February 16, 2017

On February 15, 2017, the Commission voted 4‐1 to provisionally accept a settlement with Keurig Green Mountain, Inc. to pay a civil penalty of $5.8 million to resolve CPSC staff allegations that Keurig knowingly failed to report a defect with its MINI Plus single‐serve brewing systems (“Brewers”) that caused hot water and coffee grounds to spray out and burn unsuspecting consumers. Staff alleged that Keurig knew of the defect but failed to timely report to CPSC. By the time of the recall, at least 100 consumers had suffered burn‐related injuries to their faces, hands, and bodies.

While we have reluctantly voted to approve the settlement – an amount that now ranks as CPSC’s second‐highest penalty ever – we have serious reservations about whether the amount will have any meaningful deterrent effect on Keurig or other multi‐billion dollar companies who are well‐positioned to dismiss this size penalty as a small cost of doing business.
 

Background

Keurig is a $4.5 billion business with over 6,000 employees.1

From December 2009 to December 2014, Keurig imported and sold 6.6 million Brewers for approximately $100 each. Beginning in February 2010 and over the next four years, Keurig received approximately 200 reports of hot water and coffee spewing out of the Brewers. For every two incidents reported, at least one resulted in injury to a consumer – an alarming incident‐to‐injury rate of roughly fifty percent. Multiple consumers sought medical treatment and some of the injuries were severe, resulting in second and third‐degree burns.

On November 25, 2014, Keurig informed the Commission about a problem with the Brewers but continued to import and sell them into December. 2  On December 23, 2014, CPSC and Keurig jointly announced a voluntary recall by the firm.

Following the recall, CPSC staff conducted an investigation to determine whether Keurig had complied with the reporting requirements in sections 15(b)(3) and (4) of the CPSA. The investigation revealed that Keurig had accumulated significant information over a four‐year period that resulted in several missed opportunities to report, including receipt of detailed incident and injury data, insurance claim payments made to injured consumers, and notice of at least two requests by a retailer for Keurig to undertake a product safety investigation.3

Unfortunately, we are not at liberty to provide any more specificity regarding Keurig’s violation of the reporting requirement because the restrictive and cumbersome information disclosure provisions in section 6(b) of the Consumer Product Safety Act4 prohibit us or anyone else at the agency from disclosing any facts beyond those set forth in the negotiated Settlement Agreement. For this reason, we cannot comment on the seriousness of the reporting delay because nowhere in the Agreement does it set forth the date by which staff alleges Keurig should have reported.5  Nor as a general matter do most Agreements disclose other pertinent facts because companies continue to strongly resist staff efforts to better inform the public by including more detail about the alleged violative conduct in the civil penalty agreements.

 

Discussion

A civil penalty in the amount of $5.8 million is not insignificant, and, as we noted at the outset, it is the second‐highest penalty ever obtained by CPSC. Our General Counsel staff is to be commended for resolving this matter expeditiously, without having to resort to costly litigation, and for settling at an amount that accurately reflects its valuation of the case at the time negotiations began. And while we voted to approve the settlement because we think it is in the best interest of the Commission, we believe the amount is not appropriate relative to the size of the business because it does little to deprive this multi‐billion dollar firm of its economic gain from noncompliance.

Keurig introduced 6.6 million defective Brewers into the market over a five‐year period. At $100 per unit, Keurig reaped hundreds of millions of dollars in sales of these dangerous products. Even assuming a modest profit margin on those sales and a decent rate of consumer participation in the recall,6 it is safe to say Keurig gained substantially from its failure to report. In fact, this civil penalty of $5.8 million amounts to an infinitesimal 0.87 cents per unit sold. One does not need to undertake a calculation of precise economic gain to conclude that this penalty is not sufficient to deter Keurig or anyone else from delaying reports of dangerous products to the agency. It certainly makes the risk of a penalty seem worth the reward of greater profits from delayed reports.

On that point, we are particularly troubled that Keurig appears to have benefited financially from the continued sale of Brewers between the time it notified the Commission of the defect in November 2014 and the date it announced the recall on December 23, 2014, especially because this time period included Black Friday and a portion of the holiday shopping season. By continuing to sell the Brewers after committing to participate in a voluntary recall, Keurig completely disregarded what we have always understood to be a cardinal rule of the Commission’s Fast‐Track recall program: all firms electing to participate in the program must immediately stop sale and distribution of the product.7 A “stop sale” has important safety implications and should be in place before Commission staff ever agrees to forego a preliminary hazard determination. Keurig’s failure to implement a stop sale while negotiating the recall demonstrates that it put profits ahead of safety and provides further justification for a significant civil penalty. In our opinion, the negotiated rate of less than 1 percent per unit is just not enough.

Conclusion

To be clear, our discomfort with the negotiated settlement does not represent disappointment with the work of our General Counsel staff. In fact, we think these dedicated lawyers have responded admirably and appropriately to Congressional direction in 2008 and our calls the past few years to increase our civil penalty amounts as warranted. That said, we would like to repeat an ongoing concern we have about how the Commission considers the size of businesses when it calculates civil penalties. We believe that the Commission has been quite attentive to the statutory provisions directing us to mitigate penalties when they might have an undue adverse economic impact on small businesses.8  But, the law does not work in only one direction.  To the contrary, the CPSA states that in seeking civil penalties, the Commission must look to “the appropriateness of such penalty in relation to the size of the business charged.”9 Unavoidably, this means that the Commission should seek to enhance penalties for large firms. We have expressed this concern before, and continue to feel strongly that, particularly when firms disregard consumer safety, penalties should be high enough to serve a measurable deterrent effect on even giant companies with billion‐dollar bottom lines. In other words, we would like to see a CPSC civil penalty do more than constitute a slap on the wrist—Congress gave us the authority and the direction to match penalties to violations, and we should do so when the facts warrant it.


1 See Keurig Green Mountain Annual Report on Form 10‐K dated November 19, 2015. At the time of the recall and for all the relevant years prior Keurig was a publicly traded company. On March 3, 2016, Keurig was acquired by an investment firm and is now a privately held company.

2 Settlement Agreement at ¶¶ 4, 12 setting forth dates of distribution and date Keurig reported to CPSC.

3 Settlement Agreement at ¶¶ 8, 9.

4 Section 6(b) generally bars the agency from releasing any information that would permit the public to identify a manufacturer unless the agency has obtained permission from the company to disclose such information or the Commission has followed a set of often lengthy procedures to clear the information disclosure. No other agency in the federal government must follow procedures like these.

5 We urge staff in future negotiated settlements to include the length of the firm’s delay in reporting.

6Although data on the effectiveness of the Keurig recall are not publicly available, the typical level of consumer participation in product recalls averages 7%.

7 https://www.cpsc.gov/Business‐‐Manufacturing/Recall‐Guidance/CPSC‐Fast‐Track‐Recall‐Program
8 See Section 20(b) of the CPSA [15 USC 2069(b)].
9 Id.