United States: How CPSC Late Reporting Penalty Trends Are Evolving

The U.S. Consumer Product Safety Commission is a small federal agency with a big job: protecting consumers from unreasonable risks of injury from more than 15,000 types of products. The CPSC uses safety data submitted by companies pursuant to the notification requirements in Section 15 of the Consumer Product Safety Act (CPSA) to help carry out the agency's mandate.[[N:Under CPSA Section 15, a manufacturer, importer, distributor or retailer of a product subject to the CPSC's jurisdiction, that is distributed in commerce, must notify the CPSC "immediately" upon the receipt of information that "reasonably supports the conclusion that such product —

  1. fails to comply with an applicable consumer product safety rule or with a voluntary consumer product safety standard upon which the Commission has relied under section 9 [15 U.S.C. § 2058];
  2. fails to comply with any other rule, regulation, standard or ban under [the CPSA] or any other Act enforced by the Commission;
  3. contains a defect which could create a substantial product hazard ...; or
  4. creates an unreasonable risk of serious injury or death."

The only statutory exception to the reporting requirement is if the firm "has actual knowledge that the Commission has been adequately informed" of such defect, failure to comply or risk. 15 U.S.C. § 2064(b).]] Further, following implementation of the Consumer Product Safety Improvement Act of 2008 (CPSIA), which increased dramatically the maximum penalties for noncompliance, the CPSC has been aggressively pursuing multi-million dollar penalties for alleged late reporting and other violations.

As of fiscal year 2018, the maximum civil penalty allowed by law is $110,000 for each violation and $16.025 million for any related series of violations, which includes adjustments for inflation.1 This is a marked increase from the maximum civil penalty before enactment of the CPSIA in 2008 of $8,000 per violation and $1.825 million for a related series of violations.2

As discussed below,3prelitigation settlements have increased over the past five years, as most recently evidenced by a $27.25 million civil penalty settlement with Polaris Industries Inc. for alleged reporting violations related to three recalls.4 This penalty track record, however, has not been matched in recently litigated cases.

Prelitigation Settlements

During the five-year period of fiscal years 2013 to 2017, the median civil penalty settlement for a Section 15 reporting violation was $3.05 million; the average such penalty was approximately $3.14 million; and the average annual total for such penalties was approximately $17.57 million.

The CPSC announced in March 2016 a $15.45 million civil penalty settlement agreement with Gree Electrical Appliances Inc. — the largest Section 15 penalty in the CPSC's history for a single recall, and the maximum amount then permitted under the law.5 The agreement settled allegations by the CPSC that Gree failed to timely report a substantial product hazard posed by dehumidifiers that it manufactured and distributed; used without authorization the Underwriters Laboratories Inc. (UL) registered safety certification mark; and made material misrepresentations to CPSC staff during its investigation.6 With respect to late reporting, CPSC staff alleged:

Between January 2005 and August 2013, Gree manufactured, imported and sold approximately 2.5 million dehumidifiers manufactured before December 2012 (Dehumidifiers) in the United States. ... The Dehumidifiers are defective and create an unreasonable risk of serious injury or death because they can overheat, smoke and catch fire, posing smoke and burn hazards to consumers. ... In July 2012, Gree began receiving reports of smoking, sparking and fires involving the Dehumidifiers. Gree received reports of property damage due to these fires. ... In response to reports of smoking, sparking and fires, Gree implemented design changes to remedy the defect and unreasonable risk of injury or death associated with the Dehumidifiers.7

Until recently, the next largest penalty (including in cases with allegations of material misrepresentation) had been $5.8 million.8 However, on April 2, 2018, the CPSC announced its first prelitigation penalty of 2018 — a $27.25 million civil penalty against Polaris arising out of three recalls of certain recreational off-road vehicles to address fire and burn hazards to riders.9 The three recalls at issue involved:

  • 133,000 model year 2013-2016 RZR 900 and model year 2014-2016 RZR 1000 vehicles (recalled April 19, 2016): CPSC staff alleged that when Polaris filed a full report with the CPSC concerning model year 14 to model year 16 RZRs, Polaris had received reports of 150 fires associated with these vehicles, including the death of a 15-year-old passenger, 11 reports of burn injuries and a fire that burned 10 acres of land.10 The resulting recall included model year 13 to model year 16 RZRs.
  • 42,500 model year 2014 Ranger 900 vehicles (recalled Sept. 15, 2016), and 51,000 model year 2015 Ranger 900 vehicles (recalled April 13, 2017): CPSC staff alleged that when Polaris filed a full report concerning model year 14 Rangers, Polaris had received reports of 36 fires associated with these vehicles, including 2 minor burns. Staff further alleged that Polaris implemented design changes, first on model year 15 Rangers and then on model year 16 Rangers, to address the recall issue. In addition, staff alleged that following the first Ranger recall (model year 14), Polaris received similar reports related to the model year 15 Ranger, but did not submit a full report until March 2017 — when Polaris had received 10 incident reports, including 5 reported fires — after which the second Ranger recall was announced (model year 15).11

Even viewing the Gree and Polaris penalties as anomalous, there has been an upward trend in the CPSC's Section 15 reporting penalty settlements during the period from fiscal years 2013 through 2017, as shown in the chart below. Penalty settlements in fiscal years 2013 and 2014 totaled approximately $7 million and $5 million respectively, while the lowest annual total in fiscal years 2015 through 2017 was nearly $20 million.

