[00:00:01] Speaker 05:
Case number 16-1299, Orton Motor, Inc., DBA, Orton Bagley Petitioner versus United States Department of Health and Human Services.

[00:00:10] Speaker 05:
Ms.

[00:00:10] Speaker 05:
Dennehy for the petitioner, Ms.

[00:00:12] Speaker 05:
Barbaro for the respondent.

[00:00:23] Speaker 03:
May it please the court, Joanna Dennehy for the petitioner.

[00:00:27] Speaker 03:
I'd like to reserve two minutes for rebuttal.

[00:00:29] Speaker 03:
Sure.

[00:00:30] Speaker 03:
In the provisions of the Tobacco Control Act relating to retail sales, Congress directed the FDA to employ a graduated enforcement scheme wherein penalties for multiple violations shall increase from one violation to the next.

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Congress specified a scale of increasing penalties for each successive violation, and it directed that the FDA cannot charge a retailer with a violation unless the retailer has received notice of all previous violations at that outlet.

[00:01:01] Speaker 03:
In this way, Congress ensured that each increased penalty level applies only if a retailer continues to violate the law despite being penalized on previous occasions.

[00:01:14] Speaker 03:
The FDA's guidance violates.

[00:01:15] Speaker 04:
So is your point that in 2013 when the agency found two violations in one transaction that

[00:01:32] Speaker 04:
it would have had to, under your view, it would have had to first, before it could, say, it could have imposed a violation, it could have found a violation, for example, for selling to someone under 16, right?

[00:01:49] Speaker 04:
Correct.

[00:01:50] Speaker 04:
But it couldn't, it would have to warn

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the store before it went ahead and assessed a violation for not asking for the person's age, right?

[00:02:03] Speaker 04:
That's correct.

[00:02:04] Speaker 04:
And you think the statute's unambiguous about that?

[00:02:07] Speaker 04:
We do.

[00:02:07] Speaker 04:
And why is that?

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Tell me what language, is it the word each?

[00:02:13] Speaker 03:
It's a few provisions, Your Honor.

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First, subsection 103Q1E directs that penalties for multiple violations shall increase from one violation to the next.

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You have to read that in context, and it appears right after subsection 103Q1D, which says that a person may not be charged with a violation at a particular retail outlet unless the secretary has provided notice to the retailer of all previous violations at that outlet.

[00:02:44] Speaker 03:
read together those visions show that congress wanted depends on what the word previous means previous simultaneous yes the uh... in some ways you could say that these violations occur simultaneously but once you acknowledge that it's a little hard to say the statutes but you have to read that provision in light of the

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of the direction in 103Q1E, that penalty shall increase from one violation to the next.

[00:03:18] Speaker 04:
That... Well, but again, it just depends on your definition of violation.

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Correct.

[00:03:23] Speaker 04:
Well, that places it... If you can have two violations simultaneously, then you have two violations.

[00:03:28] Speaker 01:
And there's nothing in the Act that tells you how to count violations, is there?

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I mean, it doesn't address that issue.

[00:03:36] Speaker 03:
The act does not say this is how you count violations.

[00:03:39] Speaker 01:
And then there's the case.

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Isn't that the issue before us?

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Did the agency properly count the violations here?

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And if you just acknowledge that the statute doesn't direct them to do that, then

[00:03:54] Speaker 03:
I may have misspoken.

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I meant the statute does not use the words count, but this statute does direct the agency to assess violations so that the penalty increases from one violation to the next.

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It also directs that this

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agency cannot assess a violation unless it has provided notice of all previous violations.

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So read together, those provisions really show that Congress intended there to be a substantive limit on the agency's ability to charge more than one violation at a time and assess more than one penalty at a time.

[00:04:30] Speaker 04:
I see your point about two violations from one transaction.

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But suppose, instead of the facts of this case, the inspector saw the clerk sell to a minor and charge one violation, and also noticed that there was a vending machine selling cigarettes

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on the other side of the store and charged too.

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Could they not do that under your theory?

[00:05:01] Speaker 04:
They could not.

[00:05:02] Speaker 04:
Again.

[00:05:02] Speaker 04:
Now, why would Congress say that?

[00:05:05] Speaker 04:
Because Congress... The completely unrelated violations, what sense does that make?

[00:05:09] Speaker 03:
Congress wanted

[00:05:12] Speaker 03:
wanted retailers to have multiple opportunities to receive notice that they were in violation of some regulations under the Act and have an opportunity to take action to correct whether by... But these are totally different regulations.

