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1 c :'i\Flr·l.- 1 \l!f::I\!T f)r - ... .""' . ' ' j', .**~... ~**  ........ J UNITED STATES OF AMERICA i/'j\,fSPOHTAT!ON u.s. DEPARTMENT OF TRANSPORTATidN:J OPEFV\TI0!\!:1 OFFICE OF HEARINGS 7**r~ ~**  1{,l)f,:.**~)** l**<!.~ ~-------------------------~**  In the matter of: NU FASHION BEAUTY SUPPLY DISTRIBUTORS FAA NO. 2011-1123 JUDGE GOODWIN**~-------------------------~** U.S. Tax Court Thomas Eagleton Courthouse Courtroom 9.170 111 South lOth Street St. Louis, Missouri 63102 Wednesday, June 19, 2012 The above-entitled matter came on for hearing pursuant to Notice, at 9:00 a.m. BEFORE: RICHARD C. GOODWIN, Administrative Law Judge

I .**~a** 'vRECEIVED (202) 234-4433

JUL 112012 HEARING DOCKE.r NEAL R. GROSS COURT. REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com•••

APPEARANCES: On Behalf of the Administrator: GAYLE E. TOWNSEND, ESQ. Office of Regional Counsel Federal Aviation Administration DOT Building

- 901 Locust, Room 506 Kansas City, Missouri 64106 (816) 329-3766 On Behalf of the Respondent: W. BEVIS SCHOCK, ESQ. 7777 Bonhomme Avenue, Suite 1300

St. Louis, Missouri 63105 (314) 721-1698 (202) 234-4433 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701

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3 CONTENTS ITEM PAGE Opening Statements By Ms. Townsend ............. 6 By Mr. Schock . . . . . . . . . . . . . . 9 WITNESSES DIRECT CROSS REDIRECT RECROSS DAVID SCHAUFLER 17 69 77 E X H I B I T S EXHIBIT' NUMBER MARK RECD ADMINISTRATOR A-1 . . . . . . . . . 26 27 A-2 . . . . . . . . . . 32 38 A-3 . . . . . . . . . . . . 32 A-4 . . . . . . . . . . . . . . 51 52 A-5 . . . . . . . . . 53 57 RESPONDENT None NEAL R. GROSS (202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com

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• 1 P R 0 C E E D I N G S 2 (9:05a.m.) 3 JUDGE GOODWIN: This is the case 4 of the Federal Aviation Administration versus 5 Nu Fashion Beauty Supply Distributors, FAA 6 Docket Number 2011-1123. Counsel would you 7 identify yourself for the record please? 8 MS. TOWNSEND: Good morning your 9 Honor, Gayle Townsend for the Federal Aviation 10 Administration. 11 MR. SCHOCK: Good morning, your 12 Honor. My name is Bevis Schock. I represent 13 the Respondent Nu Fashion Beauty. 14 JUDGE GOODWIN: Okay. Spell your 15 last name, please? 16 MR. SCHOCK: Sure, your Honor, S17 C-H-0-C-K. 18 JUDGE GOODWIN: Okay, a couple of 19 preliminary things; Ms. Townsend knows this, 20 Mr. Schock you may not. Everything we do goes 21 on the internet; transcript, pleadings and 22 everything else. In today's age I have

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### 1 problems with that and so what I'm going to 2 request both parties to do is to redact any 3 personal identifying information from anybody 4 who appears in the court, whether it's FAA 5 witnesses or whether it's Respondent. Watch 6 for dates of birth, Social Security Numbers, 7 home addresses, cell phone numbers, home 8 

### numbers and so forth. You know this is the 9 Department of Transportation docket, we don't 10 have to spend the rest of the day talking 11 about what could potentially happen, but my 12 

### position is that none of that information has 13 any business on the internet. 14 

### And additionally, if we get into 15 financial records of the Respondent, some of 16 

### which could put him at a competitive 17 disadvantage, we can either seal that or 18 redact it, whatever is,

-- obviously if I am 19 going to consider it we will seal it. I have 20 sealed the record in whole and in part sua 21 

### sponte and on motion. I tend to err on the 22 side of cautiousness.
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### I think that is all I can think of 2 at this point, so Ms. Townsend do you want to 3 make an opening? 4 

### MS. TOWNSEND: One other 5 preliminary matter Judge. 6 

### JUDGE GOODWIN: Yes. 7 

### MS. TOWNSEND: Do you intend to 8 read into the record or make any statement 9 yourself about the fact that, 10 

### JUDGE GOODWIN: It's not my case. 11 

### MS. TOWNSEND: Okay, that will let 12 

### me know what I need to do then. Thank you. 13 

### JUDGE GOODWIN: She didn't set a 14 mic up on the podium, so, 15 

### MS
. TOWNSEND : Oh, that's fine. 16 Thank you. 17 

### JUDGE GOODWIN: It's a 

### 18 formal/informal hearing, Mr. Schock. 19 OPENING STATEMENT 20 BY MS. TOWNSEND: 21 

### 22 MS. TOWNSEND: It if please the Court. We are here on a very simple matter

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### today, your Honor. The Agency had brought 2 forward a Complaint against the Respondent, Nu 3 Fashion Beauty Supply Distributors alleging, 4 among other things, that that entity had 5 committed seven violations of the Federal 6 Aviation Regulations with regard to hazardous 7 materials commodity. 8 

### After a series of filings the 9 

### Federal Aviation Administration, the 10 Complainant in this matter, filed a Motion for 11 Summary Judgment on the pleadings. That 12 motion was dated on or about March 22nd of 13 2012, and after the Respondent filed its reply 14 this Court did grant the Administrator's 15 request for Motion for Summary Judgment, 16 finding that seven violations alleged of the 17 Federal Aviation Regulations had been 18 committed. 19 On the record specifically, those 20 violations found to have been committed were 21 the following: 49 CFR .171.2(e), 172.200(a), 22 172.202(a), 172.204(a), 172.301(a) (1),
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• 1 172.400(a), 172.702(a)
. And in addition, the 2 Agency had asked, as a result of those 3 violations being committedbyNu Fashion, that 4 a $15,000.00 civil penalty be assessed. This 5 is the issue that brings us to this trial 6 

### today. The Agency's motion with respect to 7 the $15,000.00 civil penalty was not granted. 8 

### The Respondent has challenged the 9 appropriateness of that civil penalty. 10 And Judge, we are here today 11 because the evidence is going to show,

-- that 12 the Agency will put on that the civil penalty 13 of $15,000.00 is in deed appropriate; that 14 there were a number of factors by law, that 15 the Agency was to have considered in coming up 16 

### with that calculation. And the testimony 17 today will be that those required factors were 18 considered and the $15,000.00 civil penalty is 19 appropriate based on those circumstances and 20 the factors in this case. 21 22 JUDGE GOODWIN: Mr. Schock, do you want to be heard now or do you want to

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### 1 reserve? 2 

### MR. SCHOCK: Now please, your 3 Honor. 4 OPENING STATEMENT 5 BY MR. SCHOCK: 6 

### MR. SCHOCK: Your Honor, may it 7 please the Court. As I said my name is Bevis 8 Schock and I represent the Nu Fashion 9 representative of the corporation to my left, 10 Mr. Gayle Chyu. 11 My client takes the safety of the 12 public, traveling public in airplanes, 13 extremely seriously, as any American does. My 14 client instructed me at the beginning of this 15 case to try to make things simple for 16 

### everybody involved. And that is why we 17 admitted to the Government's allegations of 18 the violations, because they were true and we 19 did not want to waste the Government's time 20 and resources on having to prove up stuff that 21 everybody knows happened. There are no facts 22 

### in dispute here. Ms. Townsend is absolutely 

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### 1 right, the issue is the amount of the fine. 2 I 

### suppose that the way the 3 

### bureaucracy works it is hard for the 4 Government's side to see their way to what I 5 would call common sense, but really an 6 interpretation of the word appropriate that 7 

### fits the facts. Very, very briefly your 8 Honor, this is like a rural intersection in 9 full daylight where the driver approaches a 10 stop sign and slows way down and almost stops, 11 but rolls the stop sign and gets a ticket for 12 rolling a stop sign. He rolled a stop sign, 13 there's no question and he deserves a small 14 punishment for that. But nobody got hurt, it 15 

### was not a serious thing. 16 

### And I just want to briefly, 17 very briefly talk to you about the factors 18 that we are going to put evidence on of, very 19 

### simply. The first one is that this whole 20 thing came about over a box of hairspray. My 21 client is in the business of beauty products. 22 

### He has a Canadian supplier of hairspray and
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### 1 they sent some hairspray down and the 2 customers were having trouble with the spray 3 

### mechanism. So word got back to Nu Fashion, 4 which is the distributor that said hey, 5 customer complaints are coming in, so they 6 called the Canadian manufacturer and said hey, 7 we are having problems with our hairspray 8 shipment. And they said well ship us a box 9 back, we'll have a look at it and see what 10 happens. 11 So Nu Fashion never ships anything 12 

### by air. I mean they put stuff in trucks and 13 send it to their customers. And they are good 14 corporate citizens. And so they box up this 15 box of hairspray; they didn't even know how to 16 

### do a shipment. They had to ask the UPS man 17 

### how do we do this? What is the paperwork; 18 which they asked, he filled it all out and one 19 box of hairspray, a product that is used by 20 people when they spray at their head. This is 21 

