SERVED: November 6, 2013 

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U.S. DEPARTMENT OF TRANSPORTATION 

OFFICE OF HEARINGS 

WASHINGTON, DC - j ~, 4 I 

In The Matter Of: 

NOUVEAU LAB ORA TORIES, LLC 

d/b/a COVERMARK USA 

Respondent 

) 

) 

) 

) 

) 

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Docket No. FAA-2011-0488 

Case No. 2010S07000318 

INITIAL DECISION OF U.S. ADMINISTRATIVE LAW JUDGE 

Held: 

1) The Respondent committed a total of 18 (eighteen) HMRs violations, as alleged in the 

FAA's June 3, 2011 Complaint. 

2) The Respondent is assessed a total civil penalty of $10,000 for the 18 (eighteen) 

violations. 

Brief Summary of Case Facts 

On or about April23, 2010, the Respondent offered to the United Parcel Service ("UPS") 

for transportation by air, a one-piece shipment containing an eight ounce container of CM 

Beauty Super Clean Toner ("Beauty Toner"). This Beauty Toner is classified by the Hazardous 

Matenal Regulations ("HMRs"), 49 C.P.R., Subchapter C, as a hazardous material. Its proper 

shipping name is Ethanol Solution. It is a flammable liquid classified by the HMRs as Hazard 

Class 3 (Flammable Liquid) with an identification number ofUN1170. 

When the Respondent offered the one-piece shipment of Beauty Toner to UPS on or 

about April23, 2010, it did so without properly marking, labeling, or packaging the material as 

required under the HMRs. The Respondent also failed to include the proper shipping papers or 

provide the necessary emergency response information. In addition, the Respondent had also 

failed, as of Apri123, 2010, to properly train its employees who handled hazardous materials. 

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Brief Summary of Litigation Proceedings 

On June 3, 2011, the Federal Aviation Administration ("FAA") served a Complaint upon 

the Respondent, Nouveau Laboratories, LLC d/b/a/ Covermark USA ("Respondent") charging it 

with 18 (eighteen) violations 1 of the HMRs, alleged to have occurred on or about April 23, 2010. 

Pursuant to 49 U.S.C. § 5123(a), the FAA sought a total civil penalty of $10,000 for those 18 

HMR violations. 

On June 22, 2011, the FAA filed its Complaint, with the Respondent's Request for a 

Hearing, with the Office of Hearings. 

On April2, 2012, an Order Deeming Allegations of Safety Violation Admitted and 

Granting/Denying Other Relief was issued. This Order found that the Respondent had violated 

the 18 (eighteen) charged HMRs as alleged, but that genuine issues of material fact remained 

regarding the FAA's proposed $10,000 civil penalty. 

On October 31, 2012, the FAA filed the Complainant's Motion for Decision ("Motion"), 

arguing that no genuine issue of material fact remained regarding the proposed $10,000 civil 

penalty. As part of this Motion, the FAA filed Exhibit Nos. 1, 2, and 3, which were considered, 

without objection, as part ofthe FAA's Motion. (12/11/13 Tr. 7.) On November 7, 2012, the 

Respondent filed an Answer to Complainant's Motion for Decision ("Answer"). 

On December 13,2012, an Order Denying Summary Judgment [on proposed civil 

penalty], Granting Joint Motion for Decision on the Written Record, and Granting/Denying 

Other Relief was issued. This Order found that genuine issues of material fact remained 

regarding the civil penalty. It also granted the parties' Joint Motion for decision based on the 

written record, made during oral argument presented on December 11,2012. As part of this 

Joint Motion, the parties agreed to the admission ofthe FAA's Exhibits 1, 2, and 3 as the 

evidentiary record for determining the civil penalty. 2 Both parties declined to submit further 

evidence. (12/11/12 Tr. 59:11-60:21.) 

