectrum has agreed, going through a rigorous analysis of how the statute and the regulations should be applied to come up with a penalty amount.  Of course, this analysis is what the agency should have been doing all along but was not. Instead the agency seems to be convinced that its word is gospel, any penalty number it might choose to name is justifiable, and the only ones complaining are the companies who care nothing about their safety obligations.

The CPSC expects everyone else to accept this caricature without question. And for some time, that assumption has been correct. Companies have been quick to settle and slow to criticize, calculating that the fight isn’t worth winning.  However, CPSC’s blinkered compulsion to squeeze harder is encouraging more resistance. As one example, CPSC is currently litigating another failure-to-report penalty case against Michaels Stores–for not rushing to inform the agency that glass breaks.

Spectrum and Michaels may well see themselves members of a growing club of companies who are pushing back against the CPSC’s imperiousness. They are reminding us that, sometimes, the only way to deal with a bully is to punch back. If it doesn’t sincerely examine its own flawed, self-important assumptions, CPSC can expect to take more punches from companies and from courts. And, like all victims of hubris, it will have only itself to blame.

Closing the Books on 2016

This is a time for reflection.  Looking back on the past year, it really was not a great
one for the CPSC. And, sadly, many of the agency’s problems closing-bookswere of its own making. While many of the initiatives that are either ongoing or started in 2016 will continue into 2017, others will be consigned to the dustbin of bad ideas.  And most importantly, 2017 will bring new leadership and with it fresh ideas and perspectives to address the important and complex issues with which the agency must struggle as it works to fulfill its mission to protect consumers from unreasonable risks.
From my perspective, as a past regulator and now as a practitioner trying to help those in the regulated community who sincerely want to stay on the right side of the compliance line but who find that line often moves or disappears altogether, here are some areas where the agency fell down and one hopes could do better next year.

  • A penalty policy that hardly qualifies as any kind of rational “policy” at all. The agency rewrote the regulation dealing with the factors to be considered when applying penalties back in 2009 to give more transparency to the process. Instead, the process has become anything but transparent. Agency enforcement staff has made clear that it has little interest in negotiations over penalty amounts, which is where the application of the penalty factors would come in.  Current agency leadership has stated that its penalty policy is “more is better.” In trying to appear as a tough cop, the agency instead comes across as a bully.  While that result may be an effective scare tactic, it serves to drive away companies who might otherwise seek out the agency when potential problems arise and does not help to advance collaborative problem solving which the agency needs to advance its mission.  Much has been written about the agency’s shortcomings in this area and let’s hope that 2017 brings about needed change here.
  • An “ends justifies means” mentality that allows for skirting regulatory fairness and due process. Or put another way, government always knows best. What better illustration of this attitude than the agency’s attempts to regulate small rare earth magnets (SREM’s). Even though the industry leaders proposed a collaborative effort to regulate warnings and packaging of the product back in 2011, the agency rejected that offer and instead, through recalls and regulation, acted to ban the product.  The last hold-out, a tiny U.S. company in Colorado—Zen Magnets–has consistently been prevailing in court against the full force of the U.S. Government.  In the meantime, Chinese imports of SREM’s are being sold without any effort by the CPSC to crack down.  I guess that the CPSC thinks that only magnets sold by U.S. companies are dangerous. Certainly magnets present a hazard if swallowed.  However, they can be used safely in many different art, science, educational and recreational applications.  Perhaps in 2017, the agency could consider how to step back from a ban to a regulation that allows the product into the market while providing the kind of warnings and child-proof packaging that alerts parents to the hazards the product presents if swallowed by small children.
  • Will the agency consider applying modern regulatory concepts to rule writing to assure they are effective? In a recent statement, Commissioner Mohorovic is critical of the agency’s purported effort review its standard dealing with mattress flammability.  This review is required by the Regulatory Flexibility Act which mandates review of significant rules every 10 years and the mattress rule falls into that definition.  Even though the staff found that the rule was not as effective in protecting the public as the agency had predicted when it was issued 10 years ago, it did not recommend changes.  This is just one example of the agency’s reluctance to go back to see if what it is doing is really working to protect consumers.  Commissioner Mohorovic’s suggestion that a retrospective review plan be built into rules as they are being developed is a good one and would help assure that the rules the agency writes actually provide the protection the agency says they will.  To date, agency leadership has only given lip-service to the suggestion but has done nothing real to effectuate such a plan.  Perhaps in 2017, this will change.
  • Will 2017 bring some closure to the never-ending dithering on upholstered furniture flammability regulation? For a while in 2016, it looked like Commissioner Buerkle had found a path forward for addressing upholstered furniture smoldering hazard, but that was not to be. Instead, a majority of the commissioners decided that virtually every flammability hazard needed to be regulated so are now looking at how to address the hazard of large open flame fires  where upholstered furniture is not necessarily the first ignition source but could possibly be the second or even the third source of ignition.  To do this, commercial grade materials, expensive barriers and flame retardants will necessarily be part of the equation. In the meantime, pending before the agency is a petition to ban flame retardants.  Boy, what a mess! A consumer rebellion may be on the way!
  • We started the year with flaming hover boards and ended it with flaming cell phones—both caused by lithium ion batteries. Rather than looking at the application first, would it not be better to start by looking at the batteries? The agency seems to be going about this from the wrong direction.
  • A continual point of concern for agency stakeholders is a communications and press office that makes policy rather than communicates it. In the meantime, complaints are common about press releases that contain inaccuracies or are held up for trivial reasons, thereby delaying recalls. This result directly impacts consumer safety, cannot be defended, and yet is occurring.  Again, room for improvement in 2017.