### not gasoline. This is not dioxin. This is 22 not agent-orange. It's something that is
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• 1 normally sprayed at the head of a human being 2 in its proper use. Luckily the guy at the UPS 3 distribution center shook the box, realized 4 what was in it and said hey, this can't go by 5 air, this is an aerosol product and they 6 

### stopped it. So it never even went on the 7 airplane. 8 There is no history of violations. 9 The likelihood of repetition is extremely low 10 because it is not in their business model to 11 ship this kind of product in this manner. 12 This was an anomalous situation of a defective 13 product that had to be returned to the 14 manufacturer. 15 

### Mr. Chyu has taken this very 16 seriously, and like any normal good citizen 17 wants to take it seriously, but we are asking 18 you to think about what is appropriate under 19 the circumstances where the maximum penalty 20 where people are killed is $100,000.00. 21 People get killed and it's one hundred. This 22 is a box of hairspray that did not get on the

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1 

### airplane; a one time event. So we think a 2 thousand dollars is appropriate. And we are 3 asking that you consider the overall facts in 4 the case and find a thousand dollars to be 5 

### appropriate. Thank you, sir. 6 

### JUDGE GOODWIN: Ms. Townsend, do 7 you want to put on any evidence? 8 

### MS. TOWNSEND: Yes, I intend to do 9 

### that. Your Honor, before I call the one 10 witness to the stand I want to make sure that 11 I correctly stated, if I did not already, two 12 of the violations the**Cou~t** 

### has already 13 determined by granting the Summary Judgment 14 Motion in part, on the substantive facts that 15 the violation alleged,

-- one of the seven was 16 172.200(a), andtheother172.202(a). I'mnot 17 sure that I articulated that correctly. 18 At this time the Agency would call 19 to the stand Mr. David Schaufler. 20 (Whereupon, 21 DAVID SCHAUFLER, 

### 22 was called as a witness by and on behalf of 

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1 

### the Administrator and, after having been 2 first duly sworn, was examined and testified 3 as follows:) 4 

### JUDGE GOODWIN: Please be seated. 5 Siate your name for the record and spell 6 your first and last name? 7 

### THE WITNESS: My name is David 8 

### Schaufler, it's S-C-H-A-U-F-L-E-R, the 9 first name is David; D-A-V-I-D. 10 JUDGE GOODWIN: Before we proceed 11 counsel, the Court just received a remand in 12 Demish versus Wortman (phonetic), which is 13 FAA 2010-1081. The substance of the remand 14 was that the Court had defaulted a 15 respondent for failure to respond to a 16 Procedure Order and a Show Cause Order. The 17 basis of the remand was two-fold; one that 18 the Office of General Counsel felt that 19 issuing a default in a case like that was 20 outside the scope of the FAA Regulations. 21 And secondly, that the FAA had failed to 22 introduce sufficient evidence to uphold the
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1 

### allowing of default. 2 So I would suggest the two of you 3 may want to review that case in the context 4 of this case. The Court is struggling to,
- 5 - you know in civil practice I would have 6 had no problem with that. The Office of 7 General Counsel had a problem with the 8 manner in which we did that. The Court has 9 now reset this case for Seattle in August, 10 and we will do it on the merits. But I 11 think it is incumbent on the two of you to 12 put at least a prima facie case on. So with 13 that, counsel, 14 

### MS. TOWNSEND: Thank you, your 15 Honor. 16 

### MR. SCHOCK: May I say one thing? 17 

### JUDGE GOODWIN: Sure. 18 

### MS. TOWNSEND: Sure. 19 

### MR. SCHOCK: Your Honor let me 20 emphasize that my client admits that the 21 violations occurred. 22 JUDGE GOODWIN: I understand
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### that. My, 2 

### MR. SCHOCK: And I,

-- I'm sorry. 3 

### JUDGE GOODWIN: Yeah, my concern 4 about the remand is,

-- now that was a case 5 where I defaulted because the respondent did 6 

### nothing. I'm not sure where, my cases go 7 to the Office of General Counsel which is 8 the internal appellate authority, and then 9 from there to the Federal Circuit. So I'm 10 concerned about where OGC is going with this 11 

### line of thinking. So I think it's,

-- I 12 understand that he has admittedi I'm not 13 trying to say we need to put a contested 14 case on, but I think in the context of what 15 I'm sure you and I have done for years, at 16 least put on a prima facie case so that we 17 don't get this case remanded because one of 18 us did not do something correctly. And this 19 gets back to judicial economy for your 20 

### client, as well as for the FAA. I'm not 21 saying we need to try this thing over three 22 

### days. I'm sure we can get through this in a
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### 1 relatively expeditious manner. Is there a 2 ball game this week? 3 

### MR. SCHOCK: They just left town, 4 sir. 5 

### JUDGE GOODWIN: Oh, did they? 6 The reason I ask is one of my predecessors 7 used to,
-- you could tell when and where 8 your case was going to be heard by looking 9 at the Minor League baseball schedule; true 10 story. They would finish at two and they 11 would be in the ballpark at three. I'm not 12 much of a baseball fan, so. Go ahead 13 counsel, I'm sorry. 14 

### MS. TOWNSEND: All right. 15 

### DIRECT EXAMINATION 16 

### BY MS. TOWNSEND: 17 Q 

### Mr. Schaufler, who are you 18 employed by? 19 A 

### The Federal Aviation 20 Administration and Joint Security and 21 Hazardous Material Safety Office. 22 Q 

### Okay. And what is your current
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1 

### position with the FAA? 2 A 

### Hazardous Material Safety 3 Manager. 4 Q 

### And how long have you been in 5 your current position? 6 A 

### A little over four years. 7 Q 

### Would you briefly describe for 8 the Court what your primary duties are in 9 your current position as a Haz-Mat Safety 10 Manager? 11 A 

### Among other supervisory duties, I 12 review hazardous material enforcement cases 13 prepared by my employees to ensure that the 14 evidence and the facts of the case support 15 the alleged violations of the hazardous 16 material regulations. 17 I also review the evidence and 18 the facts of the case to ensure that the 19 civil penalty proposed, as a consequence of 20 violating the hazardous material regulations 21 are within the ranges as specified in the 22 

### Agency's Sanctions Guidance or 2150.3(b)
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### 1 Q 

### Okay. And did you conduct such a 2 review just as you've described with regard 3 to the Nu Fashion case that brings us here 4 today? 5 A 

### Yes, I did. 6 Q 

### Prior to your assumption you said 7 four years ago, -- you've been in your 8 current position four years, correct? 9 A 

### Yes. 10 Q 

### Okay. Did you hold any other 11 positions with the FAA? 12 A 

### Yes, I did. 13 Q 

### And what were those positions? 14 A 

### I was a Security Specialist. 15 Q 

### And is that the position you held 16 immediately prior to your current position 17 as Haz-Mat Safety Manager? 18 A 

### Yes. 19 Q 

### Okay. Can you tell the Court 20 what you did as a Security Specialist? 21 A 

### In regards to hazardous material 22 I conducted hazardous material safety
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1 

### inspections, conducted investigations of 2 alleged violations of the hazardous material 3 regulations, specifically pertaining to the 4 shipments of hazardous material packages in 5 air transportation. I prepared hazardous 6 material enforcement cases. I 

### collected 7 evidence. I 

### analyzed the evidence to 8 determine any violations of the hazardous 9 

### material regulations and the development and 10 the appropriate sanction based on the 11 criteria of the Agency's Sanctions Guidance 12 or the 2150.3(b). 13 Q 

### Okay. You mentioned that in your 14 position as a Security Specialist you 15 processed the cases and reviewed violations 16 of the hazardous material regulations. Are 17 those the same regulations which the Court 18 has already determined that Nu Fashion 19 violated? 20 A 

### Yes. 21 Q 

### Do you recall where those can be 22 found in the Code of Federal Regulations?
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### 1 A 

### It's Title 49 Federal Regulations 2 Parts 100 to 185. 3 Q 

### Okay. So it would be safe to say 4 then that you've had a combined total years 5 of experience with the Agency of what, 6 twenty-one years? 7 A 

### That is correct, twenty-one 8 years. 9 Q 

### Okay. Either as a Haz-Mat Safety 10 Manager, your current position, or as a Haz11 Mat Safety Specialist, correct? 12 A 

### That is correct. 13 Q 

### Okay. About how many cases would 14 you estimate over that period of time and in 15 those capacities you have reviewed just as 16 you've explained for the violations alleged 17 and the sanctions imposed? 18 A 

### As a manager approximately four 19 hundred. 20 Q 

### What about as a Security or 21 Safety Specialist? 22 A 

### As a Security Specialist I
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### prepared approximately over the seventeen 2 years roughly five hundred. 3 Q 

### Okay. And you mentioned that you 4 conducted a review of the case file that 5 brings us here today, the Nu Fashion file, 6 is that correct? 7 A 

### That is correct. 8 Q 

### And what was your purpose for 9 reviewing the enforcement file prepared 10 against Nu Fashion? 11 A 

### I reviewed the enforcement case 12 of Nu Fashion primarily for two reasons. 13 First, to ensure that the alleged,

-- excuse 14 me, that the facts and the evidence of the 15 case supported the alleged violations. 16 Second, I 

