Keep it in “Park”: How the CPSC is Stretching the Responsible Corporate Officer Doctrine Beyond...

7/22/2019 Keep it in Park: How the CPSC is Stretching the Responsible Corporate Officer Doctrine Beyond the Breaking Point

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Keep it in Park: How the CPSC is Stretching the

Responsible Corporate Officer Doctrine Beyond the Breaking PointCraig Zucker v. CPSC, No. 13-3355 (D. Md. filed Nov. 12, 2013)

On February 11, 2013, the Consumer Product Saety Commis-sion (CPSC) changed the rules when it named Craig Zuckerin hispersonal capacityas part o a potential $57 million product recall.Even the CPSC admits that Mr. Zucker has broken no law and theCPSC is not trying to pierce the corporate veil. Nevertheless, theCPSC wants Mr. Zucker to pay or a recall o Buckyballs, a producthis company Maxfield & Oberton used to sell.

Buckyballs are an executive desk toy made o small, powerulmagnets that can be ormed into innumerable shapes. In 2011,People Magazinelisted them among the five hottest trends o the year

Tey are completely sae when used as intended, but like manyproducts, can be dangerous i misused. Afer a small number ohigh-profile cases o the magnets being swallowed, the CPSCdeviated rom its normal recall procedure and wrote a letter toBuckyballs retailers, urging them to stop selling the product. Te

stores complied and Maxfield & Oberton quickly shut down.

Not satisfied with putting his company out o business, the CPSC targeted Mr. Zucker, while allowingnearly identical products made by his competitors to remain on the market.

Te CPSC is making an unprecedented power grab by trying orce an individual to pay or a recall.

Never beore in its 42-year history has the CPSC attempted to bypass a company and make anindividual pay or a recall. Te CPSCs legal theory distorts the Parkdoctrine, which allows a corporateofficer to be held responsible or criminalactions that he commits through his company.

Neither Mr. Zucker nor his company has committedany crime. Moreover, it is still legal to make and sellBuckyballs.

On November 12, 2013, Mr. Zucker, through Causeo Action, sued the CPSC in ederal court to stop thisunprecedented regulatory overreach.

BRIEFINGBOOK


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Disregarding the corporate orm by going afer business owners in

their personal capacity hurts entrepreneurs and chills investment.

American law encourages people to become entrepreneurs andinvest in companies by separating the personal and the corporateprotecting people rom financial ruin i their businesses do notsucceed. Protecting business owners and investors rom a companys

liabilities is a oundational pillar o corporate law. It is so importantthat individuals are held personally liable in only rare instances, suchas when a corporate officer knowingly commits a crime through thecompany or an individual uses his business as a ront or personalactivities. Te CPSC does not allege that Mr. Zucker committed acrime or disrespected his companys corporate orm.

Te CPSC is retaliating against Craig Zucker or fighting back.

While his product was on the market, Mr. Zuckers company

worked hand-in-hand with the CPSC to ensure proper product warn-ings and saety programs were in place. In act, the CPSC not onlyapproved the Buckyballs saety program, but awarded the programsdesigner a Circle o Commendation Award in 2013 or her significant,liesaving contributions to consumer product saety. But Mr. Zuckerswilling cooperation apparently was not good enough or the CPSC.

When Mr. Zucker learned the CPSC intended to shut down hisbusiness, he started to speak out. He launched a website to educate hiscustomers and other small businesses about what the CPSC was doingto him. He used humor and levity to try to cut through the bureau-cratic conusion and to educate the public. In response, the CPSClashed out and named him personally liable in the proceeding againsthis company. Tis is what happens when bureaucrats have too muchpower and dislike what private citizens are saying about them.

Te CPSC is

saying thatbecause as CEOI did my dutydidnt violate anylaw, wascompletelylawfulI am

now themanufacturerindividuallyresponsible toconduct therecall.

Craig Zucker

Case Files and AttachmentsCraig Zucker APA Complaint against CPSC........................................................3U.S. Chamber o Commerce Amicus Brie in Zucker v. CPSC.........................24op Law Firms rack Important Issue.................................................................38Washington Legal Foundation: CPSCs Misuse o RCO Doctrine Bodes Ill

or CEOs and Consumers...................................................................................41CPSC Stonewalls: Cause o Action Sues under FOIA.......................................45Inormation Quality Act Petition or Correction and Disclosure...................52CPSC Gives Saety Award to Designer o Buckyballs Saety Program...........63CPSC Confirms Buckyballs are Still Legal to Sell..............................................65United We Ball: Zucker Uses Humor to Expose Overreach.............................67Former CPSC Commissioner Nancy Nord in Te Wall Street Journal:

Te Irrational Federal War on Buckyballs........................................................73


3/74Zucker v. CPSC, Briefing Book Page 3

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

Greenbelt Division

________________________________________________CRAIG ZUCKER, )

Brooklyn, NY 11211 )

Kings County, )

Plaintiff, )

)

v. )

) Case No._______________

UNITED STATES CONSUMER PRODUCT )

SAFETY COMMISSION )

4330 East West Highway )

Bethesda, MD 20814 )Montgomery County, )

)

and )

)

INEZ MOORE TENENBAUM, )

CHAIRMAN OF THE UNITED STATES )

CONSUMER PRODUCT SAFETY COMMISSION )

(official capacity), )

4330 East West Highway )

Bethesda, MD 20814 )

Montgomery County, ))

Defendants. )

)

COMPLAINT

Plaintiff Craig Zucker (Mr. Zucker), through his counsel CAUSE OF ACTION, INC., a

501(c)(3) government accountability organization, files this complaint for declaratory and injunctive

relief against the United States Consumer Product Safety Commission (CPSC) and Inez Moore

Tenenbaum (Tenenbaum), in her official capacity as Chairman of the CPSC.

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Case 8:13-cv-03355-DKC Document 1 Filed 11/12/13 Page 1 of 21



Nature of the Case

1. Mr. Zucker is the former General Manager of Maxfield and Oberton Holdings, LLC

(M&O), a now-dissolved company that previously imported and sold Buckyballs and Buckycubes,

rare earth magnetic adult executive desk toys that CPSC now seeks to recall and ban.

2. After driving M&O out of business, CPSC has thrown its full weight against Mr. Zucker,

adding him as a respondent to an administrative adjudication seeking to require him personally to

conduct a CPSC-estimated $57 million recall of M&Os Buckyballs and Buckycubes.

3. Mr. Zucker asks this Court to find that CPSC overreached its limited statutory authority

to bring an administrative remedial action against a manufacturer, distributor, or retailer when it

ignored M&Os form as a limited liability company, amended the administrative complaint against

M&O to proceed against Mr. Zucker personally and wrongfully subjecting him to the CPSCs

adjudicative authority.

4. Mr. Zucker further asks this Court to find that CPSC singled him out for selective

administrative adjudication to deter him and other corporate officers from exercising their freedom of

speech and their right to petition government officials for redress, and/or wrongly predetermined the

outcome of the administrative adjudicatory process, all in violation of the First and Fifth Amendments of

the United States Constitution.

Parties

5. Mr. Zucker is an individual who resides in the State of New York. He is the former

General Manager of M&O.

6. CPSC is an independent regulatory commission of the United States established by the

Consumer Product Safety Act (CPSA), 15 U.S.C. 2051 et seq. It has an office and does business

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at 4330 East West Highway, Bethesda, Maryland, 20814. CPSCs office is located in Montgomery

County.

7. Inez Tenenbaum is CPSCs Chairman and she is named in her official capacity. She also

has an office and does business at 4330 East West Highway, Bethesda, Maryland, 20814. Her office is

also located in Montgomery County.

Jurisdiction and Venue

8. This Court has jurisdiction under 28 U.S.C. 1331 and 5 U.S.C. 701-706.

9. Venue in this District is proper under 28 U.S.C. 1391(b), (e).

10. The Commissions authority to proceed administratively against Mr. Zucker, and its

constitutional violations, are properly before this court.

Facts

A. The Rise Of Buckyballs And Buckycubes.

11. Mr. Zucker and a friend formed M&O as a Delaware limited liability company in March

2009 by filing a Certificate of Formation with the Division of Corporations of the Delaware Secretary of

State.

12. Its business was to import and sell what soon became one of the most popular adult

executive desk toys on the market, Buckyballs.

13. Buckyballs are small magnetic spheres, a few millimeters in diameter. When many are

placed together, they can be formed into innumerable shapes and patterns. Manipulating the

Buckyballs into different shapes and patterns is an entertaining way to relieve stress and exercise the

mind.

