[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Notices]
[Pages 30784-30787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13088]


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CONSUMER PRODUCT SAFETY COMMISSION

[CPSC Docket No. 10-C0004]


Schylling Associates, Inc., 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 
Schylling Associates, Inc., containing a civil penalty of $400,000.00.

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 June 17, 2010.

ADDRESSES: Persons wishing to comment on this Settlement Agreement 
should send written comments to the Comment 10-C0004, Office of the 
Secretary, Consumer Product Safety

[[Page 30785]]

Commission, 4330 East West Highway, Room 820, Bethesda, Maryland 20814-
4408.

FOR FURTHER INFORMATION CONTACT: Alex Dennis, Attorney, Division of 
Enforcement and Information, Office of the General Counsel, Consumer 
Product Safety Commission, 4330 East West Highway, Bethesda, Maryland 
20814-4408; telephone (301) 504-7817.

SUPPLEMENTARY INFORMATION: The text of the Agreement and Order appears 
below.

    Dated: May 26, 2010.
Todd A. Stevenson,
Secretary.

United States of America

Consumer Product Safety Commission

CPSC Docket No. 10-C0004

In the Matter of Schylling Associates, Inc.; Settlement Agreement

    1. In accordance with 16 CFR 1118.20, Schylling Associates, Inc. 
(``Schylling'') 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. Schylling is a corporation organized and existing under the 
laws of the Commonwealth of Massachusetts, with principal offices 
located in Rowley, Massachusetts. At all times relevant hereto, 
Schylling designed, imported and sold toys and children's products.

