CPSIA – More Details on Schylling Penalty Fiasco

The worm continues to turn on the Schylling penalty. Buried DEEP in the “easy to use” CPSC website are documents relating to the timeline of this penalty assessment.

1. First agreement was signed by the CPSC six weeks after Schylling on January 19.

2. The CPSC Commission met on February 3 to ratify the agreement. The vote is 4-1, with Anne Northup voting no. Northup apparently objected because she felt the penalty was out of line with other penalties set by the CPSC (too high).

[Ed. Note: I have been repeating myself of late when I assert that these penalties are PRECEDENT to be used against YOU. Ignore them at your peril - they are an evolving, common law measuring stick for penalties that may be assessed against you. Fact patterns are very difficult to compare but luckily big round numbers are easy to compare. Schylling may be . . . you next time.]

3. On February 5, in a remarkable and unexplained about-face, Tenenbaum, Adler and Northup voted 3-0-2 to rescind the agreement and send it back for to the staff “for further consideration of the financial condition of the company“. Nord and Moore didn’t vote.

5. On May 25th, the Commission again met to decide the fate of the beleaguered Schylling. By a vote of 5-0, the Commission approved the new, doubled penalty. Here is what the Record of Commission Action says: “The staff alleges that Schylling’s importation, sale, or offering for sale, certain consumer products, tin pail toys and spinning tops, entrusted to or for use by children, violated the Lead Paint Ban, and that Schylling committed these prohibited acts “knowingly” as that term is defined in section 20(d) of the CPSA. The settlement agreement also resolves certain possible liabilities of Sections 19(a)(1) and 19(a)(4) of the CPSA for possible CPSA violations with other products. Section 20(a)(1) of the CPSA, 15 U.S.C. § 2069(a)(1), permits the imposition of civil penalties for the violations.”

As noted in my prior post, there is a question of whether the Statute of Limitations on penalties permitted the assessment of this punishment. The focus of this document seems to be on lead-in-paint violations, which were probably beyond the reach of the CPSC’s legal authority to assess penalties. Schylling paid anyhow.

So what happened? Only Ms. Northup provided a written statement. Her statement begs many questions but does provide fodder for conjecture. Here are some salient quotes:

“As an aside, I personally believe that it is inappropriate and risky for companies to ask political figures—including those who exercise control over the agency via budget or supervisory authority—to try to persuade the Commission to reduce a civil penalty. Our civil penalties are open for public comment for two weeks after publication in the Federal Register, and elected officials can comment upon them at that time. Intervention during the Commission’s quasi-judicial civil penalty decision-making process creates the possibility of conscious or subconscious influence on the fair resolution of cases. It also creates a perception that penalties vary according to the political influence of the violator rather than the severity of offenses. . . . The penalty will deter non-compliance and create the proper incentives to import safe products in the future without crippling the company. I believe Schylling has received a proportionately lower civil penalty than a similarly situated major corporation would receive if it engaged in similar conduct.”

Hmmm. Seems to be a case of foot-in-mouth disease on someone’s part. I admire that Ms. Northup was offended by the “insider baseball” approach apparently adopted by Schylling. The notion that the CPSC and the federal government is some kind of “good ole’ boys” club is both outrageous and not even slightly surprising. Who doesn’t imagine that there are people out there who have the ability to make your problems go away with a simple phone call? It’s nice to see Ms. Northup to take a stand on this. Quite interesting that it is a Republican ex-Member of Congress who was apparently offended. Surprising only because of the press bias against Republicans these days. Good for you, Ms. Northup!

One can imagine an ill-advised or ham-handed conversation that set off this odd sequence of events. This may also be why a new law firm was appointed by Schylling.

I still get the feeling that anger determines the size of penalties by this CPSC. Think Daiso. Since Ms. Northup speaks in terms of deterrence, I presume she is addressing our company and companies similarly situated (like yours). We are supposed to be influenced by these penalties. I sure will be. I can’t try any harder or spend any more time or money on safety. [Consumers, please note our almost unblemished safety record over 26 years - no more time is NEEDED, either.] Unfortunately, we have to spend a few moments every day tending to the OTHER needs of our business, like sales, marketing, product development, order fulfillment, accounting and so on. It’s a shame we can’t spend every waking moment on safety. What a world that might be.

In any event, I will be influenced by the mega-penalties that the angry CPSC is handing out. Given my conviction that there is no more time or money available for “more” safety, how will we be influenced? Well, we might hire fewer employees, develop fewer products, invest in fewer systems to operate our business better, pay lower bonuses, take money out of the business, enter new markets not subject to the prying eyes of the CPSC, and so on. We haven’t decided how to be properly influenced by the incentives so generously provided by the CSPC . . . but it all sounds good, right?

Time will tell.

