United States v. Spectrum Brands, Inc.
Opinion
The district court found that Spectrum Brands, Inc. ("Spectrum") violated section 15(b) of the Consumer Product Safety Act ("CPSA" or the "Act"),
I.
Spectrum is a global, diversified consumer products company headquartered in Middleton, Wisconsin. During the years relevant to this action, Spectrum distributed to retailers more than 24 million individual products per year across more than 500 stock keeping units. Among the products it sold was a line of under-the-cabinet Black & Decker SpaceMaker coffeemakers, distributed by its subsidiary, Applica Consumer Products, Inc. ("Applica"). 1
As a purveyor of consumer products, Spectrum is legally obligated to notify the U.S. Consumer Products Safety Commission ("CPSC" or "Commission") of potentially hazardous defects in any of its products. Specifically, section 15(b) of the CPSA requires a manufacturer, distributor, or retailer of a consumer product "who obtains information which reasonably supports the conclusion that such product" contains "a defect which- ... could create a substantial product hazard" to "immediately" inform the Commission of said defect, "unless such manufacturer, distributor, or retailer has actual knowledge that
the Commission has been adequately informed of such defect ... ."
By February 2009, Spectrum's third-party customer call center had received a number of complaints from consumers regarding the SpaceMaker coffeemakers, including in particular complaints that the plastic handle on the coffeemaker's 12-cup carafe had broken. In one instance, the failure of a handle had caused a consumer to suffer a burn from the hot coffee in the carafe. It appears from the record that when the carafe handle failed, typically its top portion (which was secured by a screw) detached from the glass carafe, while the bottom of the handle (which was fastened by a metal band running around the bottom of the carafe) remained securely in place. This caused the carafe to tip or wobble in the consumer's hand. When the carafe was full of hot coffee, the sudden movement could cause the consumer to spill the coffee or drop the carafe altogether.
In April 2009, in the face of continuing complaints about broken handles, Spectrum commenced an investigation which culminated in a decision to modify the design of the carafe handle. The manufacturer was instructed to cease fabricating the original version of the carafe and to scrap any units already in production. Spectrum began stocking coffeemakers with the modified handle beginning in May. Rather than ceasing sales of the original coffeemakers with the problematic carafe, however, Spectrum implemented a "rolling change" pursuant to which it continued to sell the older versions so long as they remained in stock. Although Spectrum has assumed that the engineering change fixed the problem with the carafe handle, there is no proof in the record as to whether all of the consumer complaints that Spectrum received about the carafe prior to the eventual recall of the coffeemakers in 2012 were limited to the original version of the carafe.
Meanwhile, Spectrum continued to receive complaints about broken handles on the carafes. By the end of 2009, it had received an additional 300 such complaints, which included more than a dozen reports of burns or lacerations. During this time, the CPSC itself received a report about a faulty handle, and the Commission, consistent with its practice, passed the report on to Spectrum without investigation, reminding the company of its duty under section 15(b) to notify the Commission if Spectrum was aware of a potentially hazardous defect in its product. Spectrum did not file a section 15(b) report at that time.
Over the course of the next two years, the company remained silent about the carafe handle even as more complaints of handle failures and resulting injuries made their way to Spectrum. During this time, the CPSC itself received and forwarded another seven broken-handle reports to Spectrum. 3
Not until April 2012 did Spectrum finally file a section 15(b) report with the Commission. The report was what the CPSC called a "fast-track" report which indicated the company's intent to recall the coffeemaker. One month earlier, a class action suit had been filed against Spectrum alleging that there was a design defect in the carafe handle, and that suit evidently persuaded the company that the best course of action was to recall the product entirely, including models with both the original and re-engineered carafe handles. The report as amended advised the Commission that Spectrum had received over 1,600 complaints of handle failures 4 and more than 60 reports of associated injuries to consumers. 5 Two months later, in June 2012, Spectrum and the CPSC jointly announced a recall of the defective coffeemakers. 6 By the time the recall was announced, Spectrum had sold some 159,000 of the coffeemakers, with the majority of them having been sold by December 2009.
Despite the recall, due to gaps in its inventory-control procedures, Spectrum inadvertently continued to sell the recalled coffeemakers. 7 By June of 2013, it had sold another 641 such coffeemakers. A secondary recall was implemented to reach those coffeemakers. At that point, sales of the product finally ceased.
