Last week, the U.S. Consumer Product Safety Commission announced that Home Depot U.S.A., Inc. has entered into a settlement agreement with the agency to resolve allegations that the retailer knowingly sold and distributed recalled consumer products over a four year period. The Company will pay a civil penalty of $5.7 million. This penalty is significant because it involves claims against a retailer who allegedly sold recalled products in violation of Section 19(a)(2)(B) of the Consumer Product Safety Act which makes it unlawful to sell a recalled product – and not the more typical “failure to timely report” claims against a manufacturer under Section 19(a)(4). This penalty is just the third such penalty in recent years (see Meijer 2014 civil penalty and Best Buy 2016 civil penalty).
The CPSC alleged that between August 2012 and November 2016, Home Depot knowingly sold and distributed 2,816 previously recalled products that were the subject of 33 separate voluntary corrective actions. The products included lights, portable heaters and generators, smoke alarms, air compressors, dehumidifiers, extinguishers, light strips, and electric ranges, among others. The agency charged that the Company’s procedures “failed to accurately identify, quarantine, and prevent the sale and distribution of the recalled products.” Notably, and perhaps the reason why the CPSC sought a significant civil penalty here, according to the agency’s allegations, sales and distribution of recalled products continued for one year after Home Depot had told the Commission in May 2015 of the potential sale of approximately 595 units of seven different recalled products.
In response to the Commission’s allegations, Home Depot noted in the agreement that it “prohibits the sale of recalled products and took reasonable measures to prevent recalled products from being sold or distributed for use by consumers through stop sale procedures and other internal controls” and that the company has “enhanced its processes and systems to further reduce the risk of selling or distributing recalled products.”
Along with paying the $5.7 million civil penalty, Home Depot has agreed to maintain a product safety compliance program with the common program elements we have seen in recent civil penalties to ensure that the Company complies with product safety standards and regulations. Not surprisingly, the compliance program also contains elements related to the prevention of the sale of recalled goods, including the “appropriate disposition of recalled goods,” and management and oversight of that program.
This penalty, as well as the Best Buy penalty from last year, is a good reminder that companies, especially retailers, must have robust procedures in place to identify and quarantine recalled products whether on the shelves, in inventory, or otherwise, and to control all supply channels to prevent this circumstance from happening. This penalty also serves as a reminder that the Commission will penalize companies for violations of the CPSA that do not involve allegations of late reporting under Section 15(b).