Read more here:
CPSIA – More Details on Schylling Penalty Fiasco

CPSIA – Schylling Penalty Update

You may recall that I have written about the excessive penalty inflicted on Schylling for old and cold lead-in-paint infractions in the amount of $200,000. These infractions did NOT result in injuries. [As I have noted previously, I have no firsthand knowledge of this matter, nor do I have any direct relationship to the principals involved in this penalty.]

Well well now, some of the more astute observers of the CPSC may have noticed that poor ole’ Schylling did not actually end up paying the excessive $200,000 penalty. No, that agreement was apparently REJECTED in favor of a new agreement signed on May 18. The new agreement, which is virtually identical to the original agreement executed by the CPSC on January 19 (but for a non-substantive paragraph 30 and an order attached at the end) DOUBLES the penalty inflicted on Schylling to $400,000. The agreement was published for comment in the Federal Register on June 2.

Whoa.

So what happened?

It’s not entirely clear. The original agreement was announced by press release on February 4 and notes: “The penalty settlement, which has been provisionally accepted by the Commission, resolves staff allegations that the company violated the federal lead paint ban regarding toys with surface paints containing lead above the 600 parts per million (ppm) legal limit applicable at the time, and failed to immediately report to CPSC information about the non-compliant toys.”

The press release goes on to quote Ms. Tenenbaum sternly admonishing Schylling for violations that occurred between June 2001 and May 2003: “Manufacturers, importers, distributors and retailers have a legal obligation to ensure that no banned products are introduced into or distributed in the U.S. marketplace, and to inform CPSC as soon as they become aware of information that must be reported under our laws. We will continue to penalize companies that do not follow these basic requirements.”

The normal procedure is for the settlement agreement to be published for comment in the Federal Register, but that never happened. Although the February 4th press release states unambiguously that the settlement agreement had been provisionally accepted by the Commission, something derailed the agreement and back to drawing board it went. It’s possible that the Office of Public Affairs somehow jumped the gun with the press release, too. Nevertheless, the time between signing and press release suggests it had to be something else. But what? I cannot find the Public Calendar for this time period but there were probably at least two closed Commission meetings that could have considered this case.

Somebody was NOT happy with the size of the penalty for these old violations. Schylling apparently changed law firms to deal with the revived crisis (two different firms signed the agreements) and four months later, a new agreement doubling the penalty was signed by the parties.

There is no public record of who was unhappy or why. It could have been a Commission member. It could also have been one of the self-appointed protectors of the public good, our good friends the consumer advocates. Who knows? I will be submitting a FOIA request to see what I can find out. Watch this space carefully over the next several years to see if I ever get an answer.

Everyone feeling safe and happy? How about you manufacturers? Happy about justice being served?

Here’s another serious oddity: The statute of limitations for these violations had RUN by the time the agreement was signed. The CPSC should not have been able to assess penalties in this case. Hmmm. Let’s unpack this a bit further. There are really TWO kinds of violations here – (a) lead-in-paint violations, and (b) failure to timely report the violation. On the former, the statute of limitations is apparently quite clear – it had run out. The CPSC had no legal ability to hammer Schylling for lead-in-paint violations that were so old. Bummer for the agency.

Just as the FBI uses the device of failure to report income to put away gangsters like Al Capone, the CPSC has another trick up its sleeve. The other violation, failure to timely report, is in a grey area as far as the statute of limitation goes. Does the statute start to run when the company should have reported . . . or does it run from the date the company finally files a report? This has never been tested in court. The CPSC seems to have seized on this ambiguity to assert penalties against Schylling. To judge by the outcome, the company did not relish litigation with the Federal Government. The old rule that you should never litigate with someone with a printing press holds doubly true in conflicts with the Obama Administration. They clearly know how to print money.

So the CSPC doubled an excessive penalty on a hapless toy company without the means or the will to push back, and set a terrible precedent that could be used . . . against you. The due process rights of corporations are trampled again. Who is protesting? No one.

All this brings to mind the March 3rd Commission hearing on the new civil penalty rule. Commissioner Bob Adler took a very hard position on penalties:

“I do think that the regulated community deserves to know that we are making a ‘pivot’ with respect to enforcing the law [referring to the size of penalties] [28:20] . . . . I certainly agree that we have to have gradations of civil penalties depending on the gravity of the offense. I personally wouldn’t want to tie our hands by saying that the only time we can hit you with a big civil penalty is when there was a death or a serious injury. There may be an immense potential for death and serious injury which just through fortuity did not occur. So what I would like do is to retain the discretion on the Commission to say where you have done something REALLY BAD, and it could be a variety of factors, we are going to impose civil penalties. But there may be situations where what the company did was REALLY BAD but through fortuity, nobody was injured or nobody was killed. [32:00]” [Emphasis added]

Call it the “Adler Penalty Principle”. Schylling’s case did not involve any injuries, but perhaps under unforeseeable circumstances, a child or two could have been injured by the toys. They weren’t but that doesn’t seem to matter under the Adler Penalty Principle. The company also failed to report (see my original blogpost for details). another “crime” needing retribution. One cannot help wondering if Mr. Adler decided this was one of those “REALLY BAD” cases. It’s not clear how such an assessment is to be made. Adler explicitly rejected outcome as a measure of the severity of infractions. In any event, a massive penalty like this is clearly intended to terrorize the regulated community. The niceties of whether the company’s behavior merited this treatment seems to be a secondary consideration.

