Situation
Kidde, a manufacturer of fire suppressant products, failed to report defects in its products to the Consumer Product Safety Commission. After federal investigators learned of the defects and injuries to consumers, the manufacturer lied to investigators. In this case study, we see what happens when this business failed to comply with federal law and lied to investigators.
Learning Objectives
participants should:
- Learn about the Consumer Product Safety Commission;
- Identify meanings of terms like Consent Decree, and Civil Lawsuit;
- Describe penalties for violations of the Consumer Product Safety Act;
- Explain how a business’ failure to comply with federal law can cost millions of dollars; and
- Understand ways a business can protect against becoming involved in a federal investigation.
State of the Industry
Consumer products have been around for centuries. Defective products injure, maim, or kill people. Federal agencies regulate businesses involved in the sale of all kinds of consumer products. Over the next several decades manufacturers will see more federal regulatory oversight. Businesses should create and enforce a strict compliance plan for their company and train their employees to follow this plan. Otherwise, businesses invite an intrusive, costly federal investigation.
Background and Analysis
This case study focuses on North Carolina-based fire safety product manufacturer Walter Kidde Portable Equipment, Inc. (Kidde). According to its website, Kidde manufactures and distributes fire detection and fire suppression products for commercial, industrial, and residential use. All the information in this case study comes from five sources: one Justice Department (DOJ) press release, one civil complaint against Kidde, one consent order between Kidde and the DOJ, and two news articles.
Congress enacted the Consumer Product Safety Act in 1972 which created the Consumer Product Safety Commission (CPSC). Within the Act, Congress defined the CPSC’s role within the federal government. The CPSC serves to “protect the public against unreasonable risks of injuries and deaths associated with consumer products.” Congress authorized the CPSC to “develop standards, to pursue recalls, and take actions to investigate violations of the law, and seek to enforce these laws.”
The CPSC recently announced a $12 million settlement of a case against Kidde. According to the CPSC, Kidde fire extinguishers became the subject of a federal investigation for two reasons:
- Kidde fire extinguishers became clogged or require excessive force to discharge due to a faulty value;
- the nozzle of the fire extinguishers could detach apparently with enough force to cause injuries to people with which it came into contact.
Both defects could cause the fire extinguishers to fail to discharge during an emergency. In fact, reports indicate emergency responders could not get Kidde fire extinguishers to work during a car fire resulting in one fatality. According to investigators at the CPSC, Kiddie received 391 reports of defects by November 2017. Kidde failed to report these defects to regulators.
After the investigation concluded, the CPSC referred the matter to the DOJ. The DOJ filed a complaint against Kidde in December 2020. The Complaint alleged Kidde violated the CPSA. The DOJ alleged Kidde’s violations included:
- Significantly underreporting the scope and nature of the defect and risks prior to the recall;
- Failing to report information about nozzles detaching from fire extinguishers to the CPSC;
- Intentionally making misrepresentations to the CPSC during its investigation; and
- Misusing a registered safety certification mark.
The CPSC complaint also alleged Kidde employees materially misrepresented facts surrounding the regulator’s investigation into these products. Employees lied to investigators when asked if Kidde had provided all relevant documents in its’ possession and control.
Within a week of the complaint, Kidde agreed to settle the case by way of a consent decree. A consent decree represents a settlement agreement between a plaintiff and a defendant. In this case, Kidde agreed to pay $12 million in penalties.
Consent Decrees resolve all disputes between two parties. The parties will next request the court to enter the agreement into the court records. If the court agrees, the court will maintain supervision over the case to ensure Kidde’s compliance with the decree.
Kidde agreed to continue its operations with a new compliance plan designed to ensure compliance with all federal laws, including the CPSA. The Consent Decree requires Kidde’s compliance plan to contain nine specific items. All nine items relate to Kidde having a written, specific compliance plan in place going forward.
Additionally, Kidde agreed to continue to operate with internal controls and procedures designed to ensure that product safety and compliance documentation gets reported to the CPSC. These compliance requirements are ongoing with specific reporting requirements in place for three years.
Recommendation
We recommend that companies bring in subject-matter experts to help them identify risks. The companies should design compliance training programs that will minimize exposure to government investgiations and potential charges for white-collar crime. In this case, employees lied to government investigators. Those lies, could have, and may have, resulted in charges for lying to a federal officer.
By learning about white-collar crime, team leaders will lower risk levels for costly government investigations and civil penalties, as experienced by Kidde.
Sources
- https://www.justice.gov/opa/pr/fire-extinguisher-manufacturer-ordered-pay-12-million-penalty-delay-and-misrepresentations
- https://www.justice.gov/opa/press-release/file/1350541/download
- https://www.justice.gov/opa/press-release/file/1350536/download
- https://www.aboutlawsuits.com/kidde-fire-extinguisher-settlement-179493/
- https://www.aboutlawsuits.com/fire-extinguisher-recall-78112/