[00:05:28] Speaker 04:
I get your point about, look, if you're selling to minors, you should be notified about that.

[00:05:34] Speaker 04:
Why, what possible reason would Congress have had to say, before you can find a violation for operating a vending machine, you have to give them notice that they also violated the regulation prohibiting sales to underage people?

[00:05:52] Speaker 04:
Again, just- But what sense does that make?

[00:05:55] Speaker 03:
It makes sense to the extent that if you read the statute otherwise, as the government is reading it here, to impose no limit on its ability to charge multiple violations in a single proceeding, you could be in a situation where

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During the first proceeding in which a retailer receives a meaningful opportunity to be heard on the violations, it is already facing the maximum penalty up to and including a no sale order.

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For example, on page two of its brief, the government suggests that if an inspector were to view a retailer selling cigarettes to three minors, it would be appropriate to assess all of the penalties involved there.

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So for instance, if

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Each of those sales involved a failure to check ID and a sale to a minor.

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And the retailer had already received a warning letter for the same violations.

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And under the agency's policy, it would not receive a hearing at that time.

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the five or more repeated violations that would be necessary to assess a no-sale order, which would mean that the retailer would be forbidden from selling tobacco products in its establishment.

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And that, as we set forth in our brief, it could be devastating and is devastating to these businesses.

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But turning back to the warning letter, however,

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As we argue in our brief, the FDA is simply incorrect that a warning letter issued after a first violation is not a penalty that would require it to first hold a hearing under subsection 1C.

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I have the same question about that I did about your other.

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So where do you find that in the statute?

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So this comes from subsection 103Q2A, little i, big i. This is the graduated penalty scale.

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And so the penalty scale directs that the amount of the civil penalty shall not exceed, in the case of the first violation, zero dollars together with the issuance of a warning letter to the retailer.

[00:08:09] Speaker 03:
So Congress specifically contemplated that the penalty for the first violation would be a warning letter.

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And Congress also directed that before the FDA could impose a penalty, it would have to provide process in the form of a hearing conducted pursuant to subsection 103-1.

[00:08:31] Speaker 00:
So if you're right, then let's suppose your client had believed that the facts stated in the warning letter were wrong, that there really had not been a violation on the date in question.

[00:08:53] Speaker 00:
Um, then under your reading of the statute, your client would be entitled then to, um, prove its case, um, so that then if, if, if the ALJ agreed,

[00:09:10] Speaker 00:
then the warning letter would be rescinded and the FDA would not be allowed to do a follow-up compliance within the meeting of the statute, right?

[00:09:26] Speaker 00:
That's correct.

[00:09:27] Speaker 00:
So if they did come back,

[00:09:30] Speaker 00:
you would, and found a violation later, they would only be able to issue a warning letter and not a second violation, so to speak.

[00:09:43] Speaker 03:
That's correct.

[00:09:44] Speaker 00:
So if your reading of the statute is correct, then why

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weren't you required to make this argument when you receive the warning letter as opposed to after they come back on a subsequent occasion?

[00:10:02] Speaker 03:
Right.

[00:10:03] Speaker 03:
So the warning letter itself would not put a reasonable retailer on notice that it had a right to demand the hearing at a time.

[00:10:11] Speaker 03:
The warning letter, which is set forth in the joint appendix at pages one and two,

[00:10:16] Speaker 03:
that a retailer may respond to the letter and say what it's going to do to correct the violations.

[00:10:22] Speaker 03:
It provides no indication that a retailer could request a hearing at that time, and in fact, the FDA has taken the position that this is not a final agency action that would entail the retailer to a hearing at that time.

[00:10:33] Speaker 00:
I understand, and I agree with you, that the warning letter doesn't give you any sort of an indication that you

[00:10:40] Speaker 00:
can appeal or challenge it, but why does the text of the warning letter govern what your rights are or what's supposed to happen?

[00:10:55] Speaker 00:
Why aren't you required at that point, if your argument is correct, to file an appeal with the Departmental Appeals Board?

[00:11:08] Speaker 03:
Right.

[00:11:09] Speaker 03:
So I think, again, these are not sophisticated businesses.

[00:11:13] Speaker 03:
They receive a warning letter that doesn't indicate that they have any right to a hearing.

[00:11:18] Speaker 04:
Excuse me, but I thought your argument was that they were entitled to a hearing before the warning letter.

[00:11:25] Speaker 03:
Is that?

[00:11:26] Speaker 03:
That's also correct.

[00:11:27] Speaker 03:
So when you answer,

[00:11:33] Speaker 04:
Judge Wilkins' question, I think you need to respond at both levels.

