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U.S. sues Wal-Mart
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May 25, 2001: 12:25 p.m. ET
Suit alleges retailer failed to report injuries related to product defect
By CNN's Julie Vallese
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WASHINGTON (CNN) - Wal-Mart is being sued by the federal government for allegedly selling an exercise glider it knew to be dangerous but not reporting injuries from the product – the first time a retailer has been sued for breaking the law by failing to report defective products.
Wal-Mart allegedly knew that the glider caused dozens of injuries but failed to report the incidents as required by federal law, according to the suit being filed by the Consumer Product Safety Commission (CPSC) and the Justice Department.
Analysts said the suit could send a message to retailers to stay vigilant on product safety, though most companies already are doing so, particularly in light of a slower economy in which competition for consumers' dollars is increasing rapidly.
"I think that retailers have always been somewhat responsible for what they sell. Many of them have spent a lot of time and effort on quality control," Credit Suisse First Boston retail analyst Michael Exstein said. "I think litigation is a fact of life for retailers. What you're seeing here is that retailers are being held responsible for more and more."
Exstein said the CPSC's lawsuit could be part of the government's continuing crackdown on product sourcing, such as overseas child labor and certifying factories.
The lawsuit seeks $4.5 million in civil penalties from the world's largest retailer and two subsidiaries, as well as another $4.5 million from the manufacturer of the gliders, Icon Health & Fitness Inc. of Logan, Utah. It is the first time a retailer has been sued in federal court for not reporting a product defect, as required by the Consumer Product Safety Act.
The allegations center on the Weider and Weslo exercise gliders, made by Icon and distributed by Wal-Mart (WMT: down $1.27 to $51.62, Research, Estimates) between 1996 and 1999. The gliders, which sold for $99-$149, had a defective arm supporting the seat that could unexpectedly disconnect, causing the user to fall abruptly, the suit alleges.
The CPSC said other retailers sold the defective gliders, including Kmart Corp. (KM: down $0.06 to $11.44, Research, Estimates), but that only one or two seemingly isolated incidents occurred, not enough for the chain to draw any conclusions about product safety.
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The government says Wal-Mart knew exercise gliders were defective (Source: CPSC) | |
The CPSC alleges that Wal-Mart knew of 46 incidents in which the part failed, resulting in 41 injuries that were not reported. Twenty-nine of those incidents occurred in Wal-Mart stores while customers tried out the equipment, which the CPSC says proves that managers and employees were aware of the defect.
An insurance company owned by Wal-Mart settled 36 claims related to the incidents.
Icon made about 75,000 of the gliders and voluntary recalled them in 1999 after almost three years of customer complaints. The CPSC alleges that Icon knew of 86 incidents in which the seat support failed, resulting in 68 injuries, none of which were reported to the commission. Though design changes were made in 1997 to products already in stores, the CPSC says it was not informed about the problems or the remedy.
Some of the injuries include fractured vertebrae and herniated discs. In one case, a woman's spine was compressed when the equipment collapsed, leaving her partially disabled.
Under the Consumer Product Safety Act, manufacturers, distributors and retailers are required to report possible product defects to the agency. The requirement extends to any defect that "could create a substantial risk of injury to the public" or that "presents an unreasonable risk of serious injury or death."
However, many retailers actually notify manufacturers first when they detect a product defect, and they in turn alert the government, CPSC spokeswoman Jane Francis said.
That's because retailers don't want to sour relationships with their suppliers such as happened between Ford Motor Co. (F: down $0.90 to $24.75, Research, Estimates) and tire supplier Bridgestone/Firestone in their massive tire recall, Exstein said. And ultimately, the manufacturers are responsible for making the change.
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Wal-Mart officials say there was no reasonable basis to conclude that the gliders presented a risk because none of the more than 2,400 stores the company operates nationwide had more than one incident. Cases were settled because the company believed stores had incorrectly assembled the gliders, Wal-Mart officials said.
"We are willing to go to court to convince a jury it wouldn't have been clear to any retailer," Wal-Mart spokesman Bill Wertz said. "We are disappointed the CPSC was not willing to work with us in a constructive way to improve methods of identifying defective products for the consumer's benefit. We feel the fine is unjustified."
He said Wal-Mart does not want to put products on their shelves that harm customers in any way. The company is trying to find ways to identify problems and track incidents more quickly, he added. 
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