CPSC: The Price of Hubris

Late last week, the CPSC community received one of its rarest gifts: A judicial opinion in a litigated civil penalty case. Judge William Conley of the U.S. District Court for the Western District of Wisconsin calculated the penalty Spectrum Brands owed for failing to report handles breaking off of Black & Decker SpaceMaker coffee pots and for selling 641 units after they had been recalled. The time Judge Conley took (over seven months) was surprising; the result was stunning. While the government argued that the maximum penalty of $30.30 million could be assessed for the two separate violations, Judge Conley determined that a much smaller number was appropriate: $821,675 for the failure to report and $1.115 million for the sale of recalled goods.

Pundits of CPSC enforcement policy will devour every morsel of the Spectrum case and I’ll be eager to read their work. But what I find most compelling is the extent to which this result highlights what, for the last eight years, has been the defining characteristic of CPSC’s attitude toward the companies it regulates: Hubris.

Judge Conley wrote that CPSC “failed to establish” the severity of the alleged defect, “introduced no admissible evidence regarding any injuries that a consumer actually sustained,” and “offered no evidence with respect to either [a history of non-compliance or a failure to respond to inquiries],” two factors CPSC calls out in its penalty rules. In short, CPSC phoned in its argument. The agency was so persuaded by the merits of its own position that it assumed Judge Conley would defer to its inherent – and, presumably, inerrant – wisdom.  Instead, the trier of fact put the agency through its paces and demanded proof that the other side was as guilty, as CPSC asserted it to be.

The agency’s arrogance is hardly new. In 2009, the CPSIA’s ten-fold penalty cap increase kicked in. Since then, CPSC’s political leaders have urged staff to drive penalty settlement totals ever higher, with little regard for tethering any penalty to the merits of the case. Last year, at the annual symposium of the International Consumer Product Health and Safety Organization (ICPHSO), then-Chairman Elliott Kaye called for a “double-digit millions” penalty. Mere weeks later, his attorneys delivered a $15.45 million settlement with Gree Electric Appliances, Inc. It is hard to escape the narrative of the then-Chairman driving for bigger numbers for the sake of bigger numbers.

At the same conference as Kaye’s “double-digit millions,” CPSC’s Office of General Counsel asserted that, because any product sold in any quantity could technically be subject to a maximum penalty, any demand below that already represented a magnanimous compromise on the agency’s part. Of course, if that had been Congress’ intent, there would have been no need for either statutory factors or a requirement for CPSC to interpret them, but this wasn’t enough to keep CPSC from expecting companies to be grateful any time it didn’t kick them quite as hard as it could. Bottom line is that the penalty amounts demanded by the agency have been steadily going up, with no attempt to link each higher penalty to more egregious behavior.

Chairman Buerkle and Commissioner Mohorovic consistently, but so far unsuccessfully, have been arguing for a penalty policy that is something more than “bigger is better.”  Now the court in Spectrum has agreed, going through a rigorous analysis of how the statute and the regulations should be applied to come up with a penalty amount.  Of course, this analysis is what the agency should have been doing all along but was not.  Instead, the agency seems to be convinced that its word is gospel, any penalty number it might choose to name is justifiable, and the only ones complaining are the companies who care nothing about their safety obligations.

The CPSC expects everyone else to accept this caricature without question. And for some time, that assumption has been correct. Companies have been quick to settle and slow to criticize, calculating that the fight isn’t worth winning.  However, CPSC’s blinkered compulsion to squeeze harder is encouraging more resistance. As one example, CPSC is currently litigating another failure-to-report penalty case against Michaels Stores–for not rushing to inform the agency that glass breaks.

Spectrum and Michaels may well see themselves members of a growing club of companies who are pushing back against the CPSC’s imperiousness. They are reminding us that, sometimes, the only way to deal with a bully is to punch back. If it doesn’t sincerely examine its own flawed, self-important assumptions, CPSC can expect to take more punches from companies and from courts. And, like all victims of hubris, it will have only itself to blame.

Follow Blog Via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.