The penalty policy of this CPSC Commission is completely arbitrary, excessive and intended to be highly coercive. Practitioners in the CPSC Bar have regaled me with stories of the CPSC’s use of the penalty free-for-all to coerce all sorts of unreasonable settlements.

Every outcome can be justified in a world without rules or due process protections. Maybe that’s the pivot that Adler was referring to.

Read more here:
CPSIA – Schylling Penalty Update

CPSIA – Publishers HOWL Over Inadequate Waxman Amendment

As rumors swirl over the demise of the Waxman Amendment (CPSEA) over Mr. Waxman’s stubborn refusal to fix the CPSIA, the Publishing industry is bemoaning their fate under the awful CPSIA. Stand in line, baby!

In an article in Publishers Weekly online, the publishers noted that last week’s hearing did not “address the needs of the book publishing industry, which argues that it should be exempted since virtually no ‘ordinary’ children’s books contain lead above the limits outlined in the CPSIA.” Hmmm. Apparently, the publishers don’t have much of a sense of humor about the burden of being swept up in new safety rules that will accomplish nothing:

“’We don’t see the sense of hundreds of thousands of books clogging the queues at the independent third-party testing facilities, only to be found safe, at a great burden of cost to publishers,’ said Allan Adler, v-p for legal and government affairs at the Association of American Publishers. . . . Adler noted that the current stay of enforcement expires in February 2011 and the publishing industry needs a solution before then. ‘We have our eye on the calendar.’ No matter what happens with “ordinary” children’s books, novelty and book-plus titles (such as those with plastic incorporated or toys attached) will still be subject to the CPSIA’s testing and other requirements.” [Emphasis added]

Eyes on the calendar . . . wow, the publishers really seemed pissed off. I wonder why.

Well, since you asked, here is the data for all book recalls in the last 11 years:

• Choking recalls: 8 recalls, 1 injury, no deaths
• Lead recalls: 2 recalls, no injuries, no deaths
• Lead-in-paint: 3 recalls, no injuries, no deaths
• Strangulation: 1 recall, no injuries, no deaths

Obviously a very dangerous category of products – books produced one injury in 11 years. The “injury” was that a child “began to choke”. Oh the horror of it all.

Think of the quality of our government – the book guys have been begging, literally BEGGING, for relief for almost two years now and the Dem-led Congress has utterly refused to act. The most the CPSC could do for them was to announce that books printed after 1985 were lead-free. Everybody, toss out your copy of “1984″. The government says so!

Let’s dig a bit deeper into the five recalls associated with lead. I am sure these injury-free lead recalls over the last 11 years will clarify how at risk we are:

1. Parragon, Inc.: This recall for lead featured lead solder on a jewelry charm. Oooo, that’s scary.
2. St. Martin’s Press LLC: This recall of cloth books featured a “red plastic dot” that contained high levels of lead. I assume this “dot” was made of vinyl and was not in fact coated. One might ask how this might cause lead poisoning. This recall was a head scratcher for many people after it occurred.
3. Martin Designs, Inc.: This recall involved lead paint on the spiral binding of a book.
4. eeBoo Corp.: This recall involved lead paint on the spiral binding of a book.
5. Galison/Mudpuppy: This recall involved lead paint on the spiral binding of a book.

Please note that the lead-in-paint violations were ALSO violations of prior law. Lead-in-paint has been illegal for decades on children’s products.

Can anyone identify the dreaded danger posed by books? As I said long ago in this space, I always thought it was the words that were dangerous in a book. Certainly that’s what seems to be dangerous in a blog . . . .

And perhaps someone from the CPSC (I know you are reading this, I can see you!) could leave a comment here admitting how many man-hours have been spent (wasted) on the book issue under the CPSIA. I bet it’s nothing short of 500 man-hours, and would not be surprised if it’s more than a full man-year.

And remember, when the CPSC devotes all its resources to counting angels dancing on the head of a pin, they have very little time to find dangerous products (no, I mean ACTUALLY dangerous products). Feeling safer yet? [You shouldn't.]

Too bad, book people. You are a “necessary sacrifice” to the greater cause of making children so, so, SOOOOO safe.

