CPSC Overreach? Federal Agency Commandeers Amazon Marketplace

The Consumer Product Safety Commission (“CPSC”) appears to be yet another federal agency seeking to expand dramatically its power over commerce. In what could be described as an extraordinary example of CPSC overreach, the agency has deemed Amazon.com Inc. (“Amazon”) to be a “distributor” for purposes of the Consumer Product Safety Act (“CPSA”), making it responsible for recalls involving products sold in connection with the Fulfilled by Amazon program.

In a lengthy decision, the CPSC pushed far beyond existing precedent by imposing “distributor” status on a company that never holds title to consumer goods manufactured and sold by third parties.

Extraordinary implications

Wherever one falls on the question of executive agency power, the implications of the CPSC’s decision could be staggering, not only for marketplace providers, but for third parties who offer warehousing and fulfillment services without owning any inventory, particularly if those third parties provide customer service or process returns. Once a company is deemed to be a distributor, its obligations also extend to reporting potentially defective products and being penalized for unsafe products sold by the companies to which it provides services. Any company placed in that situation would need to consider strongly the implementation of its own product safety testing and certification regime for every item that passes through its hands — or impose draconian testing, disclosure, and indemnification requirements on marketplace sellers.

Amazon has promised to appeal, but it will likely need to wait until after the CPSC answers additional pending questions in the case.

A failure of due process?

Another interesting issue raised by Amazon is whether the structure of the CPSC violated the company’s due process rights. Specifically, Amazon argued that:

The Commission’s structure and authority, where the Commission “direct[s] agency staff to initiate investigations,” “vot[es] to approve the issuance of” a Section 15 complaint, and then itself decides the case, “preclude a fair and impartial adjudication” in violation of the Fifth Amendment’s Due Process Clause.

Amazon’s Appeal Br. at 71-73, Dkt. 127.

The CPSC rejected this argument because of its view that actual bias must be shown, rather than simply the potential for a conflict. The CPSC’s view, however, flies in the face of what seems to be an insurmountable conflict between the role of charging a company with a serious violation of law and then deciding the very same issue.

The Supreme Court, in addressing this due process issue in another context, found that specific details regarding the actual involvement of the potentially conflicted person who operated in two apparently conflicting capacities (prosecutor and judge) were important, and it is unclear the extent to which Amazon pursued (or was permitted to pursue) discovery on this issue. For example, what was the degree of involvement by the CPSC commissioners at various steps in the enforcement process?

Frankly, I am skeptical that the agency would allow such discovery, even though it appears that the issue has now been opened for exploration by the CPSC’s findings — in the decision itself — of a lack of substantial involvement of the CPSC’s commissioners in a prosecutorial role. Given that the Commissioners all approved the investigation and the filing of charges, and then all participated in deciding the matter, call me skeptical. If they indeed had no substantial involvement, then other serious questions arise: If the commissioners did not take on the role of prosecutor assigned to them by statute, who did? And if that role was delegated to some other person or persons, on what authority and by what means?

Interested in a deeper dive?

I’ll be taking a deeper dive into the decision and the implications of CPSC overreach in a future post. In the meantime, if you own or operate a marketplace, you should examine closely your potential compliance obligations under the CPSA and consider steps to reduce your exposure to CPSC enforcement actions.