CPSIA – Happy Pool and Spa Safety Week!

Happy Pool and Spa Safety Week! The CPSC this week strode bravely forth to combat pool fatalities in the United States – finally. I have written about swimming pool deaths in the past (as early as May 26, 2009 in this blog and earlier in letters to Congress). They are shocking in number. The CPSC says that deaths in pools and spas AVERAGE 385 children per year from, 2005-1007. Of this average, 299 victims were (on average) YOUNGER THAN FIVE YEARS OLD.

The childhood pool injury count is even more breathtaking. For pools, submersion injuries requiring emergency room treatment averages 4,200 children per year (47% were for two- and three-year-olds), or 46,200 projected submersion injuries to go with the projected 4,235 childhood drowning deaths over 11 years.

Whoa. This is shameful.

In the same 11-year period, CPSC recall data notes ONE death from lead and THREE injuries from lead. You read that right:

• Pools: 4,235 drowning deaths and 46,200 injuries
• Lead: 1 death and 3 injuries

There are no phthalates injuries on record.

The CPSIA addressed pool safety. A highly-publicized section of the CPSIA is known as the Virginia Graeme Baker Pool And Spa Safety Act (the “Baker Act”). This law was implemented in response to the tragic pool drain entrapment death of the granddaughter of former Secretary of State James Baker. The CPSC cites 11 fatalities from pool drain entrapment from 1999-2008. Over 11 years, at this rate, 12 pool drain entrapment deaths would be projected. The Baker Act dictates that pools replace their drain covers to avoid this awful risk. Not an unreasonable approach to a completely avoidable source of injury, at a relatively low cost. Good idea.

It is, however, apparent that the Baker Act does not address the overall massive risk of childhood pool drownings. Of the projected 4,235 deaths in an 11-year period, the Baker Act addresses the cause of only 12 deaths. That leaves the projected deaths of 4,223 children completely unaddressed by our ever-vigilant Congress.

Remember, according to my analysis, compliance costs for the CPSIA are about $10,000 per dollar of avoided lead injury costs. Each death is valued at $6.1 million using EPA estimates. The projected unaddressed pool drownings have a “cost” of $6.1 million x 4,223 = $25.8 Billion over 11 years. At the same rate of compliance costs incurred by the lucky companies attempting to comply with the lead rules, the pool industry would have to spend $10,000 per dollar of injury cost over 11 years, or a mere $257.6 trillion. At this rate of spend, the industry would only have to spend $23.4 trillion per annum which happens to be nearly double the projected 2010 U.S. GDP of $14.8 trillion.

But who’s counting?

And how did our Congress respond to the threat of childhood pool drownings? Surely they really threw the book at this terrible problem – it is literally thousands of times worse than lead. Ummm, well, they mandated a public awareness campaign (see Section 1407 of the Baker Act). The CPSC blitz is the effort to comply with this master plan: a press release, a new website and a “a first-of-its-kind national public education effort”. Apparently, all you need is a few ads and press releases to solve pool deaths.

Strangely, the CPSC is straying from their newly-adopted precautionary principles in this blitz. They actually recommend a strategy of “staying close, being alert, and watching children at the pool”. Huh, you’ve got to be kidding! That sounds a lot like individual responsibility. The CPSC even refers to the need for a “personal system of safety”. Being a good parent and keeping an eye on your kids is so “Old School”. I assumed that the CPSC had moved beyond such shallow advice. They would certainly never do that for lead. Of course not.

I should note that I have long considered the effort to combat pool deaths to be long overdue, so don’t get me wrong. I think it’s great that the CPSC is actually doing something. Pool deaths claim WAY too many kids’ lives every year – we need to take a real threat like this very seriously. But please pardon my waves of nausea over the proportionality of the response. Pool deaths are expected to exceed 4,000 over 11 years (including more than 3,000 kids under five), and in response the CPSC puts up a new website and produces public service announcements with Olympic swimmers. Lead deaths are expected to be one or zero in the next 11 years – and we have to spend $5.6 billion every year in compliance costs.