In June 2015, three years after Spectrum recalled the defective coffeemakers, the government filed a civil complaint against the company in the district court. As relevant here, the complaint alleged that Spectrum, beginning in February 2009, obtained information reasonably supporting the conclusion that the coffeemakers it was distributing contained a hazardous defect or posed an unreasonable risk of injury, failed to so inform the CPSC for several years thereafter, and thereby knowingly violated section 15(b) of the Act. § 2064(b)(3).
8
The complaint also alleged that Spectrum committed a second violation of the Act by continuing to distribute or sell coffeemakers that it had previously recalled.
See
The CPSA authorizes civil penalties of up to $ 100,000 for each knowing violation of the Act, not to exceed a ceiling of $ 15,150,000 for "any related series of violations."
Spectrum did not contest its liability for distributing recalled products, and the district court on summary judgment deemed the company liable for violating its reporting obligation under section 15(b).
United States v. Spectrum Brands, Inc.
,
The court rejected Spectrum's contention that the government's section 15(b) claims were barred by the applicable five-year statute of limitations.
The court likewise rejected Spectrum's contention that the court lacked authority under the CPSA to impose the forward-looking injunctive relief on the company that the government had sought (in addition to monetary penalties) in its prayer for relief. Because the statute authorizes injunctive relief as necessary to "[r]estrain any violation" of the Act,
Following an evidentiary hearing as to the appropriate remedies for Spectrum's violations of the CPSA and a thorough canvassing of the criteria set forth in the statute and regulations,
see
[Q]uestions ... remain regarding the extent to which Spectrum has undertaken a meaningful independent audit of its CPSA reporting and recall obligations, and addressed the deficiencies in its systems and programs that led to its violation of these obligations. While Spectrum appears to have made some efforts to prevent similar violations from occurring in the future, the seriousness of its offens[es] to date require that the systems that it has in place to comply with the CPSA should by now be rigorous and well-defined. ... Accordingly, the court finds that plaintiff has made an adequate showing of the need for permanent injunctive relief to address Spectrum's auditing, compliance and training regarding compliance with the CPSA's reporting requirement and post-recall sale prohibition going forward.
R. 234 at 21. The court went on to enter a forward-looking permanent injunction which, among other things, required Spectrum to "maintain sufficient systems, programs, and internal controls to ensure compliance with the CPSA and the regulations enforced by the CPSC" and to "implement appropriate improvements to its compliance programs" within six months of the court's order. R. 234 at 22. The order also required Spectrum to disseminate copies of the court's summary judgment and penalty decisions to its directors, officers, management personnel, and in-house counsel to the extent they were involved in the manufacturing and distribution of consumer products in the United States. R. 234 at 22.
Spectrum filed a motion asking the court for a partial stay of its judgment. It asked the court to stay both the penalty imposed for the section 15(b) late-reporting violation as well as the bulk of the injunction the court had entered, both of which it intended to appeal.
9
As to the injunction, Spectrum argued that a stay was warranted,
inter alia
, because the terms of the injunction were so vague as to render it nothing more than a command to "obey the law." R. 237 at 5-6;
see
E.E.O.C v. AutoZone, Inc.
,
The district court subsequently granted the stay request in part, agreeing to place the late-reporting penalty on hold but not the injunction. R. 243. The court acknowledged that in setting forth what the injunction required of Spectrum, it might have "fall[en] short" of the specificity required by Federal Rule of Civil Procedure 65(d)(1)(B) and (C). R. 243 at 4. With an eye to correcting that problem, the district court ordered Spectrum to file a memorandum detailing the specific steps it had already taken to ensure compliance with the CPSA and the CPSC's regulations; it also ordered the government to file a response as to the sufficiency of the measures Spectrum had taken along with any proposals of its own. R. 243 at 4.
After reviewing the memoranda the parties subsequently submitted, the court issued an opinion which modified the terms of the injunction in order to clarify what specific conduct would constitute compliance with the injunction's directive to improve and maintain sufficient systems, programs, and the like to ensure compliance with the statute and regulations.
United States v. Spectrum Brands, Inc.
