The War on Buckyballs: Park Doctrine Gone Awry

This article examines a federal regulatory agency and administrative law judge’s (ALJ) recent and unprecedented expansion of the responsible corporate officer (RCO) doctrine, also known as the Park doctrine.

Under an expanded formulation of the RCO doctrine, the founder of a now defunct company, which the U.S. Consumer Product Safety Commission (CPSC) drove out of business by effectively banning its main product, could have been held personally responsible for the cost of a $57 million product recall, even though no one contended that any underlying crime or other violation had been committed by the company or its founder.

In limited circumstances, the Park doctrine allows for criminal prosecution of an individual for a corporate violation without proof of the individual’s knowledge or participation in the wrongdoing. We have previously argued that application of this doctrine should be reserved for cases involving, at a minimum, serious harm to the public and proof of the individual’s negligence in failing to prevent that harm. ¹Allison D. Burroughs & Dahlia Rin, Clues to the Future of the Park Doctrine, FDLI Update, Nov.–Dec. 2012, 16; Dahlia Rin, John P. Pucci, & Robert L. Ullmann, The Misinterpretation of the Park Doctrine as Creating Strict Liability, FDLI Update, Nov.–Dec. 2011, 8. In this article, we argue that applying the doctrine where there is no allegation of wrongdoing and in an effort to make an individual former corporate officer responsible for an alarmingly high product-recall cost represents an unwarranted case of regulatory overreach.

Park Doctrine: Responsible Corporate Officer

The Park doctrine allows for criminal prosecution of individuals, typically high-ranking corporate executives of pharmaceutical companies, for violations of the Food, Drug, and Cosmetic Act (FDCA), even absent any proof of the individual defendant’s knowledge of or participation in the violation.

The seminal U.S. Supreme Court cases of United States v. Dotterweich
²United States v. Dotterweich, 320 U.S. 277 (1943). (1943) and United States v. Park
³United States v. Park, 421 U.S. 658 (1975). (reaffirming Dotterweich in 1975) established the RCO/Park doctrine, providing that a corporate agent who stands in a “responsible relation” to misconduct may be held criminally liable even without having played any direct role in the misconduct. ⁴Park, 421 U.S. at 673-74; Dotterweich, 320 U.S. at 280-81. Standing in such a “responsible relation” means the corporate agent must have had, “by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.” ⁵Park, 421 U.S. at 673-74.

Park liability provides a mechanism for holding corporate executives vicariously responsible for violations that occurred under their watch, even if they were not aware of and did not personally participate in those violations. The first occurrence is a misdemeanor (albeit one that, in the pharmaceutical context, is often accompanied by the career-ending consequence of exclusion from participation in federal health care programs by the Office of Inspector General of the U.S. Department of Health and Human Services), with subsequent felony liability for a reoccurrence.

Although this doctrine originated in the food and drug context, it also has been applied in the context of other public health and welfare statutes. For example, the Clean Water Act provides that a “responsible corporate officer” may be held liable for violations of the Act. ⁶33 U.S.C. §1319(c)(6). The same is true of the Clean Air Act ⁷42 U.S.C. §7413(c)(6). and the Radiation Control for Health and Safety Act. ⁸United States v. Hodges X-Ray, Inc., 759 F.2d 557, 560-61 (6th Cir. 1985) (holding that the RCO doctrine applied to impose civil liability for violations of the Radiation Control for Health and Safety Act of 1968). At the heart of the limited cases in which a corporate officer has been held individually responsible under the Park doctrine is a predicate violation of law by a corporate entity. The Buckyballs case, however, involved no such violation.

CPSC vs. Buckyballs

In 2009, entrepreneur Craig Zucker and a friend formed a small start-up company called Maxfield & Oberton Holdings, LLC for the purpose of importing tiny, powerful, rare-earth, spherical magnets known as Buckyballs (and later, their cubical offshoots, Buckycubes) to be packaged and sold as adult executive desk toys. ⁹Sohrab Ahmari, Craig Zucker: What Happens When a Man Takes on the Feds, Wall Street Journal (Aug. 30, 2013). Buckyballs, each only a few millimeters in diameter, can be placed together to form infinitely many shapes and patterns—an activity that, judging by how quickly the product gained traction, is a welcome diversion for many. ¹⁰Id.

