Source: http://wi.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20190509_0000357.C07.htm/qx
Timestamp: 2020-08-09 20:59:53
Document Index: 366017571

Matched Legal Cases: ['§ 2064', '§ 2064', '§ 2064', '§ 1115', '§ 1115', '§ 2068', '§ 2064', '§ 2068', '§ 2069', '§ 2071', '§ 2462', '§ 2701', '§ 2069', '§ 1119', '§ 2064']

FindACase™ | United States v. Spectrum Brands, Inc.
Spectrum Brands, Inc., Defendant-Appellant.
Appeal from the United States District Court for the Western District of Wisconsin No. 3:15-cv-00371-wmc - William M. Conley, Judge.
The district court found that Spectrum Brands, Inc. ("Spectrum") violated section 15(b) of the Consumer Product Safety Act ("CPSA" or the "Act"), 15 U.S.C. § 2064(b)(3), when its subsidiary failed to timely report to the government a potentially hazardous defect in its Black & Decker SpaceMaker coffeemaker despite years' worth of consumer complaints about the product. Following an evidentiary hearing as to the appropriate remedy for the reporting violation, the court entered a permanent injunction which, in its final form, requires Spectrum to adhere to its newly-implemented CPSA compliance practices and to retain an independent consultant to recommend additional modifications to those practices. Spectrum appeals, contending both that the government's late-reporting claim is barred by the statute of limitations, that the district court had no authority to enter a forward-looking injunction, and that the court otherwise abused its discretion in awarding permanent injunctive relief, including the requirement that it engage the expert. Finding no merit in any of these challenges, we affirm the judgment.
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...." 15 U.S.C. § 2064(b)(3). A "substantial product hazard" is one which poses a "substantial risk of injury to the public." Id. § 2064(a)(2). The duty to report such a hazard "immediately" means within 24 hours of becoming aware of the hazard. 16 C.F.R. § 1115.14(e).[2] And a manufacturer, distributor, or retailer can be said to have "actual knowledge" that the Commission has already been adequately informed of a defect (relieving it of the obligation to make a report) only if the manufacturer, distributor, or retailer has previously disclosed the defect in a section 15(b) report to the CPSC or if the Commission itself indicates that it has already been adequately informed of the defect. 16 C.F.R. § 1115.3(a). Separately, the statute makes it unlawful for any person to "fail to furnish information required by section 2064(b)." 15 U.S.C. § 2068(a)(4).
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 coffee-makers, 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 15 U.S.C. § 2068(a)(2)(B).
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." 15 U.S.C. § 2069(a)(1); 76 Fed. Reg. 71, 554, 71, 554-55 (Nov. 18, 2011) (providing for inflation-related increases to maximum penalty). The statute also authorizes the government to seek injunctive relief in order to "[r]estrain any violation of" the Act. 15 U.S.C. § 2071(a)(1). The government sought both forms of relief in its complaint against Spectrum.
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., 218 F.Supp.3d 794, 818-22 (W.D. Wis. 2016). The uncontested facts indicated to the district court that, as early as May 2009 (when the company had already received 60 reports of broken carafe handles and four consumer burns), and certainly no later than June 2010 (by which time it was aware of over 700 handle failures and 35 injuries), Spectrum possessed information supporting a conclusion that the carafe handle on the coffeemakers the company was distributing contained a defect which could create a substantial product hazard. Id. at 821-22. Yet, Spectrum did not "immediately" report the problem to the CPSC, as section 15(b) required, but instead delayed its report for another two years. See id. at 820-21.
The court rejected Spectrum's contention that the government's section 15(b) claims were barred by the applicable five-year statute of limitations. 218 F.Supp.3d at 815-17; see 28 U.S.C. § 2462. Spectrum's theory was that the limitations period began to run in May 2009, when (as the district court postulated) its duty to report arguably first arose, and expired in May 2014, more than a year before the government filed suit. Id. at 815. The court reasoned that the reporting obligation imposed by section 15(b) is a continuing one, such that a company's violation of its duty is not complete until such time as the company finally submits a report to the Commission or acquires actual knowledge that the Commission has otherwise been adequately informed of the product defect. Id. at 817. Consequently, in the district court's view, a cause of action for breach of the reporting requirement does not accrue until this time. Id. A contrary understanding, the court pointed out, would encourage a company that has not immediately filed a section 15(b) report with the Commission to continue to withhold information about a product defect until such time as the limitations period has run, and thereby undermine the statutory goal of encouraging the timely reporting of product failures in order to protect the public from harm. Id. Deeming a failure to report as a discrete, time-limited violation struck the court as "nonsensical," particularly where the egregiousness of the failure to report increases exponentially over time with continuing consumer complaints of product failures and injuries, as occurred in this case. Id.