### reviewed the evidence and 17 appropriate factors in accordance with the 18 2150.3(b) sanction tables and matrixes to 19 ensure that the civil penalty was within the 20 appropriate ranges for the violations. 21 22 Q 

### Okay. And what is the purpose for the FAA's Order 2150.3(b)?

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### 1 A 

### It's a hazardous material 2 sanction enforcement guide. 3 Q 

### Okay. Does it pertain only to 4 Haz-Mat? 5 A 

### No, it pertains to other aviation 6 violations that the FAA uses to enforce 7 cases. 8 Q 

### Okay. So you said already that 9 you have reviewed the enforcement file that 10 was put together that contained the facts 11 and the circumstances and the evidence for 12 

### Nu Fashion, correct? 13 A 

### That's correct. 14 Q 

### Did you also happen to review the 15 Complaint against Nu Fashion that the Agency 16 filed? 17 A 

### Yes. 18 Q 

### Do you recall what the civil 19 penalty that the Agency was seeking against 20 Nu Fashion was? 21 A 

### Yes, it was $15,000.00. 22 Q 

### Okay. Now you testified earlier
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1 

### that there were, in your review of the, 2 or one reason for your review of the Nu 3 Fashion file was to consider the evidence 4 and certain factors in accordance with the 5 Agency's 2150.3(b) Sanction Guidance Order 6 

### to ensure that the civil penalty against Nu 7 

### Fashion was in the appropriate range. Is 8 that correct? 9 A 

### That is correct. 10 Q 

### Okay. Well let's talk about what 11 some of those factors were that you 12 considered. What were the factors that you 13 considered in reviewing the appropriateness 14 of the civil penalty under the Agency's 15 Order 2150.3(b)? 16 A 

### In evaluating the evidence I gave 17 consideration to the evidence in regards to 18 the nature, the circumstance, the extent and 19 gravity of the violations, the degree of 20 culpability of Nu Fashion, history of prior 21 Haz-Mat violations, the ability to pay a 22 civil penalty, the extent of a civil penalty
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### for Nu Fashion to do business and any other 2 matters that justice requires, such as any 3 aggravating or mitigating circumstances in 4 the situation. 5 I evaluated the evidence in light 6 of those factors as outlined in 2150.3(b) 7 Q 

### Okay. Is there a particular 8 portion of the FAA's Order that deal 9 exclusively and primarily with the hazardous 10 materials commodity violations and 11 sanctions? 12 A 

### Yes, that's in Appendix C. 

### 13 Q 

### Okay. And you used that 14 document,

-- that Order and that Appendix to 15 review the civil penalty proposed for Nu 16 Fashion, correct? 17 A That is correct. 18 Q 

### All right. Well you mentioned 19 quite a few factors and what.I would like to 20 do at this point,

-- and you've mentioned 21 the 2150.3(b), 22 MS. TOWNSEND: permission to
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### approach the witness, your Honor? 2 

### JUDGE GOODWIN: Yes. 3 

### MS. TOWNSEND: Okay Mr. 4 Schaufler, I've handed you what has been 5 

### marked as Agency Exhibit 1. I have also 6 provided Respondent's counsel and the Court 7 with a copy of that document. 8 [The document referred to 9 was marked for identification 10 as Agency's Exhibit 1.] 11 BY MS. TOWNSEND: 12 Q 

### I would ask that you take a look 13 at it for a minute and identify it if you 14 can? 15 A 

### Yes, this is Appendix C, the 16 Sanction Guidance for hazardous material 17 enforcement, and it is an appendix that is 18 in the FAA Order 2150.3(b). 19 Q 

### And this the document that you 20 referred to earlier that you used in 21 reviewing the calculation of the CP for Nu 22 

### Fashion?
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### 1 A 

### Yes. 2 

### MS. TOWNSEND: All right, your 3 Honor I would like to move at this time that 4 we enter the Agency Exhibit 1, which is 5 Appendix C Sanction Guidance Hazardous 6 Materials Enforcement into the record. 7 

### JUDGE GOODWIN: Counsel? 8 

### MR. SCHOCK: No objection. 9 

### JUDGE GOODWIN: Okay normally 10 what I do,

-- while the Agency has proffered 11 this I would also admit it into evidence 12 pursuant to a request for taking judicial 13 

### notice. I understand what FAA counsel does 14 this, several do, but Agency 1 for 15 identification will.be received into 16 evidence as Agency Exhibit 1. 17 [The document referred to 18 was admitted into evidence 19 as Agency's Exhibit 1.] 20 

### JUDGE GOODWIN: Also note that 21 the Court will, during the course of its 22 

### deliberations ensure that we are considering
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### the regulation in effect at the time of the 2 alleged violation, because just as soon as 3 we get a copy, they change it. 4 BY MS. TOWNSEND: 5 Q 

### Mr. Schaufler, let's start there. 6 The 2150.3(b) Exhibit A (sic), was this the 7 appropriate,

-- was this the version of the 8 Order that was in effect at the time or 9 preceding the time that these violations of 10 Nu Fashion were committed? 11 A 

### Yes, that's correct. 12 Q 

### Okay. So this is the appropriate 13 version? 14 A 

### Right. 15 Q 

### Okay. All right well let's take 16 a look at some of the factors you say you 17 considered earlier. We're going to break 18 this down. What did you consider with 19 regard to the nature, circumstances, extent 20 and gravity of the violation? What does 21 that mean in the context of the facts that 22 you reviewed in the 2150.3(b) as it
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1 pertained to developing a sanction,

-- a 2 civil penalty in this case? 3 A We look at the nature, 4 specifically what was the material that Nu 5 Fashion offered. And also, whether or not 6 the shipment was within or outside the 7 quantity limits as prescribed by the 8 hazardous material regulation. 9 Q Okay. All right well let's go 10 back, what was it that was shipped? 11 A The material that was shipped was 12 twelve cans of hairspray. 13 MR. SCHOCK: Your Honor I'm going 14 to object. The witness' answer is incorrect 15 ln the sense that it is incorrect with the 16 evidence. There was nothing shipped. It 17 never left the station, but the witness said 18 it was shipped. It was not shipped. 19 MS. TOWNSEND: I'll withdraw that 20 question. 21 JUDGE GOODWIN: Okay, restate the 22 question.
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1 BY MS. TOWNSEND: 2 Q What did the facts indicate was 3 offered for shipment by Nu Fashion? 4 A Right. Nu Fashion offered twelve 5 cans of hairspray, which is classified as an 6 aerosol, 2 .1 flammable gas. 7 Q What is the 2.1 flammable gas? 8 What is that,

-- what is the meaning of 9 that? 10 A That's a classification that is 11 indicated in the hazardous material 12 regulation based on the inherent risk of the 13 material. 14 Q Okay. Did you also consider in 15 this context, the nature, and circumstances, 16 and extent, how much was shipped or weighed 17 or, 18 A Yes. In this particular case 19 again like I said the package contained 20 twelve cans of aerosols which is within the 21 quantity limits for air transportation
. 22 MR. SCHOCK: I'm sorry I couldn't
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1 

### hear the last part of that. 2**JUD~E** 

### GOODWIN: Repeat your 3 answer please? 4 

### THE WITNESS: The shipment 5 contained twelve cans of aerosol hairspray 6 which is within the quantity limits for air 7 transportation. So it was within the 8 parameters of the rule book. 9 BY MS. TOWNSEND: 10 Q 

### Okay. And where did you get this 11 

### information from when you considered the 12 nature and the circumstances? Where are you 13 getting this information from, what are you 14 reviewing? 15 A 

### We looked at the,

-- I considered 16 the evidence of the case such as the 17 Hazardous Material Incident Report, the DOT 18 Form 5800.1. I also looked at the 19 photographs of the case, -- that was 20 

### presented as an exhibit in the case. I may 21 look at witness statements and the Material 22 

### Safety Data Sheet.
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### 1 MS. TOWNSEND: Permission to 2 approach, your Honor? 3 

### JUDGE GOODWIN: Yes. 4 

### MS. TOWNSEND: For the record, 5 I've handed you what has been marked as 6 Agency Exhibit 2 and Agency Exhibit 3, 7 copies of which were previously provided to 8 Respondent's counsel and to the Court. 9 [The document referred to 10 was marked for identification 11 as Agency's Exhibits 2-3.] 12 BY MS. TOWNSEND: 13 Q 

### Mr. Schaufler, will you please 14 take a look at those documents and identify 15 them for me if you can? 16 A 

### The Agency Exhibit Number 2 is 17 the Hazardous Material Incident Report. 18 It's a U.S Department of Transportation 19 Form. It's Form 5800.1. 20 Q 

### Okay. 21 A And Agency Exhibit Number 3 are 22 the photographs of the shipment
. NEAL R. GROSS
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### 1 Q 

### Okay. And on Agency Exhibit 2 Number 2, the Incident Report, is this one 3 of the documents that you used when you 4 considered the nature and the circumstances? 5 A 

### Yes. 6 Q 

### Okay. And what does this 7 document in summary tell you? What 8 information did you glean from this report? 9 A 

### This report provides information 10 in regards to the date and time of the 11 incident, or the discovery of the shipment
. 12 

