[Federal Register Volume 74, Number 78 (Friday, April 24, 2009)]
[Notices]
[Pages 18695-18697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9452]


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CONSUMER PRODUCT SAFETY COMMISSION

[CPSC Docket No. 09-C0018]


Mega Brands America, Inc. f/k/a Rose Art Industries, Inc., 
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 
Mega Brands America, Inc. f/k/a Rose Art Industries, Inc., containing a 
civil penalty of $1,100,000.00.

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 May 11, 2009.

ADDRESSES: Persons wishing to comment on this Settlement Agreement 
should send written comments to the Comment 09-C0018, Office of the 
Secretary, Consumer Product Safety Commission, 4330 East West Highway, 
Room 502, Bethesda, Maryland 20814-4408.

FOR FURTHER INFORMATION CONTACT: Michelle Faust Gillice, Trial 
Attorney, Division of Compliance, Office of the General Counsel, 
Consumer Product Safety Commission, 4330 East West Highway, Bethesda, 
Maryland 20814-4408; telephone (301) 504-7667.

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

    Dated: April 20, 2009.
Todd A. Stevenson,
Secretary.

In the Matter of: Mega Brands America, Inc. f/k/a Rose Art Industries, 
Inc.; Settlement Agreement

    1. This Settlement Agreement (``Agreement'') is made by and between 
the staff (the ``staff'') of the U.S. Consumer Product Safety 
Commission (the ``Commission'') and Mega Brands America, Inc., f/k/a 
Rose Art Industries, Inc., in accordance with 16 CFR 1118.20 of the 
Commission's Procedures for Investigations, Inspections and Inquiries 
under the Consumer Product Safety Act (``CPSA''). This Agreement and 
the incorporated attached Order resolve the staff's allegations set 
forth below.

The Parties

    2. The Commission is an independent federal regulatory agency 
responsible for the enforcement of the CPSA, 15 U.S.C. 2051-2089.
    3. Mega Brands America, Inc. (``Mega Brands America'') f/k/a Rose 
Art Industries, Inc. (``Rose Art'') is a New Jersey corporation, with 
its principal office located in Livingston, NJ. Rose Art was wholly 
owned by Jeffrey Rosen, Lawrence Rosen, and Sydney Rosen until 
purchased by Mega Bloks, Inc. (a Canadian corporation) on July 26, 
2005. Pursuant to the terms of the purchase agreement, Mega Bloks, Inc. 
could not assume operational control of Rose Art until December 31, 
2005. Thereafter, Jeffrey Rosen and Lawrence Rosen remained in senior 
management positions at Rose Art until their respective departures on 
April 3, 2006 and May 9, 2006. On June 15, 2006, Rose Art was renamed 
``Mega Brands America''.
    4. Mega Brands, Inc. f/k/a Mega Bloks, Inc. (``Mega Brands'') is a 
Canadian corporation located in Montreal, Quebec, Canada. Mega Brands 
is the parent company of Mega Brands America.
    5. At all times relevant herein, Rose Art designed and manufactured 
the Magnetix magnet toys subject to this Settlement Agreement and 
Order.