Read more here:
CPSIA – Publishers HOWL Over Inadequate Waxman Amendment

CPSIA – Video Clips from Q&A at CPSIA Hearing

I am working on getting you access to the entire video file of the hearing, stay tuned. To whet your appetite, however, here are three clips from the Q&A session. Dan Marshall of HTA, Rachel Weintraub of Consumer Federation of America and yours truly fielded some important questions about the excesses of the CPSIA. There are some really good nuggets in here, but my favorite is this exchange between Rep. Joe Pitts (R-PA), Dan Marshall and Rachel Weintraub:

Rep. Pitts: “Let me ask you then, do you think American toy distributors should be able to sell European toys that are compliant with the European [EN71 safety] standard?”

Dan Marshall: “Yes. I don’t think anyone here is going to argue that a toy that’s been tested to EN71 standards is not safe for the American market.”

Rep. Pitts: ” Does anyone disagree with that? Ms. Weintraub?”

Rachel Weintraub: “This is a complex issue, one of trade issues and harmonization of standards and I am not an expert on those issues. But there are reasons why the absorbability concept of lead has been rejected. And for those reasons, and I could get into them, but for those reasons, the U.S. has rejected looking at lead from that perspective.”

[Ed. Note: To quote Ralph Kramden of the "The Honeymooners": "Hamana-hamana-hamana-hamana"]

Rep. Pitts: “So you do not think the EU adequately protects their children?”

Rachel Weintraub: “Umm, no, I’m not saying that but in terms of looking at how the test is conducted, it’s very different than how the CPSC does.”

Priceless!

Enjoy the clips.

Read more here:
CPSIA – Video Clips from Q&A at CPSIA Hearing

CPSIA – Lead in the News

The New York Times published an expose on lead poisoning earlier this week. Here’s a shocker – APPARENTLY, the main cause of lead poisoning in American children is lead house paint (leaded gasoline having been long eliminated as a source of lead in our environment). Isn’t it strange that the Times never mentioned the dangers of educational products, toys, t-shirts, ATVs, bikes, pens, rhinestones (oooo, rhinestones, so dangerous!) and the like? What ‘s wrong with those people?

The article cites an example of the lead poisoning problem:

“But the invisible threat persists in the city’s so-called lead belts — areas of Brooklyn, Queens and Staten Island where the rates of children showing elevated levels are routinely the highest in the city. Last summer, E.P.A. officials took hundreds of soil samples near a long-closed lead factory on Staten Island suspected in the chronically higher rates of lead poisoning among children in the North Shore neighborhoods of Port Richmond, Stapleton and St. George. The area was once filled with heavy industry, and lead contamination can be found in parks and industrial sites. Of the children tested from those neighborhoods, about 7 out of 1,000 had elevated lead levels, health department data show, compared with a citywide average of 4.5 out of 1,000.

But when the soil sampling results came in last month, the lead contamination found in six residential blocks was traced to peeling paint, not the plant. . . . Walter Mugdan, the E.P.A.’s regional Superfund director, said that the paint had contaminated backyard soil that could also harbor traces of leaded gasoline.”

What-a-shock.

The NYT article points readers to the Lead home page on the CDC website. If you click forward to the poisoning prevention page, you get the straight scoop from the CDC: “Lead-based paint and lead contaminated dust are the main sources of exposure for lead in U.S. children. Lead-based paints were banned for use in housing in 1978. All houses built before 1978 are likely to contain some lead-based paint. However, it is the deterioration of this paint that causes a problem. Approximately 24 million housing units have deteriorated leaded paint and elevated levels of lead-contaminated house dust. More than 4 million of these dwellings are homes to one or more young children.”

[You should also check out the NYT video on the CDC's efforts to eliminate lead poisoning.]

With House hearings on the CPSIA pending this week, this reminder of the real threat to children’s health is helpful. As we have been saying for two years, the real health risks in children’s products today are lead-in-paint and leaded jewelry. [I am not even so sure about jewelry but accept the concern as legitimate.] There is no hint that the CDC is any way fixated on the same “threats” as your Congress. Interestingly, if the issues spotlighted by the CPSIA were so serious, they might show up as centerpieces in CPSC outreach programs. After all, the CPSIA did NOTHING to remove these supposedly dangerous items from American homes and schools – it merely ended new supply. As the longstanding effort to remove lead house paint makes clear, our government is capable of acting to remove dangerous products or conditions from our living spaces. Congress made no such effort here – and the CDC saw no need either.

Our businesses have been torched by a phobia. It’s shameful.

For a lighter news item about lead perils, check out this criminal case from Texas which sent the lead perpetrator to cool his heels in jail. Don’t worry, it was just something fishy.