This is terrible government in its purest form. It is indefensible and incomprehensible. I defy the Democrats to stand up and actually defend their policy positions or legislative solutions. They won’t debate the issue because it’s a total loser for them. The children’s product industry is collateral damage to the Dems’ reelection campaigns. Well, I won’t just grin and bear it. Falling on the sword for their ridiculous sound bites and reelection posturing is not how I plan to go out.

This is un-American. Happy Pool and Spa Safety Week.

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CPSIA – Happy Pool and Spa Safety Week!

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 – 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 – My Comment Letter on Civil Penalty Factors

October 1, 2009 Todd A. Stevenson Director, Office of the Secretary Room 502 U.S. Consumer Product Safety Commission 4330 East West Highway Bethesda, Maryland 20814 Re: Docket No. CPSC–2009–0068 Civil Penalty Factors Dear Mr. Stevenson: I am hereby submitting comments in response to the Solicitation of Comments on Civil Penalty Factors (.Docket No. CPSC–2009–0068) dated September 1, 2009 (the “Factors”). I have previously submitted comments on December 17, 2008 regarding Section 217(b)(2) Civil Penalty Criteria which are posted online at the CPSC website. The Civil Penalties Factors are Especially Significant for an Administrative Agency. Because the CPSC is an independent federal agency (15 U.S.C. §2053), enormous governmental power is held by the agency. As noted by some commentators, “[independent] agencies typically exercise all three constitutionally divided powers within a single bureaucratic body: That is, agencies legislate (a power vested solely in the legislature by the Constitution) through delegated rulemaking authority; investigate, execute, and enforce such rules (via the executive power these agencies are typically organized under); and apply, interpret, and enforce compliance with such rules (a power separately vested in the judicial branch).” [Footnotes omitted.] See http://en.wikipedia.org/wiki/Fourth_branch_of_government . With one agency standing essentially as judge, jury and legislature and with fewer checks-and-balances in place, penalties imposed by the CPSC under the Factors have the potential to be abusive. The unchecked authority to punish can be damaging to markets regulated by the CPSC. Problems arising out of self-oversight or a possible lack of due process can be anticipated, as well. Without placing clear limits on the CPSC’s authority or process to impose penalties, the agency’s enforcement activities may become economically depressing. The CPSC may believe that large penalties will simply spur the market to uphold its compliance responsibilities: “’These highly publicized toy recalls were among many that helped spur action last year to impose even stricter limits on lead paint on toys,’ said CPSC Chairman Inez Tenenbaum. ‘This penalty should remind importers and retailers that they have always had the same obligation to meet the strict lead limits as the manufacturers.’” [CPSC Press Release dated October 1, 2009.] While that effect will certainly be felt, other less positive impacts will also be generated. Applying the rule of “once burned, twice shy”, we anticipate that retailers will clamp down tightly on compliance, making the sale of low volume items unprofitable and triggering a Darwinian “survival of the fittest” selection in children’s markets. For instance, implementation of new compliance rules at Toys R Us make it difficult or near impossible for small businesses to sell through that retail outlet (16% market share in the U.S. toy market). In addition, other market participants may conclude that the CPSC is now enforcing a strict liability standard and just exit the market altogether, abandoning their customers. The effects will be both direct and indirect. Arbitrary results are already noticeable. Recent penalties announced for lead or lead-in-paint follow no apparent pattern, are “round numbers” and equate to per-unit penalties ranging between $.01 and $2.17 (July 7 press release). Likewise, recent penalties for drawstring violations have ranged as high as $10.63 per unit (and up to a breathtaking 60% of revenue), again without apparent pattern. These widely varying penalties appear to be arbitrary. A fear of arbitrary penalties is certain to depress markets by discouraging investment in new products or new markets. The penalty imposed on Target today in the amount of $600,000 provides another chilling example. The Target penalty is the equivalent of $1.10 per unit recalled. The October 2009 penalty applies to sales made between May 2006 and August 2007, and two of the three voluntary recalls resulted from Target’s unprompted, good faith self-reporting. The Settlement Agreement and Order even states: “Target’s quality assurance procedures were reasonable