CPSC's $3.4M Office Depot Penalty Settlement Highlights Enforcement Trends
On May 27, 2015, the U.S. Consumer Product Safety Commission announced its civil penalty settlement with retailer Office Depot for $3.4 million. While the settlement may appear uneventful and consistent with recent CPSC civil penalties, its terms elucidate the Commission's current enforcement policy and regard for the responsibilities of consumer product retailers.
In the agreement, the CPSC alleged that Office Depot violated its Section 15(b) reporting obligation for two office chair models sold exclusively at its retail stores and online. Both were separately recalled for fall hazards; one was recalled by the importer in 2009, and the other was recalled by Office Depot in 2014.
Civil Penalty Amount
The amount of the civil penalty tends to be the main focus of every Commission settlement. The $3.4 million penalty against Office Depot is in line with settlements announced in the past year and is consistent with the overall CPSC trend toward higher penalties. Chairman Elliot Kaye promised escalating civil penalties in his statement released in connection with the Office Depot penalty, a message he has communicated before.
The amount alone, however, does not explain the appropriateness of the penalty. There is little in the settlement terms or other public information that provides meaningful context about the amount of the penalty given the circumstances of the case and application of the Section 20(b) statutory factors. As Commissioner Joseph Mohorovic explained in his own statement issued with the Office Depot settlement, this latest agreement does not shed any light on the Commission’s decision-making process regarding civil penalties. Commissioner Mohorovic suggests that the CPSC’s current and historic black box approach to civil penalty settlements contributes to "a perception of arbitrariness," and renews the call for increased transparency in these matters.
Compliance Plan Requirements
The Office Depot agreement contains terms mandating a compliance program, which is also consistent with recent settlements and, like the penalty amount, seemingly unremarkable on its face. But Office Depot, like other firms before it, already had compliance programs in place before the CPSC settlement, so the need for compliance terms in the CPSC agreements is unclear.
Compliance program terms were first included in the Kolcraft settlement in March 2013, and the Commission defended the requirement as necessary for companies that demonstrated a need for internal controls. With Office Depot and other settlements, however, no explanation is provided about the need to include a compliance program in the CPSC settlement, whether on the basis of the alleged violations or findings in the CPSC's investigation of the firms or inclusion of additional areas of internal controls. Indeed, the CPSC agreements appear to impose few, if any, additional program obligations on firms that have pre-existing compliance programs. It is unclear what the Commission accomplishes by the continued inclusion of these largely one-size-fits-all compliance program terms in settlement agreements and whether they will have any meaningful effect on compliance or product safety.
Treatment of Retailers
Recent Commission enforcement activity also demonstrates the CPSC’s evolving treatment of retailers. Office Depot was held accountable for failing to report to the Commission about a product for which it solely acted as a retailer, not as a manufacturer or importer. Office Depot even appears to have raised an unsuccessful Section 15(b) defense based on the importer's report, which was not accepted by the Commission.
The Office Depot settlement is the latest in a line of CPSC enforcement activities seeking to hold retailers responsible for reporting duties. In September 2014, retailer Meijer agreed to a $2 million civil penalty for knowingly distributing and selling recalled products in violation of the CPSA. On April 21, 2015, the DOJ filed a complaint in federal court against retailer Michaels Stores for failing to timely report incidents involving allegedly defective products sold in its stores that were recalled by another entity.
These enforcement actions against retailers follow the Commission's substantial overhaul of its long-standing retailer reporting program, which weakened an enforcement safe harbor for retailers that elected to regularly submit product incident data to the CPSC. This is a departure from prior Commission practice, intended to foster a more collaborative relationship with industry, and the aggregate effect of these actions against retailers remains to be seen. We will be watching as the Commission continues to refine its view of the role of retailers and others in the supply and distribution chain, particularly with respect to reporting obligations.
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