The Product Safety Report©
Law Offices of David H. Baker LLC
An Analysis of the Term “Substantial Risk of Injury” Under Section 15(a)(2) of the Consumer Product Safety Act
With the enactment of the Consumer Product Safety Improvement Act (“CPSIA”) on August 14, 2008, manufacturers, distributors and retailers had to learn to deal with many new realities in product safety regulation, including a much tighter standard for lead in surface coatings, a new standard for total lead for children’s products, a new standard for phthalates in children’s toys and certain child care articles and extensive new testing and certification requirements generally. See, generally, Pub. L. 110-314 (2008). And while there has been a predictable hue and cry about the cost, and the time and effort, required to comply with these new CPSIA mandated programs, additional regulation of heavy metals would, in this writer’s opinion, likely have occurred anyway due to the plethora of new state laws (Washington State, Illinois, Massachusetts, California, Wisconsin, etc.) on lead, phthalates and other heavy metals, and the influence of “precautionary principle” type product safety regulation in the EC and Canada. Realistically, a large manufacturer today has to comply with the laws of all fifty states, the U.S. and Canada (and for some, the EC), if it wants to sell consumer products into the big box stores. I suspect that the market place would have ultimately required similar lead and phthalate regulation, even if CPSIA had not been enacted.
Increase in Maximum Civil Penalty to $15 Million
A more unique aspect of the CPSIA, which is just starting to come into play, is the increase in the maximum civil penalty for late reporting of “substantial product hazards” created by consumer products. Effective for reporting obligations accruing on or after August 15, 2009, the maximum civil penalty amount for late reporting is $15 million – up from an indexed amount of $1.825 million under the prior law. Section 20(a) of Consumer Product Safety Act, note, and 74 Fed. Reg. 45101 (2009). This is a nearly nine fold increase. The House bill that was the primary basis for the CPSIA, H.R. 4040, had a maximum penalty limit of $10 million. The Senate bill, championed by Senator Pryor, S. 2054, had a maximum penalty limit of $20 million (with various permutations). In the great tradition of carefully thought out legislation, I suspect the two houses simply compromised in the middle, and so today we have a $15 million penalty limit.
What does this increased penalty limit mean to manufacturers, distributors and retailers (hereinafter “manufacturers”) of consumer products in the U.S? I think it will have a number of possible impacts on the reporting of defective products by manufacturers. Some manufacturers will probably report everything and anything, to avoid the risk of this huge penalty (likely resulting in an increase of Full Reports with no, or few, injuries). This approach gets to the central point of this article – what is the standard for reporting under Section 15(b)(3) of the Consumer Product Safety Act. Others will back away from the CPSC, figuring it is better to be unseen and unheard (and eventually the CPSC’s Legal Division will find them and they will pay a substantial penalty). And perhaps the most intelligent companies will fine tune their Risk Management, Claims and Litigation programs, to be able to tell “immediately”, as that term is used in the Mirama court decisions, when they have received enough information to mandate a report to the CPSC.U.S. v. Mirama Enterprises, Inc., 185 F. Supp. 2nd 1148 (S.D. Cal) 2002, aff’d387 F. 3rd 983 (9th Cir. 2004).
Meaning of “Substantial Risk of Injury”
But what are all of these companies reporting? Section 15 remains, in my opinion, a poorly understand, and confusing, statutory provision. It uses the term “substantial risk of injury” in Section 15(a) and then never defines it. And the CPSC’s Interpretive Regulation (16 CFR Part 1115) designed to flesh out the statutory provisions, while helpful, may create its own ambiguities. There are really no court decisions that discuss, as opposed to parrot, the terms “substantial product hazard” or “substantial risk of injury”. And even the Ninth Circuit’s decision in Mirama glosses over the definition of injury (referencing “serious risk of injury” near the conclusion of the opinion, with no further discussion). There are several unpublished Administrative Law Judge (“ALJ”) decisions (mostly by William B. Moran from the late 90’s and early 2000 time period), but the cases are not published and are rarely cited. The most prominent is Judge Moran’s preliminary decision in the Central Sprinkler litigation and it does not deal with the meaning of injury. In the Matter of Central Sprinkler Corp and Central Sprinkler Co., CPSC Docket No. 98-2. I am not even sure how much precedential value the former ALJ decisions have with the current Commission, or the courts. Finally, the agency’s General Counsel has periodically issued Advisory Opinions on various issues related to CPSC jurisdication. However, none of them address the meaning of substantial risk of injury or substantial product hazard. See, for example, General Counsel Advisory Opinions 19, 20, 66, 73, 86, 90, 101, 103, 120, 146 and 176).
