Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,

Complainant

Vv.

Malik B Inc.
d/b/a Sam’s Food Store,

Respondent.

Docket No. C-13-769

FDA Docket No.

FDA-2013-H-0566

Decision No. CR2897

Date: August 20, 2013

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP)

filed an administrative complaint

(Complaint) against Respondent, Malik B Inc. d/b/a Sam’s Food Store, alleging
facts and legal authority sufficient to justify imposing a civil money penalty of
$500. Respondent did not timely answer the Complaint, nor did Respondent

request an extension of time within whic
default judgment against Respondent an
penalty in the amount of $500.

CTP began this case by serving the Com

to file an answer. Therefore, I enter a
order that Respondent pay a civil money

plaint on Respondent and filing a copy of

the Complaint with the Food and Drug Administration’s (FDA) Division of

Dockets Management. The Complaint al

leges that Respondent’s staff unlawfully

sold regulated tobacco products to minors and failed to verify that the tobacco
purchasers were of sufficient age prior to these transactions, thereby violating the
Federal Food, Drug, and Cosmetic Act (Act) and its implementing regulations
found at 21 C.F.R. Part 1140. CTP seeks a civil money penalty of $500.
On June 28, 2013, CTP served the Complaint on Respondent by personal service,
pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and accompanying
cover letter, CTP explained that, within 30 days, Respondent should pay the
penalty, file an answer, or request an extension of time within which to file an
answer. CTP warned Respondent that, if it failed to take one of these actions
within 30 days, an Administrative Law Judge could, pursuant to

21 C.F.R. § 17.11, issue an initial decision by default ordering Respondent to pay
the full amount of the proposed penalty. Respondent did not take any of the
required actions within the time provided by regulation.

lam required to issue an initial decision by default if the Complaint is sufficient to
justify a penalty, and the respondent fails to answer timely or to request an
extension. 21 C.F.R. § 17.11(a). For that reason, I must decide whether a default
judgment is appropriate here, and I conclude that it is merited based on the
allegations of the Complaint and Respondent’s failure to answer them.

For purposes of this decision, I assume the facts alleged in the Complaint are true.
21 C.F.R. § 17.11(a). Specifically, CTP alleges the following facts in its
Complaint:

e Respondent owns Sam’s Food Store, an establishment that sells tobacco
products and is located at 63 York Street, New Haven, Connecticut 06511.

¢ On July 25, 2012, an FDA-commissioned inspector observed violations of
21 C.F.R. Part 1140 while inspecting Respondent’s establishment.
Respondent violated 21 C.F.R. § 1140.14(a) when Respondent’s staff
“[sold] tobacco products to a minor.” Respondent’s staff also failed to
“verify the age of a person purchasing tobacco products by means of
photographic identification containing the bearer’s date of birth, as required
by 21 C.F.R. § 1140.14(b)(1).”

¢ On October 4, 2012, CTP issued a Warning Letter to Respondent detailing
the inspector’s observations from July 25, 2012. In addition to describing
the violations, the letter advised Respondent that the FDA may initiate a
civil money penalty action or take other regulatory action against
Respondent if Respondent failed to correct the violations. The letter also
stated that it was Respondent’s responsibility to comply with the law.

e The FDA did not receive a response to the Warning Letter, but United
Parcel Service records show that “SHAPIK” received the letter on October
5, 2012.
e¢ On December 28, 2012, at approximately 1:56 PM, FDA-commissioned
inspectors documented additional violations at Respondent’s establishment.
Specifically, Respondent’s staff sold a package of “Virginia Slims 120’s
Menthol Silver Pack” cigarettes to a person younger than 18 years of age.
In addition, Respondent’s staff did not verify the minor’s age by means of
photo identification prior to this sale, as required by 21 C.F.R. §
1140.14(b)(1).

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). Under

21 C.F.R. § 1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any
person younger than 18 years of age. Under 21 C.F.R. § 1140.14(b)(1), a retailer
must verify, by means of photo identification containing the bearer’s date of birth,
that no purchaser of cigarettes or smokeless tobacco is younger than 18 years of
age.

Here, Respondent’s staff sold cigarettes or smokeless tobacco to minors on July
25, 2012, and December 28, 2012. Prior to these transactions, Respondent’s staff
did not verify, by checking the tobacco purchaser’s photographic identification,
that the tobacco purchaser was 18 years of age or older as the regulations require.
Respondent’s actions and omissions on two separate occasions at the same retail
outlet constitute violations of law for which a civil money penalty is merited.
Accordingly, I find that a civil money penalty of $500 is permissible under 21
C.F.R. § 17.2 and order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Luis E. Zepeda, M.D.,
(NPI: 1215032602),

Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-17
Decision No. CR2895

Date: August 19, 2013

DECISION

Petitioner, Luis E. Zepeda, M.D., requested a hearing to challenge the revocation of his
Medicare billing privileges by Trailblazer Health Enterprises, LLC (Trailblazer), an
administrative contractor for the Centers for Medicare & Medicaid Services (CMS). In
its initial and reconsidered determinations, Trailblazer asserted that Petitioner referred
patients to Thomas M. Heric, M.D., a physician who remains excluded from participating
in Medicare, Medicaid, and all other federal health care programs under section 1128 of
the Social Security Act (Act). Trailblazer alleged that Petitioner submitted claims to
Medicare seeking payment for services by Dr. Heric and, in response to pre-payment
review inquiries, submitted nerve conduction studies by Dr. Heric as support for the
submitted claims. According to Trailblazer, and now CMS on appeal, the referral of
Medicare beneficiaries to Dr. Heric and subsequent billing for those services authorized
CMS to revoke Petitioner’s Medicare billing privileges. Petitioner has maintained at all
levels of appeal that he has no knowledge of Dr. Heric, that he referred no patients to
him, and that he did not submit any claims based on the services he performed. Petitioner
also claims that he left the medical practice where the referrals to Dr. Heric originated
before those referrals were actually made. Petitioner alleges that an unknown individual
or individuals used his billing privileges without his knowledge or authority.
2

For the reasons explained below, I find and conclude that CMS was ultimately authorized
to revoke Petitioner’s Medicare billing privileges. CMS, however, did not have authority
to revoke Petitioner’s billing privileges based on his alleged referral of patients to Dr.
Heric and subsequent submission of related claims. Rather, the authority for CMS to
revoke Petitioner’s billing privileges comes from Petitioner’s own defense to the original
allegations against him, specifically, his assertion that he left his practice before the
referrals to Dr. Heric had been made. Petitioner, however, never notified CMS of this
change in his practice location. Accordingly, the regulations authorize CMS to revoke
Petitioner’s billing privileges.’

I. Case Background and Procedural History
By letter dated June 20, 2012, Trailblazer notified Petitioner that it had revoked his

billing privileges effective June 15, 2012.2 CMS Exhibit (Ex.) 26, at 1. Trailblazer
stated:

The Medicare provider[*] Luis E. Zepeda submitted claims that contained
billed services performed by a physician on the Office of Inspector General
(OIG) exclusion list. Additionally, Thomas M. Heric, M.D., did not have

' CMS revoked Petitioner’s billing privileges effective June 15, 2012, and imposed a
one-year re-enrollment bar. The effective date here must be modified to July 20, 2012,
based on the modified basis for revocation. Nevertheless, as of the date of this decision,
the re-enrollment bar against Petitioner has expired, and, once he has exhausted the
appeal process, he may submit a new enrollment application to attempt to re-enroll in the
Medicare program. 42 C.F.R. § 424.535(d).

> It is unclear how Trailblazer determined the effective date of Petitioner’s revocation.
Retroactive revocation is only applicable in certain circumstances, one of which includes
the proffered basis for revocation here, a provider’s or supplier’s exclusion from federal
health care programs. See 42 C.F.R. § 424.535(a)(2), (g). However, the regulation states
that a revocation based on the exclusion of a provider or supplier is retroactive to the date
of that exclusion, which in this case was October 19, 2006, not June 15, 2012. Id.

§ 424.535(g). Perhaps the discrepancy in establishing an effective date for this case
should have signaled to Trailblazer that something was amiss in its overall analysis. In
any event, as discussed later in this decision, the effective date for revoking Petitioner’s
billing privileges must be modified to reflect the modified basis for revocation.

> Dr. Zepeda was actually a “supplier” in the Medicare program. A “supplier” is “a

physician or other practitioner, or an entity other than a provider, that furnishes health
care services under Medicare.” 42 C.F.R. § 400.202.

3

(or ever possess) a license to practice medicine in the State of Texas.
According to the medical records, the billed services, diagnostic tests by
Thomas M. Heric, M.D., were performed in Texas.

CMS Ex. 26, at 1. The notice then quoted the language of 42 C.F.R. § 424.535(a)(2),
which authorizes CMS to revoke a provider’s or supplier’s billing privileges if the
provider or supplier, “or any owner, managing employee, authorized or delegated
official, medical director, supervising physician, or other health care personnel of the
provider or supplier” is excluded from Medicare, Medicaid, and all other federal health
care programs. Trailblazer also established a one year bar on Petitioner’s re-enrollment
in the Medicare program. CMS Ex. 26, at 1.

Petitioner requested reconsideration. CMS Ex. 27. Petitioner stated that he “has never
employed, contracted with, or delegated any authority to [Dr. Heric]. Dr. Zepeda does
not know this person and has never had any contact with him whatsoever .... Dr.
Zepeda appears to be a victim in this matter, along with the Medicare system.” CMS Ex.
27, at 1. Petitioner submitted an affidavit that also asserted his lack of knowledge or
association with Dr. Heric. CMS Ex. 27, at 3. The affidavit stated that if any claims for
services performed by Dr. Heric were submitted to Medicare under Petitioner’s Provider
Transaction Access Number (PTAN) or National Provider Identifier (NPI), “it was
without [his] knowledge or authority.” CMS Ex. 27, at 3. On September 20, 2012,
Trailblazer issued a reconsidered determination that upheld the revocation of Petitioner’s
billing privileges. CMS Ex. 28. The reconsidered determination echoed the basis for
revocation stated in the initial determination notice:

As a part of the pre-payment medical review program, Dr. Zepeda
submitted medical records that corresponded with Medicare claims filed.
Multiple of the submitted medical records contained diagnostic tests signed
by Thomas M. Heric, M.D., Ph.D. Per the Department of Health and
Human Services Office of Inspector General (OIG), Dr. Heric is on the List
of Excluded Individuals. As such, Trailblazer . . . revoked Dr. Zepeda’s
Medicare [PTANs] in accordance with 42 [C.F.R.] § 424.535(a)(5)... .[“]

CMS Ex. 28, at 1. The Trailblazer hearing officer dismissed Petitioner’s affidavit, saying
that “the medical records [Dr. Zepeda] submitted in conjunction with the pre-payment
medical review program were signed by Dr. Heric and indicate that the two did indeed
have some type of working relationship.” CMS Ex. 28, at 1.

