The Viking Range brand continues to become more tarnished. Viking's agreed to pay a $4.65 million fine to the Consumer Product Safety Commission for hiding defects that caused its ranges to burst into flames from customers. The Commission issued the following statement:
The U.S. Consumer Product Safety Commission (CPSC) announced that Viking Range, LLC, of Greenwood, Mississippi, and Viking’s parent firm, The Middleby Corporation, of Elgin, Illinois (collectively “Viking”), have agreed to pay a $4.65 million civil penalty. The civil penalty settles charges that Viking failed to immediately report to CPSC that its gas ranges contained a defect that could create a substantial product hazard or that the ranges created an unreasonable risk of serious injury.
Between 2008 and 2014, Viking received 170 incident reports of ranges that had turned on spontaneously and could not be turned off using the control knobs, resulting in extreme surface temperatures that posed a burn hazard to consumers. The reported incidents included two consumers who were unable to turn off the range using the controls and were burned while attempting to disconnect the power source. Viking also received five reports that the ranges had turned on spontaneously and caused property damage to the area surrounding the range. Several consumers called 911 for assistance when they discovered that the ranges had turned on spontaneously and could not be turned off or disconnected. Viking knew of this information, but failed to notify CPSC immediately of the defect or risk posed by the ranges, as required by federal law.
Viking recalled 52,000 ranges in May 2015. The ranges were sold at ABT, Ferguson, Morrison, Pacific Sales, PC Richard & Son and other stores nationwide from July 2007 through June 2014 for between $4,000 and $13,000.
In addition to paying the $4.65 million civil penalty, Viking has agreed to maintain an enhanced compliance program to ensure compliance with the Consumer Product Safety Act (CPSA). Viking will also maintain a related system of internal controls and procedures.
Viking’s settlement of this matter does not constitute an admission of CPSC staff’s charges.
Middleby Corporation purchased Viking Range on December 31, 2012 for $380 million. The settlement agreement between Middleby and CPSC provides more information on the cover-up by the former Mississippi corporate titan:
5. Between July 2007 and July 2014, Viking manufactured and offered for sale in the United States approximately 52,000 freestanding 30", 36", 48" and 60" Gas Ranges under the model families VGIC, VGCC, VGSC ("Ranges")....
9. After receiving a number of reports related to the Ranges, Viking collected and tested Ranges, and developed a repair for the Ranges. Viking also issued numerous engineering change orders and technical bulletins identifying the defect and providing instructions on how to conduct the repair.
10. Despite having information reasonably supporting the conclusion that the Ranges contained a defect which could create a substantial product hazard and created an unreasonable risk of serious injury or death, Viking did not notify the Commission immediately of such defect or risk..... Instead, Viking waited until July 2, 2014 to file a Full Report with the Commission....
17. Viking recognizes that product safety is fundamental to sound and ethical business practice, to the integrity of the Viking brand, and to Viking's responsibility as a producer of quality consumer goods. Since The Middleby Corporation's acquisition of Viking Range, LLC, Viking has significantly increased its focus on consumer safety, including by implementing a robust Product Safety Compliance Program developed and overseen by The Middleby Corporation to establish, control and verify safe product design and prompt reporting of product safety defects to regulatory authorities....
The new owners of Viking aren't exactly happy about being stuck with the bill for the company's misconduct and attempted cover-up. Middleby sued the previous owners for allegedly hiding the defects from Middleby when it purchased Viking. JJ reported on November 11, 2015:
The Courthouse News reported that Viking Range and its parent company Middleby Marshall, Inc. are suing former CEO Fred Carl, Jr. and other former Viking officers for fraud in Delaware Superior Court. The plaintiffs seek $100 million in damages. The Courthouse News reported:The lawsuit states:
The purchaser of high-end stovemaker Viking Range is seeking $100 million in damages in Delaware superior court, claiming it never would have bought the company had it been told of a defect that caused the company's stoves to turn on by themselves.
Middleby Marshall Inc. and Viking Range Corporation sued former CEO Fred Carl, Jr. and other former Viking Range officers in New Castle County Superior Court on October 29.
Middleby acquired Viking Range in 2012 for $380 million, but soon discovered the company's officers had concealed important facts about the its products.
The case is currently in the discovery phase and is scheduled to go to trial in New Jersey in a year.
"Had sellers disclosed the truth, Middleby would never have paid anything close to $380 million for VRC, and may not have undertaken the acquisition at all," the complaint says. Rest of article.Viking’s value – the reason its residential cooking products command a premium price, and the reason Middleby was willing to pay a premium price to acquire VRC – rests on its reputation for high quality products and for standing behind those products with a level of service that purchasers of luxury goods expect. The information Sellers hid goes to the heart of that reputation. Had Sellers disclosed the truth, Middleby would never have paid anything close to $380 million for VRC, and may not have undertaken the Acquisition at all.
Sellers hid from Middleby, for example, 3. that VRC’s senior management, including several Sellers, had learned that certain VRC ranges – the Company’s core product – contained a design defect that allowed the ranges to turn on and heat up by themselves, without anyone touching them. Engineers and others at VRC recognized that this defect, which cut across a number of the Company’s models, implicated both safety and operational concerns. Despite that Sellers knew of this issue since at least the spring of 2011, Sellers intentionally failed to disclose it to Middleby.
This product safety issue has since led to a recall of approximately 60,000 ranges in the United States and Canada. It has also resulted in significant out-of-pocket losses and damage to the brand’s reputation and goodwill that will have an ongoing adverse effect on the sales of Viking products....
Sellers’ actions caused the financial statements of VRC at the time of the Acquisition to be severely overstated, further contributing to Middleby’s gross overpayment...
Middleby has been forced to spend millions of dollars in order to rebuild the Viking brand’s image and reputation...
Through their actions, Sellers knowingly and 7. fraudulently misled Middleby about the current profitability and future prospects for the Company. Had Sellers not concealed the truth about VRC’s business, Middleby would have paid tens of millions of dollars less for the Company, if they had bought it at all.....
Middleby has suffered total damages in an amount to be proved at trial, but in excess of $100 million.
After the Acquisition, Middleby learned that Sellers had intentionally inflated the purchase price by concealing important facts and overstating VRC’s financial statements. Among other things, Middleby discovered that Sellers had (i) intentionally concealed a product safety issue related to certain ranges; (ii) intentionally underaccrued warranty and product adjustment costs; (iii) failed to account for or disclose other liabilities thereby overstating their financials; and (iv) inflated the value of the Viking brand by downplaying the extent of customer service problems and the loss of confidence and respect at the dealer/distributor level.
Kingfish note: This settlement agreement probably will not bode well for the Carls in court.