Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

Social Security Administration, Inspector General,
Petitioner,

Vv.

Salvatore Cappetta,
Respondent.

Docket No. C-12-1302
Decision No. CR3260
Date: June 11, 2014
DECISION

There is no basis for the imposition of a civil money penalty (CMP) or an assessment in
lieu of damages (assessment), pursuant to section 1129(a)(1) of the Social Security Act
(the Act) (42 U.S.C. § 1320a-8(a)(1)), against Respondent, Salvatore Cappetta.

I. Procedural History

The Counsel for the Inspector General (IG) of the Social Security Administration (SSA)
notified Respondent, Salvatore Cappetta, by letter dated July 26, 2012, that the SSA IG
proposed imposition of a CMP of $106,000 and an assessment of $95,167.20 against
Respondent, pursuant to section 1129 of the Social Security Act (Act) (42 U.S.C.

§ 1320a-8).' The SSA IG cited as the basis for the CMP and assessment that Respondent
failed to report to SSA that he worked while he received Social Security Disability
Insurance Benefits (DIB) and while his children received children’s benefits (CIB) from
November 2002 through April 2011. SSA IG Exhibit (SSA Ex.) 17.

' The current version of the Act is available at http://www.ssa.gov/OP_Home/ssact/ssact-
toc.htm.

Respondent requested a hearing pursuant to 20 C.F.R. § 498.202, * through counsel,
Charles J. Riether, by letter dated September 18, 2012. The case was assigned to me for
hearing and decision and the parties were notified by letter dated October 16, 2012, that I
would convene a prehearing conference by telephone on October 29, 2012 at 11:00 a.m.
Eastern Time (ET). The parties were advised by email dated October 26, 2012, that the
prehearing conference was rescheduled to November 5, 2012 at 11:00 a.m. ET due to the
anticipated arrival of Hurricane Sandy. A prehearing conference was convened by
telephone on November 5, 2012 at 11:00 a.m. ET. Counsel for the SSA IG participated
but neither Respondent nor his attorney appeared. The substance of the prehearing
conference is memorialized in my Scheduling Order & Notice of Hearing issued on
November 5, 2012 (Scheduling Order).

The Scheduling Order set the hearing to be conducted by video teleconference (VTC) on
March 5 and 6, 2013. The Scheduling Order also set the schedule for prehearing
development. Respondent filed no objections to the Scheduling Order.

On January 4, 2013, the SSA IG timely requested that Respondent produce documents.
Pursuant to the Scheduling Order § III Respondent was required to respond not later than
January 18, 2013.

Pursuant to § IV of the Scheduling Order, SSA IG and Respondent were required to file
lists of exhibits and witnesses and copies of proposed exhibits not later than February 1,
2013. On February 1, 2013, the SSA IG timely filed and served its list of proposed
witnesses and exhibits and copies of proposed exhibits and requested subpoenas for three
witnesses. Respondent did not file his lists of exhibits and witnesses or proposed exhibits
as ordered. Pursuant to § V of the Scheduling Order, the parties were required to file any
objections to proposed exhibits and witnesses not later than February 19, 2013.
Respondent filed no objections.

On February 12, 2013, I issued an order for Respondent to show good cause not later than
February 22, 2013, why this case should not be dismissed for abandonment as counsel for
Respondent had failed to appear at the prehearing conference and failed to comply with
the Scheduling Order. On February 14, 2013, the SSA IG moved for dismissal for
abandonment explaining that in addition to Respondent’s failure to appear and file his
exchange, he also failed to respond to the SSA IG timely request for production of
documents in violation of { III of the Scheduling Order. Pursuant to 20 C.F.R.

