United States v. Spectrum Brands, Inc.

• Decision Date: 17 November 2016
• Docket Number: 15–cv–371–wmc
• Citation: 218 F.Supp.3d 794
• Parties: UNITED STATES of America, Plaintiff, v. SPECTRUM BRANDS, INC., Defendant.
• Court: U.S. District Court — Western District of Wisconsin

218 F.Supp.3d 794

UNITED STATES of America, Plaintiff,

v.SPECTRUM BRANDS, INC., Defendant.

15–cv–371–wmc

United States District Court, W.D. Wisconsin.

Signed November 17, 2016

Alan Phelps, Monica Christine Groat, Thomas Edward Ross, U.S. Department of Justice, Washington, DC, for Plaintiff.

Timothy Leffard Mullin, Jr., Kevin James Penhallegon, Miles & Stockbridge PC, Baltimore, MD, Eric J. Wilson, Jennifer Lynn Gregor, Mark Warren Hancock, Godfrey & Kahn S.C., Madison, WI, Erika Ziebarth Jones, Mayer Brown LLP, Washington, DC, for Defendant.

OPINION AND ORDER

WILLIAM M. CONLEY, District Judge

Between 2008 and 2012, Applica Consumer Products, Inc. ("Applica"), received roughly 1,600 reports from U.S. consumers that the carafes distributed as part of its Black & Decker SpaceMaker line of coffeemakers were suddenly cracking, separating and breaking at the handle. Some of these handle failures included reports of burns and lacerations. By virtue of its acquisition of Applica's parent company in 2010 and eventual merger with Applica in 2014, the defendant, Spectrum Brands, Inc., assumed legal responsibility for Applica's obligation, if any, to report these potential defects in the carafe handles under the Consumer Product Safety Act ("the Act" or "CPSA").

Congress designed the CPSA to "protect the public against unreasonable risks of injury associated with consumer products."

15 U.S.C. § 2051. To achieve that goal, section 15(b) of the Act requires manufacturers, retailers and distributors of consumer products to report "immediately" to the Consumer Product Safety Commission ("CPSC") "information which reasonably supports the conclusion that [a] product contains a defect which could create a substantial product hazard ... [or] creates an unreasonable risk of serious injury or death [.]" 15 U.S.C. § 2064(b).

While the CPSA obligates companies to self-report information about potentially defective products, the plain language of section 15(b) does not require companies to report every potential defect. Under the operative regulations, companies are directed to undertake a two-step evaluation process before reporting by first determining whether a "defect" may exist, and then whether that defect could create a substantial product hazard. 15 U.S.C. § 2064(b)(3) ; 16 C.F.R. § 1115.4. The parties agree that the answer to the first question is "yes," so the present dispute centers on whether the defective coffee pot handles could create a substantial product hazard.¹

In this lawsuit, the United States of America seeks civil penalties and permanent injunctive relief against Spectrum, alleging its delay in informing the CPSC about these apparently defective handles violated reporting requirements under section 15(b) of the CPSA. Spectrum argues that the defects in the carafes were never a substantial product hazard sufficient to give rise to a reporting obligation under section 15(b). Alternatively, Spectrum argues that the government's claims are now procedurally barred for a variety of reasons, including statute of limitations, vagueness and denial of due process generally.

Pending before the court are dispositive motions from both sides, each asserting a right to judgment as a matter of law based on undisputed facts. For the reasons explained below, the court finds Spectrum's procedural defenses unpersuasive and that it violated the statute, having failed to submit a section 15(b) report until years after its reporting obligation originally arose.

UNDISPUTED FACTS²

A. The parties

The United States Department of Justice ("DOJ") filed this suit on behalf of the government, specifically the CPSC, an independent federal agency charged with enforcing the CPSA, after its five-member commission unanimously voted to refer this enforcement action to DOJ.

Spectrum is a corporation organized under Delaware law with its principal place of business located in Middleton, Wisconsin. In June of 2010, Spectrum acquired 100% of Russell Hobbs, Inc. By virtue of that acquisition, another company, Applica, also became Spectrum's wholly owned subsidiary. When Spectrum and Applica merged in 2014, Spectrum assumed all of Applica's assets and liabilities. Therefore, the parties treat Spectrum and Applica as the same entity for the purposes of this lawsuit, as will the court.

Between July of 2008 and April of 2012, Applica imported from China, and then sold in the United States, a line of Black & Decker SpaceMaker Under–the–Cabinet Coffeemakers.³ While Applica created the specifications for the coffeemakers, an approved Chinese vendor, Yamada, designed, tested and manufactured them.