[00:11:37] Speaker 04:
Number one, where do you find the right to a hearing prior to the issuance of a warning letter?

[00:11:42] Speaker 04:
And then second, if not, where does it come from for post-mortem?

[00:11:47] Speaker 03:
Understood.

[00:11:47] Speaker 03:
So the right to a hearing prior to the issuance of a warning letter comes from section 103, Q1C, which states that

[00:11:58] Speaker 03:
that the agency must provide a hearing pursuant to the procedures established through the regulations, and then providing for an expedited procedure for the administrative appeal of an alleged violation.

[00:12:12] Speaker 04:
Of an alleged violation?

[00:12:14] Speaker 04:
Correct.

[00:12:15] Speaker 04:
So it's a little hard to, I mean, I see your point.

[00:12:20] Speaker 04:
I don't see how that language gets you a pre-warning letter issue.

[00:12:25] Speaker 04:
It's the warning letter that is the alleged violation.

[00:12:29] Speaker 04:
So at a minimum, the most you get is a hearing after the warning letter.

[00:12:34] Speaker 03:
Well, first, to the extent that the agency is taking the position that it can wait two years, for example, to provide you a hearing on the violations alleged in the warning letter, that's just not tenable.

[00:12:48] Speaker 03:
I'm sorry, excuse me?

[00:12:49] Speaker 03:
Why?

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Why?

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Because retailers, the type of defense that a retailer might raise in an action like this, they would rely on employee testimony.

[00:13:01] Speaker 03:
They might rely on the security tapes to show that the employee had, in fact, checked ID.

[00:13:06] Speaker 03:
And two years later, it is virtually certain that that evidence will not be available.

[00:13:13] Speaker 04:
Is that a constitutional argument you're making?

[00:13:17] Speaker 03:
It's, you have a right to a meaningful, full and fair hearing under the statute just under general administrative due process principles.

[00:13:25] Speaker 03:
And so we would confess that that's where the right comes from.

[00:13:28] Speaker 03:
I see that I haven't, it's very over time, so thank you for your time.

[00:13:31] Speaker 03:
Anything else?

[00:13:33] Speaker 04:
No.

[00:13:33] Speaker 04:
Okay.

[00:13:33] Speaker 04:
We'll hear from the government.

[00:13:40] Speaker 02:
May it please the court, Megan Barbaro on behalf of the U.S.

[00:13:43] Speaker 02:
Department of Health and Human Services.

[00:13:45] Speaker 02:
Orton Motor's reading of this statute takes an act with a common sense and public health purpose of protecting minors and makes it nearly impossible for the agency to effectuate that goal.

[00:13:56] Speaker 02:
Under Orton's view, no matter how egregiously a tobacco retailer is violating the tobacco sale restrictions, the agency's hands are tied and it can charge only one violation.

[00:14:07] Speaker 02:
In other words, if an FDA commissioned inspector walks into a convenience store and observes a vending machine directly ahead of him, a sign in the corner offering free samples of cigarettes, an employee who is opening packages of cigarettes to sell individual cigarettes,

[00:14:24] Speaker 02:
and another clerk who is selling tobacco to the entire fifth grade class from the elementary school across the street.

[00:14:31] Speaker 02:
The agency's hands are tied, and it can select only one of those many violations to charge.

[00:14:37] Speaker 02:
And in addition to that, under Orton Motor's reading, the agency would... The policy arguments are compelling.

[00:14:43] Speaker 01:
What's the language of the statute that tells you that you can count violations the way that you're counting them?

[00:14:50] Speaker 02:
The act authorizes the agency to charge a civil money penalty for violations of the tobacco sale restrictions.

[00:14:58] Speaker 02:
Now each of those violations can be counted under the civil money penalty provision that Congress established.

[00:15:06] Speaker 02:
Orton is relying on

[00:15:08] Speaker 02:
the notice provisions in the act to argue that the FDA cannot achieve the goal of protecting minors from the sale of tobacco.

[00:15:17] Speaker 02:
And it does that by relying on notice provisions that were aimed at a very particular concern.

[00:15:23] Speaker 02:
That concern being that agency inspectors would go into a tobacco retailer, observe a number of violations, say nothing whatsoever to the retailer, keep those violations in its hip pocket,

[00:15:35] Speaker 02:
Go back a few months later, observe.

[00:15:38] Speaker 00:
But you're to some degree erecting a straw man here.

[00:15:43] Speaker 00:
Let's suppose what the inspector observes is someone who the inspector believes looks to be about, you know, 17 or 18 years old asked to buy a pack of cigarettes and the retailer sells, the employee sells it to that person without asking for identification.

