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CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division


IN THE CASE OF  

Gul Faraz, d/b/a, Houston Corner Store,
Appellant,

Date: 1999 July 14
- v. -  
The Center for Drug Evaluation and Research,
Food and Drug Administration.
FDA Docket No. 98H-0763
App. Div. Docket No. A-99-49
Decision No. 1699

DECISION
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Gul Faraz, d/b/a Houston Corner Store (Faraz's store, Appellant), filed an appeal of the March 24, 1999 decision of Administrative Law Judge (ALJ) Daniel J. Davidson (ALJ Decision) assessing a civil money penalty (CMP) of $250 for violation of the Food and Drug Administration (FDA) regulations prohibiting cigarette sales to minors. 21 C.F.R. §897.14. We conclude that the ALJ Decision is not supported by substantial evidence and therefore reverse the CMP determined by the ALJ.

Background

The FDA enacted regulations, effective February 28, 1997, that, in relevant part, prohibited the sale of cigarettes by a retailer to any person under 18 years of age and required retailers to verify the age of any person under 27 by photographic identification. 21 C.F.R. §897.14(a) and (b). A "retailer" includes "any person who sells cigarettes . . . to individuals for personal consumption." 21 C.F.R. §897.3(h).

The program adopted by the FDA to enforce these regulations included commissioning state officials to conduct compliance checks in which minors attempt to purchase cigarettes from retailers while accompanied by adult observers. 63 Fed. Reg. 3146 (Jan. 21, 1998). The FDA issued guidance providing for a warning letter after a first violation and a CMP of $250 for a second violation, with escalating amounts for subsequent violations. Id. at 3147.

The FDA charged in the present case that state investigators accompanied minors to conduct compliance checks at Faraz's store on two occasions and that on both dates the minor was able to purchase cigarettes without verification of age in violation of the law. The first visit occurred on March 17, 1998 and resulted in a warning letter to Appellant dated April 23, 1998. Appellant has not contested this violation. See ALJ Decision at 2.

On August 9, 1998, a second compliance check was allegedly conducted at Faraz's store. Again the FDA contended that a minor, accompanied by an investigator, was able to purchase cigarettes and that no photographic identification was required to verify the minor's age before the purchase was permitted. The FDA proposed to impose a $250 CMP on Faraz's store based on this alleged second violation. See Administrative Complaint for Civil Penalties, dated Sept. 15, 1998. Appellant denied that a violation occurred on August 9, 1998 as charged. Original Answer, dated October 11, 1998. An informal mediation process resulted in an agreed procedure in which the ALJ issued his decision based on affidavits and other written documentation submitted by the parties, without conducting an in-person hearing. Notice, dated March 19, 1999; ALJ Decision at 2.

Summary of Record and ALJ Decision

The evidence presented by the FDA consisted of signed declarations from the minor and the investigator both attesting that the minor purchased cigarettes in the presence of the investigator on August 9, 1998 at Faraz's store from a female clerk. Exs. G-1 and G-2 (both executed November 11, 1998). The minor indicated that the clerk "could have been of Asian descent." Ex. G-2, at 1. In addition, the FDA submitted a photograph of the sealed package of cigarettes allegedly purchased and FDA compliance check forms reporting this and the prior violation. Exs. G-3, G-4, and G-5. The compliance check form for the disputed purchase on August 9, 1998 is signed by the minor and the official and indicates that the purchase was made from a female clerk at 11:57 a.m. Ex. G-3.

Appellant's answer denied the allegations and asserted that no female employee had ever worked at Faraz's store. Appellant submitted notarized statements from himself and three employees. Appellant's affidavit indicated that he employed only three persons at the store, all male, and that no female had ever been employed there, and further denied that the alleged violation on August 9, 1998 took place. Two of the employees asserted in their affidavits that they worked the morning (7 a.m. to 1 p.m.) and afternoon (1 p.m. to 10 p.m.) shifts respectively on August 9, 1998. Each one denied that any female worked on that date or was employed at the store, denied that he saw any FDA agent at the store, and denied that any violation occurred during his shift. The third employee was not on duty on the day in question but agreed that no female was employed at Faraz's store. In addition, Appellant submitted notarized statements from two customers asserting that no female had ever worked at the store to their knowledge.