Read more here:
CPSIA – Lead in the News

CPSIA – Illinois Finally Issues Its Lead Labeling Rules

At long last, Illinois has published its rulemaking under the Illinois Lead Poisoning Prevention Act. The relevant pages are 5568-5575. As you will see, true to their word, Illinois has clarified that the lead limitation pertaining to toys only affects paint.

It is still regrettable that Illinois felt the need to keep its standard for lead-in-paint below the federal standards, especially since there is no demonstrated difference in Illinois 40 ppm level and the federal standard of 90 ppm from a health standpoint. It is important to remember that background lead levels in the environment very often exceed the limit in the Illinois law, including famously in the Obama’s vegetable garden at the White House.

Hopefully this law will cause minimal disruption or random loss of capital for those companies that elect to stay active in children’s products in Illinois.

Read more here:
CPSIA – Illinois Finally Issues Its Lead Labeling Rules

CPSIA – The Myth of the "Common Toy Box"

If you wonder why Waxman and his staff won’t discuss a change to the age limits in the CPSIA, it’s their fear of the “common toy box”. They claim that unless a wide net is spread over children’s products, small children could be “affected” by the toys of older children in the same home.

It is absolutely outrageous that an urban myth could send thousands of businesses down the river and cost literally billions in compliance and regulatory expenses. While common toy boxes are not themselves a myth, their ability to cause bodily injury is certainly fantastic.

I know it’s downright prissy to discuss numbers in this era of junk science but, ahem, where’s the evidence that so-called “common toy boxes” cause injuries? I am not aware of a SINGLE incident where this occurred. If you restrict your inquiry to lead injuries, the phobia du jour, I am even more certain that it has NEVER HAPPENED.

And what if it did happen? I submit that we cannot and SHOULD NOT conclude that anything is “unsafe” based on a single incident. Have you never heard of “accidents”? The concept of safety administration is inherently economic in nature, so the risk and cost of controlling that risk must be considered before making any choices. The risk of injury from “common toy boxes” needs to be evaluated for the probability of occurrence, and for whether the cost to remediate is greater than the benefit to be gained.

Is that really so outlandish? Am I some sort of corporate “tool” for daring to suggest this? If so, I challenge you to counter my argument that getting out of bed in the morning involves weighing risks. If you were to equally weight all known risks, without considering the probability of incurring the costs of those risks, you would never leave your bed – too risky. In fact, you would probably sleep below your bed in the basement, which provides better protection against meteorites. We intuit this every day without difficulty and bear these low risks because we believe we can control them.

Absurd example? Is the over-weighting of a single injury or death from lead any different?

Our company has been in business for almost 26 years. I have previously acknowledged that we have had one recall, for a grand total of 130 pieces (out of perhaps 1 billion pieces sold). These items were sold to 14 customers, and we called each one and got back more than 100% of what we shipped out. The world was made safe again for mankind. That is it for us. I submit that our safety record is not an accident. If that’s true (and it is), what is America gaining by the excessive costs we will bear under this law, or worse, the dramatic liability risks we now face? All because Waxman’s staff can’t get past the “common toy box”.

The sham of the justification of the “common toy box” is further exposed by presence in a child’s life of so many other sources of the very same risk that this law seeks to eradicate.

• Will it rid the world of lead? Certainly not, it’s in our food, potable water and air. The media is awash in articles about lead in drinking fountains in schools. Lead pipes have been conveying our water for years. And good luck getting rid of brass in the home. And “deadly” rhinestones are in every girl’s closet already.
• Will it prevent lead-in-substrate from entering their world? No, products outside children’s products remain unregulated, including products intended for the home but not specifically intended for kids (e.g., pens and housewares). Even dog toys will continue to be unregulated. Do you think children handle dog toys? Come on!
• Will the law even eliminate lead-in-paint from a child’s life? No – it’s smeared all over your cars. Will your kid touch your car more often than he/she sucks on his bike’s tire valve? One word – duh.

The justification of the “common toy box” is a negotiating ploy. It’s an artifice to permit the utter change of our safety system from risk-based to a European-style set if precautionary and prescriptive rules. The idea sells and no one gives it much thought, which is all that matters. As last week’s Senate Appropriations Committee hearing demonstrated, this new era permits members of Congress to justify their existence with long rants on their basic and poorly-researched fears (such as antimony on the nose of a Zhu Zhu Pet). Anything goes when you are afraid of a toy box.

Don’t buy into the logic of the precautionary principle people. If you do, you will end in the “common rubbish bin” with the rest of the victim businesses.

Read more here:
CPSIA – The Myth of the "Common Toy Box"

CPSIA – Another Big Fine for L-I-P: What Does It Mean?