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14. From March to October, 2009, M&O sold Buckyballs online on approximately three

websites that predominantly featured products for adults, not children.

15. Starting in October, 2009, it began selling Buckyballs to gift shops, bookstores,

stationery stores, museum shops, and other brick-and-mortar retailers.

16. Before long, M&O had a distribution network of approximately 5,000 stores.

17. Buckyballs were an instant top-seller. In 2011,People Magazine called Buckyballs

one of the five hottest trends of the year. In 2012, they appeared on the cover of the Brookstone catalog.

M&O was an overwhelming success story.

18. Buckyballs are completely safe when used as intended.

19. Like many other products, they may cause harm if ingested.

20. For this reason, M&O never marketed its products toward children.

21. When it started selling Buckyballs to retailers, M&O labeled its products with a

prominent warning:

Warning: Not intended for children. Swallowing of magnets may cause

serious injury and require immediate medical care. Ages 13+.

22. M&O initially marketed its products for ages 13+ because the Consumer Product Safety

Improvement Act of 2008 defined a childrens toy as a consumer product designed or intended by the

manufacturer for a child 12 years of age or younger for use by the child when the child plays. 15 U.S.C.

2057c(g)(B);see also 15 U.S.C. 2052(a)(2) (defining childrens product).

23. The age designation made it clear that Buckyballs were not childrens toys.

24. In 2009, the Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110-314,

122 Stat. 3016 (2008)(CPSIA) made a voluntary toy standard, ASTM F963, a mandatory toy standard

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enforced by CPSC. The now mandatory ASTM toy standard defined a toy as any object designed,

manufactured, or marketed as a plaything for children under age 14.

25. Although M&O did not believe or admit either that Buckyballs were CPSIA toys or

that they violated any legally applicable safety standards, M&O changed the label age grading from 13+

to 14+ and worked with CPSC, which was then largely supportive of M&Os safety efforts, to conduct a

voluntary recall of all products labeled 13+ solely to make it crystal clear that these were not intended

for children.

26. M&O then went even further to create a comprehensive safety program to make it clear

to everyone that its products should not fall into childrens hands. The program included:

a. Changing the warning to say Keep Away From All Children and adding

language to explain the exact hazard of swallowing multiple magnets;

b. Including four warnings on the packaging and carrying case and one in the

instructions for use;

c. Developing a Responsible Seller Agreement to ensure that the products would not

be sold in stores that sold childrens products exclusively and a Responsible Sellers Notice to

inform retailers who sold both childrens and adult products to sell Buckyballs only in sections

with other products intended for adults, conducting compliance checks, and removing retailers

that did not meet the requirements of the new program;

d. Sending retailers new signage with the warnings for use in displays; and

e. Including Responsible Seller Notices with every shipment of Buckyballs.

27. CPSC approved M&Os comprehensive safety program in May, 2010.

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28. M&O then added to its product offerings Buckycubes, small magnetic cubes that M&O

marketed and sold using the same safety program developed for Buckyballs.

29. Buckyballs, Buckycubes, and offshoots like Buckyballs Chromatics (colored

Buckyballs) comprised approximately 95% of what M&O sold. The companys very existence

depended on its ability to continue to sell these products.

30. In furtherance of its safety program, M&O wrote to all of its retailers in September, 2011,

reminding them not to sell to children under the age of 14 or to adults buying them for children under

the age of 14.

31. In November, 2011, M&O joined with CPSC in a joint press release and video news

release that reinforced the importance of keeping the products away from children and the potential

consequences of misuse.

32. When the video was filmed, Defendant Tenenbaum commended M&O on its safety

program.

33. In March, 2012, M&O developed a new website, www.magnetsafety.com, and created a

safety video that was shown both on the new website and on M&Os main website to raise awareness

and educate parents, educators, retailers, and medical professionals about the risks of letting high-

powered magnets get into the hands of children.

34. That month, M&O also created new signage, further explaining why Buckyballs and

Buckycubes were not for children. M&O sent this signage to every retailer selling its products with a

request that it be clipped to the in-store display.

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35. In April, 2012, M&O representatives met with CPSC commissioners and staff to educate

them about its expanded safety program and to express concern about other manufacturers who were

marketing similar products inappropriately.

36. The commissioners and staff offered suggestions and again commended M&O on its

safety program.

37. Following that meeting, acting in part on recommendations from CPSC and in part on its

own initiative, M&O expanded its safety program by:

a. Forming a medical advisory group of physicians specializing in pediatric and

emergency medicine and toxicology and developing a diagnosis and treatment service

announcement for medical professionals to help educate them how to recognize and treat magnet

ingestion;

b. Bringing together competing companies to create an industry group called the

Coalition for Magnet Safety, with the mission to protect the public through responsible labeling,

promotion, distribution, and sales of high powered, rare earth magnets intended for adult use;

c. Petitioning ASTM International to develop a voluntary standard for the labeling

and marketing of magnet products.

B. The Demise Of Buckyballs And Buckycubes.

38. On July 10, 2012, everything changed.

39. Without warning or evidence of a statistically significant number of injuries, and after

years of working side-by-side with M&O in the development of its safety program, the CPSCs Office

of Compliance issued a preliminary determination that M&Os products were defective and that its

safety program would not work.

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40. M&O responded, expressing its strong disagreement, but CPSC paid it no heed.

41. Instead, CPSC initiated an all-out effort to shut down M&O.

42. CPSC immediately began contacting many of M&Os major retailers, telling them that

Buckyballs and Buckycubes were unsafe and requesting them to stop selling the products.

43. M&Os retailers almost unanimously caved in to the governments pressure and

intimidation.

44. In a last-ditch effort to regain CPSCs favor and to save its business, M&O submitted a

voluntary Corrective Action Plan proposing even further expansions to its safety program, including a

child-resistant carrying case, possibly a bittering agent, enhanced warnings, additional retail signs, and

programs to further public awareness.

45. CPSC received the plan at 4:00 p.m. on July 24, 2012.

46. On information and belief, CPSC never read that plan.

47. Instead, at 11:00 a.m. on the next day, July 25, 2012, the CPSCs executive director

notified M&Os lawyer that CPSC had filed an administrative complaint against M&O, initiating a

proceeding to order M&O to stop selling all of its products and to conduct a total recall of all of its

products already sold.

48. That proceeding isIn the Matter of Maxfield and Oberton Holdings, LLC, CPSC Docket

No. 12-1 (the CPSC Proceeding), and has since been consolidated with CPSC Docket Nos. 12-2 and

12-3, which are similar complaints against importers of similar products. In this on-going administrative

proceeding, the very question of whether M&Os products are defective or hazardous is being

adjudicated.

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49. In connection with the filing of the complaint, and before M&O ever had a chance to

defend itself, CPSC issued a press release and launched a media campaign announcing that it sued M&O

[i]n an effort to prevent children from suffering further harm .

50. At all times relevant, CPSC knew the risk of harm to children from M&Os products was

statistically insignificant and, relatively speaking, much less than the risk posed by common household

cleaning chemicals, laundry pods or playground equipment.

51. But CPSCs mind was made up, the facts did not matter, and so the full weight of the

government came down on a company that was, at all times, in compliance with the law.

52. CPSCs general counsel admitted that it was not a violation of law to sell M&Os

products. See Ex. 1 Letter from CPSC General Counsel Cheryl A. Falvey to Alan H. Schoem, Esq. (July

20, 2012).

53. Nevertheless, CPSC pressured retailers to stop selling Buckyballs and Buckycubes

and to issue voluntary recalls. The message was clear to all do as CPSC says now, or pay for it later.

54. CPSCs actions had their foreseeable and intended consequence.

55. With no retailers and no product that anyone would sell in the face of CPSCs campaign

of duress and intimidation, M&O was out of business in a matter of months.

56. On December 27, 2012, M&O filed its certificate of cancellation with the Division of

Corporations of the Delaware Secretary of State and ceased to be.

57. Adding insult to injury, an assistant general counsel of CPSC wrote to the trustee of the

MOH Liquidating Trust (MOH Trust) to demand that she take possession of M&Os remaining

inventory to determine what could be sold to help satisfy CPSCs claims. She added unhelpfully, [W]e

ask that you, as transferee and assignee of [M&O]s assets, make every effort to ensure that . . . no

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Subject Products re-enter the stream of commerce. See Ex. 2, Letter from CPSC Assistant General

Counsel Mary B. Murphy to MOH Liquidating Trust (February 5, 2013).