I could go on and on but 2017 is just around the corner.  Change will not happen immediately but is inevitable.  Working together and in a spirit of support for the agency, 2017 can be a great year for the CPSC. What a happy thought to take us all through the holidays and into next year!

 

Let’s Play Penalty Roulette

630139-casino-20-9-2004

Playing games at the CPSC

Commissioner Mohorovic has just issued a thoughtful statement discussing the black hole that the CPSC calls its civil penalty policy.  This statement follows another he filed this week discussing the $4.5 million penalty lodged against Sunbeam for a single-brew coffee maker that squirted out hot water when not used properly.

The Commissioner’s most recent statement precedes next week’s agency hearing on priorities for the upcoming year.  He outlines a number of ways to address the process for assessing penalties—a process that, at best, can be called veiled and perplexing and, at worst, seems like penalty roulette.  Those concerned about public policy and consumer protection should carefully review his suggestions for putting more discipline into an arbitrary process.

The CPSC Chairman has publicly stated his desire to see penalties increased.  While disagreeing with that view, I do believe that it could be achieved more effectively if the agency were up-front about how they calculate penalties.  It is not sufficient to say that this calculation is determined by applying the various factors set out in the regulation dealing with civil penalties.  The settlement agreements over the past several years have been decidedly uninformative about how various factors were applied.  As one who was directly involved in crafting that regulation, and as I have written before, I believe that the current practice is at odds with the underlying intent of the regulation—that is, to add more transparency to the process.

Commissioner Mohorovic is to be applauded for his persistence in highlighting the problem.  Not only has he accurately described the problem, he has come up with creative suggestions for solving it.  While Commissioner Buerkle has repeatedly expressed her dismay for the manner in which penalties are assessed, it will be interesting to see if the other commissioners pay any attention.

Last week it was $3.75 million for glass tumblers that can break. This week it is $4.5 million for coffee makers that can spill out hot water if not used according to instructions.  Can’t wait to see what next week brings—but, for sure, it will be a crap shoot.

Navigating An Unmarked Channel

 

Last week, Commissioners Buerkle and Mohorovic each issued a statement on a civil penalty settlement involving glass tumblers manufactured by Teavana.  Each is a thoughtful statement and both should be read by anyone interested in how the agency does its work.  They can be found here and here.  Both Commissioners address, in somewhat different ways, the subjective nature of the Consumer Product Safety Act’s reporting requirements and the opaqueness of the agency’s process for determining penalty amounts for violations of provisions of the Act that require product sellers to report potential safety issues to the agency.  Both are concerned about the secrecy of the criteria, if any, applied in assessing penalties by an agency that used to pride itself on its openness and transparency.

Commissioner Buerkle points out that–given the subjective nature of the statute– the regulations defining, first, what factors will affect a penalty amount and, second, how those factors will be applied, become critically important.  As one who was directly involved in developing that regulation, I agree that it is probably too general in nature, given that the agency has done little to flesh out its applicability in real cases.  Instead the agency has just nodded its head in the regulation’s direction to justify what appear to be arbitrary penalty amounts. The publicly-stated desire of Commission leadership for higher penalties leaves one thinking that the penalty policy of this commission is “get as much as you can” and not that “the punishment should fit the crime.” Consequently, one can only conclude that the penalty factors in the regulation are window dressing to justify whatever the enforcement staff demands.