### It also provides information as,the offerer, 13 also the destination where the package was 14 being sent to. And it also provided 15 information on the hazard or the class of 16 the shipment, and the quantity or the 17 amount, the type of packaging that it was 18 contained in, and other various information? 19 For example,

-- 20 Q 

### Did it show weight? 21 A 

### Yes, that's Item Number 27 on 22 page 2.
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### 1 Q 

### And what was the weight? 2 A 

### It showed that the package 3 capacity was 65 pounds; that's just what the 4 package could have taken, but the actual 5 amount was 10 pounds. The inner packaging 6 or single packaging shows 10 ounces with the 7 total amount,
-- and the package was 120 8 ounces. 9 Q 

### Was there anything significant 10 about the weight with regard to the amount 11 offered for shipment within the regs and the 12 sanction imposed? 13 A 

### Just that it was within the 14 quantity limitations of the regulations for 15 air transportation. 16 Q 

### Okay. So they could offer this 17 amount for shipment on air? 18 A 

### Yes. That is correct. 19 Q 

### What about,

-- you mentioned the 20 class and the risk involved of the materials 21 shipped. Is the material offered for 22 

### shipment shown on here,

-- described in
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1 Exhibit 2? 2 A Yes, on part 5,

-- on Item 38 it 3 shows that the shipment was offered for 4 passenger aircraft, it indicated no. 5 Although sometimes the forms are not totally 6 filled out by the reporting entity, in this 7 case UPS. But of course, UPS is a cargo 8 carrier. But they also indicate in here 9 whether the shipment was declared or 10 undeclared. I bring attention to Item 11 Number 23 on page 1. It shows that this 12 item was, or this was an undeclared 13 hazardous material shipment. 14 Q It was undeclared? 15 A An undeclared shipment. 16 Q Okay. With regard to evaluating 17 the fact that it was undeclared,

-- declared 18 or undeclared what is the significance of 19 that,

-- or the implications of that with 20 regard to sanctions? 21 A Obviously an undeclared shipment 22 does not communicate the risk or the
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1 

### inherent risk of the contents of the 2 package. Therefore the handlers or those 3 that are handling the shipment are put at a 4 level of risk because they don't know what's 5 in the package and may not handle it 6 appropriately. If they were aware that it 7 contained a hazardous material then they 8 would handle it accordingly and ensure that 9 the package is handled in a safe manner. 10 Q 

### So is there an impact on safety 11 

### or the issue of safety based on whether or 12 not a package is offered for shipment as an 13 undeclared versus a declared hazardous 14 commodity? 15 A 

### Most definitely, yes. 16 Q 

### And what impact would that tend 17 

### to have, would that have an impact on the 18 calculation of the civil penalty or the 19 sanction? 20 A 

### Typically depending on other 21 factors it could increase the civil penalty
. 22 Q 

### The fact that it's undeclared?
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1 A 

### Correct. 2 Q 

### Okay. Would you look at what has 3 been marked as Agency Exhibit 3 and identify 4 that if you can, please? 5 A 

### Agency Exhibit 3 are the 6 photographs taken by the investigating 7 agent. 8 Q 

### And you reviewed these in your 9 review of the analysis or the facts and 10 circumstances for Nu Fashion? 11 A 

### Correct. 12 Q 

### What kind of information did you 13 glean from the photographs? 14 A 

### Of course the photographs show 15 that there was no marking, no labeling on 16 the package, which would have been required 17 

### for offering such a package. It also 18 reflects or depicts other information as far 19 as what was inside the shipment, the twelve 20 aerosol cans, and the type of the product. 21 Q 

### What about the container itself, 22 

### is that significant in any way?
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1 A 

### Well in regards to the hazardous 2 material regulations the container being an 3 aerosol can, is permitted, provided that it 4 is properly offered. 5 Q 

### What about the outer packaging, 6 what information if any, did you glean from 7 the outer packaging? 8 A 

### Well again, that the outer 9 package did not communicate the hazard that 10 

### was within the package. 11 

### MS. TOWNSEND: Okay. Your Honor, 12 I move to,
-- well I'll offer Agency Exhibit 13 2 and Agency Exhibit 3 into evidence. 14 

### JUDGE GOODWIN: Counsel? 15 

### MR. SCHOCK: No objection. 16 

### JUDGE GOODWIN: Okay, Agency 2 17 f0r identification is received into evidence 18 as Agency Exhibit 2. 19 [The document referred to 20 

### was admitted into evidence 21 as Agency's Exhibit 2.] 22 JUDGE GOODWIN: Counsel, just so NEAL R. GROSS (202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com

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### 1 you're aware of it, I write in pencil ID, 2 but I line through the ID when I admit it 3 and put the date on it. So when you look,

- 4 - I suspect by some time in the middle of 5 next week this will all be on the internet 6 and you should have in my pleadings the 7 

### citation. It's regulations.gov and then 8 type in the FAA Number and everything should 9 be there, including the original pleadings, 10 the Complaint and whatever pleadings you 11 have filed
. 12 MS. TOWNSEND: Thank you, your 13 Honor. 14 BY MS. TOWNSEND: 15 Q 

### Mr. Schaufler, do you have 16 anything else at this time in the way of the 17 nature, the circumstance or extent of the 18 violation that you want to share with us? 19 A 

### I think the only thing I think I 20 should add is that based on the nature of 21 the material there are certain risk 22 categories that are assigned to particular
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1 hazardous materials based on their inherent 2 risk in transportation. In this case 3 aerosols are assigned a Category A risk, 4 which is a high risk, and it is determined 5 that if this material is released in the 6 confines of an aircraft it could cause a 7 catastrophic event, which would result in 8 the loss of life, property and preventing 9 the aircraft to remain in a safe operation 10 in flight. 11 Q How many categories in the scheme 12 of the 2150.3(b) Order, the Agency's Order, 13 are there? 14 A There are three categories, 15 Category A, Category B and Category C. 16 Q So you're saying that the 17 evidence that you reviewed indicated Nu 18 Fashion was in the highest risk category? 19 A That is correct. 20 Q And if a Haz-Mat commodity is in 21 the highest risk category as opposed to a 22 lower risk category,
-- are (B) and (C)
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### lower risk categories? 2 A 

### Right. Category B is a moderate 3 risk; there is still a risk, but the 4 imminent hazard is not there. And of 5 course, Category C is a low risk based on 6 

### the lower risk of the material. If it was 7 released it would not cause immediate,

-- it 8 would just be a low risk to safety. 9 Q 

### And this is safety on the 10 aircraft or safety in what context? 11 A 

### Safety whether it is on the 12 

### aircraft or in air transportation. 13 Q 

### Okay. 14 A 

### It doesn't necessarily need to be 15 in,

-- actually on the aircraft to be in air 16 transportation. Once it is offered it is 17 considered an air transportation. 18 Q 

### And is that what happened in the 19 Nu Fashion case here? 20 A 

### That is correct. 21 Q 

### Okay. What would be the impact, 22 

### is there an impact to the civil penalty
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### 1 amount based on the risk category? Is (A) 2 more or less likely to warrant a higher 3 civil penalty than say a lower risk category 4 item? 5 A 

### That is correct, the higher the 6 risk the higher the civil penalties will be. 7 Q 

### Okay. All right one of the other 8 factors that you mentioned that you 9 considered in your review of Nu Fashion with 10 regard to the civil penalty aspect was the 11 gravity of the violation. What does that 12 

### mean? What do you mean in the terms of the 13 gravity of the violations? 14 A 

### The gravity would be again, 15 whether the shipment was offered as declared 16 or undeclared. Of course in this case it 17 was an undeclared offering of the package; 18 whether the shipment contained a forbidden 19 

### material in air transportation. In this 20 case the aerosols were not a forbidden 21 

### material. It was permitted to be offered 22 for air transportation. Whether or not the,
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1 

### -- someone else had,

-- actually, who 2 prepared the shipment and offered the 3 

### shipment. In this case it was Nu Fashion we 4 determined that prepared and offered the 5 shipment, and if they relied on any other 6 information,

-- incorrect information. 7 Q 

### Okay. So again with the gravity 8 you're looking again, at whether it was 9 declared or undeclared? 10 A 

### Correct. 11 Q 

### You mentioned you looked at 12 whether or not it was forbidden material. 13 Talk a little bit more about that, what 14 would it mean if something was forbidden? 15 A 

### There are certain hazardous 16 materials that because of their inherent 17 risk in air transportation they are not 18 allowed by regulation to be even on an 19 airplane. And this may also be true for, 20 specifically to passenger aircraft versus 21 cargo aircraft. Certain materials that are 22 forbidden may be permitted on a cargo, but
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• 44 1 forbidden on passenger, just because of the 2 risk of life. So that would be sort of the 3 difference there between the two. Those 4 that obviously are totally forbidden in air 5 transportation and those that are forbidden 6 based on the type of mode of transportation, 7 whether it's a passenger or cargo aircraft. 8 Q 

### Okay. Well this was hairspray 9 that was offered for shipment on an aircraft 10 by Nu Fashion. You said it was forbidden, 11 so the Agency took that into account in 12 reviewing the penalty calculation, correct? 13 A 

### I'm not sure I understood,

-- 14 Q 

### I'm sorry let me withdraw that. 15 You stated already that the Agency, through 16 your review, considered whether or not the 17 materials shipped, in this case hairspray, 18 was a forbidden material? 19 A 

