Tobacco Hut and Vape, Inc. d/b/a Tobacco Hut and Vape Village, DAB TB8586 (2024)

INITIAL DECISION

The Center for Tobacco Products (CTP) seeks to impose a $19,192 civil money penalty (CMP) against Respondent, Tobacco Hut and Vape, Inc. d/b/a Tobacco Hut and Vape Village. CTP alleges that the Respondent 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) and offering such product for sale, in violation of 21 U.S.C. § 331(c). Therefore, CTP seeks a $19,192 CMP against Respondent. For the reasons discussed below, I find that Respondent violated the Act as alleged by CTP and that a reduced CMP of $16,314 is appropriate.

Background

CTP began this matter by serving an Administrative Complaint on Respondent at 3230 Duke Street, Alexandria, Virginia 22314 by United Parcel Service (UPS), and by filing a copy of the Complaint with the FDA’s Division of Dockets Management. Civil Remedies Division (CRD) Docket (Dkt.) Entry Nos. 1 (Complaint), 1b (Delivery

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Notification). Respondent timely filed its Answer where it denied the allegations, raised jurisdictional and Constitutional defenses, and disputed the appropriateness of the CMP sought by CTP. CRD Dkt. Entry No. 3a (Answer).

On November 29, 2023, I issued an Acknowledgment and Pre-Hearing Order acknowledging receipt of Respondent’s Answer and establishing procedural deadlines for this case. CRD Dkt. Entry No. 4 (APHO). CTP timely submitted its pre-hearing exchange, consisting of its informal brief, list of proposed witnesses, and eight exhibits. See CRD Dkt. Entry Nos. 8-8i. CTP’s exchange included the written testimony of two witnesses: 1) James Bowling, Deputy Division Director, Office of Compliance and Enforcement, CTP Ex. 1, and 2) Kerrianne C. Cooper, FDA-commissioned officer in the Commonwealth of Virginia, CTP Ex. 2. Respondent filed a pre-hearing brief and four exhibits (Respondent’s Ex. 1-2.2), including tax return filings, a written declaration of its witness Thayer Saleh, a printed list of vape store locations from Vape Maps & Yelp, and a list of Elfbar/EB Design Civil Money Complaints issued by CTP. CRD Dkt. Entry Nos. 5 and 10. There were no objections from either party to the proposed documentary evidence and all documents are admitted into evidence.

On April 25, 2024, I conducted a pre-hearing conference (PHC). During the PHC, I explained the issues before me, and the parties’ respective burdens of proof. CRD Dkt. Entry No. 11 (Order Following PHC) at 1-2. CTP stated that it did not wish to cross‑examine Respondent’s proposed witness. Id. However, Respondent indicated its desire to cross-examine both of CTP’s witnesses. Id. at 3. During the PHC, Respondent also agreed that Respondent was selling new tobacco products and admitted the allegations in the Complaint, but contested the method of the inspection. Id. In an order dated May 3, 2024, I requested that the parties confer and advise me of the dates they are available for a hearing. CRD Docket Dkt. Entry No. 11 at 3 (May 3, 2024 Order).

On May 31, 2024, Respondent filed a Brief of Respondent and Waiver of a Hearing (Brief and Waiver of Hearing), in which Respondent indicated that it no longer wished to cross-examine CTP’s witnesses. CRD Dkt. Entry No. 13 ¶ 4 (Brief and Waiver of Hearing). On June 4, 2024, I issued an order cancelling the hearing. CRD Dkt. Entry No. 14 (Order Cancelling Hearing). In the order, parties were given until July 8, 2024, to file final briefs. On June 12, 2024, Respondent filed a supplemental brief. CRD Dkt. Entry No. 15. On July 8, 2024, CTP filed its final brief and CTP Exhibit A. CRD Dkt. Entry No. 16-16b.

I will consider the full administrative record in deciding this case. The administrative record contains the exhibits and other evidence admitted as well as all papers and requests filed in this proceeding. 21 C.F.R. § 17.41(b).

