CPSIA – "Must Read" in PSL

In the March 9th edition of the Product Safety Letter, Eric Stone published an analysis entitled “Is There a Need to “Recall to Repair” the Relationship Between the CPSC Compliance Staff and Business Community?“

My response: Amen, brother!

For those of you who don’t know Eric, he is the former Director of the Legal Division of the CPSC and also former Acting Director of the Recalls and Compliance Division of the Office of Compliance at the CPSC. He is currently a partner at K&L Gates LLP. To say the least, he is an authoritative figure in all matters CPSC.

Please read Eric’s Op-Ed.

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CPSIA – "Must Read" in PSL

CPSIA – "Must Read" in PSL

In the March 9th edition of the Product Safety Letter, Eric Stone published an analysis entitled “Is There a Need to “Recall to Repair” the Relationship Between the CPSC Compliance Staff and Business Community?“

My response: Amen, brother!

For those of you who don’t know Eric, he is the former Director of the Legal Division of the CPSC and also former Acting Director of the Recalls and Compliance Division of the Office of Compliance at the CPSC. He is currently a partner at K&L Gates LLP. To say the least, he is an authoritative figure in all matters CPSC.

Please read Eric’s Op-Ed.

Read more here:
CPSIA – "Must Read" in PSL

CPSIA – House CPSIA Hearing Line-up

Here is the line-up for today’s hearing. Please note that the format is first, Members’ opening statements, second, Panel 1 presentations (five minutes each), third, questions by Members of the first panel (five minutes per member asking questions), fourth, second panel presentations, fifth, questions for the second panel. As the first panel today is Inez Tenenbaum and Anne Northup, we are certainly second fiddle so you can expect that portion of the hearing to take some time.

February 17, 2011

The Subcommittee on Commerce, Manufacturing, and Trade will hold a hearing on Thursday, February 17, 2011, at 10:00 a.m. in 2322 Rayburn House Office Building. The hearing is entitled “A Review of CPSIA and CPSC Resources.”

WITNESS LIST

Panel 1:

The Honorable Inez Tenenbaum
Chairman
Consumer Product Safety Commission

The Honorable Anne Northup
Commissioner
Consumer Product Safety Commission

Panel 2:

Ms. Jolie Fay
Founder, Skipping Hippos
Secretary, Handmade Toy Alliance

Mr. Wayne Morris
Vice President, Division Services
Association of Home Appliance Manufacturers

Mr. Rick Woldenberg
Chairman
Learning Resources, Inc.

Ms. Nancy A. Cowles
Executive Director
Kids In Danger

Read more here:
CPSIA – House CPSIA Hearing Line-up

CPSIA – Upcoming Hearings

I will be appearing as a witness at two hearings next week. On Wednesday, I will appear as a panelist at the CPSC’s hearing on the feasibility of 100 ppm lead standard. I am appearing at the request of the CPSC. On Thursday, I will be a witness in front of the Subcommittee on Commerce, Manufacturing and Trade of the House Committee on Energy and Commerce in a hearing entitled “A Review of CPSIA and CPSC Resources”. This hearing will take place at 10 AM at 2322 Rayburn House Office Building.

More to follow.

Read more here:
CPSIA – Upcoming Hearings

CPSIA – Welcome to the Team, Gib!

In a fascinating turn of events, Gib Mullan has apparently left the employ of the CPSC and accepted the job of Chief Counsel of the House Committee on Energy and Commerce’s Commerce, Manufacturing and Trade Subcommittee. This is the subcommittee which has jurisdiction over the CPSC (and NHTSA, currently being run by David Strickland, one of the drafters of the CPSIA). We live in interesting times, don’t we?

Gib Mullan has had a long and illustrious career at the CPSC. Formerly a litigation partner at Kirkland & Ellis, Gib joined the CPSC as its General Counsel in 2004 and later became the Director of Compliance and Field Operations. In that latter role, Gib drew some fire in this space. Later, in something of a palace coup, he was “detailed” to the CPSC’s Office of Executive Director and then “assigned” to a “special project” at Customs and Border Patrol. The Product Safety Letter questioned whether this was a legal maneuver by Chairman Tenenbaum as it was not accompanied by a Commission vote. In other words, PSL implied that Mullan was the subject of an illegal firing by Tenenbaum.

Hmmm. And now ex-Kirkland partner Mullan is Chief Counsel for the House Subcommittee responsible for the CPSC? And working for the Republicans?

Can you say “oversight”?