> References are to the 2011 revision of the Code of Federal Regulations (C.F.R.), unless
otherwise stated.
§ 498.213(c), Respondent had 10 days or until February 25, 2013 to file a response to the
motion. On February 19, 2013, I stayed further development of the case pending
Respondent’s response to my order to show cause, the SSA IG’s motion to dismiss, and
my subsequent ruling. As a result, the hearing set for March 5 and 6, 2013, was
cancelled. On February 20, 2013, I issued an order for Respondent to show good cause
not later than March 4, 2013, why Respondent’s attorney and Respondent should not be
sanctioned for failure to appear at the prehearing conference; failure to comply with the
Scheduling Order; failure to respond to the SSA IG’s Request for Production; and failure
to defend this action.

On February 22, 2013, Respondent’s attorney filed a pleading styled, “Respondent’s
Objection to Petitioner’s Motion to Dismiss and or Sanctions.” No other responses to my
orders to show cause were received. Respondent’s counsel asserted in the pleadings filed
that: he represented Respondent pro bono and had done so since May 2012;
Respondent’s Social Security benefits were discontinued at some unspecified time and
Respondent did not know why until Respondent received discovery responses from an
unidentified party on January 18, 2013; Respondent had no witnesses to call at the
hearing in this case other than those already noticed by the SSA IG; Respondent had no
evidence of earnings; and Respondent denied the allegations that he was employed by
Peter Cameron or paid wages. Respondent’s counsel also stated that Respondent
required additional time to review this case and respond to the SSA IG discovery request.
Respondent stated that he was ready, willing, and able to cross-examine the SSA IG
witnesses; and to permit further discovery related to or inspection of his home.
Respondent’s counsel represented that he personally suffered from symptoms of a health
condition; and he continued to grieve due to the death of his wife in December 2010.
Respondent requested that a new scheduling order be issued so that he could respond to
the SSA IG discovery request and that the hearing be rescheduled.

Pursuant to section 1129(b)(4) of the Act and 20 C.F.R. § 498.214, I may sanction a party
or attorney for failure to comply with an order or procedure, for failure to defend, or for
such other conduct that interferes “with the speedy, orderly, or fair conduct of the
hearing.” The sanction must reasonably relate to the severity and nature of the conduct.
Authorized sanctions include: drawing a negative factual inference or deeming a fact
admitted or established in the case of refusal to provide or permit discovery; prohibiting a
party from introducing evidence; striking pleadings; staying proceedings; dismissal of the
case; default judgment against the offending party; ordering the offending counsel or
party to pay fees and costs caused by the failure or misconduct; or refusal to consider a
motion or pleading not filed in a timely manner.

On April 15, 2013, I imposed sanctions against Respondent. My decision to impose
sanctions included the following considerations: Respondent and counsel did not deny
that there was no appearance on Respondent’s behalf at the prehearing conference on
November 5, 2012 and no explanation why there was no appearance; Respondent failed
to comply with my Scheduling Order; Respondent failed to respond to the SSA IG’s
request for production; it was necessary to stay development of this case to allow
Respondent and counsel to show cause; and the hearing set for March 5 and 6, 2013 had
to be postponed. I concluded that Respondent and his counsel’s conduct clearly delayed
case development, trial, and decision in this case. I also concluded that Respondent and
his counsel negligently failed to defend this case or willfully failed to comply with my
Scheduling Order, which had an adverse impact upon my docket and caused prejudice to
the SSA IG due to the delay and need to address the complications Respondent caused. I
concluded that, while Respondent’s February 22, 2013 filing showed that Respondent
had not abandoned his case, which would have required dismissal, a sanction was clearly
appropriate to ensure that Respondent and his counsel did not cause further delay in this
case, either negligently or intentionally. I did not consider the excuses offered by
Respondent’s counsel sufficient cause to excuse violations of procedures and my
Scheduling Order. The fact that Respondent’s counsel was receiving no fee for his
services was no excuse. Respondent’s counsel requested no clarification of the
requirements of the Scheduling Order or relief from those requirements. Counsel’s
personal problems are no excuse for failure to provide adequate representation. The SSA
IG urged that I dismiss Respondent’s case as a sanction, or that I impose other sanctions
authorized by the Act and regulations. But, I concluded that the severe sanction of
dismissal was not appropriate at that time based upon Respondent’s and his counsel’s
failings. However, I concluded that lesser sanctions were appropriate with the more
severe sanction reserved for any future failures or misconduct. Counsel for Respondent
was admonished that any further failures or misconduct may be grounds for imposing the
more severe sanction against Respondent, for imposing costs and fees against
Respondent’s counsel, and may cause transmission of orders imposing sanctions to the
Connecticut Judicial Branch Statewide Grievance Committee.

