Posts Tagged 'Craig Zucker'

Fielding Differences

BUT BY WHAT MEANS?

It has been said that no two people ever read the same book.  Our perspectives and reactions are all influenced and informed by the points of view we bring to a particular issue.  This is especially true of commissioners at the CPSC who bring a wealth of experiences to the agency and whose outlooks are influenced by those experiences.

My former colleague and good friend, former Commissioner Anne Northup, and I did not always initially agree on various issues that we were confronted with.  But because of mutual respect for the other’s point of view, we were usually able to find common ground on most issues.  Even when we differed in approach or outcome, those differences provided opportunity for healthy debate and persuasion, which is the point of regulatory commissions.

One example of this was the commission’s approach to regulating small powerful magnets.  Former Commissioner Northup and I approached the issue from very different perspectives.  Commissioner Northup voted to bring an administrative action to force a recall of Buckyballs, the brand name of the most popular magnets sold as an adult desk toy.  Like all commissioners (myself included) she was very concerned about the number of injuries to children who swallowed the small magnetic balls.  She saw this as a product that was attractive to children and so, should be regulated as a toy.

My approach was different.  I was concerned by the fact that the product seller had gone to extraordinary lengths to market the product as an adult product.  I was unsatisfied with the commission’s view that it is appropriate to ban a product that is being safety used by its intended audience when unintended users are being harmed through misuse of the product.  I was concerned that the administrative action the commission undertook was tantamount to backdoor rulemaking and that if the commission wished to regulate this product it should do so directly.  Finally, I objected to the agency’s approach to contact retailers informally asking them to pull the product (thereby destroying its market without any kind of due process) rather than go to court to seek an injunction against the sale of the product during the pendency of the lawsuit (as the law allows).  Former Commission Northup shared this last concern.

Former Commissioner Northup recently wrote an opinion article that describes her reactions to the recent settlement of the CPSC’s administrative suit against Buckyballs.  Her article is worth reading.  Like me, she is most disappointed that the agency staff, presumably with the acquiescence of the Chairman, expanded the scope of the lawsuit to include one of the company’s principals as a party in his personal capacity.  This unprecedented action was never put to a vote and, hence, was not done by agreement of the commission.

While Anne and I did not agree on the merits of whether this case should have been started, we do agree that it soon badly went off the tracks.  And I cannot find anything but agreement when she concludes that “collaboration with manufacturers and retailers is a faster and fairer way to protect the public…”  Unfortunately, this is a lesson that I do not think the agency has yet learned.

 

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$375,000: The Price for Peace

Yesterday the CPSC announced that it has reached a settlement with Craig Zucker, in the litigation to force a recall of Buckyballs.  The Commission alleged that 0727_buckyballs_630x420Buckyballs, although designed and marketed for adults, were defective because a number of children had sustained serious injuries after swallowing the tiny powerful magnetic balls.  The settlement calls for the CPSC staff to establish a recall trust fund to manage the recall. Mr. Zucker will fund an escrow account to dole out money to the trust fund up to $375,000.  In its press release, the CPSC trumpets that this is “a win for safety.”  Mr. Zucker, on the other hand, says that he hopes “the settlement will discourage the CPSC from wrongfully pursuing . . . entrepreneurs in the future.”

Who, then, won and who lost?  In the most simplistic terms, perhaps one could say that the agency won since it accomplished a recall that would not otherwise have occurred.  But what is that recall worth and at what price was the recall obtained?

Left on the table is the question of whether Buckyballs are defective.  The government’s theory of defect was that warnings are not sufficient to prevent injury to an unintended user group and therefore the product cannot be made and sold, even though there were no injuries to the intended user group.  In the settlement Mr. Zucker does not concede that Buckyballs are defective, and the settlement leaves unresolved the agency’s apparent philosophy that a product can be banned if warnings do not work.

Also left on the table is the question of whether the agency even had jurisdiction over Mr. Zucker in his personal capacity. The agreement makes clear that Mr. Zucker is not conceding the issue of jurisdiction and so the applicability of the Responsible Corporate Doctrine is not addressed by this agreement except to say that Mr. Zucker personally is released from all agency liability (assuming it existed in the first place).

The recall itself is very curious.  The CPSC staff will implement the corrective action plan and claims (accompanied by proof of purchase or an affidavit attesting to purchase location and price) must be presented within six months of the recall trust being established and consumers notified of the recall.  Refunds will be made in the order they are received and any consumers who either file after the six month period ends or after the funds have been depleted are out of luck.  A web site paid for out of the recall fund will be established and maintained by the Commission for five years. The escrow account funding the recall will be closed after 12 months with any remaining funds reverting back to Mr. Zucker.  But since the government does not have experience administering recalls and will, no doubt, have to hire a third party (paid for out of recall funds) to administer the fund and oversee the recall, it is pretty unlikely that there will be any monies going back to Mr. Zucker.

