Buckyballs Bails Out of Magnet Litigation, leaves Zen Magnets Holding the Bag

zen bagIn my Toys for Torts post, I covered the Consumer Product Safety Commission’s fight to force a recall of magnetballs.  These toys (or should I say “science kits?”) have become the modern lawn dart.  Federal regulators say the product poses an inherent danger to children and animals.  Magnetball sellers say the dangers are exaggerated and warning labels should suffice.

Two of the largest magnetball companies were named Buckyballs and Zen Magnets.  Each sold millions of magnetballs into the U.S. market, starting around 2009.  The companies had some friction in 2011 when Buckyballs CEO threatened to sue Zen Magnets and got this YouTube video in return.  But regulatory enforcement makes strange bedfellows, and the intra-industry tiff took a back seat in 2012 when the CPSC sued both companies, trying to force a recall.

The companies had different reactions to the lawsuit.  Buckyballs CEO Craig Zucker fought the lawsuit in the press and with lobbying efforts in Washington, but eventually shut down the LLC that was selling the product.  The CPSC responded by amending its lawsuit to add Zucker as an individual defendant.  Zen Magnets, on the other hand, continued business as usual.  It still offers magnetballs for sale through its website.

Just last month, Zucker and the CPSC signed a consent order.  Zucker, with no admission of wrongdoing, pledged $375,000 toward a recall of Buckyballs.  Here is the consent order.  It looks like Zucker will need to put up $100k towards publication of a website, to last five years, and administration of a six-month recall, with the rest of the money put in escrow to pay claims.  However, if there are any unclaimed funds left in the escrow after one year, Zucker gets the money back.  (It’s not clear to me what would happen if there were more recalls in one year than could be supported by the escrow account.  Do the U.S. taxpayers foot the bill?)

Both sides claimed victory – Zucker (or an anonymous supporter) through a WSJ opinion piece, and the CPSC Commissioners through their website.  However, each Commissioner had a different reaction.  Robinson’s press release crows almost as loudly as Zucker’s.  Buerkle supports the settlement, but takes offense at the fact that Zucker was added as a defendant by unilateral action of the Presiding Officer, and not by a vote of the Commission.  Only Adler, who dissented from the settlement, says it didn’t go far enough.  He makes two points that were in my mind upon reading the consent order – why pay to maintain a recall website for five years if customers only have six months to respond?  And is $375k enough?

The second point is significant in deciding who really won this battle.  Did Zucker beat City Hall?  Or did he end up doing basically what the CPSC wanted in the first place?  Let’s do a little back-of-the-napkin math.  In its Complaint, the CPSC estimated 2.5 million Buckyballs (or variants) were sold.  A set of 10 cost $3.50.  250k sets at $3.50 each gives us $875k.  Now, Zucker himself has been quoted as saying he made millions off Buckyballs, so we might assume the $875k number is low.  But how many purchasers are likely to actually return their Buckyballs?  Presumably anyone who finds the product dangerous already got rid of it.  The $275k in escrow covers the return of about 78,000 sets.  Of course there is postage, etc., but I have a hard time believing Zucker would have experienced this level of returns even if he agreed to a recall at the outset (and he might have saved some hefty litigation fees).

What effect will this consent order have on future market behavior?  Does a penalty of this size have a deterrent effect?  I doubt it, but the CPSC’s willingness to hold LLC members personally liable might.  Or the maneuver may simply have made Zucker a hero to small gov advocates, with a strong base of support for his future projects.

And what now for Zen Magnets?  They are still in the fight and beginning the discovery phase of litigation.  Zucker is out of the CPSC’s sights but might still be on its deposition list.  Will Zucker take the chance to sink his former rivals?  I think Zucker wants to preserve his anti-establishment image, and he still might be on the hook for tort liability.  So, for now, I expect these magnetball magnates to stick together.

LawTunes*

I started playing music just before class.  It fills the awkward few minutes when most of the students are already in their seats, and when the song ends, it’s a signal for them to put away their cellphones.  It’s also a subliminal business law lesson!  I pick a song to match each day’s topic.  Help me find more!

Introduction / Role of Attorneys in Business – “One Million Lawyers,” Tom Paxton (1985)

Civil Procedure – “Good Morning, Judge,”  Wynonie Harris (1950)

Civil Procedure – “So Sue Us,”  Dance Hall Crashers (1995)

Constitutional Law – “God and Guns,” Lynyrd Skynyrd (2009)

Privacy Rights – “Private Eyes,” Hall and Oates (1981) 

Civil Rights Act of 1964 – “The Way It Is,” Bruce Horsby and the Range (1986)

Crimes – “I Fought the Law,” The Bobby Fuller Four (1965) (I play this along with a slideshow of famous white-collar criminals.)

Offer and Acceptance – “My Only Offer,” Mates of State (2008)

Contractual Capacity (Minors) – “I’m Eighteen,” Alice Cooper (1971)

Consideration – “No Consideration,” Jimmy Burns (1999)

Promissory Estoppel – “Promises, Promises,” The Naked Eyes (1983)

Breach and Remedies – “The Remedy,”  Jason Mraz (2002)

Partnerships – “Do You Wanna Partner,” from the Bollywood romantic comedy, “Partner” (2007)

Partnerships – “It Takes Two,” Rob Base & DJ EZ Rock (1988)

Business Ethics – “Why Don’t You Do Right,” Peggy Lee (1950)

 

* After using the term “LawTunes” to describe these songs all semester, I learned that there is an actual band with this name.  They specialize in Xmas tunes for overworked JDs – such as “Another Billable Christmas,” “Yule Hear From Our Lawyers,”  and “I Got A Footnote in My Stocking.”  Rock on, fellas.  Just make sure you get that filing done first.

