iAiring dirty laundry. The Consumer Product Safety Commission has made public its internal dispute over civil penalties. On July 20, 2016, Consumer Product Safety Commission Chairman Elliot Kaye and Commissioner Robert Adler issued a joint statement addressing the diverging views among the CPSC commissioners over the agency’s recent settlements. The joint statement responded to other commissioners who had criticized CPSC’s higher civil penalty settlements.
Effective on August 14, 2009, the Consumer Product Safety Improvement Act (15 U.S.C. § 2069) increased the maximum amount of civil penalties CPSC could seek for a violation of the Consumer Product Safety Act (15 U.S.C. §§ 2064-2068) from $1.825 million to $15 million. The CPSC has taken advantage of its new authority: in the last two years, CPSC civil penalties have increased as much as seven times.
Most recently, in May and June 2016, the CPSC approved two significant civil penalty settlements, each for over $3 million.
The CPSC commissioners did not unanimously approve these settlements. Dissenting Commissioner Joseph Mohorovic argued that no civil penalty should have been imposed in one case and that the other penalty was too high. Specifically, he criticized the agency’s lack of a formula to compare prior settlement amounts.
On the other side, Commissioner Marietta Robinson issued a statement supporting the settlements. She stated that she “believe[s] the facts in each of these cases fully support the penalty amount agreed upon by the parties.” She argued as well that it would be nearly impossible to create a formula or matrix to compare CPSC cases because they are highly fact-specific and widely vary. Commissioner Robinson also argued that a formula would create bad incentives, encouraging companies to do a risk-reward analysis of whether they could profit by delaying a report.
Then Chairman Kaye and Commissioner Adler entered the debate. Their strongly worded joint statement defended the agency’s approach to imposing civil penalties. They first noted that while CPSC civil penalty amounts have increased, the number of penalties imposed are “few and far between”—roughly 2% of 15(b) failure-to-timely-notify-of-safety-hazard cases over the last 10 years have involved civil penalties.
The Chairman and Commissioner also addressed each of the complaints lodged against the agency by dissenting commissioners and manufacturers. The joint statement argued that calls for greater transparency “ring hollow” because these critics include manufacturers who invoke confidentiality of the settlement agreements under the CPSA. The Chairman also noted that the CPSC considered and rejected adopting a formula approach to help make civil penalty amounts more transparent and predictable in 2006, 2009 and 2010, and that the same manufacturers who then disapproved a formulaic approach now call for use of a formula as a way to suppress higher civil penalties.
The joint statement concludes with an olive branch, saying that the agency hopes to continue the dialogue on civil penalties, “as long as it is an honest one.”
While it remains to be seen if the joint statement will help bridge the divide between the CPSC commissioners, one thing is clear: manufacturers should expect higher civil penalty amounts to continue. While the CPSC “stand[s] willing to consider thoughtful proposals from our stakeholders,” the agency is “unwilling to agree to any methodology that will simply depress civil penalty settlement amounts.”
In the meantime, Chairman Kaye’s term expires in 2020, and the nomination of the next CPSC chairman will be in the hands of a new president.