[00:16:06] Speaker 00:
and the inspector subsequently learns that that person is, indeed, 17 years old.

[00:16:15] Speaker 00:
That's two violations, right?

[00:16:18] Speaker 02:
That's correct.

[00:16:19] Speaker 02:
There are two separate regulatory provisions.

[00:16:21] Speaker 00:
Because he didn't card them and the kid turned out to be 17 and not 18, right?

[00:16:26] Speaker 00:
That's correct.

[00:16:27] Speaker 00:
Which violation occurred first?

[00:16:29] Speaker 02:
I

[00:16:31] Speaker 02:
the in terms of the order of those violations.

[00:16:35] Speaker 02:
I don't know that it matters for the agency's authority to charge both of the violations because, um, why doesn't it matter?

[00:16:44] Speaker 00:
The statute says that we go up from one violation to the next.

[00:16:48] Speaker 00:
How are we supposed to know which one is next if we don't know which one is first?

[00:16:52] Speaker 02:
Sure.

[00:16:52] Speaker 02:
And in the example of a minor purchasing tobacco from a retail clerk, I suppose the retail clerk must first ask for the identification to verify age under the regulations.

[00:17:05] Speaker 02:
If he fails to do that, the person happens to be 13, doesn't ask for ID.

[00:17:10] Speaker 02:
He's violated one of the regulatory provisions.

[00:17:13] Speaker 02:
He then sells tobacco to the 13-year-old.

[00:17:15] Speaker 02:
He's violated a second.

[00:17:16] Speaker 02:
And it should come as no surprise.

[00:17:18] Speaker 00:
But the kid was 13 before he walked in.

[00:17:20] Speaker 00:
So isn't that the first violation?

[00:17:22] Speaker 02:
No, it's certainly being 13 isn't a violation in and of itself, but I mean to the... Well, that violation was occurring before he refused to ask for ID.

[00:17:36] Speaker 02:
So if it may help the court in terms of comparing when you have a sale to an actual minor, which of course is what the Tobacco Control Act is trying to regulate and restrict, to compare that to a clerk who in similar circumstances, without asking for an ID,

[00:17:56] Speaker 02:
happens to sell to a 25 or 26 year old.

[00:17:59] Speaker 02:
Now that's only one violation of the regulations and it makes sense that Congress would think if you are actually selling tobacco to a minor, which is what we are trying to prevent for very good public health reasons, that that would be two separate violations.

[00:18:13] Speaker 02:
Now, you could have two separate violations in a single transaction that didn't involve sale to a minor.

[00:18:19] Speaker 02:
For example, you might have a vending machine in a store that's open to minors where there are individual cigarettes for sale in the vending machine.

[00:18:27] Speaker 00:
You could have... But you could also have a situation where...

[00:18:31] Speaker 00:
within the scope of five minutes and inspectors in the store, and three kids who are 16 years old, who are friends, get out of the car and come in, and each of the three buys some cigarettes.

[00:18:46] Speaker 00:
And that's six violations, right?

[00:18:50] Speaker 00:
And if there's a previous warning letter, then that retailer is subject to a no tobacco sale order based on that five minute interaction, right?

[00:19:00] Speaker 02:
If I may, Your Honor, a few responses.

[00:19:02] Speaker 02:
First, I wanted to correct a misrepresentation about how the no tobacco sale order process works.

[00:19:09] Speaker 02:
To be assessed a no tobacco sale order, a retailer must commit five repeated violations of a particular restriction.

[00:19:19] Speaker 02:
So that would be, for example, there's an original violation in a sale of tobacco to a minor or in having a vending machine.

[00:19:26] Speaker 02:
an FDA inspector comes back in, the same vending machine is there.

[00:19:31] Speaker 02:
Comes back in six months later, same vending machine.

[00:19:33] Speaker 02:
You have to have five repeated violations of a particular restriction within 36 months.

[00:19:40] Speaker 02:
And then the no tobacco sale orders that are sought, the initial order would be for 30 days.

[00:19:46] Speaker 02:
It's not

[00:19:47] Speaker 02:
a permanent order initially.

[00:19:49] Speaker 02:
It goes 30 days and then six months.

[00:19:51] Speaker 02:
But that's to correct that misimpression about no tobacco sale orders.

[00:19:56] Speaker 02:
The other response from a practical perspective, it ordinarily is the case that you have a tobacco inspector who goes in to conduct an underage buy with a minor who attempts to purchase cigarettes.

