Statement of Commissioner Adler regarding the Dissenting Opinion on the Consent Agreement in the Matter of Maxfield and Oberton, LLC and Craig Zucker, individually and as an officer of Maxfield and Oberton, LLC, Respondents

Commissioner Adler explains his dissenting vote rejecting the settlement plan to resolve CPSC's adjudicative case against Maxfield Oberton and Craig Zucker involving magnet Buckballs.
May 14, 2014

The Consumer Product Safety Commission has just approved, by a 2-1 vote, a proposed Consent Agreement between CPSC staff and the respondents in the above captioned matter.  Although I commend the parties for their willingness to reach what appears to be a carefully negotiated agreement, and I acknowledge my colleagues’ very reasonable desire to end the litigation, I find myself, upon careful review of the Agreement, strongly disagreeing with a number of its terms.  I believe that in the long run consumers will be at greater risk from approving this Agreement with its current flaws than from continuing the litigation seeking more protection for consumers.  Accordingly, I respectfully dissent.

 

Background

On July 25, 2012, as authorized by the Commission, CPSC staff filed an Administrative Complaint against Maxfield and Oberton seeking a recall of the magnet products sold by the company.  Subsequently, staff filed an amended complaint seeking to add Craig Zucker, individually and as an officer of Maxfield and Oberton, after he dissolved Maxfield and Oberton Holdings, as an additional respondent.[1] 

 

The Product: High Power Magnets

The products sold by respondents are small, individual high-power[2] magnets marketed under the brand name of Buckyballs and Buckycubes.  Staff alleged that the respondents sold approximately 2.5 million sets of the products during the period from March 2009 to December 27, 2012.  Buckyballs and Buckycubes are sold in sets of up to 216 rare earth magnets. 

 

The Alleged Hazard: Extremely Serious

As alleged by staff, the hazard arises when someone, often a young child, ingests two or more magnets.   The magnets that attract through the walls of the intestines result in progressive tissue injury, beginning with local inflammation and ulceration, progressing to tissue death, then perforation or fistula formation. Such conditions can lead to infection, sepsis, and death.[3]  

 

At the time of filing the administrative complaint, CPSC staff had learned of more than two dozen high-power magnet ingestion incidents, with at least one dozen involving Buckyballs.  Surgery was required in many of the incidents. 

 

These incidents occurred notwithstanding vigorous attempts by respondents to warn purchasers of this serious hazard in their packaging and advertising.  Unfortunately, the warnings seem to have proven ineffective.  When the magnets are removed from their packages for use, the warnings do not travel with the product nor are the warnings useful or effective with small children, one of the groups most at risk from this product.  Moreover, a number of reports indicate that magnets, because they are small and loose, can get separated from the sets, thereby remaining available for toddlers to find and swallow.[4]  In some of the reported incidents, young children accessed loose magnets left on a refrigerator and other parts of the home.

 

One other hazard allegedly manifested itself with the high-power magnets.  Tweens and teenagers, on occasion, have used high power magnets to mimic piercings of the tongue, lip or cheek, resulting in incidents where they unintentionally inhaled and swallowed the magnets – again, with tragic results.

 

What makes these incidents so compelling, aside from the destructiveness of the ingestions, is the fact that the magnets, by themselves, look benign and the harm from ingesting them does not occur immediately or obviously.  In fact, as alleged in the Commission’s complaint, doctors examining patients with ingested magnets can find it difficult to give an immediate or accurate diagnosis because the symptoms mimic other less serious digestive disorders, which can lead to the erroneous belief that no treatment is necessary or a delay in a surgical intervention which can exacerbate life-threatening internal injuries.[5]  In short, these magnets seem to pose a true hidden hazard.

 

All of these high-risk elements led staff to take the rare step of filing an administrative complaint against the respondents, signaling their strong concerns about the hazard. 

 

The Consent Agreement: Less Than Meets the Eye

In order to understand my disagreement with the Consent Agreement, one needs to read it carefully.  Not having been a party to the negotiations, I rely only on the specific words used by the participants – extremely talented and experienced attorneys on both sides of the negotiation – in crafting the Agreement.   I take it that the parties meant what they said and said what they meant.

 

Briefly summarized, the Consent Agreement operates as follows:

  1. Respondent Zucker is required to establish an Escrow Account and deposit $375,000 in it within five days of the signing of the Consent Agreement by CPSC staff and a Liquidating Trustee acting on Zucker’s behalf. 
  2.  