A. Section 15 of the Consumer Product Safety Act
It seems to me that the analysis, like all statutory interpretation, must begin with the law itself.
Section 15 provides, in pertinent part, as follows:
(a) For purposes of this section, the term “substantial product hazard” means —
(1) a failure to comply with an applicable consumer product safety rule….which creates a substantial risk of injury to the public, or
(2) 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.
Section 15(b)(3) continues, as follows:
(b) Every manufacturer of a consumer product… distributed in commerce, and every distributor and retailer of such product, who obtains information which reasonably supports the conclusion that such product–
(1) fails to comply with an applicable consumer product safety rule or with a voluntary consumer product safety standard upon which the Commission has relied under section 9;
(2) fails to comply with any other rule, regulation, standard or ban under this chapter or any other Act enforced by the Commission;
(3) contains a defect which could create a substantial product hazard described in subsection(a)(2); or
(4) creates an unreasonable risk of serious injury or death,
shall immediately inform the Commission of such failure to comply, of such defect, or of such risk, unless such manufacturer, distributor, or retailer has actual knowledge that the Commission has been adequately informed of such defect, failure to comply, or such risk…
Section 15(a) and (b) of Consumer Product Safety Act (emphasis added)
Section 15(b)(1) is fairly clear, because there is little left to interpret. A failure to comply with a mandatory standard, or a voluntary standard upon which the Commission has relied under Section 9 of the Act, requires reporting. My experience with this provision is that if a manufacturer fails to company with a mandatory standard, it absolutely must be reported. And, as a result, you rarely get to the meaning of the term “substantial risk of injury” under this section. I believe that some discretion was exercised in the past, when deviations from the thirty plus regulated product standards were truly de minimis (such as a label in the wrong place, or a setting off by 1/32 of an inch, etc.), and Commission staff correctly concluded that there was no risk of injury and did not require reporting. However, I do not think there is much discretion exercised in such matters today. So injury is not relevant here.
Section 15(b)(3) (formerly 15(b)(2)) is a different story. Section 15(b)(3) requires two elements – a defect and the creation of a substantial product hazard.
The term defect is not defined in the statute. However, I think the term is readily understood from its dictionary definition: “lack of something for completeness; deficiency; shortcoming; an imperfection or weakness, fault, flaw; blemish”. Webster’s New World College Dictionary, Fourth Edition. Moreover, the CPSC Interpretive Regulation does an excellent job of spelling out that a defect involves a manufacturing error, a design error, or a warning or instructional error. In addition, the discussion of Defect at 16 CFR Part 1115.4 is very clear, and the examples offered are very helpful. To my mind, the meaning of the term “defect” is not an issue.
The term substantial product hazard refers back to Section 15(a)(2) and appears to be defined by the presence of three factors – the pattern of defect, the number of defective products in commerce and the severity of the risk – and then resulting in a substantial risk of injury. According to the Interpretive Regulation, because this clause is written in the disjunctive, the presence of any of these factors could support a finding of substantial product hazard. 16 CFR Part 1115.12(g)(1). I am not convinced of that position. The only reference to a disjunctive term in this section is the OR in “or otherwise”, which follows these three key factors. Moreover, it does not make a lot of sense to me that just one of the factors could create a substantial product hazard. What if there was clear pattern of defect, but only ten units were sold and the risk was miniscule. So you have a pattern of defect. Do you have a substantial product hazard? I don’t think so. What if there were no defect, but millions of units sold. Do you have a substantial product hazard? Again, I don’t think so. This interpretation makes no sense. Regardless of this disagreement, let’s look at each term in the definition individually.
