CPSIA – ICPHSO Mock Civil Penalty Jury Exercise

There has been only ONE court decision relating to late reporting penalties, and it was a resounding victory for the government. A juice company lost a case in California in federal court. Since there is no little law on the subject, the presenters today assert that there is no way to predict how a future case might be decided.

The panel today:

• Eric Rubel, Arnold & Porter LLP
• Cheryl Falvey, GC of CPSC
• Sean Laane, Arnold & Porter LLP
• Richard Levie, retired Judge and current arbitrator/mediator
• Mary Murphy, Asst GC, Div. of Compliance, CPSC

The panel presentation was designed as a mock trial. Both sides of the case will be presented, and you can clearly how both sides will portray this incident and both are compelling.

First to present was Mary Murphy on behalf of the government. She emphasized the facts of the injury to the child. This is clearly how you and your company will be made to look worst. This is no surprise and is standard fare for a plaintiff in a lawsuit. She likewise related the prior reporting of the risk or incidents (to the company and to the CPSC) that suggested the hazard.

Needless to say, this is the reason that consumer groups want the database. They want to create a body of evidence to coerce product changes ahead of injuries. Of course, any responsible company monitors market data (such as consumer reports) to do just that sort of thing. The database, however, is fodder for lawsuits and facilitates this kind argument. The likely impact is that the cases of plaintiffs will be strengthened and awards will grow.

Shall we take a trip down memory lane and remind ourselves of the principal source of funding for the consumer groups active in children’s product safety? Are you surprised to know that it is trial lawyers and the plaintiffs bar?

Back to the presentation of Ms. Murphy. She’s doing a good job making the manufacturer look bad, almost venal. She links the injury back to a failure to report. This is because of the asserted critical role of the CPSC in keeping America safe. She poses the question “would this injury have occurred but for the failure to report?” She argues that ten reports from consumers (of the hazard, loose beads on a high chair, not injuries) created an obligation to report based on a substantial risk of injury or death. She likewise anticipates that the defense will be that the manufacturer had no duty to report. She says that the late reporting only took place when the manufacturer’s back was “up against the wall”. Again, Murphy emphasizes her story about the motivation or mental state of the company.

More evidence used against the company included multiple written reports by the CPSC to them of consumer complaints. Ms. Murphy is painting a clear picture of a company that is not acting on a known safety issue. She indicates that the company ignored this information based on poor advice, despite internal admissions that “this was an accident waiting to happen”.

You can see that the facts of this hypothetical case opens manufacturers up to bad behavior portrayals. I applaud the effort to make this clear – you need to take this on board. The facts of this case appear extreme and objectionable. Media and political over-reaction to this kind of corporate behavior sent the REST OF US down the river under the CPSIA.

The defense was offered by Sean Laane. He noted the responsible behavior of the company by repeatedly testing the goods using CPSC standards and CPSC-accredited independent labs. Noted that the CPSC tested the product TWICE after reports of incidents from consumers – and the products passed! [Note that any safety system that overly depends on testing will ALWAYS expose a company to risk if it is distracted from or chooses to ignore contrary information from the market. This is a basic flaw in the reasoning of the consumer groups and the folks behind the CPSIA.] He goes on to note that the CPSC can’t have it both ways, since it never concluded that action was required based on the incidents it was aware of. After all, the CPSC had several reports and did nothing. Claims the CPSC takes a “gotcha” approach because although it claims “late reporting”, it was well-aware of the issue long before the injury – and did nothing.

Laane notes the extensive investment of this company in safety. He questions whether there was a reasonable basis to conclude that there was an unreasonable risk of injury or death. Clearly the CPSC didn’t feel it was an unreasonable risk itself! Also notes that you don’t have to tell the CPSC about information the agency already possesses. Notes repeatedly that the CPSC’s actions or inaction are based on their expertise and fact findings, thus confirming the reasonableness of the company’s approach. Notes that companies have no obligation to make products utterly indestructible.

Laane noted that the person inside the company who called the condition “an accident waiting to happen” was not a QC person or responsible manager. Instead, he was a customer service rep, and relayed that message to the QC department for their evaluation. Child who was injured later fully recovered, and the company chose to immediately initiate a Fast Track recall.

