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[Federal Register: January 11, 2010 (Volume 75, Number 6)]
[Notices]               
[Page 1356-1359]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ja10-32]                         

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CONSUMER PRODUCT SAFETY COMMISSION

[CPSC Docket No. 10-C0002]

 
RC2 Corporation, Provisional Acceptance of a Settlement Agreement 
and Order

AGENCY: Consumer Product Safety Commission

ACTION: Notice

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SUMMARY: It is the policy of the Commission to publish settlements 
which it provisionally accepts under the Consumer Product Safety Act in 
the Federal Register in accordance with the terms of 16 CFR 1118.20(e). 
Published below is a provisionally-accepted Settlement Agreement with 
RC2 Corporation, containing a civil penalty of $1,250,000.00.

DATES: Any interested person may ask the Commission not to accept this 
agreement or otherwise comment on its contents by filing a written 
request with the Office of the Secretary by January 26, 2010.

ADDRESSES: Persons wishing to comment on this Settlement Agreement 
should send written comments to the Comment 10-C0002, Office of the 
Secretary, Consumer Product Safety Commission, 4330 East West Highway, 
Room 502, Bethesda, Maryland 20814-4408.

FOR FURTHER INFORMATION CONTACT: M. Reza Malihi, Trial Attorney, 
Division of Compliance, Office of the General Counsel, Consumer Product 
Safety Commission, 4330 East West Highway, Bethesda, Maryland 20814-
4408; telephone (301) 504-7733.

SUPPLEMENTARY INFORMATION: The text of the Agreement and Order appears 
below.

    Dated: January 6, 2010.
Todd A. Stevenson,
Secretary.

Settlement Agreement

    1. In accordance with 16 CFR 1118.20, RC2 Corporation and the staff 
(``Staff'') of the United States Consumer Product Safety Commission 
(``CPSC'' or the ``Commission'') enter into this Settlement Agreement 
(``Agreement''). The Agreement and the incorporated attached Order 
(``Order'') settle the Staff's allegations set forth below.

Parties

    2. The Commission is an independent federal regulatory agency 
established pursuant to, and responsible for the enforcement of, the 
Consumer Product Safety Act, 15 U.S.C. 2051--2089 (``CPSA'').
    3. RC2 Corporation is a corporation organized and existing under 
the laws of the state of Delaware, with principal offices located in 
Oak Brook, Illinois. At all times relevant hereto, RC2 Corporation 
designed, imported and sold toys and children's products. ``RC2'' as 
used in this Agreement means RC2 Corporation and its wholly owned 
subsidiary Learning Curve Brands, Inc. and their officers, directors, 
shareholders and employees.

Staff Allegations

    4. Between January 2005 and April 2007, RC2 commissioned one of its 
dedicated contract manufacturers, Overseas Winner Limited (``OW''), to 
manufacture in China approximately 1,506,900 units of various Thomas & 
Friends\TM\ Wooden Railway toys for sale in the United States. The toys 
consisted

[[Page 1357]]