What began as a small internet business in 2009 quickly grew into an overwhelming success story. In 2011, Buckyballs were named one of People Magazine’s five hottest trends of the year. ¹¹Id. By 2012, Maxfield & Oberton had established a distribution network of 5,000 stores and was doing $10 million in annual sales. ¹²Id. Before the company’s demise in 2012, more than 2.5 million sets of Buckyballs had been sold. ¹³Id.

In its first few years of existence, Maxfield & Oberton seemingly had a good relationship with the CPSC, collaborating with the agency on safety and labeling. Buckyballs were initially labeled “Warning: Not intended for children. Swallowing of magnets may cause serious injury and require immediate medical care. Ages 13+.” ¹⁴Complaint, Zucker v. United States Consumer Prod. Safety Comm’n, No. 13-cv-03355-DKC (D. Md. 2013). At that time, the CPSC defined a “children’s toy” as one intended for children 12 and under. ¹⁵Id.

In 2010, Maxfield & Oberton conducted a voluntary recall because of a new legal standard that changed the definition of children’s toys from products intended for children 12 and under, to products intended for children 14 and under. ¹⁶Ahmari, supra note 9. Maxfield & Oberton also revamped the packaging for Buckyballs to include explicit new warnings, including: “Keep away from all children!” and “Do not put in nose or mouth. Swallowed magnets can stick to intestines causing serious injury or death. Seek immediate medical attention if magnets are swallowed or inhaled.” ¹⁷Id.

The company went further, developing a comprehensive safety program that the CPSC approved in May 2010. ¹⁸Complaint, supra note 14. In November 2011, Maxfield & Oberton and the CPSC issued a joint press release and video highlighting the importance of keeping Buckyballs away from children. ¹⁹Id. The chairman of the CPSC even commended Maxfield & Oberton on its safety program when the video was filmed. ²⁰Id. In March 2012, the company developed a new website focused on safety and created a safety video shown both on the new website and on the company’s main website. ²¹Id.

Following these early years of collaboration between Maxfield & Oberton and the CPSC, the agency changed course abruptly, apparently determined to take Buckyballs off the market. ²²Richard Levick, Buckyballs: Stones Enough to Fight Back, Forbes Magazine (Nov. 25, 2013). In July 2012, seemingly without warning, the CPSC issued a preliminary determination that Buckyballs were defective because they posed a swallowing hazard to children. ²³Id. Thankfully, no deaths have been reported, but the CPSC has claimed there have been approximately 1,700 emergency room visits involving children who ingested various brands of high-powered magnets, among them Buckyballs. ²⁴Hilary Stout, Buckyball Recall Stirs a Wider Legal Campaign, New York Times (Oct. 31, 2013). According to the CPSC, from the release of Buckyballs in 2009 through July 2012, approximately 22 children had been non-fatally injured, which came out to approximately 1 injury per 21.5 million individual magnets sold. ²⁵Eliyahu Federman, Banning Buckyball Magnets Is Statistically Ridiculous, Huffington Post (July 31, 2012); Michelle Castillo, Buckyballs CEO on CPSC Complaint: “How Can This Happen in America?,” CBS News (July 26, 2012). (Another source put the figure at 53 instances of ingestion requiring medical invention.) ²⁶Press Release, Six Retailers Announce Recall of Buckyballs and Buckycubes High-Powered Magnet Sets Due to Ingestion Hazard, CPSC (Apr. 12, 2012). Some of these injuries were serious, requiring surgery to treat. ²⁷Castillo, supra note 25. The agency also determined that Maxfield & Oberton’s safety program—the same program that had been developed over the preceding years in close cooperation with the CPSC and which the agency had previously commended—was not sufficient to mitigate the risk. ²⁸Complaint, supra note 14.

The CPSC immediately began contacting the company’s major retailers and requesting that they voluntarily stop selling Buckyballs. ²⁹Id. Although Buckyballs were hot-ticket items, and although the CPSC acknowledged when asked by one retailer that it was “not a violation of any law … for any retailer to continue to sell Buckyballs and Buckycubes … until we have obtained a court order,” most of the retailers promptly acquiesced to the federal agency’s request to stop selling the products. ³⁰Id. As a result, Maxfield & Oberton, which relied on Buckyballs and follow-on “Bucky” products for 95 percent of its sales, was out of business in a matter of months, filing its certificate of cancellation in Delaware in December 2012. ³¹Id.

