Cape Tobacco Inc. d/b/a Santa Tobacco, DAB No. 3091 (2023)

FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE DECISION

On March 23, 2021, an Administrative Law Judge (ALJ) issued an Initial Decision and Default Judgment imposing a 30-day No-Tobacco-Sale Order (NTSO) on Cape Tobacco Inc. (Respondent) for repeated violations of the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 301 et seq., and its implementing regulations at 21 C.F.R. Part 1140.  Cape Tobacco Inc. d/b/a Santa Tobacco, DAB TB5283 (2021) (Initial Decision).  Respondent appeals the Initial Decision to the Board but identifies no error of fact, law, or procedure, or abuse of discretion, by the ALJ, whose decision is supported by substantial evidence of record and is free of legal error.  We therefore affirm the Initial Decision.

Legal Background

The Act, as amended in 2009 by the Family Smoking Prevention and Tobacco Control Act, Pub. L. No. 111-31, div. A, 123 Stat. 1776, authorizes the Secretary of Health and Human Services to restrict the sale and distribution of cigarettes and other tobacco products if the Secretary determines that such regulation would protect public health.  See 21 U.S.C. § 387f(d)(1).  Pursuant to that authority, the Secretary has issued regulations, codified in 21 C.F.R. Part 1140, that prohibit a retailer from “sell[ing] cigarettes or smokeless tobacco to any person younger than 18 years of age.”  21 C.F.R. § 1140.14(a)(1).  The regulations also require a retailer to “verify by means of photographic identification containing the bearer’s date of birth” that no tobacco sale is made in violation of the age restriction, but no such verification is required for any person over the age of 26.  Id. § 1140.14(a)(2)(i)-(ii).  The requirements in 21 C.F.R. Part 1140 are enforced by the Food and Drug Administration’s Center for Tobacco Products (CTP), which performs onsite inspections to verify retailers’ compliance.

The Act authorizes CTP to impose civil money penalties (CMPs) for violations of the tobacco-sale restrictions and requirements.  21 U.S.C. § 333(f)(9).  CTP may also impose an NTSO, alone or in addition to a CMP, when it finds “that a person has committed repeated violations” at a “particular retail outlet.”  Id. § 333(f)(8).  The term “repeated

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violations” is defined as “at least 5 violations of particular requirements over a 36-month period at a particular retail outlet that constitute a repeated violation . . . .”  Pub. L. No. 111-31, div. A, title I, § 103(q)(1)(A), 123 Stat. 1776, 1838 (codified in 21 U.S.C. § 333, Statutory Notes).  A person is “entitled to a hearing” before a NTSO is entered.  21 U.S.C. § 333(f)(8).

To impose a CMP and/or NTSO, CTP files a complaint with the Departmental Appeals Board’s Civil Remedies Division and serves a copy of the complaint on the “respondent” (the person alleged to have committed the pertinent violation(s)).  See 21 C.F.R. §§ 17.5, 17.7.  The respondent may then request a hearing before an ALJ by filing an answer to the complaint.  Id. § 17.9(a).  If the respondent fails to timely answer the complaint, the ALJ “shall assume the facts alleged in [the] complaint to be true” and issue an initial decision granting a default judgment to CTP if those facts “establish liability” for the remedy sought.  Id. § 17.11(a).

In anticipation of a hearing (and assuming the timely filing of an answer), a party may ask the opposing party to produce relevant documents.  21 C.F.R. § 17.23(a).  A party must provide documents within 30 days of receiving a request to produce them.  Id.

An ALJ may sanction a party for “[f]ailing to comply with an order, subpoena, rule, or procedure governing the proceeding,” “[f]ailing to prosecute or defend an action,” or “[e]ngaging in other misconduct that interferes with the speedy, orderly, or fair conduct of the hearing.”  21 C.F.R. § 17.35(a)(1)-(3).  When a party “fails to comply with a discovery order” (e.g., an order to produce documents) or regulations in Part 17 relating to discovery, the ALJ may impose any of the sanctions specified in 21 C.F.R. § 17.35(c), including “strik[ing] any part of the pleadings or other submissions of the party failing to comply[.]”  Id. § 17.35(c)(3).  Any sanction imposed “shall reasonably relate to the severity and nature of the failure or misconduct.”  Id. § 17.35(b).

