The NFIB Small Business Legal Center recently announced that it was coming to the defense of an entrepreneur in his lawsuit against the federal agency that destroyed his company and then came after his personal assets—despite the fact he was never accused of a crime. At the center of the case is Craig Zucker, co-founder of Maxfield Oberton and inventor of its novelty product, Buckyballs. They are little magnetic balls that can be manipulated into various formations—often bought as gift for executives and office workers as a harmless distraction.
Of course, they are not harmless if swallowed by children. For this reason, they drew the attention of the U.S. Consumer Product Safety Commission (CPSC). In response to the Commission’s concerns, Maxfield Oberton made changes to the product’s label. The company even offered to sell the product in childproof containers, and to give the Buckyballs a bitter taste to discourage children from putting them in their mouths. But the CPSC never seriously considered those measures. Instead the Commission took the unusual step of ordering a total recall, and banning the sale of Buckyballs. This quickly led to the demise of Maxfield Oberton, which had previously thrived on the sale of Buckyballs.
The company soon went out of business. That is when CPSC turned its eye to Craig Zucker. The Commission brought an action against him seeking to hold him personal liable for the costs of the recall—an estimated 54 million dollars.
“There’s a bright, bold line between regulatory enforcement and regulatory abuse, and in this case the federal government crossed it without slowing down,” said Karen Harned, Director of the NFIB Small Business Legal Center. “The government acted so aggressively, so abruptly, so inflexibly and so arbitrarily that the company was destroyed. Then it took the highly unusual and, we believe, unlawful step of filing a personal lawsuit against Mr. Zucker even though no one, including the CPSC, ever accused him of committing a crime.”
“You read the news every day and find another tragic story about kids being injured by common products that the CPSC hasn’t recalled or banned,” said Harned. “But for some reason it treated this company differently and it did so with very little justification.”
Even more dangerous for entrepreneurs, said Harned, was the agencies attempt to hold Zucker personally responsible for the cost of the recall. “That kind of dramatic action is permissible under the law only when a corporate officer is accused of criminal wrongdoing, or where the company is clearly set up as a sham,” she said.
Zucker is now suing the CPSC, seeking a court order preventing the Commission from going after his personal asserts. NFIB filed a motion in the U.S. Federal District Court of Maryland last week voicing small business concerns over CPSC’ conduct, and cautioning the court against accepting the Commission’s expansive veil piercing theory. As NFIB Legal Center frequently argues to the courts, it is important that judges respect corporate formalities.