DOJ Files Lawsuit Seeking Civil Penalties Against Stanley Black & Decker for Alleged Untimely Risk Reporting

The CPSA requires, among other things, that manufacturers and importers of consumer products timely report product defects and substantial product hazards (as defined) to the US Consumer Product Safety Commission (CPSC). Failure to do so is a prohibited act risking millions of dollars in civil penalties, among other consequences.

Here, the DOJ contends that Black & Decker, rather than making these reports “immediately,” as required by the CPSA, waited years to do so, thereby delaying CPSC’s ability to announce product recalls. Specifically, the DOJ complains that Black & Decker failed to timely report risks presented by certain utility bars and miter saws.

Naturally, Black & Decker has a very different view. The company stated that it properly reported hazards when there were actual patterns to be seen, and that it cooperated with CPSC to announce recalls once these patterns were discerned and reported.

Nonetheless, based on what is alleged so far, there are several takeaways for consumer products companies concerned about civil penalty exposure.

For one, the filing of a civil penalty lawsuit is unusual. Although the DOJ has the right to do so in all cases, typically these disputes are resolved through settlement with the affected company agreeing to a fine CPSC deems suitable in exchange for a public settlement agreement recognizing the company’s position that it did nothing wrong. The fact that no such agreement was reached here could be for several reasons:

• Black & Decker’s Denial of Wrongdoing: Although the desire to “just move on” can be compelling for many companies, there is nothing wrong with a company sticking to its guns. CPSC must prove that the CPSA was violated, and Black & Decker may be betting that the assigned judge or jury will disagree with CPSC.

• CPSC’s Penalty Demands: CPSC’s civil penalty demands tend to be robust, frequently extending into the eight figures, particularly when multiple products are involved. We have previously modeled the amounts paid in settlement agreements in an effort to determinate statistically what conduct merits particular penalties. Once a lawsuit is filed, however, the court, not CPSC, determines the appropriate penalty, and CPSC’s previous settlement agreements with other manufacturers are entitled to no deference. In the Spectrum Brands litigation, for example, the court assessed a $1.9 million penalty, which was far less than the $30+ million permitted by law.

• Black & Decker’s History: CPSC contends that Black & Decker has a history of tardy reporting, culminating in a previous settlement agreement, which presumably drove CPSC’s demand for a permanent injunction against (further) non-compliance. Black & Decker, presumably, would respond that there is no need for an injunction, given that the alleged violations apparently occurred several years ago, and of course, Black & Decker denies that it did anything wrong in the first place.

Beyond the particulars of this individual case, consumer products suppliers should keep several points in mind:

• Although not every incident merits a CPSC report, patterns can emerge rapidly. When evaluating the reasonableness of a company’s conduct after the fact, CPSC has the benefit of hindsight, which companies do not enjoy on the front end.

• Non-injury incidents have a sneaky way of accumulating before injuries, so it is important to consider potential consequences as well as actual ones. Previous non-injury incidents look much worse if injuries accompany later incidents.

• Too often, delays in reporting result from a company’s determination to “get to the bottom of” what is going on. Everyone prefers more understanding over less, and “root cause” is an important aspect of European safety reporting. But in the United States, this mindset can be a trap. The CPSA empowers CPSC to determine if a hazard exists, not the company. Denying CPSC the information it needs to evaluate a situation compounds risk, particularly since a company is free to deny that a hazard exists when filing, and to continue investigating the situation itself.

• In the past, CPSC has encouraged the industry to report even borderline hazard situations, vowing that they will not insist on recalls simply because a report was filed. Experienced practitioners know that CPSC has kept its word: Staff do close investigations they conclude do not present serious hazards, while expressing their appreciation to companies that report them anyway.

In sum, there is a time and place for litigation, even against the US government, and particularly when a company is confident it has done nothing wrong. However, proactive assessment of risk can help avoid these situations. Experienced regulatory and product liability counsel can help companies both avoid litigation when it is unnecessary, and work toward a better result when it cannot be avoided.