C. The Defendants Attack Mr. Zucker For Speaking Out.

58. Having obliterated M&O, and having salted the earth by undermining the MOH Trusts

ability to satisfy whatever claims that M&O might have left, CPSC turned its sights on Mr. Zucker.

59. On February 11, 2013, CPSC moved to amend its complaint in the CPSC Proceeding to

add Mr. Zucker personally as a respondent. See Ex. 3, CPSC Motion for Leave to File Second Amended

Complaint and Memorandum in Support (February 11, 2013).

60. The amended complaint seeks an order requiring Mr. Zucker personally to conduct a full

recall of M&Os products, at an estimated cost of $57 million.

61. This would require Mr. Zucker personally to notify all distributors of M&Os products to

stop distributing the products, to notify state and local public health officials, to mail notice to each

distributor and retailer of M&Os products, to refund consumers the purchase price of M&Os products,

to reimburse retailers for their expenses in carrying out the recall, to submit monthly reports to CPSC

documenting his progress, and, for a period of five years, to keep records of his actions in conducting

the recall. See Ex. 4, Second Amended Complaint Against Maxfield & Oberton Holdings, LLC and

Craig Zucker (February 11, 2013).

62. Never in the history of CPSC has an action been filed to require an officer or former

officer of a company to personally conduct a recall.

63. Noting that M&O has now purported to dissolve, CPSC offered its theory that Mr.

Zucker must stand in the companys shoes because he had exercised personal control over M&Os acts

and practices. See Ex. 3 at 2.

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64. Inexplicably, CPSC made no attempt to amend its complaint to bring an action against

MOH Trust, the only entity with any legal responsibility to pay the claims of M&O.

65. Leaving little doubt as to why Mr. Zucker was singled out for such unprecedented

treatment, CPSC presented a laundry list of Mr. Zuckers infractions, most of which are related to Mr.

Zuckers interactions with and protected political speech regarding CPSC and with Congress and the

public about CPSCs abuse of its power.

Mr. Zucker met personally with a CPSC Commissioner regarding the M&O SubjectProducts. . . . He held a subsequent meeting on April 10, 2012, with another CPSC

Commissioner and then met separately that same day with CPSC staff to discuss theM&O Subject Products. Ex. 3 at 3.

Mr. Zucker filed a report on the Subject Products in response to staffs requests forinformation . . . . Id.

Mr. Zucker also corresponded personally with other CPSC staff about CPSC actionsconnected with the filing of the Complaint. Id. at 4.

Mr. Zucker also personally lobbied members of Congress and the President of theUnited States, again communicating on issues related directly, and solely, to the matter atissue here. Id. (citing emails to Congressional staffers and an open letter to PresidentObama published in the Washington Post).

Similarly, in numerous interviews on television, in print, and in internet media, Mr.Zucker has responded to Complaint Counsels allegations on behalf of M&O. Id. at 5.

In A Letter from Our CEO: The Real Story Behind Why Were Fighting, Mr. Zuckerdescribed at length and in detail M&Os interactions with CPSC staff, and concluded:We are fighting the CPSC action because we believe they are wrong. Id.

66. CPSC played fast and loose with the facts to justify its assault on Mr. Zucker. For

example, in Exhibit E to the motion to amend CPSCs complaint that was filed February 11, 2013,

available at http://www.cpsc.gov//Global/Recalls/Recall-Lawsuits/maxfield29b.pdf (accessed Nov. 8,

2013), complaint counsel represented that the email attached at page 69 was a personal communication

from Mr. Zucker. CPSC, however, doctored this Exhibit to omit the footer demonstrating that it was a

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form communication sent to all persons who subscribed to Buckyballs mailing list. The omitted footer

read:

Sorry . . . cannot be applied to previous orders or combined with other promotions.

Unsubscribe [email protected] from this list. | Forward this email to a friend

See Ex. 5.

67. In short, by exercising his Constitutional rights to free speech, to free association, to

conduct public advocacy, and to petition government officials for redress of grievances, Mr. Zucker has

been a thorn in CPSCs side and so CPSC has targeted him for retribution.

68. On information and belief, CPSC has taken the unprecedented action of singling out Mr.

Zucker, and naming him individually, to punish him and to deter and chill him and other corporate

officers from exercising their Constitutional rights to free speech, to free association, and to petition

government officials for redress contrary to the First and Fifth Amendments of the United States

Constitution.

D. Defendants Create New Powers To Abuse Mr. Zucker.

69. CPSCs authority to adjudicate an order for remedial actions concerning a consumer

product, including notice to distributors and the public and conducting a recall, is governed by 15 U.S.C.

2064.

70. CPSCs jurisdiction is over the manufacturer or any distributor or retailer of the

product. 15 U.S.C. 2064(c)-(d).

71. CPSC alleges that Mr. Zucker is a manufacturer and a distributor of Buckyballs and

Buckycubes. However, as a matter of law, Mr. Zucker is neither one.

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72. A manufacturer is defined as a person who manufactures or imports a consumer

product, and a distributor is defined as, a person to whom a consumer product is delivered or sold for

purposes of distribution in commerce. 15 U.S.C. 2052(a).

73. In other words, CPSA gives CPSC no adjudicative authority over individual officers of

employees of a manufacturer, distributor, or retailer of the product.

74. Mr. Zucker has never personally manufactured, imported, or distributed anything. Yet, to

punish him for speaking out, CPSC drives a bulldozer through the limits set by the statutes plain

language via its extraordinary and unprecedented expansion of the responsible corporate officer

doctrine, also known as the Parkdoctrine. See United States v. Park, 421 U.S. 658 (1975).

75. TheParkdoctrine is applied by the government only in the rarest of circumstances,

usually to hold responsible corporate officers personally liable for criminal violations by the companies

they oversee.

76. This extraordinary doctrine was the asserted basis for the administrative law judges

decision affirming CPSCs authority over Mr. Zucker, but it has no bearing here and it does not justify

the CPSCs overreach.

77. First, 15 U.S.C. 2064 does not authorize imposition of liability on employees of a

corporate entity. Where Congress intended that such liability can be imposed under CPSA, it has

specifically said so. For example, 15 U.S.C. 2064, authorizes remedial orders only against the

manufacturer or any distributor or retailer of the product. By contrast, 15 U.S.C. 2070 specifically

authorizes criminal liability for an individual director, officer, or agent of a corporation who knowingly

and willfully authorizes, orders, or performs certain criminal violations set forth in the statute.

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Case 8:13-cv-03355-DKC Document 30-1 Filed 04/08/14 Pa e 1 of 14

Zucker v. CPSC, Briefing Book Page 16

78. Second, every case in every context in which the responsible corporate officer doctrine

has been applied, whether civil or criminal, has involved a predicate violation of law by the corporate

entity. This is the touchstone for individual corporate officer responsibility, because society rightly

expects corporate officers to ensure that their corporations do not engage in criminal conduct or other

violations of law. Here, however, even CPSC admits that nothing illegal has been done. See, e.g., Ex.

1, Letter from CPSC General Counsel Cheryl A. Falvey to Alan H. Schoem, Esq. (July 20, 2012) (I am

confirming that it is not a violation of any law administered by the CPSC for any retailer to continue to

sell Buckyballs and Buckycubes. . . . [I]t is not in violation of any law CPSC administers until we have

obtained a court order . . . or the firm voluntarily agrees to a corrective action.).

79. In no case has a corporate officer ever been held personally liable for corporate activity

that was lawful when conducted.

80. Third, the remedial action that CPSC is authorized to impose upon the manufacturer or

any distributor or retailer of a product is not a criminal sentence or even a fine or other monetary

liability or penalty. It is a product recall. Practically speaking, the nature of CPSCs statutory authority

remedy must be limited to the company that manufactured, distributed, or sold the product in the first

place, and not to any individual employee, especially not former employees like Mr. Zucker. A product

distributed by thousands of retailers over the course of almost four years, of which allegedly more than

2.5 million sets have been sold, cannot be effectively recalled by a single individual without a business

organization to support him and CPSCs action against Mr. Zucker is plainly not something Congress

intended to occur.

81. Finally, the exercise of adjudicative authority over an individual officer of a company

that CPSC concedes engaged in no illegal activity improperly rewrites CPSA. If CPSC can seek to

14




personally destroy a company employee or official through the unilateral expansion of its administrative

jurisdiction, as it seeks to do here, then CPSAs limits on CPSCs authority are a nullity.