Staff Allegations

A. Introduction/Distribution in Commerce of Banned Toys

    4. From January 24, 2002 through March 2002, Schylling imported 
approximately 10,200 units of certain tin pail toys (``Pails''), 
consisting of Thomas and Friends, Curious George, and Primary Colors 
(red/yellow) styles, which had been produced in China by one of its 
Hong Kong manufacturers, Eway Enterprises, Ltd. (``Eway''). 
Schylling distributed approximately 4,700 units of the Pails to its 
customers in February and March 2002. The Pails were sold or offered 
for sale to consumers at toy stores and gift shops nationwide in 
February and March 2002, for about $6 per unit.
    5. Between June 2001 and June 2002, Schylling imported 
approximately 66,000 units of certain spinning top toys (``Tops''), 
consisting of Thomas and Friends, Curious George, and Circus styles, 
which had been produced in China by another of its Hong Kong 
manufacturers, Sanda Kan Industrial, Ltd. (``Sanda Kan''). Schylling 
distributed these Tops to its U.S. customers from July 2001 until at 
least September 2002. The Tops were sold or offered for sale to 
consumers at toy stores and gift shops nationwide from July 2001 
until at least September 2002, for about $13 per unit.
    6. Between April 2003 and May 2003, Schylling imported 
approximately 3,600 units of certain Winnie-the-Pooh style spinning 
top toys, which also had been produced in China by Sanda Kan. 
Schylling distributed these Winnie-the-Pooh tops to its U.S. 
customers from April until November 2003. The Winnie-the-Pooh tops 
were sold or offered for sale to consumers at toy stores and gift 
shops nationwide from April until November 2003, for about $12 per 
unit.
    7. The Pails, Tops and Winnie-the-Pooh tops described in 
paragraphs 4 through 6 above (collectively, the ``Subject 
Products'') are ``consumer product(s),'' and, at all times relevant 
hereto, Schylling was a ``manufacturer'' of those consumer products, 
which were ``distributed in commerce,'' as those terms are defined 
in CPSA sections 3(a)(3), (5), (8), and (11), 15 U.S.C. 2052(a)(3), 
(5), (8), and (11).
    8. 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) \1\
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    \1\ At the time of the alleged violations stated in this 
Settlement Agreement, the permissible limit of 0.06 percent was in 
effect for the Lead-Paint Ban. As of August 14, 2009, the limit was 
amended to 0.009 percent pursuant to 15 U.S.C. 1278a(f)(1).
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    9. On March 7, 2002, as a result of testing conducted in Hong 
Kong at its behest, Schylling obtained a test report from an 
independent laboratory demonstrating that the wooden handles of as 
many as 12 production samples of the Primary Colors (red/yellow) 
style tin pail toys bore paint or other surface coating materials 
whose lead content exceeded the permissible limit of 0.06 percent 
set forth in the Lead-Paint Ban. In late March 2002, without 
furnishing any copy of the associated test report, Eway informed 
Schylling that the supplier of the yellow and red paints used on the 
Pails had conducted re-testing and confirmed that the paints failed 
to comply with the Lead-Paint Ban.
    10. Shortly after March 2002, following a brief evaluation of 
possibly purchasing additional pails from Eway having a clear 
(lacquer) finish instead of paint, Schylling reportedly severed its 
business relationship with Eway due to the referenced lead paint 
test failures. Beginning March 26, 2002, Schylling, without 
informing CPSC, initiated a unilateral recall of the Pails from its 
customers, as further discussed in paragraphs 19 and 20 below.
    11. On June 30 and July 1, 2002, as a result of testing 
conducted in Hong Kong at its behest, Schylling obtained three test 
reports from an independent laboratory demonstrating that the wooden 
handles of production samples from each of the Thomas and Friends, 
Curious George, and Circus style spinning top toys respectively, 
representing altogether as many as 9 samples, bore paint or other 
surface coating materials whose lead content exceeded the 
permissible limit of 0.06 percent set forth in the Lead-Paint Ban. 
On July 15, 2002, as a result of re-testing conducted in Hong Kong 
at its behest, Schylling obtained an additional three failing test 
reports from an independent laboratory that confirmed the June 30th 
and July 1st results with respect to another set of production 
samples from each of these three styles of spinning top toys. For 
the reasons further discussed in paragraphs 21 and 22 below, 
however, Schylling reportedly concluded at the time that it had 
resolved the lead-containing paint problem before any non-compliant 
Tops were imported into the United States. In order to avoid any 
lead-in-paint problems in the future, Schylling then instructed its 
manufacturer, Sanda Kan, that henceforth all spinning top toys had 
to be made with unpainted plastic rather than wooden handles, and 
had to pass applicable testing for the presence of lead.
    12. Some five years later, in early August 2007, a Chicago 
Tribune news reporter contacted Schylling and informed it that a 
sample of the Thomas and Friends style Top, purchased from a U.S. 
consumer via a Web site, had been tested by an independent 
laboratory for the presence of lead-containing paint and yielded 
failing results. Upon learning this information, Schylling submitted 
reports to CPSC under Section 15(b) with respect to the subject Tops 
and Pails, as further discussed in paragraph 24 below. On August 22, 
2007, the Commission and Schylling announced a recall of about 
66,000 Tops and about 4,700 Pails because ``Surface paints on the 
wooden handles of the tops and pails contain excessive levels of 
lead, which violates the federal lead paint standard. Lead is toxic 
if ingested by young children and can cause adverse health 
effects.''
    13. On September 28, 2007, a representative of one of 
Schylling's licensors, the Walt Disney Company, informed Schylling 
that at Disney's behest a sample of the Winnie-the-Pooh style 
spinning top toys had been tested by an independent laboratory, 
which determined that the top's wooden handle bore red paint whose 
lead content exceeded the permissible limit of 0.06 percent set 
forth in the Lead-Paint Ban. Until that time Schylling reportedly 
was unaware that it had sold any Winnie-the-Pooh tops with wooden 
handles, as it supposedly had ordered the Winnie-the-Pooh tops from 
Sanda Kan with unpainted plastic rather than wooden handles, and the 
non-compliant tops reportedly had not been detected during 
Schylling's normal quality control review of incoming shipments. 
Even though it had sold this toy only in 2003, Schylling was able to 
locate in storage a pair of the Winnie-the-Pooh tops that it 
believed to be from the same shipment as the sample tested by 
Disney, and the items were sent to an independent laboratory for 
confirmatory testing.

