Leung’s, Inc. d/b/a El Faro Supermarket, DAB No. 3025 (2020)

FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE DECISION

The Food and Drug Administration’s Center for Tobacco Products (CTP) filed a complaint seeking to impose an $11,182 civil money penalty (CMP) on Leung’s, Inc. d/b/a El Faro Supermarket (Respondent) for violating federal regulations that prohibit the retail sale of cigarettes to minors and that require a retailer to check the photo identification of any cigarette purchaser younger than 27 years in order to verify that the purchaser is not younger than 18 years.  Respondent requested and received a hearing before an Administrative Law Judge (ALJ) to contest CTP’s enforcement action.  On May 19, 2020, the ALJ issued an Initial Decision finding that Respondent had violated regulations governing the sale of cigarettes to minors at least six times during a 48-month period – including twice during an October 3, 2018 CTP inspection – and that an $11,182 CMP was an appropriate penalty for the violations.  Leung’s, Inc. d/b/a El Faro Supermarket, DAB TB5162 (2020) (Initial Decision).   

Respondent appeals the Initial Decision, but, as we explain below, that decision is supported by substantial evidence and is legally correct.  We therefore affirm the Initial Decision.

Legal Background

To protect public health, the Federal Food, Drug, and Cosmetic Act (Act) imposes restrictions on the sale, distribution, and use of tobacco products and authorizes the Secretary of Health and Human Services to issue regulations to implement those restrictions.  See 21 U.S.C. §§ 301, 331(b), 331(k), 387a(a)-(b), 387c(a)(7)(b), 387f(d).  In accordance with the Act, the Secretary has issued regulations codified in 21 C.F.R. Part 1140.  In relevant part, those regulations (which are enforced by CTP) 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 person purchasing the product is younger than 18 years of age” (except that “[n]o such verification is required for any person over the age of 26”).  Id. § 1140.14(a)(2)(i)-(ii).

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To verify compliance with these and other federal requirements, CTP performs onsite inspections of tobacco products retailers; the inspections typically involve attempted undercover purchases of tobacco products by persons younger than 18 years.

The Act provides for the imposition of civil money penalties (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 regulations implementing the statutory authorization of CMPs are found in 21 C.F.R. Part 17 and 45 C.F.R. § 102.3.  These regulations establish a schedule of maximum CMP amounts that are based on the number of violations committed and the time period over which the violations have occurred.  See 21 C.F.R. § 17.2 (citing 45 C.F.R. § 102.3 (table)).  In October 2018, when CTP performed the compliance inspection at issue in this case, the penalty schedule provided for a maximum CMP of $11,182 “in the case of a sixth or subsequent tobacco product regulation violation within a 48-month period . . . .”  45 C.F.R. § 102.3 (table) (Oct. 1, 2018).

When CTP decides to impose a CMP on a tobacco retailer, it files a complaint with the Civil Remedies Division of the Departmental Appeals Board (Board) and serves a copy of the complaint on the retailer.  See 21 C.F.R. §§ 17.5, 17.7.  The retailer (the Respondent in this case) may then request a hearing by filing an answer to the complaint.  Id.§ 17.9(a).  If the retailer files a timely answer, the case proceeds to hearing according to the procedures set forth in 21 C.F.R. Part 17.  Id. § 17.13-.43.  The ALJ issues an “initial decision” based on the record developed during the hearing process.  Id. § 17.45(a).  A retailer dissatisfied with an ALJ’s decision may appeal the initial decision to the Board’s Appellate Division.  Id. § 17.47.  In response to an appeal, 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).

