How many tobacco violations can a retailer be charged with for each transaction? On March 20, 2018, the U.S. Court of Appeals for the D.C. Circuit decided Orton Motor, Inc. v. U.S. Dep’t of Health & Human Servs., No. 16-1299 (D.C. Cir.), upholding the FDA Center for Tobacco Products’ (“CTP”) practice of counting multiple violations, even if all violations occurred within a single consumer transaction.

Background

CTP has two guidance documents “explaining its approach to enforcement of the tobacco retail regulations”:

  1. Civil Money Penalties and No-Tobacco-Sale Orders for Tobacco Retailers (Dec. 2016), and
  2. Civil Money Penalties and No-Tobacco Sale Orders for Tobacco Retailers Responses to Frequently Asked Questions (Dec. 2016).

Among other things, the guidance provides that, in the retailer’s first inspection where any violations are observed, the violations will be counted as one. Within an appropriate period, CTP will “count[] multiple regulation violations on subsequent visits.”

Facing charges of multiple violations within a single consumer transaction, Orton Motor, Inc., (“Orton”) challenged CTP’s violation-counting methodology. It argued that CTP’s imposition of multiple violations, for a single inspection of the retailer or a single consumer transaction, was not authorized by pertinent statutes or regulations.

Orton prevailed before a federal Administrative Law Judge, but the Departmental Appeals Board reversed. Orton petitioned the U.S. Court of Appeals for the D.C. Circuit for review.

Counting Methodology Upheld

The Court denied Orton’s petition, upholding the counting of violations. “Although the [civil money penalty] statute does not expressly permit the charging of multiple violations from a single inspection or transaction,” the Court reviewed CTP’s methodology for its “‘power to persuade,’” referencing the level of respect shown an agency interpretation under Skidmore v. Swift & Co., 323 U.S. 134 (1944) – somewhat lesser than “the valence of Chevron [U.S.A. v. Natural Resources Defense Council, 468 U.S. 837 (1984)] deference.”

Regulatory and statutory considerations led the Court to conclude that CTP’s was a “persuasive interpretation of the plain terms of the statute.” From a regulatory standpoint, “Orton’s position would render regulations superfluous with respect to retailer conduct.” “If the statute counted single and multiple violations identically for purposes of the civil money penalties that may attach, the incentive for retailers to comply with each of the regulations would diminish.” And the Court gave the regulations special significance here, having been endorsed by Congress in enacting the Tobacco Control Act, see 21 U.S.C. § 387a-1(a)(2), after the Supreme Court struck down the FDA’s earlier attempt at regulating tobacco, see U.S. Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)

“Structural characteristics of the statute” also supported CTP’s methodology. In capping civil money penalties for tobacco violations, the statute references “all such violations adjudicated in a single proceeding.” 21 U.S.C. § 333(f)(9). According to the Court, “[t]he reference to ‘violations’ in the plural form demonstrates that a single proceeding may involve the simultaneous adjudication of more than one violation.”

The Court also “note[d] that the Skidmore inquiry ‘consider[s] whether the agency has applied its position with consistency.’” (Quoting Fed. Express Corp. v. Holowecki, 552 U.S. 389, 399 (2008) (second alteration in original).) Observing that the pertinent “guidance documents . . . have been operative since 2013, without change to [CTP’s] violation-counting methodology,” the Court concluded that this only “buttresse[d]” the persuasiveness of CTP’s interpretation.

Due Process Not Violated

The Court also disposed of a separate basis for Orton’s challenge: due process. By way of background, “the FDA treats first violations as falling outside of . . . civil money penalty [hearing] procedures, as the penalty is $0.00 and a warning letter.” The first violations are counted as a single violation, later when determining the civil money penalty upon subsequent violations. Orton challenged CTP’s issuance of a warning letter – without a hearing – for violations observed during a first inspection.

The Court rejected Orton’s argument. “The consequences from a first violation alone do not trigger notice and hearing requirements,” the Court held. Rather, the statutory scheme “requires such procedures only for the assessment of civil money penalties, and no such penalty attaches to a first violation.” Further, “a retailer has an opportunity to challenge the issuance of a first violation upon the later assessment of civil money penalties.”

As far as any constitutional dimensions to Orton’s argument, “due process is required only where government action threatens a deprivation of life, liberty, or property. But Orton has failed to show that the mere issuance of a warning letter, absent further enforcement action, effects any such deprivation.” Adverse effects of the warning letter were insufficiently “tangible.”

Significance

The Court’s ruling affirms the seriousness with which CTP regards retailers’ tobacco violations. Retailers will be well advised to meet their regulatory responsibilities, and failures to do so could be compounded for increasing penalties and, ultimately, no-sale orders.

From a broader regulatory standpoint, the Court’s analysis is interesting, both how it navigated agency deference and how it treated the regulations to which Congress had previously given its approval. The decision reinforces the view that courts are often willing to take agencies at their word – and all the more so where, as here, the court views the agency interpretation as best executing regulations that Congress itself has endorsed.