Monday March 28, 2016
CPSC Bumps Civil Penalty Ceiling with Record $15.45 Million against Gree
Gree will pay a record – and maximum – civil penalty of $15.45 million in a CPSC settlement accepted by commissioners 4-1. Commissioner Ann Marie Buerkle cast the negative vote. The products were dehumidifiers. CPSC's allegations included not only the typical charges of late reporting under Section 15(b) but also claims of material misrepresentations and misuse of the UL mark.
Gree's alleged misrepresentations, asserted CPSC, were falsely saying that the dehumidifiers met UL flammability requirements as well as knowingly giving the wrong date that it became aware they did not. The reporting allegations included charges that the company made design changes in response to incidents of smoking, sparks, and fires that led to $4.5 million in property damage. It first learned of such events in July 2012 but reported in March 2013, according to the settlement agreement.
CPSC Chairman Elliot Kaye warned that the agency is "sending a message," stating:
"I have repeatedly called for much higher civil penalties when the facts line up. In this case, here is what CPSC staff concluded: The company misled and endangered the public. The company delayed reporting to us and made material misrepresentations during our investigation. And now they will be paying the highest civil penalty possible under law. To remove any doubt as to whether we are sending a message that this kind of conduct will not be tolerated, we absolutely are sending that message. Companies behaving similarly should be prepared to pay similarly."
Kaye last month generated consternation in the regulated community by saying to watch for fines near the maximum allowed. Buerkle had suggested such statements set an inappropriate goal for agency staff although Commissioner Marietta Robinson supported him, stressing that he linked high penalties to good cause (PSL, 3/7/16). The debate was over whether congressional intent was to target penalties near the cap or to reserve such amounts for outlier egregious behavior. This came at the annual ICPHSO meeting, and Kaye had made a similar statement – with similar reaction – at the same venue a year earlier (PSL, 3/2/15).
The CPSIA raised CPSC's penalty maximum to $15 million, effective in 2009, and that amount has been adjusted up for inflation. However, CPSC had not yet approached its cap. The previous record was over alleged late reporting by Baja and One World Technologies (PSL, 11/3/14) but was less than a third of the maximum at $4.3 million. In another case last year, CPSC deemed LG to merit a penalty, but it could seek only $1.825 million (PSL, 7/27/15) because the alleged violations occurred before the 2009 effective date of the cap increase. It is not clear how high that penalty would have been otherwise.
The dehumidifiers sold under various brands – including Frigidaire, GE, Gree, Kenmore and Soleus Air – and by numerous retailers – including AAFES, HH Gregg, Home Depot, Kmart, Lowe’s, Menards, Mills Fleet Farm, Sam’s Club, Sears, and Walmart – as well as online via Amazon and Ebay. Gree made them prior to December 2012, and sales mostly occurred from January 2005 to August 2013.
CPSC announced the recall in 2013 (PSL, 9/23/13) with two follow-ups in 2014 (PSL, 2/10/14 and 5/26/14). The products also were listed in CPSC's joint warnings about sales of recalled products with Best Buy (PSL, 8/11/14) and Home Depot (PSL, 11/23/15). The CPSIA made the selling of recalled products illegal, but so far, CPSC has not announced any related actions against those retailers.
Gree also must set up a compliance program, a common element of settlements in recent years.
Last year, a jury said Gree must pay U.S. joint-venture partner, Soleus, $42.5 million. The case included allegations that Gree retaliated after Soleus reported to CPSC.
Gree's civil penalty comes the same week that a federal judge directed CPSC to suggest a penalty for Zen Magnets (see story in this issue). While it is clear that both CPSC and the judge deem Zen's actions to be egregious – including allegations of knowingly obtaining products recalled by another company with intent to sell them – it remains to be seen if factors like ability to pay might limit that fine.
The settlement agreement is at 1.usa.gov/1T9dPJp.
Two commissioners also issued written statements.
Joseph Mohorovic voiced concern about the details not revealed in the settlement, writing (1.usa.gov/1RkrWdo):
I recognize that both parties have at least some reasons to want – or need – to keep settlements ambiguous and details “need-to-know.” Because of these realities, there are limits to how much we can or should disclose in a settlement agreement. However, I think we best serve the agency, the regulated community, and, ultimately, the consumer by pushing to provide as much information as we can, not as little as we must.
The purposes of our civil penalty authority are two-fold. The first goal, obviously, is to admonish an alleged violator for illegal acts that have exposed consumers to potential harm. The second goal is to deter future illegal, harmful acts on the part of either the alleged violator or similar companies. This settlement certainly does the former, but I feel it falls short on the latter.
Marietta Robinson wrote (1.usa.gov/1WObItk):
I applaud our Office of General Counsel for achieving a settlement imposing the maximum civil penalty for these violations…
…CPSC’s Office of General Counsel successfully and appropriately obtained the maximum penalty for each alleged violation.