When regulators retaliate

Congress’ attention may be on the IRS, but it isn’t the only agency that desperately needs congressional oversight. Last month, the Consumer Product Safety Commission settled a long-running legal dispute that shows the agency is more concerned with retaliating against dissenting business owners than with protecting consumers and ensuring product safety.

The CPSC case centers on Craig Zucker, a co-founder of the company Maxfield & Oberton that sold “Buckyballs.” The agency began a crusade against Mr. Zucker in 2012 on the pretense that this product—a popular desk toy comprised of small metallic balls—represented a health risk to children. Because Buckyballs were never declared unsafe, regulators skirted the typical recall process and directly appealed to retailers to stop selling them. This move quickly pushed the company out of business.

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Zucker responded by criticizing the agency for its heavy-handed enforcement tactics. He also demanded an explanation as to how his product was unsafe. Prior to its lawsuit, Zucker’s company worked with the CPSC on safety campaigns regarding their product. In fact, Maxfield & Oberton became an industry leader in product safety and a CPSC staff member who worked with Zucker’s company earned an award for the work done on product safety campaigns concerning Buckyballs.

But the CPSC wouldn’t brook dissent. It personally sued Zucker for not initiating a recall—a legally unprecedented step. Not content to have driven his company out of business, they demanded that he personally pay for the recall at a total cost of $57 million.

Zucker filed a counter-suit against the CPSC last November (he engaged my organization, Cause of Action, on a pro bono basis to file a separate complaint in federal district court showing how the agency lacks jurisdiction). In his suit, Zucker thoroughly rebuked the agency’s legal theory, based on criminal law norms, that he, as the “responsible corporate officer,” can still be held civilly liable for his company’s legal violations.

The CPSC’s lawlessness runs deep. The Consumer Product Safety Act does not state that individual corporate officers are responsible for product recalls. Furthermore, penalties against individuals who “knowingly and willfully” transgress the act must fall within certain categories. Failing to recall a product isn’t on the list. And how can there be a prosecution of an individual when Buckyballs were not illegal, nor was it illegal to buy, sell, or own them?

Rather than lose in court, the CPSC decided to settle with Zucker. This process concluded on May 9, when the two parties agreed to a $375,000 settlement.

Even this betrays the agency’s real intentions. The settlement is less than one percent of the original $57 million demand created by the CPSC. If the agency was initially correct that Buckyballs represent a threat to children, then it makes no sense for them to accept a monetary amount that will not cover the product’s recall—their demand throughout this dispute.

That leaves only one option: The agency was caught grossly abusing its power. But they wouldn’t admit defeat, so they saved face by getting a pittance rather than the pound of flesh they wanted.

The chairman of the CPSC even admitted as much in his dissent from the settlement. Commissioner Adler argued that it is “an unacceptable deal that is likely to be cited time and again… by respondents seeking to minimize and undermine” the agency’s actions against other businesses. Read: By not fully punishing Craig Zucker, other companies will question—and fight—the agency's overreach in the future.

Either way, Zucker has already been forced to pay the steep cost of doing business in an overreaching regulatory state. His company is still out of business, and he has racked up millions in legal fees. But this settlement is a victory for consumers and businesses, who now see that there are ways to push back against the federal government and stop outlandish targeting and abuse that disrupts the market and misleads consumers. Congress should make sure that the Consumer Product Safety Commission is actually on consumers' side.

Epstein is the executive director of Cause of Action, a non-partisan organization that uses public advocacy and legal reform tools to ensure greater transparency in government, protect taxpayer interests and promote economic freedom.