Posts Tagged 'regulation'

Just in Time for Thanksgiving:  Britax Settlement Signals Common-Sense Thinking at CPSC

 

At this time of year, we celebrate blessings large and small. For product sellers, consumers, and others who are interested in both product safety and the administrative process, the new make-up of the CPSC is one of those blessings worth celebrating. The agency has reassessed its approach to its mission of protecting consumers. It is allocating its scare resources on addressing defective and non-compliant products that actually can hurt consumers rather than trying to push the legal envelop with expansive theories that enhance the agency’s power to dictate consumer choice.

Let me give you an example.  The CPSC has now announced that it is settling the administrative case that it brought against Britax Child Safety Inc. earlier this year. Among other products, Britax makes jogging strollers with a front wheel quick release function which is very popular with consumers.  The CPSC alleged that the strollers were defective because some consumers “may not read, may fail to follow or may misunderstand the instructions” on how to use the quick release mechanism and, as a result, the front wheel could detach during use.  Note that the agency did not allege that the instructions were inadequate or confusing but rather that some consumers did not properly follow them and, as a result, suffered injury when the wheel detached.  The CPSC was especially concerned that if the quick release was not properly engaged, the jogging stroller could still operate with no clue to the user of the problem until the wheel fell off.

This settlement is noteworthy for several reasons. First, the case presented a very expansive interpretation of what is “reasonably foreseeable consumer misuse.”  The concept is addressed in the CPSC’s own regulations in only a cursory manor.  The regulations note that inadequate instructions that lead to consumer misuse of a product, resulting in injury, can be a product defect.  However, that is not the situation in the Britax case, at least as it is described in the agency complaint.  The agency did not allege that the instructions were confusing or inadequate, only that some consumers might not follow them.

The role of consumer misuse and the foreseeability of such misuse is also a consideration when assessing whether a risk of injury renders a product defective.  In other words, in assessing the utility of the product verses injury risks that may be presented, anticipating how consumers could misuse a product should be part of the analysis. However, the regulations cannot be read to require that every misuse must be anticipated as part of the product design process.  Nor can they be read to mean that the fact that consumers may ignore clear instructions renders a product defective.

It is significant that the stroller met CPSC safety standards applicable to this product, including the quick release mechanism. Given this and the scant support in the regulations, the case, as brought, suggests that the Commissioners wished to push the definition of consumer misuse to the point that product makers must be the guarantors of the safety of the products they sell regardless of circumstances.  The circumstances of this case, as brought, suggest that if there is the potential for a consumer to assemble a product improperly, even with adequate instructions and warnings, then that product can be considered defective.  Such a result would have a profound impact on today’s marketplace. Given all this, it is wise that the Commission, with new Commissioners taking another look, now has decided to settle the case.

In addition, the settlement is noteworthy for other reasons. The settlement does not acknowledge that a defect exists or that a recall is being done.  Instead it states that the company, among other things, will undertake an information campaign to try to educate customers on the proper use of the quick release function including a video with incentives being offered to promote viewing.  This is a departure from past commission practice insisting on calling every negotiated remedy a recall even if it was not. (See the Lumber Liquidators “Recall to Test” for one example.)

Because no recall is taking place, the product can continue to be sold on the secondary market.  Had the company agreed to call this a recall, the Consumer Product Safety Act would penalize a seller of a product recalled by the manufacturer.  Certainly, this is good news for consumers who wish to buy this product used and who are able to follow instructions on the proper use of the quick release feature.

More broadly, this settlement offers an opportunity for the CPSC, safety professionals and others with a stake in advancing product safety to begin a more thoughtful and productive conversation about reasonably foreseeable consumer misuse of products.  The Britax case, as brought, pushed the definition of consumer misuse to a point of meaninglessness—it would mean whatever a majority of commissioners decided on any given day.  Putting some better-understood bounds around the term would provide helpful clarity. And that would turn a turkey of a decision to sue into something we could all be thankful for.