### I considered that, yes. 20 Q 

### All right. And what would be the 21 impact to a civil penalty calculation if a 22 material was forbidden or if it was not NEAL 

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### 1 den for shipment on air 2 

### ortation,

-- or in air transportation? 3 Woul it tend to make the penalty higher or 4 lowe 5 A 

### For forbidden material it would 6 tend to make the civil penalty higher. 7 Q 

### And in this case? 8 A 

### In this case because it was not a

10 cour e did not reflect a higher civil 11 penalty. Therefore it was not a factor that 12 

### caused the civil penalty to be increased. 13 Q 

### Okay. You talked earlier about 14 ris categories. Would that have any impact 15 on he gravity of the violations as well? 16 A 

### Yes. 17 Q 

### All right, aside from the nature 18 and extent, the circumstances, the gravity 19 of he situation, you also mentioned that 20 

### considered Nu Fashion's degree of 21 

### ability and its prior violations and 22 

### ab'lity to pay, is that correct?
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### 1 A 

### That is correct. 2 Q 

### What particular factors or 3 elements of the file came 4 into,

-- did you review with regard to those

6 A 

### Those factors regarded whether or 7 not u Fashion was the manufacturer of the 8 mate ial. Of course in this case they were 9 not he manufacturer. We also looked at the 10 

### violation history of Nu Fashion and it 11 was etermined that they had no previous 12 the hazardous material

14 Q 

### All right, let me go back to 15 

### tho elements then. No prior 16 vio ations by Nu Fashion, what impact if 17 any would that have on the computation of a 18 civ'l penalty? 19 A 

### Of course if they had prior 20 violations it could impact their 21 culpability, and therefore the civil penalty 22 

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1 Q Okay. And the fact that they had 2 no p ior violations how did that impact the 3 comp tation of the penalty? 4 A The fact that the civil penalty

6 Q Okay. You mentioned that you 7 cons dered as part of the culpability

9 actured the product that it was 10 ing for shipment. Since it did not,
-- 11 it as not the manufacturer, what impact if 12 any, did that have on the computation of the 13 14 A Because they were not the 15 facturer,

-- you would have the 16 onsibility or the knowledge of the 17 rial if having been the manufacturer. 18 they were a distributor,

-- I mean 19 a level of knowledge, a level of 20 onsibility provided whether or not they 21 ar manufacturer or any other case. 22 For example, because they, NEAL R. GROSS
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1 from what we determined, they were a 2 dist ibutorship and that they had offered 3 such materials in transportation; maybe not 4 nece sarily air, but in other modes of 5 portation, their level of knowledge 6 shou d have been at least aware of what they 7 were shipping,

-- or offering. 8 Q Aware in what sense? 9 A The risk involved and the 10 requirements for shipping,

-- or offering 11 the azardous material in transportation
. 12 Q Okay. Did you consider as part 13 of he culpability analysis whether or not

15 A Yes. 16 Q And what did your analysis 17 ind cate? 18 A According to the factors of the 19 cas we determined that Nu Fashion was the 20 off rer based on the report from the 21 Haz rdous Material Incident Report, as well 22 as he tracking documents that were depicted

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1 in photograph$, as well as their 2 se back to the FAA. 3 Okay. What did it mean that Nu
4 prepared the shipment? 5 A What that entails is boxing the 6 mate ial, putting it into a package and 7 offe ing it to a carrier, in this case UPS, 8 the documentation for tracking; those 9 1 transportation steps that reflect 10 ing the shipment in transportation. 11 Q So if the offe+er is the party 12 that in deed prepares the shipment does that 13 make them in the scheme of the 2150.3(b) 14 Ord r more or less culpable? '15 A More culpable.

16 Q And would that indicate then that 17 the sanction would tend to be higher or 18 low r based on the degree of culpability? 19 A Typically it could be higher. 20 Q Did you consider as part of the 21 ability analysis that you performed 22 her Nu Fashion was told any incorrect NEAL R. GROSS
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1 info mation or relied on information that 2 othe s provided? 3 A As far as the facts of the case 4 we d termined that that was not the case. 5 Q Okay. Expand on that a little 6 bit ore? 7 A Well as far as offering that the 8 ent,
-- whether or not they were told 9 to do or, -- it didn't affect their 10 nsibility for being trained and 11 ing that the shipment was offered 12 correctly. 13 Q All right. So your investigation 14 or eview of the facts indicated that they 15 wer not told any incorrect information by 16 one else, is that correct? 17 A That is correct. 18 Q If they had been given 19 mis nformation would that have played an

21 A That could be an area of 22 mit'gation perhaps
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1 Q 

### Okay. But that was not the facts 2 that you found in this case? 3 A That's correct. 4 Q 

### You also mentioned that you 5 cons'dered, did you take into account 6 mation that was provided by Nu Fashion 7 in i s response? 8 A 

### Yes. 9 

### MS. TOWNSEND: May I approach, 10 your Honor? 11 

### JUDGE GOODWIN: Yes
. 12 

### MS. TOWNSEND: Mr. Schaufler, 13 I'v handed you what has been marked as 14 Age cy Exhibit 4. 15 [The document referred to 16 was marked for identification 17 as Agency's Exhibit 4.] 18 BY MS. TOWNSEND: 19 Q 

### If you would take a look at it 20 and identify it if you can please? 21 A 

### Yes, this is the letter of 22 res onse that was submitted by the Nu
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1 

### Fash on Beauty Supply Distributors dated 2 

### Fe 25, 2011. 3 

### Okay. And with regard to 4 

### ility, and prior violations, and 5 

### ty to pay, was this one of the 6 

### ts that you reviewed? 7 A 

### Yes, it was. 8 

### MS. TOWNSEND: Okay. Your Honor, 9 

### e that Agency Exhibit 4 be entered into 10 nee. 11 

### MR. SCHOCK: No objection. 12 JUDGE GOODWIN: Agency 4 for 13 ide tification is received into evidence as 14 Age 15 [The document referred to 16 was admitted into evidence 17 as Agency's Exhibit 4.] 18 BY MS. TOWNSEND: 19 Q 

### With regard to Nu Fashion's 20 abi ity to pay any civil penalty did you 21 tak that into account? 22 A 

### Yes, we did
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1 Q And how did you take that into 2 ace t? 3 A As part of the case we obtained a 4 Dunn 

### & Bradstreet Business Statement. 5 MS. TOWNSEND: Permission to 6 app ch, your Honor? 7 JUDGE GOODWIN: Yes. 8 MS. TOWNSEND: I've handed you 9 wha has been marked as Agency Exhibit 5. 10 [The document referred to 11 was marked for identification 12 as Agency's Exhibit 5.] 13 BY MS. TOWNSEND: 14 Q Would you please review that and 15 tify it for the Court if you can? 16 A Yes, this is the Dunn 

### & 17 Br street Report that we obtained as an 18 exh bit in the case. 19 Q And what types of things do you 20 ew the Dunn 

### & Bradstreet for? 21 MR. SCHOCK: Your Honor, I'm 22 g to object. The exhibit has not yet
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### 1 been admitted and I will object to the 2 

### exhi So I'm going to ask that the Court 3 

### it be offered before he begins 4 

### the document. 5 

### JUDGE GOODWIN: I'm going to 6 

### sust the objection at this time. Did you 7 want to voir dire on this or do you want to 8 just have a standing objection? 9 

### MR. SCHOCK: Well your Honor what 10 I'm sking is 11 that,

-- he has identified the document and 12 

### I believe the question that counsel asked 13 was a question related to his review of the 14 doc ment for the Court. What I'm asking is 15 tha before any such question be allowed 16 tha the exhibit be offered into evidence 17 and I be allowed to be heard on its 18 adm ssibility. 19 

### JUDGE GOODWIN: Okay. So at this 20 

### t the objection is sustained. 21 

### MS. TOWNSEND: All right. Your 22 

### you've sustained the objection
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### 1 admissibility of evidence? 2 

### JUDGE GOODWIN: No. All I'm 3 

### sayi is I'm sustaining his objection as to 4 the 5 

### MS. TOWNSEND: Okay. 6 

### JUDGE GOODWIN: He objected to 7 your question. 8 

### MS. TOWNSEND: All right. Your 9 

### , I move that Agency Exhibit 5, which 10 has een identified by Mr. Schaufler, as the 11 Dunn & 

### Bradstreet he reviewed be entered 12 

### into evidence. 13 

### MR. SCHOCK: Objection your 14 Hon r, hearsay. 15 

### JUDGE GOODWIN: I agree it's 16 hea say, however there's a long history of 17 s in these administrative cases allowing 18 admission of things which you and I in a 19 al court would clearly agree is hearsay. 20 It ertainly goes to weight. 21 22 

### MS. TOWNSEND: Your Honor, I'm also offering this for the purpose of

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### 1 showi g one of these considerations that the 2 Agency took into account and the document 3 they used to consider. That is the purpose 4 for he offer. 5 

### JUDGE GOODWIN: Well I understand 6 that, but, 7 

### MS. TOWNSEND: You're correct, it 8 goes to weight, but it is, 9 

### JUDGE GOODWIN: Well if I admit 10 it h s objection is going to go to weight 11 and unn & Bradstreet is sufficiently well 12 that we can take judicial knowledge of 13 

### reports. The question is what is the 14 

### nism by which Dunn & 

### Bradstreet gathers 15 

### the information? It's clearly hearsay. I 

### 16 will allow its admission for the limited 17 pur ose of the fact that it was considered 18 in he deliberations on setting the penalty, 19 but I'm going to allow counsel extensive 20 lat"tude in cross examination on the 21 exh bit. So it is admissible, but the Court 22 not s that it is hearsay, and based on NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com (202) 34-4433

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1 hearsay. The weight that the Court 2 to give to this is not going to be 3 It is a part of the analysis of the 4 FAA' case in determining penalty, but the 5 pena Court ultimately assesses is not 6 to be based on this document.
7 [The document referred to 8 was admitted into evidence 9 as Agency's Exhibit 5.] 10 MS. TOWNSEND: Thank you, your 11 Hono
. 12 JUDGE GOODWIN: So let's move on. 13 MS. TOWNSEND: All right. 14 BY MS. TOWNSEND: 15 Q Well Mr. Schaufler, your analysis 16 of u Fashion's inability to pay, -- when 17 reviewed the sanction proposed, did you 18 fro any source come to learn of any factor 19 tha would bear negatively on Nu Fashion's 20 abi ity to pay? 21 A At the time of my review no there 22 was not any other source that we considered.

