Court Rules on Spectrum Challenge to CPSC Civil Penalty Authority
The U.S. Consumer Product Safety Commission (CPSC) dispute with Spectrum Brands was resolved in court on September 29, 2017, with both sides able to claim victories of sorts. On the one hand, CPSC was able to obtain a civil penalty for Spectrum’s failure to report and sale of recalled products. On the other, that civil penalty was substantially reduced.
The case arose after Spectrum’s predecessor-in-interest failed to report coffeemaker defects in a timely fashion and sold recalled products in violation of the law. The company’s former subsidiary, Applica Consumer Products, recalled the coffeemakers jointly with the CPSC in 2012. In United States v. Spectrum Brands, Inc., federal district Judge William Conley assessed a civil penalty of $1,936,675 and imposed an injunction on Spectrum requiring it to implement a compliance program to ensure conformance to the Consumer Product Safety Act (CPSA).
The court’s decision relied on a detailed analysis of factors in terms of the timeliness of reporting, the post-recall sale of products, and the imposition of compliance programs. Based on the timing of the failure to report and post-recall sales, the court found that the maximum civil penalty possible was $30.30 million. The company argued that the failure to report had arisen before the Consumer Product Safety Improvement Act of 2008 (CPSIA) increased penalty amounts, but the court earlier concluded that the failure continued until the company reported, and thus found that CPSIA’s civil penalty maximum increase applied.
However, in assessing the penalties, the factors that the court found most persuasive were generally in the company’s favor:
The CPSC failed to provide admissible evidence on several points, such as the risk of severe injury, the nature of the defect, and defendant’s actions, sincerity and motives in addressing non-compliance. This reduced the civil penalty amount relative to the maximum.
The defendant’s failure to report on time gave rise to per-complaint penalties that the judge increased every six months that the company failed to report. This increased the civil penalty amount.
The company’s failure to stop post-recall sales – compounded by a litany of missed opportunities – were particularly egregious, in the court’s view. Thus, the judge levied penalties of $1,000 to $2,000 per unit sold.
In addition, there was lack of evidence that new compliance measures were adopted that would prevent recurrence of the reporting failures, giving the court reason to impose CPSC’s requested injunction.
Very few court decisions reach this stage, so this case will be invaluable in analyzing and preparing for any negotiations with CPSC. The decision reflects one of the very few instances where courts have assessed civil penalties under the CPSA. The assessment of civil penalties indicates that Spectrum was unsuccessful in persuading the court that the failures to report and post-recall sales were minor. At the same time, the relatively low level of penalties, compared with other CPSC penalties that have reached over $15 million, demonstrates that CPSC could not show the judge that the violations were as egregious as it claimed. It also suggests that the agency may not be successful in future if it seeks to pursue higher penalties in courts. The lower penalties here were in part based on the CPSC’s failure to provide key evidence on several points, undermining its case, and that may lead to more specific requests for information from the CPSC legal team in civil penalty cases.