Vapor Candy Inc. d/b/a The Vape Stop, DAB TB8713 (2024)

INITIAL DECISION

The Center for Tobacco Products (CTP) seeks to impose a $19,192 civil money penalty (CMP) against Respondent, Vapor Candy Inc. d/b/a The Vape Stop. CTP seeks to impose the CMP against Respondent for impermissibly manufacturing and selling new tobacco products that lacked the required premarketing authorization, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. §§ 301 et seq. For the reasons discussed below, I find Respondent violated the Act as alleged by CTP and that a CMP in the amount of $19,192 is appropriate.

I. Background

CTP began this matter by serving an Administrative Complaint on Respondent at 3714 Sherwood Way, San Angelo, Texas 76901, by United Parcel Service, and by filing a copy of the Complaint with the Food and Drug Administration’s (FDA) Division of Dockets Management. Civil Remedies Division (CRD) Docket (Dkt.) Entry Numbers (Nos.) 1 (Complaint), 1b (Proof of Service). On November 17, 2023, Respondent timely filed its

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Answer, admitting the allegations, raising defenses, and disputing the appropriateness of the CMP amount. CRD Dkt. Entry No. 3 (Answer).

After the parties filed a joint status report indicating that they were unable to reach a settlement and intended to proceed to a hearing, I issued a Pre-Hearing Order establishing the discovery and pre-hearing exchange deadlines for this case. CRD Dkt. Entry Nos. 5 (Joint Status Report) and 6 (Pre-Hearing Order) at 3-4. On April 9, 2024, CTP timely filed its pre-hearing exchange: Informal Brief of Complainant, Complainant’s List of Proposed Witnesses and Exhibits, and fifteen proposed exhibits (CTP Exhibits (Exs.) 1- 15). CRD Dkt. Entry Nos. 7-7p. CTP’s pre-hearing exchange included the signed declaration of James Bowling, Deputy Division Director, Office of Compliance and Enforcement, CTP, FDA (CTP Ex. 1), as well as an unsigned declaration of Charlene Jaudon, FDA-commissioned officer with the state of Texas (CTP Ex. 2). CRD Dkt. Entry Nos. 7b, 7c. Respondent did not file a pre-hearing exchange.

I scheduled a pre-hearing conference (PHC) call in this case for June 4, 2024, for which Respondent did not appear. CRD Dkt. Entry No. 10 (Order to Show Cause). Finding good cause for Respondent’s failure to appear, I rescheduled the PHC to June 24, 2024.

During the PHC, absent objection from Respondent, I admitted CTP’s proposed exhibits into the administrative record as CTP Exs. 1-15. CRD Dkt. Entry No. 15 (Order Following PHC) at 1. Although Respondent did not file an exchange, Respondent stated it did have evidence related to the penalty amount and its ability to pay the sought after CMP. Id. at 1-2. Absent objection from CTP, I permitted Respondent an opportunity to submit the evidence and an opportunity for CTP to review and object to the evidence.

At the PHC, Respondent confirmed the statements in its Answer, that it conceded the allegations in the Complaint are true. Id. at 2; see also Answer at 1 (checking, “I admit all of the allegations.”). Respondent asserted that the CMP may be appropriate, but that there were mitigating circumstances. Order Following PHC at 2. Respondent further confirmed that it did not wish to cross-examine CTP’s proposed witnesses. Id. I therefore found a hearing to be unnecessary in this case but permitted the parties an opportunity to submit final briefs.

In accordance with the deadlines set forth in my Order following the PHC, Respondent timely submitted documentary evidence. CRD Dkt. Entry Nos. 16, 17, 18, 19, 19a-e, 20, and 20a-d. CTP did not file any objections to Respondent’s evidence; therefore, I admit Respondent’s evidence into the administrative record as R. Exs. 1-14.

On August 19, 2024, CTP filed a Notice of Waiver of Final Brief. CRD Dkt. Entry No. 22 (Notice of Waiver of Final Brief). Respondent did not timely file a final brief. However, on August 27, 2024, Respondent emailed the Attorney-Advisor assisting me on this case providing an update on the settlement discussions in this case. CRD Dkt. Entry

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No. 23 (August 28, 2024, Email Upload). Respondent’s email also reiterates many of the statements made in its previously filed, “Statement and Explanation of Uploads.” See R. Ex. 1. On August 28, 2024, Respondent filed a Brief, which is copied directly from a portion of Respondent’s email. Compare August 28, 2024, Email Upload, with CRD Dkt. Entry No. 24 (Respondent’s Brief). CTP has not filed a response to Respondent’s Brief or email. I find that CTP is not prejudiced by Respondent’s untimely filing because the Brief repeats contentions Respondent has made throughout this case and CTP has had a chance to provide responses; therefore, I admit Respondent’s Brief into the administrative record.

