Loose Handles Lead to Tighter Controls
This article originally appeared in Goldberg Segalla’s Product Liability Playbook. Read the issue here.
Sometime in early 2009, the black-plastic handles on coffee carafes with Black & Decker’s SpaceMaker coffee machines started coming loose. Consumers complained, a customer was burned by a spill from one of the defective carafes, and Spectrum Brands, Inc., had a problem on its hands.
Spectrum didn’t address the problem the way it should have, the Seventh Circuit decided this year, affirming that the company violated the Consumer Products Safety Act by waiting until April 2012 to report the defect. The court’s ruling extends the statute of limitations for continuing violations, affirms broad injunctions as remedies, and fires a warning shot:
Consumer-product companies should have appropriate compliance procedures, because reporting delays won’t be tolerated and violations may lead to harsh injunctions and substantial civil penalties.
The Spectrum case started as a civil prosecution for failure to timely report a suspected substantial product safety hazard. Spectrum is a global consumer products company based in Wisconsin. It distributes many consumer products, including the Black & Decker SpaceMaker coffee machine.
As a purveyor of consumer goods, Spectrum is bound by the CPSA, which includes a duty to notify the CPSC of any suspected defect that poses a “substantial risk of injury to the public.” The duty to report is triggered whenever a manufacturer, distributor, or retailer of a consumer product “obtains information which reasonably supports the conclusion that such product contains a defect which … could create a substantial product hazard … unless such manufacturer, distributor, or retailer has actual knowledge that the Commission has been adequately informed of such defect …”
The regulations require a report to the CPSC within 24 hours of becoming aware of the potential hazard.
Spectrum began receiving complaints about the SpaceMaker in February 2009. By April the company launched an internal investigation into the validity of the complaints. But, despite receiving hundreds of complaints, Spectrum failed to notify the CPSC of the reported defects.
Over the next two years, the CPSC itself began to receive complaints regarding the coffee makers. It forwarded them to Spectrum. But not until April 2012, after the initiation of a class-action suit and more than 1,600 complaints, did Spectrum file a report with the CPSC.
Two months later, Spectrum and the CPSC jointly announced a recall of the defective Space-Maker machines. Due to gaps in its internal procedures, however, Spectrum continued to sell the defective machines until a second recall was issued in June 2013.
In June 2015, the government filed a civil complaint against Spectrum alleging failure to inform the CPSC of the defective SpaceMaker coffee machines for several years.
The government sought civil penalties and injunctive relief. The district court imposed fines totaling approximately $3 million and a substantial injunction which, among other things, required Spectrum to implement a robust compliance program within six months of the order.
The injunction was subsequently modified to include six specific measures, which included documenting calls and communications regarding accidents, implementing a formal “Request for Corrective Action” procedure whereby engineers and safety managers could request changes to products and ensuring internal compliance training on the CPSA.
The injunction was modified again at the request of the government, adding an additional requirement that Spectrum retain, at its own expense, “an independent expert, who, by reason of background, training and education is qualified to assist in reviewing and recommending changes, if necessary, to Spectrum’s comprehensive safety program ” Finally, the injunction required that “Spectrum shall have 120 days to implement the recommendations made by that expert in good faith, unless… Spectrum files a written challenge in this court on the basis that it is unreasonable …”
On appeal, Spectrum advanced two arguments: First, that the district court was not empowered to fine Spectrum based on the five year statute of limitations defense provided for in the CPSA, and second, that the broad injunction was an abuse of discretion.
Statute of Limitations
With respect to the statute of limitations defense, Spectrum argued that the statute of limitations began to run from the first incident which triggered Spectrum’s duty to report. By contrast, the government argued that Spectrum’s obligation to report was a continuing one; the implication of this is that the five-year statute of limitations would not begin to run until the report was finally filed.
The Seventh Circuit ultimately rejected Spectrum’s argument, noting that “once a company has omitted to ‘ immediately’ inform the Commission of a potentially hazardous product defect, the elements of its statutory breach are present, but the wrong manifested by its silence perdures beyond the initial failure to make a timely report.”
The court applied the continuing violation doctrine, which operates to “prevent a defendant from using its earlier illegal conduct to avoid liability for later illegal conduct of the same sort.” In effect, this doctrine allows the government to run the statute of limitations from the “last act” of the defendant, rather than the first act as advocated for by Spectrum. The court also clarified the underlying rationale of the doctrine, noting that certain elements of a crime or civil violation may be present early in the course of a defendant’s wrongdoing; in these instances, the doctrine serves to delay the accrual of a cause of action until the defendant’s last act. Thus, since Spectrum had not finally issued a CPSC report until 2012, the statute of limitations began to run from that point.
With respect to the injunctive relief, Spectrum argued that the court lacked the authority to impose forward-looking injunctive relief, and that the broad provisions of the injunction were an abuse of discretion.
The Seventh Circuit did not find Spectrum’s arguments regarding the injunction persuasive. The court first considered whether injunctive relief issued by the district court could be permanent and “forward-looking” in nature—that is, continuing even in the absence of a continuing CPSA violation. The court considered both the text of the statute and legislative intent to find that injunctive relief is, by nature, forward-looking. This was further evidenced by the statute’s authorization for a district court to “restrain any violation of section 2068 of this title.” Thus, the court reasoned, absent express congressional action to the contrary, a forward-looking injunction under the CPSA is entirely within the powers of a district court.
The Seventh Circuit also failed to find the breadth of the injunction unreasonable. The court noted that the district court “reasonably concluded that a permanent injunction requiring the company to take specified categories of proactive measures was a necessary and appropriate step aimed at reducing the likelihood that the company would, in the future, commit violations similar to those that had led the court to fine the company.” The court also rejected the notion that the injunction was vague and overbroad, instead finding that the mandated appointment of an independent expert sufficiently addressed concerns regarding compliance with the order.
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