E. CPSC Runs A Rigged Game, Leaving Mr. Zucker Without Options.

82. Through counsel, Mr. Zucker moved to intervene in the CPSC Proceeding to oppose its

motion adding him as a respondent.

83. The Administrative Law Judge (ALJ) granted Mr. Zuckers motion but rejected his

opposition. On May 3, 2013, the ALJ granted CPSCs motion for leave to file the amended complaint

and added Mr. Zucker as a respondent to the CPSC Proceeding against M&O. See Ex. 6, Order

Granting CPSC Motion for Leave to File Second Amended Complaint Against Craig Zucker (May 3,

2013). The ALJs affirmation of CPSCs power grab violated 5 U.S.C. 706(2)(A) because it was

arbitrary, capricious, an abuse of discretion, and not in accordance with law and violated 5 U.S.C.

706(2)(C) because it authorized CPSC to exceed its statutory jurisdiction and authority.

84. Mr. Zucker sought leave to appeal the order subjecting him to CPSCs adjudicative

authority to CPSC, but this was denied him on June 19, 2013. See Ex. 7, Order Denying Craig Zuckers

Motion to Appeal (June 19, 2013).

85. For Mr. Zucker, all further resort to CPSCs administrative process, whether through the

CPSC Proceeding or elsewhere, is futile.

86. In truth, from the beginning CPSCs administrative action was an unlawful show

designed to bleed first M&O and then Mr. Zucker to death, for CPSCs mind was made up and the

outcome decided before the first pleading was ever filed.

87. For example, on April 12, 2013, while both the CPSC Proceeding to determine whether

Buckyballs and Buckycubes were defective as a matter of law and CPSCs extraordinary motion

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to name Mr. Zucker individually were both underway and ostensibly undecided, CPSC issued a recall

notice for Buckyballs and Buckycubes.

88. CPSC said that in cooperation with six retailers it was announcing the voluntary recall

of all Buckyballs and Buckycubes because these products contain defects in the design, warnings and

instructions, which pose a substantial risk of injury and death to children and teenagers. See Ex. 8,

CPSC, Six Retailers Announce Recall of Buckyballs and Buckycubes High-Powered Magnet Sets Due

to Ingestion Hazard (Recall 13-168), available athttp://www.cpsc.gov/en/Recalls/2013/Six-Retailers-

Announce-Recall-of-Buckyballs-and-Buckycubes-High-Powered-Magnet-Sets/ (April 12, 2013)

(accessed Nov. 10, 2013). On information and belief, Defendant Tenenbaum and all of the other

Commissioners must have approved this recall and signed off on the findings related to defects, risk, and

hazard, before it was announced.

89. She and the other CPSC commissioners are the final decision makers in this case and,

subject only to limited review by an Article III court, they are free to do whatever they want with respect

to the scope of CPSCs jurisdiction, to Buckyballs and Buckycubes, and to Mr. Zucker, no matter

what the independent ALJ might find or decide.

90. Therefore, the April 12 recall notice, in which CPSC made its conclusory finding that

Buckyballs and Buckycubes are in fact defective and pose a substantial risk of injury and death to

children and teenagers rendered the CPSC Proceeding, which was supposed to fairly adjudicate these

things, nothing more than a bad charade, for it is clear where defendants stand on the matter.

91. Mr. Zucker is now defending himself at great economic and reputational cost and risk

against an out-of-control bureaucracy that, after destroying a thriving and legal business, now aims to

devastate him as well.

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92. Defendant Tenenbaum and the other commissioners owed Mr. Zucker, and all of the

other respondents before them, a fair, objective, and level review of their causes. Instead, she and CPSC

have brazenly abused their power and disregarded their public trust by assuming for themselves the

authority to make up the law, to prosecute the supposed violations, to find the facts, to render a

verdict, and then to decide the sentence.

93. The defendants conduct clearly shows that the CPSC Proceeding is nothing more than

the drapery around the defendants decision to break Mr. Zucker. Therefore, it would be manifestly

unfair and incongruous to force Mr. Zucker back into the CPSC Proceeding or any other administrative

process run by CPSC. There is no fairness or due process to be found there for him.

94. Mr. Zucker is trapped, facing both personal financial ruin and the destruction of his

business reputation, in a rigged game that the house cannot lose and that he cannot win. This Court is

his only hope for fairness and avenue of redress.

Claims For Relief

First Claim For Relief: The Administrative Procedure Act.

95. Mr. Zucker repeats paragraphs 1-94.

96. CPSC has asserted jurisdiction over Mr. Zucker individually pursuant to 15 U.S.C.

2064, claiming that Mr. Zucker is a manufacturer and a distributor pursuant to 15 U.S.C. 2052(a).

97. Mr. Zucker is not a manufacturer or a distributor because he has never personally

manufactured, imported, or distributed any consumer products.

98. CPSCs actions against him, apparently in retaliation for the exercise of Constitutionally-

protected rights, are therefore in excess of its statutory authority. CPSC has wrongfully targeted Mr.

Zucker in his individual capacity, even though there was another entity, MOH Trust, that was

17




responsible for paying the claims against M&O and that CPSC could have made a party to the CPSC

Proceeding instead.

99. Also, CPSCs attack against Mr. Zucker is based on an unprecedented expansion of the

responsible corporate officer doctrine, also known as the Parkdoctrine. This doctrine is rarely

applied, but when it is, the focus is ordinarily on holding corporate officers personally liable for criminal

violationsby the companies they oversee. In all cases, the doctrine is applied after there has been a

violation of law, not in advance of any such violation. CPSCs application of theParkdoctrine in this

case goes far beyond the boundaries of its legal authority.

100. Mr. Zuckers appeal of CPSCs unprecedented action adding him as a personal

respondent in the CPSC Proceeding was rejected on June 19, 2013. See Ex. 7. This determination is

therefore final agency action.

101. Also, the defendants have predetermined the outcome of the CPSC Proceeding in all

material respects and resort to their administrative process would in all likelihood be futile.

102. Also, CPSCs decision to assert authority over Mr. Zucker also determined his legal

rights or obligations and resulted in immediate legal consequences by forcing him to defend an unlawful

adjudicative proceeding and risk serious penalties for noncompliance.

103. Also, CPSCs decisions to assert jurisdiction and authority over Mr. Zucker, and/or to

predetermine the outcome of the CPSC Proceeding were arbitrary and capricious, an abuse of discretion,

not in accordance with law, in excess of CPSCs statutory jurisdiction and authority and contrary to

Constitutional right for CPSC has utterly failed to provide Mr. Zucker with a fair and level review and

denied him procedural and substantive due process.

18




104. CPSCs determination that it has jurisdiction over Mr. Zucker is a clear error on purely

legal questions, including an interpretation of the statutory terms manufacturer and distributor under

15 U.S.C. 2052(a)(11), (8) and the ultra vires nature of the defendants conduct in this case.

105. Statutory construction is a question on which courts, and not administrators, are more

expert and so this matter is suitable for judicial review.

106. The decision that CPSCs jurisdiction extends to Mr. Zucker is final agency action and

his only proper remedy lies in this Court.

Second Claim For Relief: For Violation Of The First And Fifth Amendments To The United

States Constitution.

107. Mr. Zucker repeats paragraphs 1-106.

108. Upon information and belief, as demonstrated by CPSCs allegations in its Motion for

Leave to File Second Amended Complaint and Memorandum in Support (February 11, 2013), See Ex. 3

at 3-5, CPSC has singled out Mr. Zucker for selective administrative adjudication to punish him and to

chill and deter him and other corporate officers from exercising their Constitutional rights to free speech,

to free association, to publicly advocate for their companies, and to petition government officials for

redress of their grievances.

109. Therefore, the defendants actions against Mr. Zucker have the intent and the foreseeable

effect of chilling and restricting the exercise of Constitutionally-protected rights in violation of the First

Amendment of the United States Constitution, and to deny him due process of law under the Fifth

Amendment of the United States Constitution.

110. The defendants acted under color of law.

111. Also, the defendants have predetermined the CPSC Proceedings outcome in all material

respects thereby denying Mr. Zucker substantive and procedural due process.

19




112. Mr. Zucker has been damaged due to the defendants violations of his constitutional

rights, and will suffer irreparable injury absent the award of a preliminary and permanent injunction

prohibiting the defendants from exercising adjudicative authority over him.

