The CPSC has announced its second fine in 2016. The $3.75 million fine against Starbucks for double walled glass tea tumblers, brings the two-quarter total so far this year to $19.2 million:

Other highlights from this data include:

• Seven fines imposed in 2012, totaling $4.35 million ($621,429 average);
• Four fines imposed in 2013, totaling over $6 million ($1.5 million average);
• Seven fines imposed in 2014, totaling over $12 million ($1.7 million average);
• Eight fines imposed in 2015, totaling almost $21.5 million ($2.7 million average); and 
• Two fines have been imposed so far in 2016, for $19.2 million ($9.6 million average).

These Increases are Intentional.

CPSC Chairman, Elliot Kaye, has indicated in recent speeches that he is expressly calling for higher civil penalties on companies, as facts allow:

We will continue to hold accountable those companies that break the law and put consumers at risk. And one of the areas that since I’ve been chairman I have called upon is higher civil penalties, much, much higher civil penalties as the facts allow. Priority to 2008, the highest civil penalty the agency could seek was a little bit under $2 million. Congress raised that threshold up to $15 million and it gets indexed for inflation. I have said repeatedly and thanks to CPSC staff we are starting to see an increase in the civil penalties because the factors we are seeing, the conduct we are seeing in some of these cases warrant much higher penalties. And I’m really pleased to announce today for the first time that CPSC has approved a settlement with a civil penalty of $15.45 million. 

This quote is taken from opening remarks by CPSC Chairman, Elliot Kaye, on March 25, 2016 to the Consumer Federation of America.

Reporting Duties of Manufacturers

All manufacturers of consumer products, whether they know it or not, are governed by the Consumer Product Safety Commission (CPSC). More importantly, these manufacturers have strict reporting requirements to the CPSC when various problems arise with any of their products. And those reporting requirements are immediate. For example, a manufacturer must immediately notify the CPSC if it obtains information that “reasonably supports” the conclusion that a product creates an unreasonable risk of serious injury or death. As used here, the term “immediately” means within 24 hours after receiving the information. Consequently, manufacturers may be required to immediately notify the CPSC as soon as it receives a single reported failure of a product if one could reasonably conclude that the failure suggests that the product poses risk of serious injury. And it appears that the price for failing to do so may be going up.

The sweeping changes found in the Consumer Product Safety Act Of 2008 included a significant increase in the limits on fines for non-compliant companies. That limit was raised from $1.8 million to $15 million. As seen above, fines imposed on manufacturers that fail to timely make these reports has steadily increased, including in the most recent fine of $15 million against a single manufacturer. 

 There is Some Dissent Within the Commission

Commissioner Joseph P. Mohorovic issued a statement in connection with the most recent fine criticizing the CPSC for “failing in our duty to tell people why we are imposing the penalty that we are imposing.” Further, Commissioner  Mohorovic felt that the facts of the case–both those made public or not– did not justify any fine against Starbucks:

I fully support taking a conservative stance on the reporting requirement and sending the message that companies should err on the side of over-reporting. That is a prudent approach that emphasizes consumer safety.

But I cannot support taking that conservative approach to extremes, particularly under the new model in which our settlement agreements include very few of the facts underlying an allegation. As I wrote two months ago, each of those settlements is a teachable moment, an opportunity to help the regulated community understand which actions are in-bounds and which are out, as well as the level of sanction they can expect if they stray outside the lines.

Properly using these teachable moments not only gives us a sounder legal and moral basis for imposing punishment, it also provides companies a roadmap (albeit a roadmap to a place they do not want to go). With that roadmap in hand, they can better understand the contours of legal terrain that is intrinsically uncertain. Whether or not a product presents a substantial product hazard is hard enough to determine; figuring out whether or not a particular piece of information could reasonably support that conclusion is even more difficult.

The Teavana penalty settlement does not provide such clarifying guidance. It is another missed teachable moment.