Similarly, the median penalties for fiscal years 2015 through 2017 reflect a marked increase over those in fiscal years 2013 to 2014. Indeed, all but one of the 18 penalty settlements announced by the CPSC in fiscal years 2015 through 2017 exceeded $1 million, and more than 80 percent exceeded $2 million. However, these settlements exceed the penalties in the recently litigated Spectrum and Michaels cases, as discussed below.

Fiscal Year Settlements in FY FY Total FY Median Settlement FY Average Settlement
2017 4 $19,900,000 $4,925,000 $4,975,000
2016 5 $31,250,000 $4,500,000 $6,250,000
2015 9 $24,400,000 $3,000,000 $2,711,111
2014 4 $5,175,000 $737,500 $1,293,750
2013 6 $7,112,500 $687,500 $1,185,417

Litigated Section 15 Penalties

Few CPSC penalty cases have been litigated over the years. In the only two late reporting cases litigated in recent years, the penalties were significantly lower than in recent prelitigation settlements.12

Spectrum Brands

In United States v. Spectrum Brands, the court granted the government's motion for summary judgment, finding that, by May 2009, the defendant had information "supporting the conclusion that a defect in the carafe handles constituted a substantial product hazard" upon the receipt of 60 reports of broken handles, including four reported burns, and having implemented design changes to remedy the issue.13

According to the court, if that information did not suffice, "no reasonable jury" would conclude that a reporting obligation had not arisen by June 30, 2010, upon the defendant's receipt of 714 reports of coffee maker carafe handle failure and 35 reported injuries, including one with medical attention.14

Despite that ruling, the penalty award fell far short of the government's demand and of recent prelitigation settlements. The government contended that the maximum penalty for the two series of violations in Spectrum Brands was a total of $30.3 million ($15.15 million each for late reporting and post-recall sales), and sought a penalty of $12 to $15 million.15Following an evidentiary hearing, the court assessed civil penalties of $821,675 for late reporting and $1,115,000 for the "inadvertent" sale of 641 recalled carafes after the recall was announced, in violation of the CPSA, for a total civil penalty of $1,936,675.16

The court stated that "the fact that there were few reports of severe injuries ... does weigh in defendant's favor with respect to determining an appropriate civil penalty" for late reporting,17 but that the defendant's failure to notify the CPSC was "increasingly ... egregious as time went on and complaints mounted."18 The court calculated the late reporting penalty on a per-complaint basis, with the penalty per complaint increasing in each six-month period, ranging from $10 to $2,400 per complaint, for a total of $821,675.19

The court noted that this penalty "is well below the ballpark of Mirama, ... the only other CPSA failure-to-report case litigated to this point ... [which] involved a much more serious defect — "exploding" juicers."20 The penalty in Mirama was "20% of the $1.5 million penalty cap that was in place at the time," and the Spectrum court imposed a penalty "approximately 5.4% of [the] $15.15m maximum," which "having considered all of the [civil penalty] factors," the court found to be "an appropriate ... civil penalty for defendant's failure to report timely."21

The Spectrum court also imposed penalties for post-recall sales, assessing $1,000 per unit sold from the first of two shipments and $2,000 per unit sold from the second shipment.22

The defendant appealed the district court's order, which included injunctive relief. The court of appeals has remanded the case to the district court to permit it to modify its injunction, including to consider whether to require Spectrum to (a) retain an independent expert to review and recommend changes, if necessary to Spectrum's CPSIA compliance program, and (b) implement such recommendations or file with the court a written challenge to such recommendations. Thus, the final chapter in the Spectrum Brands case has not yet been written.

Michaels Stores

After nearly three years of litigation, United States v. Michaels Stores was resolved in February 2018 for a civil penalty of $1.5 million.23 The government alleged in its amended complaint that Michaels sold 203,000 glass vases; received nine reports that consumers were cut when the vases broke while being handled, four of which the government alleged were "very severe" and was allegedly about 18 months late in notifying the CPSC.24

Further, the government alleged that Michaels lacked (a) internal controls to identify potential defects and escalate issues to management; (b) a central safety database to track product incidents; (c) a system for its employees to record customers' reasons for product returns; and (d) a formal compliance program for reporting potential hazards to the CPSC.25

Notably, while the government's initial complaint also included a material misrepresentation count for the alleged failure to disclose to the CPSC that Michaels was the importer of record of the vases, the government dropped that claim from its amended complaint. And, indeed, while the government had alleged that Michaels "avoided responsibility for the recall of the vases,"26 it is not clear that having Michaels identified as the importer of record instead of the procurement company that conducted the recall would have had any material impact on the notice to consumers or the refund remedy that was provided to consumers.