and satisfied the standard of care. Target’s knowledge when the subject products were imported and offered for sale was that they complied with the lead paint standard. Notwithstanding satisfactory pre-production test results, certain units were subsequently found to contain impermissible levels of lead paint.” [Emphasis added] Notably, no lead-in-paint injuries were reported from the Target sales. The agreement also indicates that Target had begun to implement a new multi-stage testing and quality assurance initiative BEFORE the recalled items were manufactured, further confirming Target’s good faith and absence of presumed knowledge. Yet the company was forced to pay a $600,000 penalty for this unfortunate and regrettable incident. I also understand that many (if not all) penalties were imposed without negotiation, exposing the violative companies to an extended, expensive, highly public and risky investigation (with possible referral to the Department of Justice) if the settlement agreements were not signed. The inherently coercive nature of such demands, with appeal a practical impossibility for all but the largest violators, makes the CPSC’s penalty determination essentially final and non-negotiable. The power of the CPSC to impose penalties needs to be restricted to assure that the threat of penalties will not adversely affect the operation of markets and to eliminate abuse. In the current proposal, the ability of the CPSC to impose penalties is for all practical purposes unfettered. This is neither necessary nor desirable. In Order to Preserve Flexibility, the Factors Fail to Discount ANY Possible Penalty Scenario. The Discussion has repeated instances where the agency declined to take a common sense position, ostensibly because circumstances exist where a penalty might possibly be merited. For instance, the Discussion states: “Some commenters stated that the Commission should reserve seeking penalties only for the most egregious and dangerous situations and that most violations do not involve bad intentions or ill will. . . . Since the knowledge requirements in the CPSA, FHSA, and FFA include presumed knowledge, as well as actual knowledge, the Commission declines to follow the commenters’ suggestion to seek a penalty only where there is evidence of bad intentions or ill will.” [Another similar formulation is found in the Discussion on Section 1119.4(a)(4).] I interpret this verbiage to mean that under circumstances where the conduct is NOT egregious (no ill will or bad intentions) and where the hazard is NOT dire, the Commission anticipates that circumstances may exist where a penalty may still be called for. This could occur, for instance, where the company is persistently in violation of law (perhaps because of inadequate operational controls) or had repeated recalls for the same violation. In my opinion, the right way to word the Factors would be to state that the absence of egregious conduct or substantial product hazard would be considered as a significant mitigating factor to be weighed against the presumed knowledge built into the “knowingly” definition (see below). This formulation would lend much greater clarity to the rules and Discussion set forth in the Factors. Unfortunately, if the CPSC wishes to preserve total flexibility, it will eventually act arbitrarily in setting penalties and hence unjustly. In the same vein, the Factors do not place enough emphasis on consideration of positive factors. While the bad behavior or failures of an offending company should be considered in setting penalties, so should mitigating factors without limitation. For instance, the long term record of compliance should be considered when a violation is up for penalty. The investment in good faith safety practices and supply chain management should mitigate against evidence of non-compliance. The consideration of mitigating factors needs to be explicitly added to the process to ensure that mitigation is part of every penalty deliberation. The Factors Fail to Recognize the Potential for Myriad Technical Violations of the CPSA, as amended. The Discussion states: “Two commenters suggested that the Commission should evaluate violations of regulatory standards by distinguishing those that do not involve actual risk of harm, but rather the potential risk of harm, differently than those that do involve real potential for significant injury. The Commission declines to accept the suggestion that it distinguish any violations of regulatory standards, rule, or bans in this manner. The promulgation of a mandatory regulation by the Commission, or by Congress when they enact statutory bans and standards, carries with it a corresponding determination that the standard is necessary to address an unreasonable risk of injury presented by the product included within its scope. Violations of such a statutory provision or Commission regulation presents a risk to consumers that has previously been