Costco Agrees to $3.85 Million Civil Penalty for Failure to Report, Accepted by Unanimous CPSC Vote
On Friday, October 5, 2018, the U.S. Consumer Product Safety Commission (“CPSC”) announced that Costco Wholesale, Corp. (Costco) entered into a settlement agreement with the CPSC to pay a $3.85 million civil penalty for its alleged failure to report defective trash cans. The penalty agreement was accepted 4-0 by the Commission. Notably, this is the first multi-million dollar civil penalty in the post-CPSIA era where there was not a Democratic majority at the CPSC, indicating that penalty actions are far from moribund under the current leadership.
The Commission alleged that between December 2013 and May 2015, Costco sold approximately 367,000 EKO Sensible Eco Living Trash Cans at its stores. The trash cans had a black plastic protective collar in the opening on the back of the can that, according to the Commission, could become dislodged and expose a sharp metal edge, leading to a laceration hazard to consumers. The Commission concluded Costco, after receiving 92 complaints about the trash can in the two years it sold it, including 60 complaints from consumers who alleged injuries, had information which reasonably supported the conclusion the trash can was defective. The trash can was recalled on July 17, 2015.
In its response to the civil penalty in the Agreement, Costco stated in December 2014, that its Product Safety Committee examined an exemplar product and determined the black plastic protective collar could not be removed easily. Then, in May 2015, after receiving additional reported incidents, it learned the vendor had made a design change to prevent the black plastic protective collar around the opening from coming loose. Unbeknownst to the Company, Costco also learned the exemplar it received and tested in 2014 actually incorporated the modified protective collar. Consequently, Costco asserted it did not knowingly violate the CPSA as that term is defined in the statute. Costco’s defense is illustrative of the issues consumer product companies face with suppliers, including the testing of a “golden sample,” and making undisclosed design changes.
Along with paying the $3.85 million civil penalty, Costco has agreed to maintain a product safety compliance program with the common program elements to ensure that the Company complies with product safety standards and regulations enforced by the Commission.
Companies in the consumer products arena should remain mindful of their Section 15(b) reporting obligations under the Consumer Product Safety Act. Even without a Democratic majority at the CPSC, multi-million dollar civil penalties appear as if they will remain the new normal. The true test of this new normal, however, will be any penalties coming in the near future given that there is now a Republican majority at the CPSC.