Titanium Group, Inc. d/b/a Smoke Land, DAB TB8869 (2024)

INITIAL DECISION

The Center for Tobacco Products (CTP) seeks to impose a $19,192 civil money penalty against Respondent, Titanium Group, Inc. d/b/a Smoke Land. CTP alleges that Respondent received in interstate commerce electronic nicotine delivery system (ENDS) products that lack the premarketing authorization required under the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 387j, and offered such products for sale, in violation of 21 U.S.C. § 331(c).

Respondent admits to the allegations in the Complaint but argues that the civil money penalty is too high. For the reasons discussed below, I find 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.

Background and Procedural History

CTP began this matter by serving an administrative complaint (Complaint) on Respondent, at 4 Main Street, Hinsdale, New Hampshire 03451, 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 (Proof of Service).

Respondent’s original deadline to file an Answer was December 26, 2023. On January 4, 2024, Respondent filed an untimely Request for Extension. CRD Dkt. Entry No. 3. On January 4, 2024, Respondent also filed an amendment to its request for extension. CRD Dkt. Entry No. 4. In both of Respondent’s January 4, 2024 requests for extension of time, Respondent asserted that it had been attempting to file such requests since December 25, 2023. See CRD Dkt. Entry Nos. 3, 4. On January 8, 2024, I issued an Order allowing CTP to respond to Respondent’s motion, specifically asking CTP to confirm Respondent’s assertions and to state whether it opposed the extension of time. CRD Dkt. Entry No. 5. On January 9, 2024, in an email correspondence, CTP informed the attorney assisting me with this case that it does not oppose Respondent’s request for an extension of time to file an Answer. CRD Dkt. Entry No. 6. On January 9, 2024, I issued an Order Granting Respondent’s Motion for an Extension of Time, setting Respondent’s Answer deadline for February 8, 2024. CRD Dkt. Entry No. 7.

On February 5, 2024, Respondent timely filed its Answer to CTP’s Complaint. CRD Dkt. Entry No. 8 (Answer). In its Answer, Respondent admitted to all of the allegations in the Complaint but disputed the appropriateness of the civil money penalty sought by CTP. Id. at 1-2. On February 6, 2024, I issued an Acknowledgment and Status Report (ASRO) giving the parties sixty days to file a joint status report on the status of settlement discussions. CRD Dkt. Entry No. 9. On March 28, 2024, the parties filed a Joint Status Report stating they were “unable to reach a settlement in this case and intend[ed] to proceed to a hearing.” CRD Dkt. Entry No. 10.

On March 29, 2024, I issued an Amended Acknowledgment and Pre-Hearing Order1 (APHO) establishing procedural deadlines in this case. CRD Dkt. Entry No. 12. On June 18, 2024, CTP timely filed its pre-hearing exchange, consisting of a pre-hearing brief (CTP’s Br.), list of two proposed witnesses and eight proposed exhibits (CTP Exhibits (Exs.) 1-8). CRD Dkt. Entry Nos. 14, 14a-i. Specifically, the exhibits included the written direct testimony of two proposed witnesses, James Bowling, Deputy Division

Director, Office of Compliance and Enforcement for CTP, FDA (CTP Ex. 1), and FDA- Commissioned Officer Nicolas Cutting with the state of New Hampshire (CTP Ex. 2). CRD Dkt. Entry Nos. 14b, 14c.

Respondent did not submit a pre-hearing exchange.

On July 25, 2024, I scheduled a pre-hearing conference for September 4, 2024, at 11:00 AM Eastern Time. CRD Dkt. Entry No. 15 (Order Scheduling Pre-Hearing Conference). On September 4, 2024, I held a telephone pre-hearing conference call (PHC) via Microsoft Teams. See CRD Dkt. Entry No. 17 (Post-PHC Order). During the PHC, I discussed the procedural history of the case, the record, and the parties’ pre-hearing submissions. Id. Additionally, I admitted CTP’s Exhibits 1-8 into the record without objection. Id.

Furthermore, during the PHC, I apprised Respondent of CTP’s proposed witnesses, Deputy Division Director James Bowling and Officer Nicolas Cutting. Id. I specifically asked Respondent of its intent to cross-examine CTP’s witnesses. Respondent confirmed it did not need to cross-examine Mr. Bowling or Officer Cutting. Id. at 2. Both parties waived their right to a hearing and agreed to proceed with a decision based on the written record. Id.

In the same Post-PHC Order, I set an October 4, 2024 deadline for the parties’ simultaneous supplemental briefs. Id. at 2. On October 4, 2024, CTP filed Complainant’s Notice of Waiver of Final Brief. CRD Dkt. Entry No. 18. Respondent did not file a supplemental brief prior to the close of the briefing period.

As previously discussed, the parties waived the right to a hearing in this case and agreed that the matter could be decided based on the written record. Accordingly, the administrative record is now complete and closed, and this matter is ready for a decision. I will consider the full administrative record in deciding this case. 21 C.F.R. §§ 17.41(b), 45(a).

