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Zen Magnets, LLC v. United States Consumer Product Safety Commission

United States District Court, D. Colorado

June 11, 2018

ZEN MAGNETS, LLC, Plaintiff,
v.
UNITED STATES OF AMERICA CONSUMER PRODUCT SAFETY COMMISSION, Defendant.

          ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

          R. Brooke Jackson United States District Judge.

         This matter is before the Court on plaintiff Zen Magnets’ (“Zen”) and defendant U.S. Consumer Product Safety Commission’s (the “Commission”) cross-motions for summary judgment. ECF Nos. 35, 36. For the reasons stated herein, the Commission’s Final Decision and Order is reversed and remanded with instructions to grant Zen a fair opportunity to participate in the Complaint Counsel’s appeal of the ALJ’s Initial Decision and Order before an impartial tribunal.

         I. BACKGROUND

         A. Factual Background.

         Zen markets and sells sets of high-powered small rare earth magnets (“SREMS”). These magnets are small (on the order of five millimeters in diameter), spherical, coated in reflective silver, and highly powerful. Zen sells its magnets, known as “Zen Magnets” and “Neoballs” (referred to collectively herein as the “magnets”) individually or in sets of 76, 216, or 1,728 magnets. ECF No. 35 at 2. The magnets can be separated and rearranged in various geometric shapes. Zen markets and sells its magnet sets for educational and scientific purposes, for stress relief, and as toys for adults that can be used for jewelry or refrigerator art, among other things. ECF No. 1-2 at 18.

         SREMs have been implicated in injuries to children and adolescents who swallow the magnets. Young children who come across spare or lost magnets have been known to ingest them accidentally or intentionally, whereas older children and adolescents may accidentally ingest the magnets while simulating tongue piercings or sticking the magnets to their braces. ECF No. 35 at 2. When two or more magnets-or one magnet and a metallic object-are ingested, they can cause intestinal damage. Due to their strength, ingested magnets can pinch or perforate digestive tissue as they are attracted toward each other within the gastrointestinal system. Id. at 3. Injuries caused by ingestion of SREMs include perforations, infections, tissue death, and gastrointestinal bleeding; such injuries have resulted in one death. ECF No. 1-2 at 22–23. The dangers of ingestion are exacerbated because many medical professionals and parents are unaware that children have ingested the magnets or that they pose such grave risks.

         B. Procedural Background.

         This matter originated in August 2012 when the Commission’s Complaint Counsel commenced an administrative adjudication against Zen and two other companies distributing SREMs. Complaint Counsel filed a complaint against the firms under Sections 15(c) and (d) of the Consumer Product Safety Act (“CPSA”)[1] seeking to have the SREMs declared a substantial product hazard and to obtain a public notice and recall of the magnets. ECF No. 1-2 at 1 (Final Decision and Order). The cases against Zen and the other firms were consolidated before Administrative Law Judge (“ALJ”) Dean Metry, and the two other firms entered consent agreements with the Commission in 2014, leaving only Zen in the adjudication.

         Also in August 2012, the Commission commenced a rulemaking to establish safety standards for magnet sets. ECF No. 40-1. The rule was finalized in October 2014. ECF No. 1 at 7. At the time the rule was issued, Zen was the only remaining distributor of SREMs in the American market. Safety Standard for Magnet Sets, 79 Fed. Reg. at 59,962–63 (Oct. 3, 2014). The Commission’s final rule set an industry-wide standard limiting the size and magnetic strength of SREMs. See Id. However, the Tenth Circuit vacated and remanded the rule in November 2016 after a challenge from Zen, because the Commission’s “prerequisite factual findings . . . are incomplete and inadequately explained.” Zen Magnets, LLC v. CPSC, 841 F.3d 1141, 1144 (10th Cir. 2016).