 

Drone Home

Drones have a few new places to spread their wings.  On Dec. 30, the FAA approved six “operators” to manage research and test sites for Unmanned Aircraft Systems (UAS).  The FAA press release and supporting documents are available here.

Test site operators include public universities in Alaska, Texas, and Virginia, as well as a New York airport, the North Dakota Department of Commerce, and most broadly, the State of Nevada.  But where exactly are the test sites?  On this point the FAA is quite vague.  Although at first glance the FAA documents indicate there are only six test sites (e.g. “FAA Selects Six Sites for Unmanned Aircraft Research“), a closer look reveals that there are six approved operators, and each operator may have several test sites, which might be located in more states than just the operator’s home state.  For example, “The University of Alaska proposal contained a diverse set of test site range locations in seven climatic zones as well as geographic diversity with test site range locations in Hawaii and Oregon.”

The FAA only provides information on test site location at the state level, leaving it unclear whether each state will contain one or multiple test sites, which part(s) of each state will host the test sites, or even whether major population centers will be part of the test sites.  It seems like a strange omission from FAA documents such as the UAS Test Site Fact Sheet, which has a section called “The Test Sites:  Who, What, Where.”

Always view a holiday press release with suspicion.  Is there a reason this couldn’t wait until Jan. 2?  Does the FAA hope any cries of protest will be lost among the popping of fireworks and champagne corks?

Of course, the FAA puts out a lot of important information over the holidays – just look at this Dec. 24 press release:  “FAA Gives Santa, Sleigh & Crew a GO for Launch.”  Santa’s sled is Wi-Fi enabled this year, and he put his flight plan on an iPad.  No, I am not making this up.

“We’re helping Santa fly smarter and faster while making sure he has a safe and successful mission” said FAA Administrator Michael Huerta.  Oh, and Nevada is now a drone test site. Happy Holidays!

To add a further element of paranoia, the FAA’s UAS test site gurus, Alison Duquette and Les Dorr, Jr. have the same contact number as the FAA’s Santa liaison,  Kristie “Elf on the Shelf” Greco.  Does Santa plan to deliver presents by drone next year, Jeff Bezos-style?   Or is this merely an FAA ploy to distract drone critics?  (Welcome to FAA public relations.  If you’d like to comment on drone testing, press 1.  If you’d like to leave a message for Santa, press 2.)

The FAA’s drone announcement may be flying under the radar, but those who have followed the issue shouldn’t be surprised.  In 2012, Congress passed bills requiring the FAA to establish the U.S. drone testing sites.  New Mexico already had a test range, and NASA’s been testing drones in California since at least 2004.

The FAA solicited public comments on both the site selection process and privacy requirements.  It also held a two-hour phone-in “public engagement session.”  The transcript is worth a read.  What sort of person calls the FAA on their lunch break to talk about drone privacy?  Mostly people who build and sell drones.  Also public privacy advocates.  And then there’s this guy:

While I’m a lawyer, I am actively developing several business models to use unmanned aerial vehicles to provide safety and security for all Americans and especially to cut energy use by one-third, specifically I am looking at a business model that incorporates unmanned aerial vehicles to constantly monitor our major metropolitan areas so that we can turn off the lights at night . . . what everyone who talks about this issue of privacy fails to consider is that the right of self defense is a constitutional dimension, the right to deploy drones to surveill the conduct of people in and around your environs is constitutionally protected.  So we have the entire debate flipped.  What we should be talking about is how promptly and quickly the FAA is going to move to recognize the self defense rights of all Americans to deploy drones in many different varieties in order to provide self defense.

I think this commenter is saying that we should fill our cities with weaponized mini-drones so we can save money on streetlights.  True, I might feel safer walking around at night with a Predator hovering over my shoulder.  Except that I couldn’t walk around at night.  Because there aren’t any lights.

Anyway, back to the test sites.  I’ve noticed that all the early FAA documents, including the public comment notice, refer to six test sites, not six operators.  This may seem like semantics, but it already appears to have expanded the states with test ranges from six to nine (University of Alaska also will test in Hawaii and Oregon, and Virginia Tech also will test in New Jersey, according to the fact sheet.)  Expect some pushback on this in the new year.

ACLU v. Holder: NSA Metadata Collection Upheld by S.D.N.Y.

On December 27, just ten days after D.D.C.’s Judge Leon awarded a preliminary injunction against the NSA’s telephone metadata collection in Klayman v. Obama, a different federal judge ruled in the NSA’s favor.  This gives us conflicting opinions in different federal districts and brings the issue one step closer to its likely endgame at the U.S. Supreme Court.

In ACLU v. Holder, Judge William H. Pauley III of the Southern District of New York denied the ACLU’s motion for preliminary injunction and dismissed the ACLU’s lawsuit.  The facts in ACLU v. Holder are about the same as in Klayman v. Obama, so how did Pauley come to the opposite result?  Clearly, the two judges see this issue differently, and aren’t afraid to make their opinions known – both Leon’s 68-page opinion and Pauley’s 51-pager read like pieces of advocacy, and there’s no doubt each judge, in writing his opinion, considered its effect on the appellate courts that would review it.

