Smokers Haven 3 LLC d/b/a Smoker's Haven, DAB No. 3164 (2024)

FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE DECISION

Smokers Haven 3 LLC d/b/a Smoker’s Haven (Respondent) appeals the initial decision of an Administrative Law Judge (ALJ) imposing a civil money penalty (CMP) of $16,313 against Respondent for violating the Federal Food, Drug, and Cosmetic Act.  Smokers Haven 3 LLC d/b/a Smoker’s Haven, DAB TB8497 (2024) (Initial Decision).  Based on a complaint and uncontroverted evidence filed by the Center for Tobacco Products (CTP) of the Food and Drug Administration (FDA), the ALJ determined that Respondent violated 21 U.S.C. §§ 331(c) and 387j when it received in interstate commerce, and offered for sale, electronic nicotine delivery system (ENDS) products lacking the required marketing authorization.  Respondent appeals the Initial Decision to the Board but challenges only the CMP amount.  For the reasons explained below, we affirm the Initial Decision because it is supported by substantial evidence and free of legal error.

Legal Background

To protect public health, the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 301 et seq., imposes restrictions on the sale, distribution, and use of tobacco products.  See 21 U.S.C. §§ 301, 331(b), 331(k), 387a(a)-(b), 387c(a)(7)(B), 387f(d).  The Act 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.”  Id. § 331(c).  A “tobacco product” means “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption, including any component, part, or accessory of a tobacco product.”  21 U.S.C. § 321(rr).  The Act, as amended, extends to and imposes additional requirements for “new tobacco products”—that is, tobacco products that were not commercially marketed in the United States as of February 15, 2007.  Id. § 387j(a)(1) (defining “new tobacco product”).

A new tobacco product may not be introduced into interstate commerce without authorization from FDA.  See 21 U.S.C. § 387j(a)(2)(A).  FDA may grant such authorization in three ways.  First, based on FDA’s review of a premarket tobacco product application, FDA may issue an order finding that the marketing of the new

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tobacco product would be “appropriate for the protection of the public health.”  21 U.S.C. § 387j(c)(1)(A)(i), (2)(A).¹  Second, based on FDA’s review of a substantial equivalence report (SE report), FDA may issue an order determining that the new tobacco product is “substantially equivalent” to a tobacco product commercially marketed in the United States as of February 15, 2007, or a tobacco product marketed after that date, but which FDA previously determined to be substantially equivalent.  Id. §§ 387j(a)(2)(A)(i), 387e(j).  Third, based on FDA’s review of an exemption request and “abbreviated report,” FDA may issue an order finding an exemption.  Id. §§ 387j(a)(2)(A)(ii), 387e(j)(1), (3)(A); 21 C.F.R. § 1107.1.

A new tobacco product is “adulterated” if it is required to, but does not have, a premarketing authorization order under section 387j(c)(1)(A)(i).  21 U.S.C. § 387b(6)(A).  A new tobacco product is “misbranded” if a report required under section 387e(j) (i.e., an SE report or abbreviated report) for that product was not submitted to FDA.  Id. § 387c(a)(6).

The Act authorizes CMPs against “any person who violates a requirement of [the Act] which relates to tobacco products.”  21 U.S.C. § 333(f)(9)(A).  The implementing regulations concerning CMPs, 21 C.F.R. Part 17 and 45 C.F.R. § 102.3, establish a schedule of maximum CMP amounts.  See 21 C.F.R. § 17.2 (citing 45 C.F.R. § 102.3 (table)).  For penalties authorized by 21 U.S.C. § 333(f)(9)(A), the schedule applied here provided for a maximum CMP of $19,192 for each violation.  See 45 C.F.R. § 102.3 (Mar. 17, 2022).

To impose a CMP against a tobacco retailer, CTP serves an administrative complaint (complaint) on the retailer, and files a copy of the complaint with FDA’s Division of Dockets Management.  See 21 C.F.R. §§ 17.5, 17.7.  The retailer (the Respondent in this case) may then request a hearing before an ALJ by filing an answer to the complaint.  Id. § 17.9(a).  The ALJ issues an “initial decision” based on the record developed before the ALJ.  Id. § 17.45(a). 

A retailer dissatisfied with an ALJ’s decision may appeal the initial decision to the Board.  21 C.F.R. § 17.47(a).  The notice of appeal “must identify specific exceptions to the initial decision, must support each exception with citations to the record, and must explain the basis for each exception.”  Id. § 17.47(c).  The notice also “shall be accompanied by a written brief.”  Id.  The Board “may decline to review the case, affirm . . . or reverse the initial decision . . . , or increase, reduce, reverse, or remand any civil money penalty determined by the [ALJ] in the initial decision.”  Id. § 17.47(j).

