June 6, 2016

In the past, I have expressed my discontent with CPSC civil penalty settlements on grounds ranging from my disagreement that a penalty was warranted to my concern that too many of the facts compelling a penalty have been kept shrouded from public view. Today, I return to a familiar cry: We are insufficiently rigorous in our penalty calculations, with the result being a penalty settlement that I feel is too high and unsupported by the facts.

 

The allegation we are settling is that Jarden failed to report timely a potential defect involving a line of single-cup coffee brewers. That potential defect caused the brewers to open during operation, spraying hot water, and hot coffee grounds onto users’ faces and arms, resulting in more than two dozen burns.[1] Jarden has agreed to pay $4.5 million to settle the allegation that it was late in reporting this potential defect.

 

As has most often been the case,[2] I do not disagree that Jarden had a reporting obligation. I also agree that the company took too long to fulfill that obligation. Where I fail to agree is in the calculation of the amount the company will pay in punishment for its tardiness. That amount, in my view, is far too high.

 

One of These Things Is Not Like the Other

I continue to believe that we do too little to bind our penalty demands and settlements to the facts of the case and the factors enumerated in statute and rule. Without such precise weighing of aggravating and mitigating points, the most anyone outside or inside the agency can do to estimate where on our spectrum a given case should fall is to compare it to prior cases at the most holistic, even cursory level. In that light, I cannot see any basis for a $4.5 million penalty.

 

In a case less than two years ago, we agreed to a penalty of $4.3 million to settle our allegation that a manufacturer of children’s mini-bikes and go-karts was months late in reporting incidents in which those products caught fire, resulting in children being badly burned.” The Consumer Product Safety Act[3] directs us to consider the severity of the risk and the occurrence of injury when imposing penalties,[4] but the notion that we would penalize the relatively minor burns caused by splattered hot water more heavily than we would penalize the life-threatening consequences of children sitting astride flaming mini-bikes is baffling to me, to put it charitably.

 

Similarly, we agreed to a $3.5 million settlement – with $3.3 million of that likely never to be paid[5] – for a company whose children’s clip-on high chairs were detaching from tables, resulting not just in the potentially serious falls of infants but in children’s fingertips being cut off. Even if that penalty had been fully payable, it would still have cost that company a million dollars less to settle its failure to timely report children with violently shortened fingers than it has cost Jarden to settle its failure to timely report relatively minor burns.

 

This is not to say either of those penalties was too low. Rather, comparison with them suggests that this one is too high, and we have not demonstrated through the appropriate analysis why that suggestion would be incorrect.

 

Messy Decisions

The severity of the risk and the occurrence of injury are among our factors for determining the degree of the violation. The nature of the risk may also inform our understanding of the uncertainty a firm faced and, thus, the company’s culpability in failing to report timely. That culpability – that blameworthiness or lack thereof – can then further inform our calculation of the appropriate penalty.

 

The CPSA requires that companies report “information which reasonably supports the conclusion that [a] product . . . contains a defect which could create a substantial product hazard [or] creates an unreasonable risk of serious injury or death.”[6] This is not always an easy determination to make.

 

Our rules understand that some amount of risk is inherent in many products,[7] and that companies may need to “conduct a reasonably expeditious investigation in order to evaluate the reportability of a death or grievous bodily injury or other information.”[8] While this is ordinarily not license to take months to investigate,[9] it is an implicit recognition that reporting decisions are not all alike.

 

When our statutory penalty factors, then, call for us to evaluate the “nature, circumstances, extent, and gravity of the violation,”[10] within that phrase lives the notion that being late on a relatively easy call is more egregious and more worthy of punishment than being late on a difficult judgment. This is particularly true when a company conducts the investigation our rules contemplate and relies on “reports from experts, test reports”[11] and similar means in reaching a good-faith decision that no report is necessary, even if that decision is in error.