,
(1) Maintain the position of Senior Director, Global Quality (or its equivalent) with qualifications and authority to monitor (and if necessary, enhance) Spectrum's policies to ensure future product quality and safety;
(2) Regularly track product safety information, including product return rates, call center data, and product "star" ratings by consumers on various websites, and evaluate that information to determine whether issues are being identified and appropriately handled;
(3) Document calls and written communications regarding potential and actual incidents and injury information, collect products that are the subject of reports by consumers or retail partners of potential safety issues, analyze those products and bring the results of any such analysis to the attention of Spectrum's Senior Director, Global Quality (or its equivalent), and others as appropriate, to determine whether Spectrum has a reporting obligation to the CPSC;
(4) Implement a formal "Request for Corrective Action" procedure whereby quality engineers and products safety managers can make a request to change a product based on various factors, including consumer complaints and incidents;
(5) Maintain a "Product Hold Process" (or its equivalent) through which the manufacture and distribution of products can be placed on hold for design issues, manufacturing issues, performance issues, and safety issues, including any and all such products that may be returned to Spectrum by a warehouse, distributor, customer or otherwise to prevent the sale of recalled products; and
(6) Ensure compliance training of responsible employees on CPSA and/or CPSC regulations, particularly with respect to section 15(b)'s reporting requirement under15 U.S.C. § 2064 (b)(3)-(4) and the prohibition of the sale of recalled products under15 U.S.C. § 2068 (a)(2)(B).
(7) Defendant shall retain, at its own expense, an independent expert, who, by reason of background, training and education is qualified to assist in reviewing and recommending changes, if necessary, to Spectrum's comprehensive safety program for CPSA compliance, with particular emphasis on compliance with the section 15(b) reporting requirement and procedures necessary to prevent the sale of recalled products.
a. The parties may have 90 days to agree upon an independent expert, or if the parties cannot reach agreement, for each party to designate one expert with whom the court will consult to identify a neutral expert.
b. Following the retention of the neutral expert and that expert's review, Spectrum shall have 120 days to implement the recommendations made by that expert in good faith, unless within 30 days of receiving a recommendation, Spectrum files a written challenge in this court on the basis that it is unreasonable (in timeframe or otherwise) or overreaches the number or severity of defendant's past violations of the CPSA, in which case Spectrum need only implement that recommendation by further order of this court.
(8) Compliance with ¶¶ 1-7 shall be deemed good faith compliance with this permanent injunction.
In view of these alterations to the injunction, the government asked this court to treat the district court's decision as an indicative ruling, see Fed. R. Civ. P. 62.1(a)(3), and remand the case to the district court so that the district court could re-enter the injunction as modified and eliminate any question about the district court's authority to do so with an appeal already pending. See Fed. R. App. P. 12.1 ;
Seventh Circuit Rule 57 ;
In re Cent. Ill. Energy Coop.
,
We granted the government's motion, remanded the case to the district court, and dismissed Spectrum's appeal.
II.
Spectrum's appeal is focused on two aspects of the remedies the district court ordered for its violations of the CPSA. It contends that the district court lacked authority to impose the $ 821,000 penalty for its section 15(b) reporting violation, because the government's suit on that violation was barred by the statute of limitations. Spectrum does not otherwise challenge the propriety or calculation of the penalty for failing to report, nor does it challenge in any respect the $ 1.1 million penalty the district court ordered for continuing to sell the SpaceMaker coffeemakers in question after they were recalled. As for the injunction the court entered, Spectrum presses several arguments: that the court lacked authority to enter forward-looking injunctive relief; that it abused its discretion in thinking such relief was appropriate in this case; and that the court abused its discretion in requiring the company to engage an outside expert.
A. Statute of limitations for reporting violations
Section 15(b) does not specify a limitations period for failure-to-report claims, so we look to the default, catchall limitations provision for civil penalty actions set forth in
Spectrum argues that because its duty under section 15(b) was to "immediately" report a potentially hazardous defect in its product, and because the regulation makes clear that "immediately" means within 24 hours of obtaining information reasonably pointing to the existence of such a defect, the government's cause of action for Spectrum's failure to make a timely report first accrued no later than May 2009, by which time the company had received from consumers 60 reports of broken carafe handles and four burns associated with such failures. In its summary judgment decision, the court found that Spectrum arguably had a duty to make a report to the Commission at that point.
Like the district court, and for the same reasons, we reject Spectrum's contention that the government filed suit too late. Because, as we shall explain, Spectrum's failure to report is properly understood to constitute a continuing violation of its statutory reporting obligation that did not end until Spectrum finally submitted a section 15(b) report in 2012, the statute of limitations did not begin to run until that time. The government thus had five years from the filing of Spectrum's section 15(b) report to file suit, and it did so well before the limitations period expired in 2017.