The ALJ’s “initial decision” must be “based only on the administrative record.”  21 C.F.R. § 17.45(a).  The initial decision must address, among other things, (1) whether the factual allegations in the complaint are true and whether they show that the respondent violated the law, and (2) whether the respondent is liable for any penalties or assessments.  Id. § 17.45(a)-(b).

A respondent dissatisfied with the initial decision may appeal it by filing a notice of appeal with the Board.  21 C.F.R. § 17.47(a).  A 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).

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Case Background¹

CTP filed and served on Respondent a Complaint alleging that, on February 28, 2020, Respondent sold cigarettes to a minor, in violation of 21 C.F.R. § 1140.14(a)(1), and failed to verify the purchaser’s age by means of photographic identification containing the bearer’s date of birth, in violation of 21 C.F.R. § 1140.14(a)(2)(i).  Complaint ¶ 6.  CTP alleged that these violations were the sixth and seventh “repeated violations” of the tobacco sales regulations during the period from January 27, 2018 to February 28, 2020.  Id. ¶¶ 1 (and the table that follows), 10, 11, 12.²  CTP asked the ALJ to impose a 30-day NTSO.  Id. ¶ 15.

Respondent, through counsel, timely answered the Complaint, denying that it committed violations on February 28, 2020.  Answer to Complaint at 1-2 ¶¶ 6, 7, 12.  Respondent admitted that it had been the subject of prior CTP enforcement actions arising from its commission of multiple similar violations before February 28, 2020.  Id. ¶¶ 8-11.

On October 21, 2020, the ALJ issued an Acknowledgment and Pre-Hearing Order (APHO) setting deadlines for the parties’ filings and exchanges of evidence and argument.  APHO at 2-5.  The APHO included a schedule for discovery, directing that a party receiving a discovery request must provide the requested documents within 30 days of the request.  Id. at 3.  The APHO also stated that the ALJ may impose sanctions on a party, to include striking the answer, for failure to comply with any ALJ order, including the APHO.  Id. at 11.

On November 23, 2020, CTP timely served on Respondent a Request for Production of Documents (RFP).  Motion to Compel Discovery at 1; Ex. A (RFP) at 6 (Certificate of Service) & Ex. B (UPS Delivery Notification) to Motion.  On December 28, 2020, CTP filed a motion asking the ALJ to compel Respondent to produce documents because Respondent had not responded to the RFP.  Motion to Compel Discovery.  By order issued on December 30, 2020, the ALJ gave Respondent until January 15, 2021, to file a

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response to the motion to compel and extended the pre-hearing exchange deadlines.  Respondent filed no response to the motion to compel.  Order granting CTP’s Motion to Compel Discovery.

On January 21, 2021, the ALJ issued an order granting the motion to compel, directing Respondent to “comply with” the RFP by February 5, 2021, and again extended the pre-hearing exchange deadlines.  Order Granting Motion to Compel at 1-2.  The order warned Respondent that a failure to comply with the RFP might result in the “issuance of an Initial Decision and Default Judgment finding Respondent liable for the violations listed in the Complaint[.]”  Id.

On February 8, 2021, CTP moved for imposition of sanctions, asserting that Respondent had not responded to the RFP or the motion to compel discovery, and had failed to comply with the ALJ’s January 21, 2021 order.  CTP’s Status Report and Motion to Impose Sanctions at 1-2.  CTP asserted that “it [was] unlikely” that giving Respondent more time to respond would “change the status quo” and that striking Respondent’s Answer would be a “reasonable sanction” for “non-compliance.”  Id. at 2.  CTP asked the ALJ to issue an initial decision and default judgment imposing a 30-day NTSO.  Id.