determined to be addressed by compliance with the statute or regulation. If the commenters’ suggestion were followed, the Commission would be classifying certain mandatory standards as more important than others. In addition, the comment does not account for the fact that the Commission can seek penalties for other prohibited act violations (in addition to knowing violations of mandatory rules, standards or bans).” As noted above, the Factors seem to seek flexibility without acknowledging the common sense reality of the regulated community’s situation. Regulated companies certainly recognize and respect that the entirety of the law must be observed. Nevertheless, because the CPSIA imposes so many tiny, hyper-technical obligations that can be the cause of (multiple) violations, penalties for repeated technical violations is a realistic possibility for almost all companies. If, for instance, a company has 50 violations of the advertising rules because of missing warning labels in catalogs or on a website (out of 10,000 relevant catalog listings), should they be subject to penalty? In my opinion, the Factors should clearly set out that some kind of violations are IN FACT different in nature and that the presumption will be AGAINST penalties in such circumstances. This preserves the ability of the agency to seek penalties for technical violations if the rare circumstances arise that merit such action. Clear statements of a presumption against penalties for technical or other low risk violations avoids terrifying the regulated community with the implicit threat that every violation could be subject to heavy penalty. [Consider the value of this change on the current trend among resale shops to refuse children’s goods.] For regulated companies, this clarification will significantly raise comfort levels and thereby strengthen the healthy operation of the marketplace. The Definition of “Knowingly” Should Not Expand the Use of Penalties under the CPSIA. The definition of “knowingly” under Section 20 of the CPSA introduces yet another opportunity for penalty abuse by the agency and should be restrained in the Civil Penalties Factors guidance. Under Section 20 of the CPSA, a “knowing” violation of the law by someone other than a distributor, manufacturer or private labeler will not result in a penalty unless the offender had ACTUAL knowledge. However, for distributors, manufacturers or private labelers, the definition of “knowingly” includes imputed knowledge, allowing virtually unlimited 20-20 hindsight by the CPSC. The potential for penalty abuse is demonstrated by the penalties announced for lead-in-paint in July. In the publicly-released documents relating to the first nine cases, each offender was apparently forced to sign an agreement admitting a “knowing” violation of the law, despite the fact that the agreements do not document actual knowledge. It appears to me that the imputed reasonable man standard could be described as “woulda, coulda, shoulda” (also known as 20-20 hindsight). Under the imputed knowledge standard, virtually any presumed knowledge can be imputed, especially when determined ex parte as is the practice at the CPSC. In the case of lead-in-paint, all the CPSC needs to do is impute a failed test report to create the illusion of a “knowing” violation (a test that may or may not have been run, even if not legally required). Even a manufacturing error could be subject to a “knowing” violation on this basis (as in, a reasonable man would have controlled for that error). We believe that a lead-in-paint violation backed up with PASSING test reports could also be considered a “knowing” violation since a reasonable man would have (obviously) run a more careful test on the right units to reveal the problem. [Target was cited for a “[failure”] to take adequate action to ensure . . . .”] The opportunity to assess penalties based on imputed knowledge verges on a strict liability standard, which is NOT what the law imposes. If the CPSC wants to impose strict liability penalties, it should say so in plain language. The issue of how to administer the definition of “knowingly” is especially important in light of the mind-boggling array of possible violations under the law. I would direct your attention to the Discussion section of the Factors in which the prohibited acts are described. ONE example of the new scope of the prohibited acts is set out thus: “The new amendments expand the acts prohibited under the CPSA and give the Commission the ability to enforce violations of the FHSA and FFA as prohibited acts under the CPSA. Thus, the amended CPSA now prohibits the sale, offer for sale, distribution in commerce, or importation into the United States of any consumer product, or other product or substance that is regulated under the CPSA or any other Act enforced by the Commission, that is not in conformity with an applicable consumer product safety rule under the CPSA, or any similar rule, regulation, standard, or ban under any other Act enforced by the Commission. 