I blogged last week about the Leon opinion.  So what does Pauley have to say?  No Beatles references here – Pauley is all about the Stars and Stripes.  “The September 11 terrorist attacks” are his first words, and Pauley goes on to suggest that 9/11 might have been prevented by a collection program like the NSA’s.  Writing in a courthouse less than a mile from Ground Zero, Pauley might be tempted to call checkmate right then and there, but he goes on to flesh out his opinion with legal authority for the NSA metadata collection under the Patriot Act, as well as the First and Fourth Amendments.

You can read the full opinion here.

“A Bold Jujitsu”

While Judge Pauley’s opinion isn’t as florid as Judge Leon’s, Pauley does get philosophical, even poetic, at times.  In his opening paragraph, he states:

While Americans depended on technology for the conveniences of modernity, al-Qaeda plotted in a seventh-century milieu to use that technology against us.  It was a bold jujitsu.  And it succeeded because conventional intelligence gathering could not detect diffuse filaments connecting al-Qaeda.

Judge Pauley’s opening argument is visceral.  He quickly switches from the third person – “Americans” – to the first – “us.”  And the way “we” could have protected ourselves, according to Pauley, is through a program like the NSA’s.  With this opener, Pauley shows a little jujitsu of his own.  This is no longer a case about citizens holding their government responsible for covert domestic surveillance.  It is a case about “us” (Americans) versus “it” (al-Qaeda, with its spidery “filaments”).  A bold move, Pauley – certain to win sympathy in Manhattan, and perhaps in the Second Circuit as well.  But what does Pauley mean by “a seventh-century milieu?”  Is this a reference to historical Muslim conquests?

Secret Means and Methods

On pp. 3-9, Pauley describes FISA and the Patriot Act.  Even in this “Background” section, the judge argues the merits of clandestine surveillance:  ” . . . in matters of national security, the Government must be able to keep its means and methods secret from its enemies.”

I briefly cover the Fourth Amendment and Constitutional privacy rights at the beginning of my business law class, and this is one of the questions I put to the students – how should a government balance national security with its citizens’ privacy?  Are national security concerns paramount in time of war?  Is the “War on Terror” a war in this regard?

Judge Pauley wades briefly into this debate at pages 8-9:  “In recognition of the broad intelligence gathering capability Congress granted to the Executive Branch, section 215 included a sunset provision terminating that authority at the end of 2005.  But the war on terror did not end.  Congress has renewed section 215 seven times.”  Why include the phrase “But the war on terror did not end?”  The comment seems out of place and almost sarcastic – for who in 2013 America believes the war on terror has a foreseeable end, even if al-Qaeda is annihilated?  However, from the context, I think that Pauley means for his comment to be taken at face value, and the judge does believe that a surveillance program designed to be temporary reasonably could be extended for an indefinite period until the war on terror “ends.”

“Those Issues Were Resolved”

After describing the FISC oversight and the rigorous protocols required of the NSA surveillance program, Pauley addresses concerns that the NSA, in some cases, did not follow protocol.  Pauley dismisses these concerns quickly, quoting an FISC judge’s partially-declassified order: “Through oversight by this Court over a period of months, those issues were resolved.”  Look for this to be a common theme in judicial opinions supporting the constitutionality of the NSA program.  No judge wants to be the one to dismantle the NSA program and risk a terrorist attack that might have been prevented.  Even Judge Leon passed the buck by staying his injunction while Klayman went up on appeal.  The Obama administration has already initiated an overhaul of NSA collection methods and their oversight, with the possible addition of a “citizens advocate” on the FISA court.  It might be tempting to find that such developments in the executive branch moot claims against the NSA’s programs, programs that may change significantly by the time the case reaches the Supreme Court.  I assume that’s what Judge Pauley is indicating in his cryptic remarks near the end of his opinion, on p. 51:

As FISA has evolved and Congress has loosened its individual suspicion requirements, the FISC has been tasked with delineating the limits of the Government’s surveillance power, issuing secret decision [sic] without the benefit of the adversarial process.  Its ex parte procedures are necessary to retain secrecy but are not ideal for interpreting statutes.  This case shows how FISC decisions may affect every American — and perhaps, their interests should have a voice in the FISC.

It’s a strange comment from a judge that uses the rest of his opinion to defend the FISC’s secret decisions in the name of national security, and I think it is telling of how this case will end.  No court wants to definitively label the NSA program unconstitutional.  It’s much more palatable to find that the primary concerns with such programs have been resolved through actions of the Executive and Legislative branches.

Statutory Claims

Judge Pauley addresses the ACLU’s statutory claims first and finds that civil actions by NSA “targets” such as the ACLU are explicitly prohibited by FISA and the Patriot Act.  What’s interesting is that, even after claiming Plaintiffs cannot bring a statutory cause of action, Pauley goes on to address, and dismiss, the merits of the Plaintiffs’ statutory claims.  He takes over ten pages to do so.  As these arguments are not necessary to support his ruling, one can assume that the judge is again taking on the role as advocate and “pleading in the alternative” to the Second Circuit, in case it doesn’t agree that the statutory cause of action is barred.

Liberty and Security

I may write more later on Pauley’s constitutional analysis.  In short, he finds Smith to be binding precedent and therefore finds that the metadata collection is not a Fourth Amendment search.  I mentioned in my earlier blog post that I found Leon’s analysis of Smith suspect, and I think Pauley has the better argument here.  Pauley makes the sound point that the type of information that the NSA collects from telecommunications providers (metadata) is the same as the type of information that was collected by the Smith “pen register.”

