June 10, 2016

Introduction

Over the past two weeks, I have voted with the majority on the Commission to approve settlements with Teavana Corporation (“Teavana”) for $3.75 million and Sunbeam Products, Inc. d/b/a Jarden Consumer Solutions (“Jarden”) for $4.5 million. These settlements resolve the U.S. Consumer Product Safety Commission’s  (“CPSC” or “Commission”) allegations that these companies failed to make timely reports as required under Section 15(b) of the Consumer Product Safety Act (“CPSA”), 15 U.S.C. § 2064(b). I believe the facts in each of these cases fully support the penalty amount agreed upon by the parties and I strongly commend the exemplary work done in these negotiations by our Office of General Counsel (“OGC”).

Teavana and Jarden chose to enter into these settlements and that choice was informed by careful consideration of all of the facts, their chances of prevailing in litigation, and the recommendations of their attorneys. If they believed CPSC’s demand was too high, or that CPSC’s allegations were not supported by the facts, they were free to refuse the settlement and face possible litigation.[1] They freely chose not to do so.

Whenever the Commission approves a settlement, the same sources make the same complaints: the settlement was too high, the CPSC is penalizing a company that made an honest mistake, and too little information was provided to the public on precisely how the CPSC calculated the amount to demand of the offending party that culminated in the agreed-upon settlement. These criticisms are unwarranted, misguided, and belied by the facts.

15(b) is essential

The CPSC has been given the statutory mission of protecting American consumers from unreasonably dangerous products from approximately 15,000 product lines in our jurisdiction with many new ones being invented every day. For this gargantuan mission, we have approximately 550 employees nationwide and are appropriated approximately $120 million a year. Our staff does an amazing job in finding dangerous products with the limited data we receive.  We simply could not do our jobs without the statutory obligation imposed in Section 15(b) of the CPSA that requires companies, since they are in the best position to learn about a potential hazard, to notify the CPSC “immediately” of potentially hazardous products so that the CPSC may perform its evaluation. To incentivize companies to meet this obligation, Congress empowered the CPSC to seek or compromise civil monetary penalties for late or no reporting.

Unfortunately, prior to the 2008 passage of the Consumer Product Safety Improvement Act (“CPSIA”), the Commission could only seek a maximum penalty of eight thousand dollars per statutory violation with a total cap of less than two million dollars. These low statutory penalties created an environment where companies could frequently make more money by delaying their reporting and thus selling more products than they risked in paying civil monetary penalties.  In passing CPSIA almost unanimously, Congress raised these statutory limits to reduce the likelihood that penalties for failing to make timely mandatory reports would be no more than a cost of doing business. 

Section 15(b) is a critical component of our consumer product safety system. It ensures that CPSC receives the earliest-possible warning that consumers may be exposed to an unreasonable risk of death or injury. It allows CPSC to conduct a timely safety investigation and work with companies to take corrective action, if warranted, as soon as possible. Late or absent reporting is not a mere technical violation; it delays remedial action and may result in needless consumer deaths and injuries. That is why CPSC takes these violations seriously and our settlement amounts reflect that seriousness.

It is well to remember that the existence of a safety hazard does not expose a reporting company to punitive action by the CPSC. Only the failure to report the hazard may result in a civil penalty.  It is not complicated and most companies comply with the reporting obligation in a timely manner.  In the very rare instances when we have sought civil penalties, there were substantial and, frequently, repeated delays in reporting which endangered consumers.  

Civil Monetary Penalties are exceedingly rare and are justified by the facts

Our enforcement tools, including our authority to seek or compromise civil monetary penalties for violations, are a critical component of our work to protect the American consumer. However, they are certainly not the main focus of our agency.

The CPSC Office of Compliance receives approximately 500-600 15(b)[2] reports annually. These are reviewed and thoroughly investigated to determine whether these products pose a safety risk, and if so, whether a corrective action plan (“CAP”) is warranted. Approximately 60 percent of the 15(b) reports result in a CAP and, if they do, our Compliance officers may examine the reporting company’s internal documents to determine whether the report to the CPSC was timely. The case is only referred by Compliance to OGC if the facts demonstrate that a report was not made, that a report may not have been timely, or that another violation of CPSA Section 19 occurred. Cases that are referred to OGC are then thoroughly investigated by an attorney to determine whether further action is warranted.