  3. Thereafter, CPSC staff are required to establish a Recall Trust to provide refunds to consumers pursuant to the provisions of the Consent Agreement.  The Recall Trust, in turn, is required to fund a Commission-accepted website “to publicize and implement the recall.”  The website is to be operational for five years following the date of the Consent Agreement.
  4.  

  5. Of the $375,000 placed in the Escrow Account, $100,000 is to be transferred irrevocably to the Recall Trust.  Of this initial amount, $75,000 is to be used to publicize the recall to consumers and retailers, and to undertake a notice campaign pursuant to Sections 15(c) and (d) of the Consumer Product Safety Act.[6]  The remaining $25,000 is to be used to issue refunds to consumers and to pay administrative and other costs incurred by the trustee administering the Recall Trust.[7]
  6.  

  7. If at any time, the balance of funds in the Recall Trust Fund falls below $25,000, the Escrow Account will immediately and irrevocably transfer an additional $25,000 to the Recall Trust Fund.  Such fund transfers will continue as needed until the funds in the Escrow Account are fully depleted, less any interest earned by the Escrow Account, which shall remain in the Escrow Account.[8]
  8.  

  9. Consumers seeking a refund will be eligible for reimbursement for a period limited to six months after the publication of a press release by the Commission announcing the establishment of the Recall Trust Fund.
  10.  

  11. Twelve months after the establishment of the Recall Trust Fund, any funds remaining in the Escrow Account shall be returned to Respondent Zucker, and the Escrow Account shall be closed.
  12.  

  13. Depending on how many Buckyballs or Buckycubes they return, consumers may receive full reimbursement, partial reimbursement or no reimbursement.[9]
  14.  

I take issue with several aspects of this Agreement.  I believe that it promises more than it delivers and establishes several bad precedents.

 

The Recall Agreement: A Five Year Deal Good For Only Six Months

The most disappointing aspect of the recall is the enormous disconnect between the life of the recall website and the period of refund eligibility.   On the one hand, the Agreement calls for the website to exist for five years with the express mission “to publicize the recall and its implementation.”  On the other hand, there will be no meaningful recall or implementation for most of the website’s five year life because the Recall Trust Fund for consumers will permit claims for only six months.  I repeat: notwithstanding the five year life of the recall website, consumers will have only six months to file claims for refunds.

 

To say the least, this Agreement sends an extremely mixed signal to consumers.  Anyone reading the terms of the recall during 90 percent of the life of the recall website will be extremely disappointed to discover that he or she is out of luck for obtaining a refund. Such an approach can only trigger resentment among members of the public – and serve to undermine the Commission’s credibility as a strong voice for consumers.

 

The $375,000 Escrow Account: a Minuscule Amount Fleetingly Available

Anyone reading the terms of the $375,000 Escrow Account might recall the joke told by Woody Allen in his 1977 Oscar-winning film, Annie Hall, (which I paraphrase): 

 

Customer One:  “The food here is terrible.” 
Customer Two:  “Yeah, I know – and such small portions.” 

 

Picking up on that theme, I find the $375,000 Escrow Account number not only minuscule, but available only for such a short time. 

 

Given a population of 2.5 million Buckyball and Buckycube sets sold at retail for prices ranging from $25.00 to $35.00, one can see that if everyone sought a refund, the price tag for this recall would be in the tens of millions of dollars.  The number of sets likely to be returned, however, seems likely to be less than 2.5 million.  Precisely how many is a matter of conjecture at this point, but if the $375,000 figure is based on the parties’ best estimate of how many sets will be returned, the only thing one can say is that they have made a truly gloomy prediction.

 

Of course, the $375,000 number may not reflect anyone’s estimate of the likely return rate.  It may instead represent the extent of respondent Zucker’s financial reserves and reveal a state of poverty rather than anything else.  Not being privy to the negotiations or respondent’s balance sheet, I have no way of knowing how the figure was obtained.  I simply note that it is minuscule compared to the potential liability of the fund.     