As far as philosophical questions of privacy vs. security, Pauley has a strong opinion:  “It is obvious and unarguable that no governmental interest is more compelling than the security of the Nation.”  (p. 47, quoting Haig v. Agee).  He reiterates this point in his conclusion, where he once again takes us back to September 11, quoting the 9/11 Commission Report:  “The choice between liberty and security is a false one, as nothing is more apt to imperil civil liberties than the success of a terrorist attack on American soil.”  This is a fair point, but it’s not the end of the debate.  Coming back to Judge Leon’s fears of our “almost-Orwellian” national security apparatus, we also have to ask what made Orwell’s 1984 a dystopia, and whether, in strengthening our national security, we are giving up an essential part of our national character.  It’s a highly nuanced question that will be on the mind of the appellate judges, and perhaps the Supreme Court justices, who will consider this issue on appeal.

Klayman v. Obama: Privacy in the Time of Orwell

On Dec. 16, federal judge Richard J. Leon issued a preliminary injunction in Klayman v. Obama, a case challenging the NSA’s bulk collection of phone metadata.  The lawsuit, filed by Washington attorney Larry Klayman, is one of several challenging the NSA surveillance programs made public by Edward Snowden.   The ACLU filed a similar lawsuit a few days later, called ACLU v. Clapper.

After Judge Leon issued his opinion in the Klayman case, the ACLU wrote on its website that “A federal court ruled today that the NSA’s mass call-tracking program violates the Constitution.”

Not quite.  Judge Leon merely granted a preliminary injunction.  Part of the standard for such an injunction is whether the plaintiff has “a substantial likelihood of success on the merits.”  So the most we can say is that Judge Leon, based on the limited record before him, thinks the NSA program is probably unconstitutional.  Also, the injunction, which prohibits the NSA from further collecting and querying telephone metadata, only applies to two plaintiffs (Larry Klayman and Charles Strange) and has been stayed pending the government’s inevitable appeal.

Despite its limited effect, Leon’s opinion has precedential value and is worth a read, if only to see how it tees up this issue for a trial on the merits.  Judge Leon has some entertaining moments, weaving both George Orwell and George Harrison into his 68-page opinion.  (Click here for full opinion)

Let’s take a look at the highlights.

NSA 101

The Background section (pp. 6-23) is a helpful primer on the NSA’s collection techniques, FISC oversight, and the statutory background for each.  Leon takes us through FISA, the Patriot Act, and the judicial review process.  We also get a lot of details, from the affidavits of government officials, on how the NSA collects and queries phone data.

The Fab Three Plus One

The opinion really picks up around page 38, when the Beatles take the stage.   Apparently, the government attorneys suggested that the NSA only collected data from Verizon’s business networking service, and not Verizon Wireless or any of the other major wireless carriers.  Judge Leon isn’t having it.  From footnote 36:

To draw an analogy, if the NSA’s program operates the way the Government suggests it does, then omitting Verizon Wireless, AT&T, and Sprint from the collection would be like omitting John, Paul, and George from a historic analysis of the Beatles.  A Ringo-only database doesn’t make any sense, and I cannot believe the Government would create, maintain, and so ardently defend such a system.

Now, we all love it when federal judges make pop culture references, but let’s give Ringo a break, huh?  Octopus’ GardenYou Know It Don’t Come Easy?  Judge Leon, I refer you to Thirteen Reasons to Give Ringo Some Respect.

And second, what’s wrong with a good ol’ American band analogy?  Maybe Judge Leon has Britain on the brain – after all, it was UK-based news outlet The Guardian that first published Snowden’s files.   But this is a case of extreme national importance, and the American people deserve to hear their federal judges mock the U.S. government using domestic pop icons.  For example – “I cannot believe the Government would so ardently defend a Kiss collection limited to songs by the guy with the cat face.”  Of course, now I’m on his case.

Going to the Orwell Once Too Often

At page 44, Judge Leon begins to analyze the NSA’s phone metadata collection under Fourth Amendment case law.  From the outset, it’s apparent where his sympathies lie:

The threshold issue that I must address, then, is whether plaintiffs have a reasonable expectation of privacy that is violated when the Government indiscriminately collects their telephony metadata along with the metadata of hundreds of millions of other citizens without any particularized suspicion of wrongdoing, retains all of that metadata for five years, and then queries, analyzes, and investigates that data without prior judicial approval of the investigative targets.

Well when you put it that way, it does sound kind of intrusive.   But what about Supreme Court precedent?   In Smith v. Maryland (1979), the police installed a “pen register” that captured metadata on a suspect’s landline phone.  The Smith Court found that was not a Fourth Amendment “search.”  Judge Leon distinguishes Smith with an interesting argument – that “present-day circumstances” make the 34-year old case inapplicable.   Leon points out that “[t]he Supreme Court itself has recognized that prior Supreme Court precedents and doctrines do not always control in cases involving unique factual circumstances created by evolving technology” (at pp.46-47, n. 46).

Leon’s point is central to this case and any case involving privacy rights and technology.  I raise this issue with students in my business law classes.  How does the law keep up with technological advances?  What about case law that was established before the advances took place?  Does it still have value?  And, if not, what’s the expiration date on legal precedent?

