Stop Sale Order Involves Recalled Magnets Zen Mixed with Own

Zen Magnets May 14 became subject to a stop sale order for all magnets it commingled with those it obtained from Star Networks. Star recalled its products in 2014; selling recalled products is illegal. Beyond that potential legal risk for Zen, the practical business results of the order might be minimal as all such units – whether or not mixed with Star’s – also are subject to CPSC’s ban that recently became effective (PSL, 5/4/15).

The new order is by Colorado U.S. district court judge Christine Arguello. She agreed with CPSC that the 917,000 Star units are subject to that company’s recall (PSL, 8/11/2014) and thus were illegal to sell. Her move to include all commingled units is based on the testimony of defendant Shihan Qu, owner of Zen, that it is impossible to segregate the Star units. Thus all commingled units must be segregated and quarantined too.

Further, Zen cannot destroy them without CPSC authorization, and the company is subject to unannounced compliance inspections.

Arguello deemed there to be a “significant 'cognizable danger'” that Zen would continue to violate the CPSA restrictions against selling recalled items absent her injunction. Reasons included multiple ignored warnings by CPSC to stop doing so and continuing to sell the units up to the point of her order.

She also suggested that Zen turned its sale of Star units into a marketing campaign based on defying CPSC, which she took as a vow to keep selling the items.

CPSC’s May 5 complaint asserted Zen still was offering Star units for sale as of May 1 despite warnings in March and April not to do so. When PSL visited the Zen website on May 15, the relevant Neoball/NewbCube units either were listed as "sold out" or had purchase buttons that generated an "out of stock" message.

The complaint named both Zen and owner Qu as defendants subject to possible civil penalties.

It also asked the court to force a recall of the Star units. However, Arguello wrote that CPSC lawyers had not cited sufficient authority for her to take what she called a “drastic step,” so she declined to do so for now.

The case is 15-cv-00955. The order expires June 13 absent good cause for extension.

Zen’s online defense asserted that the Star units have no features to distinguish them from its own, that they came from same Chinese factory as its own, and that had it shipped them back to China and then reimported them as its own products, the sale of recalled items would not be an issue. Thus the violation is a technicality, it suggested.

In a different case, Zen and CPSC currently are battling over the agency's administrative complaint seeking to force the company to recall all strong, powerful magnets. Resolution of that case could be soon; CPSC in April (PSL, 4/13/15) filed post hearing arguments.

Separately from recalling already-sold units, the company is unable to sell additional ones under a CPSC rule that effectively bans them. The 10th Circuit U.S. appeals court initially had stayed the rule but quickly reversed its decision, citing a lack of cause from Zen (PSL, 5/4/15).

In its press release on the latest development, CPSC quoted Chairman Elliot Kaye: “The Court’s order to stop the ongoing sale of these recalled high-powered magnets is a big victory for the safety of children…Along with the U.S. Department of Justice, we will continue to move aggressively to enforce the law and protect consumers from the sale of recalled products, especially those that put children at risk.”

The complaint is at www.justice.gov/file/438626/download.

The order is at www.justice.gov/file/438631/download.

Zen’s explanation is at drive.google.com/file/d/0Bz3ynXaPlutFcGtBTzQwYlNnZFU.