Spectrum contends that the Supreme Court's decision in
Gabelli v. SEC
,
The government was not a victim seeking recompense for a self-concealing fraud; rather, it was a regulator seeking to enforce the securities statutes through civil penalties. And in the Court's view, the equities did not warrant giving the government in the latter capacity the benefit of an extended statute of limitations. Whereas the typical fraud victim "do[es] not live in a state of constant investigation" and will have no reason to cause to search for wrongdoing in the absence of an apparent injury, the very purpose of a regulatory agency like the S.E.C. is to root out fraud, and such an agency-unlike the ordinary private plaintiff-has any number of tools at its disposal to do so.
The government in this case is not arguing that the statute of limitations should be extended until such time as it had reason to know of Spectrum's failure to comply with its reporting obligation under section 15(b). It is, instead, arguing that Spectrum's failure to report the defect in its product was a continuing violation that did not cease until such time as the company at last filed a section 15(b) report with the CPSC. Gabelli sheds no light on whether a defendant's violation of any statute, let alone section 15(b), amounts to a continuing violation.
The discovery rule and the continuing violation doctrine are both equitable doctrines, but they serve different purposes and operate in different ways. The discovery rule is designed to protect a plaintiff who through no fault of his own does not learn that a defendant has caused him harm until the limitations period has already run; the discovery rule thus delays the accrual of his cause of action until such time as he reasonably could have discovered the defendant's wrongdoing.
See
Gabelli
,
Our decision in
United States v. Yashar
,
In our view, the terms and purpose of section 15(b) leave no doubt that the failure to report a defect is a wrong that continues beyond a company's initial failure to report. The statute requires a consumer products manufacturer, retailer, or distributor which comes into possession of information supporting the conclusion that its product has a potentially hazardous defect to file a report with the Commission; the company is relieved of that obligation only if it knows that the Commission had already been properly informed of that defect. Although, as Spectrum naturally emphasizes, the company's duty is to make an
immediate
report, which the regulation defines to mean within 24 hours of the company coming into information regarding the hazard posed by its product, there is no reason to think that the company's dereliction of its duty is a one-time defalcation that is complete for statute of limitations purposes once 24 hours have passed without the filing of a report. The statutory obligation, after all, is to convey information to the Commission so that it may take action as necessary to protect the public from the potential harm posed by the company's product.
See
Zepik v. Tidewater Midwest, Inc.
,
The facts of this case reveal that Spectrum's failure to report the potential danger posed by its carafe was continuing in a second sense. Spectrum did not come into information revealing the hazard on one occasion, but on many occasions in the years that it remained silent. Recall that by the time Spectrum finally filed its section 15(b) report, it had received over 1,600 complaints from customers. Each time it received a consumer complaint regarding a carafe failure, Spectrum had a fresh opportunity and obligation to consider the potentially hazardous nature of its product and to reassess its reporting obligation. And with each new complaint, it would have become more clear to Spectrum that the incidents its customers were reporting were not flukes, and that carafe failures and consumer injuries would continue so long as the defective version or versions of the carafe remained in circulation. To say then, as Spectrum does, that both its duty to report and its failure to report were ripe at a single point in time-May 2009-and that the limitations period began to tick irrevocably at that time, is to ignore that the potential hazard posed by its product persisted beyond that point, and with each additional complaint of a carafe failure, the company was placed on renewed notice of an ever more compelling need to act. These complaints continued right up until the time that Spectrum finally filed its section 15(b) report with the CPSC in 2012. To paraphrase
Yashar
's rationale again, each day that Spectrum did not make a report to the Commission brought a renewed threat of the evil that Congress sought to prevent by requiring a company to report a possible hazard with its product.
Against this logic Spectrum invokes our decision in
United States v. Midwest Generation, LLC
,
We understood the government's argument to posit that "every day a plant operates without a § 7475 permit is a fresh violation of the Clean Air Act."
The violation is complete when construction commences without a permit in hand. Nothing in the text of § 7475 even hints at the possibility that a fresh violation occurs every day until the end of the universe if an owner that lacks a construction permit operates a completed facility. Gabelli tells us not to read statutes in a way that would abolish effective time constraints on litigation.
Midwest Generation
is distinguishable in material respects from this case. The statute at issue in
Midwest Generation
incorporated an explicit and obvious external deadline for the obligation it imposed: the company was required to obtain a permit before construction commenced. There is no comparable deadline set forth in section 15(b): the statute calls for a timely (
i.e.
immediate) disclosure, but it does not tie that disclosure to some other event or point in time akin to the commencement of construction.
