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[Federal Register Volume 77, Number 140 (Friday, July 20, 2012)]
[Notices]
[Pages 42702-42704]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17704]

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CONSUMER PRODUCT SAFETY COMMISSION

[CPSC Docket No. 12-C0007]

Battat Incorporated, Provisional Acceptance of a Settlement 
Agreement and Order

AGENCY: Consumer Product Safety Commission.

ACTION: Notice.

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SUMMARY: It is the policy of the Commission to publish settlements 
which it provisionally accepts under the Consumer Product Safety Act in 
the Federal Register in accordance with the terms of 16 CFR 1118.20(e). 
Published below is a provisionally-accepted Settlement Agreement with 
Battat Incorporated, containing a civil penalty of $400,000.00, within 
twenty (20) days of service of the Commission's final Order accepting 
the Settlement Agreement.

DATES: Any interested person may ask the Commission not to accept this 
agreement or otherwise comment on its contents by filing a written 
request with the Office of the Secretary by August 6, 2012.

ADDRESSES: Persons wishing to comment on this Settlement Agreement 
should send written comments to the Comment 12-C0007, Office of the 
Secretary, Consumer Product Safety Commission, 4330 East West Highway, 
Room 820, Bethesda, Maryland 20814-4408.

FOR FURTHER INFORMATION CONTACT: Sarah C. Wang, General Attorney, 
Division of Enforcement and Information, Office of the General Counsel, 
Consumer Product Safety Commission, 4330 East West Highway, Bethesda, 
Maryland 20814-4408; telephone (301) 504-7807.

SUPPLEMENTARY INFORMATION: The text of the Agreement and Order appears 
below.

    Dated: July 17, 2012.
Todd A. Stevenson,
Secretary.

Settlement Agreement and Order

    1. In accordance with 16 CFR 1118.20, Battat Incorporated 
(``Battat'' or the ``Firm'') and staff (``Staff'') of the United States 
Consumer Product Safety Commission (``Commission'' or ``CPSC'') hereby 
enter into this Settlement Agreement (``Agreement'') under the Consumer 
Product Safety Act (``CPSA''). The Agreement and the incorporated 
attached Order resolve Staff's allegations set forth below.

The Parties

    2. Staff is the staff of the Commission, an independent federal 
regulatory agency established pursuant to, and responsible for, 
enforcement of the CPSA, 15 U.S.C. 2051-2089.
    3. Battat is a privately-held company, organized and existing under 
the laws of the state of Delaware, with its principal office located at 
1560 Military Turnpike, Plattsburgh, New York, 12901.

Staff Allegations

    4. Between August 2004 and February 2008, Battat distributed 
approximately 132,000 Magnabild magnetic building sets (``Subject 
Products'') in U.S. commerce. On January 23, 2008, Battat announced a 
recall for the Subject Products bearing model numbers BB1431H and 
BB1502H. On March 13, 2008, Battat announced a recall for the Subject 
Products bearing model numbers BB1439H and BAT-34. The Subject Products 
sold for approximately $20--$40 through online and nationwide 
retailers.
    5. The Subject Products are ``consumer products'' and, at all 
relevant times, Battat was a ``distributor'' of these consumer 
products, which were ``distribute[d] in commerce,'' as those terms are 
defined or used in sections 3(a)(5), (7), and (8) of the CPSA, 15 
U.S.C. 2052(a)(5), (7), and (8).
    6. The Subject Products, which are labeled for ages three and up, 
are defective because small, powerful magnets can loosen and fall out 
of the components with normal use. Magnets found by young children can 
be swallowed or aspirated. If more than one magnet is swallowed, the 
magnets can attract each other and cause intestinal perforations or 
blockages, which can be fatal.
    7. Battat received its first complaint of magnets coming loose from 
the Subject Products in October 2005.
    8. By March 31, 2006, Battat had received seven consumer reports of 
magnet liberation and two consumer reports of children ingesting non-
magnetized steel balls. Some consumers described multiple magnet 
liberations from the Subject Products.
    9. On March 31, 2006, the Commission announced the recall of Rose 
Art Magnetix Building Sets, which involved one death, four serious 
injuries, and 34 incidents involving small magnets.
    10. In April 2006, Battat received two additional consumer 
complaints of magnet liberation. Battat has represented to the 
Commission that, ``At some point, likely April or May [2006], Battat 
became aware of the Magnetix recall and only then became aware of the 
possibility that small magnets could cause intestinal injury.''
    11. Between November 2006 and July 2007, the Commission re-
announced the Rose Art Magnetix Building Sets recall due to additional 
serious injuries to children; the Commission issued a ``Magnet Safety 
Alert,'' warning parents of the risk of serious injury and death to 
children from magnet ingestion; and the Commission announced five 
separate recalls for several million toys containing magnets due to the 
potential for magnet liberation.
    12. Despite being aware of the danger posed to children by the 
ingestion of magnets such as those in the Subject Products, and with 
full awareness that the CPSC and industry were actively working to 
address the hazards posed to children by the ingestion of magnets, 
Battat failed to notify the CPSC or inform consumers of the Subject 
Products' defect and resulting potential hazard.
    13. Staff contacted Battat on July 9, 2007, to request a full 
report pursuant to CPSA section 15(b) (``Section 15 Report''). With 
this request, Staff enclosed two in-depth investigation reports of 
consumer reports describing magnets liberating from the Subject 
Products.
    14. Battat did not immediately provide the requested Section 15 
Report on the Subject Products. As a result, Staff reiterated its 
request at least two more times from July 2007 to October 2007. Battat 
did not file the requested Section 15 Report on the Subject Products 
until October 12, 2007, after at least three requests from Staff.
    15. Battat failed to inform the Commission of the defect and 
resulting potential hazard present in the Subject Products bearing 
model numbers

