Posts Tagged 'Nancy Nord'

Shihan and the Order of the Phoenix

With an apology to J.K. Rowling, I note with some awe that Shihan Qu and Zen Magnets has once again bested the dementors at the CPSC to live another day. Yesterday, the United States District Court for the District of Colorado reversed and remanded the Commission’s Final Decision and Order (FDO) ordering Zen to stop sale of its small rare earth magnets (SREMs).

To review, the CPSC brought an administrative complaint against Zen in 2012 to force a mandatory recall of its SREMs product.  In tandem with this administrative action, in 2014, the Commission finalized a rule banning the future sale of SREMs.  Zen challenged the rule and in 2016, the Tenth Circuit vacated and remanded the rule, finding that the evidence the Commission relied on did not support the rule.

Also in 2016, the Administrative Law Judge in the Zen administrative complaint found that the agency had not proved that the magnets were a hazard when accompanied with proper warnings and allowed Zen to continue sale. The agency lawyers appealed this decision to the Commissioners.  Given the public statements three of the Commissioners had made about the merits of the case, it was no surprise that the Commission overturned the ALJ’s decision and issued the FDO to force Zen to stop sale of its SREMs. Zen appealed this decision, and the court has now ruled in Zen’s favor.

The court’s decision was a curious one.   First, the court considered the substantive rationale offered by the Commission in its FDO and concluded that the agency did not act in an arbitrary and capricious manner—the standard for overturning the agency’s decision.  After an analysis of the Commission’s reasoning, the court found, among other things, that “[T]hough a court might come to a different conclusion if it were in the Commission’s role, that does not render the Commission’s finding arbitrary and capricious.”

However, the court then went on to consider whether the due process afforded Zen met constitutional standards. Here the court found that the Commission fell short, stating that “Zen’s due process rights were violated because Zen was deprived a fair and impartial tribunal” in its appeal from the ALJ’s decision.  Specifically, the court found that the public statements of certain Commissioners prior to the FDO decision demonstrated such a closed mind by decision makers that it was clear that Zen was not provided an impartial tribunal.  The court then, strangely, concludes that while the Commission’s decision was not arbitrary and capricious, it was nevertheless unconstitutionaly tainted by the obvious prejudgment of certain Commissioners. The result is that Zen wins and the CPSC loses.

I will leave to others to debate the nuances of the court’s decision. What bothers me greatly are the safety implications of the CPSC’s actions here.  Zen has made clear from the get-go that it does not oppose reasonable safety regulations of its product.  Indeed, it has petitioned the CPSC to issue a regulation with rigorous requirements for packaging and labeling.  Instead, the agency has petulantly insisted that it will accept nothing less than the complete capitulation of the company to the agency’s demands that it cease sale of its only product.  This insistence has led to repeated “slap-downs” by those judicial bodies that have looked at the issue.

From a safety standpoint, the CPSC’s ineffectual regulatory and litigation strategy has resulted in opening the marketplace to companies who, unlike Zen, have no interest in promoting safe use of SREMs.  Because the agency’s position on both the regulation and the recall of the Zen product have been overruled, the market is now wide open, with no requirements for safety precautions applicable to the product in place.   This result is on the agency.  If any injuries involving this product occur in the future, the agency must look internally for the cause.  Their incoherent policies, in large part, bear the blame.

In 2012, Zen was viewed by most as a small company making a principled but quixotic stand against the overreach of the federal government. Like a phoenix, Zen has prevailed against overwhelming odds.  But, beyond the story of a small company prevailing against the federal government, is the concern that, in this case, the federal government is not effectively protecting the safety of consumers.  Because of the CPSC’s actions, the marketplace is less safe. That is on the agency and they need to answer for this result.

 

 

 

 

 

 

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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.

Not Knowing When to Quit

Recently I had the great honor of being appointed a fellow at the University of Pennsylvania Law School.  As part of those responsibilities, last month I spoke to the administrative law class on how regulators balance competing priorities, using the CPSC’s actions on Zen Magnets[1] as one example.

The Zen Magnets case is especially relevant since it dramatically illustrates how regulators, acting in the first instance with the best of intentions, can pursue their regulatory and enforcement goals with such fervor as to distort and pervert the consumer safety objectives central to the agency’s mission.  I have written extensively (see here and here) about the procedural and due process issues that the agency threw to the winds in pursuing Zen Magnets.[2]  As a result of the agency’s zealousness, expansive reading of the statute, and lack of care, it lost the administrative recall case, with the Administrative Law Judge finding, in part, that Zen’s warnings were sufficient and that the agency did not prove that a defect existed. When the related regulation banning all small powerful magnets was challenged, the 10th Circuit Court of Appeals found that the administrative record showing injury from the product and considering benefits of the product was deficient.

Nevertheless, the battle rages on.  In a move that surprised no one, a majority of the commissioners recently voted to overturn the ALJ’s findings that SREMs are not defective and ordered Zen to immediately stop sale of the product.  The parties agreed to delay the effective date of that stop sale order to allow for an appeal to be filed.