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. I will now decide this case based on the evidence in the administrative record. 21 C.F.R. § 17.19(b)(11), (17).

II. Issue

Because Respondent concedes that it violated the Act on August 15, 2023, by manufacturing and holding for sale new tobacco products that were adulterated and misbranded because they lacked the required FDA marketing authorization, the only issue I must decide is whether the $19,192 CMP that CTP seeks is appropriate, considering any mitigating or aggravating factors that I find in this case. See 21 C.F.R. § 17.21(c)(1).

III. Findings of Fact and Conclusions of Law

The FDA has the authority to seek civil money penalties from any person who violates any Act requirement that relates to tobacco products. 21 U.S.C. § 333(f)(9)(A). The term “person” is defined to include individuals, partnerships, corporations, and associations. 21 U.S.C. § 321(e). Any person who violates a requirement of the Act that relates to tobacco products may incur a CMP up to the maximum amounts provided for by law, which, at the time of the violation, was $19,192 for each such violation, and not to exceed $1,279,448 for all violations adjudicated in a single proceeding. 21 U.S.C. § 333(f)(9)(A); 21 C.F.R. § 17.2; 45 C.F.R. § 102.3 (2022); 87 Fed. Reg. 15,100, 15,104 (March 17, 2022).

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). Respondent has the burden to prove any affirmative defenses and mitigating circumstances, also by a preponderance of the evidence. Id. § 17.33(c).

Based upon Respondent’s admission that it violated the Act as alleged by CTP, I find that Respondent failed to obtain the required premarket authorization for its new tobacco

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products, causing them to become adulterated and misbranded while they were held for sale after interstate shipment of one or more of their components, thereby violating 21 U.S.C. § 331(k). Answer at 1; see also Order Following PHC at 2. Having found that Respondent violated the prohibition against holding for sale tobacco products that are adulterated or misbranded after shipment of one or more of its components in interstate commerce, I further find that Respondent is liable for a CMP not to exceed the amounts listed in FDA’s CMP regulations.

When determining the appropriate amount of a CMP, 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 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).

In its Answer, Respondent contends that when it received the warning letter it was not aware that all its products were rejected rather than those specifically identified. Answer at 2. Respondent further states, among other things, that the sought CMP is too high because it is more than its ability to pay. Id. Respondent also asks me to take into consideration the significant amount of money and labor it expended on registering its products and that it tried its best to follow the rules. Id.

For the reasons explained below, 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

The Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) was enacted for the purpose of authorizing regulation of tobacco products for the “protection of the public health.” 21 U.S.C. § 387f(d). There is no dispute that the Respondent was in the business of manufacturing and selling highly regulated and dangerous products. See 21 U.S.C. § 387 note (Findings and Purpose).

CTP contends that Respondent’s violations are particularly serious because they occurred despite earlier warnings that future violations could result in an enforcement action. CRD Dkt. Entry No. 7 (CTP’s Informal Brief) at 11-12. CTP specifically refers to a warning letter it issued to Respondent on December 1, 2022, citing Respondent for manufacturing, selling and/or distributing to customers Vapor Candy Xtra Sweet VS Reserve 6MG e-liquid product. Id. at 12. 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

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Respondent that “[t]he violation indicated in the December 2022 Warning Letter did not constitute an exhaustive list, and that Respondent should take prompt action to address any violations similar to the one listed in the December 2022 Warning Letter.” Id. Finally, CTP states the warning letter referred the Respondent to an FDA website, which included information to help tobacco manufacturers and retailers understand and comply with FDA tobacco laws and regulations. Id.

In its Answer, Respondent states that it believed that the warning letter only pertained to the products specifically mentioned. Answer at 2. Respondent explains that it turned over 300 pounds of physical paperwork covering more than 100 flavors in several different nicotine strengths and that, while it removed the flavors identified in the warning letter, it was unaware that all its flavors had been rejected. Id. Respondent reiterates this contention in its “Statement and Explanation of Uploads,” stating “[i]t was not clear to us that all our products, being 3,075 SKU’s were denied.” R. Ex. 1 at 2. Respondent requests that I consider the total costs, over $47,000.00, it expended to submit the paperwork to the FDA to obtain approval for its new tobacco products. Id. Respondent proffers that this shows that it was not intentionally trying to sell non- compliant products. Id.; see also Answer at 2 (“We have spent a lot of money and manpower registering our products and have tried our best to follow the rules. I ask for some type of leniency.”).

