Forget Me Not: CPSC Reminds Retailers of their Reporting Obligations Under Section 15(b) of the CPSA with Civil Penalty Against BJ’s Wholesale Club

The U.S. Consumer Product Safety Commission’s (CPSC) October 2023 civil penalty settlement for alleged late reporting of a potential product safety hazard under Section 15(b) of the Consumer Product Safety Act (CPSA) is a reminder that manufacturers are not the only entities that need to notify CPSC of consumer products that could create a substantial product hazard or create an unreasonable risk of serious injury or death. BJ’s Wholesale Club Inc. (BJ’s) has agreed to pay a $9 million civil penalty to settle CPSC charges that it knowingly failed to immediately report to CPSC that certain portable air conditioners manufactured by Royal Sovereign International Inc. (Royal Sovereign), and sold by BJ’s at retail, could catch fire, posing fire and burn hazards to consumers, in violation of Section 15(b) of the CPSA. Notably, BJ’s was neither the importer nor the manufacturer of the air conditioners. The settlement arises out of Royal Sovereign’s voluntary recall of affected portable air conditions in December 2021.

The Charges

According to CPSC charges, in August 2016, one of the Royal Sovereign portable air conditioners at issue was involved in a house fire from which a mother and her two young children were rescued; the mother died of her injuries several months later.¹ CPSC alleged that BJ’s knew of this fire in March 2017 after receiving a claim letter from the consumer’s counsel and retaining its own counsel in anticipation of litigation arising out of the fire.² CPSC further alleged that in March 2021, BJ’s issued a notice to consumers who had purchased the air conditioner advising that the product “does not meet our safety standards” and that consumers should “stop using this product immediately,” effectively conducting what is known in the CPSC-regulated industry as a “silent recall.”³ CPSC has typically viewed silent recalls as evidence that a company knew of a product safety issue and had an obligation to report to CPSC as required.

According to CPSC charges, BJ’s did not submit a Section 15 report to CPSC regarding the air conditioners.⁴ As noted above, Royal Sovereign voluntarily recalled approximately 33,000 units of air conditioners in December 2021. Notably, BJ’s allegedly sold only 1,778 units of the 33,000 units recalled by Royal Sovereign.⁵

BJ’s Response

BJ’s maintains that it had a compliance program and that it “relied upon and understood that the manufacturer of [the air conditioners], Royal Sovereign, would report to the CPSC.”⁶ Under Section 15(b), the reporting obligation is not satisfied until the retailer, manufacturer, or distributor notifies CPSC of the safety-related defect, noncompliance or risk, or “has actual knowledge that the Commission has been adequately informed of such defect, failure to comply or such risk.” Civil penalties for alleged late reporting against companies who only retailed a product (versus manufactured or imported) have been relatively rare in CPSC’s decades-long history. This civil penalty settlement is a reminder to the regulated community that if CPSC believes the record shows that a retailer had information that triggered reporting to CPSC, failed to timely report it, and did not have actual knowledge that CPSC had been adequately informed of the potential issue by either the product’s manufacturer or distributor, the agency will not hesitate to exercise enforcement.

Compliance Program

Following CPSC’s recent trend of requiring injunctive relief in addition to a civil penalty, BJ’s is required to maintain internal controls and procedures to ensure compliance with the CPSA and to submit an annual report describing the compliance program and the actions BJ’s has taken to comply with each program element for the next three years. In addition, BJ’s is required to conduct an annual internal audit on the effectiveness of the policies, procedures, systems, and training related to CPSA compliance, and to identify the results of the audit as part of the annual reporting requirement. Given the risk of substantial penalties and injunctive relief to resolve alleged late reporting violations, it is more important than ever for companies to ensure that they understand reporting requirements under Section 15 of the CPSA and other requirements enforced by CPSC.

For questions about your company’s obligations under Section 15(b) of the CPSA, CPSC enforcement practices, or other product safety matters, please reach out to the authors or any of their colleagues on Arnold & Porter’s Consumer Product Safety team.

© Arnold & Porter Kaye Scholer LLP 2023 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.