Beveridge & Diamond
 

Retailer Pays $2M Fine for Alleged Distribution of Recalled Products by Contractor, Agrees to Maintain Internal Compliance Program

Authors: Laura Duncan, Elizabeth Richardson, Gayatri Patel
Beveridge & Diamond, P.C., October 3, 2014

Click here for a PDF of this news alert.

In a press release issued on September 17, 2014, the U.S. Consumer Product Safety Commission (CPSC) announced that Michigan-based retailer, Meijer Inc., will pay a $2 million dollar fine to resolve allegations that it knowingly introduced recalled products into commerce.  Along with the monetary penalty, the settlement agreement provides that Meijer will implement and maintain a reverse logistics compliance program that will include a written policy to address the handling of recalled goods as well as training for employees to prevent future violations.

CPSC Requirements for Conducting Product Recalls

Although most people think of CPSC responsibilities as falling primarily on product manufacturers, federal law bars any person from selling, offering for sale, manufacturing for sale, distributing in commerce, or importing into the U.S., products subject to a publicly-announced voluntary recall by a manufacturer or a mandatory recall by CPSC.[1]  Any person who “knowingly” violates this provision is subject to civil penalties.[2] Penalties for “knowingly” selling and distributing recalled products can be as high as $100,000 per violation.[3] In order to help companies understand their obligations, CPSC has issued guidelines and a Recall Handbook on how to properly implement product safety programs and recalls.

CPSC Charges Against Meijer

According to CPSC, Meijer failed to monitor a third-party contractor Meijer hired to dispose of the recalled products.  CPSC staff charge that between April 2010 and April 2011 approximately 1,700 units of various recalled products, including toys, child care items, and  vacuum cleaners, were resold to consumers at discount retailers, dollar stores, liquidation firms, and other businesses.  Meijer allegedly received information from its contractor regarding the contractor’s resale of the products, but failed to prevent their distribution.  Meijer denies the allegations, contending that it reasonably relied upon its contractor to properly deal with the products.

Other CPSC Actions

A number of retailers have been subject to CPSC enforcement actions relating to handling of recalled or defective products.  On June 21, 2013, CPSC announced that national retailer, Ross Stores, Inc., had agreed to pay a $3.9 million civil penalty to resolve allegations that it failed to report its continued sale of recalled children’s upper outerwear containing drawstrings.  On May 6, 2013, CPSC issued a press release that Williams-Sonoma had agreed to pay a $987,500 civil penalty to resolve allegations that the retailer had knowingly failed to report to CPSC a defect involving Pottery Barn wooden hammock stands.  These enforcement actions highlight the risks that retailers face related to both private label and third party products.

Lessons Learned

Retailers who receive notice of a recall should immediately stop sale of recalled products, quarantine, and take steps to properly dispose of products.  Agreements with any third-party contractor hired to dispose of recalled products should be clear regarding the importance of keeping recalled products separate from other returned products and disposing of these items properly.  CPSC also holds companies responsible for monitoring their third-party contractors. Retailers are obligated to monitor CPSC recall notices so they are aware of recalls and can act quickly to respond to applicable requirements.  Companies that develop reverse logistics plans are often in a better position to handle recalled products and other returned products that raise special management issues.

Beveridge & Diamond works with manufacturers and retailers to ensure compliance of their products with CPSC requirements and other market access requirements.  We also help clients manage reverse logistics systems for recalled, returned, or unsold products, navigating critical issues under CPSC product rules, EPA hazardous waste rules, and DOT hazardous materials transportation rules. For more information, please contact the authors.


[1] See CPSA § 19(a)(2)(B)-(C); 15 U.S.C. § 2068(a)(2)(B)-(C).

[2] See CPSA § 20(a)(1); 15 U.S.C. § 2069(d); See also CPSA § 20(d); § 15 U.S.C. 2069(d).  (defining “knowingly” as “(1) the having of actual knowledge, or (2) the presumed having of knowledge deemed to be possessed by a reasonable man who acts in the circumstances, including knowledge obtainable upon the exercise of due care to ascertain the truth of representations.”)

[3] See CPSA § 20(a)(1); 15 U.S.C. § 2069(a)(1).