AKS Investments Inc. d/b/a Kwik Stop, DAB TB8600 (2024)

INITIAL DECISION

Found:

• 1) Respondent violated 21 U.S.C. § 301 et seq., specifically 21 U.S.C. § 331(c), as charged in the Complaint;
• 2) Respondent committed at least one violation as set forth hereinafter; and
• 3) Respondent is hereby assessed a civil penalty in the amount of $19,192.

Glossary:

ALJ	administrative law judge1
CTP/Complainant	Center for Tobacco Products
FDCA	Federal Food, Drug, and Cosmetic Act (21 U.S.C.A Chap. 9)
FDA	Food and Drug Administration
HHS	Dept. of Health and Human Services
OSC	Order to Show Cause to Respondent
POS	UPS Proof of Service
SOP	Service of Process
Respondent	M and J of Cenla Inc. d/b/a Shell / Food Mart
TCA	The Family Smoking Prevention and Tobacco Control Act, Pub. L. No. 111-31, 123 Stat. 1776 (2009)

I. JURISDICTION

I have jurisdiction to hear this case pursuant to my appointment by the Secretary of Health and Human Services and my authority under the Administrative Procedure Act (5 U.S.C. §§ 554-556), 5 U.S.C.A. § 3106, 21 U.S.C. § 333(f)(5), 5 C.F.R. §§ 930.201 et seq. and 21 C.F.R. Part 17.2

II. PROCEDURAL BACKGROUND

The Center for Tobacco Products (CTP/Complainant) filed a Complaint on September 26, 2023, against AKS Investments Inc. d/b/a Kwik Stop (Respondent or Kwik Stop), located at 109 South 3rd Street, Lantana, Florida 33462.  Civil Remedies Division (CRD) Docket (Dkt.) Entry No. 1 (Complaint).  The Complaint alleges that 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 and offered such product for sale.  Complaint at 1.

Respondent was served with process on September 25, 2023, by United Parcel Service.  CRD Dkt. Entry No. 1b (Proof of Service).  On October 24, 2023, counsel for Respondent filed a Notice of Appearance and a request for an extension of time to file an answer.  CRD Dkt. Entry Nos. 4, 4a (Notice of Appearance, Request for Extension).  On November 9, 2023, I issued an amended order granting Respondent’s request for an extension to file an answer.  CRD Dkt. Entry No. 6 (Amended Order Granting Request for Extension).  On November 22, 2023, Counsel for Respondent filed an Answer to the Complaint.  CRD Dkt. Entry No. 7 (Answer).  In its Answer, Respondent denied the allegations that it received in interstate commerce an ENDS product that lacks the premarketing authorization required under the Act, specifically an Elfbar Strawberry Pina Colada ENDS product, and offered such products for sale on August 19, 2023, in violation of 21 U.S.C. § 331(c).  Answer at 2.

On December 6, 2023, I issued a Pre-Hearing Order (PHO) establishing what the parties must do to present evidence and arguments in this case.  CRD Dkt. Entry No. 8 (PHO).  The PHO directed the parties to file their pre-hearing exchanges by March 5, 2024.  PHO at 3.  On March 5, 2024, CTP filed its pre-hearing exchange consisting of an informal brief, a list of proposed witnesses, and nine proposed exhibits.  CRD Dkt. Entry Nos. 9, 9a-9j.  CTP proposed the written testimony of two proposed witnesses: Deputy Division Director, James Bowling, and FDA-Commissioned Inspector, Marcus Wesker.  CRD Dkt. Entry Nos. 9b, 9c.  Respondent did not file a pre-hearing exchange as directed.

On May 30, 2024, I issued an order scheduling a hearing for June 21, 2024.  CRD Dkt. Entry No. 10 (Order Setting Hearing).  The Order directed Respondent to file any motions, such as motions to exclude or objections to CTP’s proposed exhibits, and to indicate which witnesses, if any, it wishes to cross-examine by June 6, 2024.  Order Setting Hearing at 1-2.  The Order Setting Hearing also informed Respondent that if it failed to comply, I would cancel the June 21, 2024 hearing and issue a written decision on the record.  Id at 1.

On June 10, 2024, CTP filed a Motion to Cancel Hearing, Admit Its Proposed Exhibits into Evidence, and Issue a Decision on the Written Record.  CRD Dkt. Entry No. 11 (Motion to Cancel Hearing).  On June 17, 2024, I issued an order cancelling the hearing as Respondent did not file any motions, objections, or indicate any witnesses that it intended to cross‑examine at the scheduled hearing.  CRD Dkt. Entry No. 12 (Order Cancelling Hearing).  In the Order, I also admitted CTP’s exhibits into evidence.  Id. at 2.  Parties were given 30 days from the date of the Order Cancelling Hearing to file final written briefs on the merits of the case.  Id.

