United States v. Spectrum Brands, Inc.

• Decision Date: 09 May 2019
• Docket Number: No. 18-1785,18-1785
• Citation: 924 F.3d 337
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. SPECTRUM BRANDS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

924 F.3d 337

UNITED STATES of America, Plaintiff-Appellee,

v.SPECTRUM BRANDS, INC., Defendant-Appellant.

No. 18-1785

United States Court of Appeals, Seventh Circuit.

Argued November 1, 2018

Decided May 9, 2019

Rehearing and Rehearing En Banc Denied August 1, 2019^*

Gerard Sinzdak, Attorney, DEPARTMENT OF JUSTICE, Civil Division, Appellate Staff, Washington, DC, for Plaintiff-Appellee.

Erika Z. Jones, Matthew Waring, Attorneys, MAYER BROWN LLP, Washington, DC, Timothy L. Mullin, Jr., Attorney, MILES & STOCKBRIDGE P.C., Baltimore, MD, Michele Odorizzi, Attorney, MAYER BROWN LLP, Chicago, IL, Eric John Wilson, Attorney, GODFREY & KAHN S.C., Madison, WI, for Defendant-Appellant.

Before Wood, Chief Judge, and Manion and Rovner, Circuit Judges.

Rovner, Circuit Judge.

The district court found that Spectrum Brands, Inc. ("Spectrum") violated section 15(b) of the Consumer Product Safety Act ("CPSA" or the "Act"), 15 U.S.C. § 2064(b)(3), when its subsidiary failed to timely report to the government a potentially hazardous defect in its Black & Decker SpaceMaker coffeemaker despite years’ worth of consumer complaints about the product. Following an evidentiary hearing as to the appropriate remedy for the reporting violation, the court entered a permanent injunction which, in its final form, requires Spectrum to adhere to its newly-implemented CPSA compliance practices and to retain an independent consultant to recommend additional modifications to those practices. Spectrum appeals, contending both that the government’s late-reporting claim is barred by the statute of limitations, that the district court had no authority to enter a forward-looking injunction, and that the court otherwise abused its discretion in awarding permanent injunctive relief, including the requirement that it engage the expert. Finding no merit in any of these challenges, we affirm the judgment.

I.

Spectrum is a global, diversified consumer products company headquartered in Middleton, Wisconsin. During the years relevant to this action, Spectrum distributed to retailers more than 24 million individual products per year across more than 500 stock keeping units. Among the products it sold was a line of under-the-cabinet Black & Decker SpaceMaker coffeemakers, distributed by its subsidiary, Applica Consumer Products, Inc. ("Applica").¹

As a purveyor of consumer products, Spectrum is legally obligated to notify the U.S. Consumer Products Safety Commission ("CPSC" or "Commission") of potentially hazardous defects in any of its products. Specifically, section 15(b) of the CPSA requires a manufacturer, distributor, or retailer of a consumer product "who obtains information which reasonably supports the conclusion that such product" contains "a defect which— ... could create a substantial product hazard" to "immediately" inform the Commission of said defect, "unless such manufacturer, distributor, or retailer has actual knowledge that the Commission has been adequately informed of such defect ... ." 15 U.S.C. § 2064(b)(3). A "substantial product hazard" is one which poses a "substantial risk of injury to the public." Id. § 2064(a)(2). The duty to report such a hazard "immediately" means within 24 hours of becoming aware of the hazard. 16 C.F.R. § 1115.14(e).² And a manufacturer, distributor, or retailer can be said to have "actual knowledge" that the Commission has already been adequately informed of a defect (relieving it of the obligation to make a report) only if the manufacturer, distributor, or retailer has previously disclosed the defect in a section 15(b) report to the CPSC or if the Commission itself indicates that it has already been adequately informed of the defect. 16 C.F.R. § 1115.3(a). Separately, the statute makes it unlawful for any person to "fail to furnish information required by section 2064(b)." 15 U.S.C. § 2068(a)(4).

By February 2009, Spectrum’s third-party customer call center had received a number of complaints from consumers regarding the SpaceMaker coffeemakers, including in particular complaints that the plastic handle on the coffeemaker’s 12-cup carafe had broken. In one instance, the failure of a handle had caused a consumer to suffer a burn from the hot coffee in the carafe. It appears from the record that when the carafe handle failed, typically its top portion (which was secured by a screw) detached from the glass carafe, while the bottom of the handle (which was fastened by a metal band running around the bottom of the carafe) remained securely in place. This caused the carafe to tip or wobble in the consumer’s hand. When the carafe was full of hot coffee, the sudden movement could cause the consumer to spill the coffee or drop the carafe altogether.