* The reconsidered determination subsequently quoted the language in 42 C.F.R.

§ 424.535(a)(2), not subsection (a)(5). The cite to 42 C.F.R. § 424.535(a)(5) appears to
be a typographical error. Aside from this apparently erroneous cite, CMS has not relied
on subsection (a)(5) as a basis for revoking Petitioner’s billing privileges. Subsection
(a)(5) addresses an on-site review, which is not applicable in this case.

4

On October 2, 2012, Petitioner timely submitted a request for hearing (RFH) to challenge
the revocation of his billing privileges. Petitioner reasserted that he had no knowledge of
Dr. Heric and did not refer patients to him, and also that he had “not had the opportunity
to review the information that was allegedly submitted by Dr. Zepeda and on which the
revocation is based.” RFH at 1. CMS subsequently moved for summary judgment (CMS
Mot. for Summ. J.) and submitted 30 proposed exhibits (CMS Exs. 1-30). Petitioner
opposed CMS’s motion (P. Opp. to Mot. for Summ. J.) and cross-moved for summary
judgment. In his opposition Petitioner stated, among other things, that he “resigned from
the Westpark [C]linic on December 22, 2010 and . . . saw no patients and rendered no
services at the Westpark [C]linic after his resignation.” P. Opp. to Mot. for Summ. J. at
2. Petitioner also submitted three proposed exhibits (P. Exs. 1-3). CMS opposed
summary judgment in favor of Petitioner, and submitted three additional exhibits (CMS
Exs. 31-33) in support of its opposition. On January 11, 2013, I denied both motions for
summary judgment and ordered that the parties develop the record for a hearing. The
parties each submitted pre-hearing briefs (CMS Pre-Hrg. Br. and P. Pre-Hrg. Br.).

On Monday, May 6, 2013, I convened a hearing by video teleconference, with the parties
and witnesses located in Dallas, Texas. In addition to the 33 exhibits originally submitted
with its motion for summary judgment and opposition to Petitioner’s motion for summary
judgment, CMS sought to add three more exhibits (CMS Exs. 34-36). Petitioner objected
to the admission of CMS Exs. 34-36 because CMS had only disclosed the proposed
exhibits on Friday, May 3, 2013, well after the time for exchanging final exhibit lists had
passed. CMS responded that the three exhibits were in response to arguments Petitioner
raised in his prehearing brief. I overruled Petitioner’s objection, and admitted CMS Exs.
1-36 into the record. Petitioner withdrew the exhibits submitted with his motion for
summary judgment, instead offering two additional exhibits (P. Exs. 4 and 5) that he
submitted as part of his prehearing exchange. CMS had no objection, so I admitted P.
Exs. 4 and Sinto the record. Each party called one witness at the hearing: CMS offered
the testimony of Ms. Leslie O’Neal, a medical review manager at Health Integrity, a zone
program integrity contractor for CMS; Petitioner offered his own testimony. A copy of
the transcript of the hearing (Tr.) has been admitted into the record without substantive
change. Each party has submitted post-hearing briefs (CMS Post Br. and P. Post Br.).

Petitioner renewed his objection to CMS Exs. 34-36 in his post-hearing brief and
established that CMS had ample time to submit these exhibits before the business day
prior to the hearing. See P. Post Br. at 6-10. While Petitioner’s arguments raise
significant concerns about CMS’s delay in proffering these exhibits, I decline Petitioner’s
invitation to reverse my earlier ruling. The delay in providing these exhibits ultimately
does not prejudice Petitioner because he has had an opportunity to address them in post-
earing briefing and, as explained below, CMS Exs. 34-36 ultimately do not support the
revocation of Petitioner’s billing privileges.

IL. Issues
This case presents the following issues:

1. Whether 42 C.F.R. § 424.535(a)(2) authorizes CMS to revoke Petitioner’s
billing privileges based on the referral of patients to Thomas M. Heric, M.D.,
and subsequent billing for those services; and

2. Whether 42 C.F.R. § 424.535(a)(9) authorizes CMS to revoke Petitioner’s
billing privileges based on Petitioner’s failure to notify CMS of a change in his
practice location within 30 days of the change occurring.

Ill. Analysis
A. Applicable Law

The Act authorizes the Secretary of Health and Human Services (Secretary) to establish
by regulation procedures for enrolling providers and suppliers in the Medicare program.
Act § 1866(j)(1)(A), 42 U.S.C. § 1395ce(j)(1)(A). The Secretary has promulgated
enrollment regulations at 42 C.F.R. §§ 424.500 — 424.570. The regulations authorize
CMS to revoke the Medicare billing privileges of an enrolled provider or supplier if CMS
determines that certain circumstances exist. See generally 42 C.F.R. § 424.535(a).
Relevant here, CMS may revoke a provider’s or supplier’s Medicare billing privileges if:

The provider or supplier, or any owner, managing employee, authorized or
delegated official, medical director, supervising physician, or other health
care personnel of the provider or supplier is —

(i) Excluded from the Medicare, Medicaid, and any other Federal health
care program, as defined in § 1001.2 of this chapter, in accordance with
section 1128, 1128A, 1156, 1842, 1862, 1867 or 1892 of the Act.

(ii)...
Id. § 424,535(a)(2).

The regulations also authorize CMS to revoke a provider’s or supplier’s Medicare billing
privileges if the provider or supplier “did not comply with the reporting requirements
specified in § 424.516(d)(1)(ii) and (iii) of this subpart.” Jd. § 424.535(a)(9). The
reporting requirements referenced in this section state:
6

Physicians, nonphysician practitioners, and physician and nonphysician
practitioner organizations must report the following reportable events to
their Medicare contractor within the specified timeframes:

(1) Within 30 days—
(i)
(ii) Any adverse legal action; or
(iii) A change in practice location.
42 CFR. § 424.516(d)(1).

When CMS revokes a provider’s or supplier’s billing privileges, the regulations require
that any provider agreement in effect at the time of revocation be terminated. 42 C.F.R.
§ 424.535(b). In addition, after revocation, CMS must impose a bar on re-enrollment for
a minimum of one year, but no more than three years. Id. § 424.535(c). Revocation is
effective “30 days after CMS or the CMS contractor mails notice of its determination to
the provider or supplier... .” Jd. § 424.535(g). Certain exceptions permit retroactive
revocation if it is, among other things, “based on Federal exclusion or debarment .. . .
Id. In such a case, the revocation is “effective with the date of exclusion or debarment
.o. Id.

B. Findings of Fact and Conclusions of Law

I make seven findings of fact and conclusions of law (FFCL) to support my decision.
Each FFCL is set out below in bold and italics, followed by an analysis for each.

I. CMS does not have the authority to revoke Petitioner’s billing privileges
pursuant to 42 C.F.R. § 424.535(a)(2) based on his referral of Medicare
beneficiaries to a physician excluded from participating in all federal
health care programs pursuant to section 1128 of the Act.

The parties do not dispute that beginning October 19, 2006, the Inspector General for the
Department of Health and Human Services excluded Dr. Heric from participating in
Medicare, Medicaid, and all other federal health care programs pursuant to section 1128
of the Act. See generally CMS Exs. 25-27. As stated, the regulations authorize CMS to
revoke a supplier’s Medicare billing privileges if one of the supplier’s managerial staff
members, i.e., its “owner, managing employee, authorized or delegated official, medical
director, [or] supervising physician,” has been excluded from participating in federal
health care programs pursuant to section 1128 of the Act. 42 C.F.R. § 424.535(a)(2)(i).
The parties agree that this provision is not directly applicable here because Dr. Heric
7

never had a managerial role in Petitioner’s practice. See CMS Post Br. at 4-5; P. Post Br.
at 4. But the regulations also authorize revocation if “other health care personnel of the
provider or supplier” have been excluded. 42 C.F.R. § 424.535(a)(2)(i). Accordingly,
whether CMS has the authority to revoke Petitioner’s Medicare billing privileges under
section 424.535(a)(2) depends upon whether Dr. Heric, an excluded practitioner, is “other
health care personnel” of Petitioner’s practice.

Trailblazer implied in its initial and reconsidered determinations, and now CMS
expressly argues on appeal, that Dr. Heric is “other health care personnel” of Petitioner
because nerve conduction study reports signed by Dr. Heric contain Petitioner’s name in
the letterhead and state that Dr. Zepeda referred the Medicare beneficiary to Dr. Heric.
CMS Post Br. at 4-5; see, e.g., CMS Ex. 1, at 61. CMS relies on language in a similarly
worded regulation — the regulation authorizing CMS to deny enrollment applications —
and argues that “other health care personnel” does not require that the excluded
individual be in a supervisory role. CMS Post Br. at 5. CMS posits that section
424.535(a)(2), like section 424.530(a)(2), applies to “nurses and dialysis technicians, as
well as any personnel furnishing reimbursable services.” CMS Post Br. at 5 (citing 42
C.F.R. §§ 414.310, 424.530). CMS also argues that allowing referrals to excluded
physicians is tantamount to employing them in non-managerial roles and could result in
an “end-run around the prohibition of payments to excluded individuals.” CMS Post
Br. at 5.

Not surprisingly, Petitioner disagrees. He relies on the principle of ejusdem generis,>
arguing that the broad phrase “other health care personnel” must be read to mean
something similar to the specific list of managerial positions that precede it. P. Post Br.
at 3-5. According to Petitioner, Dr. Heric was not in a managerial role in Petitioner’s
practice and is therefore not an excluded individual contemplated in section
424.535(a)(2) with reference to Petitioner. P. Post Br. at 4

The preamble to the final rule establishing section 424.535(a)(2) shows the phrase “other
health care personnel” in section 424.535(a)(2) does not apply only to individuals in a
managerial role of a supplier’s practice. However, the phrase was not intended to reach
the referral-based relationship between practitioners such as Petitioner and Dr. Heric.

The preamble to section 424.535(a)(2) states that CMS will have the authority to revoke a
provider’s or supplier’s billing privileges if:

The provider or supplier, any owner, managing employee, authorized or
delegated official, supervising physician or other health care personnel who
must be reported on the CMS 855 (for example, ambulance crew member)

5 op . 2 “ ~ .
Ejusdem generis refers to a “canon of construction that when a general word or phrase

follows a list of specifics, the general word or phrase will be interpreted to include only

items of the same type as those listed.” Black’s Law Dictionary 556 (8th ed. 2004).
8

of the provider or supplier, in accordance with section 1862(e)(1) and (2)
of the Act, becomes excluded from the Medicare, Medicaid or other Federal
health care programs... .