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1 Q 

### Okay. You mentioned earlier 2 also, that in your review of the sanction 3 for u Fashion mitigating or aggravating 4 fact Did the Agency consider whether in

7 eire mstances more or less worse? 8 A 

### Yes, we do consider if there were 9 any ggravating circumstances. 10 Q 

### Did you in this case find that 11 

### were any circumstances that under the 12 

### y's sanctions guidance that were 13 aggravating? 14 A 

### No, we did not. 15 Q 

### All right. If you had found that 16 the e were aggravating factors present what 17 if ny impact would that have had on the 18 amo nt of the civil penalty under the 19 san tion guidance table? 20 

### MR. SCHOCK: Objection, your 21 

### relevancy. There were no mitigating 22 ors, -- NEAL R. GROSS (202) 34-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com

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1 

### JUDGE GOODWIN: Sustained. 2 

### MR. SCHOCK: it's already 3 admitted, so the question has no bearing. 4 

### JUDGE GOODWIN: Sustained. 5 

### MS. TOWNSEND: All right. 6 

### BY MS. TOWNSEND: 7 Q 

### Did you consider whether or not 8 the ctions and the circumstances of this 9 case from Nu Fashion, whether there was an 10 elem nt of intent? 11 A 

### Yes, we did consider that. 12 Q 

### Did you find that there was any 13 inte t on the part of Nu Fashion to violate 14 the federal regulations, 15 A 

### No, there was not. 16 Q 

### with regards to hazardous 17 com odities? 18 A 

### No, there was not. 19 Q 

### Did the Agency through our review 20 21 22 

### ider in the civil penalty calculation her there were any mitigating factors in Nu ashion's case?

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1 A Yes, we did. 2 Q And what factors did you find to 3 be mitigating? 4 A I think the best way that I can 5 expl in that, if I'm allowed to refer to the 6 Appe C, Figure C-1. 7 Q Okay. Is that Agency Exhibit 1? 8 A Yes. 9 Q Oh okay. And what part of Agency 10 Exhi it 1 are you referring to? 11 A That would be Figure C-1 on page 12 C-12 13 Q Okay. All right, what about this 14 e indicates mitigating circumstances or 15 its mpact on sanctions? 16 A The best way I can explain this 17 on use this particular matrix if I 18 and,

-- as we know,

-- as I 19 tes ified earlier that the shipment, the 20 pro er classification according to the 21 reg lations is an aerosol Class 2.1 22 fla Had Nu Fashion properly
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### 1 offer d the shipment the requirements would 2 have required proper shipping papers, 3 labels, markings, packaging, training as a 4 requ'rement, as well as emergency response 5 

### info Therefore there would have 6 been six requirements or categories that was 7 requ red to properly offer the shipment. 8 In regards to mitigation and 9 look ng at the facts of the case, we took a 10 look at the offense categories based on that 11 the hipment was offered as an undeclared 12 

### ent, which brings us to column 2 of the 13 

### se category, 14 Q 

### Column 2 or Roman Numeral II? 15 A 

### Sorry Roman Numeral II. 16 Q 

### Okay, Roman Numeral II under the 17 off nse category, that's on the left side of 18 the matrix? 19 A 

### That's correct. 20 Q 

### Okay. 21 A 

### And as I testified earlier the 22 qua tity limits for that shipment was within
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### So 1 antity limits of the regulations.

4 section. 5 Q 

### So it's an undeclared shipment

7 

### of H 8 A 

### That is correct. 9 Q 

### Okay. 10 A 

### All right. And on the top line 11 ther looking at the different types of 12 enti ies where you have an individual 13 busi ess entity, Row C, a business entity 14 that uses or handles Haz-Mat in the course 15 of**~** 

### s business or Row D, a business entity 16 that regularly offers, accepts or transports 17 

### dous material. And then we take the 18 section, and that's the range of civil 19 penalty that we would end up. 20 Q 

### So you're intersecting the 21 off category, Roman Numeral II with the 22 col mn D you said?
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1 A That's correct. 2 Q And what is (D)? 3 A (D) is a business entity that 4 regularly offers, accepts or transports 5 haza material. In this case Nu Fashion 6 we d termined that they regularly offer a 7 haza material in transportation. 8 Q All right. 9 A Now in saying that as far as 10 miti ation is concerned the 2150.3(b) 11 Appe dix C permits as mitigation if the 12 mate ial can be reclassified as a consumer 13 comm dity it can be considered mitigation. 14 Q What does that mean? 15 A That means that the aerosol is a 16 nal item and sold as a consumer item 17 fore the risk is, it goes from a
19 risk. 20 Q Let me make sure I understand. 21 You said this is an aerosol,

-- the consumer 22 com odity is an aerosol?
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• 1 A The hairspray the proper 2 clas ification according to the Material 3 Safe y Data Sheet is an aerosol which is a 4 Clas 2.1 flammable gas. There are certain 5 leni or areas in the 6 that you can reclassify a 7 ' based on other factors. In this 8 case quantity, as well as if it's a 9 item that can be used as a consumer 10 then it can be reclassified as a 11 commodity. 12 Oh. So since this was hairspray 13 this mitigating factor allows it under the 14 matrix to be reclassified because of the 15 amount as a consumer commodity? 16 A That is correct. 17 Q For purposes of sanction 18 determination? 19 A That is correct. 20 Q Okay. 21 A So in that regard to reclassify 22 it as a consumer commodity then the

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### 1 requirements in the regulation only require 2 Nu Fashion to offer it as, -- to have 3 shipping papers, markings and of course, 4 training. 5 Q 

### Now where are you looking at to 6 find that information on the matrix? 7 A 

### That's also in Roman Numeral II, 8 in the same section there. 9 Q 

### Okay. So just so I'm clear, if 10 this was an aerosol under category Roman 11 Numeral II, undeclared shipment within Haz12 Mat quantity limitation, I see eight items 13 marked. As an aerosol which of these would 14 pertain to an aerosol? 15 A 

### The first six,

-- one through 16 six; shipping papers, labeling, markings, 17 packaging and training in emergency 18 response. 19 Q 

### Okay. And what do these mean? 20 Are these violation categories you're 21 saying? 22 A 

### These are violation categories,
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### correct. 2 Q 

### So as an aerosol the first six 3 would apply? 4 A 

### That is correct. 5 Q 

### Or you would have six types of 6 violations that would apply, is that 7 correct? 8 A 

### That's correct. 9 Q 

### With this reclassification though 10 to a consumer commodity what was the impact? 11 

### A It significantly lowered the 12 

### civil penalty and only required a minimum of 13 three requirements. Like I said, shipping 14 papers, markings and training. 15 Q 

### Okay. So by mitigating this and 16 calling this aerosol, a flammable gas, by 17 calling it a commodity then there were fewer 18 of these violation categories now 19 applicable, is that correct? 20 A 

### That is correct. 21 Q 

### And what would be the impact if 22 

### any, to calculation of the sanction by those
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1 

### mitigating factors? 2 A 

### It would significantly reduce it 3 down again, within the range of,

-- the 4 sanction amount would significantly drop it 5 down to a minimum civil penalty. 6 Q 

### Okay. So for an example, 7 shipping paper number one, you're saying 8 shipping papers, markings and training would 9 be the violation categories applicable as a 10 consumer commodity? 11 A 

### That is correct. 12 Q 

### All right. If you take us over 13 then at the intersection of Roman Numeral II 14 and Column D, business entity that regularly 15 offers, accepts or transports Haz-Mat where 16 does that take us? What is the range shown 17 there in terms of dollars for violations in 18 the shipping paper category? 19 A 

### The range would be from five 20 thousand to thirteen thousand. 21 Q 

### Okay. And was Nu Fashion's civil 22 

### penalty within that range?
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• 68 1 A Yes, it was. 2 Q What about markings, Item 3 under 3 category two. Going across what is the 4 range there that's shown? 5 A Five thousand to thirteen 6 thousand. 7 Q Okay. And what about training, 8 what is the range there for CP shown? 9 A From five thousand to thirteen 10 thousand. 11 Q Okay. So what again was the 12 impact then from this chart for mitigation? 13 A It lowered the potential civil 14 penalty to the lowest level possible 15 according to the guidance of 2150.3(b) 16 Appendix C. 17 Q Okay. So the Agency's review 18 took into account all the mitigating 19 factors. Did you find any other mitigating 20 factor present besides the reclassification 21 of the hairspray from an aerosol to a 22 consumer commodity,