 

Even assuming that few, if any, consumers respond to the refund offer during its all-too brief existence, that does not lessen the hazard to consumers – if anything, it heightens it.  A low return rate, to me, argues even more for dedicating the funds to publicizing the hazard of Buckyballs and Buckycubes.[10] 

 

Returning the Escrow Account Balance to Respondent Zucker: A Bad Precedent

Although the precise financial condition of respondent Zucker is unknown to me, I surmise one clear fact: he has at least $375,000 available to support a recall to protect consumers.  Accordingly, I fail to see the benefit of potentially returning these funds to him given the competing need to protect consumers.  I believe all of the funds should be dedicated in one way or another to protecting consumers from the effects of ingesting high-power magnets.

 

At a minimum, if one were inclined – and I am reluctant to do so –  to return funds in the Escrow Account to respondent, it would seem more appropriate to require the funds to remain available for consumer refunds for the entire five year life of the recall website.  At that point, one might conclude that the point of diminishing returns had arrived.  But, making the funds vanish almost immediately serves no useful safety purpose.

 

The Perfect Versus the Good

I am a firm supporter of the principle of not letting the perfect defeat the good.  I consider myself a pragmatist, and I eagerly embrace the concept of compromise.  So, one might ask, even if I think this Consent Agreement to be less than optimal, why did I vote to reject it?  My answer is that this Agreement is a thoroughly unacceptable deal that is likely to be cited time and again in the future by respondents seeking to minimize and undermine CPSC staff requests for effective Corrective Action Plans. 

 

I do not relish the thought of continuing this litigation and would have preferred to send the Agreement back to the parties to see whether respondents would have been willing to show more flexibility on its terms.  Unfortunately, given the stark choice between accepting or rejecting the Agreement, I have no alternative but to reject it.  I repeat my view: in the long run, consumers will be at greater risk from our approving this flawed Agreement than from continuing the litigation seeking more protection for consumers.

 

Again, despite my belief that $375,000 is an inadequate amount of money offered for too short a time, I have no facts before me that would lead me to conclude that staff could have secured an amount greater than this from respondent Zucker.  However, once it became clear that the respondent had this amount available for a recall, I believe that it should have been dedicated to the recall and to protecting consumers, not returned to him after being doled out in tiny chunks to the Recall Trust.   In fact, I would have been willing to agree – albeit reluctantly – to return the funds to him after the recall website is taken down in five years, but even that alternative falls outside the terms of the Agreement. 

 

Conclusion

I would reject this Consent Agreement and send it back to the parties with instructions to build in more protections for at-risk consumers, especially children, from this extremely serious hazard.



[1] I note that the Administrative Law Judge preliminarily granted CPSC staff’s request to add Mr. Zucker individually as a respondent.  Because the Consent Agreement supersedes the judge’s ruling, the Commission will not rule on this issue.  My own view is that, in an appropriate case, the Commission has the authority to include individuals as respondents, but I have made no determination whether this is such a case.

 

[2] According to staff allegations, Buckyballs carry a flux index greater than 50.

 

[3] See Commission complaint at ¶ 17, available at: http://www.cpsc.gov//PageFiles/131696/maxfield1a.pdf.

 

[4] The fact that individual magnets can detach from the set seems confirmed in the terms of the recall, which permits refunds for returned magnet sets with up to 40% of the magnets missing.  See note 6, and accompanying text. To be clear: I have no quarrel with this liberal refund policy.  I simply note that it illustrates how likely it is that individual magnets can become separated.

 

[5] See Commission complaint at ¶ 18 & 19, available at: http://www.cpsc.gov//PageFiles/131696/maxfield1a.pdf.

 

[6] In fact, this $75,000 seems to be the only money the Agreement requires be spent on publicizing the recall and notifying the public of the product’s hazards.

 

[7] The agreement does not specify any formula for allocating funds between the trustee’s expenses and consumer refunds.  I hope the trustee’s expenses will be monitored.

 

[8] I see no reason for the Escrow Account, which may be returned in part to respondent Zucker, to have greater rights to the interest than consumers seeking refunds.

 

[9] The formula is as follows:

 

Set Size

Refund Amount

Buckyball or Buckycube set of 216 magnets

            Return at least 152

            Return fewer than 152, but more than 100

            Return fewer than 100

 

Full refund

Fifty percent refund

No refund

Buckyball or Buckycube set of 125 magnets

            Return at least 76

            Return fewer than 76, but more than 50

            Return fewer than 50

 

Full refund

Fifty percent refund

No refund

 

[10] I note also that the only mechanism in the Agreement for publicizing the recall and notifying the public about the product hazard is the recall website. Given other forms of publicity like social media, this seems an unduly limited approach.