[[Page 30786]]

    14. On October 22, 2007, as a result of testing conducted in 
Hong Kong at its behest, Schylling obtained a test report from an 
independent laboratory demonstrating that the wooden handles of both 
samples of the Winnie-the-Pooh tops bore red paint whose lead 
content exceeded the permissible limit of 0.06 percent set forth in 
the Lead-Paint Ban. Schylling promptly submitted a report to CPSC 
under Section 15(b) with respect to the Winnie-the-Pooh tops, and on 
November 7, 2007, the Commission and Schylling announced an 
expansion of the original recall of Tops and Pails to include about 
3,600 of these tops because ``Surface paint on the wooden handle of 
the top contains excessive levels of lead, violating the federal 
lead paint standard.''
    15. Although Schylling reported no incidents or injuries 
associated with the presence of excessive lead in the paint or other 
surface coatings of the Subject Products, it failed to take adequate 
action to ensure that none would bear or contain lead-containing 
paint. That created a risk of lead poisoning and adverse health 
effects to children.
    16. 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.
    17. Between June 2001 and November 2003, Schylling 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). Schylling committed 
these prohibited acts ``knowingly,'' as that term is defined in 
section 20(d) of the CPSA, 15 U.S.C. 2069(d).
    18. Pursuant to section 20 of the CPSA, 15 U.S.C. 2069, 
Schylling is subject to civil penalties for the violations described 
in paragraph 17.