-- were there any other
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### 1 mitigating factors besides that? 2 A 

### No, there was not. 3 Q 

### Were there any other factors that 4 the Agency took into account with regard to 5 the appropriateness of the civil penalty? 6 A 

### No, there was nothing else. 7 

### MS. TOWNSEND: All right. No 8 further questions of this witness your 9 Honor. 10 

### JUDGE GOODWIN: Counsel, you may 11 inquire
. 12 MR. SCHOCK: Thank you, your 13 Honor. Mr. Schaufler**~'m** 

### Bevis Schock and I 14 represent Nu Fashion. We met for a moment 15 on the way in, right? 16 

### THE WITNESS: Sure. 17 

### MR. SCHOCK: Okay. 18 

### CROSS EXAMINATION 19 

### BY MR. SCHOCK: 20 Q 

### In Exhibit 1 there is several 21 items I want to draw your attention to make 22 

### sure I understand this. The first one is on
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### page C-2, the bottom paragraph, which is 2 number 3 . Are you with me there? 3 A Yes. 4 Q 

### And about halfway down that 5 paragraph I'm going to read a sentence to 6 

### you. It says "A sanction may differ from 7 

### the specified matrix ranges when the facts 8 

### and circumstances of a case support either a 9 greater or lesser penalty. " Do you 10 understand that? 11 A 

### Yes, I do. 12 Q 

### And basically that turns Figure 13 Sheet 1 into a guide for the Court, but the 14 Court has discretion here, right? 15 

### MS. TOWNSEND: Objection, that 16 calls for a legal interpretation. 17 

### JUDGE GOODWIN: Overruled. 18 

### MR. SCHOCK: Could you please 19 answer? 20 THE WITNESS: Could you repeat 21 your question please sir? 22 MR. SCHOCK: Sure
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1 

### BY MR. SCHOCK: 2 Q 

### Does the Court, under the 3 regulation that has been admitted, this 4 exhibit, does the Court have discretion? 5 A 

### I believe so, yes. 6 Q 

### Okay. The Court does not have to 7 

### apply any specific penalty, right? 8 A 

### (No audible response) 9 Q 

### Okay, that's the first thing. 10 JUDGE GOODWIN: You have to say 11 yes or no. 12 THE WITNESS: Oh, yes. 13 

### JUDGE GOODWIN: Because if you 14 nod your head the court reporter does not 15 know what's going on. 16 THE WITNESS: Right. Sorry. 17 

### BY MR. SCHOCK: 18 Q 

### And on page C-4; and I'll wait 19 until you get there, 6-D in about the middle 20 of the page it says "Evaluation of the case 21 1s based on the totality of facts and 22 

### circumstances," right?
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1 A That's correct. 2 Q And that is what you want to 3 happen here today, right? 4 A Correct. 5 MS. TOWNSEND: Objection. 6 JUDGE GOODWIN: Overruled. 7 BY MR. SCHOCK: 8 Q Now, in your testimony you talked 9 about reliance on others and you said there 10 was none, is that right? 11 A That is correct. 12 Q Now Exhibit 4 is a letter from 13 Mr. Chyu, the gentleman on my left, and you 14 reviewed that and considered that, is that 15 right? 16 A That is correct. 17 Q And in that letter there 1s an 18 indication that Mr. Chyu actually asked the 19 UPS man for help in how to package, 20 excuse me, particularly how to mark it, 21 right? 22 A (No audible response)
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• 73 1 Q You can go to Exhibit 4 if you'd 2 like, I'll wait for a moment. 3 A Can you restate,
-- 4 Q Well I'll just read the sentence 5 from Exhibit 4. "Our UPS driver can even 6 contest that we needed his help to print 7 invoices that are required to accompany 8 international shipments". So he indicated; 9 he being Mr. Chyu, that they needed help 10 with this, right? 11 A (No audible response) 12 Q In that letter,

-- isn't that 13 what the letter says? 14 A As far as it requires printing 15 invoices. 16 Q Yeah, but they asked for help, 17 right? 18 A That's what it says in the 19 letter, yes. 20 Q Did you accept that as true? 21 A If it's in the letter then yes. 22 Q And that's inconsistent with the
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### 1 idea that they didn't get any outside help 2 

### at all, I mean they asked for some outside 3 

### help, right? 4 

### MS. TOWNSEND: Objection. Your 5 

### Honor, I think counsel has misstated Mr. 6 Schaufler's earlier testimony. Mr. 7 Schaufler testified that he took into 8 consideration whether or not Nu Fashion got 9 incorrect information from a third party 10 regarding the shipment. That was the 11 testimony
. 12 

### JUDGE GOODWIN: Well his 13 testimony will stand, the objection's 14 overruled. 15 BY MR. SCHOCK: 16 Q 

### Now you testified that there was 17 no intent whatsoever to violate the laws of 18 this country regarding safety and the 19 transportation of hazardous material? 20 A 

### That is correct. 21 Q 

### And is it also true that Mr. Chyu 22 

### and Nu Fashion have been completely
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### compliant with all your requests in this 2 case and have taken the matter seriously? 3 A 

### To the best of our knowledge, 4 yes. 5 Q 

### And he has indicated that 6 basically this was a mistake, right? 7 A 

### Correct. 8 Q 

### And the product is not forbidden, 9 right? 10 A 

### That's correct. 11 Q 

### It never got on the airplane, 12 right? 13 A 

### That is correct. 14 Q 

### And as we look at Exhibit 2; and 15 I'd ask you to go with me to Exhibit 2, we 16 look through some of these boxes and their 17 checks in Number 20 it was not shipped as 18 hazardous waste, right? 19 A 

### That is correct. 20 Q 

### And of course Number 21, it 21 wasn't toxic by inhalation, right? 22 A 

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• 76 1 Q It was hairspray. It was 2 designed to be sprayed at the head, right? 3 A (No audible response) 4 Q And if you go to page 3 it says 5 at Number 32, 11Was the total damage more 6 than $500.00, 11 the answer was no, right? 7 A That is correct. 8 Q And in fact there was no damage 9 whatsoever from this, is that true? 10 A That is correct. 11 Q Obviously Number 33, no 12 fatalities, there was no damage whatsoever, 13 correct? 14 A That is correct. 15 Q And in Number 35 there was no 16 evacuation, right? 17 A That is correct. 18 Q The UPS people took the box aside 19 and said hey, we can't ship this and then 20 took a few pictures, right? 21 A Correct. 22 Q Number 36, there was no
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1 transportation artery or facility closed, 2 correct? 3 A That's correct. 4 Q No derailment or crash, right? 5 A Correct. 6 Q You have reclassified this as a 7 (C) from an (A), right? 8 A That is correct. 9 Q And you interpret the Respondent 10 as a small business, right? 11 A Yes
. 12 Q There is no history of any 13 violations here, right? 14 A We did not find any, no. 15 MR. SCHOCK: Nothing further, 16 your Honor. 17 JUDGE GOODWIN: Redirect. 18 REDIRECT EXAMINATION 19 BY MS. TOWNSEND: 20 Q Mr. Schaufler, let's go back to 21 this issue of reliance on third parties. 22 You said you considered already in the
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1 sanction that is before the Court whether or 2 not there was reliance by Nu Fashion on 3 incorrect information from third parties, 1s 4 that correct? 5 A That was correct. 6 Q All right. So even if,

-- when 7 you look at Agency Exhibit 4, they were 8 asked to help to print invoices, to your 9 knowledge that was not any incorrect 10 information,

-- they weren't given any 11 incorrect information were they? 12 A That is correct. 13 Q And is an offerer held 14 responsible for compliance with the Haz-Mat 15 regulations? 16 A Yes. 17 Q Okay. Does it matter that the 18 offerer has never, prior to the current 19 shipment or package they're offering, ever 20 presented a package for shipment before 21 under the Haz-Mat regulations,

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1 A 

### No. 2 Q 

### But did you take that into 3 account that they had no prior violation 4 history? 5 A 

### Yes. 6 Q 

### Okay. I'm going to switch gears 7 here, let me go back to the responsibility 8 issue. Look at Agency 4 Exhibit, does Nu 9 Fashion discuss that they previously shipped 10 by any other means? 11 

### MR. SCHOCK: Objection your 12 Honor, it exceeds the scope of cross. 13 

### JUDGE GOODWIN: Sustained. 14 

### MS. TOWNSEND: Your Honor, this 15 is in the record already. 16 

### JUDGE GOODWIN: It's beyond the**1~** 

### scope of cross. 18 BY MS. TOWNSEND: 19 Q 

### Did you consider in your review 20 that led to,
-- well, did you consider in 21 your review of the penalty proposed that 22 

### there was intent on the part of Nu Fashion
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1 

### to violate the regulation? 2 A 

### Yes, we did consider that. 3 Q 

### So the civil penalty proposed 4 already takes that into account? 5 A 

### That is correct. 6 Q 

### Is there any allowance in the 7 2150.3(b) guidance for a mistake? 8 A 

### No, there is not. 9 

### MR. SCHOCK: Objection your 10 Honor, it exceeds the scope of cross. 11 JUDGE GOODWIN: Sustained. 12 MR. SCHOCK: I would ask to 13 strike. 14 

