Sunday, November 22, 2009

CPSIA - Proposition 65 Provides Funding Mechanism for CEH Crusaders

Has the Center for Environmental Health (CEH) gone into the business of finding violations of law for profit? You gotta wonder.

This past week, CEH capped off a six-week investigation of 250 children's items at the request of or in partnership with the CA Attorney General's office, finding seven mildly offending items. As detailed in my blogpost last Wednesday, this rogue's gallery of offenders include a pair of shoes (soles), sandals (insoles), a poncho, a small patch of material on a bicycle accessory and the like. The CA AG issued cease-and-desist orders on his own, cutting the CPSC out of the picture, and a media feeding frenzy ensued. Presumably to the delight of the CEH troublemakers, Oregon followed up with its own action. [To Oregon's credit, they indicate they would inform the CPSC of their concerns, not take a direct recall action like the CA AG.] Perhaps other States plan to follow the CA lead and jump down the retailers' throats for these trivial defects.

How did this come to pass? It turns out that the starting point was a tip by CEH on another lead case, this one involving Mattel. As you know, Mattel was responsible for some major lead-in-paint recalls in 2007/8. These recalls were a result of a violation of longstanding federal law, and the authority for the recall was found in the CPSA (before its amendment by the CPSIA). [In other words, the new law was not required to force Mattel to recall these items.] It turns out that California's Proposition 65, its notorious consumer-right-to-know law, was also violated by those recalls. The insidious Prop. 65 (explicitly exempted from preemption under the CPSIA by the powerful California Congressional delegation including Senators Boxer and Feinstein and Reps. Pelosi and Waxman) requires that products exceeding (in this case) its lead standard be labeled to "inform" the consumer. Prop. 65 lead standards now match the federal standards. By violating the federal standards, Mattel also violated the Prop. 65 label requirements, thus giving California the chance to extend its palm for penalties and other concessions.

In the first of many settlements relating to its recalls, Mattel and other companies settled
a Prop. 65 lawsuit and paid a collective $1.56 million in penalties and fees. [The CA AG extracted similar penalties from Target, TRU and KMart for lead violations earlier this month.] It turns out that this $550,000 penalty case stemmed from a rat out by CEH: "This agreement settles a lawsuit filed by the State of California and the LA City Attorney in November 2007, after receiving notices of violation from the Center for Environmental Health, As you Sow, and the Environmental Law Foundation." Part of the money extracted ($550,000) was applied to a fund "to test toys for lead and improve outreach about future recalls."

So how did Mattel's misery pay off for CEH? The CA AG's press release tells all: "In 2008, Brown's office reached a settlement with several major toy companies over excessive levels of lead in their products. The settlement allocated $548,000 in funding for consumer safety groups to monitor lead levels in consumer goods and to provide outreach about product recalls. The Center for Environmental Health discovered the current violations with a grant from the Public Health Trust, which administers the settlement fund."

So, here's the game - CEH finds violations of the law, and then puts in for grants to find more violations, all funded by the violators. CEH is a not-for-profit - it is not a business, does not make or sell products or services for a profit and its officers and employees have no source of funding other than contributions . . . until now. Proposition 65 is their new funding source. Shaking down corporations under the auspices of Prop. 65 to provide funds for new hires, salaries, raises, perhaps even bonuses. Thus, the unholy alliance of plaintiff lawyers and consumer groups is made even more cozy. Consumer protection as a plaintiff lawyer's dream. Job well done, CEH!

CEH and its ilk want you to believe that they are simply out there to protect your interests, which is the reason presented to explain their "passionate" search for "scofflaws". But does that explanation hold water when the consumer group is essentially working on a commission for pay? Can you really be sure these violations are actually dangerous when it is clear that CEH must find them to pay its rent or keep its officers on the job? And what about the interests of the local politicians in this dynamic? Jerry Brown wants to be California's governor - what are his incentives in this case, being egged on by the pay-by-the-violation consumer group?

Does anyone see the possibility of conflicts of interest here? What is that odor I smell?

Aside from the OUTRAGE of CEH taking money for its escapades, the entire Proposition 65 gambit seems to be a parallel safety law allowing a local politician to upstage and trump federal regulation, all the while shaking down companies with duplicative penalties for the same offense. Mattel, no particular object of sympathy in my book, was hit with Prop. 65 penalties (collectively with others, $1.56 million), a "consumer fraud" settlement with 38 states for $12 million, a CPSC fine of $2.3 million and a class action settlement said to be worth more than $50 million. Since Proposition 65 is exempted from preemption by our wise Congress, this liability bonanza will continue to plague the toy industry for a long time to come (forever?).

What is the consequences of the long term, relentless, pointless (from a social good standpoint) assault on our industry under Proposition 65? A poisoned well. What do you think will happen to small business vendors to retailers who have been hounded and hunted under this law? The ultimate in skittishness. It is just not possible to satisfy their hunger for safety mania. As an example, a large national retailer has been demanding that our company test every product for lead-in-paint . . . regardless of whether it has any paint on it. That can only make sense in a world where the consequences of violations are too horrible to contemplate.

Is a violation of this law really worse than mass murder? I think not. This week's CEH violations are innocent and have not and will not harm anyone. They are minor manufacturing defects and can be corrected easily and inexpensively. By making each such trivial violation into a capital case, the cost of doing business skyrockets, profit incentive crashes and many players exit. We have already seen one offering memorandum for a customer of ours who can't take it anymore. Most of the exits are quieter and harder to detect. See my post about Whimsical Walney. If we allow regulators to run roughshod over our industry this way, there won't be anything left to protect. That would be terrible for all Americans. Sometimes you don't know what you have until you lose it.

This is your country. Think about the corruption of fee-driven consumer groups and marauding State AGs who don't answer to the CPSC. What are you going to do about it???

1 comment:

Tristan Benz said...

This is OUR country, Rick. You got that right!

Great post! It's funny - I was once lovingly referred to as the "pitt bull of thruth" and here, following your blog for most of the year now, I recognize a quality not found everywhere we look. A quality of exceptional leadership.

While the outrage and corruption continue to burn like a Chicago fire - or a Topanga Canyon fire, for that matter, aren't those Santa Ana winds almost as powerful as these tradewinds of mindless regulation?! - you continue to inspire your fellow Americans toward the pitt bull that each and every one of us. of good conscience, contains within our being.

YES, a run-on sentence IS a gift!!! And, yes, what you smell IS rotten. But what you're DOING is pure - and, at the end of the day (when your kids look to you and not the politicians for their answers...), that will be what counts, more than anything.

Thanks for keeping us up on the latest twists (almost wrote twits! - Freudian?) in an already crooked road. We all know, in our heart of hearts, it is a road to nowhere. It merely takes time for the tipping point of true solidarity to be fully reached. At some point...this road will the sheer, pitt bull will of the people, if nothing else. You are to be commended, for your leadership! Keep it up! Good going! Know that we are all thankful and better off, that the world has a Rick Woldenberg in it!

Happy Thanksgiving!
Tristan Benz
Maiden America