MichaelsEarlier this month, the Consumer Product Safety Commission in tandem with the Department of Justice withdrew its “material misrepresentation” claim in its ongoing lawsuit against arts and crafts retailer Michaels Stores. The Government had alleged, inter alia, that Michaels made a material misrepresentation to the agency in its Section 15(b) Report for certain glass vases that shattered during normal handling. The Government’s withdrawal of this claim raises interesting questions as to what constitutes a “material misrepresentation” – in this case to the CPSC – and why the claim was withdrawn.

In April 2015, the Government sued Michaels for the imposition of a civil penalty and injunctive relief over Michaels’ alleged violations of the Consumer Product Safety Act, including, but not limited to, the Company’s failure to timely report a potential product safety hazard under Section 15(b) involving certain of its glass vases. The Government also alleged that Michaels created the false impression that it did not import the subject products even though the Company was, in fact, the importer of record.

Specifically, the Government alleged that Michaels reported to the CPSC that it purchased the vases “from a vendor of ours named Gerson,” and provided a picture of a vase bearing the label “Imported by Gerson” without disclosing Michaels’ true role as importer. The lawsuit alleged that Michaels made this misrepresentation to avoid responsibility for undertaking a product recall; indeed Michaels was left out of recall negotiations and otherwise escaped any legal responsibility for the recall as Gerson was tasked with the recall of the vases.

Last week, in its motion to withdraw the material misrepresentation claim from the Complaint, the Government asserted that the best use of its resources was to focus on the “most critical issue at the heart of the case” – the civil penalties and injunctive relief, stemming from Michaels’ alleged failure to timely report the potential laceration hazard stemming from the thin glass walls of the vases.

So what happened is anybody’s guess.

The fact that the CPSC and DOJ included a material misrepresentation claim in its Complaint against Michaels was unusual to begin with. To our knowledge, the “materiality” standard for such a misrepresentation claim has never been litigated in the CPSC context despite the CPSA’s prohibition of firms from making such statements to the agency in the course of investigations.

Based on Supreme Court and appellate precedent, the Government would likely have had to prove that the statements or representations had “a natural tendency to influence, or is capable of influencing, the decision of the decision-making body to which it was addressed.” Kungys v. U.S., 485 U.S. 759, 770 (U.S. 1988).

Perhaps the Government realized in discovery, either through documents or witness deposition testimony, that it would not be able to meet such a standard, despite its allegations that the agency fashioned the recall in a manner that did not involve Michaels because of the Company’s representations during the investigation.

In any event, the Government will now solely focus on its request for a civil penalty as a result of Michaels’ alleged late reporting violation and various forms of injunctive relief, including the enactment of a stringent compliance program.

Photo Credit: Mike Mozart (flickr)