D and A Business Investments LLC d/b/a T.H.C. Smokes, DAB TB8350 (2024)

INITIAL DECISION

The Center for Tobacco Products (CTP) seeks a $19,192 civil money penalty against Respondent, D and A Business Investments LLC d/b/a T.H.C. Smokes, at 3230 East Union Hills Drive, Suite 115, Phoenix, Arizona 85050. Specifically, CTP alleges that Respondent T.H.C. Smokes received in interstate commerce an electronic nicotine delivery system (ENDS) product that lacks the premarketing authorization required under the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 331(c) and offering such product for sale. For the reasons discussed below, I find that Respondent violated the provisions of 21 U.S.C. § 331(c) and conclude that a civil money penalty in the amount of $19,192 is appropriate.

I. Background and Procedural History

CTP began this matter by serving an administrative complaint on Respondent at 3230 East Union Hills Drive, Suite 115, Phoenix, Arizona 85050, by United States Postal

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Service Certified Mail, and by filing a copy of the complaint with the FDA’s Division of Dockets Management.

On November 28, 2023, CTP notified the Departmental Appeals Board (DAB) Civil Remedies Division via electronic mail that they received Respondent’s Answer through the United States Postal Service. Respondent’s Answer dated November 15, 2023, and Respondent’s supporting documentation (Invoice) were docketed and considered timely.

On November 30, 2023, I issued an Acknowledgment and Pre-Hearing Order (APHO) that established a deadline for discovery and the parties pre-hearing exchanges.

On February 13, 2024, Respondent filed an Unopposed Motion to Extend Deadlines stating that “Counsel for Respondent and CTP have conferred and are in agreement to suggest the following modified deadlines … to allow for competent representation and cooperation between the parties.” CRD Dkt. Entry 10 at 1.

On February 14, 2024, I issued an Order granting Respondent’s unopposed motion, and extended the deadlines for Respondent’s response to CTP’s requests for production and both parties’ pre-hearing exchange deadlines as the parties requested.

On March 25, 2023, CTP timely filed its pre-hearing exchange, consisting of an Informal Brief of Complainant, Complainant’s List of Proposed Witnesses and Exhibits, and eight proposed exhibits (CTP Exhibits (Exs.) 1-8). CTP’s pre-hearing exchange included the written direct testimony of two proposed witnesses, James Bowling, Deputy Director, Division of Enforcement and Manufacturing, Office of Compliance and Enforcement, CTP, FDA (CTP Ex. 1), and Diane H. Burkett, FDA-commissioned officer with the state of Arizona (CTP Ex. 2).

On April 15, 2024, Respondent timely filed its pre-hearing exchange, consisting of its Pre-Hearing Brief, Legal Addendum to Respondent Brief, Exhibit List, and one exhibit (R. Ex. 1). By Order dated April 23, 2024, I scheduled a pre-hearing conference for May 1, 2024, at 1:00 PM Eastern Time.

On May 1, 2024, I held a telephonic prehearing conference (PHC) in this case. During the PHC, I explained the issues before me, explained the purpose and function of a hearing on the record, and confirmed with the parties that there were no amendments to the parties’ pleadings. During the pre-hearing conference, Respondent’s counsel raised no objections to the admission of CTP’s proffered Exhibits (CTP Ex.) 1-8. Respondent’s counsel confirmed it did not wish to cross-examine CTP’s proposed witnesses. Likewise, CTP’s counsel raised no objections to the admission of Respondent’s proffered Ex. 1. Neither party raised any motions concerning the admission or exclusion of other evidence or the amendment of pleadings.

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During the PHC, I gave the parties until June 3, 2024, to file final written briefs. On May 1, 2024, I issued and Order summarizing the PHC and confirming that both parties waived their rights to a hearing and agreed to proceed to a decision based on the written record.

Neither CTP nor Respondent has filed a final written brief. The administrative record is now complete and closed, and this matter is ready for a decision. 21 C.F.R. § 17.41; 21 C.F.R. § 17.45(c). I will now decide this case based on the evidence in the administrative record. 21 C.F.R. § 17.19(b)(11), (17).

II. Issues

1. Whether the allegations in the complaint are true, and, if so, whether Respondent’s actions identified in the complaint violated the law;
2. Whether any affirmative defenses are meritorious; and
3. If Respondent is liable for penalties or assessments, the appropriate amount of any such penalties or assessments, considering any mitigating or aggravating factors that I find in this case. 21 C.F.R. § 17.45.

III. Analysis and Findings

To prevail, CTP has the burden of proving the Respondent’s liability and the appropriateness of any civil money penalty, whereas the Respondent has the burden of proving any affirmative defenses and mitigating factors. 21 CFR § 17.33(b)-(c). As the presiding officer, I do not have the authority to find Federal Statues or regulations invalid. 21 C.F.R. § 17.19(c).

