Products Liability Law Daily CPSC commissioners’ statements did not show prejudgment in violation of rare-earth magnet distributor’s due process rights
Wednesday, August 5, 2020

CPSC commissioners’ statements did not show prejudgment in violation of rare-earth magnet distributor’s due process rights

By Leah S. Poniatowski, J.D.

Analysis of statements’ context and content supported presumption that agency maintained its impartiality during a proceeding.

A rare-earth magnet distributor’s right to due process was not violated during an administrative proceeding of the U.S. Consumer Product Safety Commission conducted in response to complaints of the hazards the magnets presented to children, the U.S. Court of Appeals for the Tenth Circuit determined. The conjunction of the agency’s rulemaking hearing and the proceeding was not prejudicial, and the statements three commissioners made did not reflect prejudgment the appellate panel held, affirming the lower court’s determination with respect to two CPSC commissioners’ statements but reversing its conclusion as to a third commissioner. (Zen Magnets, LLC v. Consumer Product Safety Commission, August 4, 2020, Bacharach, R.).

Following the introduction of small, rare-earth magnets into the consumer market, reports came in of young children and older children having swallowed them or placed them in their mouths, resulting in serious injury and death. In response to the dangers presented by the rare-earth magnet products, the U.S. Consumer Product Safety Commission undertook two proceedings. The first was a rulemaking in which the agency proposed that the magnets be enlarged or their magnetic strength be weakened. During the public hearing in which CPSC approved its final rule, three of the commissioners made statements that the products presented risks, that the risks could not be mitigated, and that Zen Magnets, LLC, distributed the at-issue magnets.

The second was an adjudication in which CPSC authorized complaints against Zen and two other magnet distributors that these small rare-earth magnets presented a "substantial product hazard" as defined under law. The two distributors entered into consent agreements, thus making Zen the only party in the adjudication.

Administrative proceeding. The administrative law judge (ALJ) concluded that when accompanied by appropriate warnings, the magnets did not present a substantial product hazard, and that the previous warnings were inadequate. The ALJ also had the products without the proper warnings recalled. The agency appealed to the CPSC, and Zen requested that the three commissioners who had issued statements at the hearing be recused because of their prejudgment of the matter. The commissioners did not recuse themselves, however.

Three years after the initial rulemaking, CPSC determined that the magnets presented a "substantial product hazard" because a defect created a substantial risk of public injury and no warning could mitigate that risk. Zen appealed that determination to a federal district court, alleging that the agency decision was arbitrary and capricious under the Administrative Procedure Act.

District court. The district court held that the ALJ’s decision was not arbitrary and capricious, and that two of the three commissioners did not violate Zen’s due process by virtue of their remarks during the hearing [see Products Liability Law Daily’s June 15, 2018 analysis]. However, the court ruled that the third commissioner had violated Zen’s due process from his statement at the hearing and, as such, the Commission’s final order was invalidated. Both Zen and the agency appealed the trial court’s decision.

Jurisdiction. As an initial matter, the appellate panel stated that review of the district court’s ruling would be de novo. With respect to jurisdiction, the panel held that the practical-finality exception applied to the case at bar despite administrative remands generally being outside of an appellate court’s reach. Additionally, the panel exercised pendant appellate jurisdiction over the due process claims in the cross-appeal, i.e., the ruling concerning the two commissioners. However, the panel held that it did not have jurisdiction over the refusal to vacate the lower court’s ruling as an advisory opinion.

Due process. Zen argued that its due process was denied when: (1) the CPSC commissioners participated in an adjudication after issuing related rulemaking; and (2) three of the commissioners made public statements showing bias against the distributor. On the first argument, the pane; concluded that there was no due process violation. According to case law, the practice of agencies occupying multiple roles generally is permitted and recusal is required only in the circumstance of an administrator being unable to judge impartially. In the present case, there was no evidence that this lack of ability existed, the panel found.

Commissioner prejudgment. The panel explained that agency commissioners can be disqualified for bias if there is a showing that a commissioner prejudged a case or gave a reasonable appearance of having prejudged it. The standard to determine whether prejudgment was expressed is to consider the circumstances—context and content—of the statement. The CPSC asserted that its administrators can adjudicate issues even if they have expressed strong views on the topic, but the premise that a commissioner’s statements are insulated from scrutiny is incorrect.

Commissioner Adler stated during the rulemaking hearing that regardless of the strength of the warnings or narrowness of marketing, "children will continue to be at risk of debilitating harm or death from this product." This statement was later included in a press release on the CPSC’s website. With respect to the context of the statement, it was made during the hearing and, thus, weighed in favor of the agency.

On the matter of its content, it did not show prejudgment because it was made in response to the rulemaking inquiry whether the risk could be addressed through alternatives, including warnings. The panel explained that the statement was measured and that the commissioner later clarified that he was not passing judgment for the adjudication and that an unsafe finding of a product in a rulemaking might be cleared in an adjudication. Accordingly, there was no showing of prejudgment, or the appearance thereof, from those statements.

Similarly, Commissioner Robinson’s statements about the marketing being an issue and that the data on the risk of injury had been understated to be higher than unreasonable did not show prejudgment.

The panel also determined that Commissioner Kaye’s statements did not reflect prejudgment or its appearance. The commissioner’s statement differed from the other commissioners’ as it was passionate, but the expression of "strong views" is not necessarily disqualifying, the appellate panel said. The commissioner’s reference to his general concern for his own children’s safety was made in expression of sympathy for the family, present at the hearing, whose child had died after swallowing the magnets. The panel explained that the statement was not specific to a fear of his children’s safety vis-a-vis the magnets, and that it was not disconnected from his duties as a commissioner despite not being a part of the rulemaking.

An additional statement made later by the commissioner after the U.S. Department of Justice issued an injunction against Zen, that the "decision puts the rule of law and the safety of children above the profits sought by Zen … " was not related to adjudication and was measured. The panel found that the full statement focused on the injury from selling magnets that had been recalled and maintained the presumption that agency adjudicators are "capable of judging a particular controversy fairly on the basis of its own circumstances." Therefore, the lower court’s exclusion of Commissioner Adler was reversed, and its rejection of the other commissioners’ statements as biased was affirmed.

The case is Nos. 19-1168 and 19-1186.

Attorneys: Evan James House (Levin Jacobson Japha, PC) for Zen Magnets, LLC. Jaynie Randall Lilley, U.S. Department of Justice, for U.S. Consumer Product Safety Commission.

Companies: Zen Magnets, LLC; U.S. Consumer Product Safety Commission

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