         As a result of the Commission’s rulemaking, Zen sought dismissal of the Complaint Counsel’s Second Amended Complaint in the adjudication proceeding before ALJ Metry in October 2014. ECF No. 1 at 3. Zen argued that the rulemaking demonstrated that the Commissioners were biased against Zen and had prejudged the facts in its case. Id. at 3–4. ALJ Metry denied this motion. Id. After a hearing in December 2014, ALJ Metry issued his Initial Decision and Order on March 25, 2016 granting in part and denying in part Complaint Counsel’s request for relief. Id. at 4. The ALJ found that Complaint Counsel had not proved the magnets were a hazard when accompanied with proper warnings and allowed Zen to continue selling its magnets with warnings. See id.

         On May 4, 2016 Complaint Counsel appealed the ALJ’s Initial Decision to the Commission for review. Id. Zen moved to stay the appeal pending a decision on its contemporaneously-filed Motion to Disqualify the Commission or Some of its Members for bias. Zen Magnets, LLC, CPSC Docket 12-2, Nos. 144, 145. The Commission denied Zen’s motion to stay as well as its motion to disqualify, though Commissioner Buerkle dissented from that decision, contending that her colleagues should be disqualified from hearing the appeal. See Zen Magnets, LLC, CPSC Docket 12-2, Nos. 152, 155.

         The Commission heard oral argument on the Complaint Counsel’s appeal in June 2017 and issued its Final Decision and Order (“FDO”) on October 26, 2017. Id. at 163. In the FDO, the Commission overturned ALJ Metry’s Initial Decision, finding that it was “based on numerous errors in fact and law.” ECF No. 1-2 at 1. Contrary to the ALJ’s decision, the FDO found that the magnets at issue “present a substantial product hazard and are, therefore subject to public notification . . . and recall measures.” Id.

         On November 6, 2017 Zen Magnets filed its complaint for injunctive and declaratory relief with this Court and moved for a preliminary injunction to enjoin enforcement of the FDO. See ECF Nos. 1, 2. After briefing and an oral argument on the motion for a preliminary injunction, the parties stipulated that the Commission would temporarily stay its enforcement of paragraph 2 of the FDO for 120 days, during which time the parties would submit cross-motions for summary judgment.[2] See ECF Nos. 20, 21, 24, 26. The parties’ cross-motions for summary judgment have been fully briefed. See ECF Nos. 35, 36, 39, 40. The Administrative Record has also been filed. See ECF Nos. 44–46.

         In its complaint Zen seeks to enjoin the Commission’s FDO on the grounds that the Commission violated Zen’s due process rights because its members were biased and had prejudged the matters on appeal. ECF No. 1 at 5. Zen also seeks to set aside the FDO under the Administrative Procedure Act (“APA”), codified at 5 U.S.C. §§ 702, 706(2) for being arbitrary and capricious; contrary to constitutional right; and/or unsupported by substantial evidence. Id. The Commission asks the Court to affirm the FDO and dismiss Zen’s complaint, whereas Zen asks the Court to grant summary judgment on all the claims in its complaint. ECF No. 35 at 1; ECF No. 36 at 1.

         II. STANDARD OF REVIEW

         Though the present motions are styled as cross-motions for summary judgment, in effect they are motions to have the Court decide Zen’s appeal of the Commission’s FDO. “[M]otions for summary judgment are conceptually incompatible with the very nature and purpose of an appeal,” and are “inconsistent with the standards for judicial review of agency action under the APA.” Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1579–80 (10th Cir. 1994).[3] As such, the Court’s review of these motions is governed by the APA.[4]

         Under the APA, the Court must set aside an agency’s decision if, after reviewing the administrative record, the Court finds that the decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A), “contrary to constitutional right, power, privilege, or immunity,” id. at § 706(2)(B), or “unsupported by substantial evidence,” id. at § 706(2)(E). Agency actions are presumed valid, and the burden of proof lies with plaintiffs who challenge such actions. Citizens’ Comm. to Save Our Canyons v. Krueger, 513 F.3d 1169, 1176 (10th Cir. 2008).

