Canadian Company Settles CPSC’s Late Reporting Allegations for $16 Million

On November 18, 2024, the U.S. Consumer Product Safety Commission (CPSC or the Commission) announced its first civil penalty settlement of calendar year 2024. By a 5-to-0 vote, the Commission provisionally accepted a statutory maximum $16.025 million civil penalty settlement agreement with Canadian manufacturer Bestar Inc. (Bestar). However, CPSC suspended $12 million of the penalty due to the company’s inability to pay. The settlement agreement resolves CPSC staff’s allegations that Bestar failed to timely report a safety issue with wall beds that the company voluntarily recalled in 2022. Notably, this civil penalty settlement involves a foreign company without a U.S. affiliate named in the agreement, which has not been CPSC’s standard practice.

Staff Charges

According to CPSC staff’s allegations in the settlement agreement, beginning in September 2014, Bestar received reports from consumers that their wall beds had detached from the wall. While Bestar reportedly “engaged” with CPSC and Health Canada regarding two incidents involving reported injuries that it received in 2016, CPSC staff alleges that Bestar did not disclose an additional five incident reports involving the wall beds, of which the company was aware at that time. In 2018, a wall bed reportedly detached and fell on a consumer, resulting in hospitalization, and “eventually led” to the consumer’s death later that year. CPSC staff did not identify the year in which Bestar learned of the fatality nor the year in which the company notified CPSC under Section 15(b) of the Consumer Product Safety Act (CPSA). CPSC alleges, however, that when Bestar filed its Section 15(b) Full Report, the company had become aware of at least 35 incidents, including one fatality and 15 injuries, some of them serious. CPSC and Bestar announced a recall of the wall beds on April 7, 2022.

Bestar’s Response

Bestar contends that it acted in good faith by timely reporting to the CPSC “after the 2018 incident.” Bestar asserts that it has not received a substantiated claim that the wall beds have fallen or injured consumers when the beds were properly assembled and anchored to the wall. Bestar further asserts that the wall beds do not contain any defect, “let alone a defect that could create a substantial product hazard,” nor do they present an unreasonable risk of serious injury or death.

The Agreement

As a part of the settlement agreement, CPSC has agreed to suspend all but $4 million of the $16.025 million penalty. Bestar is required to pay $1 million immediately, with the rest to be paid in installments over the next five years. CPSC agreed to the suspension based on the sworn statement of Bestar’s president and audited financial statements and other financial documents and representations. According to the settlement agreement, the sworn statement asserts that Bestar has insufficient liquid assets to pay a settlement greater than $4 million, that its shareholders have no obligation to infuse additional capital and will not do so, and that a larger penalty would “compel Bestar to cease operations.” Under the settlement agreement, the $12.025 million balance would become payable if CPSC determines that Bestar misrepresented its finances.

The announcement of this settlement comes less than two weeks after CPSC added language to the its Fiscal Year 2025 Operating Plan, based on a motion by Commissioner Peter Feldman, directing staff to provide the Commission with “evidence, such as audited financial statements or tax returns, of the financial condition of any firm (including parent, subsidiary, and affiliated persons or entities, as appropriate) asserting an inability-to-pay defense.”

In addition to the monetary penalty, and similar to other settlement agreements in recent years, Bestar is required to maintain a compliance program designed to ensure compliance with the CPSA and to submit, for a period of three years, annual reports regarding its compliance program, including the results of annual internal audits of the effectiveness of compliance policies, procedures, systems, and training related to CPSA compliance.

Key Takeaways

The $16 million penalty, without the suspended portion, is in line with CPSC late reporting penalties in recent years, which have increased significantly over time. It is a reminder to manufacturers, importers, distributors, and retailers that CPSC remains vigilant in enforcing Section 15 reporting requirements. Further, it reflects that the agency views its reach as extending beyond the borders of the United States. Bestar Inc. is a corporation, organized and existing under the laws of the province of Québec, Canada, with its principal place of business in Lac-Mégantic in Québec. While Bestar maintains a manufacturing facility and a distribution center in the United States, this settlement agreement was reached solely with the Canadian company.

For questions about notification requirements under Section 15(b) of the CPSA, CPSC enforcement practices, or other product safety matters, please reach out to the authors of this post, who are part of Arnold & Porter’s leading 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.