Ever since the Consumer Product Safety Improvement Act of 2008 (“CPSIA”) increased the cap on civil penalties from $1,825,000 to $15 million for related violations of the consumer product safety laws, the U.S. Consumer Product Safety Commission (“CPSC”) has steadily—and substantially—increased the amount of civil penalties it has sought from companies violating federal product safety regulations. CPSC Chairman Elliot Kaye has repeatedly called for much higher penalties against violating companies.
But up until recently, no single settlement agreement for civil penalties had exceeded $5 million.
The CPSC’s civil penalty landscape changed on March 25, 2016 when the CPSC entered a settlement agreement with Chinese entities Gree Electric Appliances, Inc., of Zuhai and Hong Kong Gree Electric Appliances Sales Co., Ltd., along with their U.S. affiliate Gree USA Sales, Ltd., (collectively “Gree”), with Gree agreeing to pay a staggering $15.45 million.
CPSC alleged that Gree manufactured, imported, and sold roughly 2.5 million defective dehumidifiers to U.S. consumers, each posing an unreasonable risk of injury based on smoke and burn hazards. The CPSC charged Gree with knowingly failing to immediately report such defects in violation of CPSA Section 19(a)(4). The CPSC further alleged that, despite knowing that the dehumidifiers did not comply with UL flammability standards, Gree sold the dehumidifiers bearing the UL certification mark and falsely represented to the CPSC that the dehumidifiers complied with the UL standards in violation of both CPSA Sections 19(a)(12) and 19(a)(13). Although declining to admit to the CPSC’s charges, Gree ultimately accepted a settlement agreement that amounted to $15.45 million in fines and consented to an internal compliance program designed to ensure conformity with the U.S. product safety laws.
In the last decade, the CPSC has predominantly imposed civil penalties based on a company’s failure to immediately report defects that could create a substantial product hazard or that pose an unreasonable risk of death or serious injury. See 15 U.S.C. § 2064. In 2015, for instance, all eight civil penalties that the CPSC issued were based almost exclusively on the company’s alleged failure to immediately report defects.
The Gree settlement reflects not only the importance of timely reporting of hazards, but also the importance of ensuring products that are certified as being compliant with voluntary product safety standards, such as UL certifications, are based on proper testing and certification. It also serves as a reminder that the CPSC will take action to impose the maximum civil penalty available in the right circumstances. Chairman Kaye underscored this point in a recent speech stating: “To remove any doubt as to whether we are sending a message that this kind of conduct will not be tolerated, we absolutely are sending that message. Companies behaving similarly should be prepared to pay similarly.”
The Gree settlement fires a warning shot to companies selling, manufacturing, or distributing consumer goods in the United States: meet your reporting and ensure product certifications are accurate under the U.S. consumer product safety laws or voluntary standards, or face record-high consequences.