On May 9, 2014, the CPSC and the maker of Buckyballs and Buckycubes settled the July 2012 administrative case brought by the CPSC alleging that these “rare earth magnets” pose a substantial product hazard.  The settlement agreement includes a voluntary recall of Buckyballs and Buckycubes and a trust to be funded in the amount of $375,000 by Craig Zucker, the Company’s ex-CEO, and controlled by the CPSC to refund consumers. The Commission voted 2-1 to accept the settlement, with Acting Chairman Adler voting against the settlement and Commissioners Buerkle and Robinson voting to approve the settlement.

Buckyballs and Buckycubes are small but extremely powerful magnets that can be formed into different shapes and are used by adults as a game or to relieve stress.

As noted in our earlier post, the CPSC initiated its 2012 administrative complaint against Maxfield and Oberton Holdings LLC after receiving a number of reports of children and teenagers ingesting two or more Buckyballs or Buckycubes and requiring invasive surgery to remove the powerful magnets.  In 2013, the company’s ex-CEO, Mr. Zucker, dissolved the company and subsequently the CPSC named him personally and as an officer of the company.  Although upheld by the administrative law judge, in the “modern era” of the CPSC this is an extraordinary action based on CPSC legal reasoning that arguably could reach thousands of corporate executives.

Once the CPSC creates a recall trust, it will notify consumers of the process for receiving a refund and consumers will have six months to request a refund.  Mr. Zucker will fund this recall trust and establish and maintain for five years a website informing consumers about the recall.  The settlement agreement provides a breakdown of how much will be allocated for publicizing the recall and how much for consumer refunds.  The agreement also provides that any funds remaining in the trust after a year will be returned to Mr. Zucker.  It will be fascinating for CPSC watchers to see the efficiency and effectiveness of this government run (through a contractor) corrective action.

According to a statement released by Mr. Zucker, while he still does not believe that the law supports the CPSC’s ability to name him individually in the case, he is glad to have the case behind him and considers the settlement a victory for both himself and small business owners.  The settlement, which is neither a fine nor penalty, will be less than 1% of the $57 million that Mr. Zucker states that the CPSC initially estimated as the cost of a recall and less than he has already spent on legal fees.

Mr. Zucker and the CPSC have their reasons for settling the case, many of which will, understandably, will not be made public.  It is unfortunate in this observer’s opinion that the litigation was not further pursued so that the appropriate parameters of the responsible corporate officer doctrine would be defined by the Commission or a federal court.

There are a number of key issues involved in this proceeding. First, is this the appropriate remedy for this type of product or would a more transparent, fully considered product standard or ban, if justified, be more appropriate?  Second, did the Commission correctly, albeit aggressively, pursue an ex-corporate officer or did the Commission pursue an irregular procedure in an abusive manner? Smart, committed, and informed people have very different views on these issues, and it would have been instructive to get the opinions of the Commissioners or a federal court.

This case highlights the extreme difficulties faced by companies and individuals in countering CPSC allegations and defending a lawsuit again the power of the federal government.  It is unknown whether the Commission will now bring similar cases or extend its individual responsibility theories beyond these rather limited facts.  Also unknown is what response the regulated industry sector will have in engaging senior management in safety matters if individual recall liability exposure is the rule of the day.