[[Page 42703]]

BB1431H and BB1502H until October 12, 2007. Subject Products bearing 
those model numbers were recalled on January 23, 2008.
    16. The January 23, 2008, recall did not encompass all Subject 
Products posing the magnet liberation hazard in U.S. commerce. Battat 
failed to inform the Commission of the defect and resulting potential 
hazard in two additional models of the Subject Products, those bearing 
model numbers BB1439H and BAT-34, until it filed an additional Section 
15 Report on February 11, 2008.
    17. Although Battat had obtained sufficient information to 
reasonably support the conclusion that the Subject Products contained a 
defect that could create a substantial product hazard, or created an 
unreasonable risk of serious injury or death, Battat failed to inform 
the Commission immediately of such defect or risk, as required by 
sections 15(b)(3) and (4) of the CPSA, 15 U.S.C. 2064(b)(3) and (4). In 
failing to inform the Commission immediately of the defect or advising 
that the defect involved the Subject Products, Battat knowingly 
violated section 19(a)(4) of the CPSA, 15 U.S.C. 2068(a)(4), as the 
term ``knowingly'' is defined in section 20(d) of the CPSA, 15 U.S.C. 
2069(d).
    18. Pursuant to section 20 of the CPSA, 15 U.S.C. 2069, Battat is 
subject to civil penalties for its knowing failure to report, as 
required under section 15(b) of the CPSA, 15 U.S.C. 2064(b).

