Keller and Heckman’s Sheila Millar on the CPSC, Buckyballs And the Responsible Corporate Officer Doctrine

Buckyballs. Those are the round, silver magnetic desk toys sold by Maxfield & Oberton.

Problem number one — children love round, silver magnetic desk toys. And they swallow them.

According to the Consumer Product Safety Commission (CPSC), 1,700 children have been hospitalized after ingesting Buckyballs or similar high powered magnets. That’s not an insignificant number.

The CPSC launched a recall of the desk toys.

Craig Zucker, co-founder of the company that makes the Buckyballs, fought back with a public relations campaign against the CPSC.

The CPSC moved to hold Zucker personally liable under the responsible corporate officer doctrine.

And last month, Zucker sued the CPSC, claiming that the CPSC wants to hold him responsible for the $57 million recall in retaliation for his public campaign against the CPSC.

It’s the biggest CPSC dustup in recent years.

And anti-government forces have found a new issue.

Last month, Forbes ran an article on the issue with this headline: Buckyballs: Stones Enough to Fight Back.

And the Washington Legal Foundation published a paper titled — CPSC’s Misuse of the RCO Doctrine Bodes Ill for CEOs and Consumers.

The paper was authored by Sheila Millar a partner at Keller and Heckman in Washington, D.C.

“Buckyballs are a rare earth magnet product,” Millar told Corporate Crime Reporter in an interview last week. “It’s a desk toy for adults. The company worked with the CPSC to develop robust warnings and other features to keep these products away from children. They were developed as adult products. The former CEO of the company that made the products worked collaboratively with the CPSC for some time on developing these warnings and approaches, only to later be faced with the demand that the products be recalled. And that resulted ultimately in the inability to continue to sell the largest selling product in the company’s line. And that led to dissolution of the company and a recall of the product.”

“The CPSC filed a motion with the administrative law judge to name the former CEO, Craig Zucker, personally liable under a doctrine known as the Park doctrine. The ALJ granted that motion.”

“The Park case derives from litigation under the Food and Drug Administration’s jurisdiction. It involves a criminal misdemeanor matter that names a responsible corporate officer alleging violations of Food and Drug Administration requirements. That case involved adulteration of food in an infested warehouse. The president and CEO of the company were brought into the case as a result of his alleged awareness and failure to address the infestation after being notified of it by the FDA.”

Last month, Zucker sued the CPSC and its chairman in federal court in Maryland.

“Mr. Zucker is asking the court that the CPSC action be declared ultra vires, arbitrary and capricious, an abuse of discretion, and not in accord with CPSC’s statutory authority,” Millar said.

“Mr. Zucker has taken the view that he was selectively identified for this type of enforcement. There are other cases pending against other producers of rare earth magnets. The former heads of those companies have not been personally named. He is also critiquing what he is characterizing as selective assertion of adjudicative authority and asking for a declaratory judgment that the proceeding violates his First Amendment rights — freedom of speech, freedom of association, freedom of the right to petition government officials for redress of grievances. He’s also asserting that this violates his substantive and procedural due process rights under the Fifth Amendment.”

“Mr. Zucker filed his lawsuit in a federal court in Maryland. He’s asking for both preliminary and permanent injunctive relief preventing CPSC from asserting adjudicative authority over Mr. Zucker individually. And they are asking for costs and attorney’s fees.”

“His position has been that he worked cooperatively with the agency and that he was blindsided. He had the rug pulled out from under him. Mr. Zucker took this fight public — he did that with some public relation efforts, went to the Hill, talked to members of Congress. And he says the CPSC is punishing him for his effort to exercise protected First Amendment rights.”

“It will be interesting to see whether the court agrees that this matter is currently ripe for a determination on the merits and if so, how and whether they will rule in his favor. It’s an interesting set of circumstances that is different from prior instances where the Park doctrine has been applied. And of course the Park doctrine has been applied quite rarely and typically in settings where the effort has been to name the responsible corporate officer in a criminal case, generally for a misdemeanor violation of regulatory requirements where there has been some prior notification of the violation and a failure to address it.”

“In his lawsuit, Mr. Zucker outlines his efforts to work with the CPSC, to be cooperative,” Millar said. “He references receipt of communications from the then general counsel saying — your product is not unlawful.”

“And it’s obvious that he feels like the rug was pulled completely out from under him and there was an 180 degree change for reasons that are not apparent. Suddenly, what appeared to be a cooperative relationship became obviously quite adversarial.”

“There are several broader questions. What is the appropriate application of the responsible corporate officer doctrine by the CPSC? We will find out in due course what the courts believe is the right interpretation.”

“The second is — what is the obligation of a manufacturer in making products that are exclusively for use by adults? The worry here is that an adverse determination would create a whole host of new legal obligations on a variety of manufacturers of consumer products for adults.”

“They may carry strong warnings that the products are not for children but would somehow be determined to be inherently unsafe because of their appeal to children.”

“Third, what can we expect in terms of protection of the corporate form? If the corporate form has no meaning and if in any circumstance the CPSC can reach through and pierce the corporate veil to name individual officers or former officers as responsible, what are the implications for sound public policy?”

“Would that have the perverse effect of having managers or senior corporate officials trying to push down responsibility for certain safety and compliance activities in an effort to avoid that personal liability?”

“The other issue that Mr. Zucker raised in his declaratory judgment action was — is this a retaliation for an effort to exercise protected First Amendment rights?”

“We are concerned about children. We don’t want children to be harmed. But the broader question is — are we going to be eliminating products that are perfectly safe and appropriate for adults from the marketplace? And what are those implications if that is the result of this action?”

(For the complete q/a transcript of the Interview with Sheila Millar, see 27 Corporate Crime Reporter 46(12), December 2, 2012, print edition only.]

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