Fourth Circuit Sets Off Fireworks: CPSC Notices of Non-Compliance Are Not Final Agency Action

Just in time for Independence Day, the U.S. Court of Appeals for the Fourth Circuit has ruled against Jake’s Fireworks Inc. and affirmed a lower court decision that held Consumer Product Safety Commission (CPSC or the Commission) Notices of Non-Compliance (Notices) are not final agency actions subject to review under the Administrative Procedure Act (APA).

Procedural Background

The actions at issue in the decision span a decade. According to the Fourth Circuit’s order, CPSC staff sampled consumer fireworks imported by Jake’s Fireworks between 2014 and 2018. Approximately one-third of the samples were found by CPSC to be “overloaded with explosive material,” which caused the fireworks to be banned hazardous substances under 16 C.F.R. § 1500.17(a)(3) (banning fireworks that are “intended to produce audible effects . . . if the audible effect is produced by a charge of more than 2 grains of pyrotechnic composition”), a rule CPSC issued under the Federal Hazardous Substances Act (FHSA). Thereafter, in 2018, CPSC’s Office of Compliance and Field Operations (Compliance Office) issued several Notices to Jake’s Fireworks, alerting the company that CPSC staff determined the fireworks were banned hazardous substances under the FHSA and requesting destruction of the products within 90 days.

In response, Jake’s Fireworks sued the CPSC in 2019, requesting injunctive and declaratory relief from the CPSC’s enforcement of the Notices. The United States District Court for the District of Maryland determined that the Notices were not reviewable final agency action under the APA because (1) Jake’s Fireworks could request an informal hearing with the Compliance Office for re-consideration of the Notices; and (2) the Commission itself, not the Compliance Office that issued the Notices, had final decision-making authority on whether to pursue legal enforcement.¹ Thus, the Notices represented the “intermediate ruling[s] of a subordinate official,” and not the culmination of the Commission’s decision-making process.²

According to the Fourth Circuit’s order, following the district court’s decision, Jake’s Fireworks requested an informal hearing with the Compliance Office. The Compliance Office denied the request, declined to revisit its findings in the Notices, and further advised that the Notices were only “an initial determination in the Commission’s process” and the Commission had not made a final determination on whether the fireworks were banned hazardous substances.³ Jake’s Fireworks filed suit again and alleged that “[t]o avoid the criminal and severe civil penalties that would result from failing to comply with [the Notices], Jake’s has quarantined millions of dollars of product.”⁴ The district court again held that the Notices were not final agency actions because (1) the Notices only requested voluntary compliance, and (2) the Compliance Office could not independently pursue enforcement.⁵

The Fourth Circuit Affirms

In an opinion issued June 26, 2024, the Fourth Circuit reasoned that “[i]t is the Commission itself, not its Compliance Office, that makes final determination on whether goods are banned hazardous substances,” because only the Commission can vote to authorize an administrative complaint to compel corrective action or refer matters to the Department of Justice.⁶ The Fourth Circuit further held that the CPSC’s Compliance Office’s role is “subordinate, investigatory, and advisory to the Commission,” and Notices of Noncompliance “fit squarely within the Compliance Office’s advisory and investigatory functions.”⁷ At “the conclusions and advice of agency staff,” the Fourth Circuit thus held that the Notices were not the culmination of the Commission’s decision-making process because the Notices did not “trigger any of the administrative, civil, or criminal proceedings that the Commission could pursue.”⁸ Therefore, a Notice of Noncompliance is “the ruling of a subordinate office” that, at most, functions as a “tentative recommendation,” rather than a “final and binding determination.”⁹ The Fourth Circuit further found that the Commission did not delegate its decision-making authority to the Compliance Office.

This decision is significant for companies that are subject to CPSC’s jurisdiction. It suggests that, when CPSC staff determines that the product violates a CPSC rule, the options available for the company to dispute that determination are limited, though the agency’s enforcement tools remain available, including issuance of a unilateral agency safety warning. Under the Fourth Circuit’s ruling, if CPSC lets the matter stand at the Notice stage and declines to either withdraw the Notice or initiate the administrative litigation process, the avenue to seek independent review of that non-final agency (in)action is unclear. The risk that a product could fall into this regulatory limbo underscores the need for companies to maintain robust testing and compliance programs to meet the requirements of applicable CPSC rules.

For questions about compliance with the Consumer Product Safety Act, the Federal Hazardous Substances Act, or with 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 2024 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.