In early January, after referral by the CPSC to the Department of Justice (and probably the subject of an Acting Chair Adler public comment), fire extinguisher manufacturer Kidde reached a settlement with the government to pay a $12 million civil penalty for underreporting to the CPSC the scope and nature of defect, failure to report timely, making misrepresentations to the CPSC, and misusing a registered safety certification mark. The civil penalty seems to have signaled the start of a more aggressive approach to CPSC enforcement.
One month later, on February 11, the CPSC announced a settlement with Cybex International, an American manufacturer of exercise equipment, for payment of a $7.95 million civil penalty. The penalty arose out of the company’s alleged failure to report to the CPSC in the face of knowledge of multiple safety-related incidents for two of its exercise products, including an incident resulting in paralysis and spinal fracture. The settlement agreement underscores the need for consumer product manufacturers and retailers to have in place a robust safety incident monitoring system and a procedure for timely reporting to the CPSC when appropriate.
The settlement agreement discusses Cybex’s failure to report safety incidents for two products: (1) Arm Curl Machines; and (2) Smith Press Machines. CPSC alleged that between mid-2002 and June 2015 when Cybex ultimately filed a report with the agency related to its Arm Curl Machines, the company had received 85 reports of broken handles, resulting in numerous injuries including lacerations with stitches and an alarming incident in which a user lost vision in one eye when the handle separated from the machine. Cybex ultimately engaged in a Fast Track Recall of the Arm Curl Machines in August 2015. With respect to the Smith Press Machines, CPSC’s allegations go much further back in time, asserting that Cybex received 27 reports of injuries associated with the Machines dating back to 1991, including the aforementioned injury resulting in paralysis and spinal fracture. The company reported to the agency in August 2018, resulting in a Fast Track Recall in August 2018. Notably, the agency doesn’t assert when Cybex should have reported to the CPSC - - only that their eventual reports were untimely.
Cybex’s response to the CPSC’s allegations notes that the recalled Arm Curl and Smith Press machines were both designed, manufactured, and sold by prior ownership of the Cybex business. The company asserts that following its recall of the Arm Curl machines in 2015, new management sought to assess its “legacy business” and in the course of doing so, made the decision to file a report with the CPSC. Certainly, new management takes the position that they took prudent action once they learned they had a problem with a “legacy” machine, and even notes that following its acquisition in 2016, they implemented improvements to their safety compliance program.
This settlement should be viewed as another warning shot to companies who, year after year, see safety incidents trickle in, in small numbers. In a vacuum, any particular safety incident might not raise a duty to report under Section 15. Companies can create “excuses” for most incidents - - “the consumer didn’t use the product correctly” or “we don’t know what happened here but it doesn’t appear to be a systemic problem.” For Cybex, the CPSC asserted the Company failed to report timely with respect to its Smith Press Machines in the face of only 27 reports spanning 27 years - - one per year (certainly some with grievous injury, which could itself raise a Section 15 reporting obligation). This underscores that there comes a point when a company must say “enough is enough” and have a process in place allowing it to conclude it must or at least should file a report.
The CPSC’s informal guidance of “when in doubt, report” isn’t a real world approach. It isn’t concrete enough to actually inform companies of when it is time to report. Multi-national companies cannot report each and every safety incident; it is impractical. But CPSC is all-in on a hindsight is 20/20-approach when considering penalties.
Nevertheless, “when in doubt, report” is instructive as to how the agency views late reporting, and should your company wait too late to report, indicates a shift towards more aggressive enforcement. This undoubtedly will be intensified in the next few years under a Democratic majority.