71 Fed. Reg. 20,754, at 20,761 (Apr. 21, 2006) (emphasis added). Thus, while not stated
in the final regulatory language, the preamble establishes that the regulatory drafters
intended to limit the phrase “other health care personnel” to individuals “who must be
reported on the CMS 855 ... of the provider or supplier.” Jd. The “CMS 855” is the
Medicare enrollment application that providers and suppliers must submit in order to
receive and maintain billing privileges. 42 C.F.R. § 424.510; 71 Fed. Reg. at 20,767.
Accordingly, whether an excluded practitioner is “other health care personnel” of a
provider or supplier for purposes of section 424.535(a)(2) depends upon whether the
excluded practitioner was required to be reported on the enrollment application of the
provider or supplier subject to revocation.

As a sole practitioner, Petitioner had to submit a CMS-855I to enroll in the Medicare
program as a supplier. See CMS Ex. 31. Section 3 of that application form requires the
enrolling supplier to list any “final adverse action” against the enrollee “under any
current or former name or business identity.” CMS Ex. 31, at 5. In the preamble that
proposed the CMS 855], the drafters stated that Section 3 applies to “any adverse legal
actions that have been imposed or levied against this supplier, identified in Section 2B.”
68 Fed. Reg. 22,064, at 22,150 (Apr. 25, 2003) (emphasis added). Sections 5 and 6 of the
enrollment application require the reporting of persons or entities with an ownership
interest or managerial control over the supplier, as well as any adverse actions against
those individuals or entities. Jd. at 22,164. Other non-managerial employees that must
be reported include physician’s assistants and, in the case of an ambulance service
supplier, its ambulance crew members. See, e.g., id. at 22,182 (requiring the identity of
ambulance crew members to establish the “qualification of crew”). However, nothing in
the preamble, the regulations, or in the CMS 855] that Petitioner submitted required that
physicians or other practitioners to whom a supplier may eventually refer patients, or
from whom a supplier may request medical services, be reported on the enrollment
application.

Based on the record here, it is apparent that Dr. Heric was not required to be reported on
Petitioner’s enrollment application. CMS has not shown that Dr. Heric worked for
Petitioner directly, or that there was a partnership or other relationship between the
physicians that needed to be reported on Petitioner’s enrollment application. The record
shows that Petitioner, or someone in his office, ordered nerve conduction studies from
Dr. Heric. See generally CMS Exs. 1-24. That evidence, however, does not support a
finding that Petitioner employed or contracted with Dr. Heric, that Dr. Heric was a
manager of Petitioner’s practice, or that Petitioner in any way oversaw the care that
9

Dr. Heric provided.® The mere presence of “some type of working relationship,” as
Trailblazer found in its reconsidered determination, see CMS Ex. 26, is not enough to
establish that Petitioner was obliged to report Dr. Heric on his enrollment application.
Moreover, while CMS touched on the correct analysis in its brief, it never explained
where Petitioner needed to report Dr. Heric on his enrollment application, and thus did
not satisfy the critical element for identifying “other health care personnel.” See CMS
Post Br. at 5.

The record before me demonstrates that any relationship between Petitioner and Dr.
Heric was not subject to reporting on Petitioner’s Medicare enrollment application.
Accordingly, Dr. Heric was not “other health care personnel” of Petitioner, and the
regulations do not authorize CMS to revoke Petitioner’s Medicare billing privileges
based solely upon Petitioner referring patients to Dr. Heric for nerve conduction studies.
Without Dr. Heric occupying one of the positions specified in 42 C.F.R. § 424.535(a)(2),
CMS cannot revoke Petitioner’s billing privileges pursuant to that provision.

2. CMS has not established that it had the authority to revoke
Petitioner’s billing privileges pursuant to 42 C.F.R. § 424.535(a)(2)
based on his submission of claims for payment for services provided
by an excluded physician.

CMS argues here that Petitioner submitted claims for payment for the nerve conduction
studies that Dr. Heric performed.” See CMS Exs. 34-35. Section 1862(e)(1) of the Act
prohibits payments for services provided by individuals excluded from participating in
Medicare, Medicaid, and all other federal health care programs. Act § 1862(e)(1). There

® Referring patients to another physician may be some evidence of an agreement between
physicians (which may implicate section 1128B(b)(1) of the Act), but the mere presence
of referrals, when taken alone, is not enough to establish with any degree of certainty that
any contractual relationship exists. Moreover, even if CMS had shown a contractual
relationship existed here, it is questionable whether under those circumstances it would
have the authority to revoke Petitioner’s billing privileges pursuant to 42 C.F.R.

§ 424.535(a)(2), or whether the appropriate enforcement authority lies with the Inspector
General to impose a civil money penalty or take other action pursuant to section 1128A
of the Act.

7 T do not find that CMS Exs. 1-24 show that Petitioner billed for any services performed
by Dr. Heric. The documents bearing Dr. Heric’s signature were submitted to CMS in
response to Trailblazer’s pre-payment review inquiry, and could have reasonably been
used as supporting documentation for other claims.
10

can be little doubt that regardless of who actually submitted the claims in CMS Exs. 34
and 35 — whether Petitioner or some unknown fraudster — the Act strictly prohibits
payment of those claims. Jd.

However, neither the Act nor the implementing regulations authorize CMS to revoke
billing privileges based on the submission of claims for services performed by an
excluded practitioner. In the preamble to the final rule, the drafters stated that, based on
its “general authorities” and the restriction of payments to excluded individuals in section
1862(e) of the Act, CMS may deny or revoke enrollment of a provider or supplier that
“arranges or contracts with (by employment or otherwise), any individual or entity that
the provider or supplier knows or should know is excluded... .” 71 Fed. Reg. at 20,760.
But the statutory and regulatory language control, and are not as broad as the preamble.
The applicable language limits the scope of what it means to “arrange or contract with”
an excluded individual (as that phrase is used in the preamble) to either employment in a
capacity that requires an excluded individual be reported on an enrollment application
(42 C.F.R. § 424.535(a)(2)(i); 71 Fed. Reg. at 20761), or to provide care “‘at the medical
direction or on the prescription of a physician” that has been excluded (Act

§ 1862(e)(1)(B)). Neither situation applies here. Petitioner did not need to report Dr.
Heric on his enrollment application, and Dr. Heric performed nerve conduction studies,
as distinct from ordering them. See, e.g., CMS Ex. 1, at 61. Additionally, despite the
preamble’s assertion to the contrary, there is no “general authority” for CMS to revoke
billing privileges for reasons other than those stated in 42 C.F.R. § 424.535. The
submission of a claim for services provided by an excluded physician is not a stated basis
for revocation in section 424.535(a)(2) or any other subsection. Therefore, even if
Petitioner submitted the claims in CMS Exs. 34 and 35, CMS was not authorized to
revoke Petitioner’s Medicare billing privileges pursuant to 42 C.F.R. § 424.535(a)(2).

The appropriate remedy appears to be the denial of payment for the submitted claims and,
if more egregious billing issues are found, possible exclusion from Medicare, Medicaid,
and all other federal health care programs. See Act § 1128(b)(7); 42 C.F.R.

§ 1001.901(a). But the exclusion authority under section 1128 is delegated to the
Inspector General, not CMS. See 42 C.F.R. § 1001.1(a). CMS cannot arrogate the
Inspector General’s enforcement authority and revoke billing privileges for the
submission of claims for services by an excluded practitioner when the only authorized
remedy for such conduct is, under appropriate circumstances, exclusion.

3. Petitioner moved practice locations sometime between December 2010
and November 2011.

Petitioner testified at hearing that he moved practice locations on December 22, 2010.
Tr. 66. He testified that on that date he faxed the office manager at Westpark Clinic a
letter “saying that our relationship is terminated ....” Tr. 66; P. Ex. 4. According to
Petitioner, he intended to close the clinic he was operating, Westpark Clinic, effective the
11

day he faxed the letter terminating his participation with the clinic. Tr. 67. In September
2011, he intended to reopen a medical practice at the same location as Westpark Clinic,
but, in November 2011, he accepted an offer with another Houston-based family practice
group. Tr. 70.

During cross-examination, counsel for CMS elicited testimony from Petitioner that called
into question the veracity of his claim that he moved practice locations on December 22,
2010. Ultimately, however, whether Petitioner left on precisely December 22, 2010,
before most of the claims utilizing the services of Dr. Heric were submitted to Medicare,
is not consequential to the outcome here. Certainly, whether he left on that date could
factor into whether someone perpetrated fraud, or whether Petitioner knowingly
submitted claims for payment using the services of an excluded practitioner. But the
evidence before me is not sufficient to make a finding as to the exact date Petitioner
changed practice locations, and, because of the serious ramifications such a finding could
ave on possible future action against Petitioner, including potential exclusion pursuant
to section 1128(b)(7) of the Act, I decline to make such a finding where it is not
necessary and the evidence is in equipoise. There is uncontroverted testimony from
Petitioner that he began practicing at Houston Family Physicians Group in November
2011, which I accept as being the latest possible time he moved practice locations from
the Westpark Clinic. Tr. 70. Therefore, finding that Petitioner left Westpark Clinic
within a range of time between December 20, 2010 and November 30, 2011, is sufficient
for purposes of my decision based on the circumstances of the case and applicable
regulations.

4. Petitioner did not notify CMS of his change in practice location within
30 days of the change occurring.

On cross-examination, Petitioner acknowledged that he did not notify CMS of the change
in his practice location in or around December 2010.* Tr. 98; see also P. Br. at 13
(acknowledging that Petitioner “failed to notify CMS of the change of his practice at the
Westpark Clinic”). By regulation, Petitioner had to notify CMS or one of its contractors
within 30 days of changing practice locations. 42 C.F.R. § 424.516(d)(1)(iii). Based

* CMS counsel also elicited testimony from Petitioner that shows he allowed other
practitioners to bill for services under his billing number, even though he was only
enrolled in Medicare as a sole practitioner. Tr. 103. However, CMS has not alleged that
Petitioner was subject to revocation under 42 C.F.R. § 424.535(a)(7) (which authorizes
revocation where a provider or supplier knowingly sells or allows another individual or
entity to use its billing number, unless as part of a valid reassignment of benefits or a
change of ownership), likely because there would not have been enough time for
adequate notice and an opportunity to defend that basis for revocation. Even so, the
testimony highlights that Petitioner was careless in his enrollment as a supplier in the
Medicare program and cavalier towards the access he held to the Medicare Trust Fund.

12

upon Petitioner’s timeline for leaving the Westpark Clinic, he had to notify CMS or one
of its contractors of the change in practice location no later than January 21, 2011 (30
days from December 22, 2010). Accepting the notion that Petitioner left the Westpark
Clinic much later, in November 2011, when he joined Houston Family Physicians Group,
he had to notify CMS of the change in practice location no later than December 30, 2011
(30 days from November 30, 2011). Petitioner never did so. Moreover, the record before
me contains no evidence whatsoever that Petitioner ever attempted to notify CMS once
he had changed practice locations.