1 The Complaint charged the Respondent with violating the following 49 C.F.R. sections: a) 171.2(e); b) 172.200(a) 

and 172.202(a)(l ); c) 172.200(a) and 172.202(a)(2); d) 172.200(a) and 172.202(a)(3); e) 172.200(a) and 

172.202(a)( 4); f) 172.200(a) and 172.202(a)(6); g) 172.200(a) and 172.202(a)(7); h) 172.204(a) or (c)( 1 ); i) 

172.204(c)(2);j) 172.204(c)(3); k) 172.30l(a); I) 172.300(a) and 172.312(a)(2); m) 172.400(a); n) 172.600(c)(l); o) 

172.600(c)(2); p) 172.702(a); q) l73.24(b)(l); and r) t73.24(t)(l). 

2 12/13/12 Order Denying Summary Judgment [on proposed civil penalty], Granting Joint Motion for Decision on 

the Written Record, and Granting/Denying Other Relief (page 7, paragraphs 2 and 3 ). 

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On January 17, 2013, the parties appeared by telephone and presented oral arguments on 

the disputed issue of the proposed civil penalty, based on the admitted evidentiary record. 

Legal Standard 

Determining an appropriate civil penalty requires the consideration of nine factors: the 

(1) nature, (2) circumstances, (3) extent, and (4) gravity, ofthe violation; (5) the degree of 

culpability of the violator; (6) any history of past violations; the violator's (7) ability to pay, and 

(8) ability to continue to do business; and (9) other matters as justice may require. 49 U.S.C. § 

5123( c) (2006). 

The FAA has the burden of proving the first five factors. The FAA has established 

policy guidance for determining these five factors and assigning them weight. 64 Fed. Reg. 

19443 (Apr. 21, 1999); FAA Order 2150.3B, Appendix C, FAA Sanction Guidance, Hazardous 

Materials Enforcement (October 1, 2007). A penalty calculated in accordance with the FAA's 

policy guidance should stand, absent a showing of the Respondent's inability to pay, inability to 

continue to do business, or some other matter required by justice. See In re Villamos Tabula, 

FAA Order No. 2010-6 (Jun. 15, 2010); In re Rushmore Helicopters, Inc., FAA Order No. 2012- · 

8 (Oct 11, 2012). Financial hardship is an affirmative defense that the respondent bears the 

burden of proving. In re TWA, FAA Order No. 1999-12(); In re Dominion Concepts, Inc., FAA 

Order No. 2005-4, 10, n. 16 (Mar. 10, 2005). 

Evidentiary and Issue Stipulations 

As previously noted, on December 11, 2012, the parties agreed to the re-admission of the 

FAA's Motion Exhibits 1, 2, and 3 to serve as the evidentiary record for determining the civil 

penalty based on written submissions. 

At the beginning of oral argument on January 17, 2013, the parties stipulated that the 

motions filed for, and oral arguments made, during the December 11, 2012 motion conference 

could be re-considered as arguments for the civil penalty decision. (1/17/13 Tr. 20: 1-22:21.) 

The parties also stipulated that the FAA had met its burden of proof in assessing the first five 

factors required under 49 U.S.C. § 5123(c). The FAA had utilized its published sanction 

guidance in calculating the proposed civil penalty. The parties stipulated that the FAA's penalty 

calculations had originally resulted in a $63,000 proposed penalty, which the FAA reduced to 

$10,000 after considering various factors. {1/17/13 Tr. 11 :6-14; 19: 1-12; 40:8-41 :9.) The issues 

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remaining were whether the Respondent had met its burden of proof in asserting the affirmative 

defense of financial hardship (i.e., its ability to pay and/or ability to continue in business), and 

whether the Respondent had taken remedial action that supported further reduction of the 

proposed penalty. (1117 /13 Tr. 16:1-19: 11.) 

Brief Highlights of the Parties' Arguments 

All arguments by both parties were considered. Only brief highlights are summarized 

here. 

1. Respondent's Affirmative Defense Arguments 

Throughout these proceedings, the Respondent has argued that given the size and type of 

the shipment involved, the FAA's proposed $10,000 civil penalty was "disproportionate to the 

violation, ignores mitigating circumstances, and would render Respondent's ability to continue 

in business difficult or impossible. (Respondent's June 8, 2011 Answer, 1.) 