Case Background

On November 13, 2018, CTP filed a complaint with the Civil Remedies Division alleging that on October 3, 2018, Respondent violated 21 C.F.R. § 1140.14(a)(1) by selling cigarettes to a person younger than 18 years old, and also violated 21 C.F.R. § 1140.14(a)(2)(i) by not verifying, by means of photographic identification containing a date of birth, that the purchaser was 18 years of age or older.  Complaint ¶¶ 5-7.  The complaint further alleged that Respondent had committed “at least” six such violations of sections 1140.14(a)(1) or 1140.14(a)(2)(i) over a 48-month period.  Id.¶ 1.  The six violations included the two that Respondent allegedly committed on October 3, 2018 plus others that occurred on October 15, 2016, September 23, 2015, and March 19, 2015.  Id. ¶ 9.

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On December 10, 2018, Respondent filed an answer to CTP’s complaint.  Respondent denied that it had violated 21 C.F.R. § 1140.14(a)(1) and 1140.14(a)(2)(i) on October 3, 2018 but did not dispute that it had violated those provisions at least four other times dating back to March 19, 2015. 

After Respondent filed its answer, the parties exchanged documentary evidence and written direct testimony.  CTP’s evidence included the written direct testimony of Jessie Carry, an FDA-commissioned inspector who testified that she conducted a compliance inspection of Respondent’s Miami store at approximately 7:29 p.m. on October 3, 2018 in order to verify its compliance with the age and photo identification requirements in 21 C.F.R. Part 1140.  CTP Ex. 6, ¶ 8; CTP Ex. 7, ¶¶ 2-5.  Inspector Carry further testified that:

• She was accompanied on the inspection by Minor A, who was then 16 or 17 years old (CTP Ex. 6, ¶¶ 6, 8);
• She verified before the inspection that Minor A did not possess any tobacco products and possessed a valid state-issued driver’s license showing his or her photograph and date of birth (id.¶ 8);
• She parked her vehicle near Respondent’s store, and Minor A left the vehicle and entered the store, while she (Carry) remained in the vehicle (id. ¶ 9);
• She watched Minor A enter the store and leave a few minutes later and return to the vehicle (id.¶ 10);
• Upon re-entering the vehicle, Minor A handed her a package of Newport cigarettes and reported that he or she (1) had purchased the cigarettes directly from an employee in Respondent’s store, (2) did not provide the employee, and was not asked to provide, photo identification during the transaction, and (3) did not have a receipt for the purchase because one was neither requested nor provided (id. ¶ 10);
• After retrieving the package of Newport cigarettes from Minor A, she drove to a nearby location, labeled the package as evidence, and photographed each of the package’s panels (id.¶ 10);
• Shortly after the inspection, she recorded the inspection in an FDA database and prepared a contemporaneous “Narrative Report” (dated October 3, 2018) of the inspection (id. ¶ 11).

Inspector Carry did not specify the exact hour and minute when Minor A entered and left the store.  She indicated only that these events occurred sometime “[d]uring the inspection.”  Id. ¶¶ 9-10. 

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In addition to Inspector Carry’s declaration, CTP submitted (as exhibits) the evidence photographs taken by Inspector Carry, the FDA database record of the inspection, a redacted photograph of Minor A’s driver’s license, and Inspector Carry’s narrative report.  CTP Exs. 7-8, 10-11.  The narrative report specified some physical characteristics of the person who sold the cigarettes to Minor A – namely, a female adult with black or dark brown hair and glasses.  CTP Ex. 7, ¶ 18.

Respondent submitted one piece of documentary evidence to the ALJ:  a cash register tape showing sales made in its Miami store between 7:25 and 7:33 p.m. on October 3, 2018.  R. Ex. 1.  The tape shows only two sales involving cigarettes:  one at 7:28 p.m., and the other at 7:31 p.m.  In both instances, other (non-cigarette) items were part of the sale.