5. CMS is authorized to revoke Petitioner’s billing privileges pursuant to
42 C.F.R. § 424.535(a)(9).

The regulations authorize CMS to revoke a supplier’s billing privileges if the supplier
“did not comply with the reporting requirements specified in § 424.516(d)(1)(ii) and (iii)
of this subpart.” 42 C.F.R. § 424.535(a)(9). Relevant here, section 424.516(d)(1)(iii)
requires that physicians such as Petitioner report a “change in practice location” within
30 days of the change occurring. 42 C.F.R. § 424.516(d)(1)(iii). As established above,
Petitioner never reported the change in his practice location, and certainly did not do so
within the regulatory deadline for reporting such a change. Accordingly, section
424.535(a)(9) authorizes CMS to revoke Petitioner’s Medicare billing privileges.

Petitioner states that Trailblazer requested documentation from him for pre-payment
review after he left the Westpark Clinic on December 22, 2010, but before the 30-day
deadline for reporting that change. He argues that a “timely notice by January 21, 2011
would not have circumvented Trailblazer’s requests for medical records [on January 3
and 11, 2011]. There is no evidence in the record showing that either Trailblazer or CMS
ever tried to contact Petitioner after Trailblazer received the medical records on February
7, 2011.” P. Post Br. at 14. Petitioner’s argument seems to confuse several issues but
overlooks the most important one: he never notified CMS of the change in his practice
location as the regulations require him to do. Moreover, Trailblazer and CMS need not
contact a supplier to determine its correct address when sending notices. The regulations
place the burden of notifying CMS of any changes in practice location squarely on the
supplier that is changing locations without regard to whether CMS actively needs the new
address to send a notice or not. 42 C.F.R. § 424.516(d)(1)(iii).

Finally, Petitioner argues that “the failure to timely notify of the change at the Westpark
Clinic should not constitute a violation warranting the revocation of all of Petitioner’s
Medicare privileges.” P. Post Br. at 14. However, whether Petitioner’s noncompliance
with the regulatory requirements should or should not warrant such a result is not at issue
here. This is not a forum for policy debate or pleas for equitable relief. Petitioner’s
failure to notify CMS of the change in his Westpark Clinic practice location does
constitute a violation of the applicable Medicare enrollment regulation that warrants the
revocation of his Medicare billing privileges. 42 C.F.R. § 424.535(a)(9). There is no
13

basis or authority to limit the revocation of billing privileges to particular practice
locations merely because that is where a violation occurred. Rather, the regulations
authorizing revocation speak to “billing privileges” as a whole, without limitation on its
scope. 42 C.F.R. § 424.535(a) (lead-in language). Revocation also results in termination
of a provider or supplier agreement with Medicare, which further supports my view that
revocation is not the piecemeal remedy that Petitioner suggests. See id. § 424.535(b).

6. The effective date for revocation of Petitioner’s billing privileges must
be modified to July 20, 2012.

As noted above, it is unclear whyTrailblazer revoked Petitioner’s billing privileges five
days retroactive from the date of the revocation notice dated June 20, 2012. See n.2,
supra; CMS Ex. 26. The regulations require that, unless certain exceptions apply, a
revocation becomes effective 30 days after the notice of revocation is sent to the affected
provider or supplier. 42 C.F.R. § 424.535(g). The original basis for revocation here was
premised on the conclusion that Dr. Heric, an excluded practitioner, was “other health
care personnel” of Petitioner. Under such circumstances, the date of revocation would be
effective to the date of exclusion, which in this case would have been October 19, 2006.
Id. But, as previously explained, the regulations do not authorize CMS to revoke
Petitioner’s billing privileges based upon the exclusion of Dr. Heric, so the revocation of
is billing privileges cannot be retroactive.

The modified basis for revocation here does not carry an exception as to when it becomes
effective. Jd. Therefore, the effective date for the revocation of Petitioner’s billing
privileges pursuant to 42 C.F.R. § 424.535(a)(9) must be July 20, 2012, 30 days after
Trailblazer sent the notice of revocation. Jd.; CMS Ex. 26.

7. Petitioner has had notice and opportunity to defend the amended basis
for revocation.

In his opposition to CMS’s motion for summary judgment, Petitioner stated for the first
time that he had moved practice locations on December 22, 2010. P. Opp. to Mot. for
Summ. J. at 2-3. After I denied summary judgment, CMS submitted a prehearing brief
that added Petitioner’s change of practice location and failure to notify CMS of that
change as a separate basis for revoking his billing privileges. CMS Pre-Hrg. Br. at 6.
Since that time, Petitioner has had an opportunity to address this issue in his prehearing
brief, at the in-person hearing, and in his post-hearing brief. Petitioner has done so on all
three occasions. P. Pre-Hrg. Br. at 5-6; Tr. at 66, 98; P. Post Br. at 13-14.

In addressing due process concerns that may accompany modified or new bases for an
agency determination, the Departmental Appeals Board has stated that “a federal agency
may clarify its reasons for a challenged determination, or assert new reasons for that
determination, during the [administrative law judge] proceeding as long as the non-
14

federal party has adequate notice of the reasons and a reasonable opportunity to respond
during that proceeding.” Fady Fayed, M.D., DAB No. 2266, at 10-11 (2009) (citing
Green Hill Enterprises, LLC, DAB No. 2199, at 8 (2008)). Here, Petitioner had notice of
the modified basis for revocation during the prehearing stage and had three separate
opportunities to respond to that basis during these proceedings. Additionally, Petitioner
raised the issue himself, and cannot now claim that CMS is prevented from using his
intended shield as a sword against him. See P. Opp. to Mot. for Summ. J. at 2 (and
attached affidavit). Therefore, I find that there has been no due process violation in this
case.

IV. Conclusion

For all of the foregoing reasons, I find that CMS was not authorized to revoke
Petitioner’s billing privileges based upon his referral of patients to a physician who has
been excluded from participating in Medicare, Medicaid, and all other federal health care
programs. However, I find that CMS was authorized to revoke Petitioner’s billing
privileges because he did not notify CMS of the change in his practice location as
required by regulation. In light of the modified basis for revocation, the date of
revocation must be modified to July 20, 2012. Accordingly, 1 AFFIRM and MODIFY
the determination to revoke Petitioner’s billing privileges, effective July 20, 2012.

/s/
Richard J. Smith
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Champion Medical Systems, LLC,
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-536
Decision No. CR2892

Date: August 16, 2013

DECISION

The Centers for Medicare & Medicaid Services (CMS) has revoked Petitioner’s Medicare
supplier number. Petitioner, Champion Medical Systems, appeals, and CMS has moved
for summary judgment.

For the reasons discussed below, I deny CMS’s motion. However, my pre-hearing order
directed the parties to submit the written direct testimony of any proposed witness.
Acknowledgment and Pre-hearing Order at 3 ( 4.c.iv). CMS presents no witnesses of its
own, so there are no witnesses for Petitioner to cross-examine at an in-person hearing.
Petitioner has submitted the direct testimony of three witnesses, but CMS has expressed
no desire to cross-examine any of them. See Acknowledgment and Pre-hearing Order at
5 (F§ 8, 9). We would therefore have nothing to do at an in-person hearing. I therefore
close the record and decide the matter on the written record without further proceedings.

I find that CMS properly revoked Petitioner’s Medicare supplier number.
Background

Until its Medicare supplier number was revoked on November 14, 2012, Petitioner
participated in the Medicare program as a supplier of durable medical equipment,
prosthetics, orthotics, and supplies (DMEPOS). See 42 C.F.R. § 424.57. Ina letter dated
December 27, 2012, the Medicare contractor, Palmetto GBA National Supplier
Clearinghouse, notified Petitioner that its supplier number would be revoked retroactively
pursuant to 42 C.F.R. §§ 405.800; 424.57(e); 424.535(a)(1); 424.535(a)(5)(ii); and
424.535(g). The letter noted that one of the contractor’s representatives attempted to visit
the facility on November 13 and 14, 2012. The business was closed on both occasions,
so the representative could not inspect the premises. CMS Ex. 3.

Petitioner sought reconsideration. In a reconsideration determination dated February 22,
2013, a Medicare hearing officer affirmed the revocation of Petitioner’s supplier number.
CMS Ex. 1. Petitioner now appeals that determination. 42 C.F.R. § 424.545.

CMS moves for summary judgment. With its motion and brief, CMS submits eight
exhibits (CMS Exs. 1-8). Petitioner submits a response to CMS’s motion, along with
three written declarations (P. Exs. 1-3).' CMS also filed a reply.

In the absence of any objection, I admit into evidence CMS Exs. 1-8.

CMS objects to my admitting P. Exs. 1-3, citing 42 C.F.R. § 498.56(e). That provision
directs the administrative law judge (ALJ) to examine any documentary evidence
submitted for the first time at the ALJ level to determine whether the supplier has good
cause for submitting the evidence for the first time at this level. 42 C.F.R. § 498.56(e)(1).
If the ALJ finds no good cause, she must exclude the evidence from the proceeding and
may not consider it in reaching a decision. 42 C.F.R. § 498.56(e)(2)(ii). Because P. Exs.
1-3 are testimony and not documentary evidence, the regulation does not apply. I
therefore admit P. Exs. 1-3. Arkady B. Stern, M.D., DAB No. 2329 at 4, n.4 (2010)
(Observing that “[t]estimonial evidence that is submitted in written form in lieu of live in-
person testimony is not ‘documentary evidence’ within the meaning of 42 C.F.R.

§ 498.56(e).”).

' Petitioner did not mark the written declarations of its three witnesses. In this opinion, I
refer to the Donnell Lee declaration as P. Ex. 1; the Melina Stimpson declaration as P.
Ex. 2; and the Tony Nzeribe declaration as P. Ex. 3. Petitioner’s additional submissions,
described as “supporting documents,” are already in the record as CMS Ex. 4 and
Petitioner’s hearing request.
Discussion

1. Because Petitioner has furnished evidence of a dispute
concerning a material fact, CMS is not entitled to
summary judgment.’

The Departmental Appeals Board has, on multiple occasions, discussed the well-settled
principles governing summary judgment. See, e.g., 1866ICPayday.com, L.L.C., DAB
No. 2289 at 2-3 (2009). Summary judgment is appropriate if a case presents no genuine
issue of material fact, and the moving party is entitled to judgment as a matter of law.
18661CPayday at 2; Illinois Knights Templar Home, DAB No. 2274 at 3-4 (2009) and
cases cited therein.