See
Colo. Dep't of Public Health & Environ. v. U.S.
,
Nor are we persuaded by Spectrum's contention that the single express reference to a continuing violation in one section of the CPSA's civil penalty provision,
We have not overlooked a recurring theme in Spectrum's arguments-that treating a failure to report as a continuing violation is, if nothing else, inconsistent with the "first accrues" language of section 2462. The company reasons that so long as Spectrum had come into the requisite information about a possible product hazard and failed to make a report within 24 hours, it was in violation of the statute and all elements of the government's cause of action were established; thus, the government's reporting claim first accrued at that time, and the limitations clock began to tick, giving the government five years from that date to commence suit.
There is a superficial logic to this line of argument, but it fails to recognize the underlying rationale of the continuing violation doctrine. Cases applying this doctrine recognize that the elements of a crime or a civil statutory violation may be present early on in the course of a defendant's
wrongdoing, so that the government, if it were aware of the wrongdoing, would be free to pursue a charge. But given the continuing nature of the underlying wrong, the doctrine delays the accrual of the government's cause of action,
for limitations purposes
, until the defendant's last act.
See
United States v. Elliott
,
We recognize that
Gabelli
admonishes us not to construe a statute of limitations in such a way as to "abolish effective time constraints on litigation."
Midwest Generation
,
This action is therefore timely. For purposes of the statute of limitations, Spectrum's wrongdoing did not end, and the government's cause of action did not first accrue, until April 2012, when the company finally complied with its section 15(b) obligation by filing a report with the Commission.
B. Propriety of permanent injunction
Spectrum also challenges the permanent injunctive relief awarded by the district court. As we have noted, Spectrum contends in the first instance that the court had no authority to enter a permanent, forward-looking injunction in the absence of an ongoing violation of the CPSC. Beyond that, the company argues that it was an abuse of discretion for the court to order such relief here, and in particular to require the company to engage an expert to evaluate its compliance procedures and make recommendations for improvements.
We reject at the outset Spectrum's contention that the CPSA does not authorize forward-looking injunctive relief. Section 22(a) of the Act authorizes a district court to "[r]estrain any violation of section 2068 of this title."
Nor has Spectrum persuaded us that the district court abused its discretion in deciding that injunctive relief is appropriate in this case. The burden of proof on this point of course belonged to the government, and the court did not improperly shift the burden to Spectrum, as the company suggests it did. R. 234 at 17 (recognizing that burden belonged to government as plaintiff); R. 234 at 21 ("the court finds that plaintiff has made an adequate showing of the need for permanent injunctive relief ..."). The burden was not onerous: once the government "has demonstrated a past violation, it need only show that there is a reasonable likelihood of future violations in order to obtain injunctive relief."
SEC v. Yang
,
Given the gravity of these failures and the company's delay in complying with its reporting obligation, the district court justifiably concluded that there was a reasonable likelihood that Spectrum might again commit similar violations of the statute in the future. To be sure, Spectrum by the time of the remedies hearing had undertaken significant efforts to address the weaknesses in its corporate culture that had resulted in its continued sales of the defective coffeemaker and its failure to timely report the hazard posed by the defect to the Commission. But, as the district court pointed out, Spectrum had not submitted to an independent audit to evaluate its compliance systems or processes and to solicit external advice as to what additional changes, if any, might be prudent. Nor, we would add, was there evidence before the court as to how effective the remedial measures undertaken by the company in the wake of the coffeemaker matter had thus far proven to be in practice. The court reasonably concluded that a permanent injunction requiring the company to take specified categories of proactive measures was a necessary and appropriate step aimed at reducing the likelihood that the company would, in the future, commit violations similar to those that had led the court to fine the company. And, of course, pursuant to Fed. R. Civ. P. 60(b) and
Rufo v. Inmates of Suffolk Cnty. Jail
,
Finally, the district court did not err in ordering the company to employ an independent auditor as one of these proactive measures. Spectrum's objections to this requirement fall into two categories: procedural and substantive.