15 U.S.C. 2068(a)(1). ” [Emphasis added] For perspective on the breadth of these requirements, please note that at the ICPHSO conference in February 2009, I asked in a public Q&A session for a list of these requirements and was instructed by a senior CPSC staff person (in front of an audience of several hundred people) to hire a lawyer. No list of these requirements exists to my knowledge. As a member of the regulated community, I fear imputed knowledge of an ever-changing and evolving set of rules, regulations, standards and laws that have not been listed clearly by the regulatory agency. The CPSC Commission has an obligation to issue clearer guidelines that sets out precisely how imputed knowledge penalties will be assessed. While the Commission may prefer to retain full authority and flexibility for all possible fact scenarios, the ultra-flexible guidelines may create new and unintended victims. The Definition of “Defect” Needs to be Reconsidered. In the Discussion section of the Factors, the distinction between a product defect and an act of non-compliance has been extinguished. This is very unfortunate and needs to be reversed. While non-compliance can be controlled (at least in theory), product defects cannot always be anticipated, even by appropriate risk management practices. Despite the holding of the Factors on this point, the CPSC is well-aware of this problem and has admitted that it is no better than the regulated community at anticipating the unknown and the unknowable. On May 12, at the CPSC Tracking Labels panel discussion (Second Panel video, beginning at 58:40), John “Gib” Mullan, Assistant Executive Director, Office of Compliance and Field Operations, made the following statement during Q&A: “It’s hard though to predict risk sometimes. I mean, we do this. We don’t always see it coming. If you’d asked me a couple years ago, how safe is that drywall in your house, I would have said, you know, really safe. Man, that’s all safe stuff! But right now we’re dealing with drywall in a big way and that’s something that’s a brand new thing.” This analysis by Mr. Mullan essentially concedes that product defects cannot be equated with non-compliance since compliance can be planned for but latent product defects cannot be easily anticipated. If the CPSC cannot foresee latent safety issues in familiar products like drywall, the regulated community cannot possibly be held to a higher standard. Presumably, if the CPSC intends to impose unrealistic standards on the regulated community by allowing penalties for product defects, the agency would accept sanctions for its failure to anticipate the drywall problem in Florida and Louisiana. Of course, drywall sanctions would not be fair to the agency, and equating unanticipated product defects with non-compliance under the Factors would be no less unfair. Given Mr. Mullan’s observation of the difficulty of anticipating certain product defects or product problems, it is hard to comprehend why the agency chose to allow consideration of the complexity of identifying a particular product hazard ONLY IF the business had filed in a timely fashion under Section 15. This is a remarkably inflexible position, given that a business is required to file “immediately” under Section 15(b) (interpreted to be 24 hour notice) if it “obtains information which reasonably supports the conclusion that such product . . . contains a defect which could create a [a product defect which (because of the pattern of defect, the number of defective products distributed in commerce, the severity of the risk, or otherwise) creates a substantial risk of injury to the public] . . . .” In other words, a business has only 24 hours to report information that reasonably supports the conclusion that a serious product defect exists. If the incident is a highly complex situation, it might be difficult or ill-advised to report that quickly (further research might be needed, among other things). Of course, due process reasons may underlie a failure to file in the 24-hour time window, too. For hidden or emerging hazards, this formulation of the Factors is tantamount to saying that NO extenuating circumstances will be considered to mitigate penalties for unanticipated, highly-complex hazards. If that’s the intention of the CPSC, I think the rule would state it directly so that the regulated community can familiarize itself with the policy. Small Business Impact Guidelines Are Too Vague. The guidance provided by the Factors on the appropriateness of penalties on small businesses is in this author’s opinion so vague as to permit and support any conceivable outcome. The Factors as written seem to express a view that only the size of a penalty will impact small business. I do not agree with this as penalties may have a greater indirect impact on the small business community. In my opinion, the intent of