To defeat a motion for summary judgment, the non-moving party must tender evidence of
specific facts, in the form of affidavits and/or admissible discovery material, in support of
its contention that a dispute exists. Crestview Parke Care Ctr., DAB No. 1836 at 6
(citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n.11
(1986)). In submitting the written testimony of three witnesses who challenge the
dispositive factual dispute in this case — whether the facility was open for business when
the contractor’s representative visited — Petitioner has established that a factual dispute
exists. CMS is therefore not entitled to summary judgment.

2. CMS properly revoked the supplier’s billing privileges, because the
facility was not open for inspection during its posted hours of
operation.

Requirements fora DMEPOS supplier’s Medicare participation. To receive Medicare
payments for items furnished to a Medicare-eligible beneficiary, a supplier of medical
equipment and supplies must have a supplier number issued by the Secretary of Health
and Human Services. Social Security Act § 1834(j)(1)(A).

To obtain and retain its supplier number, a Medicare supplier must meet the standards set
forth in 42 C.F.R. § 424.57(c), and CMS may revoke its billing privileges if it fails to do
so. 42 C.F.R. § 424.57(c)(1) and (d); 42 C.F.R. § 424.535(a)(1). Among other
requirements, the supplier must permit CMS or its agents to conduct on-site inspections
to ascertain its compliance with governing regulations. The supplier’s location must be
accessible during reasonable business hours, and the supplier must maintain a visible sign
and post its hours of operation. 42 C.F.R. § 424.57(c)(8). Where, as here, a contractor’s
representative finds the facility closed during its posted hours, the supplier does not meet

* My findings of fact/conclusions of law are set forth, in italics and bold, in the discussion
captions of this decision.
the requirements of section 424.57(c)(8), and CMS may appropriately revoke its billing
privileges. [ta Udeobong, d/b/a Midland Care Medical Supply and Equipment, DAB No.
2324 (2010).

According to a site investigation report, signed by Inspector Benjamin Grimm, he visited
the facility at 9:05 a.m. on November 13, 2012, and returned at 1:55 p.m. on November
14, 2012. CMS Ex. 6 at 2. The hours of operation were posted: 9:00 to 3:00 Monday
through Friday, closed Saturday. CMS Ex. 6 at 3. On both occasions, the entrance was
locked, and the inspector’s knocks on the door were not answered. CMS Ex. 6 at 7. The
inspector took pictures on both days, and the pictures indicate a date and time, although
the report explains that the times indicated are one hour later than the actual times the
pictures were taken, because the camera had not yet been adjusted to standard time.
CMS Ex. 6 at 7-9.

Petitioner submits written declarations from three employees, suggesting, for the first
time, that the facility was open on the dates and times in question and that at least one
employee was there (albeit not necessarily an employee capable of interacting with
customers).

Affiants Donnell Lee and Melina Stimpson are supplier employees who, according to
their declarations, “assist in assembling, moving, cleaning, and storing equipment.” P.
Ex. | at 1 (Lee Decl. § 2); P. Ex. 2 at 1 (Stimpson Decl. § 2). They are not trained in
sales “or other related aspects of [the] operation,” and apparently are not authorized to
assist beneficiaries in the purchase of durable medical equipment. P. Ex. 3 at 2 (Nzeribe
Decl. 7). Both assert that they were “in the office on November 13, 2012 before and
after 9:05 a.m.” P. Ex. | at 1 (Lee Decl. § 5); P. Ex. 2 at 1 (Stimpson Decl. 45). The
office manager, Tony Nzeribe, maintains that he arrived at the office at 9:10 a.m. on
November 13, and left with Mr. Lee to deliver equipment. P. Ex. 3 at 1 (Nzeribe Decl. §
4). He and Affiant Lee say that Melina Stimpson remained in the office. P. Ex. | at 1
(Lee Decl. § 5); P. Ex. 3 at 1 (Nzeribe Decl. § 4). On November 14, the two left the
office at about 9:55 a.m. to deliver equipment. P. Ex. 1 at 1 (Lee Decl. § 6); P. Ex. 3 at 1-
2 (Nzeribe Decl. § 5). They do not say when they returned.

For her part, Affiant Stimpson declares that she was “doing inventory” that week and did
not see or hear anyone knock on the door or attempt to enter the office. P. Ex. 2 at 1
(Stimpson Decl. § 5). She claims that the office was open and easily accessible. P. Ex. 2
at 1 (Stimpson Decl. § 5).

To the extent that they claim that the office was open and accessible when the inspector’s
report indicates that it was not, I find these declarations not credible; they are not
consistent with any of Petitioner’s prior assertions. The December 27, 2012 notice letter
emphasizes that the inspector found the facility closed during posted business hours on
November 13 and 14, 2012. CMS Ex. 3 at 2. Manager Nzeribe admitted that “[a]t the
times of representative visits,” he left the facility with his deliveryman to assist with
deliveries. He said that he was not gone for more than an hour and that “[a] notice was
posted on our door during the time.” CMS Ex. 4 at 4. He did not mention any other
employee or claim that the office was open. Although he now denies saying “that the
office was closed during their alleged visits. .. . ,” he plainly admitted that it was. P. Ex.
3 at 2 (Nzeribe Decl. 4 9).

Nor could he have been confused. The reconsideration determination unambiguously
states that, when the site investigation attempts took place, “on November 13, 2012 at
9:05 am, and November 14, 2012, at 1:55 pm,” the “facility was not open.” The decision
quotes the inspector’s report: “The entrance was locked on both attempts and knocks on
the door were not answered.” CMS Ex. | at 2. Yet, Petitioner’s hearing request does not
challenge this finding. It does not suggest that the facility was open or that anyone was
present at the relevant times.’ I simply do not find it credible that the supplier repeatedly
forgot to mention the presence of staff, if, in fact, they were present.

Conclusion

Because the credible evidence establishes that the facility was not open for inspection
during its posted hours, I sustain CMS’s revocation of Petitioner’s supplier number.

/s/
Carolyn Cozad Hughes
Administrative Law Judge

* The hearing request is supposed to identify the findings of fact and conclusions of law
with which the affected party disagrees and specify the basis for contending that the
findings and conclusions are incorrect. 42 C.F.R. § 498.40(b).


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Inspector General,
Social Security Administration,

v.
Bruce Patton,
Respondent.

Docket No. C-12-246

Date: August 13, 2013

Decision No. CR2890

DECISION
DENYING RESPONDENT’S
EQUAL ACCESS TO JUSTICE ACT
AWARD APPLICATION

The application of Respondent, Bruce Patton, for attorney’s fees and expenses pursuant
to 5 U.S.C. § 504, the Equal Access to Justice Act (EAJA), is denied.

I. Procedural History

The Inspector General (I.G.) for the Social Security Administration (SSA), notified
Respondent by letter dated November 28, 2011 (November 28, 2011 notice), that the I.G.
was imposing against Respondent a civil money penalty (CMP) of $25,000 and an
assessment in lieu of damages in the amount of $20,000, pursuant to section 1129 of the
Social Security Act (Act) (42 U.S.C. § 1320a-8). SSA alleged in its notice that the CMP
and assessment were imposed based on the SSA determination that Respondent had made
or caused to be made false statements, misrepresentations, and/or omissions of material
facts, and wrongfully converted his son’s Child Insurance Benefits (CIB).
Respondent requested a hearing before an administrative law judge (ALJ) pursuant to 20
C.F.R. § 498.202, by an undated letter received at the Civil Remedies Division of the
Departmental Appeals Board on January 4, 2012. The case was docketed and assigned to
me for hearing and decision on January 6, 2012. On February 6, 2012, I convened a
telephonic prehearing conference to discuss and establish the schedule to hearing. The
substance of the prehearing conference is set forth in my Scheduling Order and Notice of
Hearing dated February 6, 2012. An additional prehearing conference was convened by
telephone on June 20, 2012, to discuss final procedural details and the issuance of
subpoenas. Transcript (Tr.) 7. On June 27, 2012, a hearing was convened by video
teleconference.

On November 30, 2012, I issued a decision in which I concluded that the SSA I.G. failed
to establish that there is a basis for the imposition of a CMP or assessment against
Respondent pursuant to section 1129(a)(1) of the Act. No appeal was filed with the
Departmental Appeals Board (the Board), and my decision became final and binding on
the parties 30 days after the decision was served. 20 C.F.R. § 498.220(d).

On December 31, 2012, Respondent filed an application for attorney fees, paralegal fees,
and costs pursuant to the EAJA (R. App.), with Respondent’s exhibits (R. Exs.) A, B, C,
and D. On January 17, 2013, the LG. filed its opposition to the Application (I.G. Opp.).
On April 15, 2013, I ordered that Respondent file net worth exhibits pursuant to 45
C.F.R. § 13.11(a)' and to amend his application to comply with 45 C.F.R. pt. 13. On
May 8, 2013, Respondent filed his amended application (Amended Application) with
copies of R. Exs. A and B, new exhibits marked R. Exs. C and D, an affidavit of
Respondent, and a seven page “Net Worth Statement.” I treat R. Exs. A, B, C, and D,
filed with the Amended Application, as being offered to substitute for R. Exs. A, B, C,
and D offered with the initial application due to the similarity of the content.
Respondent’s affidavit and the net worth statement were not marked as exhibits and I
mark them R. Ex. E and R. Ex. F, respectively. The I.G. filed its response to the

amended application on June 10, 2013 (I.G. Response). Respondent filed a reply brief on
June 24, 2013 (R. Reply).

The L.G. does not specifically object to my consideration of R. Exs. A, B, C, D, E, and F
filed with the amended application and they are admitted as evidence for purposes of
resolving the fee application. The I.G. does object that my April 15, 2013 Order
permitted Respondent to “‘cure its fatally flawed initial application for EAJA fees.” I.G.