In addition to the cash register tape, Respondent submitted written direct testimony by its store manager (Brian Leung) and president (Chu Leung), neither of whom claimed to be in the store when the purported undercover purchase occurred.  R. Exs. 2-3.  Although these witnesses stated that they reviewed surveillance video taken inside the store at around the time of the compliance inspection, Respondent did not submit a copy of the surveillance video for the record.  Id.  Both witnesses stated that they reviewed the “transaction log” (presumably referring to the cash register tape) for the period from 7:25 to 7:33 p.m. on October 3, 2018 and found that “Newport cigarettes had been purchased during that period but not in a single item transaction,” and that “[t]he only transaction that contained Newport cigarettes also had three other items.”  Id.Neither witness described what the surveillance video showed, or did not show, except to state that the person they believed was Minor A did not have “any other items” (besides cigarettes) when leaving the store.  Id.

The ALJ convened a telephone hearing on December 11, 2019 during which Respondent cross-examined Inspector Carry and CTP cross-examined Brian Leung.  When asked why Respondent did not submit cash register tape of sales that occurred after 7:33 p.m. on October 3, 2018, Brian Leung testified that the person he believed was Minor A had left the store by 7:31 or 7:32 p.m.  Transcript (Tr.) at 13-14.  And when asked why Respondent did not produce the surveillance video as evidence, Leung testified that its video system was “older” and that he did not know how to “download” its recordings.  Tr. at 14.  Inspector Carry testified on cross-examination that Minor A did not purchase anything other than a packet of Newport cigarettes from Respondent’s store on the evening of October 3, 2018.  Tr. at 10.

The Initial Decision

In her decision affirming the CMP, the ALJ stated that there were two main issues she needed to resolve:  first, whether Respondent “sold cigarettes to a minor and failed to verify that the cigarette purchaser was of sufficient age on October 3, 2018” in violation

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of 21 C.F.R. § 1140.14(a)(1) and 1140.14(a)(2)(i); and second, whether the amount of the CMP imposed by CTP was “appropriate” under 21 C.F.R. § 17.34(a)-(c).  Initial Decision at 4-5. 

Relying heavily on Inspector Carry’s testimony – which she found “credible and persuasive” and “corroborated by several, contemporaneous reports, the Compliance Check Inspection Notice, and photographic evidence” – the ALJ found that Minor A entered Respondent’s store at “approximately” 7:29 p.m. on October 3, 2018 as part of an FDA inspection; that Minor A entered the store with her state-issued photographic identification – but without cigarettes – in her possession; that Minor A left the store a few minutes later and returned to Inspector Carry’s vehicle with a package of Newport cigarettes; and that Minor A reported to Inspector Carry that he or she had purchased the cigarettes from a store employee and did not provide, and was not asked to provide, photo identification during the transaction.  Initial Decision at 7-10.  Based on these facts, the ALJ concluded that Respondent sold cigarettes to Minor A on October 3, 2018 and did so without checking Minor A’s photographic identification before completing the sale.  Id.at 8, 10-11 (citing CTP Exs. 7-11). 

According to the ALJ, Respondent offered “little evidence” to “rebut” Inspector Carry’s testimony.  Initial Decision at 9.  The ALJ gave “little weight” to the cash register tape reflecting Respondent’s sales between 7:25 p.m. and 7:33 p.m.  Id.  She found that Respondent had “arbitrarily” chosen that eight-minute period (which was four minutes before and four minutes after 7:29 p.m., the approximate time Inspector Carry performed the compliance inspection of Respondent’s store); that the transaction involving Minor A possibly occurred just outside that “limited time period”; and that Respondent was silent about whether or not it sold Newport cigarettes just beyond that period.  Id.  The ALJ also gave “little weight” to the testimony of Respondent’s witnesses concerning the surveillance video “because that video was not submitted into evidence to substantiate their statements.”  Id.  In addition, the ALJ noted that Respondent had submitted no other evidence corroborating the testimony of its witnesses or rebutting Inspector Carry’s testimony.  Id.  In short, the ALJ concluded that a “preponderance of evidence” – namely, the “unrebutted testimony of Inspector Carry and corroborating exhibits” – established that Respondent had “sold tobacco products to a minor and failed to verify the minor’s identification prior to the sale on October 3, 2018” in violation of 21 C.F.R. § 1140.14(a)(1) and 1140.14(a)(2)(i).  Id. at 10-11.