The FDA responded with a further declaration, dated February 17, 1999, from the investigator indicating that she had revisited the store at some unspecified date and had verified that this was the location where the minor made the purchase reported. Ex. G-7. The investigator described the store in more detail and stated she had no doubt in her mind that a female sold cigarettes to the minor at this location on the date in question. Ex. G-7, at 2.

The ALJ stated that the FDA "clearly 'got it wrong' with respect to the sex of the employee who allegedly sold the tobacco products to a minor on August 9, 1998." ALJ Decision at 2. He nevertheless concluded that "[aside from the allegation concerning the sex of the sales clerk, [Appellant's] . . . evidence fails to refute the [FDA's] . . . evidence." Id. at 3. He then issued numbered Findings of Fact and Conclusions of Law (FFCLs) to the effect that Appellant was responsible for the acts of its employees within the scope of their employment and had therefore violated the law by selling cigarettes to a minor on August 9, 1998. FFCLs 7, 8, 9. He found Appellant liable and determined that the CMP of $250 imposed by the FDA was appropriate in amount. FFCLs 10, 11.

Standard of Review

Regulations provide that our standard for review of the ALJ Decision is whether the ALJ's finding on any disputed issue of fact is supported by substantial evidence on the record as a whole and whether the ALJ's conclusion on any disputed issue of law is erroneous. 21 C.F.R. §17.47(k).


ISSUES
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
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ANALYSIS
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Appellant argued that, since it was uncontroverted that it did not employ a female and since the FDA insisted the violation was committed by a female, the FDA could not as a matter of law establish that the violation was committed by an employee of Appellant acting within the scope of employment. Appellant Br. at 3-4. Appellant and his employees who worked on August 9, 1998 all denied that any violation of FDA regulations took place at the store on that date. Affidavits of Gul Faraz, Ahmed Faraz, and Abdul Rehman. Appellant did not contest the legal standard articulated by the ALJ that it is "legally responsible for the acts of its employees committed while acting in the scope of their employment." FFCL 7, ALJ Decision at 3 (citations omitted). Rather, the gravamen of Appellant's argument is that the ALJ could not simultaneously find that Appellant had proven that there was no female employee and yet have substantial evidence to find that an employee of Appellant made the sale alleged.

The FDA had the burden of proving Appellant's liability and the appropriateness of the penalty by a preponderance of the evidence. 21 C.F.R. § 17.33(b). Appellant had the burden of proving any affirmative defense or mitigating factor. 21 C.F.R. § 17.33(c).

The disputed point here is an element of liability, not an affirmative defense. Appellant does not offer as an affirmative defense that a male clerk, rather than a female clerk, made the illegal sale. Instead, Appellant contends that no employee could have made the alleged sale on his behalf, if the seller was female, because no employee of his is female. The FDA has not disputed that it is an element of its case to show that the purchase was made from an employee acting in agency capacity for Appellant.

The only evidence proffered by the FDA in support of the position that the alleged sale to the minor was made by an employee of Appellant was in the form of statements by the minor and the investigator, in all of which, as noted above, they insist that the salesperson was female. The ALJ did not credit the assertions that the salesperson was female, stating that both FDA witnesses "recalled the sex of the clerk incorrectly." ALJ Decision at 2.

The ALJ stated that the three employees and the owner of Faraz's store all affirmed that no violation occurred on August 9, 1998.(1) Id. The ALJ then commented that "[i]nterestingly, there is nothing in the record to indicate" that the owner and the third employee "were even present at the store on August 9." Id.