The Respondent argued that even a $10,000 penalty was excessive. The proposed 

$10,000 civil penalty placed the business in peril, particularly given the small size of the 

company and its lack of assets. (1117113 Tr. 47:16-48:10.) Justice required a lower penalty, in 

order to allow the Respondent the ability to continue to do business. (Answer, 1-2.) 

The Respondent argued that the Quick Ratio, taken alone, was the best measure of the 

Respondent's business health, because it excluded inventory as an asset. Although the 

Respondent argued that its inventory was brand-name, unique, slow-moving, and of little value 

to competitors, no evidence was submitted in support of those arguments. (Answer, 3; 12/11112 

Tr. 24:1-25:16.) 

The Respondent explained that at the end of the year 2011, its financial documentation 

demonstrated that it had approximately $24,000 in assets (excluding inventory), and $58,000 in 

liabilities (excluding long term liabilities). (FAA Exh. 1at 5-7; 12/11112 Tr. 40:10-42:19.) The 

company's total liabilities were $58,000, which was more than double its total assets of $24,000. 

The proposed $10,000 civil penalty would amount to almost 50% ofthe company's total assets, 

which currently were insufficient to pay the company's outstanding liabilities. 

The Respondent also asserted it had experienced a steady, documented, decline in sales 

during the three year period from 2009-2011. (FAA Exh. 1 at 6, 9-11; 12/11/12 Tr. 44:8-45: 11.) 

In fact, the proposed $10,000 civil penalty exceeded the Respondent's total yearly profit of 

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$9,261 in the year 2011, and was almost double the amount of profit (i.e., $5,334) the company 

had realized in the year 2009. (FAA Exh. 1 at 2.) 

The Respondent recommended a further reduction of the proposed $10,000 penalty to 

$1,000 or $2,000. (Answer, 5; 1/17/13 Tr. 47:22-48:2). 

2. FAA's Responsive Arguments: 

The FAA argued that the Respondent had failed to meet its burden of proof regarding its 

inability to pay, the effect on its ability to continue to do business, and/or whether any further 

mitigation was warranted. 

The FAA argued that the Current and Quick ratio data should be considered jointly in 

reviewing the Respondent's business financial data. The Respondent's Current Ratio,3 which 

was 1.74, showed a healthy business. Even the Quick Ratio,4 which was 0.33, demonstrated that 

the business could still pay the proposed $10,000 civil penalty without going out of business or 

suffering a decrease in sales. (12/11/12 Tr. 13:1-18:4; Motion, 7.) The Respondent's inventory 

should be deemed an asset, unless there was a showing of sales decline or that the business had 

ceased. (12/11112 Tr. 12:17-16:10.) The FAA did not disagree that the Respondent's financial 

documents showed a sales decline over a recent 2-3 year period. Nevertheless, the FAA 

characterized the admitted financial documentation and the Respondent's arguments as "all 

perspective." (12/11/12 Tr. 17:15-16.) 

In the alternative, the FAA argued that even if the Respondent had met its burden of 

proof on any of the affirmative defenses or miti~ation, no further reduction was warranted from 

its proposed $10,000 civil penalty. The FAA argued that it could have proposed a much higher 

penalty, by imposing the maximum of $50,000 multiplied by each regulation listed in its 

Complaint.5 (Motion, 2-3.) 

3 A Current Ratio measures a company's ability to pay short-term obligations. It is a number reached by dividing 

the business's total current assets (i.e., inventory+ accounts receivable+ cash+ cash equivalents) by the total 

current liabilities (i.e., accruals+ accounts payable+ notes payable). 

4 A Quick Ratio measures a company's ability to pay short-term obligations without including inventory. Thus, the 

calculation is a follows: non-inventory business assets (i.e., accounts receivable+ cash+ cash equivalents) divided 

by total current liabilities (i.e., accruals + accounts payable + notes payable). 

5 Assuming that the FAA meant that it could ignore all statutory considerations and simply impose a maximum of 

$50,000 for each alleged violation, then certainly $50,000 x 18 violations would result in a higher proposed penalty 

of$900,000. 