this provision is to ensure that a rational and clearly stated policy on penalties will be designed to encourage the continued investment of the small business community in children’s products. These indirect or collateral impacts can also be regarded as “undue” under the statute. Small businesses are the economy’s most vulnerable participants. They are the most likely Darwinian victim of any shake-out in the marketplace. The CPSC’s Civil Penalty Factors will form base expectations for small businesses and will certainly affect their decision-making. Small businesses, facing an incomprehensible blizzard of requirements under this ultra-complex law, can be anticipated to fail in substantial ways. [However, it does not follow that small businesses will fail their customers or endanger consumers in general or in greater proportion than large companies.] Small businesses recognize their disadvantage in this new highly complex legal environment and will look to the agency for clues on their likely treatment in the event of regulatory problems. The outpouring of small business protests over the CPSIA in the past two years is evidence of the real fear in this community. For this reason, the vagueness of the Factors in defining the exposure and limits on penalties will ITSELF depress the small business environment. If a small business has exhibited good faith and its non-compliance does not lead to injury or reasonably foreseeable exposure of the public to risk of injury, the Factors should indicate that there is a presumption against penalties . If a pattern of non-compliance emerges in a series of interactions with the CPSC (e.g., a company clearly is informed of its legal obligations but persists in violating the law), then perhaps penalties can be used to bring the company into compliance. The selective use of penalties makes the issue of protecting small business much easier to administer. Thus, a clear statement of presumptions in setting penalties for small businesses would go far in limiting the impact on this fragile community. Lack of Focus on the Purpose of Penalties Will Lead to Arbitrary Results. The Discussion in the Factors makes clear that the agency will not take into account the materiality of risk caused by violations or restrict its penalties to egregious conduct. In not restricting penalties in this way, the CPSC opens up all violations to possible assessment of penalties. By considering virtually unlimited options for penalties, the ability of the agency to administer rational, consistent and predictable imposition of penalties will greatly decline. As noted above, penalties assessed this year seem arbitrary. The consequence of arbitrariness could be quite damaging to the regulated markets. These consequences deserve deep consideration by the agency. Once doubt about the fairness, consistency or rationality of “justice” under the civil penalties provision creeps into the mindset of the marketplace, investment decisions will start to be made differently. Business people prefer stable and predictable returns on their investments. If they perceive random justice, fairly or not, in children’s product markets, businesses may choose to shift their investment elsewhere to obtain more certain returns, or take other measures to protect their limited capital (such as draining resources from the company, significantly reducing product development investment expenses or restricting other business innovations). A useful change in the Factors would be a formalized appeal process which can independently and efficiently consider the merits of objections to penalties. While an independent appeal process may have the effect of limiting the authority of the agency to assess penalties, this process will also build confidence in the fairness of the process and in the agency itself. In the long run, a closer relationship with industry will lead to better safety outcomes, so this investment in mutual satisfaction with fair penalty administration will accrue to the benefit of the agency and consumers at large. Business Judgment, if Properly Exercised, Should be a Factor in Civil Penalties. I want to reiterate the point I made in my December 17 comment letter that the exercise of business judgment needs to respected by the CPSC and included as a factor in the setting of penalties. The exercise of reasonable business judgment is necessary to administer any operating business. The complexity of the CPSIA and CPSA is well-known and well-documented. Thousands of business questions remain unanswered by the CPSC since passage of the CPSIA almost 14 months ago, leaving open a vast array of legal or factual ambiguities and forcing critical business decisions to be made with great uncertainty. The fact that violations of the CPSIA can create civil or even criminal liability only exacerbates the problems faced by business managers today. Given that circumstance, it would be unfortunate if the CPSC