Government Sues Company for Delayed Reporting of Defective Product

Federal law dictates that knowledge of a dangerous product must be reported. A manufacturer, supplier, distributor and end-buyer could be on the hook if a known substantial product hazard is left unreported.

The Department of Justice, on behalf of the Consumer Product Safety Commission (CPSC), filed a complaint against Spectrum Brands Inc., Middleton, Wis., last month. Applica Consumer Products, Miramar, Fla., which merged with Spectrum Brands Inc. last year, allegedly failed to report a hazardous defect on one of its products in a timely manner. In this case, more than three years passed before the company alerted the CPSC.

Consumers reportedly filed about 1,600 reports telling the company that its Black & Decker Spacemaker 12-Cup Programmable Under-the-Cabinet Coffeemakers' handles were detaching, causing burns and lacerations, according to the complaint. The first incident allegedly occurred in February 2009 when a woman reported her husband was pouring coffee as the handle broke, causing coffee to spill and burn his hand. The following month, the company performed a returned product analysis report that concluded "the material thickness of this catch, the strength of the boss and the plastic material brittleness may be contributing factors in this failure," but the company did not report the information to the CPSC until April 2012.

"We believe Spectrum Brands and Applica Consumer Products knew about the hazard with these coffeemakers for years," said CPSC Chairman Elliot F. Kaye in a statement. "Despite the fact that these firms were required to report potential hazards and risks to CPSC immediately, it appears they chose to profit from continued sales instead. Their failure to follow the law and report [the defect] resulted in dozens of injuries to unsuspecting consumers."

In addition to failing to report the defect, the government claims the company continued to distribute defective coffeemakers to retailers after the June 2012 recall of 159,000 coffeemakers, according to the complaint. The company told CPSC these products were inadvertently sold, and issued a second recall of 641 products in August 2013.

"Hundreds of consumers complained to the company about this dangerous defect over the years," said Benjamin C. Mizer, principal deputy assistant attorney general of the Justice Department's Civil Division. "We rely on companies to report these safety issues immediately, as the law requires, to prevent unnecessary injuries. The Department of Justice will continue to protect the public against companies that put profits over safety."

The government claims the company violated the Consumer Product Safety Act and is seeking civil penalties and inductive relief. The government filed a similar suit against Michaels stores in April. This shows a trend of increased CPSC enforcement, according to a Lexology article by three Morrison & Foerster LLP lawyers. Prior to this year's two cases, there were only three lawsuits and one administrative complaint in the CPSC's history.

"This lawsuit is likely the result of settlement negotiations that have fallen through," the article noted. "Most civil penalties investigations brought by CPSC end in settlement. The alternative isn’t great. CPSC carries a big stick and isn’t afraid to wield it, as seen with the litigation and publicity surrounding rare-earth magnets."

The CPSC may become more aggressive in referring civil suits to the Department of Justice, and even may consider raising penalty demands, which could result in pressuring companies to settle in the future.

"To avoid this pressure, we advise manufacturers, distributors and retailers of products to maintain clear and well-understood policies for evaluating and reporting on potential product hazards," the article's authors advised. "These policies should be up-to-date and clearly communicated to company employees.

"Additionally, recalling companies should implement safeguards and procedures to avoid distributing recalled products into the stream of commerce. Once in CPSC’s crosshairs, careful negotiation with a healthy dose of cooperation may be the best solution for companies fearful of the high costs, adverse publicity, and the uncertainty that comes with litigation."