Product Recalls - What Every Company Needs to Know - Enforcement: The Commission’s Remedy when a Company Fails to Take Action

In this second edition of our continuing series, we evaluate the importance of complying with CPSC requirements.  Failure to take action upon obtaining information that your company may have manufactured, distributed or retailed a hazardous product may result in serious consequences.

Enforcement: The Commission’s Remedy when a Company Fails to Take Action

When a company receives information regarding a potentially hazardous product and fails to take appropriate remedial action, the Commission enforces its guidelines by the imposition of civil and, potentially, criminal penalties.  As of January 1, 2012, the Commission has the authority to issue civil penalties of up to $100,000 for each violation and up to $15,150,000 for any related series of violations.  A “related series of violations” occurs each time a company is put on notice of either potential non-compliance with a Commission guideline or of a hazard, and fails to report it to the Commission.  Thus, where several consumers experience the same issue and simultaneously report the problem to your company, each instance will be deemed one in a “related series,” quickly exposing your company to penalties exceeding $100,000.

For example, among others, the Commission issued the following fines in FY 2011:

1. Bad Boy Enterprises agreed to pay a $715,000 penalty for failing to immediately report defective off-road utility buggies which experienced sudden acceleration, as reported by consumers.
2. Macy’s agreed to pay a $750,000 penalty for failing to immediately report drawstrings in children’s outerwear.  In 2006, the Commission announced that any children’s upper outerwear with drawstrings at the hood or neck would be deemed defective.  Macy’s sale of such garments was deemed a violation of this rule and the penalty was imposed, regardless of any consumer complaints.
3. Black & Decker agreed to pay a $960,000 penalty for failing to immediately report defective Grasshog XP Weed Trimmer/Edgers after receiving notification from consumers that pieces of the trimmer string were coming loose during use and becoming projectiles.

Thus far, in FY 2012

1. Hewlett-Packard agreed to pay a $425,000 penalty for failing to immediately report defective lithium-ion batter packs.
2. Build-A-Bear agreed to pay a $600,000 penalty for failing to immediately report defective toy beach chairs.
3. Henry Gordy agreed to pay a $1,100,000 penalty for failing to immediately report a choking hazard presented by children’s toy dart gun sets.
4. Spin Master agreed to pay a $1.3 Million penalty for failing to immediately report toxic Aqua Dots and for selling a banned hazardous substance.

The Commission is clearly growing ever-vigilant in pursuing these matters and collecting penalties.  In determining the appropriate penalty, which falls within the Commission’s sole discretion, the following factors are evaluated: 1) the nature, circumstances, extent and gravity of the violation, including the nature of the product defect or the substance; 2) the appropriateness of the penalty in relation to the size of the business or the person charged; 3) other factors as appropriate; 4) the severity of the risk of injury; 5) the occurrence or absence of injury; and 6) the number of defective products or the amount of substance distributed. 

Beginning with the first court imposed civil penalty in 2002, the Commission has made clear that if a company does not voluntarily settle and accept the civil penalties imposed, the Department of Justice will prosecute these matters in Federal Court on behalf of the Commission.  In 2002, the Acting Chairman of the Commission was quoted as saying, “Whenever a company fails to report its knowledge of a hazardous product to CPSC, it will pay a civil penalty that hurts . . . [or] we’ll get the penalty in court.”

As you can see, none of the penalties discussed above were limited to the $100,000 “single violation” cap.  The Commission has stated its intention to “hurt” companies deemed to be non-compliant.  As a result, it is critical that companies understand when the obligation to report to the Commission arises and how to do so.

Please return to this continuing series next Friday for “Step 1: To Report, or Not to Report?”

For more information, please contact any member of Goldberg Segalla’s Product Liability Practice Group.