Retailer Exposure to Fines Under CPSA
The U.S. Justice Department and the Consumer Product Safety Commission (CPSC) announced on April 25, 2003, that Wal-Mart Stores agreed to pay a civil penalty of $750,000 to settle a lawsuit for failure to report "immediately" a defect in exercise equipment. This is the first time a retailer has been sued and paid a penalty for failing to report a safety problem where the retailer was not also an importer or private labeler. Under the settlement, Wal-Mart also agreed to establish internal record keeping and monitoring systems to keep track of information about product safety hazards.
Retailers of "consumer products" need to be aware of this decision.
Section 15 of the Consumer Product Safety Act (15 U.S.C. §2064) requires manufactures, distributors, importers and retailers to report "immediately" to the CPSC any "product defects" (including a failure to comply with a CPSC "Rule") if the defect "creates a substantial risk of injury to the public." The Act also requires manufacturers to report about certain settled or adjudicated lawsuits.
The duty to report arises when a company knows or should know of a defect. The CPSC deems a company to have reportable information when the information has been received by an employee who "may reasonably be expected to be capable of appreciating the significance of the information." 16 CFR §1115.14(b). Generally, five days is the maximum time for information received by such an employee to be deemed to have reached the CEO of a regulated company. A company then has up to ten days to investigate such information.
A failure to inform the CPSC "immediately and adequately" is a prohibited act for which the CPSC can fine companies well in excess of $1 million. In investigating whether a company has failed to report the CPSC user, information from a wide variety of sources including electronic data from hospital emergency rooms and other health care sources and allegations by plaintiffs’ lawyers, consumers and competitors.
After an initial investigation by the CPSC, the case against Wal-Mart was referred to the Civil Division of the Justice Department and litigation was commenced in the federal district court in Maryland. Friday’s announcement settles that litigation.
The information contained in this Manufacturer/Retailer Product Safety Legal Alert is not intended as legal advice or as an opinion on specific facts. You can contact us through our Web site at www.KilpatrickStockton.com.