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, 15 U.S.C. § 2701(a)(1), the court inferred that its power to award injunctive relief included the power to enjoin future violations. 218 F.Supp.3d at 823-25. The government, it concluded, had put forth a plausible case that Spectrum's "knowing, arguably outrageous, conduct" warranted such an injunction. Id. at 825. The court therefore declined to dismiss this portion of the government's prayer for injunctive relief, reserving judgment as to whether an injunction was warranted pending further development of the facts. Id.
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 15 U.S.C. § 2069(b); 16 C.F.R. §§ 1119.1, 1119.4; R. 234 at 5-12, the district court issued a decision imposing both fines and a permanent injunction. The court ordered the company to pay civil penalties totaling $1, 936, 675-$821, 675 for the section 15(b) reporting violation and $1, 115, 000 for the sale of recalled products. R. 234 at 12-16. The court also concluded that the government had established a reasonable likelihood of future violations warranting a permanent injunction requiring Spectrum to reform its internal compliance programs and procedures. R. 234 at 17-21. The court found that a key problem contributing to the company's failure to timely report the problem with its problematic coffee carafe was a lack of communication among employees responsible for evaluating consumer complaints, those employees with knowledge of the product's design and defect, and senior management personnel. R. 234 at 18-19. Similar communication failures, along with the failure to implement relatively simple measures to prevent the distribution of recalled products, largely explained Spectrum's continuing sales of the recalled coffeemaker. R. 234 at 19. The court acknowledged a report prepared by Spectrum's expert witness identifying a number of procedures the company was utilizing to gather, evaluate, and escalate product information that might require reporting to the CPSC. But that report did not address whether these same procedures were in place during prior years, when Spectrum had failed to report the carafe-handle defect to the Commission despite ongoing reports of handle failures and injuries. Nor did the report discuss whether these procedures were written, disseminated, and enforced within the company and whether appropriate company personnel were trained in these procedures. R. 234 at 19. Moreover, so far as the record revealed, Spectrum had not commissioned an independent audit to gauge the efficacy of these measures. R. 234 at 21. The court found it telling that senior engineering and global quality personnel at Spectrum could not recall meaningful discussions of the problems with the carafes prior to 2012, notwithstanding the receipt of consumer complaints beginning in 2009. R. 234 at 20. Consequently, the court was left with serious doubts as to the efficacy of the efforts Spectrum had undertaken to address the faults that had caused the company to violate its reporting obligations under section 15(b) and to prevent the continued sales of recalled products.
[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., 707 F.3d 824, 841-42 (7th Cir. 2013) (outlining the concerns presented by such an injunction). Before the court ruled on the stay request, Spectrum filed its notice of appeal.
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., 2018 WL 502736 (W.D. Wis. Jan. 19, 2018). Cognizant of the limits on its authority to alter the injunction in view of Spectrum's pending appeal, the court proceeded on the assumption that it could, at a minimum, "preserve the status quo pending appeal and clarify the injunction's specific requirements." Id. at *2; see Fed. R. Civ. P. 62(d) (as amended effective 12-1-2018); Newton v. Consol. Gas Co. of N.Y., 258 U.S. 165, 177-78, 42 S.Ct. 264, 267 (1922); Meinhold v. U.S. Deft of Defense, 34 F.3d 1469, 1480 n.l4 (9th Cir. 1994). Toward that end, the court incorporated into the injunction six specific measures that Spectrum represented it had already taken to improve its compliance processes and which the court found to be "consistent with the spirit of [its] original permanent injunction, if not its letter." 2018 WL 502736, at *3.[10] As modified, the injunction required Spectrum to:
(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 l5(b)'s reporting requirement under 15 U.S.C. § 2064(b)(3)-(4) and the prohibition of the sale of ...