Relief Requested

WHEREFORE, Mr. Zucker requests that the Court:

A. Declare that CPSCs actions with respect to Mr. Zucker, including but not limited to its

assertion of jurisdiction over him as a manufacturer and distributor of consumer products distributed in

commerce, are ultra vires, arbitrary and capricious, an abuse of discretion, and otherwise not in

accordance with law and in excess of CPSCs statutory authority.

B. Declare that the defendants selective assertion and exercise of adjudicative authority

over Mr. Zucker and/or their predetermination of the CPSC Proceeding violate his rights to freedom of

speech, to freedom of association, and to petition government officials for redress of grievances under

the First Amendment of the Constitution and/or his right to substantive and procedural due process of

law under the Fifth Amendment of the Constitution.

C. Preliminarily and permanently enjoin the defendants from asserting or exercising

adjudicative authority over Mr. Zucker in his individual capacity.

D. Award Mr. Zucker his costs and reasonable attorneys fees in defending himself before

CPSC and in pursuing this action under the Equal Access to Justice Act and under such other authorities

that may authorize this relief. 28 U.S.C. 2412.

E. Order such other and further relief as deemed just and proper by the Court.

20




Respectfully submitted,

__________/S/_____________________Daniel Z. Epstein, Esq.Cause of Action, Inc.1919 Pennsylvania Ave., NW, Suite 650Washington, D.C. 20006Phone: 202.499.4232Fax: 202.330.5842Email:[email protected]. District of Maryland Bar No. 18344

__________/S/______________________Reed D. Rubinstein, Esq.Dinsmore & Shohl, LLP801 Pennsylvania Ave., NW, Suite 610Washington, D.C. 20006Telephone: 202.372.9120Fax: 202.372.9141Email: [email protected] Counsel to Cause of Action, Inc.

November 12, 2013

21




THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

Craig Zucker, *Plaintiff, *

*v. * Civil No. 8:13-cv-03355-DKC

*U.S. CONSUMER PRODUCT *SAFETY COMMISSION, and *ROBERT ADLER, in his official *capacity as Acting Chairman of *

the U.S. Consumer Product Safety *Commission, *

Defendants. *

BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AS

AMICUS CURIAE SUPPORTING PLAINTIFFS

OPPOSITION TO MOTION TO DISMISS

RACHEL L. BRAND

STEVEN P. LEHOTSKYNATIONAL CHAMBER

LITIGATION CENTER1615 H Street, NWWashington, DC 20062(202) 463-5337

Counsel for the Chamber of Commerce

of the United States of America

HEATHER MOWELL (Bar # 30244)

Counsel of RecordCARLNICHOLS (Pro Hac Vice Pending)ELISEBETH COOK(Pro Hac Vice Pending)DANIEL AGUILAR(Pro Hac Vice Pending)WILMER CUTLER PICKERING

HALE AND DORR LLP1875 Pennsylvania Avenue NWWashington, DC 20006Tel: (202) 663-6000Fax: (202) [email protected]

Case 8:13-cv-03355-DKC Document 30-1 Filed 04/08/14 Page 1 of 14



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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......................................................................................................... ii

CORPORATE DISCLOSURE STATEMENT ............................................................................. iv

INTEREST OF THE AMICUS CURIAE .......................................................................................1

ARGUMENT...................................................................................................................................2

I. NOVEL APPLICATION OF RESPONSIBLE CORPORATE OFFICER LIABILITYISNEITHER INEVITABLENOR APPROPRIATE IN THE CONSUMER PRODUCTSAFETY ACT CONTEXT .........................................................................................................2

A. Responsible Corporate Officer Liability Has Far Exceeded ItsOriginal Statutory Basis...........................................................................................2

B. Responsible Corporate Officer Liability For Mr. Zucker WouldRaise Serious Constitutional And Policy Concerns.................................................5

II. JUDICIAL REVIEW IS WARRANTED AT THIS TIME.................................................................7

CERTIFICATE OF SERVICE




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TABLE OF AUTHORITIES

CASES

Page

Athlone Industries., Inc. v. Consumer Product Safety Commission, 707 F.2d 1485(D.C. Cir. 1983) ...................................................................................................................7

BMW of North America,Inc. v. Gore, 517 U.S. 559 (1996)............................................................5

Friedman v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012) .....................................................................4

Morissette v. United States, 342 U.S. 246 (1952)............................................................................3

Robinson v. California, 370 U.S. 660 (1962) ..................................................................................3

United States v. Dotterweich, 320 U.S. 277 (1943).........................................................................2

United States v. Hodges X-Ray, Inc., 759 F.2d 557 (6th Cir. 1985)................................................4

United States v. Ming Hong, 242 F.3d 528 (4th Cir. 2001).............................................................4

United States v. Park, 421 U.S. 658 (1975).........................................................................2, 3, 4, 5

United States. v. Poulin, 926 F. Supp. 246 (D. Mass. 1996) ...........................................................4

United States v. Shelton Wholesale, Inc., 96-6131-CV-SJ-6, 1999 WL 825483

(W.D. Mo. Sept. 21, 1999) (unpublished) ...........................................................................6

DOCKETED CASES

United States v. Dotterweich, U.S. Br., 1943 WL 54821 (U.S. Aug. 1943)....................................5

United States v. Park, U.S. Reply Br., 1975 WL 370186 (U.S. Mar. 14, 1975) .............................3

STATUTES, RULES, AND REGULATIONS

21 U.S.C. 333................................................................................................................................2

OTHER AUTHORITIES

Stewart, Davis Overlock,Basics of Criminal Liability for Corporations and TheirOfficials, and Use of Compliance Programs and Internal Investigations,22 Pub. Cont. L.J. 81 (1992)................................................................................................4

Stinneford, John F.,Punishment Without Culpability, 102 J. Crim. L. &Criminology 653 (2012) ......................................................................................................3




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Tulli,Lauren A., A Prescription For Responsibility: The FDA Looks to Expandthe Scope of Potential Liability for Drug Company Officials, inInside theMinds: Recent Developments in Food and Drug Law: Leading Lawyers on

Dealing with Increased Enforcement, Keeping Up-To-Date with FDA

Requirements, and Developing Compliance Practices 175 (2014 ed.,2013), available at2013 WL 5760778................................................................................4




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CORPORATE DISCLOSURE STATEMENT

The Chamber of Commerce of the United States of America (the Chamber) states that it

is a non-profit, tax-exempt organization incorporated in the District of Columbia. The Chamber

has no parent corporation, and no publicly held company has 10% or greater ownership in the

Chamber.




INTEREST OF THE AMICUS CURIAE

The Chamber is the worlds largest business federation. It represents 300,000 direct

members and indirectly represents the interests of more than 3 million companies and

professional organizations of every size, in every industry sector, and from every region of the

country. An important function of the Chamber is to represent the interests of its members in

matters before Congress, the Executive Branch, and the courts. To that end, the Chamber

regularly files amicus curiae briefs in cases that raise issues of concern to the nations business

community.

This case implicates those interests because the administrative proceeding brought by the

U.S. Consumer Product Safety Commission (the Commission) against Craig Zucker is premised

on the so-called responsible corporate officer doctrine, under which individual liability is

imposed on a companys officer for the companys responsibilities. Such personal liability is

traditionally reserved for extraordinary situations, such as abuse of the corporate form. But in

this case, the Commission seeks to hold Mr. Zucker personally liable for recall and

reimbursement costs based simply on his having served as an officer of his former company.

Responsible corporate officer liability raises serious concerns when used in any situation, and is

particularly worrisome in its application here, as the Commission seeks to impose multi-million-

dollar liability upon Mr. Zucker personally without proof of wrongful conduct or intent.




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ARGUMENT

I. NOVEL APPLICATION OF RESPONSIBLE CORPORATE OFFICER LIABILITY ISNEITHER INEVITABLE NOR APPROPRIATE IN THE CONSUMER PRODUCT SAFETY ACT

CONTEXT

The administrative proceeding commenced against Mr. Zucker by the Commission seeks

to hold Mr. Zucker liable as a responsible corporate officer. Under that theory of liability, the

government can hold an individual criminally and individually liable for the actions of a

corporation merely by having a responsible relation to the relevant conduct, even absent proof

of individual criminal scienter or conduct. Responsible corporate officer liability under the

Consumer Product Safety Act would raise serious constitutional and policy concerns.