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II. Issues

1. Whether Respondent received in interstate commerce an ENDS product that lacks the premarketing authorization required under the Act, specifically an Elfbar Mango Peach ENDS product, and offered such product for sale on August 18, 2023, in violation of 21 U.S.C. § 331(c); and, if so,

2. Whether the $19,192 civil money penalty is appropriate, considering any mitigating or aggravating factors that I find in this case. 21 C.F.R. § 17.45.

III. Findings of Fact and Conclusions of Law

1. CTP has demonstrated by a preponderance of the evidence that the Respondent received adulterated and misbranded ENDS products in interstate commerce and delivered or proffered those products for sale on August 18, 2023, in violation of the Act.

CTP seeks to impose a CMP against Respondent pursuant to the authority conferred by the Act and implementing regulations at Part 21 of the Code of Federal Regulations. CTP has the burden to prove the Respondent’s liability and the appropriateness of the penalty by a preponderance of the evidence. 21 C.F.R. § 17.33(b).

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 unless it has a substantial equivalence or substantial equivalence exemption order (found-exempt order) in effect 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 relies on the written direct testimony of Deputy Director James Bowling, Office of Compliance and Enforcement, CTP, FDA, and Inspector

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Kerrianne C. Cooper, FDA-commissioned officer in the Commonwealth of Virginia. CTP Exs. 1 and 2. Inspector Cooper testified that during the inspection on August 18, 2023, at approximately 8:34 PM, an Elfbar Mango Peach ENDS product was available for sale at Respondent’s establishment. CTP. Ex. at 2, ¶¶ 5, 8. See also CTP Exs. 3-6 (Inspector Cooper’s narrative report, inspection details, photographs and notice of inspection dated August 18, 2023).

Deputy Director Bowling testified that the ENDS product observed for sale during the August 18, 2023, inspection was manufactured in China, which is outside of the state in which Respondent operates. CTP Ex. 1, ¶ 9. Deputy Director Bowling further testified that he:

. . . can confirm that the Elfbar Mango Peach ENDS product was not commercially marketed in the United States as of February 15, 2007 . . . that on August 18, 2023, the day on which FDA observed the Elfbar Mango Peach ENDS product being offered for sale at Tobacco Hut and Vape Village, that there were no records of these products 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 this product . . . Elfbar Mango Peach 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.

CTP Ex. 1, ¶¶ 12-13.

In its Answer, Respondent initially denied the allegations that it received in interstate commerce an ENDS product that lacks the premarketing authorization required under the Act, specifically an Elfbar Mango Peach ENDS product, and offered such products for sale on August 18, 2023, in violation of 21 U.S.C. § 331(c). CRD Dkt. Entry No. 3a at 3 (Answer). Respondent also raised a number of defenses. Id. Thereafter, Respondent conceded the factual allegations raised in the Complaint at the PHC. CRD Dkt. Entry No. 11 (Order Following PHC) at 1-2.

Thus, Respondent has not disputed any of the statements made by Inspector Cooper or Deputy Director Bowling. Respondent does not specifically deny that the ENDS product observed by Inspector Cooper was not at its establishment and being proffered for sale, but only that the inspection was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law. Based on the uncontested testimony of Inspector Cooper and Deputy Director Bowling, as well as the supporting evidence submitted by CTP, the

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ENDS product offered for sale at Respondent’s establishment on August 18, 2023, 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”). The ENDS product was adulterated because it lacked the required FDA marketing authorization and was not exempt from this requirement. 21 U.S.C. §§ 387j(a)(2)(A), 387e(j)(3)(A). Under 21 U.S.C. § 387c(a)(6), the products were also misbranded because there was no substantially equivalent determination as required by 21 U.S.C. § 387e(j). Therefore, Respondent’s actions constitute violations of law that merit a CMP.

