In its first administrative complaint filed in over a decade, the Consumer Products Safety Commission (CPSC) was permitted to join a former CEO individually as a respondent in an action over the company's allegedly defective magnetic sets. The CPSC sued the company to stop sales of magnetic Buckyball and Buckycube desk toys following dozens of reports of injuries to children and teenagers who swallowed the magnets. The company dissolved shortly after the action was filed. Not to be deterred, the CPSC sought leave to amend to add the former CEO and hold him personally liable for cost of recalling the allegedly defective products.
Relying on the so-called "responsible corporate officer doctrine," the administrative law judge cited two U.S. Supreme Court decisions  , both of which found that corporate officers can be held individually liable for company violations of the Food, Drug and Cosmetic Act. Counsel for the former CEO argued that the cited cases are "extraordinary exceptions" to basic corporate law principles shielding individual corporate owners and officers from liability and that liability for regulatory violations may be imposed on corporate officers only when expressly provided by Congress, something that is absent in the Consumer Protection Safety Act.
It is clear that the voluntary corporate dissolution shortly after the action was filed weighed heavily in the decision. The judge found that the allegations against the former CEO were sufficient to add him to the action at this preliminary stage of litigation and concluded that the former CEO could renew his motion to be dismissed after the CPSC presented all its evidence against him. In the meantime, the former CEO is left to personally defend his actions as a corporate executive.
A link to the Court’s Order can be found here.