A. Responsible Corporate Officer Liability Has Far Exceeded Its OriginalStatutory Basis

The doctrine has its roots in United States v. Dotterweich, 320 U.S. 277, 278 (1943),

where, based on an analysis of the legislative history of the Food, Drug, and Cosmetic Act

(FDCA), the Supreme Court held that a corporations president could be held criminally liable

under the FDCA simply because he held a responsible relation to the relevant transaction of

shipping adulterated and misbranded drugs. Id. at 285. The statute at issue, 21 U.S.C. 333,

had originally imposed liability on any officer, agent, or other person acting for the

corporation, but had been subsequently re-written to impose liability on any person acting for

the corporation. Dotterweich, 320 U.S. at 281-282. The Court concluded that the statutes

revisions had not substantively altered the scope of liability, and thus the corporations officer

could be found personally liable for a misdemeanor offense. Id. at 282-283.

Thirty years later, the Court again held that responsible corporate officers could be liable

under the FDCA in United States v. Park, 421 U.S. 658 (1975). Because the FDCA imposes the




- 3 -

highest standard of foresight and vigilance, the Court held that a corporate officer may be

found liable by virtue of his responsibility and authority of his position. Id. at 673, 675. The

Courts opinion closely tracked the argument urged by the United States in its briefing, in which

the government emphasized the unique character and special importance of the pure food and

drug laws (Park U.S. Reply Br., 1975 WL 370186, at *2 (Mar. 14, 1975)), explained that a

corporate officer has apersonalaffirmative duty to prevent violations under the FDCA (id.),

and noted that none of the opposing briefs contends that the FDA has used its prosecutorial

discretion arbitrarily or unwisely (id. at *8). The relevant offense inParkwas a misdemeanor

carrying a $250 fine.

Even responsible corporate officer liability under the FDCA (the statute addressed by the

Court inDotterweich andPark) presents significant constitutional and policy concerns. A

presumption of criminal liability, of course, conflict[s] with the overriding presumption of

innocence afforded to all defendants by the Constitution. Morissette v. United States, 342 U.S.

246, 275 (1952). And a defendant may not be convicted of a status crime, but must instead

commit an identifiable criminal act. See Robinson v. California, 370 U.S. 660, 662-663 (1962).

Responsible corporate officer liability runs against both principles and deserves to be considered

in light of them. See generally Stinneford,Punishment Without Culpability, 102 J. Crim. L. &

Criminology 653, 702 (2012) (lamenting the Supreme Courts ambivalen[ce] towards the

constitutional concerns raised by the doctrine).

AlthoughDotterweich andParkaddressed only the FDCA, lower courts have expanded

the responsible corporate officer doctrine into other contexts of the law where the imposition of

personal liability is much more attenuated, based on the relevant statute and underlying policy




- 4 -

concerns. See Stewart,Basics of Criminal Liability for Corporations and Their Officials, and

Use of Compliance Programs and Internal Investigations, 22 Pub. Cont. L.J. 81, 84 (1992) (the

doctrine has expanded in recent years and bears close watching [it] may well grow further.).

For example, the government has sought to impose responsible corporate officer liability for

violations of the Public Health Service Act, United States v. Hodges X-Ray, Inc., 759 F.2d 557,

560-561 (6th Cir. 1985), the Controlled Substances Act, United States. v. Poulin, 926 F. Supp.

246, 253 (D. Mass. 1996), and the Clean Water Act, United States v. Ming Hong, 242 F.3d 528,

531-532 (4th Cir. 2001). And the government has used the doctrine as the basis for excluding

individuals from the Federal health care system. See Friedman v. Sebelius, 686 F.3d 813, 824

(D.C. Cir. 2012).

The government has also used the doctrine to impose increasingly onerous penalties. At

issue inDotterweich andParkwere a $1,500 fine1 and a $250 fine2 respectively, while in

Hodges X-Ray,Poulin,Ming Hong, andFriedman, the individuals were subject to a $20,500

fine,3 a $50,000 fine,4 a $1,300,000 fine with three years imprisonment,5 and a $34,500,000

disgorgement order with a 12-year ban from participating in Federal health care programs.6 In

fact, the more recent applications of theParkDoctrine [have seen] company officials receiving

prison terms of up to nine months and fines ranging from hundreds of thousands to millions of

dollars. Tulli,A Prescription For Responsibility: The FDA Looks to Expand the Scope of

1 Dotterweich U.S. Br., 1943 WL 54821, at *2 (Aug. 1943).2

Park, 421 U.S. at 666.3

Hodges X-Ray, 759 F.2d at 558.4

Poulin, 926 F. Supp. at 255.5

Ming Hong, 242 F.3d at 534.6

Friedman, 686 F.3d at 816-817. The D.C. Circuit remanded the 12-year exclusionaryperiod to the agency for re-consideration, but hinted that that term of years may be justifiable.Id. at 828.




- 5 -

Potential Liability for Drug Company Officials (2014 ed.), available at2013 WL 5760778 at *2.

This expanding universe of punitive sanctions for responsible corporate officers was precisely

the concern annunciated by the dissent inPark, which lamented that the standardless conviction

approved today can serve in another case tomorrow to support a felony conviction and a

substantial prison sentence. Park, 421 U.S. at 682-683 (Stewart, J., dissenting).

B. Responsible Corporate Officer Liability For Mr. Zucker Would RaiseSerious Constitutional And Policy Concerns

The Commissions second amended complaint in the administrative proceeding alleges

that Mr. Zucker is appropriately named as a respondent due to his capacity as a responsible

corporate officer. Compl. (Dkt. 1) Ex. 3, at 6. The Commission therefore seeks to hold Mr.

Zucker personally responsible for a recall of BuckyBalls and BuckyCubes, at an estimated

personal cost of $57 million. Compl. 60. Responsible corporate officer liability in these

circumstances would both raise serious constitutional concerns and stretch the doctrine far

beyond its typical reach.

The Commission seeks to enforce a recall and reimbursement for all subject products

sold by Mr. Zuckers former company, Manfield & Oberton Holdings, LLC (M&O), without any

proof of individual scienter or conduct other than his having acted as a corporate officer. Yet

due process requires that this enormous potential sanction be commensurate with the Mr.

Zuckers individual conduct. See BMW of North Am.,Inc. v. Gore, 517 U.S. 559 (1996)

(reprehensibility of defendants conduct is [p]erhaps the most important indicium of the

reasonableness of a punitive damages award). The Commissions complaint does not address

this concern.


This expanding universe of punitive sanctions for responsible corporate officers was precisely

the concern annunciated by the dissent inPar , which lamented that the standardless conviction

approved today can serve in another case tomorrow to support a felony conviction and a

substantial prison sentence. Par , 421 U.S. at 682 83 Stewart, J., ssent ng).

T e Comm ss on t ere ore see s to ol Mr.

Zucker personally responsible for a recall of BuckyBalls and BuckyCubes, at an estimated

personal cost of $57 million. Compl. 60. Responsible corporate officer liability in these

circumstances woul oth raise serious constitutional concerns an stretch the octrine far

eyon ts typ ca reac .



- 6 -

Instead, the Commission supports its exercise of jurisdiction by relying upon an

unpublished decision from the Western District of Missouri issued 15 years ago. United States v.

Shelton Wholesale, Inc., 96-6131-CV-SJ-6, 1999 WL 825483 (W.D. Mo. Sept. 21, 1999)

(unpublished);see Compl. Ex. 3, at 9-11. Shelton Wholesale, however, is wholly inapposite.

There, the Commission sought to hold a companys sole shareholder personally liable under four

different theories of accountability, including the responsible corporate officer doctrine and a

theory of alter ego. Shelton Wholesale, 1999 WL 825483, at *1. Because the court agreed

with the Commission that Shelton was personally liable as a participant in the underlying

conduct and because he personally imported the products to the United States, id. at *2, the

Courts discussion of the responsible corporate officer doctrine was nothing more than dictum

unnecessary to the ultimate holding.