Issues

1. Whether Respondent received in interstate commerce ENDS products that lack the premarketing authorization required under the Act, specifically Elfbar Black Winter and Elfbar Energy ENDS products, and offered such products for sale on August 21, 2023, in violation of 21 U.S.C. § 331(c); and, if so,
2. Whether the $19,192 civil money penalty sought by CTP is appropriate, considering any aggravating and mitigating factors.

Analysis, Findings of Fact, Conclusions of Law

In order to prevail, CTP has the burden to prove Respondent’s liability and appropriateness of the penalty by a preponderance of the evidence. 21 C.F.R. § 17.33(b). The U.S. Supreme Court has described the preponderance of the evidence standard as requiring that the trier-of-fact believe that the existence of a fact is more probable than not before finding in favor of the party that had the burden to persuade the judge of the fact’s existence. In re Winship, 397 U.S. 358, 371-72 (1970); Concrete Pipe and Prods. of Cal., Inc. v. Constr. Laborers, 508 U.S. 602, 622 (1993). Respondent has the burden to prove any affirmative defenses and any mitigating factors likewise by a preponderance of the evidence. 21 C.F.R. § 17.33(c).

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 exempt from this premarket authorization requirement only if the Secretary has issued a substantial equivalence report or a found exempt order for such product. 21 U.S.C. §§ 387j(a)(2)(A), 387e(j)(3)(A).

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). The term “person” is defined to include individuals, partnerships, corporations, and associations. 21 U.S.C. § 321(e). Retailers who violate a requirement of the Act that relates to tobacco products shall be liable for a civil money penalty up to the maximum amounts provided for by law, which was $19,192 during the relevant period, for each such violation, 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.

I. Violations of 21 U.S.C. § 331(c) of the Act

On June 5, 2023, CTP issued a Warning Letter to Respondent, notifying Respondent that on May 23, 2023 an FDA inspector observed ENDS products offered for sale at Respondent’s establishment that lacked the required marketing authorization. CRD Dkt. Entry No. 14h (Exhibit 7); see also CRD Dkt. Entry No. 1.

On August 21, 2023, FDA-Commissioned Officer Nicolas Cutting conducted an inspection of Respondent’s business establishment. CRD Dkt. Entry No. 14c. During this inspection, Inspector Cutting observed “that the establishment sold FDA-regulated tobacco products and had a sales display containing tobacco products, including Elfbar Black Winter and Elfbar Energy electronic nicotine delivery system (‘ENDS’) products, available for sale.” Id. ¶ 7.

Inspector Cutting took photographs at the establishment, including the store and its external signage, the tobacco products, including the Elfbar Black Winter and Elfbar Energy ENDS products, and its placement in the display shelf within the establishment. Id.

In its Answer, Respondent admitted the allegations set forth in the Complaint, and thus conceded the factual allegations raised therein. CRD Dkt. Entry No. 8 at 1. Therefore, Respondent affirms that its establishment receives tobacco products in interstate commerce, including the Elfbar Black Winter and Elfbar Energy ENDS products, and delivers or proffers delivery of these products for pay at its establishment.

Taking the above alleged facts as true, I conclude that Respondent violated the prohibition against receiving and offering for sale new tobacco products that were adulterated and misbranded because the Elfbar Black Winter and Elfbar Energy ENDS products lacked the required FDA marketing authorization order, substantially equivalent order, abbreviated report nor a found exempt order. 21 U.S.C. § 331(c); see also 21 U.S.C. § 387b(6)(A), 21 U.S.C. §§ 387j(a)(2)(A), 387e(j)(3)(A). Thus, Respondent’s actions constitute a violation of law that merits a civil money penalty.

II. Civil Money Penalty

I have found that Respondent violated the prohibition against receiving and offering for sale new tobacco products that were adulterated and misbranded. 21 U.S.C. § 331(c). Pursuant to 21 U.S.C. § 333(f)(9), CTP may seek civil money penalties from any person who violates the Act’s requirements as they relate to the sale of regulated tobacco products. When determining the appropriate amount of a civil money penalty, 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).

In its Complaint, CTP sought the maximum penalty amount for a single violation, $19,192, against Respondent. CRD Dkt. Entry No. 1, ¶¶ 1, 12, 24. Accordingly, I now turn to whether a $19,192 civil money penalty is appropriate.

In its Answer, Respondent argues that the civil money penalty sought by CTP is too high because every complaint received was addressed right way and the business just opened. CRD Dkt. Entry No. 8 at 2. However, Respondent did not file any documents to support its arguments.

For the reasons explained below, I find a civil money penalty of $19,192 is appropriate.

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

The Family Smoking Prevention and 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 selling highly regulated and dangerous products. See 21 U.S.C. § 387 note. CTP contends that Respondent’s violation is particularly serious because they occurred despite an earlier warning that future violations could result in an enforcement action, and after providing Respondent with information and resources designed to help retailers to comply with federal tobacco law. CRD Dkt. Entry No. 14 at 9. CTP specifically refers to a Warning Letter it issued to Respondent on June 5, 2023, citing Respondent for offering for sale ENDS products that lacked the required marketing authorization order. Id.; see also CRD Dkt. Entry No. 14h 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 violation indicated in this letter may not be a complete list of violations at the establishment.” CRD Dkt. Entry No. 14h at 3; CRD Dkt. Entry No. 14 at 9. Finally, CTP states the Warning Letter referred the Respondent to the FDA website, which included information to help tobacco retailers understand and comply with FDA tobacco laws and regulations. CRD Dkt. Entry No. 14 at 9. CTP concludes that Respondent’s repeated violations demonstrate its unwillingness or inability to correct the violations. Id.