In resolving the second issue (the appropriateness of the CMP amount), the ALJ found that Respondent had committed at least six violations of the tobacco product regulations (i.e., selling cigarettes to underage persons and failing to verify the age of cigarette purchasers) during a 48-month period.  Initial Decision at 11.  The ALJ further found that the CMP amount proposed by CTP was “appropriate” in light of the factors she was legally obligated to consider in making that finding (id. at 11-13) – including “the nature, circumstances, extent and gravity of the violation or violations and, with respect to the

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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)).

Respondent timely appealed the ALJ’s initial decision by filing with the Board’s Appellate Division a two-page letter constituting its notice of appeal and supporting argument (Appeal Letter). 

Standard of Review

The Board reviews an ALJ’s initial decision applying the following general standards:  “The standard of review on a disputed issue of fact is whether the initial decision is supported by substantial evidence on the whole record.  The standard of review on a disputed issue of law is whether the initial decision is erroneous.”  21 C.F.R. § 17.47(k).  The term “substantial evidence” means “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”1  Richardson v. Perales, 402 U.S. 389, 401 (1971) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)).  

Analysis

I.    Substantial evidence supports the ALJ’s conclusion that Respondent violated 21 C.F.R. § 1140.14(a)(1) and 1140.14(a)(2)(i) on October 3, 2018.

As our background narrative indicates, Inspector Carry testified that, during a compliance inspection of Respondent’s store on October 3, 2018, she saw Minor A enter the store bearing photo identification but no cigarettes and leave the store a few minutes later with a package of Newport cigarettes.  CTP Ex. 6, ¶¶ 9-10.  Inspector Carry further testified that Minor A told her that he or she had purchased the cigarettes directly from a store employee without providing or being asked to provide photo identification.  Id. ¶ 10.  This testimony – along with Inspector Carry’s narrative report written shortly after the inspection (CTP Exs. 7 and 8, at 3) and photographs taken by her of the cigarette packet a few minutes after Minor A left the store (CTP Exs. 10 and 11) – is substantial evidence that Respondent sold cigarettes to Minor A and failed to check that purchaser’s photo identification in violation of 21 C.F.R. § 1140.14(a)(1) and 1140.14)(a)(2)(i).  J. Peaceful, L.C. d/b/a Town Market, DAB No. 2742, at 9 (2016) (holding that evidence

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“that the minor entered [the] establishment without cigarettes and exited shortly thereafter with cigarettes” was substantial evidence that the retailer unlawfully sold cigarettes to a minor). 

Respondent makes several points in its appeal letter, but none shows that the ALJ drew unreasonable conclusions from the evidence.  First, Respondent asserts that CTP failed to prove an unlawful sale to Minor A because it did not produce a sales or credit card receipt or other proof of purchase.  Appeal Letter at 1.  However, “there is nothing in the Act or regulations . . . requiring CTP to provide a receipt showing proof of purchase.”  Kuma H. Mamie d/b/a 7-Eleven Store 22921A, DAB No. 2877, at 7 (2018).  Even absent a receipt, an ALJ may reasonably credit a CTP inspector’s testimony that a sale occurred unless there is evidence that the inspector testified falsely about whether or not a receipt was given to the undercover purchaser.  J. Peaceful, L.C. at 9.  There is no such evidence in this case.2  Consequently, CTP’s failure to obtain or proffer a sales receipt reflecting the undercover purchase did not preclude the ALJ from relying upon, or assigning decisive weight to, Inspector Carry’s testimony. 