The following additional sanctions were imposed on April 15, 2013:

1. Respondent failed to file a list of proposed exhibits and waived the right to do
SO;

2. Respondent failed to file a list of proposed witnesses and waived the right to do
SO;

3. Respondent failed to file proposed exhibits and waived the right to do so; and
4. Respondent failed to file any objection to the SSA IG’s request for subpoenas

for Salvatore Cappetta, Elisabetta Cappetta, and Peter Cameron, and waived the
right to do so.
I specified in my April 15, 2013 Order imposing sanctions that Respondent’s rights to
attend the trial with counsel or a representative, to confront and cross-examine all
witnesses, and such other due process rights as are granted by the Act and regulations
were preserved.

Also on April 15, 2013, I ordered Respondent to respond in proper form to the SSA IG’s
request for production of documents not later than May 3, 2013. I also ordered that the
parties confer and recommend hearing dates by May 3, 2013. The SSA IG advised me on
May 2, 2013, that the IG was available for hearing on July 16, 17, or 23, 2013. On May
3, 2013, Respondent advised me that he was available for a one day trial on July 16, 17,
18, or 19, 2013.

On May 7, 2013, I issued an Order setting the hearing for July 16, 2013. also scheduled
a final prehearing conference for July 8, 2013, and the filing of prehearing briefs for July
1, 2013. On July 8, 2013, I issued subpoenas for the July 16 hearing and the parties were
provided notice of the specific hearing location. The final prehearing conference was
convened on July 8, 2013. During the prehearing conference, Respondent orally moved
for a 30-day postponement of the case to permit counsel for Respondent to obtain
qualified co-counsel. Counsel for the IG orally opposed the motion citing prejudice
secondary to any further delay in bringing this case to trial. Counsel for Respondent was
instructed to file his motion for postponement in writing. On July 9, 2013, Respondent
filed a written request for postponement of up to 90 days. On July 11, 2013, counsel for
SSA IG filed a response to Respondent’s motion for postponement, withdrawing the prior
objection to a 30-day postponement but objecting to a 90-day postponement. The SSA
IG also requested that sanctions be imposed against Respondent.

On July 11, 2013, I postponed the hearing set for July 16, 2013, and ordered that not later
than July 16, 2013, counsel for the parties consult and file a joint status report advising
me of their availability for a one-day hearing to be convened by VTC. [also ordered that
Respondent respond to the IG’s motion for sanctions not later than July 26, 2013. On
July 26, 2013, Respondent submitted his response to the motion for sanctions and
requested that the hearing be postponed for an unspecified period until Respondent could
retain the services of Alan B. Rubenstein.

On August 7, 2013, counsel for the SSA IG advised me that despite her attempt, she was
unable to confer with Respondent’s counsel and she advised me of the IG’s availability
for hearing. Respondent failed to advise me of his availability for hearing. On August
27, 2013, l issued an order for Respondent to appear for a hearing on Wednesday,
September 25, 2013 and for a final prehearing conference on Thursday, September 19,
2013. I advised Respondent that his failure to appear would be treated as a waiver of his
right to further participation in these proceedings.

The final prehearing conference was convened in this case by telephone on September
19, 2013. Counsel for Respondent advised me that on September 17, 2013, he filed a
motion for postponement, a request to take a deposition, and a motion to amend
Respondent’s witness list and to submit medical evidence. Counsel for the IG confirmed
that she had received Respondent’s motions. Counsel for the IG orally advised me that
the IG opposed each motion. I advised the IG’s counsel that her oral opposition was
adequate under the circumstances and no written opposition need be filed. Respondent
requested that the hearing scheduled for September 25, 2013, be postponed for 120 days
to permit him to obtain other counsel and to permit him to engage in discovery. Because
the motions were not received by my office, I requested that Respondent’s counsel
forward copies by email so that I could consider the motions and issue a ruling.

