United States: Rare Court Decision In CPSC-Backed Enforcement Action

Last Updated: December 19 2016
Article by Erin M. Bosman, Julie Y. Park and Janet Kim

A federal district court in Wisconsin recently ruled against a product manufacturer, finding it liable for failing to report timely in a rare U.S. Consumer Product Safety Commission (CPSC) backed lawsuit. United States v. Spectrum Brands, Inc., No. 15-CV-371-WMC, 2016 WL 6835371, at *24 (W.D. Wis. Nov. 17, 2016). While CPSC actively oversees voluntary recalls,1 it seldom brings suit in court. In Spectrum Brands, the Wisconsin district court interpreted the Consumer Product Safety Act (CPSA) to grant CPSC broad latitude in seeking and levying penalties for failure to report potential product safety hazards.

BACKGROUND

In November 2014, Spectrum merged with Applica Consumer Products, Inc. ("Applica"), leaving Spectrum to assume all of Applica's assets and liabilities. Between 2008 and 2012, Applica imported coffeemakers from China and sold them in the United States. During the same period, Applica received numerous customer complaints that the coffeemaker's carafe handle would break and spill hot coffee. In March 2012, Applica was sued over the carafe handles. Applica submitted a Section 15(b) report to CPSC in April 2012, followed by a voluntary recall of the coffeemakers in June 2012.

SUMMARY OF ISSUES

Procedural Background

The DOJ, on behalf of CPSC, sued Spectrum seeking civil penalties and permanent injunctive relief for Spectrum's alleged violation of reporting requirements under Section 15(b) of the CPSA. The court considered a number of different motions in this ruling. Early in the case, Spectrum moved to dismiss the government's request for injunctive relief for failure to state a claim and for summary judgment on statute of limitations grounds. Spectrum later moved for summary judgment on due process, Section 15(b) safe harbor, and other grounds. The government also moved for summary judgment on its claims.

Fair Notice under Due Process Clause

Spectrum moved for summary judgment on the ground that CPSC violated Spectrum's due process right to fair notice by inconsistently determining whether similar defects and injuries triggered a reporting obligation. The court rejected this argument, noting that the threshold for reporting a potential defect is a lower standard than whether a substantial product hazard actually exists. The court explained that this disparity "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 further explained the perceived inconsistency in CPSC enforcement by noting that a number of factors, including the nature of defect and the number and severity of injuries, could reasonably lead to different results in analogous cases.

Statute of Limitations

Spectrum also moved for summary judgment on the ground that the government's civil penalty claims were time-barred.2 The parties agreed a five-year statute of limitations applied to the government's claims under 28 U.S.C. § 2462 because the CPSA does not have its own statute of limitations. However, the parties disagreed as to when the claims first accrued. The court endorsed the "continuing violation doctrine," finding that a Section 15(b) action for a company's alleged failure to make a timely report accrues not when the company first fails to report, but when its reporting obligation ends. In other words, a claim accrues when a company eventually submits a late report or gains actual knowledge that the government is adequately informed. The government's claims were therefore timely in this case.

Spectrum's Duty to Report under Section 15(b)

"Adequately informed" safe harbor. The court rejected Spectrum's argument that it fell within Section 15(b)'s safe harbor provision, which does away with a company's obligation to report hazards if CPSC is already "adequately informed." It found that CPSC was not "adequately informed" of the risk posed by the coffeemakers because CPSC did not have the same material information as Spectrum. Although CPSC knew about the defect and injuries, the court concluded this was not enough to trigger the safe harbor as CPSC's knowledge must also overlap sufficiently with the defendant's knowledge. The court found that Spectrum knew of over a thousand more failures and dozens more injuries than did CPSC.

Spectrum failed its section 15(b) obligation to report. Reaching the merits of the case, the court held that no reasonable jury could find that Spectrum "immediately" informed CPSC about the potential product hazard. The court noted that Spectrum's duty was triggered at the very least by May 2009. At that time, Spectrum was aware of reports of 60 broken handles and four burns. It had also identified a similar cause of the breakages in two separately returned carafes and had implemented design changes in an attempt to remedy the handle issue.

Availability of Injunctive Relief

Along with civil penalties under the CPSA, the government sought injunctive relief and liquidated damages or the creation of an escrow account for continued violations. Spectrum moved to dismiss as a matter of law on the grounds that the allegations in the complaint and the CPSA itself did not support such injunctive relief. The court found dismissal of the request for injunctive relief premature at the pleadings (and even summary judgment) stage without further factual development. However, the court noted that Spectrum provided reason to doubt the government's ability to show that the broad scope of the injunctive relief was necessary. The court therefore postponed the consideration of any proposed permanent injunction until further factual development.

KEY TAKEAWAYS

"When in doubt, report." The court's decision echoes CPSC's more recent signals to proactively heed Section 15(b) reporting requirements. As the court notes: "[C]ompanies 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."

CPSC has plenty of time to bring suit. Companies are not necessarily in the clear after voluntary corrective action or submitting a late Section 15(b) report. Other courts are likely to follow this court's holding that the government's five-year statute of limitations does not accrue until a company submits a late report or gains actual knowledge that the government is adequately informed of the product hazard.

Potentially broad injunctive relief. The parties now await the civil penalty determination and injunctive relief phase of the case. Both of these issues will be significant as the court hints that the government may be asking for too much with its request for injunctive relief, depending on the language of the permanent injunction. Thus, this case could continue to provide insight into CPSC enforcement policy as these issues are decided.

Footnotes

1 http://www.law360.com/articles/742154/looking-back-at-another-very-active-year-for-the-cpsc (subscription required)

http://classdismissed.mofo.com/consumer-products/statute-of-limitations-taking-the-steam-out-of-cpsc-backed-enforcement-action/

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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Erin M. Bosman
Julie Y. Park
 
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