[00:20:11] Speaker 02:
And the inspector, when he does the visual advertising and labeling inspection, goes in.

[00:20:17] Speaker 02:
I mean, this isn't somebody who's hiding behind the bounty paper towels in aisle number three, sort of waiting to spring up and see what he can find.

[00:20:24] Speaker 02:
The inspector announces himself, makes clear that an inspection is happening.

[00:20:28] Speaker 02:
All of that said, if an inspector walks into a retailer... Is any of that in this record?

[00:20:32] Speaker 02:
I'm sorry?

[00:20:32] Speaker 00:
Is any of that what you just said in this record?

[00:20:35] Speaker 02:
It's in the agency discussion in the guidance of how the inspections are conducted.

[00:20:44] Speaker 02:
Yes, that's in the Q&A that is in the record in this case.

[00:20:49] Speaker 02:
But in addition, and more importantly, if an inspector walks in on a Tuesday and a clerk is selling to three 16-year-old kids,

[00:20:57] Speaker 02:
It's not as if that is an isolated incident and that tobacco retailer should not be treated, as Orton Motor would have it, exactly the same as a tobacco retailer who has violated only one restriction.

[00:21:12] Speaker 02:
If you're selling to 16-year-olds on Tuesday, we can reasonably expect you are selling to 16-year-olds the Tuesday before and the Friday before that and charging you, again, this is within a civil money penalty scheme,

[00:21:24] Speaker 02:
that maxes out at $10,000 for a sixth or subsequent violation.

[00:21:29] Speaker 02:
That is compared to other violations.

[00:21:32] Speaker 00:
What if that was that clerk's first day on the job?

[00:21:36] Speaker 02:
If it's a clerk's first day on the job, under the statute and assessing a civil money penalty, FDA is required to take into account issues including training program's ability to pay, effect on the business, all of that is evidence that the tobacco retailer could put forward.

[00:21:54] Speaker 02:
But again, of course, if it's the first violation, the agency policy is to issue a warning letter.

[00:22:00] Speaker 02:
So as Orton Motor did in this case, the tobacco retailer gets a warning letter from the agency.

[00:22:06] Speaker 02:
It says, these are the restrictions of the tobacco sale requirements that you have violated.

[00:22:12] Speaker 02:
Correct these violations.

[00:22:14] Speaker 02:
We may come back, consistent with our statutory authority, and conduct a follow-up compliance check.

[00:22:19] Speaker 02:
You may be subject to civil money penalties if you continue to violate the tobacco sale restrictions.

[00:22:25] Speaker 02:
Orton Motor had that notice.

[00:22:28] Speaker 00:
The warning letter actually says more than that.

[00:22:30] Speaker 00:
It says that if you don't correct, we can impose further restrictions.

[00:22:36] Speaker 00:
I'm sorry, further penalties without further notice, right?

[00:22:40] Speaker 02:
Well, to be clear, the warning letter itself does not impose a penalty.

[00:22:44] Speaker 02:
It says on page JA2, it says, you should immediately correct the violations listed above.

[00:22:53] Speaker 02:
Failure to correct may result in FDA taking regulatory action, which may include a civil money penalty.

[00:22:59] Speaker 02:
And of course,

[00:23:00] Speaker 02:
If you do not violate the tobacco sale restrictions again, all you have is a warning letter.

[00:23:06] Speaker 02:
There is no further action taken against you.

[00:23:08] Speaker 00:
It is only when the... But what does it mean to say that if you don't correct this notice when Wharton got this?

[00:23:15] Speaker 00:
that failure to correct may result in further regulatory action without further notice, including a civil monetary penalty.

[00:23:25] Speaker 02:
What could they have corrected?

[00:23:27] Speaker 02:
If you have received this warning letter, you are under an obligation, as you were before, to comply with the tobacco sale restrictions.

[00:23:35] Speaker 02:
If the agency conducts a follow-up compliance check and finds that you are not complying, they may initiate an enforcement proceeding against you.

[00:23:42] Speaker 04:
In that enforcement precedent.

[00:23:44] Speaker 04:
So your first answer to Judge Wilkins was different than this one.

[00:23:50] Speaker 04:
So let's assume that nothing, they issue the warning letter and nothing happens.

[00:23:57] Speaker 04:
They don't do a follow-up investigation.

[00:24:01] Speaker 04:
Can they, then they can't impose any penalties, correct?

[00:24:06] Speaker 02:
That's the agency's policy, yes.

[00:24:07] Speaker 02:
That's what?

[00:24:08] Speaker 02:
Yeah.

