“The hallmark of the continuing offense is that it perdures beyond the initial illegal act, and that ‘each day brings a renewed threat of the evil Congress sought to prevent’…” Toussie v. United States, 90 S. Ct. 858, 864 (1970). In a ruling issued May 9, the Seventh Circuit determined that a failure to report under the Consumer Product Safety Act is a continuing violation by affirming the lower court decision fining Spectrum Brand Inc. for failing to report an alleged coffee pot defect.[1] This rare instance of a court ruling on CPSC activity highlights the need for companies to report when a product may contain a potential safety defect.

A Failure to Report Is a Continuing Violation

The Seventh Circuit found a failure to report to be a continuing violation until the day a company’s Section 15(b) report is made because the peril of the unreported coffee pot – physical harm – continues to be a risk for the public. The debate in this case turned on when the five-year default statute of limitations for federal statutes containing no time bar begins to run on CPSC enforcement actions. The lower court found the CPSC enforcement action against the company for late reporting not time-barred, and the Seventh Circuit agreed.

The Seventh Circuit looked at the issue in two ways: First, that every report the company received that should have been reported was a separate violation. And, second, that the stream of complaints the company received could be viewed as evidence of the continuing risks posed by the allegedly defective coffee pot.

The company had argued that the CPSC’s enforcement was barred by the Gabelli doctrine – the principle that a claim accrues when fraudulent conduct occurs, not when discovered, and that generally refuses to apply a discovery rule to a statute of limitations for government enforcement. The Court found the Gabelli doctrine did not apply because it was not the discovery rule that made the government’s case timely. The Gabelli doctrine, originating from an SEC case, is an equitable doctrine seeking to protect plaintiffs from a malefactor’s fraudulent actions. An individual plaintiff is not expected to be in a constant state of investigation to suss out fraud. This equitable doctrine does not apply similarly to the government, whose resources and non-individual nature are not consistent with the purpose of the Gabelli doctrine. On the other hand, a separate equitable doctrine, the continuing violation doctrine, exists to prevent wrongdoers from using their earliest wrongdoing as a way to avoid liability for wrongdoing that continued over time. It is this doctrine that the Seventh Circuit found to apply to make CPSC enforcement timely. The majority and concurring opinions differed only on how to characterize the continuing violation: as one continuous wrong of non-reporting (the majority) or as a series of isolated wrongful acts of non-reporting, each one restarting the clock (the concurrence).

The Court’s decision reinforces that the CPSA intends that consumer reports and other evidence of potential defects that present a risk of injury be promptly reported in order to protect public safety. See also U.S. v. Michaels Stores, Inc. et al., 2016 WL 1090666 (N.D. Tex. Mar. 21, 2016) at 2. A failure to report presents a continuing risk to public safety, therefore a failure to report is a continuing violation.

Turning on the Statute of Limitations Clock

It is rare to find courts interpreting sections of the CPSA. In doing so, the Seventh Circuit’s decision continues to reinforce, as in the district court decision, that the five-year statute does not start to run until a company has filed a Section 15(b) report. At that time, the five year statute of limitations on penalty claims by the CPSC will begin to run. 28 U.S.C. § 2462.