CPSC just announced a record $15.4 million civil penalty settlement with Gree, manufacturers of dehumidifiers widely sold throughout the United States. While the magnitude of this blockbuster settlement makes it newsworthy, what it tells us about CPSC’s perspective on enforcement actions is the real story.

CPSC’s allegations

The limited allegations in the published settlement agreement allege that Gree failed to timely report to CPSC when it knew about the defect and fire hazard, that it knowingly made misrepresentations to CPSC staff during its investigation, and that it put UL safety certification marks on its products when it knew that the products did not meet UL flammability standards. Consistent with CPSC’s approach to settling allegations of failure to report, the settlement requires Gree to implement a product compliance program and a system of internal controls to ensure accurate and timely reporting.

What we can learn from the penalty

Over the past several years, CPSC has consistently increased its penalty demands, with the ultimate settlement numbers remaining clustered between about $2 and $5 million. Reviewing the facts as alleged in those settlements, it is impossible to divine what justified these penalty amounts – was it the number of units? The length of time between alleged discovery and reporting? Severity of risk/injury? Deep pockets? At a minimum, this settlement provides insight into what facts CPSC believes justify a purported “maximum” penalty.

CPSC Chairman Elliot Kaye said in a speech today that he has “repeatedly called for much higher civil penalties when the facts line up. In this case, here is what CPSC staff concluded: The company misled and endangered the public. The company delayed reporting to us and made material misrepresentations during our investigation. And now they will be paying the highest civil penalty possible under law.”

CPSC Commissioner Joseph Mohorovic also issued a statement regarding the settlement.  In it, Commissioner Mohorovic stated that in addition to the company knowingly failing to report serious fire and burn hazard that it “misrepresented—both to the public and to the Commission—the product’s compliance with voluntary standards.”

These comments and the settlement agreement itself shed some light on CPSC’s mindset when contrasted with prior settlements. One can surmise that the Commission believes between two and five million dollars is the penalty for allegedly failing to have a sufficient reporting and compliance program, with what seems like a premium for products with significant injuries, the threat of serious injury, or significant delays in reporting (even if those delays are only apparent through hindsight). On the other hand, Chairman Kaye and Commissioner Mohorovic’s comments here suggest a different type of problem – injuries/serious risk plus some alleged intentional misconduct.

Black box

That said, CPSC civil penalties still are a black box. As Commissioner Mohorovic further stated, “I voted to accept this agreement because the underlying facts were particularly compelling, but I have reservations because too few of these compelling facts are reflected in the public-facing settlement agreement.”

He expressed that while the penalty sufficiently admonishes Gree for the illegal acts, it falls short on the goal of deterring future illegal harmful acts on the part of the violator or similar companies. Although the $15.4 million settlement will “grab the attention of manufacturers, retailers, consumer groups, and the rest of the CPSC audience,” he questions what CPSC is going to do with that attention.  “By itself, the number is virtually meaningless, just a very large trophy on the wall. What gives the number meaning and the power to change behavior is context. If other companies better understand the behavior that drew our ire in this instance, they can better understand what behavior they should avoid.”

Because aspects of the agreement are confidential, he said the “settlement agreement looks like virtually any of the settlements for failure to report we have reached in recent years, with the added charge of certification misrepresentation.”