B. Failure To Report

    19. Upon receiving the March 7, 2002 failing test results on 
certain samples of the tin pail toys, Schylling reportedly halted 
shipments immediately and locked-down its relevant inventory to 
prevent any further shipments of all three styles of the Pails, and 
contacted Eway to investigate the matter. Although it reportedly 
never obtained any failing lead test reports for them, Schylling 
included the Thomas and Friends and Curious George styles of Pails 
because it had reason to suspect they were also non-compliant as 
they had come from the same manufacturer, been part of the same 
shipments, and had similar red and yellow painted wooden handles. 
Schylling and Eway determined the scope of product units affected by 
this non-compliance issue encompassed shipments from Hong Kong to 
the United States initiated on January 24, 2002 and February 28, 
2002, relating to a single Schylling purchase order from early 
December 2001. Schylling further determined that out of the nearly 
10,200 imported Pails affected by this issue, only about 4,700 units 
had been shipped to its U.S. customers, the shipments occurred in 
February and March 2002, and that hundreds of its customers had 
received some quantity of these units.
    20. At the conclusion of its investigation of this matter, 
beginning on March 26, 2002, Schylling reportedly notified every 
customer, by telephone and mail, that they should return the Pails 
in their possession. However, Schylling did not inform the 
Commission of the non-compliance or other related information that 
could have allowed the CPSC staff to assess the attendant risks and 
any need for corrective action. While this unilateral recall of the 
Pails reportedly succeeded in recovering approximately 84% (or 
3,948) of the shipped units, the rest of the Pails were not 
recovered by Schylling at the time and for at least 5 years 
thereafter.
    21. Upon receiving the June 30 and July 1, 2002 failing test 
results on certain samples of the spinning top toys, Schylling 
reportedly contacted Sanda Kan immediately to inform the factory 
that it was rejecting these tops because they could not be sold in 
the United States, and to investigate the matter. In response to 
Schylling's inquiries about the status of its then-existing 
inventory of Tops and these failing test results, Sanda Kan 
reportedly explained that it had recently changed paint suppliers 
and suspected that the new supplier had been the source of the lead-
containing paint. Sanda Kan assured Schylling that these failed 
samples were from a new production run involving this new supplier, 
indicating that the scope of spinning top toys affected by this non-
compliance issue included the most recent Schylling purchase order, 
which had not yet been imported into the United States. Schylling 
also had in its possession at the time two earlier passing test 
results that it believed to be pertinent: A November 1997 test 
report showed that various paint colors from several Thomas and 
Friends style top samples complied with the Lead-Paint Ban's 
regulatory limit for total lead content; and a January 2000 test 
report showed that various paints used on the same style tops 
likewise complied.
    22. Even though it had recently encountered a similar non-
compliance issue involving the Pails and Eway, Schylling reportedly 
concluded that it had resolved the lead-containing paint problem 
regarding the Tops before any non-compliant units of these toys were 
imported into the United States. This conclusion was reportedly 
based on Sanda Kan's assurances, Schylling's long-standing business 
relationship with and perception of that supplier as a reliable 
source in the industry, the passing test results from 1997 and 2000, 
and its instructions to Sanda Kan to switch to plastic handles. 
Schylling did not conduct testing for the presence of lead on any 
Tops (with wooden handles) in its warehouse at the time, and 
continued to ship them to its U.S. customers for several more months 
until at least September 2002.
    23. As previously described in paragraph 12, Schylling was 
contacted on August 7, 2007, by a Chicago Tribune news reporter who 
informed the company that a sample of the Thomas and Friends style 
Top had been purchased from a U.S. consumer via an Internet auction 
Web site in relation to an upcoming news story, and had subsequently 
failed independent lab testing for the presence of lead-containing 
paint. Specifically, Schylling learned that the University of Iowa 
Hygienic Laboratory had tested the sample twice, and results 
demonstrated that the Top's wooden handle bore red paint with a lead 
content of 2.4 percent. Schylling reportedly was surprised to learn 
this information, and upon further investigation received from Sanda 
Kan a passing test result obtained in 2001 that showed six bottles 
of wet paint, intended for use on the spinning top toys, had passed 
testing for compliance with the European Standard on Safety of Toys 
(EN71) limits for soluble lead (albeit not total lead) content. 
After reviewing the situation, Schylling determined that the Thomas 
and Friends style Top in question had been purchased from Sanda Kan 
prior to July 2002, when Schylling instructed that the handles be 
changed to plastic.
    24. On August 9, 2007, Schylling filed a Section 15(b) report 
with the CPSC concerning the subject Tops. The next day, on August 
10, 2007, reportedly ``out of an abundance of caution,'' Schylling 
filed a Section 15(b) report with the CPSC concerning the subject 
Pails.
    25. By dates well before August 2007, Schylling knew or should 
have known that at least a proportion of the subject Tops and Pails 
distributed in commerce did not comply with the Lead-Paint Ban, 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. Accordingly, Schylling had obtained 
information that reasonably supported the conclusion that the 
subject Tops and Pails failed to comply with an applicable consumer 
product safety rule. CPSA section 15(b)(1), 15 U.S.C. 2064(b)(1), 
required Schylling to immediately inform the Commission of each of 
these failures to comply.
    26. Schylling's failure to furnish information to CPSC as 
required by CPSA section 15(b)(1), 15 U.S.C. 2064(b)(1), violated 
section 19(a)(4) of the CPSA, 15 U.S.C. 2068(a)(4), with respect to 
these toys. Schylling committed these prohibited acts ``knowingly,'' 
as that term is defined in section 20(d) of the CPSA, 15 U.S.C. 
2069(d).
    27. Pursuant to section 20 of the CPSA, 15 U.S.C. Sec.  2069, 
Schylling is subject to civil penalties for the violations described 
in paragraph 26.

Responsive Allegations of Schylling

    28. Schylling denies that it violated Sections 15(b)(1), 
19(a)(1) or 19(a)(4) of the CPSA, 15 U.S.C. 2064(b)(1), 2068(a)(1), 
or 2068(a)(4), and further denies that it did so ``knowingly'' (as 
defined in section 20(d) of the CPSA, 15 U.S.C. 2069(d)). Schylling 
further denies the factual or legal conclusions or characterizations 
in the Staff Allegations, in paragraphs 4-27, including that 
Schylling had any knowledge prior to August 2007 that

[[Page 30787]]

it had imported or sold any spinning tops that did not comply with 
the lead paint standard.
    29. Schylling never intentionally or knowingly imported, sold or 
offered for sale any products that did not comply with the lead 
paint standard or other legal requirement. At all times relevant to 
this matter, Schylling's actions were reasonable, were based on its 
good faith understanding of the operative facts and fully satisfied 
any and all standards of care.
    30. Schylling has entered into the Agreement for settlement 
purposes only, to avoid incurring additional expenses and the 
distraction of litigation. Accordingly, the Agreement and Order do 
not constitute, and are not evidence of, any fault or wrongdoing on 
the part of Schylling.