Meanwhile, the CPSC filed an administrative complaint against Maxfield & Oberton, seeking a determination that Buckyballs are defective—a question that was never adjudicated due to a settlement ultimately reached in May 2014. ³²In the Matter of Maxfield and Oberton Holdings, LLC, CPSC Docket No. 12-1 (2012); Josh Hicks, Buckyballs Founder Agrees to Product Recall in Settlement with Federal Regulators, Washington Post (May 13, 2014). But for the already-destroyed company, the answer to this question was largely a moot point. In February 2013, the CPSC asked the ALJ for permission to amend its complaint to add Mr. Zucker as a defendant. ³³CPSC’s Mot. for Leave to File Second Amended Complaint and Memorandum in Support (Feb. 11, 2013). The CPSC’s amended complaint sought an order that would require Mr. Zucker personally to conduct and bear the cost of a full recall of Buckyballs and Maxfield & Oberton’s related products at an estimated price tag of $57 million (the CPSC’s estimate). ³⁴Complaint, supra note 14; Nancy Nord, The Irrational Federal War on Buckyballs, Wall Street Journal (Nov. 12, 2013). Complying with such an order would require Mr. Zucker personally to notify all distributors to stop distributing the products, notify state and local public health officials, mail notice to each distributor and retailer, refund consumers the purchase price, reimburse retailers for their expenses resulting from the recall, submit monthly progress reports to the CPSC, and retain records of these actions for a period of five years—a daunting and costly to-do list for a company, let alone an individual. ³⁵Complaint, supra note 14.

In support of its motion to add Mr. Zucker as a defendant, the CPSC relied on the Park doctrine and the fact that Maxfield & Oberton no longer existed (due of course to the agency’s own preemptive actions in asking retailers to conduct a voluntary recall before obtaining a court order). In May 2013, ALJ Dean C. Metry of Texas granted the motion, concluding that because the Consumer Product Safety Act (the statute establishing the CPSC), “like the statute at issue in Dotterweich and Park, relates to the public’s health and safety … the rationale in Dotterweich and Park is both legally relevant and persuasive.” ³⁶Order Granting CPSC’s Mot. for Leave to File Second Amended Complaint (May 3, 2013).

Mr. Zucker Fights Back … and Settles

In November 2013, Mr. Zucker filed a federal lawsuit against the CPSC in the District of Maryland, seeking declaratory and injunctive relief that would invalidate the ALJ’s decision to apply the Park doctrine in this case, and prohibit the agency from exercising adjudicative authority over Mr. Zucker in his individual capacity. ³⁷Complaint, supra note 14. The complaint alleged, inter alia, that through an “unprecedented expansion” of the Park doctrine, the CPSC acted arbitrarily, capriciously, and “far beyond the boundaries of its legal authority.” ³⁸Id.

Tellingly, Mr. Zucker’s complaint was promptly endorsed by Nancy Nord, a recently retired commissioner (2005–13) and acting chairman (2006–09) of the CPSC, and the only commissioner who voted against filing an administrative action against Maxfield & Oberton to begin with. ³⁹Nord, supra note 34; Stout, supra note 24. Ms. Nord wrote in an op-ed, “As a former CPSC chairman, I believe in regulations and rigorous industry standards. But there is a line between safety regulation and overreach. That line has been crossed in the government’s action against Buckyballs and their creator, Craig Zucker… . I hope he wins his suit.” ⁴⁰Nord, supra note 34.

In May 2014, following half a year of motion practice in Mr. Zucker’s lawsuit, including an amicus brief filed by the U.S. Chamber of Commerce in support of Mr. Zucker, the parties settled. ⁴¹Hicks, supra note 32. Mr. Zucker agreed to recall Buckyballs and to establish and pay $375,000 into a trust fund for the recall—a small fraction of the $57 million cost that the CPSC initially sought to impose on him. ⁴²Id.; Debra Cassens Weiss, Buckyballs Creator to Fund Trust for Recall of the Magnetic Toys, ABA Journal (May 14, 2014). He touted the settlement as “a victory for me and for small-business owners across the United States.” ⁴³Jeff Sistrunk, Buckyballs Maker’s Ex-CEO Settles with CPSC, Law360 (May 12, 2014). The settlement left open the legal question of whether the Park doctrine can be used to hold an executive in Mr. Zucker’s situation responsible where there is no allegation of an underlying criminal violation by the corporation.

Why the CPSC and ALJ Got It Wrong

The CPSC’s decision effectively to ban Buckyballs would seem to be an arbitrary agency action to begin with. As Ms. Nord observed in her op-ed: ⁴⁴Nord, supra note 34.