On September 20, 2013, Respondent filed a motion to admit some of his medical records.
On September 23, 2013, I issued a ruling denying Respondent’s motions for a
postponement, to amend his witness and exhibits list, to file additional exhibits, and to
take a deposition or for a subpoena duces tecum. I also ordered Respondent and his
counsel to appear at the hearing on September 25, 2013. My rationale is set forth in
detail in my ruling dated September 23, 2013. Respondent filed another motion on
September 23, 2013, offering additional medical evidence and the motion was denied
during the hearing on September 25, 2013. Transcript (Tr.) 34-42.

On September 25 and November 20, 2013, a hearing was convened by VTC. The SSA
IG appeared by VTC from Baltimore, MD; Respondent appeared by VTC from New
Haven, Connecticut; I participated by VTC from Kansas City, MO; with the court
reporter and Attorney Advisor Whitney Fisler participating from my office in
Washington, DC. Joscelyn Funnié, Esquire, appeared on behalf of Petitioner, the SSA
IG. Respondent was represented by Charles Riether. A transcript of the proceedings was
prepared. The SSA IG offered SSA exhibits (SSA. Exs.) 1 through 19. Tr. 22. SSA Exs.
1 through 12; SSA Ex. 13 pages | through 3, and 9 through 12; SSA Exs. 14-15; and
SSA Ex. 17 were admitted. Tr. 32, 50-51, 71, 89, 95, 107, 109-110, 115. No exhibits
offered by Respondent were admitted as substantive evidence but any documentary
evidence submitted by Respondent remains with the record for any subsequent review.
Tr. 34-42. The SSA IG called the following witnesses: Chad Bungard, counsel to the
SSA IG; Respondent, Salvatore Cappetta; Elisabetta Cappetta, Respondent’s wife; Peter
Cameron, Respondent’s purported employer; Gulrukh Niazi, SSA Claims Representative;
and SSA IG Special Agent (SA) Sarah Hanson.

The SSA IG filed a post-hearing brief (SSA Br.) on February 25, 2014. Respondent also
filed his post-hearing brief (R. Br.) on February 25, 2014. The SSA IG filed a post-
hearing reply brief on March 21, 2014. Respondent failed to timely file a reply brief.
After inquiry by my staff, Respondent’s counsel advised staff by email on April 17, 2014
that further reply was waived. The record was then considered closed and ready for
lecision.

II. Discussion
A. Applicable Law

Pursuant to title II of the Act, an individual who has worked in jobs covered by Social
Security for the required period of time, who has a medical condition that meets the
definition of disability under the Act, and who is unable to work for a year or more
because of the disability, may be entitled to monthly cash disability benefits. 20 C.F.R.
§§ 404.315-404.373. Pursuant to title XVI of the Act, certain eligible individuals are
entitled to the payment of Supplemental Security Income (SSI) on a needs basis. To be
eligible for SSI payments, a person must meet U.S. residency requirements and must be:
(1) 65 years of age or older; (2) blind; or (3) disabled. Disability under both programs is
determined based on the existence of one or more impairments that will result in death or
that prevent an individual from doing his or her past work or other work that exists in
substantial numbers in the economy for at least one year. 20 C.F.R. §§ 416.202, 416.905,
416.906. Additionally, a person must have limited income and resources to be eligible
for SSI. 20 C.F.R. §§ 416.202(c) and (d), 416.1100-.1182, 416.1201-.1266. All assets,
other than a car and a primary residence, are considered resources when determining
whether an individual has “limited” resources. 20 C.F.R. § 416.1210. The income and
resources of a spouse or other individuals in a household are also subject to being
considered. 20 C.F.R. §§ 416.1201-.1204; 416.1802. SSI is not at issue in this case as
Respondent received no benefits under that program.