Staff Allegations

    6. Between January 2003 and December 2005, Rose Art manufactured 
and/or imported Magnetix magnetic building sets (hereinafter ``Magnetix 
set(s)'' or ``the set(s).'' \1\
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    \1\ Magnetix sets continued to be manufactured after 2005, 
however due to manufacturing and design improvements instituted by 
Mega Brands America, these sets are not the subject of the 
allegations set forth in this Agreement.
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    7. Magnetix sets are ``children's product[s]'' and ``consumer 
product[s]'' and, at the times relevant herein, Rose Art was a 
``manufacturer'' of ``children's product[s]'' and ``consumer 
product[s]'' which were ``distributed in commerce'' as those terms are 
defined in sections 3(a)(2), (5), (8), and (11) of the CPSA, 15 U.S.C. 
2052(a)(2), (5), (8) and (11).
    8. The Magnetix sets are defective because magnets embedded in 
small plastic pieces contained in the sets could come loose and fall 
out of the plastic casing.
    9. This defect creates a substantial risk of injury to children 
under section 15(c) of the Federal Hazardous Substances Act, 15 U.S.C. 
1274(c) because, if two or more magnets (or one magnet and one metallic 
ball) from a set are ingested by a child, they can attract each other 
through intestinal walls, causing perforations, twisting and/or 
blockage of the intestines, infection, blood poisoning and death.
    10. On December 14, 2005, Rose Art filed an ``initial report'' 
pursuant to section 15(b) of the CPSA, 15 U.S.C. 2064(b), concerning 
the death of a 22 month old child who died on November 24, 2005. The 
child had ingested multiple magnets from a Magnetix set on separate 
occasions which subsequently joined together in his small intestine, 
causing a blockage and sepsis, which led to his death. Rose Art's 
report identified the product as a Magnetix ``X-treme Combo Flashing 
Lights Castle.'' The firm attributed the release of magnets from the 
plastic pieces to unusually abusive play by the decedent's older 
siblings. The initial report essentially contained no other 
information.
    11. At the time of its initial report, Rose Art was in possession 
of at least one report of a child suffering an unspecified injury from 
ingesting a magnet from a Magnetix set and over 1100 consumer 
complaints that magnets had come loose or fallen out of plastic pieces 
from dozens of different Magnetix models, but failed to include that 
information in its report as required by section 15(b) of the CPSA, 15 
U.S.C. 2064(b).
    12. On January 13, 2006, CPSC staff sent Rose Art a letter 
requesting a Full Report pursuant to 16 CFR 1115.13(d). Requested 
information included copies of the following: Product liability suits 
and/or claims of personal injury;

[[Page 18696]]

consumer complaints, dealer complaints, warranty claims, an 
identification of the products, and the total number of products 
involved. In addition, the letter advised the firm that it had a 
continuing obligation to supplement or correct its full report if the 
firm learned of other incidents or injuries or information that 
affected the scope, prevalence or seriousness of the defect of hazard.
    13. On February 1, 2006, Rose Art submitted an incomplete and 
inadequate Full Report. The firm provided limited information about the 
``X-treme Combo Flashing Lights Castle'' despite relevant knowledge 
that the population of affected products included over 255 different 
Magnetix set models. In addition, the firm failed to provide any 
information regarding complaints involving magnets falling out of 
Magnetix pieces.
    14. On March 28, 2006, Rose Art provided staff with a chart 
entitled ``Consumer Calls/Warranty'' claims in response to the staff's 
repeated requests for complaint and incident data. The chart lacked 
detail and critical information rendering it effectively useless. The 
CPSC staff requested all source documents used in the creation of the 
chart. The staff was told that the firm did not retain any source 
documents regarding complaint and incident data.
    15. On March 31, 2006, CPSC and Rose Art announced a voluntary 
recall whereby the firm agreed to provide replacement products for 
consumers with children under the age of 6. The press release announced 
that CPSC was aware of one child who died and four children who were 
seriously injured as a result of ingesting or aspirating magnets that 
fell out of Magnetix pieces.
    16. Following the recall, CPSC staff sought additional product 
information from the firm including complaint data. In September 2006, 
the staff came across information which indicated the firm did in fact 
retain records of consumer complaints with some level of detail.
    17. On October 16, 2006, the Commission issued a Special Order and 
Subpoena to Mega Brands America compelling the firm to produce all 
injury and incident records pertaining to Magnetix.
    18. On December 1, 2006, Mega Brands submitted a response for Mega 
Brands America. According to documents provided, between January 2004 
and December 14, 2005 (the date on which Rose Art reported the death of 
the child), Rose Art had received over 1,100 complaints of magnets 
falling out or otherwise liberating from the plastic pieces in over 67 
different models of Magnetix. In addition, Rose Art had received notice 
of a child being injured from ingesting a magnet a few weeks prior to 
the child's death. According to the documents, by the time the recall 
was announced in March 2006, Rose Art had received over 1,500 
complaints about magnets falling out of Magnetix pieces.
    19. The information eventually obtained by the Subpoena was 
required by statute to be included in Rose Art's Full Report and 
supplemented on an ongoing basis thereafter. The firm's failure to 
provide full complaint and incident data directly and detrimentally 
affected the staff's ability to assess the hazard and implement an 
effective corrective action program commensurate with the risk created.
    20. Pursuant to section 19(a)(3) of the CPSA, 15 U.S.C. 2068(a)(3), 
it is unlawful to ``* * * fail or refuse to * * * provide information * 
* * as required under this Act or rule there under.'' Under section 
19(a)(4) of the CPSA, 15 U.S.C. 2068(a)(4), it is unlawful to fail to 
furnish information required by section 15(b) of the Act.
    21. In failing to provide or furnish information as required under 
the CPSA and as set forth above, Mega Brands America ``knowingly'' 
violated sections 19(a)(3) and (4) of the CPSA, 15 U.S.C. 2068(a)(3) 
and (4), as the term ``knowingly'' is defined in section 20(d) of the 
CPSA, 15 U.S.C. 2069(d).
    22. Pursuant to section 20 of the CPSA, 15 U.S.C. 2069, Mega Brands 
America is subject to civil penalties for failure to provide or furnish 
information in violation of section 19 of the CPSA, 15 U.S.C. 2068.