It is also notable that, in the amended omplaint, the government reduced by approximately two years the length of time by which Michaels was allegedly "late" in reporting to the CPSC. Specifically, the government alleged that Michaels had "actual knowledge that [the CPSC was] adequately informed" in February 2010, when Michaels submitted an initial report, rather than in February 2012, when according to the government Michaels disclosed that it was the importer of the vases and other information.27

Helping to protect consumers and guarding a company's brand reputation remain powerful incentives for companies to identify and address potential safety issues quickly and effectively. Further, particularly given the risk of substantial penalties for late reporting, it is more important than ever for companies to ensure that they understand the scope of Section 15 and have internal controls in place to capture, track and analyze complaints and other information that may trigger a duty to notify the CPSC.


1. See 81 Fed. Reg. 84,559 (Nov. 23, 2016).

2. See 69 Fed. Reg. 68,884 (Nov. 26, 2004).

3. This article has been adapted from the authors' recently published Desk Reference on Section 15 Reporting requirements, available at https://www.arnoldporter.com/~/media/files/perspectives/publications/2018/03/cpsc-deskbook_marcH3018.pdf?.

4. See Polaris Industries Inc., Provisional Acceptance of a Settlement Agreement and Order, 83 Fed. Reg. 14,447 (April 4, 2018).

5. See Press Release, CPSC, "Gree Agrees to Pay Record $15.45 Million Civil Penalty, Improve Internal Compliance for Failure to Report Defective Dehumidifiers" (Mar. 25, 2016), available at https://www.cpsc.gov/Newsroom/News-Releases/2016/Gree-Agrees-to-Pay-Record-1545-Million-Civil-Penalty-Improve-Internal-Compliance-for-Failure-to-Report-Defective-Dehumidifiers.

6. See Gree Electric Appliances Inc. of Zhuhai et al., Provisional Acceptance of a Settlement Agreement and Order, 81 Fed. Reg. 17,683 (March 30, 2016); see also Statement of Commissioner Marietta S. Robinson on the Gree Dehumidifiers Civil Penalty (Mar. 24, 2016), available at https://www.cpsc.gov/about-cpsc/commissioner/marietta-s-robinson/statements/statement-of-commissioner-marietta-s-0.

7. 81 Fed. Reg. at 17,684.

8. See Keurig Green Mountain Inc., 82 Fed. Reg. 11,348

9. See Press Release, CPSC, "Polaris Agrees to Pay $27.25 Million Civil Penalty for Failure to Report Defective Recreational Off-Road Vehicles" (April 2, 2018), available at https://www.cpsc.gov/Newsroom/News-Releases/2018/Polaris-Agrees-to-Pay-27-25-Million-Civil-Penalty-for-Failure-to-Report-Defective; see also 83 Fed. Reg. 14,447.

10. See 83 Fed. Reg. 14,448.

11. Id.

12. A third case, United States v. Dr. Reddy's Laboratories, was settled by DOJ on Jan. 18, 2018, for $5 million. In addition to alleged violations of child-resistant packaging requirements under the Poison Prevention Packaging Act (which is enforced by the commission), the government's complaint includes counts alleging that Dr. Reddy's failed to notify the CPSC in accordance with Section 15(b) and failed to certify that its products were in conformance with the PPPA. Consent Decree and Permanent Injunction, U.S. v. Dr. Reddy's Laboratories Inc., No. 3:17-cv-13219 (D.N.J. Jan. 18, 2018).

13. U.S. v. Spectrum Brands Inc., 218 F. Supp. 3d 794, 821 (W.D. Wis. 2016).

14. Id. at 822.

15. Memorandum of Law in Support of Proposed Order of Civil Penalties and Permanent Injunction, U.S. v. Spectrum Brands Inc., No. 15-cv-00371 (W.D. Wisc. Jan. 17, 2017).

16. Spectrum Brands, 2017 WL 4339677, at *6-7.

17. Id. at *4.

18. Id. at *6 & n.14.

19. See id. at *6. The court used a "starting point of $10 per complaint received on or before June 30, 2009, representing the rough profit on the sale of those defective products; then $75, representing the product's purchase price; and doubling the penalty for each 6-month period thereafter" until Spectrum notified CPSC. Id.

20. Id.

21. Id.

22. See id. at *7.

23. Consent Decree and Permanent Injunction, U.S. v. Michaels Stores Inc., No. 3:15-cv-1203 (N.D. Tex. Feb. 9, 2018).

24. Amended Complaint for Civil Penalties and Permanent Injunctive Relief ¶¶ 13, 16, 19, 20 and 25, U.S. v. Michaels Stores Inc., No. 3:15-cv-1203 (N.D. Tex. Apr. 3, 2017).

25. Id. ¶ 26.

26. Complaint for Civil Penalties and Permanent Injunctive Relief, ¶¶ 1, 31-35, Michaels Stores Inc., No. 3:15-cv-1203 (N.D. Tex. Apr. 21, 2015).

27. See Michaels Stores, Amended Complaint ¶ 23 & Complaint ¶ 29.

Originally published by Law360.

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