It thus appears that the ALJ discounted the statements of the owner and the third employee on the grounds that they made claims about August 9th about which they could have had no personal knowledge. The ALJ's comment does not accurately present the statements, however. The third employee stated directly that he was not present at the store on that date and made no claim as to whether a violation occurred on that date. Affidavit of Dil Faraz Khan. He affirmed only that no violations occurred when he was on duty, that only the three males were employed as clerks, and that no female had ever worked at the store. Nothing in his affidavit conflicts with the fact that he did not work on August 9th. The owner's affidavit does not state whether or not he was present at the store on August 9th, but does give the names of the two employees who worked that day and does deny that a violation occurred.

As to the other two employees, the ALJ stated that their "self-serving general denial of any violations" was contradicted by the declarations of the investigator and the minor. ALJ Decision at 2. It is indeed relevant in weighing the credibility of conflicting witnesses to consider the interests of each. Therefore, the ALJ could reasonably conclude that employees of a cited store had some interest based in job security in denying that a violation occurred. But in this case, the ALJ accepted as truthful their statements that no female clerk was employed at the store or worked on the date in question, and concluded that the conflicting declarations of the investigator and the minor were wrong.

The ALJ gave no explanation why, having accepted the Appellant's affidavits for this purpose, he would assume their inaccuracy in asserting that no FDA violation occurred during the shift when each employee in question was working. The denials of the two employees on this point were not vague or general but quite specific about when they were each on duty and whether any illegal sale occurred. The FDA argued that the clerk may not have known the purchaser was a minor since the compliance check form indicated that the clerk did not check the purchaser's identification. FDA Br. at 6. The affidavit of the male clerk who was alone on duty at the time does not state only that no sale was made to a minor but that no violation of FDA rules, regulations, or laws occurred during his shift, which would also cover a failure to request identification.

The ALJ himself acknowledged that the fact that the FDA was wrong about the gender of the clerk who allegedly made the sale "naturally raise[d] the question: What else might be wrong with the [FDA's] . . . evidence?" This question was never satisfactorily answered. While the FDA established a prima facie case of a violation on August 9, 1998, once Appellant offered evidence challenging the elements of the violation, the FDA had to prove all of the challenged elements by a preponderance of the evidence in the record. Further, the FDA had to prove this case based on the paper record, having chosen to waive the opportunity to present witnesses in person, where the fact-finder could assess their demeanor, even though it knew about this dispute of fact.

The FDA suggested in its brief that a female non-employee (such as a family member) may have been left at the cash register and made the sale. Cf. FDA Br. at 6. The FDA offered no evidence to support this speculation or to establish that such an individual would be authorized by Appellant to make the alleged sale. The burden of proof was on the FDA. The FDA offered nothing more than speculation to explain how its witnesses "got it wrong."

The FDA relied on two Supreme Court cases as support for the position that it was unnecessary to present evidence of the identity of the clerk because the store owner had a "positive duty" to prevent violations: U.S. v. Dotterweich, 320 U.S. 277 (1943) and U.S. v. Park, 421 U.S. 658 (1975). FDA Br. at 7-8. Appellant relied on the same two cases for the proposition that it was "a necessary element of the FDA's proof to show that Appellant is legally responsible" for actions taken by an employee. Appellant's Br. at 4. To the extent these cases are relevant, they support Appellant's position, not the FDA's, given the evidence in the present matter.

Both cases involved criminal prosecutions of corporate executives under the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 331 et seq., on charges that their companies had violated the Act and that they were personally responsible. In U.S. v. Dotterweich, 320 U.S. 277 (1943), the Court rejected the argument that only the corporation, rather those through whom it acted, should be subject to penalty as the "person" who violated the Act in a case involving distribution of misbranded drugs. The Court held that whether "an accused shares responsibility in the business process resulting in unlawful distribution depends on the evidence produced at the trial" and that the "offense is committed . . . by all who do have such a responsible share in the furtherance of the transaction which the statute outlaws . . . ." 320 U.S. at 284. While this decision undoubtedly does impose a personal liability on corporate officials to control the actions of those under them without requiring that they be personally aware of the violation, it limits that liability to those who have a responsible share in the enterprise. Nothing in this decision removes the element of showing that the individual who allegedly took the offending actions be in fact part of the organization and within the control of the person accused of bearing some "responsible share" in the "business process," precisely what was not shown by the evidence in the present case.