Response of Mega Brands America

    23. Mega Brands America and its parent, Mega Brands, contend that 
Mega Brands did not know of the Magnetix defects at the time Mega 
Brands acquired Rose Art in June 2005. Documentary evidence establishes 
that Rose Art's prior owners knew, since at least late 2003 or early 
2004, that there were design and manufacturing defects in Magnetix 
which caused magnets to detach. Rose Art's prior owners have admitted 
under oath, at no point in time did they ever advise anyone at Mega 
Brands of the Magnetix problems.
    24. On May 24, 2005, when CPSC staff sent a letter requesting Rose 
Art to provide information concerning choking and near choking 
incidents involving Magnetix sets as well as ``copies of all consumers 
or dealer complaints, including electronic records warranty claims and 
reports of injury related to the products being investigated 
[Magnetix]'', Rose Art had the opportunity to disclose hundreds of 
incidents involving magnets coming loose, but it failed to do so. 
Notably, at that point in time, Rose Art was negotiating a civil 
penalty with CPSC for a reporting violation concerning another of its 
products, and was fully cognizant of its reporting obligations under 
the law. Mega Brands believes that had Rose Art disclosed all Magnetix 
consumer complaints in its response to the May 24, 2005 letter, the 
defect of magnets coming loose would have come to light much earlier.
    25. Mega Brands claims that once it learned these facts, it 
promptly agreed to a more comprehensive recall of the product, which 
occurred in April 2007.
    26. Nevertheless, Mega Brands America understands that, regardless 
of the reason, Rose Art and Mega Brands America failed to provide and/
or furnish information to the CPSC as required under the CPSA.

Agreement of the Parties

    27. The Commission has jurisdiction over this matter and over Mega 
Brands America under the CPSA.
    28. The parties enter this Agreement for settlement purposes only. 
The Agreement does not constitute an admission by Mega Brands America 
nor a determination by the Commission that Mega Brands America violated 
the CPSA's reporting requirements.
    29. In settlement of the staff's allegations, Mega Brands America 
agrees to pay a civil penalty of $1.1 million ($1,100,000.00) in three 
installments. The first installment of $400,000 shall be paid within 
twenty (20) calendar days of service of the Commission's final Order 
accepting this Agreement. The second installment of $350,000 shall be 
paid within three (3) months of service of the Commission's final Order 
accepting this Agreement. The third and final installment of $350,000 
shall be paid within six (6) months of service of the Commission's 
final Order accepting this Agreement. Each payment shall be made by 
check payable to the order of the United States Treasury.
    30. The Commission agrees to take no further action involving Mega 
Brands America with respect to CPSC File Nos. CA080229 (Magtastik and 
Magnetix Jr. Pre-School Magnetic Toys) and CA070073 (MagnaMan-Magnetic 
Action Figures.)
    31. Upon provisional acceptance of this Agreement by the 
Commission, the Commission shall place this Agreement on the public 
record and shall publish it in the Federal Register in accordance with 
the procedures set forth in 16 CFR 1118.20(e). In accordance with 16 
CFR