What is especially interesting about the majority’s opinion overturning the ALJ’s decision is its breadth in determining that consumer misuse of the product, standing alone, can form the basis for a product defect determination. However, the regulations do not support this conclusion as clearly as the majority contends.  The regulations discuss consumer misuse in two contexts.  First, the regulations present an example of a defect when product instructions or safety warnings are inadequate and this inadequacy contributes to the misuse of the product. (See 16 USC §1115.4 (d)) Obviously, this is not the situation with Zen Magnets.  Second, the foreseeability of consumer misuse is listed as one factor to be considered and balanced with other appropriate factors in determining whether the risk of injury rises to the level of making the product defective.  (See 16 USC §1115.4)

However, it is a stretch to say that injuries occurring solely from consumer misuse of a product makes a product defective, especially in the presence of strong package warnings.  One need not look very far to find examples of products where the commission has come out the other way.  For example, small button batteries present a similar ingestion hazard to magnets but with even more severe injuries, many more incidents and a number of child deaths.  Yet the commission has determined that package warnings and consumer education adequately address this more significant risk.  Choking hazards from small parts in toys are well-established risks.  Every year children choke on small parts in toys found in the family toy chest.  Yet the commission has determined that package warnings are sufficient for toys designed for children older than three, even knowing that many households have children of varying age groups and that the toy with the small part may be accessible to younger children.

Finally, the commission opinion provides no boundaries that can be applied beyond this case between foreseeable consumer misuse and obviously risky behavior.  The take-away is that if a child is injured, even though the injury occurs because an adult negligently misuses the product or disregards warnings and instructions, then the product may well be deemed defective. The regulations do not necessarily lead to that conclusion but the current commission’s reading of them suggests that.

From a safety standpoint, the problem is that all this has led to a perverse result where safety considerations take a second chair to winning the case.  The CPSC has devoted a significant amount of public resource to forcing Zen Magnets off the market. So far Zen’s record in court is much better than is that of the agency.  With all its guns trained on Zen, the agency has allowed magnets without warnings to enter the country and be sold freely.

Zen has approached the agency to find a solution that would allow magnets to be sold but with aggressive restrictions on packaging, warnings, age restrictions and sales channels. In fact, Zen recently petitioned the CPSC to issue such a regulation.  With little fanfare (and without even notifying the petitioner), the agency has requested comment on the petition and the deadline for comments expires next week.  It almost seems like the agency does not want to hear what the public thinks of this idea.  Yet such a rule may provide the agency with a mechanism for policing the marketplace while still allowing the product to be sold with a strong safety message.

The Zen case is an example of the agency, in its zeal to address a real safety concern, losing sight of the ultimate safety goal.  In terms of regulatory priorities, the agency is putting winning above safety—since on its current course, it may put out of business a company trying to address the safety of its products while it ignores the many other magnet products that are being sold with no warnings or safety information.  In this case, if the agency wins, consumers loose.  It’s time to quit.

 

 

 

[1] Zen is a very small Colorado based company that sells small rare earth magnets (SREMs) primarily on the internet.  Its packaging is difficult to open and the product has multiple warnings of ingestion hazards.

[2] Among other things, the CPSC wrote to magnet retailors urging stop sales prior to negotiating recalls, thereby destroying retail market rather than seeking an injunction against sale as provided by the statute.  Individual commissioners made public statements about the safety of the product prior to voting indicating a predetermination of the issues.  When the agency voted to sue for a recall, the staff amended the complaint to add counts and the company principal without a vote of the Commission.

Commissioner Mohorovic Will Be Missed

Commissioner Joseph P. Mohorovic has announced that he will be resigning from the CPSC effective Friday, October 20.

Much has been said – and will continue to be – about Commissioner Mohorovic’s service on the Commission. He brought an extraordinary intellect, a mountain of practical experience, a great sense of humor, and an unreserved eagerness to hear from all sides on all issues. The Commission was better for his presence, and it will be diminished by his absence.
What won’t be diminished is the marked tendency of a majority of the current  Commission to impose its political will regardless of what anyone else – Congress, consumers, data, or CPSC’s own staff – has to say on any given matter. We’ve seen that hubris on display on two notable recent occasions. First, the Commission voted to convene a Chronic Hazard Advisory Panel (CHAP) to look into organohalogen flame retardants, while clearly telling the CHAP what opinion they expect it to form, not only through Commissioners’ rhetoric but also through a pre-judgment conclusory “guidance” document published in the Federal Register–all of this contradicting advice from the agency staff. Second, just this week, the Commission majority decided to ignore clear scientific evidence that demonstrated that not all phthalates are the same and to ban even the most innocuous ones because chemicals sound scary and because they are politically compelled to be angry at Exxon (a maker of phthalates) all the time.
I suspect that now, with a 3-1 majority and lock-step voting, what comes out of the CPSC in the next weeks or months will advance a particular political agenda but will have little to do with science, data, or even safety.   But we’ve also seen CPSC’s hubris come back to bite it, as I wrote a couple weeks ago.  I sincerely hope that Commissioner Mohorovic’s departure gives the White House and the Senate some added impetus in not only nominating and confirming his replacement, but also in confirming the current well-qualified nominee and a permanent chairman.
New blood brings new ideas and points of view.  As we have seen from the dogmatic and politically driven but not very thoughtful decisions of the last few weeks, the CPSC is is desperate need of a transfusion.