' References are to the 2012 revision of the Code of Federal Regulations (C.F.R.) in
effect at the time of the application, unless otherwise stated.
Response at 1. The I.G. requests that I reconsider my April 15, 2013 Order and deny and
dismiss Respondent’s EAJA application. 1.G. Response at 2. I have reviewed my April
15, 2013 Order in light of the entire record and the I.G.’s objections. The errors in the
original fee application identified in my Order of April 15 were: incorrect citation to
EAJA as codified at 28 U.S.C. § 2412 rather than as codified at 5 U.S.C. § 504; failure to
file detailed net worth exhibits, although it was asserted in the application and counsel’s
affidavit that Respondent’s net worth did not exceed $2 million; omission of the
declaration required by 45 C.F.R. § 13.20(a)(7); and omission of the verification required
by 45 C.F.R. § 13.10(b). I find no prejudice to the I.G. due to Respondent’s incorrect
citation to 28 U.S.C. § 2412. Respondent’s application for EAJA fees was titled
“Plaintiff’s Motion for Attorney’s Fees Under the Equal Access to Justice Act and for
Entry of Final Judgment Order.” R. App. at 1. Thus, it was clear that Respondent was
requesting attorney fees and costs pursuant to EAJA and the I.G. was adequately noticed
that Respondent’s filing was an EAJA application. The fact that the I.G. had to conduct
research to distinguish between an EAJA application filed pursuant to 28 U.S.C. § 2412
and 5 U.S.C. § 504 (I.G. Response at 1, n.1), is insignificant prejudice, if it is prejudicial
at all. Although the I.G. is correct that I could have rationalized denying the fee
application based on the technical errors in the application, I determined in the interest of
justice and fairness to ensure that the application was fully developed and presented for
my consideration consistent with authority granted by 45 C.F.R. §§ 13.11(a) and 13.25.
The SSA LG. acted in this case pursuant to section 1129 of the Act and 20 C.F.R. pt. 498,
which also establishes the procedures for adjudication. This SSA case was heard by an
ALJ of the Department of Health and Human Services (HHS) pursuant to an inter-agency
agreement and delegated authority applying 20 C.F.R. pt. 498 to the merits. SSA has not
promulgated regulations implementing EAJA and it is necessary to apply the regulations
of the Secretary at 45 C.F.R. pt. 13, rather than regulations issued by the Commissioner.
Thus, it is understandable and excusable in this instance that Respondent did not
recognize the application of and comply with the regulations of the Secretary at 45 C.F.R.
pt. 13, until such time as Respondent was advised that those regulations applied to his
EAJA fee application. The I.G.’s objection is overruled and the request that I vacate my
April 15, 2013 Order and deny the application for noncompliance with 45 C.F.R. pt. 13 is
denied.

II. Discussion

My conclusions of law, including the findings and conclusions required by 45 C.F.R.
§ 13.26, are set forth in bold followed by the pertinent facts and analysis.

A. Respondent was the prevailing party.

B. The proceeding was an adversary adjudication.
The provisions of EAJA applicable to proceedings pursuant to the Administrative
Procedure Act, 5 U.S.C. §§ 500-596, are set forth at 5 U.S.C. § 504. Section 504(a)(1)
provides:

An agency that conducts an adversary adjudication shall
award, to a prevailing party other than the United States, fees
and other expenses incurred by that party in connection with
that proceeding, unless the adjudicative officer of the agency
finds that the position of the agency was substantially
justified or that special circumstances make an award unjust.
Whether or not the position of the agency was substantially
justified shall be determined on the basis of the administrative
record, as a whole, which is made in the adversary
adjudication for which fees and other expenses are sought.

The statute is clear that fees and other expenses incurred by a party will be paid unless it
is determined that the position of the agency was substantially justified or special
circumstances would make an award unjust. Pursuant to 5 U.S.C. § 504(a)(2), a party
that seeks an award of attorney fees and costs will submit to the agency an application
within 30 days of final adjudication, which: (1) shows that the party is a prevailing party;
(2) that the party is eligible to receive an EAJA award; (3) states the amount sought
supported by an itemized statement of the actual time expended and the rate at which fees
and expenses were calculated; and (4) which alleges that the position of the agency was
not substantially justified. An individual party is eligible to receive attorney fees and
costs under 5 U.S.C. § 504, only if his or her net worth at the time the adversary
adjudication was initiated did not exceed $2,000,000. 5 U.S.C. § 504(b)(1)(B). An
“adversary adjudication” is an adjudication pursuant to 5 U.S.C. § 554 in which the
United States was represented by counsel. 5 U.S.C. § 504(b)(1)(C). “Position of the
agency” includes the position taken by the agency in the adversary adjudication and the
agency’s action or failure to act upon the basis for the adversary adjudication. 5 U.S.C.

§ 504(b)(1)(E).

The Secretary implemented EAJA by regulations promulgated at 45 C.F.R. pt. 13. As
already mentioned, the parties have not objected to the application of those regulations in
this case, and I apply them in the absence of similar regulations promulgated by the
Commissioner of SSA. The regulations provide that they apply to an adversary
adjudication, which is one in which the agency is represented by an attorney or other
representative. 45 C.F.R. § 13.3.
There is no dispute that the case on the merits was an adversary adjudication within the
meaning of 5 U.S.C. § 504(b)(1)(C) and 45 C.F.R. § 13.3(a). There is no dispute that
Respondent was the prevailing party within the meaning of 5 U.S.C. § 504(a)(1) and
45 C.F.R. §§ 13.1, 13.22(c). There is no dispute that the application was timely filed.
45 CFR. § 13.22(a).

C. Respondent has failed to adequately show that his net worth did not
exceed $2 million at the time the adversary proceeding was initiated.

Pursuant to 45 C.F.R. § 13.4(a) Respondent must show as an applicant for an EAJA
award that he meets all conditions of eligibility for an award. Respondent is required to
show that his net worth did not exceed $2 million when the adversary adjudication was
initiated in order to be eligible. 45 C.F.R. § 13.4(b)(3). An applicant for EAJA fees must
submit with his or her application a “detailed exhibit showing net worth . . . when the
proceeding was initiated.” 45 C.F.R. §§ 13.4(b)(3), 13.11(a). The regulation provides
that the net worth exhibit may be in any form convenient for the Respondent, but the
evidence must provide full disclosure of assets and liabilities to permit me to determine
whether or not Respondent qualifies for an award. 45 C.F.R. § 13.11(a).

Respondent had two opportunities to provide sufficient net worth evidence but he failed
in both instances to provide the detailed evidence necessary for a full disclosure so that I
could find his net worth was less than $2 million. I conclude that Respondent has made
an insufficient showing that his net worth did not exceed $2 million when the adversary
proceeding was initiated. Accordingly, I conclude that Respondent has not established he
is eligible for an award.

Respondent asserted in the application filed December 31, 2012 and his amended
application filed May 8, 2013, that his net worth did not exceed $2 million. R. App. at 1;
Amended Application at 1. Respondent’s attorney attested to personal knowledge that
Respondent’s net worth has never exceeded $2 million. R. Ex. A, § 2. Respondent was
advised by my April 15, 2013 Order that the assertions in the application were
insufficient to meet his burden to show that he is eligible for an award and that he had to
file the net worth exhibits as required by 45 C.F.R. § 13.11(a). In his two page affidavit,
Respondent asserts that his net worth did not exceed $2 million when the adversary
adjudication was initiated; he identified his residence as being on a 6.9 acre plot at 4329
East 2175" Road in Sheridan, Illinois; he estimated the value of his residence as being
below $200,000 with an outstanding mortgage of approximately $160,000; he estimated
the value of his Ford pick-up and furniture as approximately $750; and he stated that his
retirement fund amounted to $1,200. R. Ex. E. Respondent also filed a form titled “Net
Worth Statement” that I have marked R. Ex. F. Respondent lists checking and savings
accounts; a Ford pickup; real estate with a mortgage of $170,000 and an estimated “fair
market value” of $40,000; and an outstanding bank loan. Respondent does not disclose
any other potentially valuable personal property such as motorcycles, guns, boats,

recreational vehicles, collectables, and similar items, but simply lists “None” on the form.
R. Ex. F at 3. Respondent did not provide any bank statements; loan or mortgage papers;
real estate tax records showing the assessed value of his residence; realtor estimates of
the possible sale price for his real estate; state or federal tax returns; or publications such
as the Kelley Blue Book or National Automobile Dealers’ Association Guide as evidence
of the value of his vehicle. It is not possible to make a determination as to Respondent’s
net worth without adequate documentation to support the assertions of Respondent in his
affidavit and the form he completed. Accordingly, I conclude that Respondent has not
met his burden to establish his net worth at the time the adversary proceeding was
initiated.

Even if I determined that Respondent successfully showed that he met the eligibility
requirements of EAJA, I conclude that the I.G. met its burden to show that its position
was substantially justified.

D. The agency position was substantially justified.

According to the EAJA statute the “position of the agency” refers not only to the
“position taken by the agency in the adversary adjudication,” but to “the action or failure
to act by the agency upon which the adversary adjudication is based.” 5 U.S.C.

§ 504(b)(1)(E). Similarly, the Secretary’s regulations provide that the agency’s position
“includes, in addition to the position taken by the agency in the proceeding, the agency
action or failure to act that was the basis for the proceeding.” 45 C.F.R. § 13.5(b)(1).
EAJA does not define the term “substantially justified.” However, the regulations
provide that an agency’s position is substantially justified if it “was reasonable in law and
fact.” 45 C.F.R. § 13.5(b)(1). The regulations specify that the fact a party prevailed in a
proceeding does not trigger a presumption that the agency position was not substantially
justified. But the agency bears the burden of proof to show that its position was
“reasonable in law and fact.” 45 C.F.R. § 13.5(b). The Departmental Appeals Board
(Board) extensively considered an EAJA application in Park Manor Nursing Home, DAB
No. 2005 (2005) and provided further guidance on evaluation of whether the agency
position was substantially justified.

[The Secretary’s] regulatory criteria reflect court decisions on
the EAJA. The Supreme Court has said that the government’s
position “can be justified even though it is not correct, and...
it can be substantially (i.e., for the most part) justified if a
reasonable person could think it correct, that is, if it has a
reasonable basis in law and fact.” Pierce v. Underwood, 487
US. 552, 566, n.2 (1988). The courts emphasize that, in
performing a substantial justification analysis, a tribunal
applies a different standard than the standard used to
adjudicate the prevailing party’s rights in the underlying

merits proceeding. United States v. Hallmark Const. Co., 200
F.3d 1076, 1080 (7th Cir. 2000). Consequently, the findings
or conclusions that support the decision on the prevailing
party’s merits, claim, and other circumstances relevant to that
decision (such as the stage of the proceeding when it was
made), are rarely conclusive factors in a substantial
justification analysis. Jd. at 1079-80; F.J. Vollmer Co. v.
Magaw, 102 F.2d 591, 595-96 (D.C. Cir. 1996). According
to one court, a proper substantial justification analysis focuses
on “‘the actual merits of the Government’s litigating
position” and is global or comprehensive in scope,
examining “not simply whether the government was
substantially justified at the beginning or end of the
proceedings, but whether the government was substantially
justified in continuing to push forward at each stage.”
Hallmark, 200 F.3d at 1080 (quoting Pierce, 487 U.S. at
569).

Park Manor Nursing Home, DAB No. 2005, at 14 (footnote omitted).

I conclude that SSA’s position had a reasonable basis in law and fact and SSA met its
burden to show it was substantially justified at every stage of the adversary adjudication.
SSA did not prevail on the merits, but no presumption that the SSA position was not
substantially justified is triggered by that fact. 45 C.F.R. § 13.5(b). The pertinent facts
presented by SSA are set forth in the decision on the merits and are set forth here only for
the convenience of the reader. References to the transcript are to the transcript of the
hearing in the case on the merits and no hearing was held on the EAJA application.