Next, Respondent complains that there was no testimony from anyone who saw Minor A buy cigarettes in its store.  Appeal Letter at 1.  The law does not require eyewitness testimony, however.  CTP may prove – and an ALJ may find – a fact based on circumstantial evidence.  See Lucas v. Duncan, 574 F.3d 772, 777 (D.C. Cir. 2009) (indicating that the existence of some disputed fact may be proved by circumstantial evidence – that is, evidence of some chain of facts or circumstances from which the disputed fact may be inferred); Stowers Enterprises, Inc. d/b/a BP, DAB No. 2969, at 13 (2019) (noting that no law requires an “FDA inspector . . . to have directly witnessed the transaction to support CTP’s allegation of an illegal sale”).  Here, the ALJ reasonably inferred that Respondent sold cigarettes to Minor A from the fact that Inspector Carry saw Minor A enter Respondent’s store without cigarettes and leave a few minutes later with a box of cigarettes.  Respondent proffered no evidence tending to show that Minor A did not make a purchase in Respondent’s store on October 3, 2018.  Although Respondent’s witnesses stated that they viewed surveillance video taken around the time of the inspection, they were silent about whether the video showed a cigarette sale to the person they believed to be Minor A.  An adjudicator could reasonably infer from such silence that the video would confirm that such a sale indeed occurred.

Respondent further complains that CTP failed to furnish the “narrative report completed by the minor attesting that they purchased tobacco directly from the Respondent.”  Appeal Letter at 1.  (Inspector Carry’s narrative report states that Minor A “completed a separate narrative report describing the inspection.”  CTP Ex. 7, ¶ 10.)  However, the law

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does not require CTP to provide Minor A’s report; CTP was entitled to prove its case with other evidence.  Respondent could have asked the ALJ to direct CTP to produce the report, see 21 C.F.R. § 17.23(a), but Respondent did not make such a “discovery” request. 

Next, Respondent contends that CTP failed to prove that a store employee was involved in the purported sale of cigarettes to Minor A.  Appeal Letter at 1 (asserting that “the inspector could not confirm that the person who allegedly sold tobacco products to the minor was an employee who worked directly for the Respondent”).  We disagree.  Inspector Carry testified that after leaving Respondent’s store on October 3, 2018, Minor A reported that he or she bought cigarettes directly from a store employee.  CMS Ex. 6, ¶ 10.  That testimony – coupled with the fact that Minor A entered the store without cigarettes and left shortly after with cigarettes – is substantial evidence that a store employee sold Minor A cigarettes.  Respondent suggests that Minor A may have been confused about whether the person who made the sale was “authorized” to do so because its employees do not wear “uniforms or name tags, which could lead to confusion for a first-time customer.”  Appeal Letter at 1.  That suggestion – that a non-employee may have sold cigarettes to Minor A in Respondent’s store – is pure speculation, unsupported by any evidence in the record.

Respondent alleges that its “payroll” records show that no employee matching Minor A’s description of the employee with whom he or she interacted was working in its store during the inspection.  Appeal Letter at 1.  Respondent did not make this allegation before the ALJ, and so the ALJ cannot be faulted for not considering it.  The allegation is unsubstantiated in any event:  Respondent did not proffer payroll records or other evidence describing the employees who worked in its store on October 3, 2018.

Respondent contends if Minor A purchased cigarettes directly from the Respondent (as CTP alleged), then he or she “should have returned [to the inspector’s vehicle] with some change as she allegedly used cash in the transaction.”  Appeal Letter at 1.  Respondent’s apparent theory is that because the total cost of a box of Newport cigarettes was $7.50, the improper sale could not have occurred unless Minor A received some fraction of a dollar in change in the transaction.  Id.This theory is entirely unfounded, there being no evidence of what “cash” Minor A entered or left the store with.  If, as Respondent asserts, the sale was a cash transaction, then it is as likely as not that that Minor A gave Respondent exactly $7.50 and thus received no “change.” 

