March 31, 2016

CPSC Announces Record $15.45 Million Civil Penalty Against Gree for Alleged Late Reporting, Mislabeling, and Misrepresentation

Seller Beware: Consumer Protection Insights for Industry

On March 25, 2016, less than a month after CPSC Chairman Kaye called for “double digit” (million dollar) civil penalties at the ICPHSO Annual Meeting and Training Symposium, as we discussed here, CPSC announced that the Commission voted (4-1) to provisionally accept a record-setting $15.45 million civil penalty settlement agreement with Gree Electrical Appliances Inc. of Zhuhai, China, Hong Kong Gree Electrical Appliances Sales Co., Ltd., and Gree USA Sales, Ltd. (collectively "Gree"). CPSC staff alleged violations of the Consumer Product Safety Act (CPSA) involving approximately 2.5 million dehumidifiers sold in the U.S. This is the largest CPSC civil penalty on record by a wide margin -- the prior record was $4.3 million.

CPSC staff alleged that Gree failed to timely notify CPSC that its dehumidifiers were defective and created a unreasonable risk of serious injury or death, despite having information that reasonably supported such a conclusion. The dehumidifiers allegedly caught fire, causing significant property damage, although no personal injuries were reported in either the settlement agreement or the recall announcements. In addition, CPSC staff alleged that Gree violated the CPSA by (1) using a UL certification mark on its dehumidifiers when it knew the dehumidifiers were not compliant with UL flammability standards, and (2) making material misrepresentations to the staff that the dehumidifiers met UL flammability standards, and also making material misrepresentations about the date upon which it became aware that the dehumidifiers were not UL compliant.

The settlement agreement is sparse on details regarding the alleged violative conduct. According to staff allegations, in July 2012, Gree began receiving incident reports involving the dehumidifiers and subsequently implemented design changes. CPSC staff declined to identify when it believed Gree had information which should have prompted it to notify CPSC. According to Commissioner Marietta Robinson's statement, Gree did not notify CPSC about the dehumidifiers until March 2013, (approximately nine months after the company began receiving incident reports.) The dehumidifiers were recalled in September 2013, the recall was expanded in January 2014, and re-announced in May 2014.

While voting in favor of the penalty agreement, Commissioner Joseph Mohorovic issued a statement that was critical of the lack of details in the settlement agreement, explaining that the agreement's ambiguity is not helpful in deterring other companies from avoiding similar conduct. ("If other companies better understand the behavior that drew our ire in this instance, they can better understand what behavior they should avoid.") Commissioner Mohorovic also pointed out that, as the maximum penalty for material misrepresentation is $100,000 per violation, "the great bulk of the penalty is derived from the alleged failure to report." Finally, in keeping with other recent CPSC settlement agreements for alleged late reporting, Gree has agreed to implement and maintain an internal compliance program.

© Arnold & Porter Kaye Scholer LLP 2016 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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