 

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New Leadership Sets New Direction at CPSC

 

Earlier this week, the United States Senate confirmed Peter Feldman to be a CPSC commissioner, to fill the seat vacated by Joe Mohorovic. Mr. Feldman’s term runs through 2019 and he also has been nominated for a full seven year term to begin thereafter.  Hopefully, the Senate will quickly confirm him for this additional term.  At the same time, one hopes that the Senate will also complete its unfinished work and confirm Acting Chairman Buerkle both to be permanent chairman of the agency and to an additional term.

Peter Feldman comes to the commission after many years of public service in the legislative branch. Most recently, he served as counsel to the Senate Committee on Commerce, Science and Transportation, where his portfolio of issues included legislation and oversight of the CPSC.  He brings a wealth of relevant and welcome experience to the agency.

Mr. Feldman’s arrival at the CPSC is especially timely since there has not been a full compliment of commissioners since 2017.  He now joins another new commissioner, Dana Baiocco, who was confirmed this past summer. One of the first issues he will be called on to consider is the Fiscal Year 2019 Operating Plan setting out budget and policy priorities for the upcoming fiscal year.

While the operating plan does not make dramatic changes in the direction of the agency, it does include a number of interesting and welcome activities that will put the agency on a more stable path.  The plan reflects the acting chairman’s priority to update and expand the agency’s information gathering capabilities.  For example, after several years of talk but no action, the agency will be looking at how the retailer reporting program can be revamped to provide meaningful and useful information about consumer injuries. Important work to better measure the effectiveness of agency recalls is included in the plan.  The plan anticipates a briefing package addressing a pending petition on small powerful magnets and provides an opportunity to clean up the mess the agency created here in its zeal to put ends above means. The plan includes work to better monitor e-commerce platforms, where there is the potential for real harm to consumers but where the agency’s efforts to date have been not especially effective. Work on the Internet of Things and on other emerging hazards is also called out.  Finally, in a truly refreshing change, the plan recognizes that stakeholder participation and involvement is both welcome and essential for effective regulating.

Acting Chairman Buerkle has provided needed steady and mature leadership to the agency.  Under her leadership, Mr. Feldman has an exciting opportunity to work to carry out the priorities of the agency to protect consumers from unreasonable risks while assuring that public resources are not frittered away on ill-advised litigation and open-ended overly-broad regulatory activity.

 

 

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.

 

 

 

 

 

 

A Welcome Fresh Perspective at the CPSC

 

After a nearly nine month delay, the United States Senate earlier this week finally voted to confirm the nomination of Dana Baiocco to be a commissioner of the CPSC.  With this vote, one of the strange aberrations of the Trump Administration ceases:  the 3-1 Democratic majority that the Administration and the Senate has allowed for 18 months now comes to an end.

With Ms. Baiocco’s confirmation, the balance of power on the commission will be evenly split between commissioners from the two political parties.  There is another open seat (which the Administration, inexplicably, does not seem in a hurry to fill) which, when filled, would give the current Chairman a 3-2 majority and allow her finally to begin implementing the regulatory priorities of the Administration.

But equally important, Ms. Baiocco’s confirmation brings fresh perspectives and new ideas to the agency, which sometimes has difficulty embracing different approaches to regulatory issues.  Perhaps she will not accept the regulatory sluggishness that can come when the agency is challenged to rethink its approach to issues.

It is important that the Senate not think its work is done with respect to the CPSC.  Pending before it is the nomination of Acting Chairman Ann Marie Buerkle for permanent chair and another term.  Chairman Buerkle has proved to be a reasonable, thoughtful and steady leader of the agency and she deserves to be confirmed.  And it is hoped that the Administration may, at some point soon, nominate another commissioner to the existing open seat, giving the Chairman a working majority.  In the meantime, Ms. Baiocco is a very welcome addition to the commission.

 

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.

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.

 

 

 

 

 

 

 

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.


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