United States: Breaking: Court Rules Positively For CPSC In Federal Civil Penalty Case Against Spectrum Brands

Last Updated: November 22 2016
Article by Matthew Cohen and Matthew R. Howsare

We do not get many court decisions in the CPSC world, but yesterday we received one.  Last evening, a Wisconsin federal district court essentially held in the Government's case against Spectrum Brands, Inc. (Spectrum) that (1) Spectrum failed to timely report defective coffee pots in violation of Section 15(b) of the Consumer Product Safety Act (CPSA) because they could create a substantial product hazard, and (2) the Government's imposition of a civil penalty pursuant to the CPSA was not in violation of Spectrum's statutory or constitutional due process rights.  In doing so, the Court rejected Spectrum's procedural and substantive arguments, including that the CPSC's claims were time barred and that the CPSA's reporting requirements are unconstitutionally vague.

The Department of Justice and CPSC alleged that a company acquired by Spectrum (Applica Consumer Products) knowingly failed to timely report under Section 15(b) of the CPSA a hazardous defect relating to certain coffee pot handles.  The Complaint alleged that the Company had received approximately 1,600 consumer complaints over a four year period (2008-2012) related to the breakage of the pots' handle resulting in coffee spillage and burns on consumers.

In response to the filing of the lawsuit, Spectrum asserted, among other arguments, that (1) the Commission's claims against it were time barred under the so-called Gabelli doctrine; (2) the CPSA's reporting requirements are unconstitutionally vague; (3) the CPSC failed to provide fair notice that a report was required in light of its finding that other Spectrum coffeemakers with similar issues did not present a substantial product hazard; (4) the CPSC's late-reporting determination was arbitrary and capricious; (5) Spectrum had no duty to report because the CPSC had already been "adequately informed" of the handle failures and (6) the CPSA did not authorize the CPSC to seek certain forms of injunctive relief including the establishment of a compliance program and prospective liquidated damages in the event of noncompliance.

The Court rejected all of these arguments and handed almost a total victory to the CPSC that may have future ramifications in the product safety community.  For example, the decision certainly lends new credence to the CPSC's common refrain to regulated entities "when in doubt, report" when deciding whether a product defect could present a substantial product hazard.  The Court even went so far as to cite this common CPSC advice in the opinion.  It's also noteworthy that the Court concluded that the CPSC does not need to articulate its reasoning for a civil penalty amount in writing and provide more transparency in the process generally­­­—a complaint often raised by industry defendants.

Highlights from The Court's Analysis

We will provide further analysis in the days to come but below are highlights from the Court's opinion addressing the myriad of arguments made by the Parties:

1. The Court found that CPSA's Reporting Requirement is Not Unduly Vague.

In response to Spectrum's argument that CPSA's reporting requirement is unconstitutionally vague, the Court concluded:

a ready response to defendant's complaint that this guidance leaves it uncertain as to the scope of its reporting obligation is obvious:  when in doubt, report...The statute, the CPSC, and the courts are not talking about existential doubt, but rather about concrete, quantifiable doubt born out of the existence of the factors identified in the statute and regulations, including the potential hazard created, the number of reported defects and injuries, and the number of potentially defective products that are in commerce.

2. The Court found Spectrum's Fair Notice Argument Unpersuasive

The Court further rejected Spectrum's argument that it did not have fair notice of its duty to report based on the Commission's inaction in prior cases involving the breakage of coffee pot handles.  The Court stated that "on its face, [the threshold for reporting a potential defect] is a lower standard than whether a substantial product hazard actually exists...this difference is confirmed in practice, as less than 20% of non-fast track Section 15(b) reports result in the CPSC finding that a substantial product hazard exists."  The Court added that "even if multiple cases involve products of a similar type or design and present similar risks of injury, a number of factors, including the nature of defect, as well as the number and severity of injuries, could reasonably lead to different results in analogous cases."