An interesting point made by Levie is that the company’s awareness of similar issues in similar products can be held against them. If they knew or SHOULD HAVE KNOWN about other recalls or notorious injury incidents reflects on their later decisions or inaction. [I am glad I don't make baby monitors . . . . This is a good lesson on the reality of the problem of "emerging hazards". Note that you are going to be judged not just on what you know, but also on what they assert you SHOULD have known.]

CF: One of the most persuasive arguments made by defendants is a track record of reporting to the CPSC. This shows a commitment to safety and cooperation with the CPSC, demonstrating trust that the CPSC will not recall product everytime.

Levie agreed that this fact pattern will also be persuasive to a judge.

All market participants need to think about this kind of issue and how they might fare if they face a similar dilemma.

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CPSIA – ICPHSO Mock Civil Penalty Jury Exercise

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

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

CPSIA – It’s Raining Paper . . . .

I have previously made the point (again and again) that the paperwork involved in complying or even understanding the CPSIA has escalated to absurd and previously unimaginable levels. When I recently posted my latest video blog, I noted that MY count of the pages of rules implementing the CPSIA was over 1800. [The CPSC has not promulgated a list of these documents and some of them may not even be publicly available, so that's just my count - no one knows the true number.]

Since then, the paper shower has continued unabated. Here are a few new shovel fulls from your CPSC:

Definition of “Children’s Products”: 52 pages

Standard Operating Procedure for Determination of Phthalates: 8 pages

Proposed Rule: Conditions and Requirements for Testing Component Parts of Consumer Products: 69 pages

Draft Notice of Proposed Rule -Publicly Available Consumer Product Safety Information Database: 172 pages

Proposed Rule: Testing and Labeling Pertaining to Product Certification: 160 pages

Staff Briefing Package CPSIA Certification & Testing, April 1, 2010: 110 pages

Total pages: 571

In addition, public meetings of the Commission on Wednesday morning and all day on Thursday this week will feature major topics of great importance to those companies affected by the CPSIA. These will be Must Watch hearings. Hope you aren’t too busy running your business to stop what you are doing and tune in all day.

There cannot be any rational expectation by the CPSC that businesses interested in the development of CPSIA implementation rules could POSSIBLY keep up with this torrent of paper and hearings. The impracticality of participating in this process means that it is a railroad job, plain and simple. It is intentional, too – overwhelming the regulated community is one way to silence the critics.

Despite the absence of any credible evidence that such a massive expansion in safety rules is justified by injury statistics or any form of safety data from marketplace, the CPSC is in the process of gleefully converting the safety rules governing children’s products into something approaching the Internal Revenue Code in complexity. The compliance burden on businesses will be overwhelming – or simply impossible in a practical sense. As important as Ms. Tenenbaum’s instant death rules are, running our operating businesses will take priority for most people.

With this inundation of complexity, the point of capitulation is upon us. Add to this the known risk of mega penalties. Remember, this CPSC has warned businesses not to dare resist it. The consequences of resistance can be interpolated from the Daiso penalty – $2.05 million for recalls of 698 pieces in five recalls of 19 products over two years without a single reported injury. [Imagine what Mattel or RC2 would pay today under this enforcement scheme. I wonder if my calculator has enough digits for that number . . . .] Ms. Tenenbaum has demonstrated that she will have no reluctance to sic the U.S. Attorney on us for our transgressions without regard to actual market impact, striving to impose “a very high hurdle to jump over to ever get back in the import business again”.

This approach to regulation is an irresponsible act by our government and very damaging to the market. It’s naive and shortsighted, but in the “Father Knows Best” world wrought by Mr. Obama, it’s useless to attempt to reason with the regulators. The promised “dialogue” with the regulated community has been exposed as a sham. It’s hard not to conclude that businesses have now been deemed evil by nature. Otherwise, how do you explain the paper blizzard? Sadly, none of this holds any prospect of making kids safer.

I hate the feeling of shouting in a vacuum. I am not sure what will trigger a revolt against this insanity. Does another work assignment of 600 pages anger you . . . yet? The mountain is at about 2500 pages to read now, and there’s more to come. What outrages will have to take place before you resist?