Section 1129(a)(1) of the Act authorizes the imposition of a CMP or an assessment
against:

(a)(1) Any person... who —

(A) makes, or causes to be made, a statement or
representation of a material fact, for use in determining
any initial or continuing right to or the amount of
monthly insurance benefits under title II or benefits or
payments under title VIII or XVI, that the person
knows or should know is false or misleading,

(B) makes such a statement or representation for such
use with knowing disregard for the truth, or

(C) omits from a statement or representation for such
use, or otherwise withholds disclosure of, a fact which
the person knows or should know is material to the
determination of any initial or continuing right to or
the amount of monthly insurance benefits under title II
or benefits or payments under title VIII or XVI, if the
person knows, or should know, that the statement or
representation with such omission is false or
misleading or that the withholding of such disclosure
is misleading ....

The Commissioner of SSA (the Commissioner) delegated the authority of section 1129 of
the Act to the IG:

(a) The Office of the Inspector General may impose a penalty
and assessment, as applicable, against any person who it
determines in accordance with this part—

(1) Has made, or caused to be made, a statement or
representation of a material fact for use in determining any
initial or continuing right to or amount of:

(i) Monthly insurance benefits under title II of the
Social Security Act; or

(ii) Benefits or payments under title VIII or title XVI
of the Social Security Act; and

(2)(i) Knew, or should have known, that the statement or
representation was false or misleading, or

(ii) Made such statement with knowing disregard for
the truth; or

(3) Omitted from a statement or representation, or
otherwise withheld disclosure of, a material fact for use in
determining any initial or continuing right to or amount of
benefits or payments, which the person knew or should
have known was material for such use and that such
omission or withholding was false or misleading.

20 C.F.R. § 498.102(a). A material fact is a fact that the Commissioner may consider in
evaluating whether an applicant is entitled to benefits or payments under titles II, VIL, or
XVI of the Act. Act § 1129(a)(2); 20 C.F.R. § 498.101. Individuals who violate section
1129 are subject to a CMP of not more than $5,000 for each false or misleading statement
or representation of material fact or failure to disclose a material fact. Violators are also
subject to an assessment in lieu of damages, of not more than twice the amount of the
benefits or payments made as a result of the statements, representations, or omissions.
Act § 1129(a)(1); 20 C.F.R. § 498.103(a).

In determining the amount of the CMP to impose, the SSA IG must consider: (1) the

nature of the subject statements and representations and circumstances under which they
occurred; (2) the degree of culpability of the person committing the offense; (3) the
person’s history of prior offenses; (4) the person’s financial condition; and (5) such other
matters as justice requires. Act § 1129(c); 20 C.F.R. §498.106(a).

Section 1129(b)(2) of the Act specifies that the Commissioner shall not decide to impose
a CMP or assessment against a person until that person is given written notice and an
opportunity for the determination to be made on the record after a hearing at which the
person is allowed to participate. The Commissioner has provided by regulations at
20 C.F.R. pt. 498 that a person against whom a CMP is proposed by the SSA IG may
request a hearing before an ALJ of the Departmental Appeals Board (the Board). The
ALJ has jurisdiction to determine whether the person should be found liable for a CMP
and/or an assessment and the amount of each. 20 C.F.R. §§ 498.215(a), 498.220(b). The
person requesting the hearing, the Respondent, has the burden of going forward and the
burden of persuasion with respect to any affirmative defenses and any mitigating
circumstances. 20 C.F.R. § 498.215(b)(1). The SSA IG has the burden of going forward
as well as the burden of persuasion with respect to all other issues. 20 C.F.R.

§ 498.215(b)(2). The burdens of persuasion are to be judged by a preponderance of the
evidence. 20 C.F.R. § 498.215(c).

B. Issues

Whether there is a basis for the imposition of a CMP pursuant to section
1129(a)(1) of the Act and 20 C.F.R. § 498.102(a).

