CPSC Enforcement Action Against Michaels Highlights Importance of Proper Reporting

By Elliot Belilos

The U.S. Consumer Product Safety Commission (CPSC) recently filed an action in federal court against Michaels Stores, Inc., seeking civil penalties for allegedly untimely reporting injuries from a vase sold in the stores and, notably, for allegedly falsely reporting the incidents as a retailer rather than as the manufacturer of the product.  According to the Complaint, Michaels misrepresented to the Agency the company’s role in the distribution chain, allowing another company, The Gerson Company (“Gerson”) to report as the manufacturer even though Michaels was the importer of record (and, as a result, the statutory “manufacturer”).

CSPC asserts that Michaels engaged Gerson to contract to have the vase made overseas exclusively for Michaels, but that Michaels was the importer of record, a fact that CPSC alleges Michaels withheld from the Agency in its 15(b) report.  CPSC asserts that Michaels purposefully withheld that information so that Gerson would be the recalling entity, and that the recall would have been more successful had the more well known Michaels been the recalling entity.

This case bears watching as it moves forward.  Certainly companies that are importers of record for products manufactured overseas need to understand that they are deemed to be the manufacturer of those products under the Consumer Product Safety Act (CPSA), and that any report to the CPSC should properly reflect their role in the distribution chain.

Elliot Belilos represents companies on consumer product safety compliance issues, including reporting obligations to the CPSC and corrective actions, up to and including recalls.  Elliot can be reached at ebelilos@ofwlaw.com.

Spotlight on Compliance of Wood Products

By Elliot Belilos

In the wake of the recent 60 Minutes piece that highlighted alleged elevated formaldehyde in the Chinese-made wood flooring imported by Lumber Liquidators, all manufacturers and importers of consumer products containing compressed wood need to ensure that their products comply with the California Air Resources Board (CARB) limits regarding formaldehyde emissions.  And while the formaldehyde limits now only apply to products sold in California, those limits are soon to become the law nationwide, as EPA is finalizing regulations (expected by the end of the year) that largely parallel the CARB regulations.  The EPA regulations are being promulgated under 2013 amendments to the Toxic Substances Control Act.  All consumer goods that contain hardwood plywood (HWPW), particleboard (PB), medium density fiberboard (MDF) are affected.

Reasonable Prudent Precautions

For importers of HWPW, PB and MDF and finished products containing these materials, the Airborne Toxic Control Measures (ATCM) imposes no obligation to test, but importers must take “reasonable prudent precautions” to ensure that the products are compliant, which at a minimum, requires the importer to instruct (in writing) each supplier that the goods it supplies to the importer comply with the applicable emission standards, and obtain written documentation from each supplier that this is so. ATCM § 93120.6(b). In addition to certification from the supplier that all composite wood components are CARB 2 compliant, it would be advisable to require suppliers of products with composite wood components to provide copies of test reports that demonstrate CARB 2 compliance. Since the manufacturer is required to test for CARB 2 compliance, those test reports should be available – if not available, that should at least raise a red flag.

Recordkeeping Requirements

Importers of finished goods containing composite wood components must maintain records showing the date of purchase and the supplier of each shipment of goods containing HWPW, PB or MDF and document the precautions taken to ensure that the composite wood in the finished goods comply with applicable emission standards. These records must be kept in electronic of hard copy form for a minimum of two years and provided to CARB or local air district personnel upon request. ATCM § 93120.6(b).

Statement of Compliance

For each composite wood product or finished good made with composite wood, the importer must state on the bill of lading or invoice that the composite wood products or components comply with the CARB 2 emission standards.

Facility Inspections

Importers may be inspected by CARB or local air district personnel. In the course of an inspection, the importer may be subject to a records audit and product sampling.

Verification Testing

As noted above, there is no requirement that importers conduct independent testing of composite wood components of finished goods. Nonetheless, an importer of composite wood products or finished goods with composite wood components is still at risk for penalties even if it takes the “reasonable prudent precautions” described above. Those reasonable prudent precautions may serve to mitigate penalties levied by CARB, but penalties could still be levied if CARB were to determine that the composite wood is not compliant despite the certification and test reports provided by the supplier.  As a result, it may help to further mitigate potential liability to conduct some independent testing to confirm compliance.

In addition to the potential liability Lumber Liquidators is facing regarding alleged CARB emissions noncompliance, the Justice Department recently announced that it is investigating whether the Company violated the Lacey Act by importing endangered species of wood and the U.S. Consumer Product Safety Commission (CPSC) is investigating whether the Company’s products run afoul of CPSC regulations.

If you are a manufacturer or importer of consumer products that contain wood, it is important that you understand the laws and regulations that affect your products.  In the wake of the investigations surrounding Lumber Liquidators, your products are in the regulatory spotlight.

Elliot Belilos represents companies in the areas of product safety and compliance.  You can reach him at ebelilos@ofwlaw.com.

CPSC Proposes to Make Voluntary Recalls and Compliance Programs Legally Binding

By Elliot Belilos

On November 13, 2013, the U.S. Consumer Product Safety Commission (CPSC) issued a proposed interpretive rule concerning corrective action plans for “voluntary” recalls that may impact future voluntary consumer product recalls in two significant ways.   First, CPSC proposes to make voluntary recall agreements that companies negotiate with CPSC legally binding.  Second, CPSC proposes to permit the staff to require ongoing compliance programs as a component of such agreements.

Legally Binding Voluntary Recalls: Under the current regulation (16 C.F.R. § 1115.20(a)), voluntary corrective action plans – which identify the remedial actions a company intends to take, up to and including a product recall – have no legally binding effect.  The proposed rule would make such corrective action plans binding, allowing the CPSC to go to federal court to enforce the terms of the agreement.

Compliance Programs: The proposed rule would also allow staff to insist that voluntary recall agreements require companies maintain ongoing compliance programs, defining the terms of such compliance programs such as levels and frequency of internal and third-party testing.  The proposed rule provides examples of circumstances that might warrant a compliance program, as well as examples of requirements that may be included in a compliance program. The proposed rule also sets forth enforcement measures CPSC may take to remedy violations, including seeking injunctive relief, specific performance, and sanctions.

Since the proposal was issued, there has been considerable debate in the product safety community as to (1) whether the CPSC has the authority to issue this rule as proposed, and (2)  whether the proposal, if implemented, would create a deterrence for companies to come forward and propose a voluntary recall and/or slow down the recall process.

Comments on the proposed rule may be submitted to CPSC by February 4, 2014.

For more information on how this proposal may impact your company, please contact me at 202-518-6358 or ebelilos@ofwlaw.com.