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Case Background²

1. The Complaint

On October 24, 2023, CTP served on Respondent a complaint seeking to impose a CMP of $19,192 for violating 21 U.S.C. § 331(c) by receiving an adulterated and misbranded ENDS product in interstate commerce and offering that product for sale.  Complaint (Compl.) ¶¶ 13-19, 24.  The complaint alleged that, in a warning letter dated June 8, 2023, CTP informed Respondent that new tobacco products being offered for sale at its establishment were adulterated and misbranded because they lacked the required premarket authorization.  Id. ¶ 20; CTP Ex. 7, at 1 (specifying the offending products as Elfbar Beach Day and Esco Bars Cotton Candy ENDS products).  The letter further warned Respondent that its failure to correct such violations may result in a CMP or other regulatory action.  Compl. ¶ 21; CTP Ex. 7, at 1, 3 (“The violation indicated in this letter may not be a complete list of violations at the establishment.”).   

The complaint alleged that, on August 25, 2023, more than two months after the warning letter, an FDA-commissioned inspector conducted a compliance inspection of Respondent’s establishment and observed an Elfbar Crazi Berry ENDS product for sale.  Compl. ¶ 15.  The ENDS product was a “new tobacco product” because it was not commercially marketed in the United States as of February 15, 2007.  Id. ¶¶ 15, 16.  The complaint further alleged that the product is “adulterated” under 21 U.S.C. § 387b(6)(A) because it did not have the required premarket authorization order, and is “misbranded” under 21 U.S.C. § 387c(a)(6) because neither an SE report nor abbreviated report had been submitted for the product.  Id. ¶¶ 17, 18.     

Respondent answered the complaint, denying the allegations.  Answer at 1.  Respondent argued that it “was not made aware that [it] was unable to sell the products in [its] establishment.”  Id.  Respondent requested that the ALJ consider that it “purchased the products from a reputable company and was not informed about any issues with the product.”  Id. at 2.  Respondent further argued that the CMP requested by CTP was too high because it would “have a negative effect on both [its] business” and on the personal lives of its employees.  Id.

 CTP filed a pre-hearing brief, along with eight exhibits (CTP Exs. 1-8), including written direct testimony of the deputy division director for enforcement (CTP Ex. 1) and the officer who conducted the inspection in August 2023 (CTP Ex. 2).  Respondent did not submit any exhibits or written direct testimony.  Respondent declined to cross-examine CTP’s witnesses, and the parties agreed to waive a formal hearing and proceed to a decision based on the written record.  Initial Decision at 2.  Although both parties had the opportunity to file a final supplemental brief, only Respondent did so.  Id. at 2.

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In its final brief filed on May 20, 2024 (R. Br.), Respondent conceded that the ENDS products identified by CTP and offered for sale by Respondent lacked the required FDA premarket authorization.  R. Br. (acknowledging that “[a]lmost all of the disposables sold in the US are made in China, and as of now, none are approved by the FDA”).  The crux of Respondent’s argument was that the penalty sought for the violation was too high.  Id. (“I take responsibility, but the fine is quite high.”).  Respondent did not argue that it could not pay the CMP but alleged that the impending penalty had caused it to reduce employee hours and would be difficult to pay “in one lump sum.”  Id.

2. The Initial Decision

In the Initial Decision issued on September 11, 2024, the ALJ described the record evidence, as well as Respondent’s admissions and arguments, concerning the Elfbar Crazi Berry ENDS product observed and photographed at Respondent’s establishment on August 25, 2023.  Initial Decision at 4-6.  The ALJ found, based on uncontroverted testimony and documentary evidence, that “Respondent’s receipt of the new tobacco product . . . which failed to have either an [SE] report, or an abbreviated report, and did not have an effective [marketing authorization order], in interstate commerce caused the new tobacco product to become adulterated and misbranded while . . . held for sale in Respondent’s establishment.”  Id. at 6.  Thus, the ALJ concluded that Respondent violated 21 U.S.C. § 331(c) and that such a violation merits a CMP.  Id.

The ALJ determined the amount of the CMP, taking into account “‘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.’”  Initial Decision at 7 (citing 21 U.S.C. § 333(f)(5)(B); 21 C.F.R. § 17.34).  Upon consideration of the relevant factors and Respondent’s arguments relating to the CMP, the ALJ determined that a reduced CMP of $16,313 is appropriate.  Id. at 7-9 (analyzing the relevant regulatory factors and Respondent’s arguments).  Respondent appealed the Initial Decision to the Board.

Standard of Review

The Board’s standard of review on a disputed issue of fact is whether the initial decision is supported by substantial evidence on the whole record.  21 C.F.R. § 17.47(k).  The standard of review on a disputed issue of law is whether the initial decision is erroneous.  Id.

