Posted November 23rd, 2016 in Top Stories, Legal Insights
CPSC Wins Decisively in Rare Decision Addressing Procedural Defenses to CPSA Enforcement Actions
On November 17, 2016, Judge William Conley of the United States District Court for the Western District of Wisconsin issued an opinion and order addressing rarely litigated procedural defenses to CPSA enforcement actions. The case, United States of America v. Spectrum Brands, Inc., No. 15-cv-371-wmc, involves allegations that Spectrum Brands, Inc. (“Spectrum”) violated the reporting requirements under section 15(b) of the CPSA by failing to immediately notify the CPSC of a potential defect in one of Spectrum’s coffee pot carafes that may pose a significant product hazard. The decision will be closely analyzed by product manufacturers, retailers, and legal practitioners alike, both because federal courts rarely issue opinions in CPSC enforcement actions and because Judge Conley roundly rejected Spectrum’s numerous procedural defenses.
Beginning in November 2008, Spectrum began receiving consumer reports that certain coffee pot carafes were breaking at the handle, sometimes causing cuts or severe burns. Spectrum immediately investigated the claims and, in May 2009, after identifying the causes of the carafe failures, started manufacturing redesigned carafes. Spectrum nonetheless continued to sell the older-style carafes until it exhausted its inventory.
In June 2009, the CPSC sent a letter to Spectrum notifying it that the CPSC had received a consumer complaint which may “reasonably support a conclusion that [Spectrum’s carafe] contains a defect which could create a substantial product hazard.” The CPSC sent similar notices in February, March, and September of 2010.
In March 2012, on the heels of a class action complaint alleging the carafes were defectively designed, Spectrum voluntarily recalled the carafes. Then, in April 2012, Spectrum submitted a section 15(b) report to the CPSC. By that time, Spectrum had received approximately 1,600 consumer reports of broken carafe handles, including 66 that involved burns. In June 2012, the CPSC issued a press release announcing a recall of the carafes.
Following an internal investigation in which the CPSC determined that Spectrum had violated section 15(b)’s reporting requirement by not immediately reporting the defective carafe, the CPSC referred the matter to the Department of Justice for enforcement. The United States filed suit against Spectrum on June 16, 2015. The parties subsequently filed dispositive motions, each of which were addressed in Judge Conley’s November 17, 2016, opinion and order.
Highlights from the Court’s Opinion and Order
In its motion to dismiss, and in response to the CPSC’s summary judgment motion, Spectrum raised a number of procedural defenses, including:
- the CPSA’s reporting requirements are unconstitutionally vague because they do not provide sufficient clarity as to when manufacturers must submit a section 15(b) report;
- the CPSC violated Spectrum’s due process rights because it had previously found there to be no substantial product hazard in other coffeemaker cases involving thermal burns and therefore did not provide fair notice to Spectrum of its duty to report the defective carafes;
- the CPSC’s determination that Spectrum violated section 15(b) was arbitrary and capricious because it failed to generate a written record explaining and justifying its decision to seek penalties and failed to follow “basic, well accepted risk assessment principles”; and
- the CPSC’s claim was barred by the five-year statute of limitations for civil penalty enforcement because the claim accrued in May 2009, when the CPSC alleged Spectrum should have first reported the defect.
The Court rejected each of these procedural defenses in turn.
With respect to Spectrum’s vagueness challenge, Judge Conley ruled that the CPSA and its interpretive regulations “established an enforceable standard for a ‘substantial product hazard.’” In response to Spectrum’s argument that this standard leaves manufacturers uncertain of their reporting obligation, Judge Conley offered a terse rejoinder: “when in doubt, report.” In support of his ruling, Judge Conley held that Congress chose not to articulate a more specific standard because it wanted to create a framework that “erred on the side of overreporting,” which he characterized as commonly accepted practice when the legislature intends to shift the burden to “the party with the most information.”
The Court next rejected Spectrum’s argument that it was denied fair notice of its reporting obligation due to the CPSC’s prior determinations of “no substantial product hazard” in other coffeepot cases. Judge Conley reasoned that Spectrum conflated the minimal standard triggering its obligation to report a potential product defect that could create a substantial product hazard with the higher standard that the CPSC applies in determining whether to take corrective action. In other words, the Court found that the CPSA “requires a company to report even when no substantial product hazard may actually exist,” and that it therefore was unreasonable for Spectrum to rely on the CPSC’s prior determinations when deciding whether to report the potentially defective carafe.
With regard to Spectrum’s “arbitrary and capricious argument,” Judge Conley summarily held that “neither the CPSA or the CPSC’s regulations require the commissioners to reduce their consideration of the factors for seeking a civil penalty to a formal writing, nor do those same authorities require the CPSC to apply the [basic, well accepted risk assessment principles] defendant would implement.”
Finally, and most significantly, the Court rejected Spectrum’s statute of limitations defense, holding that because Spectrum had a continuing obligation to report the defect, its section 15(b) violation was not “complete” when it failed to report the defect in May 2009. Accordingly, Judge Conley ruled that CPSC’s claim did not accrue for statute of limitations purposes until Spectrum either reported the defect or had actual knowledge that the CPSC was “adequately informed” of the defect, whichever occurred first. The Court subsequently held that the CPSC was not “adequately informed” of the defect until it possessed the same material information as Spectrum, which did not occur until after Spectrum submitted its 15(b) report in April 2012. As a result, the Court found that the five year statute of limitations did not begin to run until April 2012, and so it did not bar the CPSC’s claim.
The Court then turned its attention to the merits of the CPSC’s claim, concluding that based on the record evidence, “no reasonable juror could find that [Spectrum] immediately informed the CPSC about ‘information which reasonably supports the conclusion’ that the carafes ‘contain[ed] a defect which would create a substantial product hazard.’” It therefore granted summary judgment on liability to the CPSC due to Spectrum’s failure to timely report the defective carafes. It remains to be seen what penalties the Court will impose on Spectrum for this violation.
It is a rare occurrence for federal courts to issue written opinions in CPSC enforcement cases, and rarer still for them to interpret provisions of the CPSA or CPSC regulations. Judge Conley’s opinion and order, therefore, is a must-read for product manufacturers, retailers, and their product liability and regulatory attorneys. Time will tell if and how this decision will impact CPSC enforcement policy, but in the meantime, we will continue to monitor and report on this important case, including any resulting appeal.
For any inquiries regarding this issue, contact John Wackman, Matt Murphy, or Ben Johnson.