 

In this case, single-cup coffee brewers experience a known problem sometimes called “messy brew,” in which water, coffee, and grounds spew from the brew head instead of flowing in an easy stream, spraying downward onto surrounding surfaces. While this problem may ultimately be remediable, it is presently within the realm of acceptable, reasonable risks because it does not ordinarily cause injury. It is also reasonable that Jarden would need some time to conduct the kind of investigation our rules allow in order to distinguish that known messy brew phenomenon from the brewer-opening problem, though I agree they ultimately took too long.

 

By contrast, while fire is an inherent risk of gasoline-fueled vehicles, incidents that show this risk materializing are plainly reportable. While every gas-powered mini-bike can catch fire, evidence that a particular mini-bike willcatch fire in normal use fairly easily meets the threshold of reasonably supporting the conclusion that the mini-bike is defective in a way that creates a substantial product hazard or otherwise presents an unreasonable risk.

 

The Rest of the Story?

Under the CPSA factors, failure to report a less-serious risk should not only result in a lower penalty, but is also necessarily a less-egregious violation than a similar failure to report a more-serious risk. Our penalty settlements during my tenure as a Commissioner have not reflected that statutory dynamic, leaving me to wonder what dynamic is driving our decisions.

 

The only conclusion I can draw from juxtaposing this penalty with those discussed above is that Jarden has had the bad fortune of being farther back in the queue. It makes perfect sense that yesterday’s $3.5 million case might actually be more egregious a violation than today’s $4.5 million case, but only if our penalty calculations are based not on rigorous application of clearly delineated factors to carefully documented facts but on an overarching policy goal of pushing our collections higher.

 

In fact, post-CPSIA, we have pushed our collections higher, nearly tripling our total haul between Fiscal Years 2014 and 2015,[12] with FY 2016 set to push the numbers even higher. That trend and its continuation have been the stated goal of our Chairman,[13] among others.

 

When the CPSIA[14] dramatically increased our penalty cap[15] and thus the expected size of the average penalty, perhaps some felt we should gradually increase our numbers rather than move immediately to our destination range. It sounds appealing that we would try to lessen the sticker shock[16] of the new era. Regardless of its motives,[17] though, I cannot support a style of governance that bases the amount of financial retribution the United States government imposes on its citizens on the quirks of timing[18] instead of on the actual merits of each case.

 

Along with the factors we must consider, the CPSA also gives us authority to consider “other factors as appropriate.”[19] However, it is not appropriate to tell a company, “Sorry, you just missed the sale.”[20]

 

The only way to combat the perception that we are allowing arbitrary factors like timing to move our valuations is to not just apply the statutory and regulatory frameworks rigorously, but to share that rigorous application with the public. If we showed our math better, interested stakeholders might be better able to accept our sums.[21] So long as all the public sees is the bottom line, the public has no reason to believe that number is anything but arbitrary.

 

Conclusion

I continue to call on the agency to provide – and my fellow Commissioners to demand – more clarity and transparency regarding the determination and settlement of our civil penalties. If our goal is to use penalties as a stick to drive companies toward compliance, then we should clearly define how and when we will use that stick. Doing so will allow companies to better understand what behaviors they should avoid if they prefer not to be struck. Continuing to refuse to do so will only lead to more confusion and more distrust.

 


[1] Settlement Agreement, in the Matter of: Sunbeam Products, Inc. d/b/a Jarden Consumer Solutions (Settlement), 2 (May 25, 2016).

[2] Cf. Statement of Commissioner Joseph P. Mohorovic Regarding the Commission’s Provisional Civil Penalty Settlement with Teavana Corporation (May 26, 2016), available at http://go.usa.gov/cSB9W. In that instance, I did not believe the facts clearly demonstrated company had any reporting obligation at all.

[3] Pub. L. No. 92-573, 86 Stat. at 1208 (Oct. 27, 1972) (codified as amended at 15 U.S.C. § 2051-89).

[4] 15 U.S.C. § 2069(b).