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.

Remembering John Byington

It was with real sorrow that I learned of the passing earlier this month of S. John Byington, the former chairman of the CPSC.  Like many others in the product safety world, I counted John as a true friend who was always ready to provide valued advice and counsel.

A pharmacist and a lawyer by training, John brought a respect for both law and science to the agency.  As chairman from 1976 through 1978, during the early years of the agency when it was easy to demagogue issues, he insisted that the agency have a strong basis in both science and the law before tackling the important issues before it.

John was a man of many interests.  After leaving the CPSC, his career included not only traditional law practice but also a number of entrepreneurial pursuits as varied as starting a microbrewery and a leading legal recruiting firm, LegalLeaders.  I had lunch with John earlier this year and, as always, marveled at his enthusiasm for life and his willingness to reach out with friendship and caring to those around him.  He made important contributions to product safety and will be missed.

Saw Hearing Shows Need to Sharpen CPSC Regulatory Tools

 

Last week the CPSC held a hearing to address its pending proposed rule to require active injury mitigation (“AIM”) technology on table saws.  In recent years, too often CPSC hearings have devolved into little more than theater, obviously intended to generate press but little understanding of the complex issues the agency is so often called upon to decide. Last week’s hearing was different.  For much of the hearing, the Commissioners were actually discussing the complex regulatory issues the NPR presents and doing it in a knowledgeable, engaged and interested manner.

To recap, the proposed rule would require that all table saws use the AIM technology to help prevent the 33,000 injuries that occur each year from use of these saws. Such technology can detect human contact with the saw blade and stop the saw before that contact occurs.  However, the only available technology that meets the standard is owned, patented and being sold by one table saw producer, a company called Saw Stop.  Because Saw Stop has so many patents, the agency recognizes that it is unlikely that other technology that would not violate those patents could be developed to meet the proposed standard. While the technology owner states that he is willing to license it to the rest of the industry, he is unwilling to enter into a legally-enforceable commitment to do so either with a voluntary standards organization or before a mandatory rule is finalized.  By mandating AIM, the agency will both create a monopoly and significantly increase the price of the saws.  The agency recognizes that both will occur.

The agency has to grapple with a number of important issues.  Obviously, the AIM technology would reduce the number of serious injuries associated with the product and addressing those injuries is a priority for the agency.  However, the technology is currently in the marketplace and available to consumers who wish to pay for it. Is it the proper government role to require people to buy technology that they have determined they do not wish to pay for?  Should the CPSC, a safety agency, be concerned about the market distortions its rules may bring about?  Everyone, including the CPSC, anticipates that the rule will result in significant price increases. Will those increases create disincentives for consumers to buy new  AIM-equipped saws, with the result that old saws will stay in use longer than expected and injuries will increase, at least in the short run? Has the agency’s analysis of the costs and benefits of the rule correctly considered these issues?

These are all serious questions and it is good that the agency is giving them serious thought.  The agency has now received comments from the George Washington University Regulatory Studies Center. These comments to the proposed rule look at the way the agency did its required cost-benefit analysis and finds that there is room for improvement.  The methodology the agency uses for such analyses has not changed in years; nor has it received much critical review.  Since both analyzing regulatory costs and benefits and regulating in the least burdensome way that effectively addresses safety concerns are mandated by the law, this analysis should be a more important regulatory tool than it has been in practice.

The GW comments show sufficient weaknesses in the analysis to raise questions about the validity of the conclusions the agency reaches.  For example, the agency may be overstating the benefits of the rule given the lack of detail in the injury incident data the agency relies on.  (The shortcoming in the data has also been recognized by the Commissioners who have directed the staff to develop more data.)  The agency’s estimates of the societal costs are also predicated on suspect data and open to challenge, as the report points out. The GW study not only finds fault with the agency’s analysis of potential benefits of the proposed rule but also its disregard for the negative impact market distortions may have on consumers.  It concludes that if the “CPSC finalizes these standards it is more likely to produce a market failure by creating a monopoly than to address an existing one.”

Given the concerns raised by the GW comments and by others, one can rightly ask whether it is good policy for the agency to create a monopoly on the basis of flawed data.  And even if the data is good, one still must ask whether creating a monopoly is appropriate government regulatory behavior. Considering the serious and important policy questions this proposed rule presents, the Commissioners are right to give it a more thorough evaluation than what has occurred to date.

 

 

 

 

 


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