The Counsel to the SSA LG., B. Chad Bungard, notified Respondent by letter dated
November 28, 2011, that the I.G. proposed to impose a CMP of $45,000 against
Respondent. The L.G. cited as the bases for the CMP that:

(1) On about March 11, 2005, Respondent falsely claimed in the
application for CIB for his son Mark, that Mark lived with him, but, Mark
had not lived with him since October 2004;

(2) Respondent failed, on an unspecified date, to notify SSA that
Respondent’s son, Mark, was not in Respondent’s custody for the period
November 2005 through February 2008;

(3) Respondent received his son’s CIB during the period November 2005
through February 2008, and wrongfully converted those funds to his own
use;
(4) On about April 16, 2007, Respondent completed a Representative Payee
Report in which he falsely stated that his son, Mark, lived with him from
May 1, 2006 through April 30, 2007.

(5) On about April 16, 2007, Respondent falsely stated that $9,022 was
spent for the care and support of his son, Mark; and,

(6) Respondent’s false statements, misrepresentations, and omissions of
material facts to SSA related to Mark resulted in Respondent receiving
$10,977 in CIB to which Respondent was not entitled.

SSA Ex. 13 at 1.

Mr. Bungard testified that he made the determination to impose the CMP in this case.
Mr. Bungard testified that Respondent was notified by the SSA L.G. brief filed on June
11, 2012,” that the bases for the CMP were changed or modified to allege that
Respondent withheld material information from SSA regarding Mark’s living
arrangements from December 2006 through March 2008, and made a false statement
regarding Mark’s living arrangement in the representative payee report in April 2007. Tr.
278-82. Mr. Bungard testified that the SSA brief filed June 11, 2012, reflected his
decision that Respondent only improperly received $6,493 of CIB during the period
December 2006 through March 2008. Mr. Bungard’s testimony and the SSA brief filed
on June 11, 2012, reflect Mr. Bungard’s revised determination to impose a CMP of
$2,000 for each of 16 months from December 2006 through March 2008 when
Respondent allegedly failed to disclose Mark’s “true living arrangements,” and $2,000
for the false statement on the representative payee form dated April 16, 2007, for a total
CMP of $34,000 plus an assessment in lieu of damages of $6,493. Tr. 281-83; SSA Br.
at 1-2.

> In the decision on the merits, I noted that the notice requirements of 20 C.F.R.

§ 498.109 are very specific and do not appear to be fully satisfied by the SSA LG. Brief
dated June 11, 2012. However, Respondent made no specific objection and I found no
prejudice as Respondent exercised his right to request a hearing, he was advised of the
revised bases prior to hearing, and the he had an opportunity to challenge the revised
bases in the case on the merits.
The SSA L.G.’s evidence shows that on February 11, 2005, Respondent was notified by
SSA that he was found to be disabled as of October 29, 2004, and entitled to benefits
under Title II of the Act. SSA Ex. 1. On about March 11, 2005, Respondent applied for
CIB for his children, David W. Patton and Mark J. Patton. SSA Ex. 2. On April 2, 2005,
SSA notified Respondent that Mark was entitled to CIB beginning in April 2005, and that
Respondent was chosen to be Mark’s representative payee. SSA Ex. 3. The SSA LG.
introduced as evidence a Representative Payee Report, which Respondent does not
dispute he signed and dated on April 16, 2007. Respondent also does not dispute that he
completed the form to show that Mark lived with him from May 1, 2006 through April
30, 2007. Respondent also completed the form to indicate that he used $9,022 of benefits
received by him during the period May 1, 2006 to April 30, 2007 on Mark’s behalf for
the care and support of Mark. SSA Ex. 4.

The SSA I.G.’s evidence shows that Mark’s mother, Jeri Patton (DeGroot at the time of
hearing), reported to SSA on March 6, 2008, that Mark never lived with Respondent
during the period April 2005 through March 2008, and that Mark lived with her during
that period. She reported that she never received benefits for Mark until March 2008.
SSA Ex. 5. SSA notified Respondent by letter dated March 17, 2008, that Mark’s CIB
would be sent to a different representative payee and that Respondent should refund to
SSA any benefits he retained from payments he received on behalf of Mark. SSA Ex. 6.
The L.G. presented two reports of investigation that concluded that Respondent received
benefits from April 2005 to September 2008, apparently Mark’s CIB, that he was not
entitled to receive. SSA Exs. 7 and 8. The I.G. submitted the report of Mary Ann
Forness, a Title II Claims Representative (Tr. 216) that reflects her conclusion that
Respondent received CIB from Mark during the period November 2005 through February
2008, and that he appropriated $10,977 to his own use. SSA Ex. 9. SSA notified
Respondent by letter dated May 4, 2011, that he had to return $10,977 that he received on
behalf of Mark. SSA Ex. 10. SSA also offered as evidence a “Joint Parenting
Agreement” executed on February 7, 2006, which provides that the Respondent and his
wife, Jerri Patton, were to have joint legal and physical custody of Mark, that Mark was
to reside with her on a daily basis, and that Respondent was to have reasonable and
liberal visitation as Respondent and Jeri Patton agreed. SSA Ex. 20 at 1, 5; R. Ex. 8 at 7.
A marital settlement agreement also dated February 7, 2006, provided that Respondent
was to pay Jerri Patton $365 per month, and stated that was the entire amount of Social
Security benefits Respondent received on behalf of Mark. SSA Ex. 20 at 12; R. Ex. 8 at
7. Respondent and Jeri R. Patton were divorced on February 7, 2006. R. Ex. 8 at 1-3.

SSA presented evidence that Respondent was repaying the alleged $10,977 overpayment
of Mark’s CIB. R. Ex. 2; Tr. 135-36, 233.

Special Agent Rodney Haymon testified that he understood based upon his interview
with Jeri DeGroot that she received $365 of child support from Respondent each month
and that Mark stayed with Respondent on weekends, but he did not recall discussing with
10

her where Mark stayed during vacation, school holidays or when he was sick and stayed
out of school. Tr. 129-31. Agent Haymon testified that he did not investigate the amount
of money that Respondent spent on Mark and he did not investigate the number of days
that Mark lived with Respondent. Agent Haymon testified that Respondent told him that
Mark had a room in Respondent’s house and that Mark told him that he kept clothes at
Respondent’s house. Tr. 166-67.

Mary Ann Forness, a Title Il Claims Representative, with the Elgin, Illinois Social
Security Field Office was called as a witness by the SSA I.G. Tr. 215. She testified that
she reviewed Respondent’s Title II claims record. Tr. 217. She testified that Respondent
was removed as the representative payee and Jeri DeGroot was designated the
representative payee in March 2008, based on Ms. DeGroot’s claim that she was the
custodial parent of Mark. She testified that there was nothing in the file that showed that
Ms. DeGroot’s claim was investigated at the time. Tr. 220-22. Ms. Forness testified that
she made the determination that Respondent misused $10,977 of CIB he received for
Mark, which Ms. Forness testified was the amount of CIB received by Respondent in
excess of the $365 per month he sent to Ms. DeGroot. Tr. 227-28. Ms. Forness testified
that her determination that Respondent misused funds was based upon her interview of
Respondent and his statements that Respondent spent the money on taking Mark to
dinner and for activities. She admitted that spending the money on dinner and activities,
including hunting, is not misuse of the funds so long as Mark’s basic needs were being
met. She testified that she did not recall specifically asking Respondent how many days
each year Mark lived with Respondent. Ms. Forness did not recall asking Respondent if
Mark had a room in Respondent’s house. Ms. Forness did not determine how much of
the CIB that Respondent received as Mark’s representative payee were spent for Mark’s
benefit. Tr. 230-32, 270. Ms. Forness agreed that there was never an issue regarding
Mark’s eligibility and that the only issue was a question of who was the correct
representative payee for Mark. Tr. 236. She also agreed that where the child lives has no
impact on the child’s eligibility for CIB, but may impact the determination of the
appropriate representative payee. Tr. 238-39. Ms. Forness testified that a natural child is
deemed dependent upon the natural parent and no determination of actual dependence is
required. Tr. 242. She testified that the determination of which parent would be the
preferred representative payee could turn on the issue of whether the child lived over half
the time with one parent. She agreed that the determination of who should be
representative payee has no impact on the child’s entitlement to benefits. Tr. 244-45. On
cross-examination Ms. Forness testified that she never located a form completed by
Respondent requesting to be representative payee. Tr. 252.

There was never a dispute in the adversary adjudication that Mark Patton was entitled to
CIB; that Respondent received Mark’s CIB during the pertinent period; and that
Respondent only paid a portion of the benefits to Mark’s mother. SSA determined to
impose a CMP and assessment against Respondent based on: the allegations of Mark’s
mother, Jeri DeGroot; the joint parenting agreement and the marital settlement agreement
11

between Mark’s mother and Respondent; and the investigations of Ms. Forness and
Agent Haymon. The evidence the I.G. collected provided a reasonable basis in law and
fact for Mr. Bungard to: (1) conclude that Respondent improperly received $6,493 of
CIB during the period December 2006 through March 2008; and (2) impose a CMP of
$2,000 for each of 16 months from December 2006 through March 2008 when
Respondent allegedly failed to disclose Mark’s “true living arrangements,” and $2,000
for the false statement on the representative payee form dated April 16, 2007, for a total
CMP of $34,000 plus an assessment in lieu of damages of $6,493. Tr. 281-83.
Respondent prevailed in this case by successfully rebutting the I.G.’s prima facie
showing with the testimony of Respondent, Mark Patton, and Jeri DeGroot, not because
the I.G.’s prima facie case was not supported in law and fact.

I. Conclusion
For the foregoing reason, Respondent’s application for an EAJA award is denied.

The parties are advised as required by 45 C.F.R. § 13.27, that the appellate authority for
this decision is the Departmental Appeals Board (the Board) (20 C.F.R. § 498.220(c));
either party may seek review within 30 days of the date of this decision by filing and
serving exceptions; and not more than 30 days after receipt of such exceptions, the
opposing party may file it own exceptions to this decision. The Board procedures for
filing the request for review are available at:

www.hhs.gov/dab/divisions/appellate/guidelines/ssa.html.
All submissions to the Board must be made by mail to:

Department of Health and Human Services
Departmental Appeals Board, MS 6127
Appellate Division

330 Independence Ave., S.W.

Cohen Building, Room G-644
Washington, D.C. 20201.

/s/
Keith W. Sickendick
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
(FDA No. FDA-2013-H-0679)

Complainant
v.