In April 2009, in the face of continuing complaints about broken handles, Spectrum commenced an investigation which culminated in a decision to modify the design of the carafe handle. The manufacturer was instructed to cease fabricating the original version of the carafe and to scrap any units already in production. Spectrum began stocking coffeemakers with the modified handle beginning in May. Rather than ceasing sales of the original coffeemakers with the problematic carafe, however, Spectrum implemented a "rolling change" pursuant to which it continued to sell the older versions so long as they remained in stock. Although Spectrum has assumed that the engineering change fixed the problem with the carafe handle, there is no proof in the record as to whether all of the consumer complaints that Spectrum received about the carafe prior to the eventual recall of the coffeemakers in 2012 were limited to the original version of the carafe.

Meanwhile, Spectrum continued to receive complaints about broken handles on the carafes. By the end of 2009, it had received an additional 300 such complaints, which included more than a dozen reports of burns or lacerations. During this time, the CPSC itself received a report about a faulty handle, and the Commission, consistent with its practice, passed the report on to Spectrum without investigation, reminding the company of its duty under section 15(b) to notify the Commission if Spectrum was aware of a potentially hazardous defect in its product. Spectrum did not file a section 15(b) report at that time.

Over the course of the next two years, the company remained silent about the carafe handle even as more complaints of handle failures and resulting injuries made their way to Spectrum. During this time, the CPSC itself received and forwarded another seven broken-handle reports to Spectrum.³

Not until April 2012 did Spectrum finally file a section 15(b) report with the Commission. The report was what the CPSC called a "fast-track" report which indicated the company’s intent to recall the coffeemaker. One month earlier, a class action suit had been filed against Spectrum alleging that there was a design defect in the carafe handle, and that suit evidently persuaded the company that the best course of action was to recall the product entirely, including models with both the original and re-engineered carafe handles. The report as amended advised the Commission that Spectrum had received over 1,600 complaints of handle failures⁴ and more than 60 reports of associated injuries to consumers.⁵ Two months later, in June 2012, Spectrum and the CPSC jointly announced a recall of the defective coffeemakers.⁶ By the time the recall was announced, Spectrum had sold some 159,000 of the coffeemakers, with the majority of them having been sold by December 2009.

Despite the recall, due to gaps in its inventory-control procedures, Spectrum inadvertently continued to sell the recalled coffeemakers.⁷ By June of 2013, it had sold another 641 such coffeemakers. A secondary recall was implemented to reach those coffeemakers. At that point, sales of the product finally ceased.

In June 2015, three years after Spectrum recalled the defective coffeemakers, the government filed a civil complaint against the company in the district court. As relevant here, the complaint alleged that Spectrum, beginning in February 2009, obtained information reasonably supporting the conclusion that the coffeemakers it was distributing contained a hazardous defect or posed an unreasonable risk of injury, failed to so inform the CPSC for several years thereafter, and thereby knowingly violated section 15(b) of the Act. § 2064(b)(3).⁸ The complaint also alleged that Spectrum committed a second violation of the Act by continuing to distribute or sell coffeemakers that it had previously recalled. See 15 U.S.C. § 2068(a)(2)(B).

The CPSA authorizes civil penalties of up to $ 100,000 for each knowing violation of the Act, not to exceed a ceiling of $ 15,150,000 for "any related series of violations." 15 U.S.C. § 2069(a)(1) ; 76 Fed. Reg. 71,554, 71,554 –55 (Nov. 18, 2011) (providing for inflation-related increases to maximum penalty). The statute also authorizes the government to seek injunctive relief in order to "[r]estrain any violation of" the Act. 15 U.S.C. § 2071(a)(1). The government sought both forms of relief in its complaint against Spectrum.

Spectrum did not contest its liability for distributing recalled products, and the district court on summary judgment deemed the company liable for violating its reporting obligation under section 15(b). United States v. Spectrum Brands, Inc. , 218 F. Supp. 3d 794, 818–22 (W.D. Wis. 2016). The uncontested facts indicated to the district court that, as early as May 2009 (when the company had already received 60 reports of broken carafe handles and four consumer burns), and certainly no later than June 2010 (by which time it was aware of over 700 handle failures and 35 injuries), Spectrum possessed information supporting a conclusion that the carafe handle on the coffeemakers the company was distributing contained a defect which could create a substantial product hazard. Id. at 821–22. Yet, Spectrum did not "immediately" report the problem to the CPSC, as ...