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Monday February 18, 2013

CPSC Names ex-CEO Individually in Magnets Complaint

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Numerous CPSC watchers have expressed concern to PSL about the agency’s February 11 amended complaint against Maxfield & Oberton. The reason is that it names individually as a defendant the former CEO of the now-dissolved company. Those people question both CPSC’s statutory authority and the legal precedent for the move. If successful, the strategy has the potential to complicate negotiations with the agency due to increased concern about company officials facing individual liability.

 

Although the Consumer Product Safety Act (CPSA) lets CSPC target individuals criminally, this is not a criminal case. Rather, the agency is seeking to force a recall by having the court declare strong, small magnets to be substantial product hazards under CPSA Section 15. CPSC declined to comment as the situation involves ongoing litigation. However, in the amended complaint, it gave its reasoning, citing a series of 20th Century cases as precedent.

 

Two are Supreme Court cases involving the Food, Drug and Cosmetic Act (FDCA) and the Food and Drug Administration (FDA) – United States v. Park, 421 U.S. 658 (1975), which relied on the earlier United States v. Dotterweich, 320 U.S. 277 (1943). In Park, the Supreme Court upheld the conviction of a company president for criminal violations involving food sanitation. CPSC noted that the court found that “failure to exercise the authority and supervisory responsibility reposed in them by the business organization resulted in the violation complained of.”

 

CPSC also highlighted the conclusion of Dotterweich (involving similar FDCA matters), that an “offense is committed…by all who have…a responsible share in the furtherance of the transaction which the statute outlaws” (CPSC’s ellipses). The agency concluded, “At the heart of Park and Dotterweich lies the rationale that individual liability is properly imposed on corporate officers where the failure to comply with regulatory schemes affects the health and safety of the public.”

 

The agency also cited a lower court decision involving its own actions – Untied State v. Shelton Wholesale, Inc., 34 Supp. 2d 1147 (W.D. Mo. 1999). In that case, the agency targeted individually the owner of two fireworks import companies with allegations under the Federal Hazardous Substances Act. CPSC’s reasoning for individual targeting in that case was that the companies were “closely held and run entirely” by the owner. CPSC argued that the step was necessary because the owner could avoid legal action simply by dissolving the companies. The court agreed with CPSC, including reliance on Dotterweich and Park.

 

CPSC also cited United States v. Hodges X-Ray, Inc., 759 F.2d 557 (6th Cir. 1985) which also held a principle shareholder liable based on Dotterweich and Park. CPSC further dismissed the applicability of a case in which a court denied its attempt to target a company officer , ruling the violations were “inadvertent and not likely to recur” – Barrett Carpet Mills, Inc. v. CPSC, 635 F.2d 299 (4th Cir. 1980). In the current case, said CPSC, it instead is targeting the intentional and fulltime importation and distribution of magnets.

 

CPSC dedicated a large portion of the new documents to describing ex-Maxfield & Oberton CEO Craig Zucker’s 2012 “Save Our Balls” campaign (PSL, 8/6/12, p. 1) in response to CPSC’s suit. The agency cited TV appearances, an open letter to President Barack Obama, and other actions as evidence of his being the “face” of the company. PSL has not received a reply from Zucker on this development.

 

The agency’s challenge with this strategy is that the case does not involve established and explicit statutory violations. Indeed, the point of the suit is to define a violation and thus force a recall. Moreover, Maxfield & Oberton previously had cooperated with CPSC in coming up with approved warning label language and other remedies. Thus the agency’s success in targeting Zucker depends on its success in the main question of the case: whether the magnets are substantial product hazards. If they are not, there would be no violation for which Zucker would be responsible.

 

The filing is in numerous documents, but the main argument is in www.cpsc.gov/Global/Recalls/Recall-Lawsuits/maxfield27b.pdf. Other documents are …maxfield27a.pdf, …maxfield27c.pdf, and …maxfield27d.pdf.