By order issued on February 9, 2021, the ALJ gave Respondent until February 24, 2021, to respond to CTP’s motion for sanctions and extended the pre-hearing exchange deadlines.  Order at 2.  The order warned Respondent that the ALJ might “grant CTP’s motion in its entirety,” including the request for imposition of a 30-day NTSO, for failure to respond to the motion for sanctions.  Id.  Respondent did not respond.  Initial Decision at 3.

The ALJ granted CTP’s motion to impose sanctions because Respondent had failed to comply with “orders and procedures governing this proceeding” and to defend itself against CTP’s Complaint despite having received “explicit warnings” that its failures to comply could result in sanctions and that its “repeated misconduct interfered with the speedy, orderly, or fair conduct of th[e] proceeding.”  Initial Decision at 3-4.  The ALJ determined that the sanction proposed by CTP was warranted and accordingly struck Respondent’s Answer to CTP’s Complaint.  Id. at 4 (citing 21 C.F.R. § 17.35(b), (c)(3)).

Having stricken the Answer, the ALJ wrote that the ALJ was “required to ‘assume the facts alleged in the [C]omplaint to be true’ and, if those facts establish liability [for violations] under the Act, issue a default judgment.”  Initial Decision at 4 (quoting and citing 21 C.F.R. § 17.11(a)).  The ALJ then determined that the facts alleged in the Complaint, taken to be true, “establish[ed] that Respondent is liable under the Act” based on the seven repeated violations.  Id. at 4-6.  Those violations were:

• selling tobacco products to a minor on January 27, 2018, June 30, 2018, January 4, 2019, and February 28, 2020; and

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• failure to verify the age of persons purchasing tobacco products by means of photographic identification containing the bearer’s date of birth on January 27, 2018, June 30, 2018, and February 28, 2020.

Id. at 5.  The ALJ further stated that, under 21 U.S.C. § 333(f)(8), the imposition of a NTSO “is permissible for seven repeated violations” of the tobacco-sale requirements, and that FDA guidance provides that “[t]he maximum period of time for the first [NTSO] received by a retailer is 30 calendar days.”  Id. at 6.  The ALJ entered a default judgment against Respondent and imposed a 30-day NTSO.  Id.

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.  The standard of review on an ALJ’s imposition of a sanction under 21 C.F.R. § 17.35 is whether the ALJ committed an abuse of discretion.  Joshua Ranjit Inc. d/b/a 7-Eleven 10326, DAB No. 2758, at 7 (2017); Retail LLC d/b/a Super Buy Rite, DAB No. 2660, at 10 (2015) (citing River East Econ. Revitalization Corp., DAB No. 2087, at 9 (2007) (in applying an abuse of discretion standard, the Board “will not substitute our judgment” for that of the agency rendering the challenged decision and will “instead ask only whether the agency has articulated a reasonable basis for its decision, not whether it was the only reasonable decision”)).

Discussion

Respondent appears before the Board pro se.  As discussed, Respondent answered CTP’s complaint denying that on February 28, 2020, it committed two violations of the tobacco sales regulations, but thereafter did not do anything to defend itself against those allegations during the ALJ proceedings.  In its Appeal of Initial Decision and Default Judgment (Appeal),³ Respondent does not dispute that it repeatedly failed to comply with

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the ALJ’s orders and procedures.  Respondent, moreover, does not assert that the ALJ erred or abused discretion in striking its Answer as a sanction for its repeated failure to comply with the ALJ’s orders and procedures, the consequence of which was that the ALJ was required to enter a default judgment based on the allegations in the Complaint if the ALJ found them substantiated and sufficient to justify a penalty (here, an NTSO).

