Today, the Commission voted to approve a $3.4 million settlement with Office Depot regarding our allegations that the company failed to timely and properly report two products that created risks to consumers. Because of my concerns regarding the financial penalty in that settlement – part of my broader concern about our civil penalty strategy – I was compelled to vote against the settlement.
To be clear, I agree Office Depot was woefully late in reporting. I also agree that this violation merited a penalty. My concerns lie with the amount of money we demanded and how we determined that figure.
I find no fault with the work of the dedicated public servants within our Offices of Compliance and General Counsel who developed this case and negotiated its settlement. My problem is that we as a Commission have given those public servants – and our stakeholder community – too little guidance regarding our penalties.
The Consumer Product Safety Improvement Act of 2008 (CPSIA) provided for a roughly ten-fold increase in our maximum penalties. Our Chairman sees this as clear direction from Congress to increase our actual penalties, and I do not disagree. However, those higher figures make it all the more critical, as a matter of fairness, that we establish and follow clearly discernable principles in applying those penalties. In fact, Congress expressly recognized the need for just such clarity.
In addition to raising the caps, the CPSIA also required us to issue a rule “providing [our] interpretation of the [statutory] penalty factors.” As a commenter noted during that rulemaking, “the direction from Congress appears to be designed to dispel a perception that the amounts of prior civil penalties that the staff has sought in settlement may have been arbitrary and bear little or no relationship to the merits of particular matters.” I do not believe we have met our burden, and any perception of arbitrariness that existed before 2008 remains.
While we did issue a rule that thoughtfully expounds upon the definition of each factor – both the statutory factors and four others – it does little to indicate how those factors interrelate or how we balance them. It also, as a commenter pointed out, emphasizes the facts the Commission will see as exacerbating a violation, spending considerably less time describing what facts the Commission might see as mitigating. Particularly given the higher financial stakes in the CPSIA era, we owe our regulated community a more insightful explanation.
Until we provide that explanation, the community is left to extrapolate policy from individual settlements, but the myriad variables – from the nature of the product to the severity of the risk to the personalities of counsel on both sides – make interpretation a challenging task. Moreover, even applying sophisticated data analysis to our settlements will only yield any insights if they are products of clear policy. I am not convinced they are.
In this instance, the primary driver of the $3.4 million settlement is the “Gibson Chair” case, in which we allege Office Depot received 153 reports of product failure incidents, including 25 which resulted in injury. These reports came against product distribution of nearly a million and a half units. Our statutory factors would suggest this should result in a low penalty.
- Severity of the Risk of Injury: This factor really has several moving parts.
- The first is “the likelihood of injury.” This case involved 25 injuries measured against 1.4 million units sold. Again, this is clearly high enough that Office Depot should have reported promptly, but I am not convinced it merits a $3.4 million penalty.
- The second component is “the potential for serious injury.” With 25 injuries – only some of which required any medical attention – that severity seems quite low. Moreover, this is not a question of a small number of severe injuries against a comparable number of incidents. A handful of severe injuries out of ten incidents would suggest severe injuries were fairly likely; the same number out of 153 strongly suggests that, even where this product fails, it does so at little real peril to the consumer.
- A third element, as outlined in our rule, is “the population at risk (including vulnerable populations such as children, the elderly, or those with disabilities).” This product was not a crib or a toy. It was an ordinary desk chair, as general use as any consumer product.
- The Occurrence or Absence of Injury: Injuries – including a few serious injuries – did occur in this case. However, our rule indicates “[t]he Commission will consider . . . the number and nature of injuries.” As discussed, the number in this case was quite small, and the nature was generally not serious.
Last October, we secured a record $4.3 million settlement from a company for failing to report minibikes that were catching on fire, causing severe burns to at least one child. That we would settle on a penalty anywhere near that for failing to report desk chairs that rarely broke, more rarely risked injury, and very rarely risked serious injury indicates that there is little coherence in our approach to penalties, much less any that an outsider could divine from our settlements. We owe it to everyone involved – companies, consumers, and our own staff – to do better.
Again, my disagreement is not with the dedicated CPSC attorneys who negotiated to reach an agreement they believed was fair to both parties. Their job – the job they performed admirably – is to advance what they understand to be the Commission’s policy. However, “More!” is not a policy; it is, at most, an impulse. Government by impulse is the definition of arbitrary government, and, in the absence of more clearly delineated policy from the Commission, penalties that either are or appear to be arbitrary are all we can expect to see.
That great font of profundity and higher thinking – Spiderman – reminds us that with great power comes great responsibility. The CPSIA gave us more power, but we have not fulfilled our responsibility to use it prudently. In this case, the Commission’s failure led to what I feel was an inappropriate penalty demand, resulting in an excessive settlement. I cannot support such a result and, until the Commission does provide clarity, I fear it will be repeated.
 In the Matter of Office Depot, Inc., Settlement Agreement (“Agreement”) 6, para. 29.
 Agreement 4, para. 18-19.
 Under the Consumer Product Safety Act (CPSA), a company must “immediately inform the Commission” if it “obtains information which reasonably supports the conclusion that [a] product . . . contains a defect which could create a substantial product hazard [or] creates an unreasonable risk of serious injury or death.” 15 U.S.C. § 2064(b)(3)-(4).
 We allege that “Office Depot never notified the Commission about” one of the products, Agreement 3, para. 10, and was years late in reporting the other, even then only “after receiving [CPSC] staff’s letter requesting a Full Report.” Agreement 4, para. 17. This is clearly unacceptable.
 Pub. L. No. 110-314 § 217, 122 Stat. 3016, 3059 (2008) (codified at 15 U.S.C. § 2069 (Note)).
 Comment of Michael Gidding, p. 2 (October 1, 2009).
 Civil Penalty Factors, 75 Fed. Reg. 15993 (Mar. 31, 2010) (codified at 16 C.F.R. § 1119.4).
 The extra-statutory factors we illuminated were the existence of a “safety/compliance program,” a firm’s “history of noncompliance,” the “economic gain from noncompliance,” and any “failure to respond in a timely and complete fashion” to our inquiries. 16 C.F.R. § 1119.4(b).
 Comment of Richard Woldenburg, p. 2-3 (October 1, 2009).
 While the “Gibson Chair” case falls within the higher penalty period of the CPSIA, the other allegation, about the “Quantum Chair,” is governed by the much lower pre-CPSIA penalty caps.
 Agreement 3, para. 16.
 Agreement 3, para. 11.
 16 C.F.R. § 1119.4(a)(4).
 16 C.F.R. § 1119.4(a)(5).
 I am mindful of the fact that, by definition, a settlement means that both parties, generally through counsel, have agreed on the amount of the penalty. However, even though I am confident our attorneys would not engage in any unethical or unprofessional negotiating tactics, the mere notion of dealing with a government agency alleging violations of law may have an implicit coercive effect.