Spectrum's first contention is that the district court lacked authority to amend the injunction to add the consultant requirement. In Spectrum's view, the requirement constituted not a mere clarification of the original injunction but a new, substantive requirement that represented a substantial change from the terms of the injunction as originally entered; and although the district court had the authority to modify the judgment,
see
Rufo
,
Given the sequence of events that led to the final injunction as amended, however, the district court was within its rights to consider a modification of this nature. Recall that in its first iteration, the injunction ordered Spectrum to "maintain sufficient systems, programs, and internal controls
to ensure compliance with the CPSA and the regulations enforced by the CPSC" and, within a period of six months, to "implement appropriate improvements to its compliance programs." R. 234 at 22. When Spectrum subsequently sought a partial stay of the district court's judgment pending appeal, including most of the requirements imposed by the injunction, the company argued among other things that the injunction was impermissibly vague and overbroad. It was in response to that line of argument that the court, recognizing that its injunction may not have been as specific and concrete as it ought to have been, treated Spectrum's motion as one to clarify the obligations imposed by the injunction. R. 243 at 3-4. Following briefing as to the nature and sufficiency of the improvements Spectrum had already made to its compliance procedures and programs, the court endeavored to do just that. It modified the injunction to include six specific requirements tracking the improvements Spectrum averred were already in place; the court viewed these improvements as sufficient to resolve Spectrum's concerns about the vagueness of the injunction and to ensure preservation of the status quo pending appeal.
To the extent the requirement to engage a consultant constituted a substantive modification, as opposed to a simple clarification, of the original injunction, it was well within the court's authority to make this modification in response to Spectrum's arguments that the injunction's vagueness made it impossible for the company to know how precisely to comply with the court's command. R. 237 at 6. True, Spectrum did not formally ask the court to modify the injunction and neither did the government separately make such a motion. But it was well within the court's power to look beyond the label to the substance of Spectrum's motion and to treat the request for a stay not only as one to clarify the injunction, but also as one to modify the injunction as necessary to address Spectrum's concerns-which is precisely how the court construed the motion. R. 243 at 3-4 & n.1. Our subsequent remand of the case to the district court eliminated any question as to whether the court had jurisdiction to make this change and the other amendments to the judgment.
See
Doctors Nursing & Rehab. Ctr. v. Sebelius
,
Nor did the district court abuse its discretion in concluding that an outside consultant was warranted. As the parties agree, this provision is commonly included in consent decrees as a means of insuring that the problems that have given rise to litigation are, in fact, resolved.
See
R. 254 at 9 n.4 (collecting consent decrees in
CPSA cases requiring employment of outside experts);
NW Environ. Defense Ctr. v. H&H Welding
,
III.
For all of the reasons we have discussed, the judgment of the district court is AFFIRMED.
Manion, Circuit Judge, concurring in part and concurring in the judgment.
I write separately to note a narrow point of disagreement with the court's detailed opinion relating to the statute of limitations issue. 1 I agree Spectrum's 2 conduct amounts to a "continuing violation" that lasted into 2012, and therefore the government's complaint was timely. I disagree, however, concerning the nature of that continuing violation.
The court relies on
United States v. Yashar
,
Nevertheless, given the facts in this case, my understanding does not change the outcome. Because Spectrum did not report to the Commission when its duty first arose in 2009, each new consumer complaint and subsequent failure to report amounted to a recurring series of violations of the reporting requirement.
4
Thus, Spectrum's persistent failure to file a report with the Commission as it continued to obtain information showing its product was dangerously defective was a "continuing violation" that continued into 2012,
5
and the government's 2015 complaint was timely.
6
See
Shanoff v. Ill. Dept. of Human Servs.
,
*****
From January 2009 to April 2012, Spectrum received 1,620 customer complaints; a rate of more than one per day. Spectrum could have filed its report to the Commission much sooner than it did, and that date, at the latest, would be the start of the five-year limitations period. The government would then have five years to file a complaint, probably noting that customers continued to complain. If Spectrum and the government had proceeded accordingly, this case would not be here.
But as it is, Spectrum engaged in a series of violations of the reporting requirement that lasted into 2012. It cannot hide behind the untimeliness of its self-imposed delay in reporting a problem that developed months and years earlier. The government timely filed its complaint in 2015.
Applica imported the Black & Decker coffeemakers from China and distributed them to retailers from 2008 to 2012. Applica became a wholly-owned subsidiary of Spectrum in 2010 and then merged with Spectrum in 2014. At the time of the merger, Spectrum assumed all of the assets and obligations of Applica, and there is no dispute that the assumed liabilities include Applica's liability with respect to the events underlying this case. For the sake of simplicity, then, we have treated Spectrum as the distributor of the coffeemakers at issue here.