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However~ the FAA did not do that. Instead, it assessed a total of$63,000 for the 18 

violations, after categorizing the Beauty Toner as "Category B materials," the Respondent's 

culpability as "high," and the weight of the shipment as within the "moderate range" for sanction 

purposes. (Motion, 4-5.) The moderate range was appropriate because the Respondent had 

shipped 384 Beauty Toners, each weighing 4 ounces. (Motion, 4-5; FAA Exh. 1 at 2.) 

The FAA asserted that it further decreased the amount of the penalty from a median 

penalty of$33,950 to $10,000 after giving consideration to the Respondent's attempts at 

corrective training action, and for any confusion the Respondent may have had about the 

hazardous nature of the Beauty Toner. (Motion, 2-5.) 

FAA also argued that the Respondent should be hurt by the penalty. The Respondent 

should have to show that payment of the penalty would force it to either "close its doors" or 

cause "severe business damage." (12/11112 Tr. 18:9-22.) Given the facts herein, the FAA 

asserted that it was well within the Respondent's ability to cut other business costs (e.g., 

advertising), or borrow money in order to pay the proposed fine. (12/11/12 Tr.20:4-23:11.) 

Analysis 

1. Ability to Pay - Inventory and Liquidity Ratios 

In general, a company is perceived to have financial health when it has easily convertible 

liquid assets available to cover short-term liabilities (i.e., an ability to pay its short-term debts 

and still fund continuing business operations). 

In noted above, the Respondent argued that the Quick Ratio calculation alone - which 

excluded inventory as an asset - should be utilized and deemed sufficient evidence of the 

Respondent's inability to pay the $10,000 proposed civil penalty. 

Both the Current Ratio and the Quick Ratio are liquidity ratios, which attempt to measure 

a company's ability to meet its maturing short-term obligations. Charles R. Wright, 

Understanding and Using Financial Data: An Ernst & Young Guide for Attorneys§ 8.3 (John 

Wiley & Sons, Inc., 2nd ed. 1996); (Motion, 7). In industry practice, however, the financial 

status of a company cannot be fully determined by looking at only one - or even two - liquidity 

ratios. See Wright, supra § 8.1 (the "financial diagnosis" of a company is best reached by the 

"use of a number" of different techniques). In fact, it is recommended to review multiple 

liquidity ratios (e.g., Cash Ratio+ Quick Ratio+ Dynamic Current Ratio, etc.,) as well as other 

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financial calculations (e.g., Inventory Turnover Ratio, carrying costs, etc.,) in order to obtain a 

balanced overview of a business's financial status. 

As a result, the Respondent's argument that only the Quick Ratio of0.33 should be 

utilized, and that it demonstrated that the Respondent simply did not have the ability to pay the 

proposed $10,000 civil penalty, was not persuasive. (12111112 Tr. 24:5-25:16.) In addition, the 

Respondent failed to provide specific evidentiary proof regarding its inventory and/or turnover, 

to show that its inventory was unique, slow-moving, and/or of little valueto competitors (i.e., 

could not be easily converted to cash), and should not be considered as an asset in assessing the 

Respondent's overall ability to pay a fine. 

Thus, the Respondent's ability to pay a penalty must be assessed using all available 

information; not a single liquidity ratio that excludes its primary asset. The FAA is correct in its 

argument that the Respondent failed to show that its business is in such a position that it is 

unable to sell its inventory, thereby warranting exclusion of the inventory from the Respondent's 

current assets. (12'111112 Tr.14:8-15:3, 15: 17-16:5; Motion, 8.) 

The Respondent failed to prove by a preponderance of the evidence that the civil penalty 

should be reduced based on Respondent's ability to pay. 

2. Ability to Continue to Do Business 

The Respondent argued that the proposed $10,000 civil penalty placed its business in 

peril, particularly given the small size of the company, its. slow-moving inventory, the poor 

economy, and its declining sales. 

The Respondent's financial data showed that the proposed $10,000 penalty was 

approximately 1.5% of the Respondent's gross profit for 2011 (i.e., the year ofthe last provided 

annual profit & loss statement). (FAA Exh. l at 6.) 