On July 17, 2024, CTP filed a Notice of Waiver of Final Brief indicating that it did not intend to file a final brief and rests its case on the previously admitted informal brief and exhibits.  CRD Dkt. Entry No. 13.  (Notice of Waiver of Final Brief).  Respondent did not file a final brief.  The administrative record is now closed and ready for a decision based on the written record.  21 C.F.R. § 17.45(c).

III. BURDEN OF PROOF

As the petitioning party, CTP, has the burden to prove, by a preponderance of the evidence, that Respondent is liable and that the proffered penalty is appropriate.  21 C.F.R. § 17.33.

IV. LAW

21 U.S.C. § 301 et seq., specifically 21 U.S.C. § 331(c), 21 U.S.C. § 387b(6)(A), 21 U.S.C. § 387c(a)(6), and 21 U.S.C. § 387j(a)(2)(A).

V. ISSUES

Did Respondent violate 21 U.S.C. § 301 et seq., specifically 21 U.S.C. § 331(c), as alleged in the Complaint and, if so, is the civil money penalty sought by CTP appropriate?

VI. ALLEGATIONS

1. A. Complainant’s Recitation of the Facts

            In its Complaint, CTP alleged that Respondent owns an establishment, doing business under the name Kwik Stop, located at 109 South 3rd Street, Lantana, Florida 33462.  Complaint at 3, ¶13.  CTP also alleged that Respondent’s establishment received tobacco products, including an Elfbar Strawberry Pina Colada ENDS product, in interstate commerce and delivered or proffered delivery of such tobacco products for pay or otherwise.  Id., ¶14.

            CTP’s Complaint further alleged that on June 13, 2023, CTP issued a Warning Letter to Respondent, stating that the new tobacco products that Respondent sells and/or distributes are adulterated and misbranded because they lack the required FDA marketing authorization.  Id., ¶20.

            During a subsequent inspection of Kwik Stop on August 19, 2023, an FDA‑commissioned inspector observed an Elfbar Strawberry Pina Colada ENDS product for sale at Respondent’s establishment.  Id., ¶15.

            Respondent’s ENDS products are “new tobacco products” because they were not commercially marketed in the United States as of February 15, 2007.  Id., ¶16.

            Respondent’s ENDS product does not have an order permitting marketing of the new tobacco product under 21 U.S.C. § 387j(c)(1)(A)(i) and are therefore adulterated under 21 U.S.C. § 387b(6)(A).  Id., ¶17.

            Respondent neither submitted a substantial equivalent report nor an abbreviated report for any of Respondent’s ENDS product, and the product is therefore, misbranded under 21 U.S.C. § 387c(a)(6).  Id., ¶18.

            Respondent’s receipt of an adulterated and misbranded ENDS product in interstate commerce and delivery or proffer thereof for pay or otherwise violates of 21 U.S.C. § 331(c).  Id., ¶19.

1. B. Respondent’s Recitation of the Facts

            In its Answer, Respondent admits that it owns the establishment that does business under the name Kwik Stop, located at 109 South 3rd Street, Lantana, Florida 33462.  Answer at 2.

            Respondent admits that its business establishment received tobacco products in interstate commerce, including an Elfbar Strawberry Pina Colada ENDS product, and delivered or proffered delivery of such tobacco products for pay or otherwise.  Id.  Respondent denies that CTP issued a Warning Letter on June 13, 2023.  Id.  However, Respondent admits that an FDA-commissioned inspector observed an Elfbar Strawberry Pina Colada ENDS product for sale at Respondent’s establishment during the subsequent inspection on August 15, 2023.  Id.

Further, Respondent admits that its ENDS product is a “new tobacco product,” but claims it is without knowledge that its e-liquid products are adulterated or misbranded.  Id.  Lastly, Respondent denies receipt of adulterated and misbranded ENDS products in interstate commerce and delivery or proffer thereof for pay or otherwise in violation of 21 U.S.C. § 331(c).  Id.

            Upon weighing the evidence, I conclude the FDA never issued a marketing authorization for the new tobacco products Respondent had in its business establishment.  I also find that there is no dispute that those same products did not have a substantial equivalence order or an exemption order from the Secretary.  I also find that Respondent’s possession of those new tobacco products occurred by way of interstate commerce.  Therefore, the new tobacco products in Respondent’s possession at the time of the August 19, 2023 inspection are adulterated and misbranded and violate Section 331(c) of the Act.