In an effort to hold Mr. Zucker liable as a responsible corporate officer, the Commission

relies on his communications with the Commission (See Compl. Ex. 3, at 3-4), with the press (id.

at 5 & n.5), and with elected federal officials in both personal emails and in an open letter to the

President (id. at 4). Although these communications are ostensibly cited to prove the undisputed

fact that Mr. Zucker was the founder and CFO of M&O, most relate either to (1) Mr. Zuckers

efforts to work with the Commission concerning any safety issues with BuckyBalls and

BuckyCubes and (2) Mr. Zuckers efforts to fight the Commissions administrative action. It

would indeed be troubling if the only basis for holding a corporate officer liable was the fact that

the officer had worked with the agency prior to action and contested the basis for the action in a

public forum after it was already initiated.


n an effort to hold Mr. Zucker liable as a responsible corporate officer, the Commission

relies on his communications with the Commission See Compl. Ex. 3, at 3-4), with the press (i .

at 5 & n.5), and with elected federal officials in both personal emails and in an open letter to the

President i . at 4). Although these communications are ostensibly cited to prove the undisputed

fact that Mr. Zucker was the founder and CFO of M&O, most relate either to 1) Mr. Zuckers

efforts to work with the Commission concerning any safety issues with BuckyBalls and

BuckyCubes and (2) Mr. Zuckers efforts to fight the Commissions administrative action. It

would indeed be troubling if the only basis for holding a corporate officer liable was the fact that

the officer had worked with the agency prior to action and contested the basis for the action in a

public forum after it was already initiated.



- 7 -

II. JUDICIAL REVIEW IS WARRANTED AT THIS TIME

Without better-founded support for the Commissions exercise of authority, and in light

of the expanding use and punishment associated with responsible corporate officer liability,

judicial review is warranted to combat and curtail potential agency overreach. The

Commissions invocation of the responsible corporate office doctrine is a strictly legal issue on

which the Commission is unlikely [to] change its position and can be considered by the

Court at this time before further administrative proceedings continue. Athlone Indus., Inc. v.

Consumer Prod. Safety Commn, 707 F.2d 1485, 1487-1489 (D.C. Cir. 1983). Moreover, the

administrative case against M&O and Mr. Zucker began over 20 months ago and likely has

exposed Mr. Zucker to litigation expenses and discovery orders which hinge upon his potential

liability as a responsible corporate officer. It would make little sense to continue to subject Mr.

Zucker to an administrative process that will not help inform the courts understanding of his

federal complaint or the Commissions defenses in response. Because the beneficial purposes

behind the final agency action rule do not obtain here, and because the practical benefits from

resolving the Commissions jurisdictional authority at the earliest possible stage are clearly

present, the Court should deny the Commissions motion to dismiss.




- 8 -

April 8, 2014 Respectfully submitted,

RACHEL L. BRANDSTEVEN P. LEHOTSKYNATIONAL CHAMBER

LITIGATION CENTER1615 H Street, NWWashington, DC 20062(202) 463-5337

Counsel for the Chamber of Commerce ofthe United States of America

/s/ .HEATHER MOWELL (Bar # 30244)

Counsel of Record

CARLNICHOLS (Pro Hac Vice Pending)ELISEBETH COOK(Pro Hac Vice Pending)DANIEL AGUILAR(Pro Hac Vice Pending)WILMER CUTLER PICKERING

HALE AND DORR LLP1875 Pennsylvania Avenue NWWashington, DC 20006Tel: (202) 663-6000Fax: (202) 663-6363

[email protected]



37/74Zucker v. CPSC,Briefing Book Page 37

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on April 8, 2014, I caused a copy of the foregoing

document to be served on all parties by this Courts electronic filing system.

/s/HEATHER MOWELL




In the past, the manuacturer o Buckyballs had cooperatedwith the CPSC in an effort to ensure that the products warninglabels adequately apprised consumers o the need to keep themagnets away rom children in order to prevent the types o

injuries that could result i children swallowed the magnets. In act, the manuacturer required its resellers notto sell Buckyballs in the childrens toys section o their stores, and the manuacturer repeatedly enorced thatrequirement by terminating resellers contracts.

In 2012, the CPSC abruptly abandoned this approach, despite the act that more than a billion such magnetshad already been sold and there were only 24 reported incidents o children swallowing Buckyballs. Te CPSCinitiated a mandatory recall--a relatively rare measure--and even though the administrative law judge has yet torule on the merits o the recall, the manuacturer is already out o business.

In May 2013 the Consumer Product Saety Commission(CPSC) took the unprecedented step o naming Craig Zucker inan administrative complaint against Maxfield and ObertonHoldings, LLC the manuacturer o Buckyballs in order tohold Zucker personally liable or a product recall. Zucker hasnow taken an equally unprecedented step: he has sued the CPSCor injunctive relie and a declaration that the CPSCs actionsviolate his First and Fifh Amendment rights. In his latest efforts, Zucker is represented by Cause o Action, .

. . [which] bills itsel as advocates or government accountability and uses investigative, legal, and

communications tools to fight government overreach. [Concern has] been expressed by Forbes, which calledthe CPSCs action ludicrous and a clear overreach.

Te Commissions unprecedented move to hold Zuckerpersonally responsible or a non-criminal consumer saetyviolation broadly extends the responsible corporate officer(RCO) doctrine in a manner previously not seen.

Relying on the so-called responsible corporate officerdoctrine, the administrative law judge cited two U.S. SupremeCourt decisions, both o which ound that corporate officers canbe held individually liable or company violations o the Food,Drug and Cosmetic Act.

Counsel or the ormer CEO argued that the cited cases are extraordinary exceptions to basic corporate lawprinciples shielding individual corporate owners and officers rom liability and that liability or regulatoryviolations may be imposed on corporate officers only when expressly provided by Congress, something that isabsent in the Consumer Protection Saety Act.

op Firms rack Important Developments inZucker v. CPSC
http://www.frostbrowntodd.com/resources-1598.htmlhttp://www.saul.com/publications/alerts/unprecedented-move-government-seeks-extend-responsible-corporate-officerhttp://www.internationallawoffice.com/newsletters/detail.aspx%3Fg%3D8ebc0b52-8073-491e-b4a1-856c11b23e49http://www.gibsondunn.com/publications/pages/CPSC-Latest-Attempts-to-Expand-Enforcement-Authority.aspx



Tis decision has sobering implications. . . .While this opinionraises concerns or CEOs o companies that no longer exist, thereasoning behind the opinion is not limited to those situations.Extension o this doctrine to the consumer products arena couldadd another powerul tool to the CPSCs enorcement toolbox,allowing the CPSC to leverage the threat o personal liabilityagainst corporate officers.

Te ruling is written in broad language, and is not limited tothe acts o the case (which involves a small company, now in theprocess o dissolution). I it stands, this ruling may haveproound effects in the regulated community. Te CPSC will be

able to threaten a variety o corporate officers, rom CEOs down to compliance officials, with personal liabilityor violations o the Consumer Product Saety Act. Even i not ound ultimately liable, corporate officials willace the specter o having to participate personally in a proceeding, and perhaps engage their own counsel.

Te problem with this approach is that it disregards the now

centuries-old recognition o the act that corporations are legallyseparate rom the individuals who run them. Te idea thatliability can be imposed on an individual or corporatemisconduct, in apparent disregard o the corporate orm and

without culpable involvement or even a requirement o a culpable state o mind, seems inconsistent with themost basic concepts surrounding the corporate orm.

Used in this way, the responsible corporate officer doctrine imposes liability or nothing more than or a per-sons status. Keep in mind that the agency has not alleged that Zucker has culpably violated a specific standard oliability; rather, the agency is saying only that Zucker should be liable because o his position, in complete disre-gard o the corporate orm and without any regard to whether is culpable.

Represented by Cause o Action, Inc., described as agovernment accountability organization, Craig Zucker . . . hassued the U.S. Consumer Product Saety Commission (CPSC),seeking a declaration that it exceeded its authority by naming himpersonally in an administrative action against the now-deunctcompany to orce a product recall. . . . Te complaint outlines theefforts the company took, in partnership with CPSC or severalyears, to ensure that its products would not be used by children.
http://www.shb.com/newsletters/pllr/pllr112713.pdfhttp://www.dandodiary.com/2013/11/articles/director-and-officer-liability/the-responsible-corporate-officer-doctrine-gets-an-administrative-extension/http://productsafetyblog.com/tag/administrative-complaints/http://www.mofo.com/files/Uploads/Images/130509-CPSC-Buckyballs.pdf



Zucker urther claimed that CPSCs actions in targeting him inhis individual capacity, even though there was anotherentityM&O rust, that was responsible or paying claimsagainst M&Owere meant to punish him and to deter other

corporate officers rom exercising their First Amendment rights and that its administrative process denied himdue process under the Fifh Amendment to the U.S. Constitution.

Former CPSC Chairman and Commissioner Nancy Nord au-thored an op-ed in the Wall Street Journal on the same day as theZucker case filing, supporting Zuckers efforts and dismissing theCommission or having adopted the philosophy that any action,

no matter how heavy-handed and outside established practice, is warranted i it achieves the desired result.