The CPSC sees countless reports of children choking on balloons, swallowing detergent pods or being injured from riding adult-size ATVs. We haven’t banned these products—they come with warnings. Buckyballs were always marketed and sold for use by adults. Each set came with five conspicuous warnings to keep the product away from children.

One can only speculate about the agency’s motivations for seizing suddenly upon Buckyballs in the way that it did in mid-2012, after several years of a more collaborative approach.

What seems more clear-cut, however, is the patent misapplication of law that occurred when an ALJ accepted the CPSC’s view that the Park doctrine allowed Mr. Zucker to be held personally responsible for conducting a $57 million product recall. The CPSC and ALJ failed to appreciate that this doctrine is an exceptional one that has been reserved for limited circumstances that simply did not exist here. Every case in which it has been applied, whether civil or criminal, has involved a predicate violation of law by a corporate entity. ⁴⁵Complaint, supra note 14. Here, even the CPSC itself acknowledged that nothing illegal had occurred. ⁴⁶Id.

This case was manifestly different from the underlying facts of Park or its progeny. In Park, the CEO of a large national food chain was personally and repeatedly notified by the FDA of rodent infestation in the company’s warehouses—itself a violation of the Food, Drug, and Cosmetic Act—and failed to take any corrective action. ⁴⁷Park, 421 U.S. at 660-65. As one analysis found, “Of the few cases that invoke ‘responsible corporate officer’ liability, the overwhelming majority (if not all) have involved a defendant who was aware of the conduct giving rise to the violation but failed to correct it.” ⁴⁸Brent J. Gurney, Howard M. Shapiro & Robert A. Mays, The Crime of Doing Nothing: Strict Liability for Corporate Officers Under the FDCA, White-Collar Crime Reporter, Dec. 2007, at 1-4.

But here, there was no underlying violation to speak of. All that occurred was a preliminary determination by the CPSC that Buckyballs are defective by virtue of the swallowing hazard they pose to children—a determination that was never endorsed by any court order, and despite the obvious issues with treating an object that could be swallowed by a child as defective regardless of how it is marketed or labeled. As the CPSC admited, without such an order, it remained perfectly legal to continue selling Buckyballs, although Maxfield & Oberton no longer existed to sell them, largely as a result of the CPSC’s actions. ⁴⁹Complaint, supra note 14.

This is not to mention the practical impossibilities posed by the CPSC and ALJ’s approach. It would seem to be virtually impossible for a single individual without the support of a large business organization (or any business organization for that matter) to conduct a $57 million recall of a product that sold more than 2.5 million units over the course of several years. This cannot be what Congress had in mind when it granted the CPSC statutory authority to adjudicate an order for remedial actions, including product recalls. ⁵⁰15 U.S.C. §2064. Indeed, the statute in question gives the CPSC jurisdiction over manufacturers, distributors, and retailers, none of which accurately describes Mr. Zucker. ⁵¹Id. Thus, in addition to far exceeding any legal authority under the Park doctrine and taking a wildly overbroad view of what constitutes a defective product or a feasible recall, the CPSC may also have exceeded the boundaries of its statutory legal authority.

If Mr. Zucker had lost his case and the ALJ’s decision to apply the Park doctrine was afforded precedential value, that would have been an extreme and unprecedented expansion of the Park doctrine with legal and commercial ramifications. It may perhaps be inevitable that the Park doctrine will gain traction in other areas given the government’s extensive and effective use of it in the pharmaceutical context.

In the pharmaceutical context, however, the government has largely limited use of the Park doctrine to hold officers liable for a criminal misdemeanor in situations where the corporation itself has been found to have violated criminal laws. To hold a corporate officer financially accountable for an alleged consumer protection misstep without any allegation of criminal activity or malfeasance on the part of the individual corporate officer or the company is woefully misguided.

The threat of a corporate officer being held individually financially responsible, where his own conduct is clearly not criminal, can only have a chilling effect on who is willing to serve as a corporate officer, on how corporate officers conduct themselves in business matters, and on the innovation necessary to keep this country economically competitive.

Further, holding corporate officers personally responsible for corporate activity without any allegation of criminal activity by the corporation or negligence by the officer wholly undermines the purpose of the corporate structure. The Park doctrine may well have a place in the pantheon of enforcement tools used to keep the public safe and corporations accountable. But it must be used judiciously and only in cases where there is evidence of underlying criminal conduct by the company and negligence by the individual.