The carafes included with the coffeemakers were glass, with a molded plastic handle attached to the glass pot with a single screw near the top and a metallic bracket encircling the pot near the bottom. Applica's specifications for the handles required them to be capable of withstanding approximately 132 ounces, double the maximum capacity of the carafes, along with the wear and tear caused by 10,000 "test" or "brew" cycles. In addition, the coffeemakers were designed to brew a full carafe of coffee at a temperature lasting between 165°F and 195°F for up to two minutes, and a half carafe between 160°F and 195°F up to thirty minutes.

B. Initial reports from consumers

Between 2008 and 2012, Applica received customer complaints about its products via phone or email through a call center operated by Fox International Ltd., Inc. ("Fox"). Fox provided Applica, and therefore effectively Spectrum, with daily reports about quality or safety concerns raised by customers. These were then regularly reviewed by the company's directors and legal counsel.

There is no factual dispute as to Applica's (or Spectrum's imputed) contemporaneous knowledge of consumer complaints concerning the carafe handles.⁴ Applica began receiving complaints in November of 2008, when a customer reported a broken handle. By February of 2009, reports of at least fifteen other failures followed, including a notice from a customer stating that her husband's hand was burned when the handle broke and offering to send the broken carafe to Applica so that it could be "studied." (Pl.'s Reply PFOF (dkt. # 114) ¶ 96.)

In March of 2009, Applica performed a "returned product analysis" on a customer's broken carafe at the direction of Peter Taube, Applica's Product Assurance Director. In a report summarizing the results of that analysis, an Applica staff engineer stated:

Plastic catches (Photo 2, 3) on the upper carafe housing are broken on both sides[.] Additionally, the upper screw boss is fractured as is the plastic directly below the boss. This allows the carafe to slip forward while pouring coffee. The material thickness of this catch, the strength of the boss and the plastic material brittleness may be contributing factors in this failure.

(Id. at ¶ 107.)

After Applica received another report about a broken handle, Taube sent an email to Stuart Slugh, Applica's Senior Director of Consumer Services, and Leslie Campbell, Applica's Vice President of Engineering. Dated April 4, 2009, Taube expressed his hope to "escalate" the issue of a potential defect. (Id. at ¶¶ 110–11.) Around April 16, 2009, Taube also requested that another product analysis be performed on a returned carafe. The summary of that analysis described findings similar to the first:

Unit received with the carafe handle separation from mounting ring on the carafe bottom and broken upper handle (Photo 1). Plastic catch on upper housing carafe is broken on one side (Photo 2). Additionally, the upper screw boss is fractured (Photo 3) and several plastic cracks are found in carafe spout, plastic catch and handle cover, and housing (Photo 4, 5, 6, & 7). The broken screw boss was also fractured on both sides (Photo 8.)

(Pl.'s PFOF Ex. 6 (dkt. # 79–6).) By May of 2009, Applica had received more reports of broken handles, totaling at least 60, including four reports of resulting burns.⁵

C. Remedial measures and additional reports

On April 1, 2009, Applica asked Yamada to find the causes of and suggest corrections for the three issues identified in the March returned product analysis—the thickness of the catch, the strength of the boss and the brittleness of the plastic. Yamada proposed four "permanent corrective actions," which Applica developed into and issued as an "Engineering Change Request" ("ECR"), intending to implement changes to strengthen the handles. That ECR included a "STOCK–SCRAP" order, which required Yamada's remaining inventory be discarded. Taube also followed-up by email, emphasizing that: (1) the handle changes were "mandatory"; and (2) Applica would not accept carafes that did not implement the new design. By May of 2009, Applica had tested the newly designed carafes and began stocking them as part of a "rolling change," meaning that they would be shipped to consumers as the inventory of the old design was exhausted.

According to Taube, Applica monitors consumer complaints regarding a product more closely after implementing an engineering change. With the complaints continuing, Applica began receiving letters concerning the carafes from the CPSC itself. In particular, the CPSC notified Applica's counsel by letter dated June 30, 2009, about a complaint it received from the same consumer whose report to Applica was the basis of Taube's email from April 4, 2009. The letter specifically identified an apparent failure of the screw securing the handle to the carafe, and further admonished as follows:

The reports we have provided you may—either alone or with other information you now have or may later receive —reasonably support a conclusion that the product contains a defect which could create a substantial product hazard, or creates an unreasonable risk of death or serious injury. If so, you are required under section 15(b) of the CPSA, 15 U.S.C. 2064(b), to notify the Office of Compliance and Field Operations at the CPSC.

(Decl. of Thomas John Schroeder Ex. B1 (dkt....