I agree with Judge Leon that the scope of the NSA surveillance program far exceeds that of Smith’s “pen register” collection.  But I’m not so quick to dismiss Supreme Court precedent merely because it comes from a time when a program like the NSA’s was “unlike anything that could have been conceived . . .” or “the stuff of science fiction.”  Courts can, and should, consider how their precedents will apply in 10, 20, even 34 years time.  Why not take judicial notice of science fiction?

Leon calls the NSA’s technology “almost Orwellian.”  George Orwell’s famous dystopian novel 1984 was published in 1949 – thirty years before Smith and almost certainly known to the justices on the Smith court.  So maybe the justices did see the potential for America to become a “surveillance state” where the government put “pen registers” on its citizens’ phones as a matter of course.  Leon puts a lot of store in the notion that cell phones did not exist in 1979, but, again, any Star Trek fan could have seen them coming.

If, as Judge Leon suggests, the NSA’s programs are “almost-Orwellian,” it begs the question – has the prevalence of “Orwellian” technologies changed society’s view of privacy to make such intrusions acceptable?  The citizens in Orwell’s 1984 knew they were constantly being watched – you might say they had no subjective expectation of privacy, and, even if they did, society would not find that expectation reasonable (the Katz test).  In modern society, we’ve become accustomed to a number of intrusions that didn’t exist in 1979 – ubiquitous security cameras, Google Street View, and the development of cell phones, watches and spectacles equipped with video cameras.  Is society growing accustomed to a world where our lives are constantly captured and documented?  If so, should that be factored into the Katz test?  Or has the march of technology rendered Katz (1967) obsolete?

The Fruit of the Poisonous Tree

Judge Leon finds that the NSA collection program is a “search” under the Fourth Amendment, but goes on to note that “[w]hether the program violates the Fourth Amendment will therefore turn on ‘the nature and immediacy of the government’s concerns and the efficacy of the “search” in meeting them’” (p. 59, quoting Earls).

The NSA program failed this test, according to Leon, because the government did not show that the program prevented terrorist attacks that would not have been prevented through other means.  Leon notes that the government provided evidence of how the NSA program collected information faster than through traditional means, but never showed that the program was essential for preventing terrorist attacks.

We shouldn’t be surprised if, at this point in the litigation, the government wants to play its national security cards close to the chest.  The exclusionary rule, also called the “fruit of the poisonous tree” doctrine, says that evidence obtained as the result of an unconstitutional search can be held inadmissible in a criminal prosecution.  So let’s say the government does what Judge Leon asks and conclusively demonstrates that it used the collection program to apprehend a would-be terrorist, a terrorist they wouldn’t have caught otherwise.  That might strengthen the government’s case, but, if the program is still found to be unconstitutional, the terrorist might be acquitted due to the exclusionary rule.

So even if the government has evidence of the “efficacy” of its collection programs, it has to make a strategic decision whether, and when, to release that information.  A preliminary injunction hearing, with a very limited application, might not be the correct time.  But Klayman’s victory in the preliminary injunction might force the government to reveal more sensitive details of the NSA program’s “efficacy” in the upcoming trial on the merits.

Teaching Notes

  • This opinion would make interesting reading and discussion material for a class on national security, privacy, or Constitutional law.
  • pp. 6-23 has a helpful background on the NSA metadata collection and relevant national security law.
  • pp. 34-66  discusses the standard for a preliminary injunction and analyzes the plaintiff’s Fourth Amendment claims.
  • Discussion topics:
    • Does legal precedent have an expiration date?  At what point has technology or society changed so much that we can disregard “old” judicial opinions?  Does the same apply to legislative acts?  What about the Constitution itself?
    • Assume the government has evidence of a terrorist attack that was prevented due to information obtained from the NSA collection program.  Without the collection program, there would be no evidence against the (now-convicted) terrorist.  Do you present this evidence to Judge Leon knowing that, if you lose, the terrorist might get a new trial and an acquittal?  How might this affect your litigation strategy?  What are the ethical implications of your decision?

Toys for Torts

In my introductory business law course, we cover a chapter on torts, or personal injury law.  There are many types of torts, and one particularly relevant to business law is called “product liability.”  Under product liability laws, a person or business who sells a dangerous product may be financially responsible for a resulting injury.  In some situations, this is based on a negligence theory, where the plaintiff must show that the company (or an individual acting on the company’s behalf) did not meet a “reasonable” standard of conduct.  In other situations, courts apply strict liability, where a company that puts a harmful product into the stream of commerce is liable without the need for a plaintiff to show negligence.

What makes a product dangerous to the point where tort liability will attach?  The typical example is a product with a manufacturing defect – a flaw which causes it to not work as intended.  For example, a radio-controlled airplane is expected to take off, land, and otherwise respond to signals from a remote.  What if the plane explodes in midair, or upon takeoff?  The explosion is obviously unintentional and the sign of a serious defect.  If the exploding plane causes harm (for example, if the user was hit by flaming shrapnel), it is is logical that a court might require the plane manufacturer to pay the resulting medical bills.  It is also logical that some government agency might require the company to recall all the defective planes that have been sold, and stop selling more planes until the defect is fixed.  (Yes, this actually happened.)

But what about when the danger does not come from a defect, but from a product that works as expected?  Tort cases have been brought against companies simply because their products had a high potential for harm through misuse.  Holding a company responsible in such situations is not as intuitive as in the case of a mechanical defect.  And the outcome of such lawsuits is less certain, and largely depends upon the specific facts and jurors.  Take the example of a gas can that might explode if gas is poured from the can onto an open flame.  Some might say this product is inherently dangerous.  Others might say that any consumer who pours gas on an open flame does so at their own risk.  And there is a third possibility – that the gas can manufacturer should be required to warn consumers of this danger, but, once consumers are sufficiently warned, the company has no liability for injury from misuse.  (These were also real lawsuits, involving gas cans manufactured by the company Blitz, now in bankruptcy.)