CTP has determined to impose a civil money penalty against Respondent pursuant to the authority conferred by the Act and implementing regulations at Part 21 of the Code of Federal Regulations. The Act prohibits the receipt in interstate commerce of any tobacco product that is adulterated or misbranded and the delivery or proffered delivery of any tobacco product that is adulterated or misbranded for pay or otherwise. 21 U.S.C. § 331(c); see also 21 U.S.C. § 321(b). Premarket authorization from the FDA is required for all “new tobacco products.” 21 U.S.C. § 387j(a)(2)(A).

A “new tobacco product” is defined as any tobacco product that was not commercially marketed in the United States as of February 15, 2007, or any modification of a tobacco product where the modified product was commercially marketed in the United States after February 15, 2007. 21 U.S.C. § 387j(a)(1). A “new tobacco product” is required to have premarket review with a Marketing Granted Order (MGO) unless it has a substantial equivalence or substantial equivalence exemption order (found-exempt order) in effect

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for such product. 21 U.S.C. §§ 387j(a)(2)(A), 387e(j)(3)(A). A new tobacco product is adulterated if it has not obtained the required premarket authorization. 21 U.S.C. § 387b(6)(A). A new tobacco product for which a “notice or other information respecting it was not provided as required” under the substantial equivalence or substantial equivalence pathway is misbranded. 21 U.S.C. § 387c(a)(6).

CTP’s case against Respondent rests on the written direct testimony of James Bowling (Bowling), Deputy Director, Division of Enforcement and Manufacturing, Office of Compliance and Enforcement, CTP, FDA, and Diane H. Burkett (Burkett), FDA- commissioned officer with the state of Arizona. CTP Exs. 1-2. Burkett testified that during the inspection on August 23, 2023, at approximately 11:56 PM, at Respondent’s establishment “ENDS” products were available for sale. CTP. Ex. at 2, ¶¶ 4-6. Bowling testified that the Elfbar Clear ENDS product observed during the August 23, 2023, inspection was manufactured in China, which is outside of the state in which Respondent operates. CTP Ex. 1 at 3, ¶ 7. Bowling further testified that he “can confirm that the Elfbar Clear ENDS product were not commercially marketed in the United States as of February 15, 2007 … that on August 23, 2023, the day on which FDA observed the Elfbar Clear ENDS product being offered for sale at T.H.C. Smokes, there was no record of this product having an authorized FDA premarket authorization order in effect under 21 U.S.C. § 387jI(1)(A)(i) … there was no record of this product having a substantial equivalence order in effect under 21 U.S.C. § 387j(a)(2)(A)(i), and a report requesting a substantial equivalence order under 21 U.S.C. § 387e(j) had not been requested for the product … the Elfbar Clear ENDS product did not have a found-exempt order in effect under 21 U.S.C. § 387e(j)(3)(A) (SE pathway under 21 U.S.C. § 387j(a)(2)(A)(ii)), and that an abbreviated report requesting a found-exempt order for such product under 21 U.S.C. § 387e(j)(1) had not been submitted.” CRD Dkt. Entry No. 12b at 4-5, ¶¶ 13-15.

Thus, the ENDS product offered for sale at Respondent’s establishment on August 23, 2023, was manufactured in China and therefore had previously traveled in interstate commerce before the Respondent’s receipt and delivery or proffered delivery of such tobacco products for pay or otherwise. See 21 U.S.C. § 331(c); see also United States v. Sullivan, 332 U.S. 689, 696 (1948), 92 L. Ed. 297, 303 (holding that the Act applies “to articles from the moment of their introduction into interstate commerce all the way to the moment of their delivery to the ultimate consumer”).

In its Answer, Respondent admitted that Respondent had ENDS products available for sale on August 23, 2023, that the products were “new tobacco products;” the products did not have an MGO in effect under 21 U.S.C. § 387j(c)(1)(A)(i) and were, therefore, adulterated under 21 U.S.C. § 387b(6)(A); and that neither an SE report nor an abbreviated report has been submitted for Respondent's ENDS product, and were, therefore, misbranded under 21 U.S.C. § 387c(a)(6). CRD Dkt. Entry No. 4 at 2, ¶ 4. In Respondent’s Pre-Hearing Brief, Respondent again admitted that it offered “new tobacco products” that did not have an FDA marketing authorization order in effect for sale on

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August 23, 2023, and that the “new tobacco products” Respondent had for sale had not been found to be neither substantially equivalent nor otherwise exempt from the premarket authorization requirement. CRD Docket Entry No. 12, ¶¶ 3-5.

Respondent, however, disputes that the Elfbar ENDS products were received through interstate commerce. Respondent argues “Respondent’s ENDS products, including the Elfbar ENDS products, are purchased through intrastate commerce … [s]ince the ENDS products were purchased through a legally licensed, by the state of Arizona, distributor, Respondent had no reason to believe that these ENDS products were not in compliance with FDA rules and regulations.” Id. at 1, ¶¶ 2-3.

Further, in Respondent’s Addendum to Pre-Trial Brief, Respondent argues that “[n]or are there any allegations that Respodnent [sic] shipped the Elf Bar product (or anything else) in interstate commerce; the allegation is that they were observed for sale in Respondent’s store to customers who enter in person. CRD Dkt. Entry No. 13c at 2. Respondent goes on to argue that “there is no allegation that Respondent sells any e-liquid products outside the state of Arizone [sic]. Id. Respondent also argues that Respondent has not committed any “prohibited acts that can lead to liability” and challenges CTP’s authority to impose a civil money penalty.

Respondent admits to the allegations and argues that its products were not sold across state lines. Respondent has not submitted any evidence to rebut the testimony of Bowling or Burkett, did not object to their testimony, and chose not to cross-examine these witnesses. Respondent also failed to offer any affirmative defenses. Thus, I have considered Respondent’s arguments but find them to be unpersuasive.

Accordingly, I find the testimony of Bowling and Burkett persuasive as it is supported by corroborating evidence consisting of photographs of the Elfbar ENDS product and photographs of the Elfbar ENDS product displayed on the store shelves of Respondent’s establishment documenting that the August 23, 2023, violations for receiving in interstate commerce an electronic nicotine delivery system (ENDS) product lacks the premarketing authorization required under the Federal Food, Drug, and Cosmetic Act (Act) and offering such product for sale. Finally, as the presiding officer, I do not have the authority to find Federal statutes or regulations invalid and thus am not able to address Respondent’s arguments as to CTP’s regulatory authority. 21 C.F.R. § 17.19(c).

IV. Civil Money Penalty

I find that Respondent violated the prohibition against receiving and offering for sale a new tobacco product that was adulterated and misbranded. 21 U.S.C. § 331(c). On August 23, 2023, Respondent offered for sale an ENDS product that was adulterated because it lacks the required FDA marketing authorization and is not exempt from this requirement. 21 U.S.C. §§ 387j(a)(2), 387e(j)(3)(A). Under 21 U.S.C. § 387c(a)(6),

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Respondent’s ENDS product is also misbranded because it has no substantially equivalent determination or found-exempt order, as required by 21 U.S.C. § 87e(j). Therefore, Respondent’s actions constitute violations of law that merit a civil money penalty.

In determining whether a $19,192 CMP is appropriate, I must consider any aggravating or mitigating circumstances and the factors listed in the Act. 21 C.F.R. § 17.34(a)-(b). Specifically, I am required to consider “the nature, circumstances, extent and gravity of the violation or violations and, with respect to the violator, ability to pay, effect on ability to continue to do business, any history of prior such violations, the degree of culpability, and such other matters as justice may require.” 21 U.S.C. § 333(f)(5)(B); 21 C.F.R. § 17.45(b)(1)-(3). Respondent must prove any mitigating factors by a preponderance of the evidence. 21 C.F.R. § 17.33(c). For the following reasons, I conclude that a $19,192 CMP is appropriate based upon the record evidence, applicable law, and aggravating and mitigating circumstances in this case.

A. Nature, Circumstances, Extent and Gravity of the Violations

Respondent received a written warning on May 26, 2023, citing Respondent for offering for sale ENDS products, specifically Puff Bar Pomegranate and Puff Plus Guava Ice ENDS products, without a marketing authorization order on March 7, 2023.

The May 25, 2023, Warning Letter also notified Respondent that future violations may lead to enforcement action, including, but not limited to, civil money penalties, seizure, and/or injunction by FDA and advised Respondent that “[t]he violation indicated in this letter may not be a complete list of violations at the establishment.” CRD Dkt. Entry No. 12h at 3.

Nonetheless, after receiving this warning that Respondent was in violation of federal law, Respondent continued to sell other “new tobacco products” without a marketing authorization order. The inability of Respondent to comply with federal tobacco law is serious in nature and demands a proportional civil money penalty. Id.

B. Respondent’s Ability to Pay and Effect on Ability to Do Business

Respondent has not submitted arguments or evidence that it has any inability to pay the civil money penalty or that paying a civil money penalty would affect Respondent’s ability to do business.

C. History of Prior Violations

There is no indication in the record of any prior violations of Section 331(c) resulting in a civil money penalty. However, Respondent did receive a Warning Letter dated May 25,

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2023, advising that it was in violation of federal law for selling a new tobacco product without marketing authorization. Thus, Respondent was on notice of the need for a premarket authorization for its products and the possibility of future compliance inspections.

D. Degree of Culpability

As previously discussed, Respondent admitted the allegations and has not offered any affirmative defenses or mitigating factors. I find Respondent has received in interstate commerce an ENDS product that lacks the premarketing authorization required under the Act and offered such product for sale, as alleged in the Complaint.

V. Conclusion

For these reasons, I impose a civil money penalty against Respondent D and A Business Investments LLC d/b/a T.H.C. Smokes in the amount of $19,192 for receiving in interstate commerce an ENDS product that lacks the premarketing authorization required under the Act and offering such product for sale. Pursuant to 21 C.F.R. §§ 17.11(b), 17.45(d), this decision becomes final and binding upon both parties after 30 days of the date of its issuance.