[[Page 18697]]

1118.20(f), if the Commission does not receive any written requests not 
to accept the Agreement within 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.
    32. Upon final acceptance of this Agreement by the Commission and 
issuance of the final Order, Mega Brands America knowingly, voluntarily 
and completely waives any rights it may have in this matter to the 
following: (i) An administrative or judicial hearing; (ii) judicial 
review or other challenge or contest of the validity of the 
Commission's Order or actions; (iii) a determination by the Commission 
as to whether Mega Brands America failed to comply with the CPSA and 
the underlying regulations; (iv) a statement of findings of fact and 
conclusions of law; and (v) any claims under the Equal Access to 
Justice Act.
    33. The Commission may publicize the terms of the Agreement and 
Order.
    34. The Agreement and Order shall apply to, and be binding upon 
Mega Brands America and each of its successors and assigns.
    35. The Commission issues the Order under the provisions of the 
CPSA, and a violation of the Order may subject those referenced in 
paragraph 34 above to appropriate legal action.
    36. This Agreement may be used in interpreting the Order. 
Understandings, agreements, representations, or interpretations apart 
from those contained in the Agreement and the Order may not be used to 
vary or contradict their terms. 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.
    37. If any provision of this Agreement and Order is held to be 
illegal, invalid, or unenforceable under present or future laws 
effective during the terms of the Agreement and Order, such provision 
shall be fully severable. The balance of the Agreement and Order shall 
remain in full force and effect, unless the Commission and Mega Brands 
America determine that severing the provision materially affects the 
purpose of the Agreement and Order.

MEGA BRANDS AMERICA, INC.

Dated: 3/19/09

By:--------------------------------------------------------------------
Vic Bertrand
President
Mega Brands America, Inc., 6 Regent Street, Livingston, NJ 07039

By:--------------------------------------------------------------------
Michael J. Gidding
Counsel for Mega Brands America, Inc.
Brown & Gidding, P.C., 3201 New Mexico Avenue, NW., Washington, DC 
20016

U.S. Consumer Product Safety Commission

Cheryl Falvey
General Counsel

Ronald G. Yelenik
Assistant General Counsel

Dated: 3/24/09

By:--------------------------------------------------------------------
Michelle Faust Gillice
Trial Attorney
Division of Compliance, Office of the General Counsel

In the Matter of: Mega Brands America, Inc. f/k/a Rose Art Industries, 
Inc.; Order

    Upon consideration of the Settlement Agreement entered into between 
Mega Brands America, Inc. (``Mega Brands America'') and the U.S. 
Consumer Product Safety Commission (``Commission'') staff, and the 
Commission having jurisdiction over the subject matter and over Mega 
Brands America, and it appearing that the Settlement Agreement and the 
Order are in the public interest, it is
    Ordered, that the Settlement Agreement be, and hereby is, accepted; 
and it is
    Further ordered, that Mega Brands America shall pay a civil penalty 
in the amount of $1.1 million ($1,100,000.00) in three installments. 
The first installment of $400,000 shall be paid within twenty (20) 
calendar days of service of the Commission's final Order accepting this 
Agreement. The second installment of $350,000 shall be paid within 
three (3) months of service of the Commission's final Order accepting 
this Agreement. The third and final installment of $350,000 shall be 
paid within six (6) months of service of the Commission's final Order 
accepting this Agreement. Each payment shall be made by check payable 
to the order of the United States Treasury. Upon the failure of Mega 
Brands America to make any of the aforementioned payments when due, the 
total amount of the civil penalty shall become immediately due and 
payable, and interest on the unpaid amount shall accrue and be paid by 
Mega Brands America at the federal legal rate of interest set forth at 
28 U.S.C. 1961(a) and (b).
    Provisionally accepted and provisional Order issued on the -- day 
of ----, 2009.

BY ORDER OF THE COMMISSION:

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

    Finally accepted and final Order issued on the -- day of ----, 
2009.

BY ORDER OF THE COMMISSION:

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

[FR Doc. E9-9452 Filed 4-23-09; 8:45 am]
BILLING CODE 6355-01-P