Agreement of the Parties

    31. Under the CPSA, the Commission has jurisdiction over this 
matter and over Schylling.
    32. The parties enter into the Agreement for settlement purposes 
only. The Agreement does not constitute an admission by Schylling, 
or a determination by the Commission, that Schylling knowingly 
violated the CPSA.
    33. In settlement of the Staff's allegations, Schylling shall 
pay a civil penalty in the total amount of Four Hundred Thousand 
($400,000.00) dollars. The civil penalty shall be paid in four (4) 
installments as follows: $75,000.00 shall be paid within twenty (20) 
calendar days of service of the Commission's final Order accepting 
the Agreement; $75,000.00 shall be paid on or before the one-year 
anniversary of the Commission's final Order accepting the Agreement; 
$125,000.00 shall be paid on or before the two-year anniversary of 
service of the Commission's final Order accepting the Agreement; and 
$125,000.00 shall be paid on or before the three-year anniversary of 
service of the Commission's final Order accepting the Agreement. 
Each payment shall be made by check payable to the order of the 
United States Treasury.
    34. 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.
    35. Upon the Commission's final acceptance of the Agreement and 
issuance of the final Order, Schylling 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 Schylling 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.
    36. The Commission may publish the terms of the Agreement and 
Order.
    37. The Agreement and Order shall apply to, and be binding upon, 
Schylling and each of its successors and assigns.
    38. The Commission issues the Order under the provisions of the 
CPSA, and violation of the Order may subject those referenced in 
paragraph 37 to appropriate legal action.
    39. 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.
    40. 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 Schylling agree that severing the provision materially affects 
the purpose of the Agreement and Order.

Schylling Associates, Inc.

    Dated: May 17, 2010.

Jack Schylling,
President, Schylling Associates, Inc.

    Dated: May 18, 2010.

Victor E. Schwartz,
Cary Silverman,
Shook, Hardy & Bacon, LLP, 1155 F Street, NW., Suite 200, 
Washington, DC 20004-1305. Counsel for Schylling Associates, Inc.

U.S. Consumer Product Safety Commission Staff.

Cheryl A. Falvey,
General Counsel, Office of the General Counsel.

    Dated: May 18, 2010.

Melissa V. Hampshire,
Assistant General Counsel,

Alex Dennis,
Attorney, Division of Enforcement and Information, Office of the 
General Counsel.

United States of America

Consumer Product Safety Commission

CPSC Docket No. 10-C0004

In the Matter of Schylling Associates, Inc.; Order

    Upon consideration of the Settlement Agreement entered into 
between Schylling Associates, Inc. (``Schylling''), and the U.S. 
Consumer Product Safety Commission (``Commission'') staff, and the 
Commission having jurisdiction over the subject matter and over 
Schylling, 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 Schylling shall pay a civil penalty in the total amount of Four 
Hundred Thousand ($400,000.00) dollars. The civil penalty shall be 
paid in four (4) installments as follows: $75,000.00 shall be paid 
within twenty (20) calendar days of service of the Commission's 
final Order accepting the Agreement; $75,000.00 shall be paid on or 
before the one-year anniversary of service of the Commission's final 
Order accepting the Agreement; $125,000.00 shall be paid on or 
before the two-year anniversary of service of the Commission's final 
Order accepting the Agreement; and $125,000.00 shall be paid on or 
before the three-year anniversary of service of the Commission's 
final Order accepting the Agreement. Each payment shall be made by 
check payable to the order of the United States Treasury. Upon the 
failure of Schylling to make any of the foregoing payments when due, 
(i) the entire amount of the civil penalty shall become due and 
payable, and (ii) interest on the outstanding balance shall accrue 
and be paid by Schylling 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 26th 
day of May, 2010.

By Order of the Commission.

Todd A. Stevenson,
Secretary, U.S. Consumer Product Safety Commission.
[FR Doc. 2010-13088 Filed 6-1-10; 8:45 am]
BILLING CODE 6355-01-P