of wooden vehicles, buildings and other train set components for young 
children, comprising 26 distinct component styles packaged in 23 retail 
SKU's (collectively, the ``TWR Toys''). Between January 2005 and May 
2007, RC2 imported into the United States approximately 1,506,900 units 
of the TWR Toys, and in turn, shipped them to its retail and other 
customers. The TWR Toys were sold or offered for sale to consumers 
primarily at toy stores and various retailers nationwide, and 
secondarily through RC2's e-commerce websites or as `sub-components' of 
retail items distributed independently of RC2, from January 2005 
through June 2007, for between $10 and $70 per unit. The TWR Toys 
represented approximately 4% of total wooden railway toy units sold by 
RC2 within the U.S. market.
    5. Between March 2003 and April 2007, RC2 commissioned OW and 
another of its dedicated contract manufacturers, 3i Corporation, Ltd., 
to manufacture in China certain of 5 other component styles from Thomas 
& Friends\TM\ Wooden Railway toys product line, comprising 
approximately an additional 200,000 units, for sale in the United 
States (collectively, the ``Additional TWR Toys''). Between March 2003 
and September 2007, RC2 imported into the United States approximately 
200,000 units of the Additional TWR Toys, and in turn, shipped them to 
its retail and other customers. The Additional TWR Toys were sold or 
offered for sale to consumers primarily at toy stores and various 
retailers nationwide, and secondarily through RC2's e-commerce Web 
sites or as `sub-components' of retail items distributed independently 
of RC2, from March 2003 to September 2007, for between $10 and $40 per 
unit.
    6. The TWR Toys and Additional TWR Toys (collectively, ``Subject 
Products'') are ``consumer product(s),'' and, at all times relevant 
hereto, RC2 was a ``manufacturer'' and a ``retailer'' of those consumer 
products, which were ``distributed in commerce,'' as those terms are 
defined in CPSA sections 3(a)(3), (5), (8), (11) and (13), 15 U.S.C. 
Sec.  2052(a)(3), (5), (8), (11) and (13).
    7. The Subject Products are articles intended to be entrusted to or 
for use by children, and, therefore, are subject to the requirements of 
the Commission's Ban of Lead-Containing Paint and Certain Consumer 
Products Bearing Lead-Containing Paint, 16 CFR Part 1303 (the ``Lead 
Paint Ban''). Under the Lead Paint Ban, toys and other children's 
articles must not bear ``lead-containing paint,'' defined as paint or 
other surface coating materials whose lead content is more than 0.06 
percent of the weight of the total nonvolatile content of the paint or 
the weight of the dried paint film. 16 CFR 1303.2(b)(1)
    8. On March 29, 2007, RC2 was notified by one of its U.S. retail 
customers that a TWR Toy supplied by RC2, specifically the Thomas & 
Friends Oval Set (Product  LC99561), had failed testing that 
demonstrated its paint or other surface coatings contained levels of 
lead in excess of the permissible 0.06 percent limit set forth in the 
Lead Paint Ban. The Oval Set (Product  LC99561) was produced 
at OW, which was at the time one of two contract manufacturers of the 
Thomas & Friends\TM\ Wooden Railway toys product line, both based in 
China. On the same day, RC2 inventory of the Oval Set (Product 
 LC99561) was placed on hold and an inventory audit was 
conducted to identify quantities per production-date code on hand. An 
internal investigation by RC2, in consultation with its contract 
manufacturers and pertinent customers, then ensued. It involved 
extensive testing of the Thomas & Friends\TM\ Wooden Railway toys 
product line for the presence of lead, including tests conducted by 
independent certified labs in China and the U.S. on finished toys as 
well as liquid paints and solvents used the manufacturing process.
    9. The internal investigation yielded multiple failing test results 
demonstrating that dozens of TWR Toy samples bore or contained paint or 
other surface coatings with lead levels in excess of the permissible 
0.06 percent (600 ppm) limit set forth in the Lead Paint Ban. Based 
upon information that primarily emerged during this investigation 
period, RC2 determined that five PMS (Pantone Matching System[reg]) 
surface paint colors applied to certain finished product components had 
failed at least one test for the presence of lead in excess of the 
permissible 0.06 percent limit set forth in the Lead Paint Ban; a sixth 
color, yellow, had failed testing prior to the investigation period and 
then passed a subsequent test, but ultimately was included among the 
non-compliant paint colors as a precautionary measure. RC2 also 
determined that all the affected units composing the TWR Toys had been 
manufactured by OW rather than by RC2's other Chinese contract 
manufacturer. RC2 cross-referenced each of the failing colors with the 
colors of paint used on each toy component, thereby identifying 26 
distinct component styles which used at least one of these six colors, 
and thus ascertained the scope of affected models and product units 
comprising the TWR Toys for recall purposes.
    10. After RC2 reported this information to CPSC, on June 13, 2007, 
the Commission and RC2 announced a recall of about 1,500,000 units of 
the TWR Toys because ``Surface paints on the recalled products contain 
lead. Lead is toxic if ingested by young children and can cause adverse 
health effects.''
    11. Throughout the summer of 2007, RC2 and other entities with 
which it does business continued with additional testing of items from 
the Thomas & Friends\TM\ Wooden Railway toys product line. By 
supplemental reports submitted to CPSC between August 17 and September 
20, 2007, RC2 reported that it had obtained information which 
reasonably supports the conclusion that five additional toys from this 
product line have certain specific colors of paint applied to them that 
``may contain'' levels of lead in excess of the permissible 0.06 
percent limit set forth in the Lead Paint Ban. The continued 
investigation yielded further failing test reports demonstrating that 
additional samples bore or contained paint or other surface coatings 
with lead levels in excess of the permissible 0.06 percent (600 ppm) 
limit set forth in the Lead Paint Ban. In this way, RC2 determined the 
scope of affected models and product units comprising the Additional 
TWR Toys for recall purposes.
    12. On September 26, 2007, the Commission and RC2 announced that 
the original TWR Toys recall was being expanded in order to include 
about 200,000 units of the Additional TWR Toys because ``Surface paints 
on the toys can contain excessive levels of lead, violating the federal 
lead paint standard.''
    13. RC2 reportedly severed its business relationship with OW 
completely in June 2007, soon after the original TWR Toys recall 
announcement. RC2 reportedly already had ceased manufacturing any of 
the Thomas & Friends\TM\ Wooden Railway toys at 3i in November 2006.
    14. Although at the time of each of the aforementioned recalls RC2 
reported no incidents or injuries associated with the presence of 
excessive lead in the paint or other surface coatings of the Subject 
Products, it subsequently learned of a number of allegations of such 
incidents and injuries, some of which became the subject of claims and 
lawsuits against it. RC2 failed to take adequate action to ensure that 
the Subject Products complied with the Lead Paint Ban. This failure 
created a risk of lead poisoning and adverse health effects to 
children. Lead is toxic if ingested by young children and can cause 
adverse health effects.