Sounds like fun!

Read more here:
CPSIA – Welcome to the Team, Gib!

CPSIA – Regulations Are Killing Us

774 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 36 days left until Election Day.

The headline in the WSJ says it all (thanks, Jennifer):

“The Regulation Tax Keeps Growing. Blame Washington, not China, for the decline of American manufacturing.” [Emphasis added]

I have written endlessly on this topic in relation to the poisonous CPSIA. You know the drill.

Of course, it can hardly be surprising that this is happening under the “too little government, too little regulation” administration of Barack Obama. It is a rich irony that the supervisor of regulations appointed by Mr. Obama is Cass Sunstein, my former law school professor. As the cognoscenti know, Sunstein is known for his aversion to uneconomic regulations. Consider this prediction from February 2009:

“Even his detractors recognize Sunstein, 54, as an amazingly prolific legal scholar with a keen intellect. But they worry about his insistence on tying regulations to cost-benefit analysis, the bedrock principle of his Bush-era predecessor, John Graham. They’re also concerned about his prediction last year that Obama will be a deregulator. ‘He is off on the wrong track,’ says Rena Steinzor, a progressive University of Maryland law professor.” [Emphasis added]

Either Sunstein was given a sham of a job, or the appointment was a sham, or the administration subverted a purportedly sensible initiative, reining in regulations using a cost-benefit philosophy. Whatever happened, it is clear that Mr. Sunstein has been utterly ineffective in any purported efforts to control the beast. As noted, we have covered this topic repeatedly in this space.

The WSJ notes:

“In a report released last week for the Office of Advocacy of the U.S. Small Business Administration, we find that small businesses bear a disproportionately large share of regulatory costs. The portion of these costs that falls initially on businesses overall was $8,086 per employee in 2008. But these costs are not borne equally by businesses of all sizes. Larger firms benefit from economies of scale in compliance; small businesses do not have that advantage . . . . Small manufacturers bear compliance costs that are 110% higher than those of medium-sized firms and 125% higher than large firms’ costs. As much as it is fashionable to blame China for the demise of small manufacturing in America, the evidence suggests that looking for some reasons closer to home is warranted.” [Emphasis added]

What-a-shock! Who could have seen this coming?

The WSJ article is full of useful quotes, check it out. All roads lead to Rome – the regulatory monster is choking us to DEATH. And as usual, there is little motivation to do anything about this self-induced disaster until the bodies pile up the sky.

Sadly, my arguments fail simply because of the offense of not being dead yet.

Hey, CPSC, keep your head in the sand. Can’t see it, must not be there. . . .

Read more here:
CPSIA – Regulations Are Killing Us

CPSIA – Component Testing Rule Comment Letter

August 3, 2010

Todd A. Stevenson
Director, Office of the Secretary
Room 820
U.S. Consumer Product Safety Commission
4330 East West Highway
Bethesda, Maryland 20814

Agency: Consumer Product Safety Commission (CPSC)

Re: Docket No. CPSC–2010-0037 Conditions and Requirements for Testing Component Parts of Consumer Products.

Dear Mr. Stevenson:

I am hereby submitting comments in response to the Solicitation of Comments on the Conditions and Requirements for Testing Component Parts of Consumer Products (Docket No. CPSC–2010–0037) published in the Federal Register on May 20, 2010 (the “Proposed Rule”).

This request for comments comes after, among other things, a two-day workshop held at the CPSC on December 10-11, 2009. Our company incurred the expense of sending three people (all panelists on multiple panels) to attend this “sold out” event which was purportedly to solicit stakeholder feedback on this rule and the so-called “15 Month Rule” (also up for comment today). There is little evidence from the Federal Register that any of our feedback was taken or possibly even heard. I have lost track of how many comment letters I have filed, panels or hearings I have appeared at and essays or letters I have written about the CPSIA and these issues. So far, my comments have added up to . . . nothing. Nevertheless, I am filing this letter in the vain hope that perhaps this will be my lucky day and you may listen to me, finally.