The CPSC today lashed out at RC2 Corp. for significant lead-in-paint violations on its Thomas & Friends wooden toys in 2007. The fine totalled $1.25 million. The facts of the case are relatively simple – an original recall in June 2007 of 1.5 million pieces was quickly followed by an additional September 2007 recall of 200,000 units. You can read all the details in the provisional agreement between RC2 and the CPSC. The agreement, however, doesn’t mention the really famous bit, namely that the second lead-in-paint recall included some of the “bonus gifts” that RC2 sent out to people who returned items in the first recall. Not a real confidence builder, apparently . . . .

We probably owe the CPSIA to RC2 and Mattel, who together so shocked and motivated Congress (and my hometown newspaper, the Chicago Tribune) that nothing could stop that runaway train. Since Thomas the Tank Engine was such a beloved traditional toy, the public’s sense of betrayal was understandable. Unfortunately, it is hard to believe that RC2 didn’t see this coming. The law on lead-in-paint was clear and unambiguous. The righteous outrage and the perceived need for retribution eventually led not only to the awful new law but also to this fine.

Let’s try to put it in perspective.

First, RC2 Corp. is a big company and won’t feel much pain from today’s action. It has peak sales of over $500 million and peak earnings of over $80 million. It has generated over $100 million in annual cash flow at least twice. In other words, they have pretty deep pockets. This fine is basically “walking around money” for them. They are even projecting earnings this year in excess of $25 million and cash flow of over $40 million – and 2009 was an awful year for the toy industry. As if that weren’t enough evidence of the symbolic nature of the fine, RC2 recently raised almost $60 million in a stock offering. In no sense will this fine imperil or even perturb the business over at RC2 – as an official “big business”, they seem structurally exempt from the pain we ankle-biters might feel.

That said, hasn’t RC2 paid quite a bit for its folly already? According to their 2008 year end financials, they incurred recall-related costs of $28.3 million in 2007, $14.3 million in 2008 and a further $13.9 million in 2009 year-to-date. Those are total costs of $56.5 million, excluding the new CPSC fine. Arguably, the CPSC recalls induced or precipitated these costs. These costs presumably also take into account the impact of RC2′s $30 million settlement of a class action lawsuit and related legal expenses.

[According to the provisional settlement agreement, in the wake of the publicity of the recalls, RC2 was hit with a number of allegations of injuries and claims from lead-in-paint, leading to lawsuits. I have no way of estimating the financial impact of these claims on RC2. The validity of the claims is also unknown. Welcome to America.]

These losses exceed RC2′s typical annual earnings – most people would call that a pretty high price paid, something that gets your attention.

And as the CPSC slams the barn door long after the horses got out, the company must now reiterate that it learned its lesson . . . three years ago. The press, however, will frame this case as a remedy much needed: “Toymaker’s fine in lead case tops $1 million. Oak Brook-based RC2 sold Chinese-made toys that were later recalled” [Headline from print edition].

With all this as background, I think the fine looks a bit different:

a. The fine cannot be justified as punishment, as the CPSC’s previous actions induced a very high stream of costs for the company. It cannot be justified as an inducement to behavioral reform, as better safety practices at RC2 began in 2007. What is the purpose of the fine then? I think the fine is intended for political purposes, to make the CPSC look “active” and “tough”. It hardly matters that the fine is opportunistic and coercive. [CPSC fines under the CPSIA are also arbitrary and hard if not impossible to negotiate.] Apparently, the RC2 recalls were not enough to satisfy the personified “Congress” – it wanted pecuniary revenge. This allows the Chairman and her fellow Commissioners to look “tough” to Congress and it allows the RC2 company to look “contrite”. Two needs met, neither of which should be part of our law.

b. The fine (the supposed punishment for the “crime”) is so detached from the time of the infraction that it has no actual connection as a “remedy”. The passage of time sacrificed any moral high ground for the regulators – its fine is only a gratuitous penalty now.

c. By waiting three years to impose a high profile penalty like this, the CPSC deals the company a cruel blow to its market. The fine makes it look like RC2 needed more correcting three years after the fact – isn’t that what any rational person would think? Yet RC2 already paid for its failings to the tune of more than $50 million out-of-pocket. [This does not include the significant loss of goodwill from the recalls, a tangible loss to RC2 business managers.] They also changed their safety practices, presumably quite significantly. The defective goods are long off the market. Yet, with the imposition of this high fine now, the company looks like a creep, again – even though there is no sign that it is anything but a good citizen today. As a consequence of the CPSC’s action, RC2 must again counter with more PR to attempt to preserve its good name.