The regulations allow a "reasonable time" for a company to investigate the problem with its product when the information in its possession is "not clearly reportable" to the Commission.
The fact that Spectrum did not respond more proactively to the steady stream of complaints appears to have been the result of both a skepticism with respect to consumer complaints generally as well as an internal practice as to when such complaints merited investigatory followup. The coffeemaker, including the carafe, had been thoroughly tested before it was placed on the market, so the company had reason to believe that there was no fault in the design of the carafe. The testimony presented to the district court suggests that it is not uncommon for a consumer to complain about a broken product and seek a refund or replacement based on a purported defect in the product, when in fact it is the consumer who has caused the product to break through his own misuse or clumsy handling. Spectrum (really, Applica) thus had a practice of not investigating its products for potential design and/or safety flaws unless a consumer was willing to return the broken product to the company for inspection. Early on, two consumers did return failed carafes to the company, and it was the company's investigation as to those failures that resulted in the re-engineering of the carafe handle in 2009. At that point, Spectrum evidently considered any problem with the carafe to have been solved. The company viewed the ongoing complaints about the carafe as a quality-control problem with the production of the carafe rather than a safety issue. And Applica's prior experience with another coffeemaker, as to which it filed a report with the Commission but was required to take no remedial action, lulled the company into thinking there was no need to file a report as to the Black & Decker carafe.
A long-serving CPSC employee would later testify that this number of complaints was extremely high for a product-perhaps the most he had seen in his two decades at the Commission.
Some 900 of these complaints were received after Spectrum took over Applica, the importer and distributor of the coffeemakers, in 2010.
A section 15(b) report would ordinarily trigger an investigation by the Commission to determine whether, inter alia , a recall of the product was appropriate. However, because Spectrum had signaled its intention to voluntarily recall the coffeemaker, no such investigation was necessary.
Spectrum had placed a product hold on the recalled coffeemakers, which stopped distribution of units already on its warehouse shelves, but the hold did not reach products in transit from China. When the latter units arrived at the company's warehouse, they were erroneously released for distribution.
The statute separately requires the disclosure of a defect which "creates an unreasonable risk of serious injury or death." § 2064(b)(4). The government's complaint contained a count alleging that Spectrum's coffeemaker contained such a defect. However, Spectrum disputed the notion that its coffeemaker posed a risk of causing anything more than minor injuries; and because the district court found that the defect in the coffeemaker could create a "substantial product hazard,"
see
§ 2063(b)(3), and Spectrum was required to give notice to the Commission on that basis, the court saw no need to determine whether notice was additionally required on the ground that the product posed a risk of serious injury or death.
See
United States v. Spectrum Brands, Inc.
,
Spectrum did not seek a stay as to the provision in the injunction requiring it to distribute copies of the court's summary judgment and penalty opinions to appropriate company personnel.
Spectrum had evidently begun to implement some reforms to Applica's compliance procedures when Applica first became a subsidiary of Spectrum in 2010.
The court went on to find that Spectrum had a duty to make a section 15(b) report no later than June of 2010.
The continuing violation doctrine, of course, is not limited to the criminal context.
See
,
e.g.
,
Taylor
,
Testimony presented to the district court indicates that the appropriate reporting form can be filled out and submitted to the Commission via the internet within a matter of minutes.
I join in full the court's opinion as it concerns the appropriateness of the district court's injunction.
Like the court, I treat Spectrum and its former subsidiary Applica Consumer Products, Inc., as one and the same company. See Maj. Op. at 340 n.1.
The failure also ends if the requirement to file a report is obviated by the Commission "inform[ing] the subject firm" it is already "adequately informed."
The court acknowledges this as a possibility, but it does not consider it dispositive. See Maj. Op. at 352. I think it is dispositive.
When Spectrum finally filed its report with the Commission in April 2012, it definitively prevented further violations of the reporting requirement. At that point, information may have triggered a duty to supplement the report already filed,
see
I point out that in February 2014-within the limitations period as even Spectrum would have it-the government sent Spectrum a letter explaining its belief Spectrum had violated the reporting requirement and penalties were appropriate. Nevertheless, for some reason it delayed filing its complaint until June 2015.
Reference
- Full Case Name
- UNITED STATES of America, Plaintiff-Appellee, v. SPECTRUM BRANDS, INC., Defendant-Appellant.
- Cited By
- 28 cases
- Status
- Published