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Analysis

1. Respondent violated 21 U.S.C. § 331(c) by receiving an adulterated and misbranded ENDS product in interstate commerce and offering such product for sale.

Before the Board, Respondent does not challenge the ALJ’s finding and conclusion that “on August 25, 2023, Respondent’s establishment received in interstate commerce, and had for sale, adulterated and misbranded tobacco products, including an Elfbar Crazi Berry ENDS product, in violation of 21 U.S.C. § 331(c).”  Initial Decision at 3; see also id. at 6 (“Respondent’s actions constitute violations of law that merit a civil money penalty.”).  Respondent does not dispute this finding or conclusion in its Notice of Appeal (NA).  Accordingly, we summarily affirm the ALJ’s findings of fact and conclusions of law regarding Respondent’s violation of 21 U.S.C. § 331(c).  See Leung’s, Inc. d/b/a El Faro Supermarket, DAB No. 3025, at 9 (2020) (summarily affirming the ALJ’s factual findings concerning violations when respondent did not dispute those findings or conclusion on appeal); see also Amber Mullins, N.P., DAB No. 2729, at 5 (2016) (“Failure to articulate at least some disagreement with the bases for the ALJ decision permits the Board to summarily affirm the ALJ’s findings of fact and conclusions of law.”).

2. There is no basis to disturb the reduced CMP imposed by the ALJ.

Respondent challenges only the amount of the CMP imposed by the ALJ.  NA at 1-2.  Although Respondent did not specifically identify any error by the ALJ, Respondent requests consideration of the following “points” that, according to Respondent, warrant a further reduction of the CMP:

• The CMP “is disproportionate to the financial capacity” of Respondent, it would “severely impact” Respondent’s ability to continue operations, and it “is vastly higher than the cost of the product in question[.]”
• Respondent “made genuine efforts to comply with FDA regulations” and, after receiving the June 8, 2023 warning letter, “removed the identified products from the sales floor.” 
• Respondent has “no history of prior violations resulting in a [CMP]” and this matter is Respondent’s “first infraction.”
• The decision has “taken a significant toll” on its owner’s mental health.

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• Further “guidance and support from the FDA” would ensure full compliance and prevent future violations by Respondent.

NA at 1-2.  Based on these “points,” Respondent requests “a reduction in the penalty amount or an alternative resolution” that would allow its business to continue while ensuring compliance with FDA regulations.  Id. at 2.

Aside from its request for “additional guidance” from FDA, Respondent raised these same arguments before the ALJ.  In analyzing the relevant factors, the ALJ addressed each of these arguments and reduced the penalty amount sought by CTP.  See Initial Decision at 9 (“[A]fter considering the record, applicable law, and aggravating and mitigating circumstances in this case, I find that a reduced penalty amount of $16,313 is appropriate under 21 U.S.C. §§ 333(f)(5)(B) and 333(f)(9).”). 

We affirm the ALJ’s assessment of the reduced CMP because it is supported by substantial evidence and not legally erroneous.  In determining the appropriate CMP amount, ALJs shall evaluate, among other things, the violator’s ability to pay the CMP and the effect of the CMP on its ability to continue to do business.  21 U.S.C. § 333(f)(5)(B); 21 C.F.R. § 17.34(b).  In its briefing before the ALJ, Respondent argued, without evidence, that it reduced employee hours due to the CMP and would find it difficult to pay the CMP in “one lump sum.”  R. Br.  Although Respondent argues on appeal that the CMP “would severely impact [its] ability to continue operations and maintain employment for [its] staff,” Respondent provided no evidence to support that assertion.  NA at 1.  Respondent presented no profit and loss statements, or any other financial data, demonstrating an inability to pay the CMP or that the CMP would “severely impact” Respondent’s ability to continue its business.  We find no error in the ALJ’s assessment of such financial considerations because the record contains no financial evidence that would warrant a further reduction of the CMP.

We further reject Respondent’s contention that the CMP should be reduced because it is “disproportionate” to the price of the offending product.  The purchase price of the offending product is not a relevant consideration.  ALJs must evaluate the “nature, circumstances, extent, and gravity of the violation or violations.”  See 21 U.S.C. § 333(f)(5)(B) (emphasis added).  As the ALJ found, 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 product use.  Initial Decision at 6 (“Tobacco products are highly addictive and dangerous” and “may have lethal long-term effects on consumers.”) (“Attempts to circumvent the regulatory process result in highly dangerous products being offered to the public which is in defiance of the law.”).  Respondent’s repeat violation in August 2023 is particularly egregious because it occurred despite the earlier warning from FDA about removing ENDS products that lacked premarket authorization, and after FDA pointed Respondent to information and resources to comply with federal law.  CTP Ex. 7, at 3 (providing a link to approved

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products).  Respondent had ample opportunity to remove all offending products from sale after the warning letter, yet it failed to change its business practices when no CMP was imposed.  We find no error in the ALJ’s conclusion that Respondent’s failure to comply with federal tobacco law is “serious in nature” and demands a CMP proportional to the violation.  Initial Decision at 7.