Whether there is a basis for the imposition of an assessment pursuant to
section 1129(a)(1) of the Act and 20 C.F.R. § 498.102(a).

fo)

Whether the CMP and assessment proposed are reasonable considering the
factors specified by section 1129(c) of the Act and 20 C.F.R. § 498.106(a).

Whether or not Respondent may be liable for an overpayment of Social Security benefits
and whether or not he continues to meet the requirements for payment of Social Security
benefits are not issues before me.
10

C. Findings of Fact, Conclusions of Law, and Analysis

My conclusions of law are set forth in bold followed by the statement of pertinent facts
and my analysis. I have carefully considered all the evidence and the arguments of both
parties, although not all may be specifically discussed in this decision. I discuss the
credible evidence given the greatest weight in my decision-making.* I also discuss any
evidence that I find is not credible or worthy of weight. The fact that evidence is not
specifically discussed should not be considered sufficient to rebut the presumption that I
considered all the evidence and assigned such weight or probative value to the credible
evidence that I determined appropriate within my discretion as an ALJ. There is no
requirement for me to discuss the weight given every piece of evidence considered in this
case, nor would it be consistent with notions of judicial economy to do so. Charles H.
Koch, Jr., Admin. L. and Prac. § 5:64 (3d ed. 2013).

1. Respondent was entitled to receive DIB under section 223 of the Act
for at least 24 months.

2. Pursuant to section 221(m)(1)(b) of the Act, the Commissioner is
prohibited from considering any work activity of Respondent as
evidence that Respondent was no longer disabled and no longer
entitled to DIB.

3. Respondent’s work activity after he received DIB for at least 24
months is not a fact that the Commissioner was permitted to evaluate
to determine if Respondent was entitled to continuing receipt of DIB,
and therefore, not a material fact within the meaning of section
1129(a)(2) of the Act or 20 C.F.R. § 498.101.

4. Although Respondent failed to report work activity in violation of
the regulation, the fact he engaged in work activity was not a material
fact and the failure to report is not a basis for the imposition of a CMP
or an assessment under section 1129 of the Act.

> “Credible evidence” is evidence that is worthy of belief. Black's Law Dictionary 596
(18th ed. 2004). The “weight of evidence” is the persuasiveness of some evidence
compared to other evidence. Id. at 1625.
11

5. The SSA IG failed to show by a preponderance of the evidence that
Respondent knew or should have known that his work activity was a
material fact that he failed to report because pursuant to section
221(m) of the Act his work activity is not material as a matter of law.

a. Allegations

Counsel to the SSA IG, B. Chad Bungard, notified Respondent by letter dated July 26,
2012, that the SSA IG proposed to impose against Respondent a CMP of $106,000 and
an assessment in lieu of damages of $95,167.20, a total penalty of $201,167.20. The SSA
IG notice stated that the CMP was based on Respondent’s failure to disclose that during
the period November 2002 through April 2011, he worked for Cameron Construction,
Inc. The SSA IG notice indicates that the IG determined that Respondent committed 53
separate violations, one violation for each of the 53 months beginning December 2006
and continuing through April 2011, that he failed to report that he worked for Cameron
Construction, Inc. The notice explains that there may be no CMP or assessment for
withholding or failure to report material facts prior to December 2006, as the effective
date of section 1129 of the Act and 20 C.F.R. § 498.102(a)(3) was November 26, 2006.
71 Fed. Reg. 28574, 28575 (May 17, 2006). The SSA IG notice indicates that the
assessment was calculated as twice the $47, 583.60 in DIB payments received by
Respondent and his children during the period December 2006 through April 2011. SSA
Ex. 17 at 1.

The SSA IG alleges before me that Respondent committed 53 separate violations under
section 1129(a)(1) of the Act during the period December 2006 through April 2011, by
failing to disclose to SSA that he worked for Cameron Construction while he and his
children received DIB and CIB payments. The SSA IG further alleges that Respondent
and his children improperly received $47,583.60 of DIB payments during the period
December 2006 through April 2011. The SSA IG requests that I approve a combined
CMP and assessment of $201,167.20. SSA Br. at 1-2.