[5] That amount was suspended in light of the dire financial circumstances of the domestic distributor of the products (the only company we could easily reach) and the fact that that company’s overseas parent was not obligated to spend its money to cover a greater penalty. I understand the rationale, given our mandate to consider “the appropriateness of [a] penalty in relation to the size of the business of the person charged,” 15 U.S.C. § 2069(b), but I did not and do not support such overwhelming forbearance on those facts.

[6] 15 U.S.C. § 2064(b)(3)-(4).

[7] 16 C.F.R. § 1115.4.

[8] 16 C.F.R. § 1115.14(d).

[9] Indeed, “[t]his investigation and evaluation should not exceed 10 days unless a firm can demonstrate that a longer period is reasonable.” 16 C.F.R. § 1115.14(d).

[10] 15 U.S.C. § 2069(b).

[11] 16 C.F.R. § 1115.6(a).

[12] Sean Oberle, CPSC FY2015 Civil Penalty Average Rises to $2.3 Million, Prod. Safety Letter (Aug. 24, 2015),available at http://productsafetyletter.com/Free/3153.aspx.

[13] Chairman Elliot Kaye, Keynote Address at the Annual Symposium of the International Consumer Product Health & Safety Organization (Mar. 2, 2016), available at http://go.usa.gov/cJHnj.

[14] Consumer Product Safety Improvement Act of 2008 (CPSIA), Pub. L. No. 110-314, 122 Stat. 3016.

[15] CPSIA § 217, 122 Stat. at 3058.

[16] To beat the sunshine drum once again, such a goal would be better served if we had announced that we were taking a gradual-increase approach. Then, stakeholders could express their thoughts on the matter, seek intervention from Congress or the courts if they felt it necessary, and generally understand that there is a method to what they may perceive as CPSC’s madness, even if they may feel that method unsound. As an added bonus, the knowledge that the clock was ticking on a penalty step-increase might have spurred companies to report sooner than they otherwise would have done.

[17] A more cynical observer might see the “easing-in” approach less as altruism on CPSC’s part and more as an attempt by the agency to avoid blowback from its pursuit of penalties well up the CPSIA ladder, not unlike the since-disproved proverb about boiling a frog. See Whit Gibbons, The Legend of the Boiling Frog is Just a Legend, Savannah River Ecology Laboratory (Nov. 18, 2002), available athttp://srel.uga.edu/outreach/ecoviews/ecoview021118.htm.

[18] The passage of the CPSIA necessarily created an arbitrary timing problem. However, the effective boon a company received for violating our laws only before CPSIA rather than after it was an unavoidable consequence of the statutory change. By contrast, that there is a difference between earlier- and later-CPSIA cases is entirely avoidable.

[19] 15 U.S.C. § 2069(b). One of the “other factors” we have enumerated is “whether a [company] had at the time of the violation a reasonable and effective program or system for collecting and analyzing information related to safety issues,” 16 C.F.R. § 1119.4(b)(1), otherwise known as a compliance program. It is not clear from the rule if the existence of such a program would be used as a mitigating factor or if we merely view the absence of a program as an aggravating factor. It is not clear from the Jarden settlement whether we applied this factor at all, in this case, but, by implication, we do consider Jarden’s program to be reasonable and effective, as the company is only required to “maintain” its program, not improve it in any particular way. Settlement at 5-6. The fact that Jarden’s compliance program did not, for whatever reason, result in a timely report in this case is a testament to the difficulty of the decisions CPSA compels companies to make, not necessarily a sign that the program is either unreasonable or ineffective. Our own rules recognize that perfection is impossible, as we only require companies to develop a “high degree of assurance” – not absolute certainty – that their products comply before those products can enter commerce. 16 C.F.R. § 1107.2.

[20] Indeed, this sounds like the sort of behavior our colleagues at the Federal Trade Commission might have something to say about, were we a commercial enterprise.

[21] There is unavoidable subjectivity in the application of complex penalty factors to even more complex facts, and reasonable people can come to different, reasonable conclusions. Those differences, however, should not be in orders of magnitude and should be supported by factual analysis.