[[Page 1358]]

    15. The Subject Products constitute ``banned hazardous products'' 
under CPSA section 8 and the Lead Paint Ban, 15 U.S.C. 2057 and 16 CFR 
1303.1(a)(1), 1303.4(b), in that they bear or contain paint or other 
surface coating materials whose lead content exceeds the permissible 
limit of 0.06 percent of the weight of the total nonvolatile content of 
the paint or the weight of the dried paint film.
    16. Between March 2003 and September 2007, RC2 sold, manufactured 
for sale, offered for sale, distributed in commerce, or imported into 
the United States, or caused one or more of such acts, with respect to 
the Subject Products, in violation of section 19(a)(1) of the CPSA, 15 
U.S.C. 2068(a)(1). RC2 committed these prohibited acts ``knowingly,'' 
as that term is defined in section 20(d) of the CPSA, 15 U.S.C. 
2069(d).
    17. Pursuant to section 20 of the CPSA, 15 U.S.C. 2069, RC2 is 
subject to civil penalties for the aforementioned violations.

Responsive Allegations of RC2

    18. RC2 denies that it violated section 19(a)(1) of the CPSA, 15 
U.S.C. 2068(a)(1), and further denies that it did so ``knowingly'' (as 
defined in section 20(d) of the CPSA, 15 U.S.C. 2069(d)).

