Court Rebuffs CPSC Database Disclosure Decision in Important Administrative Law Ruling

Date: Oct 26, 2012

A federal court in Maryland recently released a heavily redacted decision entered at the end of July that found the Consumer Products Safety Commissions ("CPSC" or "Commission") had improperly decided to publish a report of harm in its consumer product safety database. In Company Doe v. Tenenbaum,[1] the United States District Court for the District of Maryland rejected all of the CPSC's arguments and found that the CPSC acted arbitrarily and capriciously and abused its discretion when it decided to publish the contested report.

Company Doe, which was not identified and whose product was also not identified, had contested the CPSC's decision to publish a "report of harm" identifying its product. Under the Consumer Product Safety Improvement Act of 2008 ("CPSIA"), the CPSC is required to "establish and maintain a database on the safety of consumer products, that is –(1) publicly available; (B) searchable; and (C) accessible through the Internet website of the Commission." 15 U.S.C. § 2055(a)(1),(A)-(C). The database must include "[r]eports of harm relating to the use of consumer products." Id. at §2055a(b)(1)(A). Twice the Company challenged the report pursuant to 15 USC § 2055(c) as containing materially inaccurate information. In each instance, the CPSC agreed that there was materially inaccurate information and provided a redacted report. After receiving the third version, the Company sued to enjoin the publication of the report. During the pendency of the suit, the CPSC agreed to the third and fourth material inaccuracy claims and further redacted the report; however, the CPSC rejected the fifth such claim.

The Court agreed with the Company that the CPSC's determination that the report of harm satisfied that the statutory and regulatory requirements that the report "relate to" the use of the company's consumer good was arbitrary and capricious and independently, an abuse of discretion. Additionally, the Court found that the publication would violate the CPSIA's prescription against materially inaccurate information. While the opinion is heavily redacted to minimize disclosure of confidential information, the lengthy opinion addressed the CPSC's interpretation of its statutory authority and highlighted application of administrative law precedent applicable to agency decision-making.

The Court found that the phrase "relating to" used in the CPSIA and the Commission's regulations was ambiguous. It found, however, that the Commission had adopted the view that the report of harm must be "connected with" or "associated with" the consumer product for the report to qualify for publication.

In a preliminary ruling, the Court refused to give deference to the Commission's interpretation of its own regulations, Auer deference.[2] The Court found that deference is not appropriate where the regulation does little more than restate the terms of the statute as is the case here because the regulations do not demonstrate the application of the Commission's expertise and experience. The Court also found that it need not defer to the Commission's expertise in interpreting its statutory authority, so-called Chevron deference,[3] because the Commission's position was arbitrary and capricious. The Court also concluded that the Commission's decision to publish the report constituted final agency action for purposes of judicial review, a point the CPSC had contested.

Ultimately, the Court looked to the specific information in the report, the opinions reached by reviewers at the Commission and on behalf of Company and to the redactions the Commission made. In light of all that information, the Court found that the report did not establish the necessary nexus between the consumer product and the reported injury. The Court found that the Commission had predicated its decision on coincidence. Thus, it found that the Commission's decision to publish the alleged report of harm bore no relationship to the public safety purposes of the Act. Therefore, the Court concluded that the Commission's action was arbitrary and capricious. Additionally, the Court found that the Commission's decision to publish was inconsistent with its prior practices as described in a GAO report and therefore, an abuse of discretion.

The Court also found that the report of harm as redacted by the Commission remained materially inaccurate and therefore, not publishable. The Commission's regulations define material inaccuracy as information in a report "that is false or misleading, and which is so substantial and important as to affect a reasonable consumer's decision-making about the product." 16 C.F.R. § 1102.26(a)(1). The Court found that the report did not show that the product was the source of the problem. The Court rejected as "misguided" the Commission's argument that each sentence in the report was "true" and that the Court could not rely on "inference" from those statements. The Court also found that the report was sufficiently important to affect a reasonable consumer. In so ruling, the Court rejected that Commission's reliance on the disclaimer that appears on the website. The Court found the disclaimer to be "boilerplate," not of interest to an ordinary consumer and "insufficient to counterbalance the website's inexorable import of serving as a sanctuary for reports relating to unsafe consumer products." Furthermore, the Court found the Commission's position contrary to its previous finding that reports were "materially inaccurate" when "the evidence in the report of harm did not show that the product was the source of the problem."

Consumer groups are appealing the ruling to maintain the anonymity of Company Doe.

This lawsuit represented the first legal challenge to the CPSC's implementation of the CPSIA public database provision. Many hope that the decision will result in improved procedures at the Commission to respond to questions about material inaccuracy of database reports and to prevent their posting. The judge's scathing criticism of the CPSC's decision to publish the alleged report and forceful rejection of its legal arguments in defense of its actions is of interest not only to consumer product manufacturers and counsel, but to all those interested in sound agency procedures and the legal framework governing their actions.

For more information on product safety and administrative litigation, please contact Sheila A. Millar (202.434.4143 or millar@khlaw.com); Douglas J. Behr (202.434.4213 or behr@khlaw.com); or J.C. Walker (202.434-4181 or walker@khalw.com).

[1] Civil Action No. 8:11-cv-02958 (July 31, 2012).

[2] Auer v. Robbins, 519 U.S. 452 (1997)

[3] Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 476 U.S. 837 (1984)