CPSC Majority Holds Firm on Civil Penalties

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By Martina Barash

July 21 — The latest statement by Consumer Product Safety Commissioners on civil penalties for reporting violations shows the panel's majority isn't likely to change its approach.

Chairman Elliot F. Kaye and Commissioner Robert S. Adler defended the CPSC's handling of civil-penalty assessments in the July 20 statement and suggested some criticisms “are really just calls for lower civil penalties” and for reduced corporate responsibility.

Kaye and Adler pushed back against arguments that the agency lacks transparency about penalty factors, saying companies take advantage of a privacy rule that prevents transparency.

They also disagreed with criticism that the agency deprives companies of due process. And they disputed the idea that CPSC staff holds firms accountable for information they only acquired later.

The three other commissioners each issued statements before a June 15 priorities hearing at the CPSC.

‘Move On.'

The majority isn't interested in making changes, attorney Charles Samuels, who represents companies before the commission, told Bloomberg BNA July 21. “I think people just have to move on,” he said. Samuels is with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. in Washington.

Cheryl Falvey, who also has a regulatory practice and was formerly CPSC general counsel, urged “creative solutions.” Those could include “breathing room for the good corporate actor to come forward and make a late disclosure,” particularly as a result of a routine audit, she told Bloomberg BNA in an e-mail July 21.

“As the CPSC pushes companies to build compliance programs, is there some way to reward those companies who come forward when issues are identified as a result of a compliance audit and no injuries have occurred?” Falvey asked.

At a conference in March, Falvey asked about flexibility in the case of “an honest mistake by a good guy” (44 PSLR 292, 3/21/16).

Commissioner Marietta Robinson, who has voted with the majority on civil penalties, told Bloomberg BNA that the Consumer Product Safety Act's reporting provision, known as Section 15(b), is considered “an essential tool” by all five commissioners, given the huge number of products under the agency's jurisdiction. The self-reporting is “critically important” to the agency, she said.

In her June 10 statement, she said Congress created an incentive for companies to comply with the reporting requirements by allowing the agency to seek civil penalties.

Rachel Weintraub, legislative director and general counsel at Consumer Federation of America, who testified at the hearing, told Bloomberg BNA that perhaps companies shouldn't have more information and predictability, so as not to make a violation “part of doing business.” The idea is to prevent violations, she said. “It's all about safety, about children, about families,” she said.

Commissioner Joseph Mohorovic, who has consistently sought changes to the civil penalty process, including greater transparency, couldn't be reached for comment.

Egregious Instances or Honest Mistakes?

Robinson said criticism centered on payment amounts that companies agreed to.

“These are not penalties,” but penalty settlements, she said. “If they were penalties it would be a different ball game.”

“If you saw what I saw, you would understand why they agreed to it,” she said, referring to high settlement amounts.

Samuels disagreed with the argument that companies agreed to the settlements. “Anyone who's ever had any involvement with any government at any level with any penalty knows that in a high percentage of the cases it's better just to pay the penalty,” he said.

Samuels said he's represented reputable companies that have made honest mistakes. “Those are the ones that are the hardest cases and actually drive my interest in seeing if we can improve on the understanding of the penalty policy and, related to that, the reporting policy,” he said.

“In the vast majority of cases in which I've been involved with penalties or any question of late reporting,” the company made a judgment call, “and it turns out—20-20 hindsight—they were wrong,” he said. That situation is “unlike the insinuation of the commissioners yesterday that someone made a calculation that they could save money by not reporting.”

“I absolutely support the view generally that ‘When in doubt, report,' but in fact that's not the law,” he said. “People are entitled to comply with the law, and not go beyond the law.”

Falvey said these judgment calls are complex. “Many times defect analysis is a multi-factor equation, and the root cause of an alleged defect is unknown,” she said. “Corporate compliance managers do not want to be put in the position of crying wolf within their organization at the first sign of a potential issue nor do they want to get the axe for making the wrong decision because an emerging issue hiding behind reams of data is inadvertently missed.”

“The Commission should provide more guidance on what is a defect and what is a safety risk,” she said. “That is particularly true in a today’s world which is filled with much more powerful and complicated consumer electronic products. Education and guidance would certainly lessen the tensions that this debate between the Commissioners is highlighting.”

To contact the reporter on this story: Martina S. Barash in Washington at mbarash@bna.com

To contact the editors responsible for this story: Steven Patrick at spatrick@bna.com and Jeffrey D. Koelemay at jkoelemay@bna.com

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