3. The Court found that Spectrum Had a Duty to Immediately Report Under Section 15(b) of the CPSA.

The Court held that, under the facts of this case no reasonable jury could find that defendant "immediately" informed the CPSC about "information which reasonably supports the conclusion" that the carafes "contained a defect which could create a substantial product hazard."   According to the Court, Spectrum had information by May 2009 that supported the conclusion that the defect on the carafe handles posed a substantial product hazard.

The Court placed great emphasis on what it called the "driving principle" of the CPSA's reporting requirement: "companies are strongly encouraged not to wait to report until a product defect causes a serious injury, but rather to report when they first appreciate that their product may contain a defect that could injure people, even when the risk of serious injury is in doubt."  Relatedly, the Court found that the CPSC was not "adequately informed" of the risk posed by the coffee pots because the CPSC did not have the same material information as the company.

4. The Court found that the Commission's Approach to the Imposition of a Civil Penalty Did Not Violate Spectrum's Due Process Rights.

Spectrum took issue with the lack of specificity with which the Commission determined the civil penalty amount, specifically the lack of any written record explaining and justifying its decision to seek civil penalties.  The Court rejected this argument stating "it will not interfere with [the Commission's] decision-making process."  According to the Court, "nothing in the CPSA or the regulations mandates how the Commission should consider the civil penalty factors, nor expressly limits the civil penalty amount ultimately sought by the DOJ..."  The Court added, "transparency with respect to the factors the CPSC uses as a framework to determine what amount of civil penalties to seek is a far cry from transparency in the form of detailed, written records chronicling the commissioners' actual decision-making in any particular referral for a civil enforcement action."

5. The Court found that the Supreme Court's Ruling in Gabelli Does Not Require the Government to File Suit Before the Alleged Violation is Complete.

Here, the Parties agreed that the default statute of limitations for civil penalty enforcement actions requires plaintiff to file suit "within five years from the date when the claim first accrued."  They disagreed, however, whether the duty to report continued until Spectrum knew that the CPSC had been adequately informed.

In Gabelli v. S.E.C., the Supreme Court found that the SEC could not apply the "discovery rule" when bringing an enforcement action later than five years after the violation occurred and the claim "first accrued."  Spectrum argued that the CPSC's time to bring a claim began to run on the date the Company obtained reportable information.

The Court concluded, however, that Spectrum's reporting obligation was ongoing and not "complete" if it failed to immediately report to the Commission; instead the Court found it "complete" once the company actually submitted a late report or had actual knowledge that the Commission had been informed.  In other words, the Court applied the "continuing violation doctrine" as opposed to the "discovery rule."  The Court found this consistent with the CPSA's purpose to encourage early reporting of defects to protect the public.

6. The Court Found that the CPSC Has the Ability to Seek the Injunctive Relief.

With respect to Spectrum's argument that the CPSC does not have the statutory authority to seek injunctive relief, the Court stated that it did "not agree with defendant that the plain language of the CPSA precludes entering an injunction limiting conduct that is not 'presently occurring,' since the [CPSA] language authorizing the court to 'restrain any violation' of the CPSA is relatively broad."

The Court also went on to state that "[u]nder the facts alleged, defendant engaged in knowing, arguably outrageous, conduct by failing to notify the CPSC about substantiated complaints that carafes were breaking due to design defects and harming individuals for over two years. Furthermore, even after issuing a recall notice for those defective carafes, Applica sold more of them, necessitating another recall. These facts are enough to plausibly plead a claim for injunctive relief."  The Court did, however, reserve judgment at this stage of the litigation on the question of whether such injunctive relief would be warranted by the underlying facts.

Conclusion

This case may have a significant impact on future CPSC enforcement policy and will be the subject of much discussion over the coming months, particularly as a new Republican Administration and Congress take control over the CPSC and its enforcement activities.  It is not often that federal courts consider and interpret provisions of product safety laws administered by the CPSC.  When they do the product safety community and all its stakeholders must pay careful attention.  Spectrum and the Government will next litigate the parameters of the civil penalty to be imposed.  We will see whether an appeal is in the works.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Matthew Cohen
Matthew R. Howsare
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions