CPSC Obtains Record $15.45 Million Settlement from Dehumidifier Manufacturer

The U.S. Consumer Product Safety Commission (CPSC) today announced that it had obtained a record $15,450,000 settlement of civil penalty liability from three Gree Electric entities (Gree Electric Appliances, Inc., of Zhuhai; Hong Kong Gree Electric Appliances Sales Co., Ltd.; and Gree USA Sales, Ltd.) (collectively, Gree). (The settlement is provisional until after the public has an opportunity to comment on it.) The settlement relates to the sale of dehumidifiers under 13 different brand names and allegations that Gree knowingly:

• failed to report a defect and unreasonable risk of serious injury to CPSC immediately (within 24 hours) with dehumidifiers sold;
• made misrepresentations to CPSC staff during its investigation; and
• sold dehumidifiers bearing the UL safety certification mark that did not meet UL flammability standards.

The dehumidifiers have been the subject of three recall announcements, in September 2013(the original recall), January 2014 (an expansion), and May 2014 (a reannouncement). The dehumidifiers could overheat, smoke, and catch fire, posing fire and burn hazards to consumers and their property. In the May 2014 reannouncement, the CPSC noted that:

• the number of incidents had increased from 119 to 471 (a 395% jump);
• the number of fires increased from 46 to 121 (a 263% jump); and
• property damage reports increased from $2.15 million to nearly $4.5 million (a 209% jump).

The settlement includes the maximum penalty available under the Consumer Product Safety Act (CPSA), $15.15 million, plus $100,000 per misrepresentation for certification misrepresentations, as noted by Commissioner Joseph P. Mohorovic in his statement on the penalty. In the settlement, where Gree does not admit to the CPSC staff’s charges, the company agrees to implement a compliance program (in line with recent CPSC settlements), including:

• written standards, policies, and procedures for CPSA compliance;
• confidential employee compliance concern reporting;
• training and communication regarding compliance policies and procedures;
• senior management and board responsibility for compliance; and
• record retention requirements.

Commissioner Mohorovic was joined by Commissioner Marietta Robinson in praising the CPSC staff for their work in obtaining this settlement. Commissioner Ann Marie Buerkle voted against accepting the provisional settlement.

A high dollar settlement has long been rumored, particularly given statements by CPSC Chairman Elliot Kaye to the effect that he believed Congress expected double-digit-million penalties after increasing the CPSC’s maximum penalty amount in the 2008 Consumer Product Safety Improvement Act (CPSIA). The allegations in the proposed order, including alleged false use of a third-party safety seal and the failure to notify the CPSC promptly on learning of the improper use of the seal, are especially serious, making the penalty amount perhaps less surprising. This type of conduct is, fortunately, extremely rare and the proposed order should not serve as a model for the range of penalties that might be proposed for vastly different conduct.