         “The scope of review under the ‘arbitrary and capricious’ standard is narrow and a court is not to substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). “Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” Id. (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). An agency action is arbitrary and capricious if:

the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

Id. Moreover, in reviewing an agency’s explanation for its action, the court must “consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” Id. (citation omitted). An agency is owed especially strong deference when “the challenged decisions involve technical or scientific matters within the agency’s area of expertise.” Utah Envtl. Cong. v. Dale Bosworth, 443 F.3d 732, 739 (10th Cir. 2006) (citation omitted).

         Zen also seeks to overturn the Commission’s FDO because it is not supported by substantial evidence. “‘Substantial evidence’ is more than a mere scintilla; it must be such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. . . . Evidence is not substantial if it is overwhelmed by other evidence . . . or if it constitutes mere conclusion.” Olenhouse, 42 F.3d at 1581 (internal citations omitted). “The substantial-evidence standard does not allow a court to displace the agency’s ‘choice between two fairly conflicting views, even though the court would justifiably have made a different choice had the matter been before it de novo.’” Trimmer v. U.S. Dep’t of Labor, 174 F.3d 1098, 1102–03 (10th Cir. 1999) (quoting NLRB v. Walton Mfg. Co., 369 U.S. 404, 405 (1962) (per curiam)).

         The APA also requires the Court to set aside any agency decision that is “contrary to constitutional right, power, privilege, or immunity.” 5 U.S.C. § 706(2)(B). Though the parties appear to disagree about the appropriate standard of review to apply to Zen’s constitutional claim, they both concede that a constitutional claim does not take the Court’s review outside the “procedural framework of the APA.” ECF No. 29 at 13 (emphasis in original); see also ECF No. 35 at 5. With respect to constitutional claims arising under the APA,

“[C]ourts afford agencies no deference in interpreting the Constitution. . . . The presence of a constitutional claim does not take a court’s review outside of the APA, however . . . and courts must still respect agency fact-finding and the administrative record when reviewing agency action for constitutional infirmities; they just should not defer to the agency on issues of substantive legal interpretation.”

Jarita Mesa Livestock Grazing Ass’n v. U.S. Forest Serv., 305 F.R.D. 256, 289 (D. N. M. 2015).

         III. ANALYSIS

         Two issues are raised in this action: (1) whether the FDO violated the APA because it is arbitrary and capricious or unsupported by substantial evidence; and (2) whether Zen was denied due process as a result of the Commission’s alleged bias and prejudgment of the facts and law at issue in the FDO.

         A. APA Claim.

         In the FDO the Commission determined that the magnets contain a defect because they create a risk of injury based on operation or use, including reasonably foreseeable misuse. ECF No. 1-2 at 15. The Commission observed that the magnets’ characteristics create a risk of injury because they are small, loose, separable, and strongly magnetic. Id. at 16. The Commission also rejected Zen’s argument that warnings could mitigate the risk of injury. Id. at 8–9.

         As noted above, an agency action is arbitrary and capricious if the agency (1) failed to consider the relevant statutory factors; (2) relied on factors which Congress has not intended it to consider; (3) entirely failed to consider an important aspect of the problem; or (4) offered an explanation for its decision that runs counter to the evidence before the agency or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Motor Vehicle Mfrs., 463 U.S. at 43. I agree with the Commission that its FDO does not reflect any of these deficiencies. However, Zen raises several discrete reasons it contends the FDO was arbitrary and capricious and unsupported by substantial evidence.

         First, Zen contends the Commission’s reading of its defect regulation was arbitrary and capricious because the Commission included foreseeable misuse and ignored the dictionary definition of defect. ECF No. 36 at 18, 22. Second, Zen argues that the Commission’s design defect finding was arbitrary and capricious because the Commission relied on the magnets’ separability and on allegedly faulty expert testimony with no other evidence of a defective design. Id. at 20–21. Last, Zen contends that the Commission’s finding that Zen’s warnings were defective was arbitrary and capricious because it ignored certain data and ingestion incident reports. Id. at 21–22. I will address each argument in turn.

         1. Defec ...


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