Zen Magnets, LLC v. Consumer Prod. Safety Comm'n

• Decision Date: 22 November 2016
• Docket Number: No. 14-9610,14-9610
• Parties: Zen Magnets, LLC, Petitioner, v. Consumer Product Safety Commission, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

841 F.3d 1141

Zen Magnets, LLC, Petitioner,

v.Consumer Product Safety Commission, Respondent.

No. 14-9610

United States Court of Appeals, Tenth Circuit.

November 22, 2016

David C. Japha, Law Offices of David C. Japha, P.C., Denver, Colorado, for Petitioner.

Daniel Tenny (Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Adam C. Jed, and Mark R. Freeman, Attorneys, on the brief), U.S. Department of Justice, Washington, D.C., for Respondent.

Before GORSUCH, EBEL, and BACHARACH, Circuit Judges.

EBEL

, Circuit Judge.

Petitioner Zen Magnets, LLC (“Zen”) challenges a regulation promulgated by Respondent Consumer Product Safety Commission (“the Commission”) restricting the size and strength of the rare earth magnets that Zen sells. See Final Rule: Safety Standard for Magnet Sets, 79 Fed. Reg. 59,962 (Oct. 3, 2014)

(codified at 16 C.F.R. §§ 1240.1 –1240.5 ). We conclude that the Commission's prerequisite factual findings, which are compulsory under the Consumer Product Safety Act, 15 U.S.C. §§ 2051 –2089, are incomplete and inadequately explained. Accordingly, we VACATE and REMAND to the Commission.

I. BACKGROUND

This case concerns sets of small, high-powered magnets (“magnet sets”) that users can arrange and rearrange in various geometric designs. The component magnets are unusually small (their diameters are approximately five millimeters) and unusually powerful (due to rare earth metal cores, their magnetic flux index¹ ranges from 400 to 500 kG²mm²). A set typically comprises on the order of 100 to 200 identical spherical magnets, coated in reflective silver or other bright colors. Magnets of this type were introduced to the United States circa 2009. They have since been marketed and sold to consumers—by Zen and other distributors—as desktop trinkets, stress-relief puzzles, and toys, and apparently also for educational and scientific purposes.

Although the strength of these magnets is part of their appeal, it can also pose a grave danger when the magnets are misused. Specifically, if two or more magnets are ingested—a temptation to which children are especially at risk—they can cause serious damage to intestinal tissue that becomes tightly clamped between them. Attendant medical consequences can include hospitalization and surgery for such injuries as perforations, infections, gastrointestinal bleeding

, and tissue death. The danger is compounded when parents and medical personnel remain unaware of the type of magnets ingested and their heightened risks.

That danger caught the attention of the Consumer Product Safety Commission. The Commission is an independent regulatory agency that administers and enforces the Consumer Product Safety Act (“the Act”), 15 U.S.C. §§ 2051

–2089, a primary purpose of which is “to protect the public against unreasonable risks of injury associated with consumer products,” id. § 2051(b)(1). In pursuit of that goal, the Commission is authorized to “promulgate consumer product safety standards” establishing performance or warning requirements for consumer products, id.§ 2056(a), as well as to ban hazardous products altogether, id.§ 2057.

The Commission's regulatory approach towards magnet sets progressed as follows. In 2008, Congress adopted as mandatory safety standards certain requirements developed by the American Society for Testing and Materials (“ASTM”) to address hazards associated with children's toys. See generally 15 U.S.C. § 2056b

; AR 142. With respect to magnets, those requirements prohibit any product “designed, manufactured, or marketed as a plaything for children under 14 years of age” from containing a loose magnet that (1) has a flux index greater than 50 kG²mm²and (2) is small enough to fit within a standardized “small parts cylinder.”² ASTM International Standard F963–11 Consumer Safety Specifications for Toy Safety §§ 3.1.37 (definition of “hazardous magnet”), 3.1.81 (definition of “toy”), 4.38–4.38.1 (prohibition of hazardous magnets in toys), and Fig. 3 (defining the small parts cylinder's dimensions to be a diameter of 31.7 mm with a height that, due to a sloped bottom surface, ranges from 25.4 mm on one side to 57.1 mm on the opposite side).³ The purpose of those restrictions is to ensure that permissible magnets are either large enough to discourage ingestion or weak enough to avoid tissue strangulation upon ingestion. See ASTM F963–11 4.38; cf. Final Rule: Safety Standard for Magnet Sets, 79 Fed. Reg. at 59,968.

