(Credit: Paul Turner/iStockphoto.com)
From 2011 to 2012, Mr. Coffee faced what some call a “messy brew” problem: The brewing chamber on one of its single-serve machines was occasionally popping open and spraying hot water and coffee grounds at customers.
Boca Raton-based Jarden Consumer Solutions, owner of the Mr. Coffee brand, received at least 32 reports of burn injuries. But according to the Consumer Product Safety Commission, the company failed to immediately report the problem to federal regulators. Jarden, part of Sunbeam Products Inc., settled for $4.5 million last week but did not admit liability.
The case, unremarkable in the annals of consumer product safety violations, stands out for a different reason. The settlement revealed a growing divide at the consumer agency over what basis exists for fining companies a certain dollar amount — and whether, for instance, some penalties are too high. Nearly all of the commission’s civil penalties arise from allegations that a company was too late in reporting a dangerous defect.
Joseph Mohorovic.Courtesy photo
Joseph Mohorovic, a Republican member of the agency, voted against the Mr. Coffee penalty for what he saw as another example of an arbitrary civil penalty. Mohorovic turned up the heat as the commissioners on Wednesday prepare to meet in Washington at an annual meeting to hash out priorities.
In a withering dissent against the Mr. Coffee penalty, the agency’s second largest, Mohorovic pointed to a $4.3 million penalty in 2014 against a manufacturer of mini-bikes and go-karts that posed a fire hazard. Mohorovic, comparing the settlements, said the higher penalty in the coffee case struck him as excessive. He questioned whether the amount was driven by Jarden’s “bad fortune of being farther back in the queue.”
“The Consumer Product Safety Act directs us to consider the severity of the risk and the occurrence of injury when imposing penalties, but the notion that we would penalize the relatively minor burns caused by splattered hot water more heavily than we would penalize the life-threatening consequences of children sitting astride flaming mini-bikes is baffling to me, to put it charitably,” Mohorovic wrote this month.
Elliot Kaye, the Consumer Product Safety Commission chairman, said Congress in 2008 gave power to the agency to seek higher civil penalties. An amendment to the Consumer Product Safety Act lifted the penalty cap from $1.8 million to $15 million.
“I feel like Congress was pretty clear,” Kaye told The National Law Journal. “They didn’t raise the level just for the purpose of changing numbers on a piece of paper. They raised that level to have a much higher deterrent effect.”
CRITICISM BUILDS AT COMMISSION
Mohorovic wants the product safety commission to develop a rubric that he said would provide a “logical nexus between a penalty amount and the factors behind a case.” Mohorovic, one of five members of the commission, isn’t alone in his criticism of the agency’s penalties.
Commissioner Ann Marie Buerkle said in a statement in May: “There appears to be little or no consistency on how factors are treated from case to case.”
In assessing alleged violations, agency officials look at factors that include the gravity of the violation, the number of defective products that were distributed and the size of the business. But the Consumer Product Safety Act provides little guidance on how those factors should be weighed in setting a penalty — and the commission has not given more specific guidance through its regulations, Buerkle said.
Mohorovic and Buerkle base their critiques more on what they see as the randomness of the penalties than the amounts themselves.
Congress instructed the commission to adopt a rule for determining penalties. In the regulation that followed, the commission identified the factors considered in assessing a civil penalty without specifying how heavily individual factors would be weighed.
“Without question, it was to allow the maximum flexibility in assessing penalties,” said Crowell & Moring partner Cheryl Falvey, a former general counsel of the commission.
Falvey said it can be difficult for companies to determine whether an injury stems from a “lemon” product, a consumer’s misuse or an actual defect that could pose a “substantial product hazard.”
The agency has the benefit of hindsight in its investigation in determining when the company should have identified and reported a possible problem.
“That standard is very subjective,” Falvey said.
CLAIMS TESTED IN COURT
Some companies refuse to settle. Before the current tension at the agency flared, it was almost unheard of for a major company to refuse to settle with the commission and force the government to sue, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo partner Chuck Samuels said.
Last year, the U.S. Justice Department sued Michaels Inc. in a Texas federal court, alleging the arts and crafts retailer was late to report a defect with glass vases that easily shattered in customers’ hands. Sidley Austin represents Michaels.
The Justice Department later sued Spectrum Brands Inc. in a Wisconsin federal court, alleging the company failed to immediately report a problem with handles that broke off from Black & Decker brand coffee pots.
The company’s lawyers at Miles & Stockbridge, Godfrey & Kahn, and Mayer Brown last week asked a judge to reject the government’s case.
“We have the unprecedented situation of at least two pending lawsuits involving very respected companies,” said Samuels, who plans to testify about civil penalties Wednesday at the commission’s hearing. “The fact that they feel so arbitrarily dealt with just shows you that the system is not in balance.”
‘ONE SIZE DOES NOT FIT ALL’
Recent comments from Kaye, the commission chairman, have raised questions about what’s driving high-dollar settlements.
Elliot Kaye.Courtesy photo
In his March 2 keynote address at the annual symposium of the International Consumer Product Health & Safety Organization, Kaye pushed for higher penalties in cases where the facts warrant tougher enforcement.
Although he does not want the commission to go on a “joy ride,” Kaye said, he does want civil penalties to reach “double million-dollar digits.”
“Right now, we’re in the single-millions. I’d like to see double digits in some of these civil penalties based on some of the fact patterns that we’re seeing,” he said.
On March 25, three weeks after Kaye’s remarks, the commission approved a $15.45 million penalty against Gree Electric Appliances Inc. over defective humidifiers that overheated and caught fire. The amount is the agency’s largest-ever civil penalty.
“I think case-by-case is better in the sense that one size does not fit all,” Kaye said in an interview. “What might make sense with one product or one product category would not make sense with another one, and I wouldn’t want to artificially tie our hands and impact consumer safety by something that, in my mind, would be arbitrary.”
Kaye said a standardized penalty system could give companies a guide for keeping unsafe products in the market while avoiding higher civil penalties.
“I think if there’s a road map that’s created that leads to no violations, that’s fantastic. But I’m not comfortable with a road map that allows people to exploit the system and continue to dump dangerous products on the market but pull up just short of what would trigger a civil penalty,” Kaye said. “I don’t think that furthers consumer safety, and I don’t think that ultimately helps the companies that have invested a lot of money in good compliance systems when they’re trying to do the right thing.”
Mohorovic said the commission’s goal should not be to punish companies but to protect consumers. He lamented what he described as a lack of “teachable moments where we can provide better clarity and expectations for the regulated community.”
Kaye said he was suspicious that the call for increased transparency in penalties was a potential “proxy” for a push to lower civil penalties.
“I think that there’s a difference between not knowing what’s going on and not liking what’s going on, and I think we need to be a little bit more honest about what the debate actually is,” he said.