I have no reason to doubt Respondent’s sincerity that it did not intentionally sell non- compliant products, and that applications were submitted to the FDA to obtain authorizations for its new tobacco products. However, as the manufacturer of the new tobacco products at issue, it is Respondent’s responsibility to not only submit the appropriate applications, but to also obtain the approvals prior to selling its products. Moreover, it is well-within the normal course of business for Respondent to know which of its products have or have not received the proper authorizations from the FDA. I acknowledge Respondent’s contentions that its General Manager passed away in 2021, making compliance difficult due to the loss of his expertise and as well as access to certain files. R. Ex. 1 at 2. However, compliance with federal tobacco laws is the burden Respondent assumed when it decided to engage in the manufacturing and selling of new tobacco products.

I agree with CTP that Respondent’s violations in this case are even more serious considering the warning letter issued on December 1, 2022. Respondent was specifically warned that the FDA had not received a marketing authorization application for “Vapor Candy Xtra Sweet VS Reserve 6MG e-liquid product” and that “this product and any other new tobacco product on the market without the statutorily required premarket authorization are adulterated and misbranded and are subject to enforcement action.” CTP Ex. 8 at 2. In the very next paragraphs, the warning letter reminds Respondent that it is its responsibility to ensure that all its tobacco products comply with the Act and the

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FDA’s implementing regulations and that the violations discussed in the letter do not necessarily constitute an exhaustive list. Id.

Despite being placed on actual notice that at least some its new tobacco products were being illegally sold, Respondent merely continued to sell its new tobacco products. CTP Ex. 5 (photograph showing, among others, VS Reserve and Sweet Reserve liquids); CTP Ex. 6 (The Vape Stop Flavor Menu listing, among others, “Sweet Reserve”). Respondent is silent as to any steps or actions it took to verify the status of its other new tobacco products after receiving the FDA’s warning letter. Respondent’s chosen course of action is even more problematic considering its known compliance issues due to the passing its General Manager. R. Ex. 1 at 2. Therefore, I agree with CTP that the Respondent’s repeated violation after receipt of the warning letter demonstrates its unwillingness or inability to comply with federal tobacco law and demands a proportional CMP amount.

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

Respondent’s principal argument against the appropriateness of the CMP amount is that the penalty amount is more than it has available, and that if the penalty is not reduced it would result in the loss of the business. Answer at 2. CTP asserts that Respondent has not provided sufficient evidence that shows an inability to pay the $19,192 CMP. See CTP’s Informal Brief at 12-13.

Respondent submits monthly bank statements from January 2024, through June 2024 to support its contentions. R. Exs. 4-9. Respondent notes that the bank statements show transfers from personal accounts into the business bank account. R. Ex. 1 at 2. Respondent also explains that the owners have been using their inheritance to keep the business solvent and to pay for personal living expenses. Id. at 2-3. They also note that they are selling their personal residence because they can no longer afford it. Id.

I have carefully reviewed the evidence provided by Respondent but find that it does not demonstrate Respondent’s inability to pay the penalty amount by a preponderance of the evidence. As a preliminary matter, I note that the bank statements are addressed to Vapor Candy LLC located in Fairview, Texas. See, e.g., R. Ex. 4 at 1. However, Respondent’s business establishment at issue in this case is in San Angelo, Texas. See, e.g., CTP Ex. 3 at 1, R. Ex. 3 at 1. Respondent does not explain the discrepancy in the address; therefore, I find that Respondent has not clearly established that the bank statements are those of the business at issue in the instant matter. In so finding, I also note that the details of the structure of Respondent’s business are unknown. The record does not indicate whether Respondent’s establishment is a corporation, limited liability company or some other structure, which would be relevant in determining whose “pockets” are to be examined as a source of payment of the CMP. Compare, e.g., CTP Ex. 10 at 3 (Respondent’s TRLM NG registration identifying the establishment as a corporation), with, e.g., R. Exs. 3 and 4 (Respondent’s contract and bank statements identifying the establishment as an LLC).

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In any event, I reviewed the contents of the bank statements. As Respondent proffers, the bank statements show transfers from what Respondent describes are its personal accounts to the business account. See, e.g., R. Ex. 8 (May 2024 bank statement showing multiple online transfers). However, they also show recurring transfers to another bank described as “Owners Draw,” which suggests the business was making sufficient profits from which the owners could still make personal draws. See, e.g., R. Ex. 8 at 3, and 8; see also R. Exs. 4 at 4, 9; 5 at 3, 8; 6 at 3, 8; 7 at 3, 8; 9 at 3, 8. Therefore, without more explanation, I find the bank statements in this case are insufficient to support Respondent’s contentions that it is unable to pay the CMP.