In U.S. v. Park, 421 U.S. 658 (1975), the Court reaffirmed that a responsible corporate agent does indeed have a positive duty to prevent or remedy violations, even when that individual did not take any wrongful action directly. Id. at 672. However, the Court also made clear that the violation must have been within the agent's responsibility and authority to prevent in order to establish a causal link. Id. at 673-74. The president of a national food chain who sought to avoid responsibility for unsanitary conditions by claiming to have relied on subordinates in whom he had confidence opened the door to evidence that he was repeatedly notified of violations and therefore knew that the system of delegation was not working. Id. at 677. His liability depended not merely on his "position in the corporate hierarchy, but rather his accountability, because of the responsibility and authority of his position, for the conditions which gave rise to the charges." Id. at 675. In both cases, there was no question that the actions for which the executive was held responsible were committed by agents or employees acting for their corporations.

The FDA was correct in asserting that it was not obliged to prove the "identity of the clerk," since the name or gender of the representative of the retailer who commits the violation is nowhere made a necessary element of the violation. The FDA nevertheless had to prove that the person from whom cigarettes were allegedly purchased illegally in fact acted for the retailer charged, in order to show that the retailer was the one with authority and responsibility to prevent the violation. It may well suffice to establish a prima facie case that an individual was an apparent agent by virtue of that person's actions, such as standing behind a sales counter, using a cash register or completing a sale. However, in this case, Appellant presented evidence that no employee of his met the description offered by the FDA, and the ALJ found this evidence convincing. The FDA offered no evidence on rebuttal that addressed the element of agency or clarified at all from whom the cigarettes were obtained. Ultimately, then, there simply is not substantial evidence on this record as a whole to support the ALJ's conclusion that a violation was committed by an employee of Appellant on August 9, 1998 for which Appellant is responsible.

The ALJ also commented that it was "interesting" although "far from controlling" that Appellant made no representations about the prior violation on March 17, 1998. The ALJ did not explain what inferences, if any, he drew from the fact that Appellant did not contest the earlier violation. In weighing the proper inference to be drawn, we note that the compliance check form for the first incident (reporting a different investigator and a different minor) described the salesperson on that date as an Arab male, in his fifties with blackish gray hair. Ex. G-5. This description is considerably more detailed than the contemporaneous record made of the August 9, 1998 violation,(2) and is generally consistent with the assertions in Appellant's affidavits about the composition of the sales staff at Faraz's store. We therefore conclude that the fact that the first violation was not contested lends no support to the ALJ's conclusion that the FDA witnesses accurately reported the alleged second violation by an employee of Faraz's store despite erroneously reporting the gender of the sales clerk.



CONCLUSION
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For the reasons explained above, we conclude that FFCLs 8 - 11 are not supported by substantial evidence on the whole record and should be vacated. We therefore reverse the ALJ decision and reverse the CMP.


JUDGE
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Cecilia Sparks Ford
Donald F. Garrett
M. Terry Johnson
Presiding Board Member


FOOTNOTES
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1. The ALJ mentioned but did not discuss two additional affidavits submitted by regular customers of Faraz's store. ALJ Decision at 2. Both asserted that they lived near the store, visited every day at various times, knew all the cashiers employed there personally and had never seen any female working at the store. Affidavits of Garza J. Lopez and Antonio J. Herrera. Neither claimed to have been in the store at the exact time of the alleged violation. The FDA did not argue that these witnesses had any interest or bias and their statements clearly support those of Mr. Faraz and his employees concerning the composition of the sales staff.

2. The contemporaneously prepared form merely identified the clerk as female. Ex. G-3. The minor further stated, in an affidavit dated November 11, 1998, that the clerk "could have been of Asian descent." Ex. G-2.


CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES