By Pamela C. Maloney, J.D.
Zen Magnets LLC and its owner, Shihan Qu, have been enjoined permanently from further sale of small magnets with a flux index greater than 50 by the federal district court in Colorado. The court further ordered Zen Magnets to conduct a recall in which the company must provide refunds to consumers who return the magnets. Zen Magnets was also directed to destroy the remaining magnets in the company’s inventory and to allow the Consumer Product Safety Commission to monitor its compliance with the court’s order (United States of America v. Zen Magnets, LLC, March 22, 2016, Arguello, C.).
Zen Magnets had purchased approximately 917,000 small magnets at a substantial discount from Star Networks, USA LLC, the company that had manufactured them. One week later, Star entered into a Consent Agreement with the Consumer Product Safety Agreement to settle an administrative complaint that the company’s Magnicube Spheres and Magnicube Cubes created a substantial product hazard. According to CPSC staff, when more than one of these high-powered magnets is swallowed by a child or an adult, the magnets rapidly clamp together and can cause serious internal damage. The Consent Agreement had required the company to implement a voluntary corrective action plan in which the company would recall the magnets, issue refunds to consumers who returned the magnets, and to destroy the magnets still in the company’s possession.
On May 14, 2015, the Colorado court issued a preliminary injunction against Zen Magnets and its owner ordering them to stop selling the high-powered magnets [see Products Liability Law Daily’s May 15, 2015 analysis]. The court had determined that the company and its owner likely were violating the Consumer Product Safety Act and likely would continue to violate the CPSA by selling magnets that had been purchased from the manufacturer shortly before the magnets were recalled. The court also ordered Zen to permit CPSC staff to monitor compliance with the injunction through unannounced field investigator verification visits to Zen’s places of business.
Zen Magnets admitted that it offered for sale and sold a consumer product that was subject to voluntary corrective action taken by the manufacturer and that the CPSC had notified the public of that corrective action. However, Zen Magnets argued that the plain language of the Consent Agreement indicated that the products subject to recall were defined by their Magnicube marketing, branding and packaging and that the “raw” Star magnets themselves were not subject to the recall. In other words, Zen Magnets claimed that by placing the magnets in different packaging and selling the magnets under different names, the magnets were no longer covered by the recall. The court rejected that argument, saying that Zen Magnets’ interpretation “would allow manufacturers and importers of consumer products to simply circumvent (and effectively disarm)” the Consumer Product Safety Act “by merely repackaging recalled products as they saw fit.” Zen Magnets further claimed that the raw magnets were no different from other high-powered magnets it had obtained elsewhere and were permitted to sell legally. The court explained that the fact that Zen Magnets could lawfully sell other magnets, even those that were identical in every respect to the Star magnets, was irrelevant to the issue before the court, which was whether Zen Magnets had sold the particular magnets that were included in the Consent Agreement. The CPSA prohibits any person from selling, offering for sale or distributing any consumer product that was subject to a voluntary corrective action. Thus, as of the date the Consent Agreement was signed, the Star magnets were “subject products” under the consent Agreement and Zen Magnets’ repackaging was immaterial to the company’s violation of the CPSA.
Civil penalties. The court also found that CPSC proved that Zen Magnets and its owner had knowingly violated the CPSA thereby triggering the Act’s civil penalty provisions. The company continued to sell these products despite multiple warnings from the Commission and the owner admitted that he was aware of the imminence of the Consent Agreement when he purchased the Star magnets.
Challenge to CPSC magnet rule. According to a DOJ press release announcing the district court’s order, Zen Magnets is separately challenging a rule issued by the CPSC that prohibits the sale of magnets or magnet sets that are small enough to be swallowed and that have a high degree of magnetic attraction. That rule went into effect and applies only to magnets sold after April 1, 2015. That case remains pending on appeal.
The case is No. 15-cv-00955.
Attorneys: Jamie L. Mendelson, U.S. Attorney's Office, for United States of America. David C. Japha (The Law Offices of David C. Japha, PC) for Zen Magnets, LLC.
Companies: Zen Magnets, LLC
MainStory: TopStory DamagesNews HouseholdProductsNews ColoradoNews
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