In addition, Respondent submits monthly sales reports from January 2024 through June 2024. R. Exs. 10-14. While the monthly sales reports show a decline in gross sales and profits compared to 2023, they nevertheless demonstrate monthly gross profits ranging from $30,181.21 to $39,309.47. See, e.g. R. Exs. 10, 14. While the full costs of business operations are not reflected in the gross profit, and those costs will necessarily have an impact on the ability to pay the penalty amount, Respondent has not provided any evidence of those costs. As such, I find that the monthly sales reports provided by Respondent are, again without more explanation or additional evidence, insufficient to demonstrate Respondent’s inability to pay the sought after penalty amount.

In considering the effects of the CMP on Respondent’s ability to continue to do business, I acknowledge Respondent’s statements that paying the penalty amount will be the “death of the company.” Answer at 2. As discussed, however, the evidence provided by Respondent does not support this contention. Therefore, I find that Respondent has not established by a preponderance of the evidence that payment of the penalty amount will result in its inability to continue to do business.

c. History of Prior Violations

There is no indication in the record of any prior violations of section 331(k) of the Act resulting in a CMP. However, Respondent did receive a warning letter advising that it was in violation of federal law for manufacturing and selling a new tobacco product without marketing authorization. CTP Ex. 8. I agree with CTP that even if Respondent did not know the status of its PMTA applications, it was put on notice that at least one of its products was being sold without a marketing authorization order and warned the violations discussed were not exhaustive.

As the manufacturer, it was well-within Respondent’s ability to determine the status of its other products. Instead of taking any action to determine whether it obtained the proper authorizations, Respondent simply continued to manufacture and sell its new tobacco products. I agree with CTP that this shows, at best, an inability or, at worst, an unwillingness, to comply with federal tobacco laws and regulations and should be so reflected in the CMP.

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d. Degree of Culpability

The Act places a heavy burden on manufacturers who choose to manufacture or sell tobacco products because of their highly dangerous and addictive nature. See 21 U.S.C. § 387 note (Findings and Purpose). Respondent has accepted culpability for these violations as it admitted the allegations in CTP’s complaint, and I find Respondent fully culpable for manufacturing and then holding for sale new tobacco products that were adulterated and misbranded, in violation of the Act.

e. 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). Respondent has proffered that it spent significant resources, both financial and labor, to register its products with the FDA and obtain the appropriate marketing authorizations. According to Respondent its initial paper submission was lost by the FDA, which required it to contract with a vendor to submit an electronic application. Respondent asks that I consider this in determining the appropriateness of the penalty.

In support, Respondent submits a spreadsheet, which shows the employee hours worked from August 2016 through December 2016, on the paperwork submission to the FDA. R. Exs. 1 at 1, 2. Using an hourly wage of $15 per hour, a conservative estimate according to Respondent, it incurred over $24,000 in labor costs preparing the paperwork. R. Ex. 1 at 1-2. Respondent also states that when the FDA lost its physical paperwork, it contracted with a consulting firm to electronically resubmit its paperwork. Id. at 1. Respondent states this cost over $22,000 and submits a contract with North Guide Solutions dated October 1, 2018. Id. at 2; R. Ex. 3. I note that the contract submitted by Respondent is not fully executed as it is only signed by Respondent and not by the consultant. R. Ex. 3 at 5.

Notwithstanding the lack of a fully executed contract, I have no reason to doubt Respondent’s contentions about its attempts to obtain the proper authorization to sell its new tobacco products. However, as a manufacturer of new tobacco products, Respondent must follow federal tobacco laws and regulations, which necessarily requires some costs. Presumably, Respondent considered these costs relative to the potential profits when deciding to engage in the manufacturing and selling of its new tobacco products. Therefore, I do not find that the resources expended by Respondent to file its PMTAs, which it was legally obligated to obtain, warrants a reduction in the penalty amount.

Again, I have no reason to doubt Respondent’s sincerity regarding its attempts to register its new tobacco products, but the relevant inquiry is whether Respondent obtained the authorizations. Respondent has not asserted that it received any marketing authorizations

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for its products or that it made any attempts to ascertain the status of its applications. It is worth reiterating that as the registered manufacturer, it was well-within Respondent’s purview to determine the status of its new tobacco products. And while I am sympathetic to Respondent’s financial situation, including the sale of its personal residence, I am bound to base my decision solely on consideration of the statutory and regulatory required factors and the evidence presented on those factors. In this case, after this consideration, I must find that the CMP of $19,192 is appropriate.

IV. Conclusion

For the reasons set forth above, I enter a judgment of $19,192 against Respondent Vapor Candy Inc. d/b/a The Vape Stop, for manufacturing and selling new tobacco products that lacked the premarketing authorization required by the Act, 21 U.S.C. §§ 301 et seq. Pursuant to 21 C.F.R. § 17.45(d), this decision becomes final and binding upon both parties after 30 days of the date of its issuance.