Agreement of the Parties

    19. Under the CPSA, the Commission has jurisdiction over this 
matter and over RC2.
    20. The parties enter into the Agreement for settlement purposes 
only. The Agreement does not constitute an admission by RC2, or a 
determination by the Commission, that RC2 knowingly violated the CPSA.
    21. In settlement of the Staff's allegations, RC2 Corporation shall 
pay a civil penalty in the total amount of One Million Two Hundred 
Fifty Thousand ($1,250,000.00) dollars within twenty (20) calendar days 
of service of the Commission's final Order accepting the Agreement. 
This payment shall be made by check payable to the order of the United 
States Treasury.
    22. The Commission will not seek or initiate any enforcement action 
against RC2 for civil penalties, based upon information known to CPSC 
through the date of final acceptance of this Agreement, for possible 
violations of (i) section 19(a)(4) of the CPSA, 15 U.S.C. 2068(a)(4), 
regarding CPSC File No. RP070347, associated with Releases 07-
212 and 07-308; (ii) sections 19(a)(1) and 19(a)(4) of the 
CPSA, 15 U.S.C. Sec.  2068(a)(1) and (a)(4), regarding CPSC File No. 
RP070524, associated with Release 07-310, and CPSC File No. 
RP070572, associated with Release 08-119; and (iii) section 
19(a)(4) of the CPSA, 15 U.S.C. 068(a)(4), regarding CPSC File No. 
RP080126, associated with Release 08-120. The Commission's 
agreement not to seek penalties, as stated herein, will not relieve RC2 
from the continuing duty to report to CPSC any new, additional or 
different information as required by CPSA section 15(b), 15 U.S.C. 
2064(b) and the regulations at 16 CFR Part 1115, regarding these 
matters.
    23. Upon the Commission's provisional acceptance of the Agreement, 
the Agreement shall be placed on the public record and published in the 
Federal Register in accordance with the procedures set forth in 16 CFR 
1118.20(e). In accordance with 16 CFR 1118.20(f), if the Commission 
does not receive any written request not to accept the Agreement within 
fifteen (15) days, the Agreement shall be deemed finally accepted on 
the sixteenth (16th) day after the date it is published in the Federal 
Register.
    24. Upon the Commission's final acceptance of the Agreement and 
issuance of the final Order, RC2 knowingly, voluntarily, and completely 
waives any rights it may have in this matter to the following: (1) An 
administrative or judicial hearing; (2) judicial review or other 
challenge or contest of the validity of the Commission's Order or 
actions; (3) a determination by the Commission of whether RC2 failed to 
comply with the CPSA and its underlying regulations; (4) a statement of 
findings of fact and conclusions of law; and (5) any claims under the 
Equal Access to Justice Act.
    25. The Commission may publicize the terms of the Agreement and 
Order.
    26. The Agreement and Order shall apply to, and be binding upon, 
RC2 and each of its successors and assigns.
    27. The Commission issues the Order under the provisions of the 
CPSA, and violation of the Order may subject those referenced in 
paragraph 26 to appropriate legal action.
    28. The Agreement may be used in interpreting the Order. 
Understandings, agreements, representations, or interpretations apart 
from those contained in the Agreement and Order may not be used to vary 
or contradict its terms. The Agreement shall not be waived, amended, 
modified, or otherwise altered, except in a writing that is executed by 
the party against whom such waiver, amendment, modification, or 
alteration is sought to be enforced.
    29. If any provision of the Agreement and Order is held to be 
illegal, invalid, or unenforceable under present or future laws 
effective during the terms of the Agreement and Order, such provision 
shall be fully severable. The balance of the Agreement and Order shall 
remain in full force and effect, unless the Commission and RC2 agree 
that severing the provision materially affects the purpose of the 
Agreement and Order.

RC2 Corporation

Dated: September 18, 2009
Curt Stoelting,

Chief Executive Officer, RC2 Corporation.
Dated: September 17, 2009.

Michael J. Gidding, Esq.,
Brown & Gidding, P.C., 3201 New Mexico Avenue, NW., Suite 242, 
Washington, DC 20016, Counsel for RC2 Corporation.

U.S. Consumer Product Safety Commission Staff.

Cheryl A. Falvey,
General Counsel, Office of the General Counsel.

Ronald G. Yelenik,
Assistant General Counsel, Office of the General Counsel.

Dated: November 2, 2009.

M. Reza Malihi,
Trial Attorney, Division of Compliance, Office of the General Counsel.

Order

    Upon consideration of the Settlement Agreement entered into between 
RC2 Corporation (``RC2''), and the U.S. Consumer Product Safety 
Commission (``Commission'') staff, and the Commission having 
jurisdiction over the subject matter and over RC2, and it appearing 
that the Settlement Agreement and Order are in the public interest, it 
is
    Ordered, that the Settlement Agreement be, and hereby is, accepted; 
and it is
    Further ordered, that RC2 shall pay a civil penalty in the amount 
of One Million Two Hundred Fifty Thousand ($1,250,000.00) dollars 
within twenty (20) calendar days of service of the Commission's final 
Order accepting the Agreement. The payment shall be made by check 
payable to the order of the United States Treasury. Upon the failure of 
RC2 to make the foregoing payment when due, interest on the unpaid 
amount shall accrue and be paid by RC2 at the federal legal rate of 
interest set forth at 28 U.S.C. 1961(a) and (b).

    Provisionally accepted and provisional Order issued on the 5th 
day of January 2010.


[[Page 1359]]


    By order of the commission.
Todd A. Stevenson,
Secretary, U.S. Consumer Product Safety Commission.
[FR Doc. 2010-282 Filed 1-8-10; 8:45 am]
BILLING CODE 6355-01-P
```