This may be too urgent to wait for November. Think about how you will deal with penalties for complying with rules you have never read, cannot possibly read and may not even understand. This regulator has already acted to put a minor player out of business. Are you next?

It’s time to act with a sense of urgency. Your customers, your employees, your stakeholders are counting on you.

Read more here:
CPSIA – It’s Raining Paper . . . .

CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

Read more here:
CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

Read more here:
CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

CPSIA – Anyone Care about Penalties Yet?

Cassandra here . . . .

Let me try you out on a hypothetical. What would you recommend as “consequences” for the following fact pattern? A company exhibits a pattern of safety incompetence over a period of time. Owing to agency vigilance, they are told multiple times to shape up, which they never get around to doing. No one is injured, but several minor recalls result. As we live in a time of political correctness and hyper-concern over trivial matters, the recalls not surprisingly involve only a few units of numerous products (less than 1000 units over two years). No injuries are reported. Numerous letters go back and forth, and theoretically, some of the culprit’s safety violations could have resulted in injuries.

So what penalty do you hit them with to get your message across?

For perspective, Mattel paid a fine of $2.3 million for about 2 million units recalled. This was national headline news. Mattel also recalled many millions more in other recalls in the same time period. RC2 paid $1.25 million for their recalls of 1.7 million units of Thomas the Tank Engine, a series of recalls that included an embarrassing recall of “thank you” gifts sent to people returning lead-laden Thomases. Target paid $600,000 for its “sins” in three relatively large scale recalls (545,500 total units). And I fully agree, respect and attentiveness to the details of the law are mandatory. Everybody needs to take these issues seriously.

And the answer is . . . . Try $2.05 million. Cash.

You wonder why I say that the CPSC leadership has blood lust . . . .

Oh yeah, I forgot, the CPSC also sicced the U.S. Attorney on ‘em, hitting the company with an injunction, a cease importation order and a mandatory plan of remediation.

Of course, I am alluding to the case of Daiso, the Japanese dollar store chain with a small U.S. presence. I have written about this company in the past, noting that they recalled 40 inflatable baseball bats for phthalates violations. For this and other unpardonable sins, this company was subjected to regulatory horrors on an incomprehensible scale. Here are their five recalls for your consideration:

May 12, 2008: 48 units, two skus
June 3, 2008: 50 units, two skus
July 25, 2008: 40 units, two skus
October 6, 2009: 430 units, four skus
October 6, 2009: 130 units, nine skus

Total over two years: five recalls, 698 units, 19 skus.

I have no personal knowledge of these people or this case. I also agree that the facts suggest that this company was recalcitrant or possibly incompetent. In any event, it’s their responsibility to take our laws seriously. Nevertheless the CPSC press release and the injunction both portray a far more serious situation than the facts seem to demonstrate. This is hardly a case of ingested super-magnets and millions of units in circulation. And the penalty, of course, is so far beyond the pale that I consider it incomprehensible. It is also extremely worrisome.

Today’s CPSC is about sound bites and putting you “on notice”. Whether their tactics are fair or appropriate seem to be a secondary concern. Note this quote from Japan Today: “‘This landmark agreement for an injunction sets a precedent for any firm attempting to distribute hazardous products to our nation’s children,’ commission Chairwoman Inez Tenenbaum said. ‘We are committed to the safety of children’s products, and we will use the full force of our enforcement powers to prevent the sale of harmful products.’ . . . CPSC spokesman Scott Wolfson said the company had been warned several times about violating safety standards.” In other words, this is entirely justified because the company had been warned and laws had been broken. I see.

There is a concept in Anglo-American jurisprudence of a punishment to fit the crime. I wish the CPSC knew something about proportionality in administering justice. Unfortunately, this CPSC seems to think that the importance of public messaging allows them to justify whatever they want to do. There seems to be no constraints, whatsoever. As Mr. Wolfson intones, after all, Daiso had been warned several times. Ergo, it’s fair to whack them with a penalty almost as great as imposed on Mattel. For less than 1,000 units sold.

