Monday, March 8, 2010

CPSIA - Anyone Care about Penalties Yet?

Cassandra here . . . .

Let me try you out on a hypothetical. What would you recommend as "consequences" for the following fact pattern? A company exhibits a pattern of safety incompetence over a period of time. Owing to agency vigilance, they are told multiple times to shape up, which they never get around to doing. No one is injured, but several minor recalls result. As we live in a time of political correctness and hyper-concern over trivial matters, the recalls not surprisingly involve only a few units of numerous products (less than 1000 units over two years). No injuries are reported. Numerous letters go back and forth, and theoretically, some of the culprit's safety violations could have resulted in injuries.

So what penalty do you hit them with to get your message across?

For perspective, Mattel paid a fine of $2.3 million for about 2 million units recalled. This was national headline news. Mattel also recalled many millions more in other recalls in the same time period. RC2 paid $1.25 million for their recalls of 1.7 million units of Thomas the Tank Engine, a series of recalls that included an embarrassing recall of "thank you" gifts sent to people returning lead-laden Thomases. Target paid $600,000 for its "sins" in three relatively large scale recalls (545,500 total units). And I fully agree, respect and attentiveness to the details of the law are mandatory. Everybody needs to take these issues seriously.

And the answer is . . . . Try $2.05 million. Cash.

You wonder why I say that the CPSC leadership has blood lust . . . .

Oh yeah, I forgot, the CPSC also sicced the U.S. Attorney on 'em, hitting the company with an injunction, a cease importation order and a mandatory plan of remediation.

Of course, I am alluding to the case of Daiso, the Japanese dollar store chain with a small U.S. presence. I have written about this company in the past, noting that they recalled 40 inflatable baseball bats for phthalates violations. For this and other unpardonable sins, this company was subjected to regulatory horrors on an incomprehensible scale. Here are their five recalls for your consideration:

May 12, 2008: 48 units, two skus
June 3, 2008: 50 units, two skus
July 25, 2008: 40 units, two skus
October 6, 2009: 430 units, four skus
October 6, 2009: 130 units, nine skus

Total over two years: five recalls, 698 units, 19 skus.

I have no personal knowledge of these people or this case. I also agree that the facts suggest that this company was recalcitrant or possibly incompetent. In any event, it's their responsibility to take our laws seriously. Nevertheless the CPSC press release and the injunction both portray a far more serious situation than the facts seem to demonstrate. This is hardly a case of ingested super-magnets and millions of units in circulation. And the penalty, of course, is so far beyond the pale that I consider it incomprehensible. It is also extremely worrisome.

Today's CPSC is about sound bites and putting you "on notice". Whether their tactics are fair or appropriate seem to be a secondary concern. Note this quote from Japan Today: "'This landmark agreement for an injunction sets a precedent for any firm attempting to distribute hazardous products to our nation’s children,' commission Chairwoman Inez Tenenbaum said. 'We are committed to the safety of children’s products, and we will use the full force of our enforcement powers to prevent the sale of harmful products.' . . . CPSC spokesman Scott Wolfson said the company had been warned several times about violating safety standards." In other words, this is entirely justified because the company had been warned and laws had been broken. I see.

There is a concept in Anglo-American jurisprudence of a punishment to fit the crime. I wish the CPSC knew something about proportionality in administering justice. Unfortunately, this CPSC seems to think that the importance of public messaging allows them to justify whatever they want to do. There seems to be no constraints, whatsoever. As Mr. Wolfson intones, after all, Daiso had been warned several times. Ergo, it's fair to whack them with a penalty almost as great as imposed on Mattel. For less than 1,000 units sold.

Have you ever sold less than 1,000 units of something? Has anything ever gone wrong in your business? Uh-oh. Start saving up!