Response of Battat

    19. Battat denies Staff's allegations that Battat knowingly or 
otherwise violated the reporting requirements of section 15(b) of the 
CPSA, 15 U.S.C. 2064(b). Battat further disputes the staff position 
that Battat obtained information that reasonably supported the 
conclusion that the subject products contain a defect that could create 
a substantial product hazard or create an unreasonable risk of serious 
injury or death.
    20. The Magnabild toys were manufactured in 2004 and 2005 and 
tested to all existing CPSC safety standards, including the use and 
abuse testing requirements used by CPSC and the toy industry to 
determine whether toys would break during reasonably foreseeable use 
and abuse. Furthermore, the Magnabild toys were labeled ``Warning: 
Choking Hazard; Toy Contains Small Parts & Small Balls; Not For 
Children Under 3 years.''
    21. When Battat learned about the Magnetix recall, it examined its 
product to determine whether its product presented the same risks as 
the Magnetix toys and concluded that it did not because most of the 
Magnabild products did not contain the small magnets that were present 
in the Magnetix products and Battat believed its magnets were better 
retained in its toys and much less likely to come out even under 
foreseeable misuse and abuse. Unlike the Magnetix product that used 
only tiny magnets, Battat's predominant magnetic component was a one 
inch magnet molded into a full-length plastic sheath.
    22. Battat had received very few complaints of magnets coming out 
of its Magnabild toys and no reports of injury, unlike other 
manufacturers whose products--according to CPSC press releases and 
legal documents--had released well over a thousand magnets and 
allegedly caused a death and more than two dozen serious intestinal 
injuries.
    23. At some point before being contacted by CPSC in July 2007, 
Battat became aware that CPSC was working prospectively on a labeling 
rule for magnet toys with ASTM that allowed the sale of loose magnets, 
as long as a warning label was present telling consumers about the risk 
of infection and death from magnets sticking together across 
intestines. Battat did not use loose magnets in its toy and had 
received very few complaints of magnet release. Battat believed that 
its existing warning label about a choking hazard was likely to be no 
less effective at advising parents to keep the product away from small 
children.
    24. Battat did not receive any complaints about magnets coming out 
of its toys for a period of approximately 14 months before it was 
contacted by the CPSC in July 2007 and had not received any reports 
about magnet ingestion or injury. This increased the firm's confidence 
that it did not have a significant problem with magnets coming out of 
its Magnabild toys.
    25. From the time it was first contacted by the CPSC compliance 
staff, Battat believed that the CPSC staff was adequately informed of 
the alleged defect or risk in its product. Battat knew that CPSC had 
samples of the Magnabild product and had investigated incidents where 
magnets allegedly came out. Further, the staff contended the product 
presented a substantial product hazard and sought a recall. Battat made 
its ``full report'' in October 2007 to provide details of its recall 
proposal. Although Battat did not agree with the CPSC staff view of the 
alleged hazard, Battat agreed to recall 125,000 Magnabild toy sets, 
84,430 of which had only the one inch rod magnets Battat believed would 
not come out of their sheathes.
    26. In February 2008, Battat learned that another 7,000 Magnabild 
products in models BB1439H and BAT 34, had been shipped to the United 
States by the Chinese manufacturer several years before. Although both 
of these models only contained the fully sheathed one inch magnets 
Battat believed would not come out, Battat reported its discovery to 
CPSC and offered to recall these products as well. In total, only 31% 
of the 132,000 total units Battat ultimately recalled had any small 
magnets and Battat believed they were well retained in the Battat 
design.
    27. Battat believes its judgment that the Magnabild product did not 
contain reportable defects or unreasonable risks was reasonable. That 
judgment was supported by technical and design differences from 
products that experienced large numbers of failures and caused 
injuries. Battat's judgment has been further borne out by the lack of 
any injuries associated with magnets coming out of Magnabild toys and 
by a lack of reports of magnet release for several years since its 
recall. Battat settles this matter not because it has violated the 
reporting obligation in section 15(b) of the CPSA, or because it 
believes the settlement amount is reasonably related to the statutory 
criteria for penalties set forth in the CPSA, but to avoid the negative 
publicity associated with CPSC pursuit of a penalty through litigation 
and the costs and interference with its business activities that would 
likely result from such litigation even if pursued to a successful 
conclusion.
Agreement of the Parties
    28. The CPSC has jurisdiction over this matter under the CPSA and 
for the purposes of this settlement agreement only, over Battat.
    29. In settlement of Staff's allegations, and while specifically 
and strenuously denying those allegations, Battat consents to the entry 
of the attached Order (``Order'') as set forth below and will pay a 
civil penalty in the amount of four hundred thousand dollars 
($400,000.00) over a period of 12 months of the date this Order becomes 
final. The payment shall be made to the CPSC via www.pay.gov with equal 
installments of $100,000.00 paid quarterly starting within 20 days of 
service upon Battat of the final Order in this matter.
    30. The parties further agree that if Battat fails to make timely 
payments as agreed to in paragraph 29, such conduct will be considered 
a violation of this Agreement and Order.
    31. The parties enter into this Agreement for settlement purposes 
only.