Have you ever sold less than 1,000 units of something? Has anything ever gone wrong in your business? Uh-oh. Start saving up!

If you are having trouble grasping the point, consider the recent case of the man caught stealing a $3.99 bag of cheese in California. The judge went easy on him, only sentencing him to 7.7 years in jail. Nothing wrong with that, right? As the defendant’s lawyer noted in her closing remarks, “She concluded that his most recent thefts were petty. ‘We’re talking about a pack of cheese,’ she said.” Good thing the judge was listening . . . . This kind of justice brings to mind Midnight Express, the nightmarish story about Turkish jails. We’re not that kind of country, right? Right???

But in this environment, with the pack of jackal consumer groups egging them on, this CPSC is prepared to lower the boom to squish anyone who dares be incompetent. Here’s Consumer Reports on the case: “Our take: This is more evidence that the CPSC has been reinvigorated and that the new leadership at the Commission, plus the new powers under the CPSIA, mean good things for consumers.” In other words, it’s not only okay, it’s a sign of returning “health” in our U.S. government. Yippee.

I agree some sort of penalty may be merited in a case involving a pattern of violations. A large company like this one might need a large-ish penalty to “get the message”. [I wonder about that. Is it certain that this company would not have changed its behavior for a penalty of $50,000 or $150,000? The CPSC never tried smaller penalties first, as escalation seems to not be part of their vocabulary.] Nevertheless, this penalty lacks any rational relationship to the trivial problems cited in the recalls. In other words, it is completely arbitrary.

And for those of us destined to have to deal with the CPSC on resolving problems in the future, the Daiso case in your warning. Under this Commission, the agency has no apparent intention or need to be reasonable. They are unfettered in their ability to punish and exhibit no self-restraint. You won’t be able to fight them, they print their own money. It must be nice to be both judge and jury.

This is what our country has turned into. I CAN’T WAIT TO VOTE AGAIN. November can’t come fast enough for me.

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CPSIA – Anyone Care about Penalties Yet?

CPSIA – You Can Add 43 Pages to the Heap

The CPSC published its Civil Penalty Factors today. It’s only 43 pages long. Get reading . . . .

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CPSIA – You Can Add 43 Pages to the Heap

CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint

What is the principal goal of the CPSC – to protect consumers from unsafe consumer products, or to punish legal transgressors? If consumers haven’t been harmed, how should this aftect the agency’s decision to punish?

These questions come to mind when considering the most recent punishment meted out by the CPSC. In particular, on February 4th, Schylling Associates (“Schylling”) agreed to pay a $200,000 fine for lead-in-paint violations disclosed in 2007. How does this fine affect the CPSC’s mission?

Background: I have no personal knowledge of this situation, although I know the company and some of its principals, and I have had no contact with anyone associated with the fine. My summary of L-I-P recalls from 2007 shows five Schylling recalls, although the CPSC press release does not relate to all of them. The recalls total about 80,000 pieces sold from June 2001 to May 2003. The fine works out to about $2.50 per unit for violations almost seven years old or older. No injuries were reported since the sales began almost nine years ago.

Schylling apparently promptly recalled one of the items upon discovery of the infraction in March 2002 and also terminated the factory. Here is Jack Schylling’s letter to his dealers describing this incident. This item comprised a relatively small portion of the defects. Schylling apparently (mistakenly) believed that the other L-I-P problems had been resolved and therefore did not recall them until 2007 (see below).

In August 2007, a Chicago Tribune article featured a defective Schylling top purchased in an online auction; consequently, several additional L-I-P violations dating back to 2001-2003 were uncovered, promptly disclosed to the CPSC and recalled properly.

Judging from the press release and the settlement agreement, this is a messy fact pattern with some poor judgments. bad operational execution and some violations of serious rules. Schylling was a repeat offender, albeit by all appearances not because of bad intentions. No one was hurt.

That Schylling was in the wrong is only part of the story. Was the fine the right move by the CPSC?

The Schylling Fine is Excessive and Unrelated to the CPSC’s Mission to Protect Consumers. The CPSC is not the Department of Justice. They are the Consumer Product Safety Commission – the agency “is charged with protecting the public from unreasonable risks of serious injury or death from thousands of types of consumer products under the agency’s jurisdiction.” I do not believe this fine is consistent with their mission.

