In an updated statistical analysis, Schiff Hardin’s Jonathan Judge examines how penalties handed down by the Consumer Product Safety Commission (CPSC) have abruptly veered upward over the last two years following the threat of CPSC’s then-Chairman Elliot Kaye, to do just that. These findings support our post last fall signaling higher civil penalties to come.

 

Higher CPSC Penalties
At a February 2015 industry conference, newly installed CPSC Chairman Elliot Kaye disclosed that he had directed CPSC staff to seek significantly higher penalties from companies found to be in violation of the Consumer Product Safety Act (CPSA) and other statutes administered by CPSC. In particular, he had directed staff to seek “double-digit” penalties when possible.

Since 2008, the maximum available penalty under the CPSA had been approximately $15 million. However, the highest penalty to date was about a third of that amount. Virtually all of these penalties are imposed for failure to report product safety hazards to the agency in a timely manner.

Schiff Hardin’s statistical model of the penalties handed down “before and after” Chairman Kaye’s speech supports this assertion. Controlling for the underlying conduct, 10 out of the 11 companies subsequently fined were punished more severely, on average, than a typical company would have been punished previously, according to the model. Several companies paid two or three times more than other companies were asked to pay before. The majority of the subsequent penalties (7 out of 12) even exceeded the “margin of error” provided for agency discretion. The infamous $15.45 million penalty arguably exceeded the average expected penalty by over $10 million. A standard statistical test suggests it is unlikely that these across-the-board increases have occurred by chance; rather, these results are consistent with a change in the fine schedule pursuant to the described directive.

Companies can fairly argue that this abrupt change in penalties is unfair, and perhaps even unconstitutional. Using this Schiff Hardin statistical model, companies can better distinguish more lenient penalties from the unfairly harsh ones, and present a fair argument for why their conduct should be penalized under the former regime.

Learn more about the findings and read the full text of Judge’s article here.