2. CTP’s Action was not Arbitrary, Capricious, an Abuse of Discretion, or Otherwise not in Accordance with the Law

While Respondent does not contest the factual allegations in the Complaint, Respondent argues that enforcement of this Complaint amounts to an agency action that is “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law” under 5 U.S.C. § 706(2)(A); CRD Dkt. Entry No. 13 at 1-2 (Brief and Waiver of Hearing). Respondent also makes the claim that this tribunal has the jurisdiction to dismiss the Complaint on the basis of selective enforcement against Respondent. CRD Dkt. Entry No. 13 at 1-2 (Brief and Waiver of Hearing). Respondent cites to Encyclopedia Britannica, Inc. v. Federal Trade Commission, 605 F. 2d 964, 974 (7^th Cir. 1979), cert, denied, 445 U.S. 934 (1980) in which the Seventh Circuit stated that if the agency “elects to litigate against similarly situated competitors . . . it cannot place one competitor at a competitive disadvantage by arbitrarily treating one violator differently from another.” Id. at 2. Respondent further argues that CTP’s “enforcement of the ‘new tobacco products’ law against [it] and not any of its competitors is without rhythm[sic] or reason.” Id. Respondent also filed a supplemental brief, arguing that the FDA’s reversal of its ban of e-cigarette products made by Juul Labs, supports its position that this enforcement action is “inconsistent with Respondent’s substantive due process and equal protection rights under the 5th and 14th Amendments to the U.S. Constitution and with 5 U.S.C. § 706(2)(A).” CRD Dkt. Entry No. 15 (Supplemental Brief of Respondent). However, I find Respondent’s argument to be unconvincing.

Respondent does not present any evidence as to how CTP’s enforcement of its store is different from the enforcement of any other stores. In fact, Respondent’s Exhibit 2.2 contradicts its own argument by showing that, as of December 5, 2023, CTP has issued CMP complaints upon other retailers for selling Elfbar products. See CRD Dkt. Entry No. 5. Respondent also does not show how its own store is being singled out or being put at a disadvantage in favor of its competitors. Nor does Respondent assert, yet alone, establish “discriminatory enforcement” as required to “establish such a claim.” See

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Encyclopaedia Britannica, Inc. v. F. T. C., 605 F.2d at 974. Therefore, Respondent fails to show how CTPs enforcement was as arbitrary, capricious, an abuse of discretion, or discriminatory.

Further, it shall be noted that by regulation, my decision must be based only on the administrative record and must contain findings of fact on whether the allegations in the Complaint are true, whether any affirmative defenses are meritorious, and if Respondent is liable for penalties or assessment, and the appropriate amount of any such penalties or assessments. 21 C.F.R. § 17.45. I also note that 21 C.F.R. § 17.19(c) expressly states that the presiding officer does not have the authority to find Federal statutes or regulations invalid. This is not a junction where constitutional or statutory determinations are able to be made. Therefore, Respondent’s constitutional claims cannot be determined at this point, but I am still able to assess whether Respondent is liable for the violation and if the penalty is appropriate.

3. Respondent has demonstrated by a preponderance of the evidence mitigating circumstances to support a reduced CMP.

I have determined 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). Pursuant to 21 U.S.C. § 333(f)(9), Respondent Tobacco Hut and Vape Village is liable for a civil money penalty not to exceed the amounts listed in FDA’s CMP regulations at 21 C.F.R. § 17.2; see also 45 C.F.R. § 102.3.

In its Complaint, CTP seeks to impose a CMP amount of $19,192.00 against Respondent. CRD Dkt. Entry No. 1, ¶ 1 (Complaint). In its Answer and subsequent briefs, Respondent contends that the CMP sought by CTP is too high because this is its first violation, and it removed the ENDS product once it became aware of the violation. CRD Dkt. Entry Nos. 5, 13. In addition, Respondent states that the civil penalty sought is 26% of Respondent’s annual income and it cannot afford to pay the $19,192.00 civil penalty in addition to attorney’s fees. CRD Dkt. Entry No. 5. Respondent further argues that the penalty is excessive under the Eighth Amendment to the U.S. Constitution or is otherwise excessive under the circumstances of this case. CRD Dkt. Entry No. 3a.

