Thanks to summer associate Marcella Michalek for her contribution to this article.
The consumer products industry can expect more aggressive enforcement from the Consumer Product Safety Commission (CPSC), including higher civil penalties, increased use of criminal penalties, and enforcement additional injunctions. As a member of The self-proclaimed “reinvention” of CPSC Next historic lows in law enforcement under the Trump administration, civil penalties returned in 2021 after a two-year hiatus. CPSC has continued to leverage civil penalties so far in 2022 – and leaders have expressed commitment to support tougher civil penalties, criminal penalties, and the potential use of additional injunctive relief in the future .
2022 Civil Penalties
Civil penalties are making a comeback. In 2021, the CPSC issued two civil penalties. First, the CPSC fined Walter Kidde Portable Equipment, Inc. $12 million for, among other things, failure to timely report at least 100 incidents of fire extinguishers not discharging, reports additional product defects showing the scope of a 2015 joint recall was too narrow, and test and incident data showing the actual extent and nature of the defect and risk. Second, the CPSC issued a civil penalty of $7.95 million against Cybex International, Inc. for failure to timely report over a hundred complaints about faulty exercise equipment.
So far in 2022, the CPSC has issued three civil penalties for companies accused of failing to report product defects in a timely manner. In January, the CPSC announced $6.5 million civil penalty settlement with Core Health & Fitness LLC regarding 55 incidents of parts falling from its exercise machines. In July, the CPSC announced a $7.5 million civil penalty settlement with Vornado Air LLC linked to incidents of its electric heaters overheating and catching fire, including a report of the death of a 90-year-old man. At the beginning of August, the CPSC announced a $13 million civil penalty settlement with TJX Companies Inc. related to allegations that TJX “knowingly sold, offered for sale, and distributed approximately 1,200 recalled products from 21 separate voluntary corrective actions during a five-year period from Mach 2014 through October 2019.” At the end of August, the CPSC also announced a $5 million civil penalty settlement with Segway Powersports Inc.. for knowingly importing ATVs without a CPSC-approved ATV action plan. However, the CPSC has suspended this penalty due to Segway’s alleged inability to pay.
The industry should expect more civil penalties of increasing magnitude. With the announcement of the $7.5 million Vornado settlement in July, three of CPSC’s five commissioners – Chairman Alexander Hoehn-Saric and Commissioners Richard Trumka, Jr. and Peter Feldman – released individual statements criticizing the regulation as inadequate. Those same three commissioners later released statements commenting on the August settlements of $13 million TJX and $5 million Segway.
The aggressive program of the “new” CPSC
CPSC’s commitment to “reinventing” is evident in the individual statements Chairman Hoehn-Saric and Commissioners Trumka and Feldman issued with the $7.5 million settlement in July and the $13 million and $5 million settlements. in August. From the “new” Commission, companies should expect the CPSC to continue to impose harsher civil penalties and apply criminal penalties and other injunctive relief.
In July, Commissioner Trumka declared his intention that the “new” Commission “wipe[e] the clean and written slate[e] the next chapter of CPSC’s work. Trumka went on to say that the August settlement with TJX “represents CPSC’s next chapter in real accountability and deterrence,” noting that “other cases may require criminal prosecution” and that “[s]Strong and frequent use of CPSC enforcement authority will ensure the safety and health of consumers. In July and August, Commissioner Trumka warned that he expected future penalties will be “higher multiples” than in the past, and that[c]companies that violate CPSC laws and blatantly ignore their obligations will face severe civil penalties.” In addition, President Hoehn-Saric “urged Congress to remove or significantly increase the the existing limits of civil sanctioning authority of the CPSC.