SRSM LLC
d/b/a Sam’s Food Stores,

Respondent.
Docket No. C-13-866
Decision No. CR2889

Date: August 12, 2013

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) began this matter by serving an
administrative complaint on Respondent, SRSM LLC d/b/a Sam’s Food Stores, at
259 West Washington Street, Bristol, Connecticut 06010, and by filing a copy of
the complaint with the Food and Drug Administration's (FDA) Division of
Dockets Management. The complaint alleges that Sam’s Food Stores
impermissibly sold cigarettes to a minor, failed to verify the purchaser’s age by
means of photo identification containing a date of birth and utilized a self-service
display in a non-exempt facility, violating the Federal Food, Drug, and Cosmetic
Act (Act), 21 U.S.C. § 301 et seq., and its implementing regulations, 21 C.F.R.
Part 1140. CTP seeks to impose a $250 civil money penalty against Respondent
Sam’s Food Stores.

As provided for in 21 C.F.R. §§ 17.5 and 17.7, on June 12, 2013, CTP served the
complaint on Respondent Sam’s Food Stores by United Parcel Service. For
reasons entirely unexplained, CTP failed to file proof of service with the Civil
Remedies Division until August 8, 2013, nearly two months after it served
Respondent Sam’s Food Stores. It was only after I issued a Notice of Intent to
Dismiss CTP’s case that CTP submitted proof of service. Nevertheless, in the
complaint and accompanying cover letter, CTP explained that, within 30 days,
Respondent should pay the penalty, file an answer, or request an extension of time
in which to file an answer. CTP warned Respondent that, if it failed to take one of
these actions within 30 days, the Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering it to pay the full amount of the
proposed penalty.

Respondent Sam’s Food Stores has neither filed an answer within the time
prescribed, nor requested an extension of time within which to file an answer.
Pursuant to 21 C.F.R. § 17.11, Lassume that the facts alleged in the complaint (but
not its conclusory statements) are true. Specifically:

e At Respondent's business establishment, 259 West Washington Street,
Bristol, Connecticut 06010, on July 11, 2012, an FDA-commissioned
inspector observed a sale of Parliament Full Flavor cigarettes to a person
younger than 18 years of age;

e At Respondent's business establishment, 259 West Washington Street,
Bristol, Connecticut 06010, on July 11, 2012, an FDA-commissioned
inspector observed that staff failed to verify, by means of photo
identification containing the bearer's date of birth, that the purchaser of the
Parliament Full Flavor cigarettes was 18 years of age or older;

e Ina warning letter dated September 20, 2012, CTP informed Respondent of
the inspector's July 11, 2012 observations, and that such actions violate
federal law, 21 C.F.R. §§ 1140.14(a) and 1140.14(b)(1). The letter further
warned that Respondent's failure to correct its violations could result in a
civil money penalty or other regulatory action;

e During a two-part inspection conducted on January 2, 2013, and January
16, 2013, at Respondent's business establishment, 259 West Washington
Street, Bristol, Connecticut 06010, FDA commissioned inspectors
documented the presence of a self-service display of cigarette tobacco
products. The inspectors also documented that the establishment is open to
the public and Respondent does not prohibit persons younger than 18 years
of age from entering.

These facts establish that Respondent Sam’s Food Stores is liable under the Act.
The Act prohibits misbranding of a tobacco product. 21 U.S.C. § 331(k). A
tobacco product is misbranded if sold or distributed in violation of regulations
issued under section 906(d) of the Act. 21 U.S.C. § 387f(d); see 21 U.S.C.

§ 387c(a)(7)(B); 21 C.F.R. § 1140.1(b). The Secretary issued the regulations at
21 C.F.R. Part 1140 under section 906(d) of the Act. 21 U.S.C. 387(a); see 21
U.S.C. § 387f(d)(1); 75 Fed. Reg. 13,229 (Mar. 10, 2010). Under 21 C.F.R. §
1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any person
younger than 18 years of age. Under 21 C.F.R. § 1140.14(b)(1), a retailer must
verify, by means of photo identification containing the bearer's date of birth, that
no purchaser of cigarettes or smokeless tobacco is younger than 18 years of age.
Under 21 C.F.R. § 1140.16(c), retailers are prohibited from using self-service
displays to sell cigarettes or smokeless tobacco, unless the facility is one in which
persons younger than 18 years of age are not permitted to enter at any time, 21
C.F.R. § 1140.16(c)(2)(ii).

A $250 civil money penalty is permissible under 21 C.F.R. § 17.2.
Order

For these reasons, I enter default judgment in the amount of $250 against
Respondent SRSM LLC d/b/a Sam's Food Stores. Pursuant to 21 C.F.R.

§ 17.11 (b), this order becomes final and binding upon both parties after 30 days
of the date of its issuance.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Shivam, LLC
d/b/a Shivam Variety

Respondent.

Docket No. C-13-921
FDA Docket No. FDA-2013-H-0750

Decision No. CR2887

Date: August 13, 2013

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Shivam, LLC d/b/a Shivam Variety (Respondent), which
alleges facts and legal authority sufficient to justify imposing a $500 civil money
penalty. Respondent did not timely answer the Complaint, nor did Respondent
request an extension of time within which to file an Answer. Therefore, I enter a
default judgment against Respondent and assess a civil money penalty of $500.

CTP began this case by filing a copy of the Complaint with the Food and Drug
Administration’s (FDA) Division of Dockets Management and serving the
Complaint on Respondent. The Complaint alleges that on two separate occasions,
Respondent unlawfully sold a tobacco product to a minor and failed to verify that
the purchaser of the tobacco product was of sufficient age, thereby violating the
Federal Food, Drug, and Cosmetic Act (Act), codified at 21 U.S.C. §§ 301 — 399d,
and its implementing regulations found at 21 C.F.R. Part 1140. CTP seeks a civil
money penalty of $500 for these violations.

On June 25, 2013, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. § 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days, Respondent must
take one of the following three actions: pay the penalty; file an answer; or request
an extension of time within which to file an answer. CTP further stated that if
Respondent does not comply with one of the actions within 30 days, an
Administrative Law Judge (ALJ) could issue an initial decision by default
ordering Respondent to pay the full amount of the proposed penalty. 21 C.F.R.
§ 17.11.

Respondent has not filed an Answer within the time provided by regulation or
timely requested an extension. Pursuant to 21 C.F.R. § 17.11(a), 1am required to
“assume the facts alleged in the complaint to be true, and, if such facts establish
liability under [the Act],” issue an initial decision by default and impose a civil
money penalty. Accordingly, I must determine whether the allegations in the
Complaint establish violations of the Act.

Specifically, CTP alleges that:

e Respondent owns Shivam Variety, an establishment that sells tobacco
products and is located at 521 Main Street, Brockton, Massachusetts 02301.
Complaint §[ 3.

e On March 26, 2011, an FDA-commissioned inspector observed two
violations at Shivam Variety. First, “a person younger than 18 years of age
was able to purchase a package of Marlboro cigarettes . . . at approximately
11:10 AM.” The inspector also noted that “the minor’s identification was
not verified before the [March 26, 2011] sale...” Complaint 10.

e On May 5, 2011, CTP issued a Warning Letter to Shivam Variety. The
letter informed Respondent of the violations the FDA-commissioned
inspector observed on March 26, 2011, and explained that the FDA could
initiate a civil money penalty or other regulatory action if Respondent
failed to correct the violations. Moreover, CTP explained that the Warning
Letter was not intended to provide an exhaustive list of violations and that
Respondent was responsible for complying with the law. Complaint § 10.

e¢ On June 30, 2011, on behalf of Respondent Jay Patel responded to the
Warning Letter in an undated letter and telephone call. In his
correspondence, Mr. Petal “apologized for the sale to the minor.” He
further stated that, “[E]mployees were told about the Warning Letter and
instructed to check ID for all persons under age 40 who wish to purchase
tobacco products.” Complaint § 11.

On November 2, 2011, CTP responded to Mr. Patel by letter,
acknowledging receipt of the establishment’s response. Mr. Patel was also

reminded of Shivam Variety’s “continuing obligation to be in compliance
with the Act and its implementing regulations.” Complaint § 11.

During a two-part inspection on November 3 and 5, 2012, FDA-
commissioned inspectors documented two additional violations. First, “a
person younger than 18 years of age was able to purchase a package of
Marlboro cigarettes on November 3, 2012, at approximately 12:06 PM.”
The inspector also noted that, “the minor’s identification was not verified
before the sale.” Complaint § 1.

On November 12, 2012, CTP issued a Notice of Compliance Check
Inspection (Notice) informing Respondent that an inspection had been
conducted on November 3, 2012, and that during the inspection a minor
entered the establishment and purchased a regulated tobacco product. The
Notice also warned the Respondent that other potential violations of the
federal tobacco law may have been observed and if CTP determined that
there were additional violations of federal law, the establishment may
receive further notification from the FDA. Complaint § 2.

Taking these facts as true, I must find, pursuant to 21 C.F.R. § 17.11(a), that
Respondent is liable under the Act. The Act prohibits misbranding of a tobacco
product. 21 U.S.C. § 331(k). A tobacco product is misbranded if sold or

distributed in violation of regulations issued under section 906(d) of the Act,

codified at 21 U.S.C. § 387f(d); 21 U.S.C. § 387(a)(7)(B); 21 C.F.R. § 1140.1(b).
The regulations prohibit the sale of cigarettes or smokeless tobacco to any person

younger than 18 years of age. 21 C.F.R. § 1140.14(a). The regulations also
require retailers to verify by means of photo identification containing the
purchaser’s date of birth, that no person purchasing cigarettes or smokeless
tobacco is younger than 18 years of age. 21 C.F.R. § 1140.14(b)(1).

In the present case, on two separate occasions, Respondent violated 21 C.F.R.
§ 1140.14(a); 21 C.F.R. § 1140.14(b)(1). First, on March 26, 2011, Respondent
unlawfully sold a tobacco product to a minor and failed to verify, by means of
photo identification, the person purchasing the tobacco product was 18 years of

age or older. Subsequently, on November 3, 2012, Respondent again unlawfully

sold a tobacco product to a minor and failed to verify the person purchasing
tobacco was of lawful age. Therefore, Respondent’s actions on two separate
occasions, occurring on March 26, 2011 and November 3, 2012, at the same
establishment constitute violations of law for which a civil money penalty is
warranted.

The regulations require the ALJ to impose a civil money penalty that is either the
maximum amount provided for by law for the violations alleged; or the amount
sought in the Complaint, whichever is smaller. 21 C.F.R. § 17.11(a)(1).
Respondent received a Warning Letter after the first violation and subsequently
committed two additional violations within a 24-month period. The regulations
provide that the maximum penalty for this action is $500. 21 C.F.R. § 17.2. In its
Complaint, CTP seeks a civil money penalty in the amount of $500. Because
Respondent failed to file a timely Answer or request an extension of time to file an
Answer, I impose a civil money penalty in the amount of $500.

/s/
Steven T. Kessel
Administrative Law Judge