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Federal Court Holds that CPSC's Decision to Publish Report of Harm on Public Database Violates the APA

Oct.24.2012

Court Finds CPSC's Decision to Publish Report that Product "related to" Harm, Based on Odds "significantly lower than a coin flip," was "arbitrary and capricious" and a "gross abuse of discretion"

The District Court for the District of Maryland this week publicly issued its opinion in an unprecedented case brought by Company Doe to enjoin the Consumer Product Safety Commission ("CPSC" or "Commission") from publishing a "materially inaccurate" incident report on its publicly available database known as Saferproducts.gov. Company Doe v. Tenenbaum, et al., No. 8:11-cv-02958-AW, slip op. (D. Md. Oct. 22, 2012). In a 73-page opinion, U.S. District Court Judge Alexander Williams, Jr., found that the Commission's decision to publish a report of harm, which had rejected Company Doe's claim that the report was materially inaccurate, was final agency action and violated the Administrative Procedure Act ("APA") as arbitrary and capricious and an abuse of discretion. The court determined that the report of harm did not "relate to" use of Company Doe's product as required by both the Consumer Product Safety Improvement Act of 2008 ("CPSIA") and the Commission's implementing regulations (16 CFR Part 1102), and that the CPSC's action was inconsistent with its prior decisions in similar cases. 

This opinion comes just over one year after Company Doe anonymously filed a preliminary injunction under seal on October 21, 2011, to enjoin publication of the report of harm at issue. In addition to refusing to defer to the Commission's decision to publish the report of harm, the court granted Company Doe's motion to proceed anonymously and granted in part Company Doe's motion to seal the case. The court has requested further briefing addressing whether certain documents may be unsealed, in whole or redacted form, without compromising Company Doe's "vindicated interests" in protecting its reputation and economic interests from disclosure of a materially inaccurate report of harm.

Judge Williams's opinion will no doubt be a viral hit with industry, particularly among those who have had their own materially inaccurate information (MII) claims rejected by the Commission. However, it is likely that the Commission will not allow such unfavorable precedent to go unchallenged and will appeal the decision to the Fourth Circuit. But, in the meantime, consumer product firms will be relishing Company Doe's resounding victory on behalf of industry. At every juncture, Judge Williams took the Commission to task for its handling of the report at issue and rejected the Commission's arguments in defense of its actions. The opinion uses strong language in renouncing the Commission's decision to publish the incident report, stating:

The Commission's position that the report should be published is untenable.  In violation of statutory and regulatory mandates, the report is misleading and fails to relate to Plaintiff's product in any sensible way.

. . . .

Such erratic behavior, beyond being a gross abuse of discretion, emblematizes the arbitrary and capricious standard that Chevron and the APA embody. In short, the Commission's decision is unmoored to the CPSIA's public safety purposes and runs afoul of bedrock principles of administrative law and the sound policies that buoy them.

Tenenbaum, slip op. at 53-54.

The court's opinion will likely have a significant impact on industry, and firms may now feel emboldened to litigate Commission decisions rejecting MII arguments where the facts and circumstances warrant it. 

  • The court unequivocally held that "the Commission's decision to publish the report of harm constitutes final agency action under the APA," id. at 66, thus eliminating a key hurdle in challenging a Commission's decision to publish a report of harm. 
  • After a thorough analysis of legislative and regulatory intent, the court held that the CPSC's action was arbitrary and capricious under the APA because the Commission's decision to publish the report "bears no rational relationship to the public safety purposes the CPSIA purports to promote." Id. at 43. The court concluded that the CPSIA's "'related to' standard requires a showing of connection in lieu of causation." Id. at 42. Judge Williams blasted the CPSC's reasoning for deciding to publish the report as "a lesson in speculation," id., at 40, further stating:

    In the final analysis, the Commission predicates its decision to publish the report on . . . coincidence . . . .  [T]his conduct converts the CPSIA's remedial scheme into a "sport of chance." Although theoretically possible that [use of the product caused the harm], at a bare minimum, equally possible that it did not. That is, in some cases, the product [use] will bear some relation to [the reported harm]; in other cases, it will not. . . .  Therefore, the odds that [the product] was
    "involv[ed]" in [the reported harm] are significantly lower than a coin flip.
     In sum, the Commission's decision to publish the report bears no rational relationship to the public safety purposes the CPSIA purports to promote." 

    Id., at 43 (internal citations omitted) (emphasis added).

  • While the court explicitly stated that the CPSIA's "related to" requirement is not a causation standard, it found that the Commission's failure to follow its own precedent—namely 5 MII claims it previously approved because "the evidence in the report of harm did not show that the product was the source of the problem"—was an abuse of discretion. Id. at 44 (internal citation and quotation marks omitted) (emphasis added).  In so finding, the court noted that, "'[s]ource' is a synonym for 'cause.'" Id. at 45 (internal citation omitted)
  • The court agreed with Company Doe that protecting the identity of firms challenging Commission decisions to publish reports of harm is essential to avoid injuring firms' reputations and risking harm to firms' economic interests. Id. at 68-70. While not willing to grant complete—and potentially overbroad—sealing of the case, the court clearly recognized that failing to allow Company Doe to redact or submit sensitive information under seal, "would reduce Plaintiff's First Amendment interest in petitioning the Court for redress of its grievances to a Hobson's choice, a figurative fork that would fly in the face of fundamental notions of fairness." Id. at 70. Firms may now have some level of comfort that they can challenge a Commission's MII decision anonymously and with adequate confidentiality to protect their reputational and economic interests.

Only time will tell how the Commission may prospectively change its approach to reviewing future MII claims. While the court does not go so far as to clearly lay out the burden of proof required of firms making similar MII claims, it does provide a robust analysis that should support future MII claims on similar grounds as Company Doe's challenge. The court's pointed criticism of the Commission's failure to act consistently with its past "precedent" on similar MII claims may be a salient point, forcing the Commission to re-examine how it will act on similar MII claims going forward.

Equally important is how the Commission may address retroactive MII decisions. The court's comprehensive rejection of the Commission's decision to publish the incident report at issue as well as its rejection of every argument the Commission put forth in support of its decision to publish seems to warrant at least an articulation by the Commission as to how it will address MII claims it previously rejected on the same grounds found to be arbitrary and capricious in the instant case. Firms may want to review prior MII claims and consider renewing those claims in light of the court's opinion. 

In addition, the Commission has been aggressive in its approach to regulation and enforcement of consumer products in recent years, as demonstrated not only by its handling of the MII claim detailed in the Company Doe case, but also in its interactions with firms in handling "substantial product hazard" reporting, voluntary recall negotiations, and civil penalty settlements, as well as in decisions to issue unilateral press releases and file enforcement actions.  It remains to be seen, however, if this opinion will cause the Commission to reexamine its approaches in other areas beyond MII claims and whether this opinion will open the Commission to broader litigation vulnerability by the firms it regulates.

For more information, including whether and how to renew previously rejected MII claims and strategizing future such claims, please contact Bridget E. Calhoun or Natalia R. Medley.

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