In this case, the fine is removed from the protection mission, as all defective pieces were recalled from the market voluntarily and pursuant to voluntary disclosure. This is “good behavior” since the company sought to mend its ways and fix the problem. In addition, because the offenses lasted two years ending almost seven years ago, this matter is old and cold. Addressing it now seems to unfairly reach back in time. Finally, the amount of the fine is arbitrary and therefore unfair. The size of the fine cannot be related to other fines for similar offenses.

Manufacterers Are Likely to React Badly to Fines Intended to Make Examples. If the mission of the agency is to protect consumers, all of its activities must be judged against that mission. In this case, the fine for Schylling would need to make consumers safer to be consistent with the mission. Ironically, I think it is quite possible that this excessive fine may endanger consumers by discouraging manufacxturer cooperation.

The striking thing about this fine is not simply its excessive size – it is that the fine seems motivated by retribution, not consumer protection. This company appears to have tried, perhaps ineptly or even improperly, to do the “right thing”. They turned themselves in voluntarily. The product was removed from the market voluntarily, although not with all the required CPSC disclosure or as timely as possible.

Ultimately, to be successful, the CPSC needs manufacturers to come forward. The trust factor is crucial. When the CSPC acts to squish people who turn themselves in, perhaps to set an example, businesses may conclude that they cannot afford to throw themselves on the mercy of the CPSC. The Schylling action reinforces the notion that the CPSC is not a trustworthy partner. And this is a very damaging notion for consumers.

Here at the Nuremberg Toy Fair, the tradeshow is abuzz with several examples of companies who suffered grievous losses by disclosing problems to the CPSC. These issues were never of a life-threatening nature. However, the CPSC defaulted to remedies that placed the maximum risk on the manufacturer. Now, to make matters worse, the CPSC is adding large, arbitrary penalties for companies that come forward. Do the math – manufacturers may well see disclosure as a bad deal. Highly publicized punishments like Schylling destroy trust. While some manufacturers may be “scared straight”, many others may simply drop off the radar altogether.

Other agencies in the U.S. government see things more clearly. Customs, for instance, grants full immunity from penalties if you confess your sins before official notice of an investigation. While this too is painful, at least you control you control your own fate and pay no penalties. Customs’ policy encourages disclosure, which is what Customs wants. I contend that disclosure is what the CSPC should want, too – it needs to know what defectivce products are “out there” to protect the public.

A big fine was not the agency’s only possible remedy here. It did not have to hit Schylling with a huge penalty, or any penalty at all. Schylling could havc agreed to implement new safety procedures or to conform to certain standards for future behavior. The CPSC also could have agreed with Schylling on some sort of public service. These options would have sent a strong message to Schylling about the consequences of future infractions, while encouraging openness and cooperation with the manufacturing community.

Unfortunately, a reasonable approach would not satsify a ravenous pack of Democratic members of Congress, consumer groups and newspaper editorial boards who are demanding blood. Giving in to populist outrage buys the CPSC time . . . but at a high cost. A punishment-oriented CPSC will be defeated by its own shortsightedness. As more and more people slink into the shadows, this CPSC might accuse the manufacturing community of venality and launch even stronger actions against bad behavior. A safety police state is possible. Is that what we want?

If the CPSC persists in this approach, it will soon eat its own cooking. It’s time for the mania and blood lust to end, and for rationality to return to safety administration. Fear does not have drive regulation of these markets.

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CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint

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 – Learning Curve Begs for Common Sense (What a Joke)

On Friday, the CPSC Commission docketed a decision on a request for exclusion under Section 101(b) filed by Learning Curve Brands, Inc. Learning Curve (a company owned by RC2) is famous for its Thomas The Tank train sets, which had a little recall problem back in 2007 but we don’t need to go there right now . . . . In any event, among other things, they make die-cast vehicles like this and want permission to use brass bushings on the wheels.

