Federal regulators suing Buckyballs founder in rare product-recall case

The tiny, shiny magnets known as Buckyballs have always been a lot more powerful than they look, and now they are at the center of a high-stakes legal dispute over whether the government can hold a busi­ness­ owner personally liable for a consumer recall.

New York entrepreneur Craig Zucker thought he had the most successful venture of his young career when he developed the desk toy in 2009, consisting of pellets that can be twisted and stacked into infinite shapes.

Since then, many children, perhaps more than 1,000, have swallowed various brands of small magnets and required surgery, prompting the Consumer Product Safety Commission to appeal to retailers to stop selling the products and initiate a recall aimed at Zucker’s company and two others.

But Zucker dissolved his business in December 2012, so the commission took the unusual step of filing a lawsuit to hold him personally responsible for a potential recall that could cost up to $57 million, assuming every buyer of the desk toys claims re­imbursement. Zen Magnets and Star Networks USA, which sell similar products, were also named as defendants.

In addition to the lawsuit, the commission has proposed a new regulation that would prohibit the sale of small toy magnets exceeding a certain level of attractive force. The agency’s four-member board of commissioners will decide this year whether to adopt the rule.

Buckyballs are a high-powered desktop magnetic toy for adults. (Consumer Product Safety Commission/Via AP)

Zucker, 34, is fighting back. He filed a complaint in federal court in November arguing that regulators cannot hold an individual responsible for alleged product-safety issues. In a statement, he called the commission’s effort an “egregious attempt at rewriting our cherished laws of limited liability.”

Zen Magnets and Star Networks also are fighting the lawsuit and continue to sell their products online. “I think it’s ridiculous that they want to make these magnets harder to obtain than ammunition in America,” said Zen Magnets founder Shihan Qu. Star Networks declined to comment for this article.

Zucker’s case is rare, not only because the lawsuit names him personally but also because businesses typically cooperate with recall efforts. Before the Buckyballs lawsuit, more than a decade had passed since the commission had resorted to litigation over such a matter. The last case involved air-gun maker Daisy Manufacturing, which ended with a settlement in 2003, according to the agency.

In order to force a recall, the agency’s staff must obtain permission from the commissioners to file a lawsuit and then convince an administrative judge that a product is defective.

Pamela Gilbert, who led the commission during the Clinton administration, said regulators consider a product’s potential for misuse along with its necessity before taking action. “Part of the calculus that would go on at the commission is that this is a toy,” she said. “It’s for fun.”

Advocacy groups have taken sides in the Buckyballs case, and Zucker has launched a media campaign arguing that the commission has overreached its authority by naming him individually. He claims the agency is trying to silence him.

The commission denies that it named Zucker in its lawsuit because of a personal vendetta, saying it had to hold him personally responsible for the proposed recall after he closed down his company. “This is an issue about safety and children, not about one in­dividual,” said spokesman Scott Wolf­son.

Gilbert said companies that dissolve can be problematic for the commission, which has no money for refunds after recalling hazardous products. “That type of situation is very dangerous for the public,” she said.

The agency can recommend that consumers throw away hazardous items, but Gilbert said that solution is not as effective as providing refunds.

Zucker said his former company, Maxfield and Oberton, sold about 2.5 million small-magnet sets. He declined to say how much his company earned, but Cause of Action, a conservative legal group aiding his defense, said the product sold at wholesale prices between $7.50 and $17.50.

Zucker placed about $260,000 into a trust to handle potential claims against his former company, according to a letter the commission sent to the trust’s administrator saying the amount would be “insufficient to compensate consumers if staff prevails in its action.”

Maxfield and Oberton was the fifth start-up for Zucker. His previous companies sold items such as bottled New York City tap water and gourmet honey from the Hamptons.

In 2010, Zucker collaborated with the commission to mitigate the dangers that Buckyballs might pose to children. Along with other actions, he added “Keep away from children” labels to his product, appeared in a commission-
sponsored video about the harm of swallowing magnets and created a Web site dedicated to magnet safety.

Regulators determined that those efforts were not enough after an uptick in medical emergencies relating to various brands of small magnets. The commission estimates that 1,700 incidents involving children and teens occurred between 2009 and 2011, based on a sampling from hospitals across the country.

In one case in 2012, doctors removed nearly all of a 2-year-old’s small intestine after he swallowed eight pellets. (They were not Buckyballs.) His parents now feed him through a chest catheter.

In July 2012, the agency contacted manufacturers, importers and retailers of small magnet balls, asking them to voluntarily stop distribution and offer refunds.

Zucker claims that move killed his business, effectively cutting off his revenue stream. “I think that was the beginning of a declaration that they were going to put us out of business,” he said in an interview.

After Zucker shut down his company, the commission responded by naming him in its lawsuit. The commission supported that move with a legal precedent known as the Park doctrine, which allows the government to criminally prosecute corporate officers for failing to prevent violations of the Food, Drug and Cosmetic Act.

Critics say it is a misuse of the doctrine. “At a minimum, this action is an obvious overreach of the CPSC’s authority,” said Dan Epstein, executive director of Cause of Action, a conservative legal group backing Zucker. “At a maximum, it is an illegal abuse of power by persons within the commission who seek to punish Mr. Zucker.”

The Consumer Federation of America supports the commission’s stance. “It’s incredibly important for a manufacturer to take responsibility for how their product is used in the marketplace,” said Rachel Weintraub, the watchdog group’s senior counsel. “These magnets have play value to children. They look like candy, and kids are swallowing them and being injured.”

Zucker is up against a commission on high alert after it was sharply criticized in the wake of several recalls of lead-tainted Chinese toys in 2007.

Congress responded by strength­ening the commission, increasing the agency’s budget from $70 million to $120 million and passing legislation that raised its maximum civil penalty from $1.25 million to $15 million, among other measures.

The commission has also grown its workforce from 380 employees to 530 and made some of its voluntary standards mandatory, particularly with children’s toys and durable juvenile goods. Agency officials say the moves are working, citing a drop in recalls from 449 in 2008 to 345 in 2013.