I would like to make some general comments first.

a. Some Positives in the Proposed Rule. I am in favor of the concept of component testing and applaud the Commission for taking steps to make it a reality, however flawed. In addition, I am also enthusiastic about composite testing. Regrettably, however, the devil is in the details.

b. CPSC Data Demonstrates that Risk is Low, so the Proposed Rule does not Need to be so Strict. I have analyzed the recall data published on the CPSC website and determined that from 1999 – 2010, the CPSC can account for ONE DEATH and THREE ASSERTED INJURIES from lead or lead-in-paint. If the goal of these rulemakings is to reduce deaths and injuries from lead, then these data must be borne in mind. With so few incidents involving lead injury of any kind in children’s products (less than occurs on AN AVERAGE DAY from swimming pools and spas in the U.S.), there is no justification for building such an ornate rule for something simple and logical like component testing or composite testing. Likewise, incidents of fraud in testing are equally infrequent and in any event, already addressed by other statutes. Congress did not require this complicated regulatory scheme, and the data cannot justify it.

c. The Proposed Rule Puts Compliance First, Before Safety. This rule seems to place a very high emphasis on the need to comply, as opposed to the need to make children safer. One is not necessarily the equivalent of the other. My favorite example is our company’s record of compliance. Founded in 1984, our company has recalled a grand total of 130 pieces in its history, all recovered, out of perhaps one billion pieces sold. Not bad. Were we to meet the myriad requirements of this rule, I cannot fathom that our products would be safer. Does all that extra compliance benefit anyone? It certainly will cost a lot (we pay, you don’t). As I read your rule, I wondered why you didn’t list the wire transfer instructions for the top testing companies. You might as well . . . . Still, the casual waste of our resources cannot make anyone safer – they were already completely safe.

Safety is the reason the CPSC exists. This document fails because it confuses the desire to powerfully enforce the CPSIA with actually making people safer. The only thing that may be accomplished is business death for many companies, principally small ones. Swashbuckling enforcement may make great headlines but no one will be any safer. Compliance is not safety.

d. Science Has Apparently Been Rendered Moot at the CPSC. While I accept that Congress has banned certain phthalates in toys, I do not accept that the ban is a SCIENTIFIC CONCLUSION. It is legislation, not science. Notably, the CPSC has twice investigated phthalates and held that phthalates were safe in toys. Yet, on page 28213 in the Federal Register, the Proposed Rule discusses the “risk” presented by a product that might have a violative concentration of phthalates in a component, but with an overall concentration that wouldn’t violate the ban. It goes on to assert that a component-based rule is “more protective of human health”, as though the agency had reached the scientific conclusion that phthalates were dangerous – which is not true. Re-characterizing the legislative ban as an assessment of “risk” may appear to legitimize your rule, but it is certainly not an accurate statement of the historical position of the agency. I object to the rule’s equating of a ban by politicians to a scientific judgment. Science is under enough assault without the stamp of approval of the CPSC announcing its death.

My specific comments on this proposal:

1. Component Testing Looks Better Than It Is. I wish I felt we (or anyone else) would use component testing extensively in the future. There are several reasons why this option will be of little use to anyone, particularly the small companies that it was intended to benefit. [Companies with enough scale may find the Proposed Rule useful – one of the many ironies of the CPSIA is that its principal beneficiaries may be the companies that prompted its passage.]

a. Limited Market Availability for Component Certificates. While some high volume components of children’s products may quickly be tested to meet these requirements, many other kinds of components are not likely to be tested:

i. Low volume components
ii. Components made in small lots
iii. Components made by small suppliers (many fabrics)
iv. Components which derive only a tiny percentage of revenues from regulated products or which principally cater to other industries (e.g., paper clips or aluminum foil in a science kit)

Unfortunately, it appears to me that the logic of this rule is that if we can be certain that some certificates will be widely available (e.g., paint, plastic pellets), therefore all other certificates will be available. That’s plainly ridiculous.

b. Complexity. The subdividing of compliance testing into component parts and the whole, some tests done on parts and some on the whole, with tests of varying dates substituting from time to time, is simply a mindboggling mess. I cannot imagine that this can be successfully managed on any scale (how many products need to take advantage of this rule before test reports develop big and inconsistent holes?). And how will retailers be able to interpret this patchwork quilt of tests? This scheme will be self-defeating on all levels.