We find no basis to disturb the ALJ’s findings and conclusion that Respondent committed seven repeated violations of the regulations in 21 C.F.R. § 1140.14 from January 27, 2018 to February 28, 2020, thus establishing a basis for imposing a 30-day NTSO upon Respondent.  Initial Decision at 5-6.  In the absence of any argument challenging the ALJ’s findings and conclusion, we summarily affirm them, which are supported by substantial evidence of record and are free of legal error.  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 object to those findings or conclusion regarding the CMP amount); 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.”).

Nor do we find any basis to disturb the ALJ’s decision to sanction Respondent or enter a default judgment in favor of CTP.  We recognize that striking an answer is “a relatively harsh” sanction; however, “[o]ur role . . . is to determine whether the ALJ’s decision to impose that [sanction] was outside the bounds of [the ALJ’s] discretion.”  KKNJ, Inc. d/b/a Tobacco Hut 12, DAB No. 2678, at 11 (2016).  Respondent’s repeated failures to comply with the ALJ’s orders and procedures, despite having received ample time to comply and warnings that noncompliance could result in sanctions and the imposition of the remedy sought by CTP, “interfered with the speedy, orderly, or fair conduct” of the ALJ proceedings.  See 21 C.F.R. § 17.35(a).  Given these circumstances, the ALJ did not abuse discretion in imposing a sanction that was reasonably related to the nature and severity of Respondent’s noncompliance.  See Ranjit at 1, 8-11 (concluding that the ALJ did not abuse his discretion in striking respondent’s answer and entering default judgment

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in favor of CTP as a sanction for respondent’s failure to respond to the ALJ’s orders); KKNJ at 8-11 (same); Retail LLC at 10-14 (same); see also Guardian Care Nursing & Rehab. Ctr., DAB No. 2260, at 21 (2009) (We have an “overarching responsibility to ensure the efficiency and integrity of proceedings before the Departmental Appeals Board as a whole, which encompasses a concern that the orders of ALJs not be disregarded . . . without consequence.”).

Respondent states only the following as grounds “in mitigation”:

1. The company fired the employee that was employed at the time of the alleged violation which was in violation of the employee handbook.
2. Enhanced security cameras were installed to prevent employees and customers from trying to purchase cigarettes.
3. Point of sale was installed with a scanner for identifications of customers to verify birthdates.
4. The decision will cause an undue hardship on [Respondent] if required to close for 30 days.
5. The penalty imposed was the maximum amount allowed by law and no consideration was given to pay a fine in lieu of closure of the store.
6. [Respondent] requesting imposing a fine in lieu of prohibition of selling tobacco for any amount of time.

Appeal at 1.

Respondent thus states that it took actions to prevent illegal tobacco sales.  Accepting the statements at face value, Respondent terminated the employee who made the illegal sale on February 28, 2020, and, at some point in time, installed “enhanced” security cameras and began using a point-of-sale system.  If Respondent terminated the employee and put certain deterrent measures in place before CTP requested documents during the appeal and had any evidence of those actions⁴ or documents supporting mitigating factors,⁵ Respondent could have produced those items for the ALJ’s consideration.  See RFP at 4-5 ¶¶ 5-8; id. at 5 ¶ 11.  By not raising mitigation as an issue before the ALJ and producing supporting evidence (assuming Respondent had any), Respondent missed its

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opportunity to “prove any . . . mitigating factors by a preponderance of the evidence.”  See 21 C.F.R. § 17.33(c).  The Board is not required to consider an issue Respondent could have raised, but failed to raise, before the ALJ.  See id. § 17.47(g).

Respondent faults the ALJ for not considering the imposition of a fine and asks that a fine be imposed in lieu of an NTSO because an NTSO would pose a hardship.  Appeal at 1.  The Board has not, to date, addressed the issue of whether an ALJ or the Board has authority to impose a remedy other than the one CTP has sought.  Station Mgmt. Consultants Inc. d/b/a Sunoco, DAB No. 2996, at 9, n.4 (2020) (“To the extent that [r]espondent is requesting the imposition of a lesser remedy for its repeated violations, we observe that the issue of whether an ALJ or the Board may impose a remedy not sought by CTP has not been settled by this tribunal, and need not be addressed here.”) (internal citation omitted).  We see no need to address the issue here, where Respondent did not avail itself of the opportunity to raise this issue before the ALJ and the record evidence establishes a basis for imposing a 30-day NTSO.