Finally, Respondent contends that it provided “clear evidence” – presumably referring to the cash register tape reflecting store sales between 7:25 and 7:33 p.m. and Brian Leung’s testimony that Minor A left the store by 7:32 p.m. – “that the only transaction where Newport cigarettes were purchased [while Minor A was in the store] was not in a single-item transaction.”  Appeal Letter at 1.  Respondent thereby implies that it could not have made a single-item sale of Newport cigarettes to Minor A as Inspector Carry described.

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The main problem with this contention, as the ALJ noted (Initial Decision at 10-11), is that it is contradicted by Respondent’s own witnesses, who testified that Minor A left the store with no items in hand except for cigarettes.  R. Ex. 2, ¶ 4; R. Ex. 3, ¶ 4.  Respondent’s brief to the ALJ likewise stated that the “surveillance video shows the individual leaving the store with no other items in hand.”  Informal Br. of Resp. at 4.  Respondent’s self-contradiction, coupled with its conspicuous failure to produce the surveillance video corroborating Brian Leung’s testimony about when Minor A left the store, amply justified the ALJ’s refusal to accept Respondent’s theory that Minor A did not purchase Newport cigarettes in its store on October 3, 2018.  Cf. Atty’s Parti Expo, Inc., d/b/a Parti Expo, DAB No. 2925, at 7-8 (2019) (deferring to an ALJ’s assignment of weight to testimony for which there was some corroboration).

For the reasons outlined in the foregoing analysis, we affirm the ALJ’s conclusion that Respondent violated 21 C.F.R. § 1140.14(a)(1) and 1140.14(a)(2)(i) on October 3, 2018.

II.       Respondent violated the tobacco products regulations in 21 C.F.R. Part 1140 at least six times within a 48-month period.

Based on her conclusion that Respondent violated 21 C.F.R. § 1140.14(a)(1) and 1140(a)(2)(i) on October 3, 2018, and on CTP’s uncontested allegation that Respondent violated these provisions at least four additional times from March 19, 2015 through October 15, 2016, the ALJ found that Respondent had committed at least six violations of the FDA’s tobacco product regulations within a 48-month period and was therefore liable for a CMP not to exceed $11,182.  Initial Decision at 11.  Respondent does not dispute this finding (apart from the contentions we have already addressed and rejected concerning the events of October 3, 2018).  Accordingly, we summarily affirm the ALJ’s finding that Respondent violated tobacco product regulations six times within a 48-month period, making it liable for a CMP up to $11,182.

III.      No basis exists to disturb the ALJ’s finding that the CMP is appropriate.

Based on her consideration of relevant statutory factors, the ALJ concluded that an $11,182 CMP (the amount proposed by CTP) was “appropriate in this case.”  Initial Decision at 11-13.  Respondent does not object to that conclusion or to any of the ALJ’s supporting factual findings.  We therefore summarily affirm the ALJ’s conclusion regarding the appropriate CMP amount. 

IV.     Respondent has alleged no grounds to remand this case to consider additional evidence.

Respondent’s appeal letter alludes to documents that it did not present to the ALJ or attach to its appeal letter – namely, payroll records, sales data for Newport cigarettes, and a cigarette inventory log.  Title 21 C.F.R. § 17.47(i) of the appeal regulations provides

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that if the Board finds that additional evidence not presented at the hearing is relevant and material, and there are reasonable grounds for a party’s failure to introduce such evidence at the hearing, then the Board “may remand the matter to the presiding officer for consideration of the additional evidence.”

Respondent is not entitled to further proceedings under this regulation, in part because it did not present for our review the additional evidence cited in its request for review.  Without seeing that evidence, there is no way to verify that it is “relevant and material” to an issue in the case, as section 17.47(i) requires.  Even if this additional evidence exists and is relevant and material, Respondent is not entitled to further proceedings because it has stated no grounds, much less reasonable grounds, for its failure to provide that evidence to the ALJ.   

Conclusion

For the foregoing reasons, we affirm the ALJ’s Initial Decision to impose an $11,182 CMP against Respondent for six violations of tobacco products regulations within a 48-month period.