were permitted to exercise 20-20 hindsight on reasonable decision-making. Notably, the Business Judgment Rule was developed to help corporate boards deal with basically the same issue, namely that managers will not exercise judgment if all decisions are subject to liability. A reasonable safe harbor would be a constructive addition to the Factors. The CPSC needs to recognize that only by cultivating the cooperation of the business community can safety gains be made and held. A fear-based enforcement system will lead to market dropouts and possibly bad behavior to avoid detection. Other federal agencies have long taken the approach of rewarding conscientious behavior and responsible decision-making. The Factors should take into account and respect the exercise of sound business judgment. The Factors Should Also Take into Account the Actions and Inactions of the CPSC. The Civil Penalty Factors betray a one-sided view of violative behavior under the CPSA and related statutes. While the Factors carefully document a variety of factors in the behavior of the offending company for consideration, it omits extenuating factors such as the behavior of the regulatory agency itself. For instance, right now there are thousands of unanswered questions in the possession of the CPSC, many of which are many months old. What if those unanswered questions relate to a penalty case? What if the pendency of an unanswered question forced a company to make a business judgment that is later deemed violative – is this entirely the company’s fault? There is no Factor enumerated which would introduce the behavior of the CPSC into consideration as a mitigating factor. Mitigating factors that might be relevant include (a) the investment made by the agency in education of a particular subgroup in the regulated community (Did the CPSC give seminars at trade shows or reach out to trade show participants regularly?), (b) the outreach effort made by the agency (Was a liaison office formed? Did the CPSC contact members of the regulatory community for counseling or Q&A? Did it attempt to run seminars on site for regulated companies to help broaden understanding of the complex new laws? Did it answer reasonable questions on a timely basis?), (c) the availability of programs to reward good compliance efforts, (d) the existence of prior disclosure options to eliminate penalties, (e) the rational and consistent pattern of penalties imposed by the CPSC, (f) the ability to appeal penalties to a neutral third party on a reasonable basis (In other words, has the agency attempted to relieve the coercive nature of the current penalty process?), and so on. Compliance is a two-way street. The idea that compliance is entirely the responsibility of the regulated community and that the regulatory agency has no influence over or any responsibility for compliance results, will not likely stand the test of time. The CPSC can anticipate and address this problem by building a fairer and more equitable penalty system upfront, something that will accrue to the benefit of the agency over time. We Support the Factors Which Evidence Bad Faith or a Pattern of Non-compliance. The inclusion of factors which reflects the consistent bad behavior of certain companies is long overdue. It is hard to not believe that we owe the existence of the CPSIA in part to repeat offenders of the past. While the purpose of penalties and even a regulatory agency itself could be debated, there is no doubt that these cases involve unnecessary risk to the public and demonstrate an intolerable disrespect for the law. That said, I do not believe that all infractions demonstrate disrespect for the law or operational incompetence. Careful and balanced factual inquiry is necessary to properly administer justice under the CPSA and to maintain a safe marketplace. I do not think that this factor should be over-played, however, as a market administered with an unrealistic expectation of perfect compliance with an ultra-complex law will be as self-defeating as lax treatment of repeat offenders. Some middle point will produce the best results for all concerned, including consumers. Thank you for considering my views on this important topic. Sincerely, Richard Woldenberg Chairman Learning Resources, Inc. 380 North Fairway Drive Vernon Hills, IL 60061

More here:
CPSIA – My Comment Letter on Civil Penalty Factors

CPSIA – Washington Times Trashes CPSC’s "Resale Roundup"

THE WASHINGTON TIMES Thursday, September 3, 2009 EDITORIAL: From yard sales to jail yards When federal agents can swoop down on your personal garage sale and arrest you for selling the wrong old doll, this is no longer the land of the free. Yet just such a scenario is possible because of a campaign called Resale Roundup, which stems from last year’s jobs-destroying Consumer Product Safety Improvement Act.

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CPSIA – Washington Times Trashes CPSC’s "Resale Roundup"