The settlement agreement does raise a side issue that may be interesting to lawyers or students of regulatory policy.  The Antideficiency Act prohibits a federal agency from obligating the government to pay out money before funds have been appropriated and a real question exists as to whether this agreement violates the Antideficiency Act.  Further, administering recalls is not within the specified functions of the Commission and the act is rather specific in stating that recalls will be undertaken by the product seller.  It is not clear to me that the agency has the authority to take the actions specified in the agreement but it is also not clear who (other than the agency’s inspector general) would be in a position to object.

Going back to the question of winners and losers, it seems that there are lots of losers but I don’t see any winners.  The agency lost since it has spent substantial public resources (would it not be interesting to know how much the government has spent on this?) to reach an agreement that is about half a percent of what it initially wanted.   The agency lost because the issues that were central to the litigation were left unresolved.  Mr. Zucker lost because he, no doubt, ended up spending more in legal fees than the value of the recall and basically paid the government to get them off his back.

But at the end of the day, consumers lost. Scarce public resources were spent to achieve a recall that cannot be effective both because of how it is structured and what it is trying to accomplish.   Past experience shows that very few of these products will be returned, thereby achieving little added safety even if the government’s theory of hazard is correct.  And if the past is prologue, then the government achieved very little at a very great cost with consumers footing the bill.

 

 

The $57 Million Shakedown

The CPSC’s action to force a recall of Buckyballs–small powerful magnets the Commission believes to be unsafe but which are still being legally sold by others—has raised many serious questions about whether the agency acted properly.  But its efforts to blow up the concept of limited liability by individually suing one of the company’s founders–absent any allegation of wrongdoing–has elevated this action into one that could impact all businesses. 

Recently Craig Zucker, a founder of the now-defunct company that sold Buckyballs and the object of CPSC’s ire, and I discussed this case with the U.S. Chamber of Commerce. Calling the long-term implications of this case shocking, the Chamber has now produced a video that details the concerns this case poses for American businesses.  As a former safety regulator, a mother and, of course, a consumer, I strongly believe the agency could have addressed any safety concerns with this product without the unprecedented overreach taken in this case.

Go to FreeEnterprise.com to see the video for yourself.  Here is a link:

Companies Are Not The Enemy

It is gratifying to know that the folks at the CPSC do read my blog posts.   How do I know this?   My last post pointed to the statement, in a Fox News story about the Buckyballs lawsuit, of the agency spokesman denying that the agency “punished enemies”.  Apparently today the story was changed so that the agency is now denying that it punishes companies, not enemies. Since this change was pointed out to me by the agency spokesman, I want readers also to be aware of this change.

In the minds of some this may be a distinction without a difference. Craig Zucker of course, would be one of those who does not see a difference and it is easy to see why.  At the same time that small powerful magnetic desk toys are being sold legally across the country, the agency has demanded in a law suit that the magnetic product he distributed be recalled, and since his company is now out of business, that Zucker, one of the founders of the company, personally undertake this recall.  While two manufacturers have volunteered to do recalls of small magnets, I understand that only a handful have actually been returned.   In other words, the agency has put a company out of business and now has brought a lawsuit in order to accomplish a recall of a product that consumers apparently do not want to part with–a recall that the agency should know will not be effective.

I could go on about the questionable actions of the agency. The obvious prejudgment of both the law suit and the related rulemaking and the inappropriate extension of the “responsible corporate officer” doctrine are just two examples.   But I have written about these issues before.  For the purposes of this post, please rest easy knowing that the CPSC only punishes companies, not enemies.

A CPSC Enemies List?!

This morning, Fox News had a story on the ongoing saga of Craig Zucker, founder of the company selling the Buckyballs magnetic adult desk toy, who is refusing the CPSC’s demand that he personally conduct a recall of that product.  The CPSC is alleging that the product is defective because children have been injured by swallowing the small powerful magnets  even though the product is designed and marketed for adults and has warnings all over the box about the dangers of ingesting magnets.  Since the agency put the company out of business, it is now suing Mr. Zucker individuallenemies listy to make him recall the product.

The reason this particular story caught my eye, however, is the sentiment stated in the story and attributed to the CPSC spokesman that the agency was trying “to keep a dangerous product from children, not to punish enemies. “  That the agency thinks of those who challenge it as enemies is troubling, to say the least.

The agency is not used to being challenged and Mr. Zucker’s tactic of using humor to point to the weaknesses of the government’s case is unexpected.  Yet to brand as an enemy someone who does not capitulate and who forces the government to prove its case, even after that same government has forced him out of business, goes way beyond appropriate behavior.  If the sentiment is as stated in the story, then this is a frightening development.

 

 


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