[00:24:09] Speaker 04:
Is that true?

[00:24:10] Speaker 02:
That's correct.

[00:24:12] Speaker 02:
And it's only when an FDA inspector.

[00:24:17] Speaker 04:
When they do the second investigation, like in this case, could Orton have challenged the facts underlying the warning letter?

[00:24:27] Speaker 02:
Absolutely.

[00:24:28] Speaker 04:
Okay.

[00:24:29] Speaker 04:
And suppose it didn't want to wait that long.

[00:24:31] Speaker 04:
Could it have challenged the warning letter itself once it was issued?

[00:24:37] Speaker 02:
There's not a mechanism in place to challenge the warning letter itself.

[00:24:42] Speaker 02:
But the warning letter, again, is just that.

[00:24:46] Speaker 04:
So what about the provision of the statute that says they're entitled to, quote, an expedited procedure for the administrative appeal of an alleged violation?

[00:24:57] Speaker 04:
Isn't that what a warning letter is?

[00:24:59] Speaker 02:
That provision, the warning letter is a notification that these violations have been observed.

[00:25:05] Speaker 02:
An alleged violation.

[00:25:07] Speaker 02:
And there is an opportunity to challenge an alleged violation when it is attached to any penalty against the retailer.

[00:25:14] Speaker 02:
But that's not what it says.

[00:25:15] Speaker 02:
Well, that notice provision, as we discussed earlier in conjunction with the other notice provisions, is aimed at the particular concern that the agency would act without giving any notice whatsoever.

[00:25:29] Speaker 02:
And what Congress said in those notice provisions is... Wait, wait, what is that?

[00:25:34] Speaker 04:
An alleged expedited procedure for the administrative appeal of an alleged violation.

[00:25:43] Speaker 04:
And your view is that's...

[00:25:45] Speaker 04:
That's limited to what?

[00:25:48] Speaker 02:
That is when the agency seeks a, so this is in provision C, this is on page A1 of our addendum, providing a hearing pursuant to the procedures established through regulations for assessing civil money penalties, which include the expedited procedure for administrative appeal of an alleged violation.

[00:26:14] Speaker 02:
So it is when the agency is assessing.

[00:26:16] Speaker 04:
But the sentence, what follows that is an and.

[00:26:20] Speaker 04:
Pursuant to procedures established by the regs for assessing civil money penalties and an alleged, right?

[00:26:28] Speaker 04:
Isn't that what it says?

[00:26:29] Speaker 02:
No, so there's two, I think two verbs there.

[00:26:35] Speaker 04:
I just have, I'm sorry, I don't have the actual text here.

[00:26:37] Speaker 02:
It's on page, so it says, providing court hearing pursuant to the procedures established through regulations of the FDA for assessing civil money penalties.

[00:26:50] Speaker 02:
which the warning letter's not, including at a retailer's request, a hearing by telephone, or at the nearest regional or field office of the FDA, and providing for an expedited procedure for the administrative appeal of an alleged violation.

[00:27:05] Speaker 02:
And as I read that, what Congress instructed the agency to do was to use the ordinary procedures that it has in place for assessing civil money penalties, those are in regulations cited in our brief,

[00:27:18] Speaker 02:
to use those procedures for enforcement actions when it is seeking civil money penalties.

[00:27:26] Speaker 02:
Now, when the agency files its administrative complaint, those are alleged violations.

[00:27:30] Speaker 02:
The agency has not yet proved those violations, and it may be that there are alleged violations from an initial inspection for which no penalty would have been sought if the violations had been corrected.

[00:27:41] Speaker 00:
So how am I supposed to read 103Q2?

[00:27:49] Speaker 00:
A Roman number one, it says in the case of the first violation, zero dollars together with the issuance of a warning letter to the retailer.

[00:28:11] Speaker 00:
So that's what happens with the warning letter, right?

[00:28:16] Speaker 00:
And the statute says that you get a warning letter in the case of the first violation.

[00:28:22] Speaker 00:
So the warning letter is not an alleged violation.

[00:28:26] Speaker 00:
It is, it has been adjudicated or at least interpreted by the agency to be a violation, right?

[00:28:34] Speaker 02:
Well, two responses, if I may.

[00:28:37] Speaker 02:
First, the agency's regulations interpreting this provision, and that's of the 2015 CFR, it's 21 CFR 17.2, interpret these civil money penalties to start at the second violation, which is where the civil money penalty is assessed.

[00:28:57] Speaker 02:
And I'd also note that Congress, of course, if you look at the next provision there, in the case of a first violation where there is no approved training program, Congress allowed for a $250 penalty in those cases.