Commissioner Feldman clarified that he “continue to support higher penalties for the worst conduct.” Although he hasn’t clearly defined the “worst conduct” standard, Feldman’s statements indicate that he would prefer the agency to go further than it has, criticizing the company’s repeated statements. CPSC. “fail[ure] to get significant relief. In July, Feldman found Vornado’s conduct particularly egregious because of the repeat business and one declared death. In August, Feldman opposed settlement agreements with TJX and Segway, saying that “an additional injunction in the form of a third-party compliance monitor should have been required” for TJX and that Segway should have received a higher civil penalty and is the subject of a criminal investigation. Notably, Feldman questioned the Commission’s commitment to its aggressive agenda, stating that the “refusal to require a monitor or litigate rather than settle reflects our determination in these matters” and calling Segway “Chinese-owned” the “newest beneficiary of lenient payment termswith the agency.
Civil penalties apply industry-wide. In his July statement, Chairman Hoehn-Saric stressed that “the entire consumer products industry, including manufacturers, importers and retailers, has a obligation to report potential defects immediatelyto the Commission. The CPSC has already made this clear by filing a lawsuit against Amazon in 2021 regarding various products sold in the online marketplace and through its lawsuit of TJX. Although the CPSC’s past custom was to seek sanctions against manufacturers, the duty to report does not rest solely with manufacturers. Importers, distributors and retailers have a legal duty to report hazards and product safety defects that could create a substantial risk of injury or that create an unreasonable risk serious injury or death.
In addition to civil penalties, the industry should be prepared for possible criminal penalties and independent oversight in future cases. President Hoehn-Saric emphasized that the CPSC will pursue both “significant civil and potentially criminal penalties” against offenders and that “it may be appropriate to use an independent monitor in other cases.” In 2021, the CPSC issued a rare criminal sanction against Gree Electric Appliances Inc. that resulted in the first criminal prosecution in the history of the Consumer Product Safety Act (CPSA)). According to the filings, Gree “knew their dehumidifiers were faulty, did not meet applicable safety standards, and could catch fire, but . . . did not report this information to the CPSC For months.” Going forward, in the president’s words, it looks like the CPSC is really willing to use “all the tools of [its] arrangement.”
The composition and increase of the CPSC budget
When July’s $7.5 million settlement negotiations began with Vornado two years ago, the CPSC had a different makeup. Many things have changed since then. President Hoehn-Saric and Commissioner Trumka, appointed by the Democrats, were confirmed in October 2021, and Commissioner Mary Boyle was recently confirmed in June 2022. That brings the CPSC split to 3-2 in favor of the Democratic appointees. These confirmations will likely allow the CPSC to more aggressively pursue the Biden administration’s expressed desire for increased regulation and enforcement after the Trump administration’s deregulation agenda.
CPSC also has a larger 2022 budget which rose from $135 million in 2021 to $195.51 million in 2022. The 2022 amount is less than the $370 million that former acting CPSC chairman Robert Adler had requested from the president of the House Appropriations Committee, Rosa DeLauro, in a public letter in March 2021. However, the current – or “new” – CPSC nevertheless seems committed to the vast “reinvention” of the Committee that this budget proposal aimed to achieve.
More penalties to come
The commissioners’ remarks in conjunction with recent civil penalty announcements indicate that there is more to come. Aggressive civil penalties, criminal penalties and additional injunctive relief are likely, especially given the larger budget and new composition of commissioners. Today, in particular, manufacturers, importers, distributors and retailers must ensure that their internal compliance programs are comprehensive and well maintained. These programs should include processes and procedures to confirm that all products meet applicable safety standards and regular testing for continued compliance. Companies should also ensure that customer feedback is actively monitored and that any recurring complaints or issues are thoroughly investigated and, if found to pose a substantial danger, promptly reported to the CPSC.
It remains to be seen how the industry reacts to this paradigm shift. The CPSC has long touted the need for regulators and industry to work together as partners in consumer product safety. Will the new CPSC’s more aggressive stance lead to a more adversarial relationship? As penalties increase, it is almost certain that some target companies will choose to fight rather than comply, particularly if the issue of security is unclear.