Respondent was in the business of selling highly regulated and potentially dangerous products. It received a written warning on June 5, 2023, stating that the “FDA has determined that your establishment markets new tobacco products lacking premarket authorization in the United States” which is a prohibited act under 21 U.S.C. 331(c). June 2023 Warning Letter, CRD Dkt. Entry No. 14h at 3. Yet, two months after receiving this warning that it was in violation of federal law, Respondent “had a sales display

containing tobacco products, including Elfbar Black Winter and Elfbar Energy electronic nicotine delivery system (‘ENDS’) products, available for sale.” CRD Dkt. Entry No. 14c at 2.

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

Respondent has not argued that it does not have the ability to pay the $19,192 civil money penalty. Aside from stating in its Answer that the recent opening of its business establishment was a “hardship[,]” Respondent has not presented any evidence that the penalty will affect its ability to continue to do business. CRD Dkt. Entry No. 8 at 2. Respondent provided no reason as to why it cannot continue to sell tobacco products and other products at its establishment if a $19,192 civil money penalty is imposed. In CTP’s Informal Brief, CTP stated that Respondent provided a copy of its Tax Return for 2022. CRD Dkt. Entry No. 14 at 10. However, CTP argued that the 2022 Tax Return document is:

. . . insufficient alone to establish that Respondent is incapable of paying the $19,192 penalty. See Joy and Evergreen Petro, Inc. d/b/a Sunoco, DAB No. CR4698, 2016 WL 8650385 at *2 (H.H.S. Sept. 6, 2016) (finding that business income is inadequate to prove that Respondent is incapable of paying the penalty). In order to establish inability to pay the penalty, Respondent should provide evidence as to its business income and assets, for example, “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.

CRD Dkt. Entry No. 14 at 10.

When considering the impacts of the civil money penalty on Respondent’s ability to continue to do business, Respondent has offered no argument beyond saying it is a new business. Respondent has not indicated that its establishment is at risk of closure or that its establishment cannot continue as is if a civil money penalty is imposed. Therefore, there is no apparent reason why Respondent could not continue 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 received a Warning Letter dated June 5, 2023, advising that it was in violation of federal laws for selling new tobacco products (Esco Bars Peach Ice and Esco Bars Bubblegum Ice ENDS products) without the required premarketing authorization or exemption. Despite the Warning Letter, Respondent continued to receive in interstate commerce and offer new tobacco products for sale or distribution that lacked the required premarket authorization as evidenced by

the violation on August 21, 2023. CTP proffers Respondent’s repeated violations support a penalty of $19,192. CRD Dkt. Entry No. 14 at 10.

D. Degree of Culpability

Respondent contends that it received complaints and addressed the complaints right away. CRD Dkt. Entry No. 8 at 1-2. Respondent maintains that prior to filing its Answer, it reached out to CTP to resolve the allegations in the Complaint and states that it provided CTP with requested documents. Id. at 2. CTP’s Brief confirms that Respondent provided CTP with its Tax Returns for 2022. CRD Dkt. Entry No. 14 at 10.

The June 5, 2023 Warning Letter provided Respondent with a written notice that it was in violation of federal law that could subject it to a fine. In a subsequent inspection on August 21, 2023, Respondent was found to be selling products of a different brand and flavor. Respondent has a duty to comply with the federal laws applicable to the tobacco products it chooses to sale. Therefore, I find that Respondent actions warrant culpability in receiving the civil money penalty.

Even if CTP’s Warning Letter led Respondent to believe that discontinuing the sale of the Escobar flavors mentioned in the Warning Letter was the solution to the violations, the Warning Letter provides a website where Respondent could find a list of products that had been approved or that had marketing granted orders. Finally, Respondent is fully culpable as in its Answer it admitted to the allegations.

E. Additional Mitigating Factors and Other Matters as Justice May Require

Mitigation is an affirmative defense for which Respondent bears the burden of proof. Respondent must prove any affirmative defenses and any mitigating factors by a preponderance of the evidence. 21 C.F.R. § 17.33(c). Respondent has argued that it addressed previous complaints, but there is nothing in the record to support how Respondent addressed the complaints. Although Respondent admitted to the allegations, I do not find that it has presented any evidence that would support a mitigation of the civil money penalty.

F. Penalty

Based on the foregoing, I find the civil money penalty of $19,192 sought by CTP against Respondent is appropriate under 21 U.S.C. §§ 333(f)(5)(B) and 333(f)(9).

Conclusion

For the above reasons, I enter judgment in the amount of $19,192 against Respondent, Titanium Group, Inc. d/b/a Smoke Land for receiving in interstate commerce ENDS products that lack the premarketing authorization required under the Act and offering such products for sale. 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.