[00:29:11] Speaker 02:
So it's not that Congress didn't anticipate that an FDA inspector may walk in, see a violation, and that there may be a penalty.

[00:29:19] Speaker 02:
that arises from that first violation, but it's not the case when you have an approved training program, which this is the program that FDA is currently operating under.

[00:29:30] Speaker 02:
You get no civil money penalty after that first alleged violation.

[00:29:35] Speaker 02:
Instead, you get a warning letter.

[00:29:37] Speaker 02:
Now, if Orrin Motor were correct, that you would have a full-blown administrative hearing followed by judicial review, the result of which would be the issuance of a warning letter

[00:29:48] Speaker 02:
then it wouldn't make sense for Congress to have included all of these other notice provisions in here, of course.

[00:29:56] Speaker 02:
Why would you need notice before a follow-up compliance check if you, in fact, have to go through an entire administrative proceeding before the agency can even issue a warning letter?

[00:30:06] Speaker 02:
You already have notice at that point.

[00:30:08] Speaker 00:
Let me just make sure I understand how you believe that the statute should be interpreted.

[00:30:13] Speaker 00:
Let's suppose that a warning letter is issued

[00:30:17] Speaker 00:
for a sale to someone who appears to be under 26 and they weren't carded.

[00:30:25] Speaker 00:
Okay, and then they come back for follow-up inspection and they find other alleged violations.

[00:30:34] Speaker 00:
At the hearing, at that point,

[00:30:38] Speaker 00:
If Orton Motor, you know, has the tape and actually brings in the person who was the subject of that sale, and it turns out that he was 27, and therefore they've proven that that wasn't a violation, then what happens with respect to the alleged violations from the follow-up inspection?

[00:31:08] Speaker 02:
So it is, I understand the specific question to be whether you would be able to chart, whether the agency would be able to count the follow-up violations if it turned out that the initial violation had not actually occurred.

[00:31:23] Speaker 02:
I'm not sure how the agency treats that exact scenario.

[00:31:26] Speaker 04:
There has to be an easy answer to that.

[00:31:28] Speaker 04:
The answer has to be that the agency can't count the act underlying the warning letter.

[00:31:35] Speaker 02:
That is certainly correct.

[00:31:37] Speaker 02:
If you prove that there was no violation, right.

[00:31:40] Speaker 04:
That's easy.

[00:31:40] Speaker 02:
OK.

[00:31:41] Speaker 02:
Yes, thank you.

[00:31:42] Speaker 04:
So what's difficult then?

[00:31:44] Speaker 02:
nothing.

[00:31:46] Speaker 02:
The retailer, and I tried to make it more complicated than it was, the retailer has the opportunity at the hearing to challenge any of the violations alleged.

[00:31:58] Speaker 02:
And if the retailer comes forward with evidence to disprove that a violation occurred, of course that is not counted toward the civil money complicated.

[00:32:07] Speaker 00:
But how does that work with respect to

[00:32:13] Speaker 00:
the notice.

[00:32:14] Speaker 00:
You're saying that that doesn't, I guess, provide any sort of a defect in the notice provision.

[00:32:24] Speaker 00:
And they can still, if there are, let's say, three alleged violations that happened in this follow up, they can't treat that follow up inspection kind of as if it were subject only to a maximum penalty of a warning, as if it were really your first inspection.

[00:32:51] Speaker 02:
I believe that's correct.

[00:32:52] Speaker 00:
So let me ask the question in a better fashion.

[00:32:56] Speaker 00:
I guess what I'm trying to understand is, let's suppose a warning was sent, a letter was sent out and it was sent out erroneously, right?

[00:33:06] Speaker 00:
And does that kind of wipe the slate clean, so to speak, so that if they come back

[00:33:14] Speaker 00:
It's treated as if that warning letter had never occurred.

[00:33:18] Speaker 00:
And if it's proven that that warning letter was a rose.

[00:33:21] Speaker 02:
Well, if a warning letter, for example, were issued to the wrong retailer and the retailer says, I am not at this address, there's contact information for the agency in the warning letter.

[00:33:33] Speaker 02:
There's an email address, a phone number.

[00:33:35] Speaker 02:
It's very easy to call and explain, like, this is not actually me.

[00:33:39] Speaker 02:
That's sort of the first answer in terms of addressing an actual mistake in the warning letter.

[00:33:44] Speaker 02:
With respect to the violations alleged in the warning letter, again, as we've discussed, you have an opportunity to challenge all of that in a second hearing.