Mr. Zuckers unprecedented attempt to fight back against the Commissions aggressive tactics will have signifi-cant ramifications or businesses regulated by the CPSC and the individual liability o their officers.
http://www.crowell.com/NewsEvents/AlertsNewsletters/all/Buckyballs-CEO-Files-Action-Against-CPSChttp://www.crowell.com/NewsEvents/AlertsNewsletters/all/Buckyballs-CEO-Files-Action-Against-CPSChttp://www.dailyreportingsuite.com/products-liability/news/creator_of_buckyballs_sues_cpsc_for_free_speech_violations_and_abuse_of_authority_claims



Sheila A. Millaris a partner and Kathryn M. Biszkois an associate with the law firm Keller and

Heckman LLP.

L e g a l B a c k g r o u n d e rAdvocate for freedom and justi2009 Massachusetts Avenue, NWWashington, DC 20036202.588.0302

Washington Legal FoundaWLF

Vol. 28 No. 11 August 23, 2013

CPSCs MISUSE OF RCO DOCTRINE

BODES ILL FOR CEOs AND CONSUMERS

bySheila A. Millar and Kathryn M. Biszko

On June 19, 2013, an Administrative Law Judge (ALJ) denied a request by the National Associationof Manufacturers (NAM), Retail Industry Leaders Association, and National Retail Federation to intervene inthe Consumer Product Safety Commissions (CPSC) case of In re Maxfield and Oberton Holdings, LLC, et

al. Industry members had hoped to help challenge the Agencys unprecedented decisions to (1) name adissolved corporations former CEO individually as a respondent in the recall case; and (2) apply theresponsible corporate officer (RCO) doctrine outside the criminal context. Although the ALJ denied thisrequest, CPSCs effort to expand the Agencys enforcement powers raises broad public policy concerns,including whether its actions will chill reasonable objections to CPSCs future recall demands, unduly expandthe definition of childrens products, jeopardize expected legal protections of incorporation, and extend theRCO doctrine into uncharted territory.

Background. The case of Maxfield and Oberton (M&O) began in 2011, when the companysBuckyballs magnet novelty item for adults came under CPSC scrutiny following reports of ingestioninjuries. M&O initially worked with CPSC to develop more robust warnings on the top, side, and carryingcase, updating packaging and labeling to specify that the products were for adult use only, including strongwarnings about risks from accidental ingestion, and voluntarily recalling all magnets without the newwarning. M&O then obtained a letter from CPSCs General Counsel indicating that the product could belegally sold. However, CPSC later decided that the new warnings were insufficient, and in July, 2012 theagency filed an administrative complaint seeking to force M&O to recall the product and refund the purchaseprice to customers. Because the agency sought to completely stop M&O from selling its only product line,this became a bet-the-company case.

M&O strongly objected to CPSCs decision and launched a public relations campaign to tell thecompanys side of the story. As part of the campaign, M&O CEO Craig Zucker appeared on radio andtelevision shows, criticizing CPSCs attempt to ban the product and claiming that the agency was employingbullying tactics to put an American small business out of business. For example, the agency reportedlypressured retailers to stop carrying Buckyballs, and it issued a notice of proposed rulemaking to effectivelyban the product in September, 2012.1 On December 27, 2012, M&O filed a Certificate of Cancellation withthe state of Delaware, and dissolved as a corporation. It established a Liquidating Trust to settle anyoutstanding claims. Even though this development meant that Buckyballs would no longer be available forsale anywhere, even on the companys website, CPSC continued to pursue its complaint against thecompany.2

In response to the notice of M&Os dissolution, CPSC filed a second amended complaint in February2013 seeking to add Mr. Zucker, both individually and as an officer of the former corporation, as a

177 Fed. Reg. 53781 (Sept. 4, 2012).

2In the Matter of Maxfield and Oberton Holdings, LLC, CPSC Docket 12-1 (2013).



Copyright 82013 Washington Legal Foundation ISBN 1056 30592

respondent. CPSC argued that Mr. Zucker should be held individually liable for conducting a recall andrefunding the purchase price to customers. Despite Mr. Zuckers objections, an Administrative Law Judgegranted CPSCs motion on May 3, 2013. Oddly, the Agency did not seek to add the Liquidating Trust as arespondent, nor did it seek to add Mr. Zuckers co -owner (who had not personally criticized the CPSC inpublic). In the meantime, in April, 2013, a number of retailers did announce recalls of the products incooperation with CPSC.

If CPSCs efforts to hold Mr. Zucker personally liable succeed, this case will set a disturbingprecedent, giving CPSC added leverage in negotiating recalls and penalties with product manufacturers,

especially small businesses and owner-operated businesses.CPSAs Recognition of the Corporate Form. Although the Consumer Product Safety Act (CPSA)

establishes criminal and civil penalties against individuals for statutory violations, it does not confer authorityon CPSC to compel an individual to carry out a recall. In opposing CPSCs motion to name him individually,Mr. Zucker argued that the plain wording of CPSA Section 15 only authorizes the manufacturer, distributoror retailer to conduct a recall. Insome cases, the manufacturer, distributor or retailer could be an individualwho conducted business without forming a corporation or partnership, but that was not the situation here.Mr. Zucker argued that because manufacture and distribution were handled by a legitimate corporate entity,not personally, he could not be subject to personal liability under Section 15.

Mr. Zucker further argued that under U.S. corporate law, an officer, director, or shareholder of acorporation is not responsible for the debts or obligations of the corporation.3 Indeed, the generalpresumption is that individuals are not responsible for the actions and liabilities of their corporate employersexcept in rare instances where Congress has decided to supersede this protection by statute.4 Courts willpierce the corporate veil to hold shareholders or officers liable for the actions of a corporation underexceptional circumstances, such as where the corporation is a mere shell, serving no legitimate purpose,and used primarily as an intermediary to perpetuate fraud or promote injustice.5 Mr. Zuckers actions do notjustify disregard of the corporate form.

The ParkDoctrine and CPSC. Despite these arguments, the ALJ agreed with CPSC and held thatthe responsible corporate officer doctrine permitted Mr. Zucker to be added individually as a respondent. TheRCO doctrine, also known as thePark doctrine, began as a legal mechanism to hold high-ranking corporateexecutives criminally liable for violations of the Food, Drug, and Cosmetic Act (FDCA), even absentknowledge of or participation in the violation. Supreme Court casesUnited States v. Dotterweichand UnitedStates v. Park(reaffirmingDotterweich) held that a corporate agent who stands in a responsible relation to

a misdemeanor may be held criminallyliable for FDCA violations, even if the corporate officer did not play adirect role in the misconduct.6 Although thePark doctrine originated in the food and drug context, it also hasbeen applied in the context of other public health and welfare statutes. Most notably, the Clean Air Act andthe Clean Water Act expressly provide that a responsible corporate officer may be held liable for violationsof those statutes.7

In its recent ruling, the ALJ held that it must only determine whether, under the RCO doctrine, Mr.Zucker could be held individually responsible for the alleged CPSA transgressions of the corporation .Because the CPSA relates to the publics health and safety, the ALJ reasoned thatDotterweichandParkcontrolled in this case. The ALJ found the complaint sufficiently alleged liability under the RCO doctrine,citing CPSCs argument that Mr. Zucker was responsible for ensuring Maxfields compliance withapplicable statutes and regulations . . . . [and] personally controlled the acts and practices of Maxfield,

3SeeCitizens Elec. Corp. v. Bituminous Fire & Marine Ins. Co., 68 F.3d 1016, 1021 (7th Cir. 1995).

4The Model Business Corporations Act states: [A] shareholder is not personally liable for the acts or debts of the corporation

except that he may become personally liable by reason of his own acts or conduct. Model Bus. Corp. Act 6.22(b) (1984).5SFA Folio Collections, Inc. v. Bannon , 585 A.2d 666, 672 (Conn. 1991) (quotingAngelo Tomasso, Inc. v. Armor Constr. &

Paving Inc., 447 A.2d 406, 412 (Conn. 1982)).6320 U.S. 277 (1943); 421 U.S. 658 (1975).

7See42 U.S.C. 7413 (c)(6); 33 U.S.C. 1319(c)(6).



Copyright 82013 Washington Legal Foundation ISBN 1056 30593

including the importation of Buckyballs and Buckycub

Keep it in “Park”: How the CPSC is Stretching the Responsible Corporate Officer Doctrine Beyond...

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