The term “a pattern of defect”, as explained by the Interpretive Regulation, simply reiterates the language defining defect (a defect in design, construction, warning/instructions, etc.).
The “number of defective products in commerce” is seemingly intuitive. If millions of the product were placed in commerce, it would probably be a greater hazard than if five hundred were placed in commerce. However, the key issue here is the injury that might be created, not the number.
Finally, the statute summarily addresses injury by using the term “severity of the risk” and then not defining it.
The Commission, in its Interpretive Regulations, defines severity of the risk as follows:
A risk is severe if the injury which might occur is serious and/or if the injury is likely to occur… Part 1115.12(g)(1)(iii)
So by its own regulation, the Commission is requiring a “serious injury” and one that is likely to occur in order to constitute a substantial product hazard and trigger a reporting obligation. What is a serious injury? The only definition of injury set forth in statute is the definition of “risk of injury” in the original definitional section of the Consumer Product Safety Act:
The term risk of injury means a risk of death, personal injury, or frequent illness.
Section 3(a)(14) of Consumer Product Safety Act.
All parties would, hopefully, agree on the meaning of death. (I suppose in Washington, D.C., there is probably someone that would disagree with just about any viewpoint, including death – perhaps it is merely a suspension in time?). However, I think there could easily be some disagreement on the meaning of the words: personal injury or frequent illness. Is being splashed by hot coffee (the famous case against Starbucks), or even hot chocolate, a personal injury? Is it a serious injury? Is a two week cold a frequent illness? Are regular headaches a frequent illness? Where do you draw the line on injury? I don’t think the statutory definition creates any bright line tests. It simply defines injury as personal injury or illness. A more detailed definition of injury is needed to provide guidance to companies on when to report.
B. 16 CFR Part 1115.12: Information which should be reported; evaluating substantial product hazard
The only meaningful definition of injury in the statute, legislature history, case law, or regulation is that found under Part 1115.12, Information which should be reported; evaluating substantial product hazard.
After reiterating the basic language of Section 15(b), the Interpretive Regulation covers the following issues:
(b) Failure to comply (relating to Section 15(b)(1)).
(c) Unreasonable risk of serious injury or death (relating to Section 15(b)(4)).
(d) Death or Grievous Bodily Injury (relating to Section 15(b)(3))
(Note: New Section 15(b)(2) relating to compliance with standards or bans under other CPSC Acts, was not in existence at the time the Interpretive Regulation was last revised and, therefore, is not referenced in the Interpretive Regulation.)
Part 1115.12(d) provides in pertinent part as follows:
Information indicating that a noncompliance or a defect in a consumer product has caused, may have caused, or contributed to the causing, or could cause or contribute to the causing of a death or grievous bodily injury (e.g., mutilation, amputation/dismemberment, disfigurement, loss of important bodily functions, debilitating internal disorders, severe burns, severe electrical shocks, and injuries likely to require extended hospitalization) must be reported….
This is the only detailed definition of injury in the law, case law or regulations on Section 15. A similar definition is utilized in 16 CFR Part 1116 relating to Section 37 reporting. See 16 CFR Part 1116.2(b), Grievous Bodily Injury. However, Section 37 is focused on reporting on three lawsuits or settlements in a two year period, not any incident data, so it has a different ambit.
While the Commission’s Interpretive Regulations are truly only the agency’sinterpretation of the reporting requirements, they are generally treated more like binding regulations by the Commission and the Courts. Interestingly, Judge Keep in the Mirama District Court Decision, does refers to them as Guidelines, not regulations, so it appears that at least one court understand the distinction.
In 16 CFR Part 1115.12(e), Other Information Indicating a defect…, the Interpretive Regulation states:
Even if there are no reports of a potential for an actual death or grievous bodily injury, other information may indicate a reportable defect…. In evaluating whether or when a subject firm should have been reported, the Commission will deem a subject firm to know what a reasonable and product manufacturer….would know.