The end result of all of this careful consideration has been that, in my almost three years as a Commissioner, I have only been asked to approve eighteen civil monetary penalty settlements for late reporting or failure to report, and in each, the evidence of statutory violations has been robust and compelling.[3] This is hardly evidence of an overzealous enforcement agenda. The settlements I have voted to approve have all involved significant delays in reporting, despite mounting evidence that the company’s products contained a defect or exposed consumers to risk of injury or death. In some instances there have even been written internal discussions about delaying reporting so more product could be sold!

Teavana and Jarden, like all parties to settlements with the CPSC, negotiated exactly what could and could not be revealed to the public concerning the underlying facts that led to these settlements and I may not speak publicly about anything other than the agreed-upon terms.[4] But certainly I may say that, after careful consideration of the factual evidence by Compliance staff and OGC attorneys, the allegations against Teavana included knowingly failing to notify the CPSC that their double-walled glass tumblers were “unexpectedly exploding, shattering or breaking” resulting in at least six injuries, which included lacerations and burns. This is not glass breaking in an expected way, and the tumblers were being used as intended. Similarly, the careful consideration of the factual evidence by Compliance staff and OGC attorneys led to allegations against Jarden that it knowingly failed to report that a build-up of steam pressure in its Mr. Coffee Single Cup Brewing System could force the brewing chamber to open and expel hot water and hot coffee grounds towards consumers, resulting in at least 32 consumers being burned by the products.

Through the Looking Glass – Clarity of CPSC Settlements

Each Commissioner comes to our job with a unique background. I spent a career as a litigator for over thirty years representing both defendants and plaintiffs. During that time, I negotiated settlement agreements in hundreds of cases. As any experienced lawyer knows, the amount of a settlement in any case is the result of the unique circumstances of that particular case. In advising a client to pay a settlement as opposed to litigating a case, a lawyer encourages her client to consider the unique strengths and weaknesses of the case as it would be presented to a fact-finder including the expected testimony and credibility of witnesses, documents (some of which the other side may not be aware), damage to the company’s reputation if some facts were to become public, and a multitude of other factors. Certainly, particularly in this regulatory setting, a company settling an action is justifiably concerned about potential future liability, and, thus, wants to keep as many details as possible about the underlying allegations confidential.

 In settling a case with the CPSC, the amount of civil penalties demanded by the agency and the subsequent negotiations are guided by the exhaustive list of statutory and regulatory factors used to calculate an appropriate civil monetary penalty, compounded by the weight and strength of the evidence, and the company’s internal considerations for accepting a settlement.

No good lawyer is going to negotiate a settlement that makes public all of the candid factors that went into the client’s decision to settle rather than litigate. Therefore, no settlement agreement is going to be anything other than opaque to non-parties. And, if the CPSC pushed for a more complete description of the underlying facts supporting a penalty, I am quite certain that we would hear from the same voices pushing for “transparency,” that we were trying to “shame” companies facing CPSC actions, or needlessly exposing companies to additional civil litigation risk.

The oft-repeated complaint originating with lawyers in the regulated community that our negotiated settlement agreements do not provide enough “clarity” begs the question: what is it they need clarified and for whom?

Certainly the statutory obligation to report potentially hazardous products to the CPSC immediately is clear and that obligation is in no way further informed by the settlement amounts paid by companies that fail to fulfill that obligation. If it was not already apparent, the Teavana settlement put the regulated public on notice that glasses that, “explode, shatter, or break” unexpectedly resulting in cuts and burns, are the type of hazard or risk that needs to be reported immediately. Similarly, the Jarden settlement further clarified the duty to report to the CPSC if hot water is spewing from the sides of the brewing chamber and burning customers as opposed to pouring into the cup as intended.