During 2011, in response to reports of injured children, Commission staff began evaluating whether the magnet sets currently on the market complied with ASTM F963 (“the toy standard”). The Commission found that the individual magnets in those sets tended to be ten times more powerful—or, alternatively, six times smaller—than is permissible to market to children under the toy standard. See ASTM F963–11 §§ 3.1.37, 4.38–4.3.81; Final Rule: Safety Standard for Magnet Sets, 79 Fed. Reg. at 59,976

–77. Accordingly, Commission staff issued Notices of Noncompliance to companies that labeled or marketed these powerful magnet sets to appeal to children younger than fourteen years old, and warned other firms not to market their sets to children below that age.⁴

Some distributors took steps to comply with the toy standard, including implementing labeling enhancements and marketing restrictions. However, “into spring 2012, staff continued to identify additional firms offering [magnet sets] on the Internet with labeling and marketing violations.” Proposed Rule: Safety Standard for Magnet Sets, 77 Fed. Reg. 53,781, 53,782 (proposed Sept. 4, 2012)

(to be codified at 16 C.F.R. §§ 1240.1 –1240.5 ). Moreover, reports of child injuries from magnet ingestion continued.

So the Commission stepped up its enforcement efforts. In May 2012, the Commission required the thirteen leading magnet set distributors to report any information of which they were aware reasonably supporting the conclusion that their magnets did not comply with an applicable safety standard, contained a defect, or created an unreasonable risk of serious injury. See 15 U.S.C. § 2064(b)

(requiring distributors to report potential noncompliance with safety standards, defects, and risk of serious injury). Based on that information, by July 2012 Commission staff had negotiated agreements with ten of those companies to cease importation and distribution of magnet sets. Commission staff then initiated administrative complaints against the remaining three companies (including Zen), arguing that their magnet sets constituted “substantial product hazards” that must be prohibited and recalled because they failed to comply with the toy standard and/or contained a product defect.⁵

See 15 U.S.C. § 2064(a) (defining “substantial product hazard” to be a product that either (1) fails to comply with an applicable safety standard or (2) contains a product defect), (c) (authorizing the Commission to order a seller to cease distributing and to recall products that constitute a “substantial product hazard”).

Four months after eliminating ten of the leading magnet set distributors, the Commission proposed a new safety standard aimed at regulating the size and strength of all magnet sets. See Proposed Rule: Safety Standard for Magnet Sets, 77 Fed. Reg. 53,781

. In effect, the proposed standard extended the size and strength restrictions applicable to children's toys under ASTM F963 to magnets marketed, intended, or used for adult entertainment. After receiving comments and holding a public hearing, the Commission promulgated the proposed rule as a final safety standard on October 3, 2014. See Final Rule: Safety Standard for Magnet Sets, 79 Fed. Reg. at 59,962, 59,966–72.

The final rule requires that, “Each magnet in a magnet set ... that fits completely within the cylinder described in 16 CFR 1501.4

must have a flux index of 50 kG²mm²or less when tested in accordance with the method described in § 1240.4.” 16 C.F.R. § 1240.3. The referenced cylinder is the same small parts cylinder as that used in the toy standard. Compare 16 C.F.R. § 1501.4with ASTM F963–11 § 3.1.37 and Fig. 3. And the flux index limit of 50 kG²mm²is the same limit as that used in the toy standard. See 16 C.F.R. § 1240.4 (incorporating the flux index measurement procedure of ASTM F963–11 §§ 8.24.1–8.24.3). As a result, the primary difference between the two standards is their scope of intended consumers. Unlike the toy standard, the final rule is not limited to magnets designed or marketed as toys for children under fourteen years of age, but rather applies to all magnet sets that meet the following definition: “Any aggregation of separable magnetic objects that is a consumer product intended, marketed or commonly used as a manipulative or construction item for entertainment.”⁶ 16 C.F.R. § 1240.2(b).

Zen is the only remaining importer and distributor of the magnet sets targeted by the final rule. Over the years, Zen has made efforts to comply with the toy standard by implementing fourteen-and-under age restrictions and placing warnings on its website and packaging, as well as by imposing sales restrictions on its retail distributors. Its magnet sets, however, do not comply with the strength and size restrictions of the final rule set forth at 16 C.F.R. § 1240.3

. Accordingly, Zen seeks review of that safety standard pursuant to 15 U.S.C. § 2060(a), which provides that any person adversely affected by a rule promulgated by the Commission “may file a petition with the United States court of appeals ... for the circuit in which such person ... resides or has his principal place of business for judicial review of such rule.”

II. DISCUSSION

Exercising jurisdiction pursuant to 15 U.S.C. § 2060(c)

, we review the magnet set safety standard in accordance with the provisions for judicial review set forth in the Administrative Procedures Act (“APA”), 5 U.S.C. ch. 7. See 15 U.S.C. § 2060(c) (“[T]he court shall have jurisdiction to review the consumer product safety rule in...