United States: Ready, Set, Report! Seventh Circuit Considers When A Claim First Accrues For Failing To Report A Product Hazard

Last Updated: April 26 2019
Article by Erin M. Bosman, Julie Y. Park and Erin P. Lupfer

Consumer products companies are familiar with the reporting requirement under Section 15(b) of the Consumer Product Safety Act (the Act), but when does that obligation kick in for statute of limitations purposes?  The Seventh Circuit considered this question when it heard arguments on when a claim first accrues for reporting violations under the Act in USA v. Spectrum Brands, Inc., 18-1785 (7th Cir.).  Spectrum raised the issue in an effort to undo part of the $1.9 million in civil penalties it faces for not "immediately" reporting a product hazard under Section 15(b) of the Act.  The Seventh Circuit's comments suggest that the penalty will hold, even though Spectrum's duty to report a product hazard arose six years before the Consumer Product Safety Commission (the Commission) initiated enforcement.  Consumer products companies should be aware that the statute of limitations likely does not begin to run until a company satisfies its reporting obligation by submitting a report to the Consumer Product Safety Commission.

Case Background

This case arose out of a line of coffeemakers that defendant Spectrum acquired when it merged with Applica Consumer Products, Inc. in 2014.  Applica began selling a line of coffeemakers in 2008.  By May 2009, Applica had received 60 reports of broken handles and four reports of burns.  According to the Commission, these reports triggered Applica's obligation to "immediately" report a product hazard to the Commission within 24 hours.  16 C.F.R. § 1115.14(e).  In April 2012, Applica submitted a Section 15(b) report to the Commission.  A voluntary recall followed.  Applica inadvertently sold an additional 641 units after recalling the coffeemakers.  In light of the merger, Spectrum was the responsible party when the Commission and Department of Justice teamed up and filed an enforcement action in 2015.

As we previously reported, a federal district court in Wisconsin ruled against Spectrum on the government's failure-to-report claim, ordering civil penalties of $1.9 million and an injunction for violations of the Act.1  The court assessed $1,115,000 for selling recalled products and $821,675 for violating the reporting requirement.  The court also ordered Spectrum to maintain "sufficient systems, programs, and internal controls to ensure compliance" with the Act.2  The court later modified the injunction to require that an independent consultant review Spectrum's compliance procedures and propose improvements.

On Appeal—When the Statute of Limitations First Accrues for Reporting Violations

Spectrum paid the fine for selling recalled products but challenged the penalty for selling recalled products.3  Spectrum argued the government's actions were too little, too late because the statute of limitations on the reporting violation ran before the government filed suit in 2015.

Claims under the Act are subject to a general statute of limitations regulating government enforcement actions.  Specifically, 28 U.S.C. § 2462 provides that "an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued."  Thus, the government must bring an action for civil penalties within five years of when the claim "first accrued."

Therein lies the issue—when does a claim for a reporting violation first accrue?  The government and the district court characterized the failure to report as a "continuing violation" that accrues anew each day the violation occurs, and the five-year statute of limitations commences only when the company actually reports to the Commission.  Under this interpretation, the clock did not start to tick until April 2012.  Therefore, the government argued it beat the clock by nearly two years when it filed suit in June 2015.

Spectrum disagreed.  It argued instead that the claim first accrued as soon as the government could go after Applica for a reporting violation.  As a result, when the court concluded that Applica possessed information triggering its reporting obligation in May 2009, it also fired the starting gun on the statute of limitations.  As the timeline below demonstrates, these two accrual dates make all the difference for Spectrum.

The Seventh Circuit seemed unconvinced by Spectrum's argument.4  The panel consisted of Chief Judge Diane P. Wood and Judges Daniel A. Manion and Ilana Diamond Rovner.  Chief Judge Wood and Judge Rovner focused on the argument that a violation of Section 15(b) is not complete until a company reports the product hazard to the Commission or has "actual knowledge" of the risk.  Thus, Spectrum's delay in reporting was an "ongoing event" until it notified the Commission in April 2012.  In response to Spectrum's argument that the May 2009 reporting date triggered the statute of limitations, Chief Judge Wood explained that May 2009 served as the "trigger for the duty, but the duty itself is a reporting duty" that continues until a report is filed.  Otherwise, companies could "brazen it out" and avoid the reporting scheme and any negative consequences.

As a practical matter, the filing date of a Section 15(b) report is unambiguous.  In contrast, the date a reporting obligation is first triggered is not so well defined.  No magic number of consumer complaints flips the switch on a company's duty to report.  As Judge Rovner noted, adopting Spectrum's view would lead to "pitched battles over how soon a company was first obliged to make a report."  She expressed concern that companies receiving consumer complaints may remain quiet in the hope of running out the clock on the statute of limitations before the government became aware of the hazard.  According to Judge Rovner, such a system would be "directly at odds" with the Act's goal of consumer safety and "cannot possibly be what Congress intended."

The panel took the case under advisement but, based on their statements at oral argument, we expect the district court's order to be affirmed.

Key Takeaways

Consumer products companies will want to keep the Seventh Circuit's comments in mind when assessing whether a product hazard exists and considering what steps to take in response.  Before merging with another company or acquiring a product line, consumer products companies should evaluate the target company's complaint and reporting history to assess the company's compliance with reporting requirements.

Footnotes

1 United States v. Spectrum Brands, Inc., No. 15-CV-371-WMC, 2017 WL 4339677 (W.D. Wis. Sept. 29, 2017).

2 Id. at *9.

3 On appeal, Spectrum also seeks to undo the permanent injunction imposed by the district court.

4 Listen to oral argument in USA v. Spectrum Brands, Inc., 18-1785 (7th Cir.), here.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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