And certainly there is no lack of clarity to the company from which we seek penalties for delay in reporting or failure to report. Our regulations spell out the factors that CPSC weighs when seeking a penalty for failure to report[5] and OGC staff has published a guidance document detailing the process followed for seeking a civil penalty.[6] That process begins when OGC sends an investigatory letter requesting, among other things, specific documents evidencing the information known to the firm prior to its report to the Commission. The Company response is evaluated carefully and, in many instances, our attorneys decide there were no statutory violations and drop the case. If the investigation reveals that a violation of 15(b) has occurred, OGC staff will send the company a letter that sets forth the facts we have found from our review of the company documents and other information that we believe form the statutory and factual bases for the appropriate amount of civil penalties we will seek. The company then responds with its complete defense and tells us if it does not believe a civil penalty is warranted, often articulating the factors that it believes weigh in its favor. Generally, the company representatives meet with OGC staff to discuss the case in greater detail. In those cases where we are still convinced that a civil penalty is warranted, communications between OGC staff and the company continue until we either do or do not reach an agreement. If an agreement is reached, the company paying the penalty understands completely why they are doing so.

So, we are left with the complaint from parties NOT involved in the detailed negotiations of a settlement that there is a lack of clarity and they feel that they need to know exactly what was considered by the CPSC in its evaluation of wrongdoing. It is even frequently suggested that the CPSC go so far as to publish a matrix that clearly indicates how certain factors are weighed and how penalty amounts are calculated. This is neither feasible nor desirable, and was rejected by a bipartisan majority of the Commission in 2010.

 First, our cases are fact specific and highly variable. They involve a huge range of products and potential hazards that are not easily compared. The number and severity of injuries may be vastly different, though a lack of reported injuries may not mean that the potential hazard was not serious. Further, companies have different sizes and structures, utilize different internal control and compliance programs, have different histories vis-à-vis the CPSC, and may have conducted themselves differently during the investigation. These are not factors that may be easily plugged into a formula that would spit out a civil monetary penalty number. Any attempt to use such a formula would, by necessity, devolve into a complex web of exceptions and qualifications, that would provide none of the purported benefits a useful matrix should provide.

Even if a matrix were feasible, it is difficult to think of a purpose other than to incentivize companies to put their consumers at risk while they calculate whether they could make more money by delaying their report[7] than they will likely have to pay in a civil monetary penalty. 

Final Thought

The CPSC’s focus is solely on keeping consumers safe.  We work very successfully with companies that report potentially hazardous products to us in order to determine if a CAP is appropriate and, if so, what the terms should be.  On those rare occasions when we determine that a company has failed to report a potentially hazardous product to us in a timely manner, it is our duty to do something about this illegal conduct and to do our best to keep it from happening again. Civil monetary penalties are one of the important means given to us by Congress to do that.

We explain in great detail to companies facing a civil monetary penalty demand the basis for the amount  we seek to resolve the matter, we give the company in question a full opportunity to present its case, and we negotiate in good faith an amount that is appropriate to the facts and the law. No company has to agree to the CPSC’s civil monetary penalty amount. It is their choice to compromise the case rather than risk litigating the matter before a federal District Court Judge.

Our Compliance and OCG staffs are extremely professional and fair-minded in their pursuit of wrongdoers. The fact that sophisticated companies like Teavana and Jarden, with their equally sophisticated lawyers, were able to negotiate appropriate settlement amounts for the conduct of which they were accused is a strong testament to just how well the system is working. I hope it continues.

 

[1] If a company chooses not to settle but to litigate, the CPSC must vote to refer the matter to the Department of Justice whose attorneys will make an independent evaluation of CPSC’s civil penalty demand and reach their own conclusion as to whether to pursue the case and for what amount.

[2] This number represents only self-reporting by companies, and does not include reports under our Retailer Reporting Program, reports received through saferproducts.gov, or potential violations identified at the ports by our Office of Import Surveillance.

[3] Compare this number with over one thousand Corrective Action Plans announced during the same time period.

[4] Unfortunately, none of us at the CPSC may divulge all of the facts due to unreasonable restrictions placed on us by Congress as to what facts we may state to the public, even if those facts are uncontested. In the context of these settlements, CPSC may only disclose those facts or allegations that the company consents to as part of the negotiation.

[5] See 16 C.F.R. § 1119.4.

[6] Available on the CPSC website at https://www.cpsc.gov/Global/Business-and-Manufacturing/Civil%20Penalties/OGCEnforcementGuidance.pdf?epslanguage=en

[7] In reviewing corporate documents in connection with assessing civil monetary settlements, we have seen written discussions about exactly that calculation, particularly if the product in question is expected to sell more during the holiday season.