Even more outrageous, to squeeze in the fine under the wording of the CPSIA, the CPSC asserts that the RC2 violation was made “knowingly”. [See par. 16 of the provisional settlement agreement.] I highly doubt that it was “knowing” in the plain meaning of the word and naturally, the company denies it, too. It’s a ridiculous contention. However, the law defines “knowingly” to include imputed knowledge; if the CPSC deems that RC2 should have never let this happen (duh), they can assert the imputed knowledge of a reasonable man to convert the infraction into a “knowing” violation. Prest-o, change-o! Incompetence or organizational failure can thus be given the appearance of ill intent. Since virtually any violation can be deemed “knowing” with the aid of 20/20 hindsight under this terrible law, the CPSC now has an unwritten strict liability penalty policy at its disposal. That’s sweet for an agency that is part legislature, part judge, part jury. As for companies cited for “knowing” violations, denials ring hollow. Frankly, it’s a set-up . . . and when this happens to you, it will feel the same way.

d. The CPSC’s apparent indifference to these factors will have a chilling effect on the children’s product market. There is no question that business people tend to look at these cases as “there, but for the grace of G-d, go I”. If RC2 can be hammered this way, what will happen to us if we make a mistake? There is just no way to tell. But, the RC2 and Mattel fines make it clear that “over” isn’t “over” with the CPSC until the statute of limitations passes. This fine came more than three years after the recalls. When are you allowed to move on from your mistakes? Seems like never. The recent fines levied against Excelligence for $25,000 are of a similar vintage, so this can happen to small companies with small infractions, too. This is randomness run amok. The fact that the agency has been unable to issue final penalty factors in more than a year does not help matters.

Finally, of course, we private business people can’t just stick our palm out to Wall Street for more money whenever we need to restock the coffers. The RC2 capital raise restores 100% of their losses from the recalls. Nice for them! Small private businesses have to go to their banks or our personal bank accounts to fund remediation of these problems. And let’s hope your bank sticks with you after bad publicity. . . .

Could the CSPC be so myopic that it doesn’t know how these risks affect the thinking and planning of small businesses? I can only conclude that the answer is yes.

Let’s hope that the RC2 fine helps the agency and its leadership build up a suitably tough image. And for their sake, one can only hope that the architects of this law and the agency’s penalty strategy are long gone, onto their next glories, before the cumulative impact of the CPSIA and its implementation are felt. And for the rest of us . . . good luck!

Read more here:
CPSIA – Another Big Fine for L-I-P: What Does It Mean?

CPSIA – Letter to CPSC Re Continuation of Testing and Certification Stay

Dear Chairman Tenenbaum, Commissioners Adler, Moore, Nord and Northup:

I am writing to strongly urge the Commission to vote to extend the CPSIA testing and certification stay (the “Stay”) originally implemented on January 30, 2009 and due to expire on February 10, 2010. The Stay should be continued for at least one year PAST issuance of final implementing rules and regulations relating to testing frequency, sampling, component testing, re-testing requirements, testing standards for phthalates and ASTM F963, enforcement policies and certification of sufficient laboratories to handle the market’s volume requirements.

The Stay has served its purpose well. When originally adopted in January, the Commission intended to create a pause to allow the issuance of implementing rules and further permit market adjustment to those new rules. The Stay was needed to avoid confusion and chaos in the marketplace. Unfortunately, the task of issuing implementing rules to fully realize the goals of the Stay has not been completed. The incomplete state of the full range of testing rules and related activities (like test lab certification) has prevented full implementation of testing and certification in the marketplace. While many companies are testing aggressively, as the much-reduced toy recall rates attest, the market is simply not ready for full implementation. No one knows what full implementation even means.

Many critical tasks remain incomplete:

• The “15 Month Rule” was not issued when due on November 14th. The stakeholder feedback from this week’s workshop on the “15 Month Rule” has not been received, much less reviewed or digested.
• Comments on the “15 Month Rule” are due on January 11. These comments have not received yet.
• The CPSC has not even solicited comments on the lifting of the Stay from stakeholders.
• Component testing rules have not been promulgated, despite calls by Commissioner Nord in her January 30th Statement on the Stay.
• The CPSC has not issued its phthalates test standard.
• The CPSC has not certified any testing laboratories for the phthalates test standard yet.
  The CPSC has not certified labs for ASTM F963 testing yet.
• The CPSC admits that it has not certified enough labs to handle a full burden of testing for many product classes or safety tests.
• The CPSC acknowledges that fixed testing costs are creating a serious burden on small businesses.
• The CPSC has not defined “children’s product”, “toy”, “play” or “childcare article” yet.
• The CPSC acknowledges that many companies have not acted to fill market gaps like component testing because the rules are not final (or even drafted in this case).
• The CPSC is on its third enforcement policy on lead and lead-in-paint.