In a sane world, no one would need to ask the government a question like this. Thanks to Mr. Waxman, that’s not our world anymore. Wacky or not, they must plead their case. As Learning Curve notes (their filing is not apparently public, or at least I cannot find it on the “easy to use” CPSC website): “1) CPSC has already granted an exemption for brass and other lead containing alloys in electronics where the material is necessary for the function of the product; 2) the brass is required to ensure that the products pass the necessary use and abuse tests by preventing the wheels from separating from the axles; 3) children are not likely to be exposed to the lead in the product; 4) other household products, including plumbing fixtures are allowed to contain lead at levels that exceed the CPSIA limits; and 5) a study conducted by RAM Engineering, a division of Intertek, determined that lead exposure to a child would be minimal, less than the amounts allowed in food.”

It’s sort of cute that LC attempts to reason with the CPSC. Darling, really. I applaud them for stating sensible reasons to exclude brass bushings. Of course, their common sense falls on deaf ears. The staff responded this way: “In this case, given the assessment provided by the requestors, the staff likely would have concluded that the estimated exposure to lead from children’s contact with the die-cast toys would have little impact on the blood lead level. Accordingly, based on the staffs assessment, the staff would have recommended that the Commission not consider the product to be a hazardous substance to be regulated under the FHSA. However, the CPSIA establishes the standard by which the staff evaluates the materials submitted with a request for exclusions. . . . Since contact with the toy could result in absorption of lead, however small the absorbed amount, the staff concludes that the statutory standard has not been met.”

I feel like humming the tune that they used to play on Bozo’s Circus when you missed the last bucket on the Grand Prize Game. Wah-wah-wah, too bad! Too bad, indeed.

Why on Earth do I care about this? The unfairness of the application of this law to Learning Curve affects all of us. We don’t happen to make brass bushings, but then again, we do use connectors of various kinds, like staples, screws, nuts and bolts. Many people use these items in their products innocently enough. Connectors are not regulated EXCEPT for their inclusion in children’s products. I would note that I have NEVER seen a single article directly or referenced that suggested that connectors present a HEALTH DANGER to anyone. Likewise, any deaths or injuries attributable to poisoning from brass in any form. Don’t stick connectors in your eye or eat them, and I think you are going to be fine.

Some connectors have brass content in them (horrors!). Does this matter? Only under the awful CPSIA. Why do I care? Some random and terrible results are possible when connectors become the subject of CPSIA disputes. Let’s not forget that the CPSIA criminalizes any “intentional” violation of the law. Thus, it is now IMPOSSIBLE to work out any issue between supplier and customer, no matter how trivial. The law incentivizes customers to turn in their suppliers. [When I consider this dynamic under the CPSIA, I always think of historical precedents where governments turned one part of the society against another, with terrible results. I am sure you are aware of the parallel. Why isn't anyone bothered by this besides me?]

The law also incentivizes the CPSC to not forgive these “transgressions”. Why won’t the CPSC just overlook these issues, using “enforcement discretion”? The reason: apparently, the CPSC has no taste for “defiance” these days. They defend their practices (off-the-record) by noting that they are only imposing a “no-sale” requirement on such inventory. [Remember the Potato Clock?] This “innocuous” position is usually accompanied by a demand that suppliers notify their dealers of the “no sale” requirement. [In the case of the Potato Clock, I believe the company felt it might incur liability if it didn't tell dealers to stop sale. More of the same.] While this is short of a full-scale recall, it is tantamount to financial Armageddon for many small companies, and has the potential to kill brands.

Am I just a worrywart? Well, this is same CPSC that just allowed or demanded a recall of 40 inflatable baseball bats for a phthalate violation. Good thing they stopped short of a house-to-house search, that showed GOOD JUDGMENT. You can hold 40 inflatable toy bats in one hand (if uninflated). So nothing is apparently beneath their scrutiny. In this case, they can shrug off the consequences of their actions. After all, they are “just doing their job”. How satisfying for them!

In any event, the Learning Curve exclusion request is a loser. Get ready for more rationalizing from some Commissioners and hand-wringing from others. We should have a pool for when the new Democratic leadership of the CPSC will stand up publicly and call for needed change in this law. Your guess is as good as mine.

Read more here:
CPSIA – Learning Curve Begs for Common Sense (What a Joke)

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