Add to this the requirement that components need to be traceable, and you basically rendered the component testing opportunity moot. Of course, I am presuming that industry will take your rules seriously. To me, it’s completely inconceivable that anyone will build your traceability system. [Traceability will not raise revenues, only mindless complexity, and as noted above, cannot conceivably improve safety.] If you take these rules seriously, you will cry, laugh/scream – or walk away. The paperwork required for this exercise is well beyond almost all companies’ capabilities. [Does the CPSC have ANY tangible evidence that its requirements can be met by anyone . . . other than Mattel and Wal-Mart? Presumably, no one at the agency living in the real world thinks that traceability rules can be met by the typical Handmade Toy Alliance member, or other small businesses like ours.]

c. Unrealistic Expectations on Manufacturing Control and Traceability. To take advantage of this rule, a manufacturer must take responsibility at the sub-micro-level for manufacturing quality. Let’s recall for a moment that we are not making drug treatments here, nor are we building the Space Shuttle. We are making simple plastic toys and games, children’s shoes, pens, shirts, books, educational materials and so on. Consider this instruction from your new rule: “The manufacturer must exercise due care that the manufacturing process does not add a prohibited chemical from an untested source, such as the material hopper, regrind equipment, or other equipment used in the assembly of the finished product.” Our company has several hundred vendors producing thousands of SKUs – do you honestly believe we could possibly manage how all these independent companies wash out their molding machines or manage their regrinding operations? Is this some kind of sick joke?

By the way, this verbiage will end the use of recycled materials in children’s products. This is completely unjustified for safety reasons and is certainly very unfriendly to the environment. As noted above, your agency’s responsibility is to manage safety. You have no basis in fact for asserting that these theoretical sources of lead are or could constitute a public safety risk.

d. Liability Risk. The Proposed Rule goes to great length to ram home the message that all the risk is on our shoulders. The monotonously repetitive use of the term “due care” throughout this document makes abundantly clear that the CPSC is perfecting a myriad of claims to be made against any and all manufacturers of children’s products when it suits the purpose of the agency. Many of the claims may be perfected with the agency’s 20-20 hindsight. The Proposed Rule minces few words on this preservation of rights: “The above information is needed so that, if noncomplying products are found, the Commission can use this information to determine whether a finished product certifier, component part certifier, or third party conformity assessment body is not complying with the appropriate requirements.” Under the Proposed Rule, even a missing piece of paper can be the basis of charge of failed due care. A fear of criminal charges seems realistic.

Will aggravating letter writers be the first to suffer under this hammer? The answer is – it’s entirely up to YOU under your rule. Small companies will see how the deck is stacked against them and steer far from the component testing option (if they understand the obtuse wording of the rule).

2. If Few Companies Can or Will Use Component Testing, Has the Agency Provided “Relief”? Of course, the answer is NO. The Proposed Rule may look like good policy, but if the practical impact of the rule is that few people can or will take advantage of it, it is simple window-dressing. The impact on small businesses, exemplified by the well-known and sympathetic Handmade Toy Alliance, will be severe. They are not the only ones in need of help, either. If small companies like HTA members cannot take advantage of these rules in large part or would be too scared to take a chance in the face of the awesome display of governmental power in the rule’s terms, then they will suffer and shrink. I would note that the Notice on the “15 Month Rule” explains how a failure to protect small companies could play out badly (see “Caveats and Possible Market Reactions to Third Party Testing Requirements” on page 28358). Those negative impacts could result from a failure of policy here, too.

3. Maintenance of Records for the Life of a Product Plus Five Years Is Unduly Burdensome (Not to Mention Pointless). Please consider our case: We still produce certain items from our original product line in 1984. Clocks don’t go out of style in education, even if Tickle Me Elmo and Furby last only one year. The requirement that we must retain records for the life of the product plus five years could theoretically be forever in our case. Perhaps the CPSC can provide us free unlimited warehouse space for all these records. In any event, our case also makes clear how pointless this requirement is. We have only had one recall in 26 years, which we successfully administered without the assistance or guidance of the thousands of pages of rules and legislations that befell us under the CPSIA. How, precisely, will decades of records improve the public weal in OUR case? Your rule is very good at spending our money, our resources and our time, but doesn’t make a reasoned connection to safety in any way. We are not Mattel and in any event, they don’t define the market. Had you listened to us in December 2009 at your workshop, you would know this already.

4. Composite Testing Rule for Paint LOWERS the Lead Standard to Sub-trace Levels. In yet another example of overly risk-averse rulemaking, the agency’s new composite testing rule for paints requires that lead content must never exceed that for any individual component paint in the composite. This slices the 90 ppm limit by two-thirds for a three-paint sample and by 75% for a four-paint sample. This super-stringent rule ensures that it is literally a gamble to use composite testing – so why would anyone bother? Even more bothersome, since the new policy of the agency is to impose strict liability for lead-in-paint violations, this new rule demonstrates the ascendency of the debunked notion that there is “no safe level for lead”. If the agency really wants to take this position, it should not permit composite testing for paints. Too risky . . . .

