CPSC Flexes Its Enforcement Muscle and Authorizes the Filing of an Administrative Complaint Seeking Mandatory Recall

On Wednesday, July 25, 2012, the U.S. Consumer Product Safety Commission ("Commission"), in a 3 to 1 vote, authorized the rare filing of an administrative enforcement action under Section 15 of the Consumer Product Safety Act ("CPSA") (15 U.S.C. § 2064) against Maxfield and Oberton Holdings, LLC, the importer and distributor of two popular magnet products, Buckyballs® and BuckyCubes™. The complaint seeks a determination that the products present a "substantial product hazard" under Section 15 because the powerful magnets pose a substantial risk of injury if ingested. The Commission has requested an order that Maxfield and Oberton notify the public of the defect, cease further distribution and importation of the products, and conduct a recall including refunding consumers, among other things. This is the first such enforcement action filed by the Commission staff in over a decade.

An enforcement action of this kind is uncommon because, in most circumstances, the Commission and the product importer, distributor, and/or manufacturer (the "firm") negotiate the terms of a voluntary, jointly-announced corrective action, or "recall." With a voluntary recall, the Commission makes no final determination that a Section 15 "substantial product hazard" exists, and the firm makes no such legal admission. When the Commission and a firm fail to agree on the terms of a product recall, the Commission staff may also issue a unilateral press release under Section 6 (15 U.S.C. § 2055) warning the public of a product safety concern without commencing an enforcement action. However, with such a unilateral press release, the Commission staff cannot order that the firm conduct a mandatory recall absent a Commission order resulting from an enforcement action such as the one commenced against Maxfield and Oberton.

Here, Maxfield and Oberton had worked with the Commission to address the magnet ingestion concerns for several years before the complaint was filed. On May 27, 2010, the Commission announced a voluntary recall by Maxfield and Oberton of Buckyballs® high powered magnet sets, based on two reports of children ingesting the magnets. Maxfield and Oberton offered a refund of those products and began marketing its products as intended for use by people aged 14 years and older as well as adding warning labels. Maxfield and Oberton also worked with the Commission on a magnet safety consumer awareness campaign. Despite these voluntary and joint efforts, according to the complaint, the Commission staff requested even further corrective action by Maxfield and Oberton because of continued reports of incidents involving injury to children from ingested magnets.

The Commission staff's complaint specifically alleges that Buckyballs® and BuckyCubes™ are defective products that pose a substantial product hazard for two reasons: (1) they fail to adequately warn consumers about the potential magnet ingestion dangers, and (2) they are defectively designed. Despite acknowledging that both Buckyballs® and BuckyCubes™ bear warnings about magnet ingestion, the Commission maintains that the warnings are ineffective because "parents and caregivers do not appreciate the hazard associated with [the products] and magnet ingestion," and individual magnets themselves are not labeled. In alleging that the products are defectively designed, the complaint states that "the magnets are intensely appealing to children," due to the size, coloring, and movement of the magnets, and identifies the trend of teenagers using the magnets to mimic body piercings as a foreseeable way that ingestion may occur. 

Maxfield and Oberton immediately issued a public statement and took to social media to decry the enforcement action, claiming that the Commission is attempting to put the company out of business by seeking a mandatory recall of the Buckyballs® and BuckyCubes™ products. Maxfield and Oberton has also accused the Commission of "taking the absurd position that warnings can never work," calling into question positions previously taken by the Commission on baby monitors, balloons, and even the enforcement of the Federal Hazardous Substances Act (which requires warning labels for certain harmful substances). Maxfield and Oberton reiterated its position that Buckyballs® and BuckyCubes™ are "market[ed] exclusively to adults," and that it is "vigorously defending [its] right to market these products you love."

The Commission's procedural rules provide that Maxfield and Oberton has 20 days to file its response to the complaint. An administrative law judge ("ALJ") will be appointed to preside over the hearing, which will be public unless good cause is shown otherwise. Much like in a civil lawsuit, the parties will be able to exchange discovery, including interrogatories, requests for production of documents, and depositions. There is, however, no limit on the "frequency of use" of the discovery tools, though the Commission's regulations establish that discovery should be concluded within 150 days after the complaint was issued. Once the ALJ has issued his or her initial decision in the case, either party may appeal that decision to the Commission, or the Commission itself may decide to conduct a review. If the initial decision is not raised for review, it will become final after 40 days.

In addition to pursuing this administrative action, the Commission may file a petition for injunctive relief in U.S. district court to prevent the products from being distributed and sold while the administrative proceeding is ongoing. (15 U.S.C. § 2064(g)(1).) The Commission may also seek injunctive or other relief in federal court, including seizure of the products, by establishing that the products are imminently hazardous, pursuant to Section 12 of the CPSA.  (15 U.S.C. § 2062.)

This action, while rare, does not come as a total shock to those who follow the Commission's activities. This Commission has become increasingly aggressive in its enforcement approach in recent years since the enactment of the Consumer Product Safety Improvement Act of 2008 ("CPSIA"). The Commission has taken tougher stances in negotiating recalls, investigating potential statutory violations, and seeking higher penalties available under the CPSIA. It remains to be seen how this matter will be resolved or how it will affect other firms in their negotiations with the Commission. However, the Commission's action here is an important reminder that agreeing to a voluntary corrective action such as affixing new warnings on products – as Maxfield and Oberton did in 2010 – does not necessarily end a firm's involvement with the Commission.  Firms should therefore consider monitoring incident data after conducting voluntary recalls to assess the effectiveness of the corrective action taken and be prepared to address inquiries by the Commission staff.