A tort case can only be brought after the damage is done – that is, after someone has been injured or killed by the product.  Part of the social value of a tort case is to compensate the injured party.  But another social value of tort liability is that it may encourage a bad or negligent actor to take greater care to avoid future lawsuits.  That said, even a business that has been successfully sued may consider the amount of the judgement/settlement and the likelihood of future tort claims, and decide that, from an economic perspective, no changes are needed.

Tort claims are not the only product liability issues that a company must consider.  Governments, at the local, state, and federal level, can impose restrictions on the products a company bring to market.  These authorities can encourage, and sometimes require, a company to stop sales of a product, as well as recall a product and compensate the purchaser and any middlemen for costs.  So if a government authority concludes that a company’s product is unsafe, a company might have no choice but to stop sales or make improvements, even if that company is willing to accept the tort exposure (or even if no tort cases have been brought).

In teaching future businesspeople about this area of the law, what advice can I offer for them to avoid the risks of product liability?  It’s difficult to say.  Certain products have become the target of tort suits and/or product safety regulations when other products, arguably more dangerous, have not.  A classic example is firearms.  These carry a risk of misuse, with potentially catastrophic results.  However, tort suits against gun manufacturers typically fail.

Sometimes, lawsuits and regulations can be triggered by new scientific reports that suggest a product is more dangerous than previously thought.  Such was the case for asbestos, and, more recently, flea and tick products for pets.

Part of effective business planning is evaluating the legal liability of your business.  It can be difficult for a company to judge the potential liability of a new product.  When teaching undergraduates complicated legal issues, like product liability, I try to find a “hook” – something they can relate to and will make the lesson interesting and memorable.  So this year, I plan to teach a class on banned toys.

Toys are a common target for recalls and product liability lawsuits.  Why?  Likely because the consumer, or at least the end user, is often a child.  Children are sympathetic plaintiffs and juries may be less willing to apply a contributory or comparative negligence theory to a child.  Also, toys are frivolous – the banning of a toy is unlikely to be seen as a great loss to society.  Still, there has been strong public reaction to certain toy bans.  I took a look at some of the most famous “banned toys” in history and I saw many teaching opportunities – to discuss the principles of tort law, heatlh and safety regulations, corporate officer liability, and the role of public opinion and perception in business law and ethics.  I’d like to focus on two examples of toys that came under CPSC scrutiny – “Jarts” and “Buckyballs.”

Quit Playing Games With My JartLawndart

Jarts, or lawn darts, are a classic example of a banned toy.  The Jart (javelin-dart) is a foot-long dart with a weighted metal tip that is meant to be lobbed underhand at a distant target, usually a hula hoop placed on the lawn.  The dart travels in a high arc and lands point-first, sticking in the ground.  However, if the dart goes off-target and hits a person, it is sharp and has enough momentum to puncture skin or even a skull.  There was the possibility that a misguided release could send the dart straight up into the air, and the thrower would then have to run for cover to avoid the descending dart.  There was also the possibility that a misguided child might throw one at, say, his sibling.  Jarts can, and did, cause injuries, even death.  This drew the attention of the federal government, who first set limits on the marketing and sale of lawn darts and then, in 1989, banned their sale entirely.

Where does the federal government get authority to ban toys?  In 1972, Congress passed the Consumer Product Safety Act (CPSA), finding that “an unacceptable number of consumer products which present unreasonable risks of injury are distributed in commerce.”  The CPSA established the Consumer Product Safety Commission (CPSC), with powers to set safety standards for consumer products.  As a federal agency, the CPSC has the power to promulgate regulations consistent with the statute that established it.  One thing the CPSC did with this power was ban the sale of certain toys, listed at 16 CFR sec. 1500.18..  These toys are not banned due to a mechanical defect, but because “the Commission has determined that  . . . in normal use, or when subjected to reasonably foreseeable damage or abuse, the design or manufacture presents an unreasonable risk of personal injury or illness.”  (sec. 1500.18(a)).  Most of the list of “banned toys” describes categories of toys, for example toys emitted sounds over a certain decibel level, or toys with parts under a certain size (presenting a choking hazard).  But the lawn darts section is essentially a total ban – “Lawn darts and other similar sharp-pointed toys usually intended for outdoor use and having the potential for causing puncture wound injury.”

The CPSC is not kidding around.  If you attempt to sell lawn darts, in a store or online, they very well may come after you, requiring a recall and destruction of your stock, and possibly imposing civil penalties.  Despite the ban’ almost 35-year history, it is still enforced.  In 1997, the CPSC re-issed its warning as to the danger of lawn darts and recommended all lawn darts be destroyed.  And as recently as 2011, the CPSC found two companies were selling Jarts in violation of the ban and were forced to recall.  (CPSC 2011 Annual Report at 78).  One website owner that used to sell the products describes his own experience being “raided” by the CPSC.