5. The Regulatory Flexibility Analysis is Flawed and Self-Justifying. The analysis justifying this Proposed Rule is a “best case” scenario, and takes none of the foregoing into account. If in fact the rule will hard or impossible to use, or will create too many legal risks or recordkeeping burdens and thus go largely unused, the reasoning in this section will be completely inapplicable.

6. The Burden of Recordkeeping is FAR GREATER than Asserted in the Proposed Rule. At our company, we produce about 1500 “catalog” items and several thousand other SKUs and custom products through a network of hundreds of factories in various countries. We do not control these factories – they are generally family businesses like our company, and are independent of us. Typically, we provide only a small share of annual revenue of any of our factories and thus have limited leverage over their business practices. Like many small businesses, we have a very limited infrastructure in place to supervise factories “on the ground”, although it is worth noting that our safety record indicates that our business methods have worked well for more than two decades.

To implement the recordkeeping set forth in this rule, I estimate that we would have to spend $50,000 – $100,000 in software development expenses to store and manage the desired records. In addition, we would need to expand our staff significantly. To reach out to all of our factories, negotiate and monitor many new business practices, will take a significant increase in staff. I posit that we would need to open an Asian office with as many as 5-10 local employees. A Chinese office would cost us at least $500,000 per annum. In addition, we would have to increase our clerical and management staff in the U.S. to help with data input, software management, project management, audits, vendor relations and general management. This would cost us at least $250,000 per annum. We anticipate that this intrusion on the business practices of our vendors would cost us business relationships and would lead to significant cost increases. The total cost of these disruptions would add another $500,000 or more per annum. It is not inconceivable that we ALONE could incur annual expenses of $1.5 million and certainly at least 10 man-years of labor (more than 20,000 hours) to comply with these rules. There are THOUSANDS of companies affected by this rule. We estimate that the assessment of cost and man-hours in the Paperwork Reduction Act section of the Proposed Rule is LOW by a factor of 100x-5,000x.

I would suggest that this rule be greatly simplified by making the following changes:

a. Eliminating the Requirement for Traceability Recordkeeping. As noted above, this ornate rule architecture is completely inappropriate for the minimal, almost non-existent threat, demonstrated by the CPSC’s own injury data. Recordkeeping requirements should minimized or dropped altogether.

b. Encourage the Exercise of Business Judgment. The presumption that only the CPSC (or Congress) can make sound judgments when considering safety issues is simply not supported by the data. Again, our company is a good example of that – we scrupulously maintained our safety record without the CPSC’s oversight, coercion or even encouragement since 1984. The concept of “business judgment” is well-defined in U.S. common law and has real meaning under the law. I think the concept of using components supported by GCCs is simple enough. Given that the restrictions on lead are clear under the CPSIA, why not let businesses exercise their judgment on how to meet those requirements and then measure them on their success in doing so? What is to be gained by inserting the CPSC into all aspects of how we conduct business? We were doing just fine before you arrived on the scene.

Given the few lead injuries noted in the CPSC’s historical data, the agency could save its scarce resources and remain effective as a safety administrator by focusing on known safety issues and incidents and leave the vast majority of law-abiding and safety-conscious companies ALONE. The data suggests that higher and higher mountains of regulations will never reduce injuries from the historically miniscule levels documented on the CPSC website.

c. Allow Composite Testing Using the Overall Concentration as the Pass/Fail Measure. Again, this is justifiable based on the historically minimal risk posed by the regulated substances. The already low lead levels specified in the CPSIA have not reduced injuries or deaths from the negligible levels that predated it. Since the number of recalls is so dramatically affected by agency policy (e.g., strict liability or not, how recalls are accounted for, etc.), the only reliable measure of the effectiveness of policy is injuries. Composite testing holds the promise of real savings to the many law-abiding companies affected by the CPSIA. Loosen the noose and they may actually save some money.

Component testing can be a simple and effective way to lower costs, but a different approach is necessary to get to that result. A sharp reconsideration of the Proposed Rule will be required to achieve this goal.

Thank you for considering my views on this important subject.

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061

Read more here:
CPSIA – Component Testing Rule Comment Letter

GUEST BLOG – Congressional Office of Compliance Confirms: Congress is Dangerous to Your Health

Okay conspiracy theorists. Do you think the Capitol Hill newspaper Politico held this story until Rick was out of town? In a front page story today “Dangers on the Hill” Politico reported that Congress’ Office of Compliance have found an estimated 6,300 safety hazards that are “potentially fatal or could leave victims with serious injuries.”

