After a civil penalty gap of more than two years, enforcement activity by the Consumer Product Safety Commission (CPSC) appears to be on the upswing, with two settlements announced in early 2021. Most recently, on February 11, CPSC announced that Cybex International, Inc. (Cybex) agreed to pay a $7.95 million civil penalty for alleged late reporting of potential product safety hazards with its exercise equipment.
The Cybex Settlement
According to the Cybex settlement agreement, the penalty arises out of two recalls of exercise equipment.
- Arm Curl Machines: CPSC alleged that the recalled Arm Curl Machines are defective and create a substantial product hazard and unreasonable risk of serious injury or death because a weld failure can cause the handle to separate unexpectedly from the frame of the machine and strike a user in the face. Over a more than 12-year period (2002 to 2015), Cybex allegedly received 85 reports of broken handles, including reported lacerations requiring stitches and one "grievous" bodily injury resulting in permanent vision loss in one eye. Cybex voluntarily recalled the products in 2015.
- Smith Press Machines: CPSC alleged that the recalled Smith Press Machines are defective and create a substantial product hazard and unreasonable risk of serious injury or death because the weight bar can fall, posing a serious impact hazard to users. Over a nearly 26-year period (1991 to 2018), Cybex allegedly received 27 reports of injuries, including "grievous" bodily injuries such as paralysis and spinal fracture. Cybex voluntarily recalled the products in 2018.
Notably, both recalls and the alleged late reporting occurred during prior ownership of Cybex. As Cybex explained in the "Response of Cybex" section of the Settlement Agreement:
"The Subject Products were designed, manufactured and sold by prior ownership of the Cybex business (which was sold in 2016 and again in 2019). The original owners of Cybex recalled and retrofitted the Arm Curl in 2015 and the CPSC's investigation was underway when the Company was sold in 2016. After assessing the legacy business and engaging in discussions with CPSC, the new owner of Cybex determined that it was required to submit a report to the CPSC regarding the Smith Press in connection with the CPSC's ongoing investigation."
This is not the first time CPSC has obtained a settlement for alleged late reporting based on conduct that occurred before a company was sold to new owners. See, e.g., Galoob Toys, Inc., Settlement Agreement and Order (2000); see also Mega Brands America, Inc., f/k/a Rose Art Industries, Inc., Settlement Agreement and Order (2009).
A Second Late-Reporting Settlement
The Cybex penalty announcement follows a January 4 DOJ announcement that Walter Kidde Portable Equipment, Inc. (Kidde) agreed to pay a $12 million civil penalty for allegedly failing to timely notify CPSC about problems with its fire extinguishers. The government also alleged that Kidde knowingly made material misrepresentations to CPSC and knowingly sold fire extinguishers with unauthorized certification marks. In addition to the $12 million civil penalty, the Consent Decree includes injunctive relief related to future compliance and liquidated damages ($5,000 per violation per day) if the company violates the Consent Decree. Liquidated damages have not typically been included in late reporting consent decrees, although in 2015, DOJ twice included a liquidated damages provision when settling late reporting lawsuits. See United States v. Black & Decker (U.S.) Inc. and United States v. Gerber Legendary Blades.
This recent uptick in enforcement activity has occurred while the Commission is evenly split with two Democratic and two Republican commissioners. President Biden can now nominate and seek Senate confirmation of a Democrat to fill the open seat, resulting in a 3-2 Democrat majority. Given the risk of substantial penalties for late reporting, and the risk of increased enforcement activity under the Biden Administration, it is more important than ever for companies to ensure that they understand reporting requirements under Section 15 of the Consumer Product Safety Act and other requirements enforced by CPSC. You can read more at Arnold & Porter's CPSC Desk Reference on Section 15 here.
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