Conclusion

We affirm the Initial Decision.

Endnotes

¹ The facts stated here are taken from the Initial Decision and the administrative record.  We make no new findings of fact, and the facts stated are undisputed unless we indicate otherwise.

² The violations prior to February 28, 2020, were the subject of CTP enforcement actions that Respondent did not contest or that were sustained by an ALJ.  Two violations (sale to a minor and failure to verify identification) occurred on October 13, 2015, and one violation (sale to a minor) on January 6, 2016.  Complaint ¶ 1 (and the table that follows).  CTP labeled the violations that occurred on October 13, 2015, as an “original violation.”  The Complaint alleged the following seven repeated violations:  four repeated violations for selling tobacco products to a minor on January 27, 2018, June 30, 2018, January 4, 2019, and February 28, 2020; and three repeated violations for failing to verify the age of a person purchasing tobacco products by means of photographic identification containing the bearer’s date of birth on January 27, 2018, June 30, 2018, and February 28, 2020.  Complaint ¶¶ 10-12.  CTP did not consider the January 6, 2016 violation as a “repeated violation” in seeking to impose a NTSO because that violation occurred before the 36-month period ending on February 28, 2020.  Id. at 5 n.4.

³ CTP urges the Board to decline review of the Appeal in accordance with 21 C.F.R. § 17.47(j) because it does not identify and explain the basis for any exceptions to the ALJ’s decision, as required by 21 C.F.R. § 17.47(c).  Response Br. at 1, 5.  Although Respondent does not specifically dispute any part of the Initial Decision, Respondent does make statements concerning mitigation that we find appropriate to address briefly.

CTP also writes that “Respondent appears to have only sent its [Appeal] to CTP by mail and failed to follow the procedures pursuant to the Part 17 guidelines provided by the ALJ; therefore, Respondent did not properly file a timely [appeal].”  Response Br. at 4 n.2.  Respondent did not submit its Appeal to the Board by mail or DAB E-File.  Respondent did not file its Appeal via DAB E-File on April 16, 2021, as it stated in the certificate of service appended to its Appeal.  Respondent mailed the Appeal to CTP, which forwarded it to the Board, which then uploaded it to DAB E-File.  Although Respondent did not submit its Appeal directly to the Board, we have decided to accept it based on the postmark date of April 20, 2021, which was within 30 days after the Initial Decision was sent to the parties by DAB E-File.  See Guidelines -- Appellate Review of Decisions of Administrative Law Judges in Food and Drug Administration Cases (Guidelines), “Starting the Review Process,” ¶ (c); see also id., “Filing Documents with the Board; Serving Documents” (“A non-electronic submission is considered ‘filed’ with the Board on the postmark date . . . .”).  The Guidelines are available at  https://www.hhs.gov/about/agencies/dab/different-appeals-at-dab/appeals-to-board/guidelines/fda-tobacco-decision-review/index.html. 

⁴ Respondent does not explain when it installed the “enhanced” security cameras or began using a point-of-sale system.  Assuming Respondent began using the cameras and point-of-sale system on or before February 28, 2020, and they were operational, Respondent does not explain why or how it committed two violations on February 28, 2020 – a finding by the ALJ that Respondent does not now dispute.  In any event, Respondent does not proffer any evidence of the deterrent measures it says it took, asking the Board to remand this case to the ALJ to consider the evidence.  See 21 C.F.R. § 17.47(i).

⁵ See 21 U.S.C. § 333(f)(5)(B) (obligating the Secretary to consider various circumstances in determining the “period to be covered” by the NTSO, including the violation’s “effect on [the retailer’s] ability to continue to do business” and “other matters as justice may require”); 21 C.F.R. §§ 17.33(a), 17.34(a).