As discussed above, 21 C.F.R. § 17.19(c) expressly states that the presiding officer does not have the authority to find Federal statutes or regulations invalid. However, when determining the appropriate amount of a CMP, I am required to consider any “circumstances that mitigate or aggravate the violation” and “the factors identified in the statute under which the penalty is assessed . . . .” 21 C.F.R. §§ 17.34(a); 17.34(b). Specifically, I must consider “the nature, circumstances, extent and gravity of the 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).

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

CTP contends that Respondent’s violations are serious in nature as they contravene FDA’s efforts to protect the public health from the multitude of adverse health effects associated with tobacco use. CRD Dkt. Entry No. 8 at 8. (Informal Brief of Complainant). CTP specifically refers to a warning letter it issued to the Respondent on June 8, 2023, citing Respondent for offering for sale tobacco product, specifically Hyde Edge Recharge Blueberry, Elfbar Sunset, and Esco Bars Strawnanners Ice ENDS products that lacked the required marketing authorization order and for selling a tobacco product to a person under 21 years of age, in violation of Section 906(d)(5) of the Act. Id.; CTP Ex. 7, at 1-2. CTP states that the warning letter 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 violations indicated in this letter may not be a complete list of violations at the establishment.” Id. at 9; CTP Ex. 7 at 2. Finally, CTP states the warning letter referred the Respondent the FDA website, which included information to help tobacco retailers understand and comply with FDA tobacco laws and regulations. Id.; CTP Ex. 7 at 2.

Respondent claims that at the first known violation, the “two nicotine products, Elfbar and Esco Bar, were removed from the store as soon as Respondent’s principal became aware of their illegibility[sic].” CRD Dkt. Entry No. 13 at 3. Moreover, Respondent argues that the two nicotine products are not insignificant, however, they are not patently dangerous products. Id. Respondent further argues that nicotine vape products are arguable a safer alternative to smoking cigarettes. Id.

Respondent, however, offers no evidence or scientific research to support these arguments. Therefore, Respondent’s notion that vape products are a safer alternative to cigarettes and are not patently dangerous products is not a convincing argument to prove this is a mitigating circumstance.

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

Respondent submitted a declaration of Thayer Saleh, who is the president and sole shareholder of Tobacco Hut and Vape Village, stating that requiring the removal of China vape products from the store while over a dozen vape stores within a few miles radius of the store continue to carry the same China vape products will cause the store to suffer economically because the store cannot compete. Respondent’s Ex. 2 at 2. Mr. Saleh goes on to say that because the China vape products make up 30% to 35% of the product mix in the store, removing them would effectively cause the business to go under. Id. Further, Mr. Saleh states that the amount of monetary penalty sought is 25% of the annual income from the store and therefore far too high for the store to afford. Id. In Respondent’s Brief and Waiver of Hearing, it argues that the civil penalty should be no

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more than $250.00. CRD Dkt. Entry No. 13 at 4. Respondent also provided a copy of its Form 1120-S Tax Return for an S Corporation for 2022 to support its contention that paying the CMP would cause Respondent to lose its business. Respondent’s Ex. 1.

CTP argues that Respondent’s Form 1120-S Tax Return for an S Corporation for 2022 is insufficient alone to establish Respondent’s ability pay the $19,192 penalty. See CRD Dkt. Entry Nos. 10 at 10 (Informal Brief of Complainant) (citing Joy and Evergreen Petro, Inc. d/b/a Sunoco, DAB No. CR 4698, 2016 WL 8650385 at *2 (H.H.S. Sept. 6, 2016), 17 at 2-3. CTP further argues that in order to establish inability to pay the penalty, Respondent should have provided evidence as to its business assets, such as, “proof as to its cash reserves, its credit worthiness, or other potential sources of capital, all of which are highly relevant to the issue of ability to pay a penalty.” Id. CTP also argues that Respondent provided no information about its business income, beyond that for 2022, even though CTP requested additional evidence supporting mitigation in its Request for Production of Documents. Id.