[[Page 42704]]

The Agreement does not constitute an admission by Battat or a 
determination by the Commission that Battat violated the CPSA's 
reporting requirements. This agreement completely and finally resolves 
the staff allegations set forth in paragraphs 2-18 with respect to 
Battat Incorporated, and its officers, directors, and related 
companies.
    32. Upon provisional acceptance of the Agreement by the Commission, 
the Agreement shall be placed on the public record and published in the 
Federal Register, in accordance with the procedures set forth in 16 CFR 
1118.20(e). If the Commission does not receive any written request not 
to accept the Agreement within fifteen (15) calendar days, the 
Agreement shall be deemed finally accepted on the 16th calendar day 
after the date it is published in the Federal Register, in accordance 
with 16 CFR 1118.20(f).
    33. Upon the Commission's final acceptance of the Agreement and 
issuance of the Order, Battat knowingly, voluntarily, and completely 
waives any rights it may have in this matter to the following: (a) An 
administrative or judicial hearing; (b) judicial review or other 
challenge or contest of the Commission's actions; (c) a determination 
by the Commission of whether Battat failed to comply with the CPSA and 
the underlying regulations; (d) a statement of findings of fact and 
conclusions of law; and (e) any claims under the Equal Access to 
Justice Act.
    34. The Commission may publicize the terms of the Agreement and the 
final Order.
    35. The Agreement and the final Order shall apply to, and be 
binding upon, Battat, and each of its successors and/or assigns, until 
the obligations described in paragraph 29 has been fulfilled to the 
satisfaction of the Commission.
    36. The Commission issues the final Order under the provisions of 
the CPSA, and a violation of the final Order may subject Battat, and 
each of its successors and/or assigns, to appropriate legal action.
    37. The Agreement may be used in interpreting the final Order. 
Understandings, agreements, representations, or interpretations apart 
from those contained in the Agreement and the Order may not be used to 
vary or contradict the terms or the Agreement and the final Order. The 
Agreement shall not be waived, amended, modified, or otherwise altered 
without written agreement thereto, executed by the party against whom 
such waiver, amendment, modification, or alteration is sought to be 
enforced.
    38. If any provision of the Agreement or the final Order is held to 
be illegal, invalid, or unenforceable under present or future laws 
effective during the terms of the Agreement and the final Order, such 
provision shall be fully severable. The balance of the Agreement and 
the final Order shall remain in full force and effect, unless the 
Commission and Battat agree that severing the provision materially 
affects the purpose of the Agreement and final Order.
    39. This Agreement may be executed in counterparts.
Battat Incorporated
Dated: June 27, 2012.

By:
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Joseph Battat.

Dated June 27, 2012

By:
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Anthony T. Pavel, Jr.,
Counsel to Battat Incorporated, K&L Gates LLP, 1601 K Street NW., 
Washington, DC 20006-1600.
U.S. CONSUMER PRODUCT SAFETY COMMISSION STAFF
Cheryl A. Falvey,
General Counsel.

Mary B. Murphy,
Assistant General Counsel

Dated: July 12, 2012.

By:
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Sarah C. Wang,
Trial Attorney, Division of Compliance, Office of the General Counsel.

Order

    Upon consideration of the Settlement Agreement entered into between 
Battat, Incorporated (``Battat''), and U.S. Consumer Product Safety 
Commission (``Commission'') staff, and the Commission having 
jurisdiction over the subject matter and over Battat, and it appearing 
that the Settlement Agreement and the Order are in the public interest, 
it is ordered that the Settlement Agreement be, and is, hereby, 
accepted; and it is further ordered, that Battat shall pay a civil 
penalty in the amount of four hundred thousand dollars ($400,000.00) 
within 12 months of service of the Commission's Order upon counsel for 
Battat, identified in the Settlement Agreement. The payments shall be 
made electronically to the CPSC via www.pay.gov in equal quarterly 
installments of $100,000.00 commencing within 20 days of service upon 
Battat of this final order. Upon the failure of Battat to make the 
foregoing payments when due, interest on the unpaid amount shall accrue 
and be paid by Battat at the federal legal rate of interest set forth 
at 28 U.S.C. Sec.  1961(a) and (b). If Battat fails to make such 
payments, as set forth in the Settlement Agreement, such conduct will 
be considered a violation of this Agreement and Order.
    Provisionally accepted and provisional Order issued on the 13th day 
of July, 2012.

    By Order of the Commission.

Todd A. Stevenson,
Secretary, U.S. Consumer Product Safety Commission.

[FR Doc. 2012-17704 Filed 7-19-12; 8:45 am]
BILLING CODE 6355-01-P
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