Other serious issues relate to the practical impact of the rules on the marketplace. First, the current rules are complex and disorganized, having been released in several places and formats. Even video testimony includes unique statements of agency policy. Some “rules” contradict other rules. Many important industry questions posed to the CPSC remain unanswered months or more than a year later. The task of mastering the vast array of FAQs, letter rulings, rules, exemption requests and so on baffles even the largest companies. Notably, Mattel officials complained of this very problem in a recent meeting with Commissioner Adler and speculated on the practical impossibility of compliance by small companies. The timing of the lifting of the Stay in February will clearly affect small businesses adversely.

Second, manufacturers and their supply chains need time to adjust to new rules. Many of these new rules are not even drafted yet, much less ready to be issued in final form after public comment. This delay is not the fault of the manufacturing community . . . but the consequences could be quite significant for manufacturers if the Stay is lifted suddenly. Most legislative programs that involve a significant change in process or requirements include time for adjustment by manufacturers. It is not unusual for supply chains to receive two or even three years to shift to the new requirements. For instance, U.S. Customs started working on its new “10+2” program in June 2004, issued final rules in November 2008, has been running seminars nationwide for more than a year, and will only fully implement 14 months later in late January 2010 (compliance date). A reasonable lifting of the Stay requires at least a 12 month lead-time from implementation of the last component of the testing rules. Furthermore, to ensure successful implementation, the agency will need to make considerable investments in supply chain education and training during that 12 month lead-time. The agency must also make sure that the final rules are clear, simplified and understandable. Anything less will expose most businesses to the constant risk of conflict with 51 different regulators – regardless of their corporate efforts to comply.

Some suggestions have been made to lift the Stay in piecemeal fashion. We strongly urge the Commission to lift the Stay in the “right way” all at once after offering the regulated community a clean, complete, coherent package of rules, regulations and certifications sufficient to put manufacturers in an adequate position to successfully and efficiently comply with the new rules. Rolling out testing rules one-by-one with a similar ramp-up of compliance will only ensure that no one understands the rules for as long as possible.

The confusion engendered by a piecemeal implementation of the new testing rules will not only constitute a form of regulatory water torture, but will certainly cause regular conflicts between (a) the CPSC and its regulated community, (b) consumer groups, regulators and regulated companies, (c) State Attorneys General and regulated companies, and (d) regulated companies and their dealers/retailers. By lifting the Stay under these uncertain conditions, the Commission would be risking complete market chaos. The misery suffered by regulated companies and industries would be matched by equal misery at the CPSC. Under these circumstances, the agency would face a steady stream of crises caused by testing controversies and confusion without end. I fear that a drip-drip-drip implementation of the testing and certification requirements will render the agency crippled with overwork, inefficiencies and wear-and-tear.

These poor outcomes are avoidable by dynamic Commission action to delay the lifting of the Stay.

Manufacturers of children’s products are good law-abiding citizens who want to follow the law. Until the CPSIA rules are clearly written and implemented, following the law is an impossible task. Please take bold action to support the lawful activities of the regulated community by promptly continuing the Stay for one year past the issuance of final implementing rules and regulations relating to testing frequency, sampling, component testing, re-testing requirements, testing standards for phthalates and ASTM F963, enforcement policies and certification of sufficient laboratories to handle the market’s volume requirements.

Thank you for consideration of my views on this important topic.

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.

Chairman
Alliance for Children’s Product Safety

Read more here:
CPSIA – Letter to CPSC Re Continuation of Testing and Certification Stay

CPSIA – Reaction to my Testing Guidance Comments

On November 11, I published my thoughts on the recently-announced Testing Guidance. These guidelines will be the subject of the upcoming two-day workshop at the CPSC on Dec. 10/11.

In my blogpost, I noted that children’s products with paint require independent testing while painted non-children’s products used in the home and around children only require a GCC, no testing. That makes NO sense to me, as explained in my blogpost.

I received a series of emails from a regular reader of this space, someone with a great deal of expertise in the CPSC and its practices. Let’s just say, this person knows quite a bit more than me. Here’s what my reader said in reply to this essay:

“I think the implication that children’s products needed some special class of testing by someone other than the manufacturer was highly questionable to begin with. (Put another way, why should we distrust children’s product manufacturers? Or in the alternative, is the risk from such products really so much higher that special safeguards were necessary? In truth, most of the serious injuries and deaths that led to recalls were because of defects and not because of non-compliance with rules that you could test for.)

. . . .

Unfortunately, there seems to be a national trend–including other agencies and state and local governments–of legislating requirements based on junk science disseminated by interest groups. This leads not only to incredible costs, or loss of product for consumers, but diverts the attention and resources of the agencies from their core mission of reducing deaths, injury, and illness. That is the ultimate irony here: that in promoting safety some of these presumably well intentioned people are in fact likely decreasing the public safety.”

Score one for people that actually know what they’re talking about! Couldn’t say it better myself (although I have been trying for about a year).

Read more here:
CPSIA – Reaction to my Testing Guidance Comments

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