If you are having trouble grasping the point, consider the recent case of the man caught stealing a $3.99 bag of cheese in California. The judge went easy on him, only sentencing him to 7.7 years in jail. Nothing wrong with that, right? As the defendant's lawyer noted in her closing remarks, "She concluded that his most recent thefts were petty. 'We’re talking about a pack of cheese,' she said." Good thing the judge was listening . . . . This kind of justice brings to mind Midnight Express, the nightmarish story about Turkish jails. We're not that kind of country, right? Right???

But in this environment, with the pack of jackal consumer groups egging them on, this CPSC is prepared to lower the boom to squish anyone who dares be incompetent. Here's Consumer Reports on the case: "Our take: This is more evidence that the CPSC has been reinvigorated and that the new leadership at the Commission, plus the new powers under the CPSIA, mean good things for consumers." In other words, it's not only okay, it's a sign of returning "health" in our U.S. government. Yippee.

I agree some sort of penalty may be merited in a case involving a pattern of violations. A large company like this one might need a large-ish penalty to "get the message". [I wonder about that. Is it certain that this company would not have changed its behavior for a penalty of $50,000 or $150,000? The CPSC never tried smaller penalties first, as escalation seems to not be part of their vocabulary.] Nevertheless, this penalty lacks any rational relationship to the trivial problems cited in the recalls. In other words, it is completely arbitrary.

And for those of us destined to have to deal with the CPSC on resolving problems in the future, the Daiso case in your warning. Under this Commission, the agency has no apparent intention or need to be reasonable. They are unfettered in their ability to punish and exhibit no self-restraint. You won't be able to fight them, they print their own money. It must be nice to be both judge and jury.

This is what our country has turned into. I CAN'T WAIT TO VOTE AGAIN. November can't come fast enough for me.


Anonymous said...

I'm curious...who gets the 2.05 million dollars? Where do these funds go? How will America benefit from these influxes of funds? Does this mean lower taxes, or more stimulus money to dead beat parents who have 7 kids, or to fill pot holes in the roads?
My guess it will end up lining the pockets of some re-election bids - yeah I know probably far fetched, but stranger things have/can happen! As much as I hate winter, November is a ray of sunlight!

Rick Woldenberg, Chairman - Learning Resources Inc. said...

I believe the penalties go directly to the U.S. Treasury and don't benefit the CPSC in any way. If I am right, it's good for another three cruise missiles. I feel safer already!

Paul said...

Rick, I am kind of uncomfortable for your usage of Midnight Express justice system as example.

In MidExp, the intention and severity for the 2kg trafficking without remorse is all on top of the table. The punishment is harsh, but I could still sense some reasoning and justice for the Turkish system.

In our case with the 3.99 cheese or CPSC, I could only sense some very foul smell from a pile of hypocrites or politicians or cheese whatever.

Rick Woldenberg, Chairman - Learning Resources Inc. said...

Paul, I accept your point. I was only trying to show by example the slippery slope we reside on when our punishments lose proportion or stop bearing any rational relationship to the "crime". If the CPSC sets penalties based on anger or an urge for retribution, there will be a terrible risk of excess (to say the least - just ask Daiso).

In addition, I have argued, and continue to argue, that the CPSC's principal objective should be behavior modification, not "punishment". They are charged with the responsibility to create the conditions for a safe marketplace (whatever that is), and nothing more. In this environment of out-of-control cosnumer advocates who don't understand business and can't tell a big risk (or problem) from a little one, the distinction between market management and punishment seems obscure, unfortunately.

I view much of the penalty practice at today's CPSC as punishment-oriented. Not only is that wrong from a policy standpoint, it is also unlikely to be effective. If proven ineffective, given the virulence of the feelings about violations of this particular law, I anticipate that the "solution" that would be offered is even HARSHER penalties. As I said, it's a slippery slope.

Anonymous said...

Rick, thank you for continuing to warn . . . this is a slippery slope indeed. What if all areas of gov't begin to treat the public like that?? Going two miles over the speed limit?? Well, let's just take away your liscense and impound your car! Oh, and while we are at it, 5 years in jail for you, Mr! How DARE you break the law?!