[00:33:54] Speaker 02:
It's going to depend on the facts of the case.

[00:33:56] Speaker 02:
The agency, as a matter of enforcement discretion, generally only counts one violation from an initial inspection.

[00:34:03] Speaker 04:
Can we just simplify this, please?

[00:34:06] Speaker 04:
Take this case.

[00:34:07] Speaker 04:
Suppose Orton had challenged, suppose Orton had, when it was assessed the 2015 penalty, it had challenged the facts underlying the 2013 warning and had proven that the person was 28 years old, right?

[00:34:24] Speaker 04:
Yep.

[00:34:25] Speaker 04:
Okay.

[00:34:26] Speaker 04:
Do you agree then that the agency could not go forward at all with a penalty based on the 2015 because Orton would not have been warned before that, correct?

[00:34:38] Speaker 04:
Right?

[00:34:39] Speaker 02:
Orton would not have been warned?

[00:34:41] Speaker 04:
Yeah, there would be no warning before the 25th.

[00:34:43] Speaker 02:
If there's no first violation, then the agency wouldn't come in and charge a second violation.

[00:34:48] Speaker 04:
No, that's not my question.

[00:34:50] Speaker 04:
My question is, suppose Orton had proven that the warning letter was inappropriate, because the person was 27.

[00:34:59] Speaker 04:
All right?

[00:35:00] Speaker 04:
They proved that.

[00:35:02] Speaker 04:
Now, what are the consequences of that for what happened in 2050?

[00:35:08] Speaker 04:
for the additional violations in 2015.

[00:35:10] Speaker 04:
Isn't the answer, the agency would have to dismiss it and couldn't impose a fine?

[00:35:17] Speaker 04:
Because Orton was not properly, didn't receive a warning letter.

[00:35:21] Speaker 02:
Right, because the first time an actual violation occurred would have been in the later violation and there was no notice.

[00:35:28] Speaker 02:
Yes.

[00:35:29] Speaker 02:
Okay.

[00:35:30] Speaker 02:
Right?

[00:35:30] Speaker 02:
Yes.

[00:35:31] Speaker 02:
Okay.

[00:35:34] Speaker 00:
You asked the question much better than I did.

[00:35:37] Speaker 00:
But then that raises to me the question of why then... Well, I guess you can... If that's your answer to that question and that's a proper interpretation of the statute, then I guess it makes sense then to require the person to wait until the follow-up inspection and alleged violation to challenge the warning letter.

[00:36:07] Speaker 00:
because my question was going to be, why shouldn't they have to challenge the warning letter immediately?

[00:36:13] Speaker 00:
But if you're conceding that that's the way that the statute works and I don't have that concern, that that's correct.

[00:36:21] Speaker 04:
Thank you.

[00:36:22] Speaker 04:
Okay, thank you.

[00:36:22] Speaker 04:
Did council have any time left?

[00:36:25] Speaker 04:
You could take two minutes.

[00:36:29] Speaker 03:
Well, first, I just wanted to address one issue that came up in the government's argument.

[00:36:36] Speaker 03:
The FDA's guidance, which inadvertently was omitted from the record and from the agenda that we produced to you, actually provides that, with respect to a no-sale order,

[00:36:47] Speaker 03:
You can have multiple types of violations count towards the five repeated violations.

[00:36:53] Speaker 03:
What matters is that there's a predicate violation for each.

[00:36:57] Speaker 03:
So the guidance actually provides an example of an instance where there are four sales to a minor, two sales with a vending machine, and two instances of free samples being given out.

[00:37:08] Speaker 03:
And as long as the first one of each of those violations is the predicate, and then the remaining violations would suffice to issue a no-sale order.

[00:37:17] Speaker 00:
So you're saying that if the warning was based on a sale to a 17-year-old, and they didn't seek ID, and then there were three similar sales later on, then you could be subject to the no tobacco sale?

[00:37:32] Speaker 03:
That's correct.

[00:37:33] Speaker 03:
And again, we don't necessarily agree with the agency's interpretation of the statute there, but that is how it applies the statute in issuing warning letters.

[00:37:44] Speaker 03:
In terms of

[00:37:48] Speaker 03:
If the panel doesn't have any more questions, then maybe we'll ask them.

[00:37:52] Speaker 04:
OK.

[00:37:53] Speaker 04:
You don't have to use your two minutes.

[00:37:55] Speaker 04:
Thank you.

[00:37:55] Speaker 03:
Thank you.

[00:37:57] Speaker 04:
Case is submitted.