Is this an appropriate use of federal power?  Or to look at it another way, is this an appropriate use of federal taxes?  The dart ban has aroused much backlash as being excessive government interference — an example of the so-called “nanny state.”  However, the ban also has supporters, including those who have had loved ones injured or killed by the products.  Does the age of the intended user matter?  Jarts were initially marketed as toys, a game that was “fun for the whole family.”  The CPSC’s initial recommendation was to allow the sale of lawn darts to continue, but to require warning labels and prevent marketing to children (for example, by removing Jarts from the “toy” section of department stores).  But Congress, in 1989, declared those precautions were not sufficient, and directed the CPSC to impose a total ban.

ImageThe Buckyball Stops Here

If you read my Bountygate post, you know that I encourage students to examine a historical case, and then look at it side-by-side with a current case that presents similar issues.  What’s the modern equivalent of a Jart?  It’s not big, heavy, or pointy.  It is actually small, light, and round.  I’m referring to neodymium magnet toys, which one manufacturer has branded “Buckyballs.”

I can say from experience that they are pretty cool.  These BB-sized magnets are incredibly powerful and can be joined together to form different shapes.  They are almost too powerful, making magnet ball art rather tricky.  One Buckyball in the wrong place can pull all the others out of alignment.  When done carefully, however, there are almost unlimited possibilities for configuration, and they became very popular “desk toys.”

magnetsXraySo what makes Buckyballs and their ilk dangerous?  The magnets are strong, but not enough to crush a finger between them.  If someone threw one at you, it wouldn’t hurt much.  What if you swallowed one?  Probably not a big deal.  They are small enough that they don’t appear to present a serious choking hazard, and the magnet ball would probably make it through your system eventually.  What if you swallowed two?  Ah, now there we have the problem.  Two (or more) magnet balls in your body are bad news.  The magnets are strong enough to attract each other inside your body, to the point where they can pinch tissue and organs caught between.  This can prevent you from passing the magnet balls and, eventually, can create holes in your tissue as the magnets try to connect.

That sounds pretty gruesome, but how often does it really happen?  According to the CPSC, they have received reports of 18 children having to undergo surgery due to ingesting Buckyballs or similar neodynium magnets, with at least one death (these numbers include both magnet ball incidents and incidents where similar high-powered magnets came detached from children’s toys).  Similar to the lawn dart, when Buckyballs first came to the CPSC’s attention, it attempted to impose stricter labeling requirements.  However, eventually, the CPSC concluded that no warning label could make the toys safe and ordered the companies to recall the products.  What’s interesting about this case is that, while many retailers agreed to the recall, several magnet suppliers, such as the companies that manufacture Buckyballs and Zen Magnets, fought the recall, and the CPSC’s lawsuit against these companies is pending.  The filings in the lawsuit are available on the CPSC’s website here.

Topics for classroom discussion:

  1. Buckyballs and Zen Magnets, who are market competitors, were joined as codefendants.  Zen Magnets resisted joinder, claiming their product was different, but the court didn’t see it that way.  So two companies that were bitter rivals are now joined by a common purpose – lawsuits make strange bedfellows.  What was the CPSC’s interest in joining the defendants?  Why might Zen Magnets not want to be joined with Buckyballs?
  2. The company that manufactures Buckyballs went out of business and no longer sells the product.  Zen Magnets is still in business and is still selling magnets.  Could this reflect a different business strategy by the two companies in the face of the lawsuit?  A different risk assessment?  If you were the CEO of one of these companies, what would you do?
  3. With the dissolution of the company that manufactures Buckyballs, the CPSC added the company’s CEO to the lawsuit, as a responsible corporate officer.  This is an opportunity to discuss responsible corporate officer doctrine and how it has been applied by the courts.  Note that the CEO’s efforts in defending against the recall were cited by the CPSC as evidence that he was a responsible officer.  Is this fair?
  4. The million dollar question – how should this case come out?  Students will likely have an emotional response to the lawsuit, but have them think and argue like lawyers – look at the scope of the CPSC’s authority under the CPSA, the regulations CPSC has passed on other “banned toys,” and compare the injury rate of Buckyballs to that of lawn darts.  What will it mean for other businesses if the magnet ball companies are found liable?  What will it mean if the magnet ball companies are found not liable?
  5. How might the results of this case affect tort claims brought by private individuals against magnet ball companies?  The sharks are circling – look at this website of a personal injury lawyer seeking magnet ball plaintiffs.
  6. Lawn darts and magnet balls are very different products, but have a few similarities.  Should the magnet ball manufacturers have seen this coming?  What lessons do these recalls and lawsuits hold for future products?

“Bountygate” and the New Orleans Saints: A Modern Hackbart?

I teach college-level courses in business law, and as part of this blog I would like to share techniques I use to engage my students in classroom discussions.  One of my favorite techniques is to first describe a historical case.  Then I bring up a modern case with similar facts or legal issues and we look at the two cases side-by-side.  It’s my abbreviated version of an approach taken by many law school casebooks, which present a chronological series of decisions and examine trends in the case law.  The historical case is usually one of the famous cases I remember from law school — for example, White v. Samsung Electronics America, Inc. (publicity rights), Sherwood v. Walker (mutual mistake), or Hadley v. Baxendale (consequential damages).  I then pick a modern case with a subject I think would appeal to my students (often involving sports, music, social media, smartphones, celebrities, or just lots and lots of cash).  For White v. Samsung, we look at Kardashian v. The Gap.    For Sherwood v. Walker, the case of the BigLaw partner’s divorce settlement involving a Madoff account. And for Hadley v. Baxendale, Perini Corp. v. Greate Bay Hotel & Casino, Inc.