In the preamble to the issuance of the 1978 version of Part 1115, the Commission commented on this language as follows:
In this regulation, the Commission sets out clearly and simply what the Commission sees as the congressionally mandated reporting obligations of subject firms in making determinations as to the existence of reportable non-complying products or defects, and the role of the Commission, and its staff in making determinations as to the existence of substantial product hazards. 43 Fed. Reg. 34993 (1978).
One could conclude from the Commission’s comment on its own regulation that the intent was to focus on death and grievous bodily injuries.
Clearly, other information such as engineering or quality control reports, design changes, customer calls and letters to the company, warranty information and requests for replacements are relevant (using a reasonable person standard). See 16 CFR Part 1115.12(e). And this type of information is certainly considered by today’s Commission. However, the reality is that most products undergo changes, are subject to customer complaints and get many warranty or replacement requests. It is a very slippery slope, in my opinion, to rely on such information for a Section 15 report. Grievous bodily injury was the bright line test used by the Commission when the statute was first “interpreted” by the agency, and probably for good reason.
C. Interpretation by the Courts
With an issue of statutory and/or regulatory construction, one would normally look to the courts for guidance. This is certainly true for many larger independent regulatory agencies and departments of government. For the SEC and EPA bars, district court and appellate court cases have set long standing precedents in many areas of statutory construction. However, for the CPSC, there are fewer than twenty cases on consumer product reporting that have gone to the courts over the past almost forty years. And none of the cases have discussed in any detail the meaning of the term “substantial risk of injury”. One of the reasons for the lack of court precedent is that most manufacturers are reluctant to allow a case involving their sale of an arguably “defective” product to be played out in public before a court, with briefs and declarations available to the public and news coverage of a court’s decision. So most late reporting cases settle with a Consent Decree or Settlement Agreement in which the manufacturer denies all the charges and the summary of the facts is negotiated by the parties.
Interestingly, the one significant court case involving late reporting summarizes the manufacturer’s obligation to report as follows:
Section 2064(b) requires a manufacturer, distributor or retailer of a product to notify the Commission if it obtains information that reasonably suggests the product creates serious risks of injury.
U.S. v. Mirama Enterprises, Inc., 387 F. 3d 983, 989 (9th Cir. 2004).
So the key decision directly discussing defect, substantial product hazard and timeliness of reporting, summarizes the law as reporting of a product that “creates serious risks of injury”.
D. CPSC Retailer Reporting Guidelines
These concepts of risk of injury and grievous bodily injury were clearly carried over in the Office of Compliance’s Retailing Reporting Guidelines, first announced at an ICPHSO Conference on February 23, 2005. These Guidelines, which were expressly not reviewed by the Commission, and do not have the force or effect of law, are actually among the most clear guidelines issued by the agency as to a company’s reporting obligation. They are also they only guidelines that provide objective measurements for making a reporting decision. And what is the general measure used by these Guidelines in making a reporting decision? Answer: Injuries and hazards.
In simple terms, the Retailer Reporting Guidelines set up a matrix of Automatic Triggers, based upon injury (such as electrocution, choking or drowning), and Cumulative Triggers, based upon hazards (such as fire, choking, chemical exposure) likely to lead to an injury (such as five injuries from the same product) . Once a retailer receives the requisite type or number of reports of injury, it must immediately report that information to the Commission. This is an extremely brief summary of the program, but the point here is that when given an opportunity to define the standard for retailer reporting, senior Compliance employees chose injury as the barometer for making a report.
E. Prior Section 15 Settlements
The Commission’s excellent website now sets forth every civil penalty settlement dating back to 1977. A review of settlement agreements dealing with alleged late reporting (as opposed to drawstring on hoodies, lack of GFCIs on hair dryers, FFA violations, etc.) is quite revealing. For purposes of brevity, I have summarized settlements in the past five fiscal years, starting with 2011, and then have looked back to 2001, 1991 and 1981 (ten, twenty and thirty years back in time).
2011 fiscal year:
Not yet complete.
Raynor Marketing: 14 injuries “involving bumps and bruises”
2010 fiscal year:
No settlements relating to late reporting.
