Products Liability Law Daily EKO agrees to $1M civil penalty for failure to report defective trash cans
Tuesday, November 27, 2018

EKO agrees to $1M civil penalty for failure to report defective trash cans

By Colleen Kave, J.D.

EKO Development, Ltd. and EKO USA, LLC (collectively, EKO) have agreed to a $1 million civil penalty to resolve charges by the Consumer Product Safety Commission (CPSC) that EKO knowingly failed to report to the agency, as required by law, that its EKO Sensible Eco Living Trash Cans contained a defect or created an unreasonable risk of serious injury. The settlement, which CPSC accepted provisionally by a 3-2 vote, does not constitute an admission of CPSC staff’s charges (CPSC Notice83 FR 61146, November 28, 2018; CPSC News Release, No. 19-038, November 26, 2018).

According to CPSC staff, the black plastic protective collar in the opening on the back of the subject trash can receptacle can detach from the sharp metal handle, posing a laceration hazard to consumers. Although EKO received complaints from consumers who sustained lacerations from the product, and despite the fact that the company approved a design change to add a two-piece plastic cover to address the laceration hazard, EKO did not immediately notify the CPSC of the defect or risk, as required by law.

In July 2015, EKO and CPSC announced a joint recall of 367,000 trash cans. The trash cans were sold exclusively at Costco Wholesale Corporation throughout the United States, from December 2013 through May 2015, for $50. Subsequently, CPSC filed a complaint against Costco, alleging failure to report the defective trash cans, and Costco agreed to a $3.85 million civil penalty in October 2018 [see Products Liability Law Daily’s October 5, 2018 analysis].

The EKO settlement was compromised by CPSC under its statutory obligation to consider the appropriateness of the penalty to the size of the business, including how to mitigate undue adverse economic impacts on small businesses. In addition to paying the $1 million civil penalty, EKO agreed to create, maintain, and enforce a compliance program designed to ensure compliance with the Consumer Product Safety Act (CPSA), and to provide written affirmation that EKO has implemented and will enforce such a program. EKO also agreed to implement a system of internal controls and procedures to ensure that EKO reports information to CPSC in accordance with applicable law.

Dissent. CPSC Commissioners Robert S. Adler and Elliot F. Kaye dissented from approving the settlement agreement, contending that the size of the penalty is too small and does not adequately reflect the seriousness of EKO’s violation. Adler and Kaye cited the related $3.85 million settlement with Costco for failure to report the defect associated with the very same products and asserted that CPSC staff should have negotiated a higher penalty than that agreed upon by Costco, given that EKO’s conduct was considerably more egregious. The commissioners acknowledged the size discrepancy between Costco and EKO, but suggested that the simplest way to deal with this distinction would be to impose a penalty on EKO roughly equivalent to that assessed against Costco (such as $4.5 million), but to suspend a large enough portion of the penalty so that it would not have an undue adverse economic impact on EKO. Without such an adjustment, Adler and Kaye cautioned, anyone not conversant with the facts of the case would automatically assume that EKO’s transgression was minor compared to Costco’s.

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