That’s right, Congress is dangerous to your health.

Here are some of the juiciest excerpts from the story. In Rick’s honor, we provide commentary after each excerpt, Woldenberg style:

“Workplace safety experts say that if Congress were a private-sector business, it would be at risk for massive fines from government regulators.” (oh, the irony!)

“But Congress has exempted itself from key parts of federal workplace law.” (Without even proving it was impracticatable for Mr. Waxman to comply?)

“…the latest study offers arresting detail. Investigators estimate there are 1,742 electrical hazards, 1,058 fire-safety hazards, 102 storage shelving issues, 61 first-aid emergency-care lapses and 70 machine-guarding problems, to name a few found so far.” (Hey, no lead violations?)


The report divides the hazards into categories, with some more routine and others potentially life threatening. (Wait a minute, that sounds like risk assessment!)

“Furthermore, the report makes clear that the hazards may prove dangerous to Capitol Hill visitors, including constituents and lobbyists.” (in other words, visiting Congress is hazardous to….people)

“This measure was inspired by that year’s new Republican majority and some Democrats who were aggrieved by what they saw as supreme hypocrisy: Congress and regulatory agencies imposed all manner of rules on the private sector and the states through laws such as the Family and Medical Leave Act and the Americans With Disabilities Act, but lawmakers themselves did not have to obey those rules.” (Can anyone think of another law that they could have included – hint –it rhymes with SHEE SHPEE SHESH SHI SHAY)

The compliance office cannot issue investigative subpoenas to Congress and its entities, even to seek information that could solve a workplace hazard. (Call in the AGs!)

Whistleblower protections for staffers who report hazards are essentially nonexistent, leaving aides responsible for their own litigation costs if they are fired or an office retaliates against them. (C’mon, the Onion couldn’t write a better article – oh the hypocrisy!)

“It’s hard to defend Congress when things are this bad,” said Center for Progressive Reform board member Sidney Shapiro, … But if Congress is going to insist on running its own safety regime, then it ought to do it the right way.” (Are we sure they’re not talking about CPSIA?)

“Congress faces a major challenge in trying to fund fire- and life-safety projects, historical preservation and deferred maintenance campuswide, all within very limited resources,” said a congressional aide familiar with the blue-ribbon panel. (Hey, they told us safety at any cost – even if the costs don’t improve safety)

“On the upside, a number of offices have become more proactive about protecting safety by voluntarily requesting inspections ahead of the compliance office’s regular schedule; 154 offices in the 111th Congress achieved hazard-free status. “Over the years, we’ve found that working cooperatively with employing offices to reduce hazardous conditions in the Capitol complex can be more effective than a confrontational approach. The statistics bear this out by showing remarkable progress in reducing hazards.” [Working cooperatively? What a novel idea! Nah, we say use the CPSIA model – enforce, enforce, enforce, treat every risk equally, discourage cooperation and levy huge fines!]

We couldn’t make this stuff up. To read the entire article for yourself, click here. (warning it’s about 1800 words).

Posted by the Alliance for Children’s Product Safety Staff

Read more here:
GUEST BLOG – Congressional Office of Compliance Confirms: Congress is Dangerous to Your Health

CPSIA – FOIA Request re Schylling Acknowledged 6-11-10

U.S. CONSUMER PRODUCT SAFETY COMMISSION
4330 EAST WEST HIGHWAY
BETHESDA, MD 20814

June 11, 2010

Mr. Richard Woldenberg
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061

RE: FOIA Request #10-F-00738: Request copies of all documents relating to Schylling Associates, Inc. Provisional Acceptance of a Settlement Agreement and Order.

Dear Mr. Woldenberg:

This acknowledges receipt of your Freedom of Information Act (FOIA) request seeking records from the U.S. Consumer Product Safety Commission (CPSC) and also assigns your FOIA request number.

Due to certain procedural steps we are required to take under our statute, there may be delays in providing the records. Please be assured that every effort is being made to process each request as equitably as possible, and that the records or information that you have requested will be made available to you at the earliest possible date.

If you have any questions concerning the status of your request, contact our office and provide your assigned FOIA request number.

Sincerely,

Todd A. Stevenson
Director
Office of the Secretary

Read more here:
CPSIA – FOIA Request re Schylling Acknowledged 6-11-10

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

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