Sometimes the old and new cases turn out differently, and we can explore how and why attitudes towards a certain legal principle have changed over the years.  Sometimes the cases have similar results, and we can discuss how, even though society and technology change over time, judges still seek to apply the basic principles of law found in case law precedent.

Hackbart v. Cincinnati Bengals, Inc. is a famous torts case where a football player (Dale Hackbart) was severely injured after an intentional hit by an opponent (Charles “Booby” Clark).  Clark hit Hackbart, out of anger,  just after a play on the field had ended.  The question before the court — was Clark (and the Bengals, through respondeat superior) liable for battery?  Should the law recognize a battery claim from a willing participant in a rough contact sport such as football?

In class, I introduce this topic with a hypothetical:  Mike Tyson and Evander Holyfield are having a boxing match in Madison Square Garden.  The opening bell goes off and Tyson punches Holyfield.  Holyfield calls timeout and sues Tyson for battery.  Does Holyfield have a good case?

The students quickly say that it is ridiculous to think a boxer could sue another for battery, but I try to get them to articulate why.  The students then describe, in layman’s terms, the legal theory of implied consent.  Holyfield knew he was about to engage in a rough sport, and, by stepping in the ring, he consented to Tyson’s harmful or offensive touchings.  (And now perhaps there are law school gunners reading this and shouting:  “Actually, it depends on whether the boxing match was legal!  Hudson v. Craft!!  Ok, calm down – I teach undergraduates, not law students, and so I gloss over a few nuances).

Anyway, Tyson’s punch isn’t actionable battery.  But what about the famous “Bite Fight?” Most of my students have heard of this, even though they couldn’t have been more than five years old at the time.  In this real-life match, Tyson not only punched Holyfield, he bit him (twice) — an illegal move.  Would Holyfield have a cause of action on those facts?  Maybe.  Students generally do not think that Holyfield gave implied consent to being bitten.  Now, Holyfield didn’t actually sue Tyson after the Bite Fight, so we will never know how it may have gone in court.  But this tees up our discussion of Hackbart.

My students have never heard of Mr. Hackbart.  Neither had I, until law school.  He was a defensive back for the Broncos in the 60s and early 70s.  He was also plaintiff in a lawsuit arising out of events during a 1973 game against the Bengals.  Clark was a Bengals running back.  After the Bengals attempted a pass and it was intercepted, Hackbart, whose teammate had intercepted the pass, attempted to block Clark (who was now on defense) and Hackbart ended up on the ground.  Hackbart went up on a knee and watched his teammate run downfield with the ball.  The play ended.  Then Clark, in frustration, hit Hackbart on the back of the helmet with a forearm.  The blow fractured Hackbart’s neck, which required surgery.  Hackbart sued for damages.

A trial court found no tort liability for Clark or the Bengals, holding it would be unreasonable to allow tort liability for hits in footballl – even a “late hit” that was not permitted under the rules of the game.  However, an appeals court reversed, finding that conduct prohibited by the rules of a game could be seen as tortious, despite the inherent roughness of the game.  The case was sent back to the trial court on remand and later was settled.

Ok, I’m ready to talk about the Saints now.  Call it Bountygate if you must. From the years 2009 to 2011, members of the Saints’ defensive team allegedly ran an illegal bonus system where players received cash rewards for injuring opposing players, particularly for injuries to high-profile opponents such as rival quarterbacks.  The NFL investigated and found the allegations to be true, imposing penalties and placing substantial blame upon Saints’ defensive coordinator Gregg Williams.

The Saints’ bounty program is a subject many of my students know well, so I let them describe the issue.  Then I ask, what if one of the Saints’ opponents during that time period had been severely injured?  Could he sue for battery?  Is there an defense of implied consent?  How might a court look at the precedent set by Hackbart?

After the discovery of the Saints bounty program, several lawsuits were initiated. There was a challenge to the NFL commissioner’s decision.  A defamation lawsuit by one of the accused Saints players.  More recently, a lawsuit against the NFL by the NFL Player’s Union, even a purported class-action led by an angry Saints fan.

Just in the past few days, however, came the lawsuit I was waiting for –  an injured player suing Williams for injuries allegedly resulting from a bounty program.  But there’s a twist — this lawsuit is not about the Saints’ bounty program, but a prior bounty program Williams allegedly ran while he was defensive coordinator of the Washington Redskins.  Former New York Giants linebacker Barrett Green claims he was the victim of a “cheap shot” by Redskins tight end Robert Royal, and that Royal made the hit with the intent to injure Green and collect a cash reward under a program run by Williams.  Green is suing Royal, Willliams, and the Skins.

From what I’ve read about Green’s case, it may not be ideal.  Royal was playing offense at the time of the hit, which means he would not have been under Williams’ direct authority.  The incident was from 2004, so reliable witness testimony may be difficult to come by.  There will probably be a fight over whether the statute of limitations has run.  And the NFL has not found fault or issued penalties for the alleged Redskins’ bounty program, as it has with the Saints’.  But the Hackbart precedent may be enough to get Green’s case into discovery, which could encourage a settlement by the Redskins (who, as a “deep pocket,” are probably the defendant Green is really going after).  Williams would likely be loathe to settle, fearing a “domino effect” of lawsuits from opponents of the Saints who could claim he was responsible for their injuries.

Does the aggressor’s intent matter in determining whether a football hit is within the rules of the game?  Do football players give implied consent to “cheap shots?”  Is Hackbart persuasive precedent for a case against the Redskins/Saints?  Or are the facts too different?