Based on my review of the evidence, the CMP that CTP seeks can affect Respondent’s ability to pay the CMP. In Respondent’s tax return, its total income is listed as $326,529 however its ordinary business income is $73,138. Respondent’s Ex. 1 at 9. It is my position that a $19,192 deduction from its total income and ordinary business income is a significant deduction and is a mitigating factor. Therefore, I find that Respondent’s contentions regarding the difficulty to repay the sought after CMP due to its financial condition to be sincere and credible, and the evidence persuasive on this issue.

iii. History of Prior Violations

There is no indication in the record of any prior violations of section 331(c) of the Act resulting in a CMP. CTP notes, however, that Respondent received a warning letter that it had previously violated the law and that it nevertheless continued to receive in interstate commerce and offer for sale new tobacco products that lacked the required premarket authorization, which shows an unwillingness or inability to comply with the law. CRD Dkt. Entry No. 10 at 11 (Informal Brief of Complainant). CTP therefore proffers Respondent’s repeated violations supports a penalty of $19,192.

I agree with CTP that the warning letter demonstrates a prior violation. However, I disagree with CTP’s contentions that Respondent’s repeated violations in this case was based on an unwillingness or inability to comply with the law. Respondent claims that at the first known such violation, “the two nicotine products, Elfbar and Esco Bar, were removed from the store as soon as Respondent’s principal became aware of their illegibility[sic].” CRD Dkt. Entry No. 13 at 3 (Brief and Waiver of Hearing).

Respondent’s attempt to remedy the violations in the warning letter is considered a mitigating circumstance. The warning letter specified that the Hyde Edge Recharge

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Blueberry ENDS product lacked premarket authorization. CTP’s Ex. 7 at 2. However, in the current Complaint, CTP is seeking a CMP for Respondent’s possession of an Elfbar Mango Peach ENDS product, which is a different flavor from the ENDS products identified in the warning letter. CRD Dkt. Entry No. 1, ¶ 14 (Complaint). Rather than disregarding the warning letter, Respondent attempted to come into compliance upon receiving the warning letter by removing the identified products and not bringing in the same products. Moreover, in Mr. Saleh’s declaration, he further stated that he also had the Elbar Mango Peach ENDS product removed from his store as well. CRD Dkt. Entry No. 10, at ¶ 3. Therefore, despite the serious nature of the violations, I find the Respondent’s attempt to comply with law, although insufficient to relieve it of liability, is a mitigating factor and the CMP amount should be reduced accordingly.

iv. Degree of Culpability

Based on my finding that Respondent committed the violation alleged in the Complaint, I hold the Respondent fully culpable for offering for sale new tobacco products that were adulterated and misbranded, in violation of the Act. The Act places a heavy burden on retailers who choose to sell tobacco products because of their highly dangerous and addictive nature. See 21 U.S.C. § 387 note (Findings and Purpose). Although I find the Respondent took remedial action upon receipt of the warning letter, these actions do not absolve Respondent of its responsibility as a retailer of tobacco products.

v. Other Matters as Justice May Require

The Act gives me discretion to consider any other evidence or arguments to mitigate the amount of the CMP. 21 U.S.C. § 333(f)(5)(B). Based on the undisputed statements above, I find the proposed penalty amount of $19,192 will place a significant financial strain personally on the Respondent. However, having found the Respondent violated the law, to ensure that justice is served, the CMP should ensure future compliance with the Act and tobacco regulations.

For these reasons, after considering the record evidence, applicable law, and aggravating and mitigating circumstances in this case, I find that a reduced penalty amount of $16,314 is appropriate under 21 U.S.C. §§ 333(f)(5)(B), (f)(5)(C), and (f)(9).

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Conclusion

For these reasons set forth above, I impose a reduced civil money penalty against Respondent Tobacco Hut and Vape, Inc. d/b/a Tobacco Hut and Vape Village in the amount of $16,314 for receiving in interstate commerce ENDS products that lack 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.