CPSC Consent Decrees Have Far-Reaching Impact
In October 2015, the U.S. Department of Justice—at the behest of the U.S. Consumer Product Safety Commission (CPSC)—filed suit in California federal court to prohibit two companies and three individuals from importing allegedly defective children’s products. Filed alongside the lawsuits are far-reaching consent decrees between the government and parties. The agreement prohibits the companies and individuals from conducting any future business (selling, importing or distributing) involving children’s products or toys until the CPSC verifies that certain far-reaching conditions are met—all of which relate to future compliance with safety requirements of the CPSC and Federal Hazardous Substances Act (FHSA).
The companies—Brightstar Group, Inc. and Unik Toyz Trading Inc., are Los Angeles-based importers and retailers of children’s products and toys and the individuals named in the complaints are the companies’ owners and manager. Both Brightstar and Unik Toyz are accused of repeatedly importing children’s products and toys that contained high levels of lead, banned phthalates and small parts posing a choking hazard for young children three years of age and under. Some of the children’s products included art materials, fire engine sets, tea sets, strollers, marbles, toy boxing gloves, cars and trains.
According to complaints, Brightstar and Unik Toyz violated the CPSA and FHSA over multiple years as many of their respective children’s products were sampled at ports of entry. In fact, between September 2013 and April 2015, the CPSC issued nine letters of advice (violation notices) to Brightstar informing the company that its products violated the CPSA and/or FHSA. In the case of Unik Toyz, the company received 21 notices from November 2011 to January 2015. The companies continued importing defective products notwithstanding the many warnings issued by the CPSC.
The Consent Decrees
The companies and individuals have agreed to settle the government’s charges by binding themselves to consent decrees. The dual consent decrees are noteworthy because of their far-reaching provisions. Crucially, the agreements prohibit the companies and individuals from conducting any future business (selling, importing or distributing) involving children’s products or toys until the CPSC verifies that certain detailed conditions are met. All of the conditions agreed upon relate to future compliance with the CPSA and FHSA and their implementing regulations.
Certain provisions of the consent decrees are worth noting here. They include:
• The retention of an independent product safety coordinator to assist the companies in creating comprehensive product safety plans and conducting a product audit to determine which products require testing and certification.
• A quarantine of all merchandise until the above-referenced product audit is complete.
• The creation of a comprehensive product safety plan with written standard operating procedures to ensure:
o future compliance with third-party testing requirements, including periodic testing;
o the issuance of proper certificates of conformity;
o appropriate cautionary and tracking labels are placed on products;
o adequate and timely corrections are made to any violation cited by the CPSC;
o the companies must respond promptly to any CPSC communications, including
letters of advice; and
o all reports of consumer incidents are investigated thoroughly
• The retention of an independent third-party testing laboratory to perform the requisite certification testing on children's products;
• The issuance of all appropriate certificates of conformity for all the companies’ children's products; and
• An inspection of the companies’ facilities once they inform the agency that the above conditions have been met.
Why Are These Consent Decrees Significant?
In recent years, the CPSC has used compliance programs as an enforcement mechanism in civil penalty and recall negotiations. Many companies have agreed to implement compliance programs at the behest of the CPSC in such negotiations. The compliance programs have involved, among other provisions, implementation of written standards and policies; a mechanism for confidential employee reporting of compliance related questions and concerns; management oversight of compliance personnel; and a policy for recordkeeping, among others.
Yet, the Brightstar and Unik Toyz compliance program provisions set forth within the consent decrees are significant because they are remarkably different from those inserted into recent CPSC civil penalty settlement agreements. Rarely does the CPSC enter into a consent decree with a company alleged to have violated the CPSA and/or FHSA whereby the company must satisfy detailed conditions prior to conducting any future business involving children’s products. Additionally, the Brightstar and Unik Toyz compliance programs must be audited and monitored by an independent third party, which is not a common requirement in other compliance programs. Not since the Daiso case in 2010 and LM Import cases in 2011 and 2012 have consent decrees been as extensive or far-reaching as the ones involved here.
Why Are These Consent Decrees More Comprehensive?
So what distinguishes Brightstar and Unik Toyz, as well as Daiso and LM Import, from other companies, mostly larger, who have entered into agreements with the CPSC that include compliance program provisions?
The small companies involved in these cases allegedly spurned and ignored numerous CPSC letters of advice over multiple years notifying them that their products were not in compliance with the CPSA and FHSA. The complaints also suggest that these violations were not just occasional occurrences, but rather systemic (i.e., numerous and different products sampled by CPSC at ports of entry violated federal product safety regulations).
On the other hand, many large companies that now face multimillion-dollar CPSC civil penalties do so for alleged late reporting of product safety issues. In many of these cases, the issue involved one or two products and the companies self-reported the issue to the CPSC as required by the CPSA (albeit later than the CPSC believed a report was required). Although intentional product safety violations and late reporting violations alike involve the potential exposure of consumers to unsafe products, the remedial measures taken against companies like Brightstar, Unik Toyz, Daiso and LM Import show the company practices leading to those violations are more serious in nature.
Since the Daiso consent decree in 2010, the CPSC has secured nearly 40 settlement agreements from companies who allegedly failed to timely report a potentially defective product. Many of these agreements contained the typical compliance program provisions. On the other hand, the CPSC has secured only a small handful of agreements with companies for violations that warrant a permanent injunction involving a product safety monitor and product audit. This leads to the question of whether companies such as the ones subject to these types of consent decrees, who potentially inflict serious harm upon children with repeated violations for multiple products over multiple years, are simply fewer in number or just more difficult to target.
Late last year, the Unik Toyz and Brightstar consent decrees were entered by the court. Although these companies may well be outliers when it comes to fulfilling their obligations to the public to distribute safe products, all companies should take note of the stringent compliance programs agreed to by these companies. Compliance programs—in whatever form—are now commonplace as an enforcement tool of the federal government for companies who do not comply with federal product safety regulations.
Matt Howsare is of counsel in the Washington, D.C. firm of Mintz Levin Cohn Ferris Glovsky and Popeo PC. He formerly served as chief of staff of the CPSC from 2010 to 2013 and as the chairman’s senior counsel in 2009.
Matthew Cohen is an associate at Mintz Levin.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.