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October 26, 2015 Practice Points

NHTSA's Proposed Civil Penalty Rules

By Amelia Ashton

In the wake of unintended acceleration, air-bags, and emissions scandals, the National Highway Traffic Safety Administration (NHTSA) is in the spotlight. On September 21, 2015, NHTSA issued a Notice of Proposed Rulemaking that could have significant impact on the agency's powers.

The Moving Ahead for Progress in the 21st Century Act (MAP-21) gives the Secretary of Transportation authority to determine civil penalties. MAP-21 already provides four mandatory factors (the nature, circumstances, extent, and gravity of the violation) and nine discretionary factors for the Secretary to consider when making that assessment (such as the severity of the risk of injury, and mitigation actions taken). But the Act also instructs NHTSA to interpret those factors as it sees fit.

The proposed rule provides definitions for all thirteen of the factors. See 80 Fed. Reg. 56944. On the same day NHTSA issued the proposed rule, it also issued a request for public comments on its "proposed enforcement guidance" requiring litigants to disclose relevant motor vehicle safety information to NHTSA, regardless of disclosure restrictions in protective orders or settlement agreements. In NHTSA's view, prohibiting transfer of this kind of information to NHTSA is contrary to discovery rules and public policy. See 80 Fed. Reg. 57046. The message is clear: NHTSA is serious about pursuing safety violations, and about gathering as much information about them as possible.

Civil Penalties: Interpretations, Maximums, and Procedures
Several of NHTSA's interpretations of the thirteen factors are not particularly surprising. The "circumstances of the violation" factor, for instance, is interpreted simply to mean "the context, facts, and conditions having bearing on the violation." The "extent of the violation factor" includes the "scope, time frame and/or the degree of the violation," as well as "the number of violations and whether the violations are related or unrelated."

Others are more intriguing. Some reveal the Agency's intention to reach broadly when possible. For instance, NHTSA has interpreted "knowledge by the respondent of its obligations under this chapter" to mean "all knowledge, legal and factual, actual, presumed and constructive, of the respondent of its obligations under 49 U.S.C. chapter 301." It imputes employee knowledge to corporations and partnerships; an agent to a principal; and provides that a corporation with multiple employees "is charged with the knowledge of each employee, regardless of whether the employees have communicated that knowledge among each other, or to a decision maker for the non-natural person." The "severity of the risk of injury" factor, NHTSA says, encompasses both potential injury and exposure—not just actual harm. In describing the factor for the "nature of the defect or noncompliance," however, NHTSA cabins itself to examining "the conditions or circumstances under which the defect or noncompliance arises, the performance problem, and actual and probable consequences of the defect or noncompliance." In other words, NHTSA wants to reach broadly when it comes to knowledge and potential injury, but to more narrowly focus on defects and noncompliance likely to have serious repercussions.

NHTSA's proposal also includes updating its regulations (49 CFR 578.6) to align with MAP-21's maximum civil penalties. Specifically, NHTSA would adopt MAP-21's maximum penalties under the Safety Act ($35,000,000), as well as its penalties for odometer fraud (up to $10,000 per violation, maximum of $100,000); knowingly submitting false information (up to $5,000, maximum of $1,000,000); and violations of corporate responsibility provisions ($5,000 per day, with a maximum of $1,000,000). Technically, notice is not required when NHTSA amends its penalty regulations to conform to statutory changes; NHTSA nonetheless included it in the proposed rulemaking.

NHTSA also proposes to adopt informal procedures to assess civil penalties. Once NHTSA makes an initial demand for civil penalties, a respondent would have 30 days to choose from three options: (1) pay the penalty; (2) provide an informational response; or (3) request a hearing. NHTSA elaborates little on the first option, but provides an extensive discussion of options two and three. An informational response can include "any arguments, views or supporting documentation that dispute or mitigate" liability, and a respondent choosing this course may also request a conference with the Chief Counsel. The hearing would not be a formal adjudication, but rather consist of informal procedures that would allow for administrative due process, efficiency, and the creation of a record for judicial review.

NHTSA's proposals are not yet law, but provide insight into NHTSA's view of its current and potential future penalty powers. NHTSA's proposals also demonstrate the impact of high profile regulatory and litigation scandals on federal agency behavior.

Practice Pointers

  • Monitor legal developments in the regulatory space for updates on the evolution of these proposed rules.
  • When evaluating reporting obligations and liability exposure, be aware that the potential for injury and exposure, and not just actual harm, are paramount.
  • Be sure your organization develops and/or maintains a robust formal compliance program, with a focus on ensuring that all individual agents and employees are properly trained.  In the wake of increased penalties, such programs are now more important than ever.

Keywords: product liability, litigation, NHTSA, FMVSS, rulemaking, civil penalties

Amelia Ashton is with Crowell & Moring LLP in Washington, D.C.

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