According to its balance sheets, the Respondent had retained earnings of only $5334 in 

2010, after it apparently spent all of its equity ($1 04,509) in 2009 in a failed advertising 

campaign. (FAA Exh. 1 at 5, 10; 12/11112 Tr. 43:8-20.) Nevertheless, in reviewing the 

Respondent's annual balance sheet comparing the years 2009-2011, there were multiple signs 

of recovering financial health, both from the allegedly failed advertising campaign and from the 

overall downturn in the recent economy. 

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For example, in 2010, the Respondent substantially reduced its costs for print advertising 

(i.e., $126,000 from $281,889) and press relations (i.e., $7,500 from $35,000), while at the same 

time conservatively spending more on internet marketing (i.e., $62,930 increased from $38,083). 

(FAA Exh. 1 at 9-10.) At the same time, the Respondent incurred a long-term liability listed as a 

$79,951 "member loan." (FAA Exh. 1 at 5.) Nevertheless, the Respondent's total variable 

costs6 increased by $5,492, and the Respondent reported $5,334 in net ordinary income. (FAA 

Exh. 1 at 7-10.) 

In its December 2011 balance sheet, the Respondent continued to explore different 

liability expenditures, while maintaining a large inventory and sales operation. It reported only 

$1,949 in its checking/saving account, with its accounts receivable (i.e., $17,0 17) having 

increased only slightly (i.e., $614) from December 2010. (FAA Exh. 1 at 5.) Nevertheless, there 

was no bad debt, indicating that product was moving and receipts were being collected. The 

Respondent had also reduced both its costs for print advertising (i.e., $122,310 from $126,000), 

and internet marketing (i.e., $44,399 from $62,930), but increased its press relations (i.e., 

$10,125 increased from $7,500). (FAA Exh. 1 at 6.) 

At the same time, the Respondent decreased its total liabilities (i.e., $137, 987 from 

$152,205), even though it continued to maintain the long-term liability listed as a $79, 951 

"member loan." (FAA Exh. 1 at 5.) Although the Respondent's variable costs decreased by 

$15,271, the Respondent still reported an increase in net ordinary income (i.e., $9,281) for the 

year. (FAA Exh. 1 at 7.) 

Just six months later, as of June 2012, the Respondent's additional financial data showed 

that it had $20,489 in cash, $22,365 in accounts receivable, and $182,100 in inventory, for a total 

of$224,954 in assets. In contrast, its liabilities in June 2012 were reported to total only 

$129,337. (FAA Exh. 1 at 3.) 

It is not necessary for a civil penalty to be so severe that a business would be forced to 

borrow money or suffer "serious" damage to its business. Nevertheless, a civil penalty is 

supposed to "sting," in order to provide a business with a strong incentive to comply with the 

regulations. Based on the data provided, the Respondent has failed to prove that the proposed 

$10,000 civil penalty would place the business in peril, or substantially affect its ability to 

continue to do business. 

6 NB: Typically, variable costs rise as production increases, but fall when production decreases. 

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3. Other Mitigating Factors 

The Respondent argued that it took corrective action by. ceasing production, sale, and 

shipment ofthe hazardous material involved in this case. (12/11112 Tr. 33:21-34:7.) There are 

two problems with this argument. First, the Respondent has offered no evidence that it is no 

longer handling this product other than in argument filed in response to the FAA's Request for 

Admissions. (Motion, Exh. 1 at 3 ~4 & 4 ~4.) Second, even if such evidence had been filed, it 

cannot be considered as a mitigating factor. It is well established that a business's decision not 

to handle hazardous materials in the future does not warrant a reduction in the civil penalty, 

because it does not represent that the business took positive corrective action. In re TCI 

Corporation, FAA Order No. 92-77, 22 (Dec. 22, 1992). The rationale behind this is the fact that 

the Respondent is free to change its policy again at any time with no guarantee that it will 

comply 'Yith the HMRs. !d. 