VII. FAMILY SMOKING PREVENTION AND TOBACCO CONTROL ACT

The “relevant statute” in this case is actually a combination of statutes and regulations:  The Family Smoking Prevention and Tobacco Control Act, Pub. L. No. 111 31, 123 Stat. 1776 (2009) (TCA), amended the Food, Drug, and Cosmetic Act, 21 U.S.C.A. Chap. 9, (FDCA) and created a new subchapter of that Act that dealt exclusively with tobacco products, 21 U.S.C. §§ 387-387u, and it also modified other parts of the FDCA explicitly to include tobacco products among the regulated products whose misbranding can give rise to civil, and in some cases criminal, liability.  The 2009 amendments to the FDCA contained within the TCA also charged the Secretary of Health and Human Services with, among other things, creating regulations to govern tobacco sales.

As of August 8, 2016, pursuant to 21 U.S.C. §§ 387a and 387f(d) (Section 906(d) of the Act), FDA revised the definition of tobacco products to incorporate additional products, subject to regulation under the Act.  These products include, but are not limited to, electronic nicotine delivery systems (including e-cigarettes), e-liquids, and pipe tobacco.  See Final Rule, Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 8 Fed. Reg. 28,974 (May 10, 2016), available at https://federalregister.gov/a/2016-10685 (hereafter “Deeming Regulation”).

The TCA prohibits the sale of any “new tobacco product” without authorization from the FDA.  21 U.S.C. § 387(j)(a); 21 U.S.C. § 387a(b) (delegating the FDA the authority to determine what constitutes new tobacco products).  A new tobacco product is any tobacco product that was not commercially marketed in the United States as of February 15, 2007.  21 U.S.C. § 387j(a)(1).  The Secretary’s regulations on tobacco products appear in Part 1140 of Title 21, Code of Federal Regulations (CFR).

            The TCA requires new tobacco products to have a premarket authorization in effect.  21 U.S.C. § 387j(a)(2).  To obtain premarket authorization, manufacturers of new tobacco products are required to submit a premarket tobacco application (PMTA) to the FDA for approval to sell their products.  21 U.S.C. § 387j(b)(1).  Alternatively, the product manufacturer may submit a substantial equivalence report, in response to which the FDA may issue an order finding the product is substantially equivalent to a predicate tobacco product.  21 U.S.C. § 387e(j).  Or, the product manufacturer may submit a report, in response to which the Secretary may issue an exemption order.  21 U.S.C. § 387e(j)(3).

The TCA directs FDA to review PMTAs to determine whether “permitting such tobacco product to be marketed would be appropriate for the protection of the public health.”  21 U.S.C. § 387j(c)(2)(A).  Absent an approval from the FDA, the new tobacco products are considered adulterated and misbranded if they lack the required FDA marketing authorization order, substantial equivalence order, or an exemption order.  21 U.S.C. §§ 387b(6) and 387c(6).

Under the FDCA, “[a] tobacco product shall be deemed to be misbranded if, in the case of any tobacco product sold or offered for sale in any State, it is sold or distributed in violation of regulations prescribed under section 387f(d).”  Under 21 U.S.C. § 387c(a)(6), a new tobacco product is misbranded if a “notice or other information respecting it was not provided as required” under the substantial equivalence or substantial equivalence exemption pathway, including a substantial equivalence report or an abbreviated report.  21 U.S.C. § 387c(a)(6).  Section 387 a-1 directed FDA to re-issue, with some modifications, regulations previously passed in 1996.  21 U.S.C. § 387 a-1(a) (2012).

Under the FDCA, a tobacco product is adulterated if it has not obtained the required premarket authorization.  21 U.S.C. § 387b(6)(A).  Thus, when a retailer does not submit a PMTA for its ENDS products, or when a retailer submits a PMTA for its ENDS products and receives a denial order, the products are being adulterated. 21 U.S.C. § 387b(6)(A).  The adulterated and misbranded ENDS products in turn violates the FDCA.

            The FDCA prohibits the receipt in interstate commerce of any tobacco product that is adulterated or misbranded and the delivery or proffered delivery thereof for pay or otherwise.  21 U.S.C. § 331(c).  The FDA may seek a civil money penalty from “any person who violates a requirement of this chapter which relates to tobacco products.”  21 U.S.C. § 333(f)(9)(A) (2012).  Penalties are set by 21 U.S.C. § 333 note and 21 C.F.R. § 17.2.

VIII. LIABILITY

When a retailer such as Respondent is found to have “misbranded” a tobacco product in interstate commerce, it can be liable to pay a civil money penalty.  21 U.S.C. §§ 331, 333. 