Commissioner Mohorovic stated that the agency is falling down in its consumer protection duties by not putting out clear buoys to mark the legal channel.  As I have written before, the simplistic agency mantra—“when in doubt, report”—does not work so easily with today’s commission, which is more intent on punishment than on true safety.  Commissioner Mohorovic makes a persuasive case that the company did not have any obligation to report in the first place.  The products in question are glass tumblers and there is always a risk that glass will break, especially when holding hot liquids.  Apparently there were only minor injuries. There is no reason to believe the glass was inordinately thin or fragile.  Based on all this, Commissioner Mohorovic concludes that the company had no obligation to report, but agency enforcement staff reached a decidedly different conclusion.  The result was a $3.75 million penalty against the company, and we are left with no understanding as to how the agency got to that figure.

The agency has announced that it will hold a hearing this summer to consider its priorities for the upcoming fiscal year.  Here is a suggestion:  given the growing concern over the secrecy surrounding how penalties in ever-increasing amounts are assessed, a review of the agency’s penalty factors regulation is warranted.  The clarity the agency was seeking in 2010 when this regulation was issued has not happened; instead the process has become much less clear.  Perhaps it is time to consider a matrix approach to civil penalties—that is, putting a value on, and applying that value to different types of violations.  The practices of other agencies may also provide some learning here.  There are probably many ways to make the situation better and the agency should spend some time trying to figure this out.

It’s Not Just Size That Counts

Today, the CPSC announced a civil penalty settlement agreement for an eye-popping $15.45 million.  The settlement involved dehumidifiers sold by Gree Electrical Appliances Inc.  The penalty is the statutory maximum that could be imposed and is well beyond any penalty imposed by the agency at any time in its history.

CPSC alleged that Gree:

  • knowingly failed to report a defect and unreasonable risk of serious injury to CPSC  with dehumidifiers sold under 13 different brand names (the dehumidifiers were recalled in 2013);
  • knowingly made misrepresentations to CPSC staff during its investigation; and
  • sold dehumidifiers bearing the UL safety certification mark knowing that the dehumidifiers did not meet UL flammability standards.

Given the size of the penalty, one should expect that the alleged misconduct to be off-the-charts in terms of the severity of injury to consumers.    Yet, even though the earlier related recall involved well over 2 million items and significant property damage from fires caused by the defective product, there are no reports of injury.  In fact, there is little to distinguish this hazard pattern from others involving defective appliances posing serious fire hazards where penalties have been fractions of the amount imposed in this case. Certainly there was potential for serious injury but the fact remains that there were no injuries.  While there was substantial property damage, presumably this was covered by insurance and it is not the purpose of the CPSC to protect insurance companies.

There is nothing in the agency’s press release or the settlement agreement itself to tell us why this case was so more egregious than other cases involving violations of the requirement to report hazards to the agency.  One has to assume then that it was the alleged misrepresentations to the government and the unauthorized use of the UL mark that bumped the penalty up to the limit.  But other than these general statements and based on what has been made public, it is not clear what actual conduct triggered such a huge penalty.  For those trying to stay on the right side of the law, the government has an obligation to be more transparent in describing the activity that warrants this type of penalty.

Certainly the allegations in the settlement agreement are very serious and, if true, warrant a significant penalty.  But it would be helpful to know whether this penalty is unique to a particular set of circumstances or is just a very large scalp from another “failure-to-report” case. As Commissioner Mohorovic points out in his statement, if the agency wants to change behavior through its penalties, it is important to more fully describe the behavior those regulated should avoid.

While this is a significant case because of the size of the penalty, its importance diminishes because of the agency’s opaqueness in describing the bad acts that occurred.  If you are not confused and troubled by all this, then I suggest you are not paying attention.

 


Enter your email address to subscribe to my blog and receive notifications of new posts by email.

Join 967 other followers

Archives

RSS CPSC Breaking News & Recent Recalls

  • An error has occurred; the feed is probably down. Try again later.

Let’s keep the conversation going on Twitter. You can find me at @NancyNord.

Nancy's Photos

  • 83,291 visits
Advertisements