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9/3/10 - FDA Releases Draft Guidance on Tobacco Sale Violations and Penalties

Washington Report: FDA Releases Draft Guidance on Tobacco Sale Violations and Penalties
Tobacco Retailing and Potential Penalties

Article published by NACS Online, 9/3/2010 www.nacsonline.com

Tobacco Retailing and Potential Penalties

On Tuesday of this week the Food and Drug Administration (FDA) issued draft guidance for tobacco retailers on civil money penalties and no-tobacco-sale orders for violations of the Family Smoking Prevention and Tobacco Control Act. The guidance is intended to inform industry members of FDA’s current thinking, and does not have the force of law. All tobacco retailers, however, should familiarize themselves with its contents in order to avoid being penalized by FDA, and to have a working knowledge of how violations are dealt with.

The draft guidance issued this week outlines how FDA will likely penalize violators. It addresses the following five issues:

How does the FDA intend to identify violations?
- FDA intends to conduct compliance check inspections to identify violations relating to tobacco products. Such inspections may be conducted by FDA employees or employees of other federal or state departments or agencies. It is FDA’s intention to enter into agreements with the states so that the latter are primarily responsible for compliance monitoring.
Does the presentation of a false government issued ID constitute a violation if the retailer relied on good-faith?
- No, provided the retailer has taken effective steps to prevent such violations, including:
  - Adopting and enforcing a written policy against sales to minors;
  - Informing employees of all applicable laws;
  - Establishing disciplinary sanctions for employee noncompliance;
  - Requiring employees to verify age via photographic identification or an electronic scanning device.
In what cases will the FDA seek monetary penalties and no-sale orders?
- FDA intends to issue warning letters describing alleged violations (though such warning letters are not mandated by law) before initiating more serious enforcement action. These letters will be followed up by an FDA compliance check of the outlet receiving the letter without further notice. If the FDA discovers violation(s), FDA intends to seek civil money penalties. If there have been “repeated violations” (defined as five violations of a particular requirement subsequent to the first violation of a particular requirement within a three-year span), the FDA might seek a no-tobacco-sale order depending on the factors listed above.
What amounts of monetary penalties can be assessed?
- There are two schedules of maximum penalties for violations of the Act’s regulations – a lenient one for retailers with an approved training program, and a harsher one for retailers that do not have an approved training program. Because the FDA has not issued regulations governing approved training programs yet, it will for now impose the more lenient penalties.
- Those penalties may not exceed:
  - In the case of the first violation, $0.00 with the issuance of a warning letter
  - In the case of a second violation within a 12 month period, $250
  - In the case of a third violation within a 24-month period, $500
  - In the case of a fourth violation within a 24-month period, $2,000
  - In the case of a fifth violation within a 36-month period, $5000
  - In the case of a sixth or subsequent violation within a 48-month period, $10,000
- As a general matter, penalties are “limited” to $15,000 for each violation and $1,000,000 for all violations that are the subject of a single proceeding.
- Factors to be considered in determining the amount of the civil penalty include the nature and gravity of the violation(s); the ability of the violator to pay; the effect the penalty would have on the violator’s ability to continue to do business; and any history of prior violations.
What will be the procedure FDA follows if seeking penalties?
- First, FDA is required by law to provide notice to a retailer of all previous violations identified by FDA at that outlet. After being notified of the FDA’s decision to impose a penalty, retailers will have two options:
  - No-Contest – Pay the full amount of the penalty sought and/or accept the no-tobacco-sale order
  - Contest – The retailer may file an answer and contest some or all of FDA’s allegations.
- If a retailer chooses to contest the matter, it must within 21 days file an answer with the FDA and admit or deny each allegation, and include any and all defenses to the action and the reasons or explanations why the penalty and assessment should be less severe. A hearing will then be scheduled, prior to which the retailer and FDA may engage in informal discussions regarding the penalties being imposed. If the retailer and FDA agree on a settlement, the retailer will be required to abide by its terms.
- Contested cases not settled through such a mediation process will be referred to an Administrative Law Judge for a formal administrative hearing. Such hearings can be conducted either at a regional FDA office or by telephone, may entail the exchange of exhibits and written testimony, and may involve the submission of briefs and examination and cross-examination of witnesses. Either party can appeal an Administrative Law Judge’s decision to the Department of Health and Human Services Departmental Appeals Board, and if the retailer loses at that stage, it may appeal to federal court.

Once finalized, the draft guidance will represent FDA’s “current thinking” on civil money penalties and no-tobacco-sale orders for tobacco retailers. The FDA has requested comment on the draft guidance, which NACS will provide, by November 1.