            I find and conclude that the evidentiary facts, by a preponderance of the evidence standard, support a finding Respondent violated 21 U.S.C. § 331(c), on August 19, 2023, in that Respondent received the adulterated and misbranded ENDS products in interstate commerce and delivered or proffered delivery thereof for pay or otherwise, as set forth in the Complaint.

IX. PENALTY

There being liability under the relevant statute, I must now determine the amount of penalty to impose.  Pursuant to 21 U.S.C. § 333(f)(9), Respondent is liable for a civil money penalty not to exceed the amounts listed in FDA’s civil money penalty regulations at 21 C.F.R. § 17.2.  In its Complaint, CTP sought to impose the maximum penalty amount of $19,192 against Respondent for violating the Act.  Complaint, ¶ 1.

            Since I found that CTP met its burden by a preponderance of the evidence and concluded that Respondent committed violation of the Act, the next step is to determine the amount of the civil money penalty.  When making that determination, I am required to take into account “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).
 

1. A. The Nature, Circumstances, Extent, and Gravity of the Violation

The TCA was enacted for the purpose of authorizing regulation of tobacco products for the “protection of the public health.”  21 U.S.C. § 387f(d).  Respondent was selling a product that did not have premarketing authorization from the FDA, meaning it was not approved for sale or consumption.  Respondent was issued a written warning on June 13, 2023, that the “FDA has determined that your establishment markets new tobacco products lacking premarket authorization in the United States.  All new tobacco products on the market without the statutorily required premarket authorization are marketed unlawfully and are subject to enforcement action at FDA’s discretion.”  CTP Ex. 7 at 3.  Yet, after receiving this warning that it was in violation of federal law, Respondent continued to sell “new tobacco products.”

            In its Answer, Respondent denies having received the June 13, 2023 Warning Letter.  Answer at 2.  As part of its exhibits, CTP submitted proof that the June 13, 2023 Warning Letter was received by the business establishment.  CTP Ex. 8.  Therefore, I find Respondent did have notice of the violations but continued to sell tobacco products that did not have FDA’s premarket authorization.

            Respondent’s noncompliance is serious because of the dangerous nature of the products that it sold and because it continued selling them after being warned not to do so.  I take notice that nicotine products, whether in the form of tobacco or vaping products, are highly addictive.  Consumption of these products can damage the user’s health and shorten a user’s life.  The FDA and CTP are justified by the dangerous nature of tobacco and vaping products to demand strict compliance with the law from retailers of such products.  Thus, the repeated inability of Respondent to comply with federal tobacco regulations is serious in nature and the civil money penalty amount should be set accordingly.

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

            In evaluating this factor, I note that Respondent did not specifically dispute the CMP amount that CTP seeks.  I understand a penalty of this size could jeopardize Respondent’s ability to do business, however, Respondent has not put forth any evidence of their financial position for me to consider as a mitigating factor.  Having no documentary evidence that supports a necessity for a lower penalty, I cannot find that Respondent has established an inability to pay.

1. C. History of Prior Violations

            There is no indication in the record of any prior violations of Section 331(c) resulting in a CMP.  However, Respondent did receive a Warning Letter dated June 13, 2023, advising that it was in violation of federal law for selling new tobacco products without marketing authorization.  CTP Exs. 7 and 8.  Thus, even though Respondent denies it received the Warning Letter, the record shows they were on notice of the need for premarket approval for its manufactured products.

1. D. Degree of Culpability

            As noted above, Respondent received written notice that it was in violation of federal law by selling “new tobacco products” that did not have a marketing authorization order.  Respondent claims it never received this warning, but the record supports otherwise, leading me to infer there was negligence on Respondent’s part to review the correspondence sent by the FDA to Respondent’s business establishment.  Respondent’s continued sale of these unauthorized products results in a finding of unmitigated culpability.

1. E. Penalty

            Based on the foregoing, I conclude a penalty amount of $19,192 to be appropriate under 21 U.S.C. §§ 333(f)(5)(B) and 333(f)(9).

X. CONCLUSION

Respondent received in interstate commerce an ENDS product that lacks the premarketing authorization required under the Federal Food, Drug, and Cosmetic Act and offering such product for sale, as set forth in the Complaint.  Respondent is liable for a civil money penalty of $19,192.  See 21 C.F.R. § 17.2.

WHEREFORE, evidence having read and considered it be and is hereby ORDERED as follows:

1. I find Respondent has been served with process herein and is subject to this forum.
2. I find and conclude that the evidentiary facts, by a preponderance of the evidence standard, support a finding Respondent violated 21 U.S.C. § 331(c) on August 19, 2023.
3. I assess a monetary penalty in the amount of $19,192.