We are also unpersuaded by Respondent’s assertion that it “made genuine efforts to comply with FDA regulations,” by removing the offending products identified in the June 8, 2023 warning letter.  NA at 1; see also CTP Ex. 7 (identifying two other ENDS products offered for sale without the required premarket authorization).  Merely removing the two offending products identified at the time of the initial inspection hardly demonstrates “genuine efforts” to comply with FDA regulations.  Indeed, it is undisputed that less than three months after the warning letter, Respondent continued to offer for sale ENDS products lacking the required FDA marketing authorization.  Initial Decision at 8 (“Respondent continued to sell similar products, without any apparent modification to its business practices or attempts to contact the FDA for information or assistance.”).  Accordingly, we are not persuaded that Respondent’s “efforts” to comply with FDA regulations warrant a further reduction of the CMP.

Respondent further argues that it has “no history of prior violations resulting in a [CMP].”  NA at 1-2.  While that may be true, the ALJ is not limited to considering only prior violations that result in a penalty.  See 21 U.S.C. § 333(f)(5)(B) (relevant factors include “any history” of such prior violations).  While the ALJ modestly reduced the CMP amount sought by CTP, the violation that resulted in the CMP was not Respondent’s “first infraction,” and the ALJ appropriately considered, as an aggravating factor, Respondent’s failure to change its business practices after the warning letter.  Initial Decision at 8. 

The ALJ also considered Respondent’s assertion that “this matter has ‘taken a toll’” on the mental health of its owner.  Initial Decision at 8.  As the ALJ pointed out, Respondent submitted no exhibits or witness testimony to support this assertion and, in any event, the ALJ must act to “protect the public health,” which the CMP is intended to address.  Id.  We find no error in the ALJ’s assessment of Respondent’s argument regarding its owner’s mental health or the need to take appropriate action to protect public health.  See, e.g., Orton Motor Co., d/b/a Orton’s Bagley, DAB No. 2717, at 8-10 (2016) (describing the public health concerns and intended purpose of tobacco product regulation supported by extensive congressional findings regarding the serious adverse health effects of tobacco products on children and adults).

Respondent further requests “additional guidance and support from the FDA” to ensure its compliance with all regulations “moving forward.”  NA at 2.  The Board’s role in this matter is to review the Initial Decision for legal or factual error (21 C.F.R. § 17.47), not to order injunctive relief at the appellant’s request.  Moreover, as the ALJ noted,

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“Respondent was given a warning letter which contained a multitude of resources to aid in its understanding of the law, one of which was a list of approved products.”  Initial Decision at 8.  Indeed, the record reflects that FDA provided extensive guidance to Respondent concerning compliance with the statutory and regulatory requirements at issue.  See CTP Ex. 7, at 3-4 (listing relevant guidance documents on FDA’s website).³

Finally, regarding Respondent’s request for an “alternative resolution” in lieu of a CMP, it is unclear what relief Respondent seeks.  NA at 2.  Respondent did not make this request before the ALJ and, in any event, the ALJ’s role in this matter was not to develop “alternative” remedies.  See Orton Motor at 24-25 (holding that the ALJ “lack[ed] authority and improperly conflate[d] the role of adjudicator with that of an enforcement agency” when the ALJ reduced the CMP sought by CTP to zero and issued a “judicial” warning letter).  Here, the regulations authorized the ALJ to review the penalty that CTP sought to impose (21 C.F.R. § 17.1) and, based on the ALJ’s consideration of mitigating and aggravating factors, determine the appropriate amount of the penalty (21 C.F.R. §§ 17.34, 17.45).  That is precisely what the ALJ did here.  We find no error in the ALJ’s evaluation of the relevant aggravating and mitigating factors and in assessing a CMP in the amount of $16,313.  We find no basis to conclude that the ALJ (or the Board) should or could have imposed an “alternative resolution.”

Conclusion

We affirm the Initial Decision.

Endnotes:

¹  In making this determination, FDA must consider “the risks and benefits to the population as a whole,” “taking into account” both the “likelihood that existing users of tobacco products will stop using such products” and the “likelihood that those who do not use tobacco products will start using such products.”  21 U.S.C. § 387j(c)(4).

²  The facts stated here are taken from the Initial Decision and the administrative record. 

³  Additional information about tobacco products that may be legally marketed can be found here: https://www.accessdata.fda.gov/scripts/searchtobacco/.