The Respondent also argued for further reduction in the proposed civil penalty because 

its executive, Ms. Rachele Rego, completed a hazardous material training course. Clearly, this 

training was a timely corrective action. However, the parties had stipulated that the FAA had 

already credited the Respondent with completion ofthe course as part ofthe FAA's reduction in 

the proposed civil penalty from $33,950 to $10,000. (Compl. 6; Motion, 5-6; Complainant's 

Reply to Resp't Answer to Mot. for Decision 3-4 (Nov. 30, 2012).) The Respondent has failed. 

to show that any further reduction is warranted. 

4. Payment Schedule 

The Respondent has also suggested that a payment schedule was preferred, in lieu of a 

lump sum payment, without specifying any type of installment payment plan.(l2/11/12 Tr. at 

' 

26:13-18 and 31:16). 

Throughout this proceeding, it appears that the FAA has expressed a willingness to 

establish a payment schedule as opposed to a lump sum payment of the civil penalty. (Motion, 8; 

Complainant's Reply to Respondent's Answer to Motion for Decision, 3 (Nov. 30, 2012).) 

This administrative court may prescribe payment plans in civil penalty proceedings. 

John D. Mulhall, FAA Order No. 95-16, at 5 (Aug. 4, 1995). However, this authority should be 

reserved for rare occasions, either where "the respondent's financial means are so restricted that 

apportioning the payment will not minimize the deterrent effect of the penalty" or for "cases in 

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which a respondent has proven that his financial circumstances are so constrained that payment 

of a substantial civil penalty in a lump sum is impossible." !d. at 6. 

In essence, as discussion herein has shown, the facts in this case do not rise to the rare 

occasion where an installment payment schedule should be imposed upon the parties by 

administrative court order. This does not preclude the FAA from arranging for and accepting 

installment payments from the Respondent; only that the facts and caselaw herein do not support 

the ordering of such an installment payment schedule by this court. 

Conclusion 

In consideration of the foregoing, the Respondent is assessed a total civil penalty of 

$10,000 for the 18 (eighteen) HMR violations7 that occurred on or about April23, 2010, when 

the Respondent offered to UPS a one-piece shipment for transportation by air, containing an 

eight ounce container of Beauty Toner. 

Pursuant to 14 C.F.R. §13.232(d), this decision becomes the final order assessing civil 

penalty unless a party files a notice of appeal with the FAA Hearing Docket, addressed to the 

attention of the Hearing Docket Clerk, within 10 (ten) days of service of the decision, pursuant to 

14 C.F.R. § 13.233 and 14 C.F.R. § 13.210(a). 

Attached: Service List 

7 The regulatory violations are listed supra in fn. 1. 

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SERVICE LIST 

ORIGINAL & ONE COPY 

Federal Aviation Administration 

800 Independence Avenue, S.W. 

Washington, DC 20591 

Attention: Hearing Docket Clerk, AGC-430 

Wilbur Wright Building-Suite 2W1 0001 

Mr. Gerald A. Ellis 

Complainant's Counsel 

Office of the Regional Counsel, AS0-7 

Southern Region 

Federal Aviation Administration 

P.O. Box 20636 

Atlanta, GA 30320 

TEL: 404-305-5200 

FAX: 404-305-5223 

Mr. Keith Roberts 

Respondent's Counsel 

President, Roberts Proprietaries, Inc. 

180 West 80th St. 

New York, NY 10024 

TEL: 917-441-8642 

Judge J.E. Sullivan 

U.S. Administrative Law Judge 

Office of Hearings, M-20 

1200 New Jersey Avenue, S.E. 

Washington, DC 20590 

TEL: 202-366-6941 

FAX: 202-366-7536 

ONE COPY 

FDMS No. FAA-2011-0488 

(Civil Penalty Action) 

1 Service was by U.S. Mail. For service in person or by expedited courier, use the following address: Federal 

Aviation Administration, 600 Independence Avenue, S.W., Wilbur Wright Building-Suite 2WIOOO, Washington, · 

DC 20591; Attention: Hearing Docket Clerk, AGC-430.