### MS. TOWNSEND: Your Honor, he 15 raised the issue of mistake. 16 

### JUDGE GOODWIN: It's sustained, 17 but I was going to comment on the move to 18 strike. Counsel obviously goes back as far 19 as I do where the court reporter actually 20 used to be able to go through with a pencil 21 and strike through. The problem with 22 

### digital and tape recorders is nobody in my
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1 

### recollection has ever figured out how to do 2 that, but I understand the objection. The 3 objection is sustained. The advantage of 4 having a Court trial is if I sustain the 5 objection I don't consider it. 6 

### MR. SCHOCK: That's all I'm 7 asking. 8 

### JUDGE GOODWIN: But as you and I 9 know if we had a jury a motion to strike 10 immediately underlines the testimony which 11 

### the jury will then read twice, as opposed to 12 

### once, because we tried to strike it, but 13 that's the problems with litigation. 14 

### MR. SCHOCK: We're not going for 15 a mistrial on that one, your Honor. 16 

### JUDGE GOODWIN: Okay. 17 

### MS. TOWNSEND: May I proceed, 18 your Honor? 19 

### JUDGE GOODWIN: Yes. 20 

### BY MS. TOWNSEND: 21 Q 

### Mr. Schaufler, in your analysis 22 of the case you talked about reviewing the
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1 

### documents and factors that bore upon 2 circumstances and facts and the nature. Did 3 that analysis include whether or not the 4 package offered by Nu Fashion caused damage 5 to others, either persons or property? 6 A 

### Yes, we did. 7 Q 

### So the CP that you reviewed 8 already considered that factor? 9 A 

### That is correct. 10 Q 

### Did your analysis under the 11 2150.3(b), Appendix 

### C, also take into 12 account the fact that the item was offered 13 for shipment, but never actually made its 14 way on an aircraft? 15 A 

### Typically if it did then that 16 would probably raise the level of risk. 17 Regardless, once a package is offered in 18 transportation it is considered in air 19 transportation whether it makes it on an 20 airplane or not. 21 MS. TOWNSEND: Okay. No more 22 questions, your Honor
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### 1 JUDGE GOODWIN: Any further 2 questions of this witness? 3 

### MS. TOWNSEND: Not at this time. 4 

### MR. SCHOCK: No, your Honor. 5 

### JUDGE GOODWIN: Okay, you can 6 step down. I am going to instruct you not 7 to discuss your testimony with anyone prior 8 to the conclusion of the hearing. 9 

### THE WITNESS: Yes sir. 10 JUDGE GOODWIN: Does the FAA have 11 any additional witnesses? 12 

### MS. TOWNSEND: We rest our case 13 in chief, your Honor. 14 

### JUDGE GOODWIN: Counsel, do you 15 want to be heard? Do you have any evidence 16 you want to present or, 17 

### MR. SCHOCK: Your Honor no 18 evidence. 19 

### JUDGE GOODWIN: Okay. So then 20 the Respondent would rest at this point? 21 

### MR. SCHOCK: Yes, your Honor. 22 JUDGE GOODWIN: Now it's 10:30,
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1 

### the Court is going to consider the position 2 of the parties and the fact that Respondent 3 has admitted to the penalties and consider 4 the evidence that we've heard. Do counsel 5 want the opportunity to brief the issues in 6 this case? I mean the Court can issue an 7 opinion based on what it has, but I'm one of 8 these people that if you would like the 9 opportunity to be heard we can set up a 10 schedule. 11 

### MR. SCHOCK: Your Honor, if I may 12 just back up. The Court made a statement 13 that may have been inadvertent, that the 14 Respondent had consented to the penalty. We 15 do not consent to the penalty. 16 

### JUDGE GOODWIN: You admitted to 17 the facts? 18 

### MR. SCHOCK: Right, the facts. 19 

### JUDGE GOODWIN: The Court 20 understands that we are here over the 21 penalty. 22 MR. SCHOCK: Right. Okay, thank
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### 1 you. And I think it was a misstatement and 2 I just wanted to correct it. 3 

### JUDGE GOODWIN: Yeah right. Well 4 sometimes the Court does not hear what it 5 says. 6 

### MR. SCHOCK: But the Respondent 7 has no need to submit additional briefing. 8 I think the summary judgment documents lay 9 out the facts. We have certainly flushed 10 them out today sufficiently from the 11 perspective of the Respondent. To save the 12 Court's resources in having to read a lot of 13 papers it's all right here. We've heard the 14 testimony and that's all I needed to do, but 15 if opposing counsel wants to though I may 16 look for an opportunity to respond. 17 

### JUDGE GOODWIN: Well that may be 18 your mistrial, counsel. 19 

### MS. TOWNSEND: Yeah, I would like 20 the opportunity to offer written brief, your' 21 Honor. 22

(202) 234-4433 

### JUDGE GOODWIN: Okay. The
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1 

### transcript will probably be ready in about 2 two to three weeks,

-- let me look at my 3 calendar and figure out where I am. It's 4 the nineteenth; I'm not going to make 5 anybody work over the 4th of July week. 6 

### MS. TOWNSEND: Thank you. 7 

### JUDGE GOODWIN: I am going to 8 assume that the transcript,

-- when do you 9 

### have to, to the court reporter, when do 10 you have to,
-- 11 THE COURT REPORTER: I think they 12 gave me until after the Fourth, I think it's 13 the ninth. 14 JUDGE GOODWIN: Oh, you've got 15 the ninth? 16 

### THE COURT REPORTER: I think so. 17 JUDGE GOODWIN: Well there is no 18 sense in setting a briefing schedule up 19 before that. Why don't we do this, I'll do 20 a subsequent order, but at this point the 21 FAA will submit any brief on or before July 22 27th. Respondent do you need a week or two
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1 

### weeks? 2 

### MR. SCHOCK: Your Honor, I would 3 like two weeks. And I just want to note, I 4 do have some vacation in there. I have to 5 take my son to play water polo in 6 California. I have to take my daughter to 7 college who is a freshman, so. 8 JUDGE GOODWIN: He is not going 9 to USC is he? 10 

### MR. SCHOCK: I wish he were. 11 

### JUDGE GOODWIN: Well, if he's 12 going to USC you're going to get one day. 13 

### MR. SCHOCK: Oh,

-- 14 

### JUDGE GOODWIN: My wife went to 15 UCLA, so, 16 

### MR. SCHOCK:

-- oh dear. We're 17 actually going to San Francisco to play 18 water polo there. 19 

### JUDGE GOODWIN: Oh, that's okay 20 then. Let's do this, I'm going to give you 21 until August lOth, and then any rebuttal 22 

### would be due the seventeenth.
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### 1 Now, having said that, if either 2 one of you run into a scheduling problem, 3 vacation or something like that, talk among 4 yourselves and if you can agree on an 5 extension send me an email,

-- or send it to 6 Mr. Ligowitt's (phonetic), and we'll bump it 7 out. You know I know that we all have 8 families, we all have young ones, and we 9 want to spend as much time as we can with 10 the young ones while they are still young. 11 In my case my youngest is thirty, so. Yes
. 12 MR. SCHOCK: I just want to put 13 on the record your Honor, that Ms. Townsend 14 has been a pleasure to work with in this 15 matter. She has been extremely courteous 16 and professional and from one lawyer to 17 another, I appreciate that,

-- 18 

### MS. TOWNSEND: Thank you, same 19 here,

-- same here. 20 

### JUDGE GOODWIN: Well it's been a 21 pleasure counsel. As those of us who have 22 tried cases know it is never easy and I
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1 

### appreciate the Respondent being forthright 2 and stepping up. So what we will do is some 3 time after the seventeenth of August I will 4 1ssue an opinion. 5 Okay, anything further on this 6 matter? 7 

### MS. TOWNSEND: No thank you, your 8 Honor. 9 

### MR. SCHOCK: No, your Honor. 10 

### JUDGE GOODWIN: Okay, then we'll 11 

### go off the record and I thank both counsel
. 12 

### [Whereupon, at 10:30 

### a.m. the 13 

### hearing was adjourned.] 14 15 16 17 18 19 20 21 

### 22 NEAL R. GROSS (202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.comPage 90 

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# • 5 535:2 53:9,1255:9

57:9 5062:11 513:16 523:16 533:17 573:17 5800.131:1832:19 6 63:4 6-D71:19 63102 1:12 631052:21 641062:12 6534:3 693:7 7 721-16982:22 773:7 77772:20 

# • 8 8162:13 9 93:5 9.1701:10 9:00 1:16 9:054:2 9012:11

Neal R. Gross & Co., Inc. 202-234-4433 Page 100

# •

•

• C E R T I F I C A T E
This is to certify that the foregoing transcript

In the matter of: Nu Fashion Beauty Supply Distributors Before: US DOT

Date: 06-19-12
Place: St. Louis, MO 101

was duly recorded and accurately transcribed under my direction; further, that said transcript is a true and accurate record of the proceedings.

(202)234-4433 

### ----------------------- Court Reporter

NEAL R. GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODE ISLANDAVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com