Why a Recall Is No Simple Matter
Saturday, August 30, 2008
Simplicity, a well-known maker of children's products, was already in serious financial straits when 4-month-old Katelyn Marie Simon, of Noel, Mo., died in a Simplicity bassinet last Sept. 29.
Less than two months later, the Reading, Pa.-based firm was losing money and its lender forced it to find either a buyer or new financing. The sale of Simplicity's assets in April to SFCA, an affiliate of a Bethesda private-equity fund, complicated efforts by federal safety regulators to get the bassinets recalled after the death of a second infant Aug. 21.
The chain of events illustrates the difficult task facing the Consumer Product Safety Commission even after Congress enhanced its powers earlier this summer, and the balancing act the agency faces when trying to get companies to recall products without putting them out of business, which leaves consumers with no remedy. Simplicity's recall last year of 1 million defective cribs was a major reason the company was forced to sell its assets, subsequently leaving the CPSC unable to force new owners to recall the bassinets.
''When we negotiate with a company, we do take into consideration whether the company will be able financially to support the recall. In some cases, it doesn't work out that way,'' CPSC spokeswoman Julie Vallese said. ''First and foremost is the safety of the consumer.''
Kenneth Waldman, the former president of Simplicity, and his father, William Waldman, declined through an attorney to be interviewed for this story.
The Waldman family started in the children's products and toy business in the late 1940s, according to the company's Web site. Simplicity was founded in 1988. The company designed children's furniture and nursery products and manufactured them in countries such as China, Indonesia, and Vietnam, a May 2008 National City Capital Markets release said.
Simplicity quickly grew into a major brand distributed at big-box retailers such as Wal-Mart, Target, JCPenney and Big Lots. The company at one time made more than $100 million in revenue, according to Scott Victor, an investment banker with National City Capital Markets who worked on the sale of the company's assets.
In May 2005, it recalled 575 cribs because the white paint chipped off, posing a choking hazard. In December 2005, Simplicity recalled about 104,000 Aspen 3-in-1 cribs sold under the Graco brand after eight reports of children getting trapped when the wooden mattress support came loose, including one case where a child turned blue.
The month after the recall, an infant died in an Aspen 3-in-1 crib, and the company and the CPSC alerted the public again about the crib in February 2006.
Then in June 2007, it recalled 40,000 Nursery-in-a-Box cribs because they came with incorrect instructions for installing a drop side rail. When installed upside-down, the rail could come off, creating a gap where infants could get caught and suffocate.
The company had known of the hazard. That month, it settled a wrongful death case with the California family of Liam Johns, a 9-month-old who died when his crib's drop side came off in April 2005, said Charles Kelly, the lawyer for the boy's family.
Two other infants died when drop sides came off, leading the company to announce in September 2007 that it was recalling 1 million cribs -- the largest crib recall in U.S. history.
The company agreed to send out repair kits to people who bought the recalled cribs. As of February 2008, only about 45,000 kits have been requested, according to Cara Smith of the Illinois State Attorney General's Office, which has aggressively pursued child safety cases.
A little more than a week after that recall, Simon died in a Simplicity bassinet. Authorities notified the CPSC immediately. Her family also notified Simplicity and Wal-Mart, where they purchased the crib, said Jeff Slaton, the family's lawyer.
By November, Simplicity was facing a class-action lawsuit filed by people who had bought the cribs recalled in September. The cost of making its products in China was also rising. The privately held company was losing money and its lender, the Wilmington Savings Fund Society, forced it to explore a sale or refinancing, said Victor, who was hired by Simplicity to do what the lender wished. Victor found a buyer, SFCA, an affiliate of Blackstreet Capital Management.
Under the deal, SFCA bought the right to sell products under the Simplicity brand but did not take legal responsibility for products made under its previous owners, the Waldman family.
So when a second infant, a 6 1/2 -month-old from Kansas, died in a Simplicity bassinet Aug. 21 and the CPSC asked SFCA to recall the products, the company refused. That forced the CPSC to issue its warning to consumers Wednesday to stop using Simplicity 3-in-1 and 4-in-1 convertible bassinets, and to direct retailers on Thursday to recall the products and issue refunds.