2009 fiscal year:
Wagner Spray Tech and Techtronic: No injuries; 11 reports of charger base melting.
Haier: One injury; 14 reports of fires.
2008 fiscal year:
Vornado Air Circulations Systems: No injuries; 24 reports of fires.
Stamina Products: 13 reports of injuries.
Ardisam: Two “serious” injuries.
HSN: 37 reports of injuries “including reports of at least four third degree burns” (Part 1115.12(d) grievous bodily injury standard).
TAP Enterprises: No injuries; two reports of smoke and fire.
2007 fiscal year:
Fisher Price: One serious injury.
Nexgrill: 20 fires; four “minor” injuries.
2001 fiscal year:
Lane Company: Five deaths.
Fisher-Price: Approximately fifteen injuries.
Tensor: Six burn injuries.
Cosco/Safety First: Multiple deaths and many serious injuries.
West Bend: Fires in home while occupants sleeping; no injuries apparent from settlement agreement.
Tropitone: 167 injuries, most grievous in nature.
1991 fiscal year:
Black & Decker: Four incidents of severe electrical shock.
Century Products: Ten incidents of potential choking.
Graco: “Several finger tip amputation incidents”
Turri Disposal: One very serious incident of bin overturning and causing head and chest injuries to young children.
1981 fiscal year:
Marriott: One serious injury on an amusement ride (“Willard’s Whizzer”), but not further described in settlement agreement.
Kawasaki Motors: Twenty serious injuries involving fractures, amputation or severe laceration.
White Rodgers: Five deaths and 16 serious injuries from exploding water heaters.
From a review of these settlements, it appears that the standard for failure to timely report defects and the payment of civil penalties in the first thirty years of the CPSC’s history focused on serious injury and death. It is not until the current five year period that there are penalties for failure to report defects that have caused no injuries, or very minor injuries.
This, of course, is a very simplistic analysis of the posted settlement agreements on the CPSC website. It would be instructive to chart the level of injury for every settlement agreement over the thirty four years of recorded history. However, from an overview of the settlement agreements from 1977 to date, one is clearly left with the impression that the earlier settlements dealt with death or serious injury.
Canadian Consumer Product Safety Act:
On December 15, 2010, the Parliament of Canada assented to a new sweeping federal product safety law that also requires evaluation of consumer products for “danger to human health or safety”. Section 2 of Canadian Consumer Product Safety Act (“CCPSA”). The Canadian product safety goes into effect on June 20, 2011. Interestingly, for purposes of this article, the measure of whether to report and possibly withdraw the product from the market is as follows:
…any unreasonable hazard – existing or potential – that is posed by a consumer product during or as a result of its normal or foreseeable use and that may reasonably by expected to cause the death of an individual exposed to it or have an adverse effect on that individual’s health – including an injury -……
Section 2 of CCPSA
There are penalties for advertising or selling a consumer product that is a danger to human health or safety. See Section 41 of CCPSA. And a manufacturer, importer or seller of a product that results in an occurrence of death, or adverse effect on health, including a serious injury, must provide a written report to the Minister within ten days of receiving notice of such incidents. Section 14 of CCPSA. So the new Canadian law also seems to focus on death and injury as trigger points for reporting. This is just a snapshot of the new law, and one is encouraged to review the Health Canada website for more detailed reporting information. However, the wording of the new law clearly emphasizes death and injury.
In conclusion, this writer would suggest that when prosecuting $15 million civil penalties, the Commission should carefully consider whether the statutory criterion of a substantial risk of injury has been met. In making that determination, the writer believes that the Commission should follow court precedent, its past action and its own regulations and consider whether the defect involved causes a risk of serious injury, grievous bodily injury, or injury relating in extended hospitalization, and not impose civil penalties for cases involving insignificant risks or minor injuries.
This short paper expands upon a presentation made at the ABA Law Seminar portion of the ICPHSO Conference in Orlando on February 25, 2011. The writer welcomes other views on this topic.
David H. Baker ([email protected]bakerlaw.com)
May 26, 2011