SSA has the burden to establish by a preponderance of the evidence, that is, that it is
more likely than not, that Respondent failed to report the material fact that he worked
while receiving DIB. 20 C.F.R. §§ 498.102(a), 498.215(b)(2) and (c).

b. Facts

SSA records reflect that SSA determined that Respondent was disabled and entitled to
DIB with an onset of disability on January 15, 1997, due to rheumatoid arthritis, heart
condition, and headaches. He reported being self-employed doing construction in 1996,
12

997, 1998, and 1999, with net income over $400 only in 1997 and 1996. On October
26, 1998, Respondent was contacted and reported owning a construction business; he

reported that he no longer ran the business; a former employee ran the business; and he
went to the job less than 15 hours per month just to see how it was going. SSA Ex. | at
-2, 6.

The SSA IG does not dispute that Respondent is medically eligible for benefits and the
SSA IG stipulated to his disability based on medical factors. Tr. 37-40.
On June 16, 2009, an anonymous concerned citizen contacted SSA and reported that the
ifestyle of Respondent’s family was questionable because: Respondent was in the
process of completing a large home renovation, including an apartment and an above
ground pool; Respondent received disability benefits and both he and his wife earne:
wages; Respondent bragged about the money he earned working for Peter Cameron
Construction for the last 10 years, money that was paid under-the-table; and Respondent
worked daily from 7:30 a.m. to 4:30 p.m.

SSA IG presented Reports of Investigation prepared by SA Hanson that reflect that an
investigation of Respondent was initiated on June 24, 2009, officially opened and
assigned to her on July 1, 2009, and continued until November 21, 2011. SSA Exs. 3, 5-
14. SA Hanson determined based on SSA records that Respondent was found disabled
due to erythematous conditions (includes discoid lupus), based on an application filed
September 15, 1998, with a date of entitlement of September 1997; and that he had no
reported earnings for 1999 through 2008. On July 16, 2009, she had Respondent’s record
flagged to reflect that there was an open SSA IG investigation assigned to her and that no
action was to be taken on the case, including no notices and no contacts with the
Respondent. SSA Ex. 3 at 2-3. SA Hanson located records for Peter Cameron and his
businesses, which included Cameron Construction and Remodeling. SA Hanson
determined that Respondent’s wife and children received benefits on his account at one
time but none were in pay status on July 17, 2009, when she inquired. SSA Ex. 3 at 4-5.
SA Hanson learned that no review of Respondent’s work had been done since his initial
application; SSA had not sent Respondent any notices regarding work or request for work
history and Respondent had reported no work activity; and no continuing disability
review had been done. SSA Ex. 3 at 7. SA Hanson determined that Respondent’s wife,
Elisabetta Cappetta received $253 in benefits from 1997 through 2005. She determined
that the following children of Respondent received benefits during the periods indicated
but she did not state the amount of benefits paid each child: Rosanna Cappetta,
September 1997 to November 2007; Daniela Cappetta, September 1997 to June 2005;
Aniello Cappetta, September 1997 to November 2003; Salvatore Cappetta, Jr., September
1997 to June 2001. SSA Ex. 3 at 7-8.
13

On July 27, 2009, SA Hanson received photographs of Respondent and his wife, and
Peter Cameron and his wife from the Connecticut Department of Motor Vehicles (DMV).
She also obtained information from the DMV regarding the vehicles owned by
Respondent and his wife, the Cameron’s, and Cameron Construction. SSA Ex. 5 at 2.

On August 26, 2009, SA Hanson conducted surveillance of Respondent while SA Kevin
Rogers conducted surveillance of Peter Cameron. SA Hanson began her surveillance at
Respondent’s home at about 6:30 a.m. She noted that the home had no siding but rather a
jouse-wrap material like Tyvek® and appeared to be under a remodel or construction;
she noted an above ground pool; and she observed a three car garage with a room above
that appeared to be under construction. She saw Respondent water the lawn. She
observed Respondent move a red Chevy Avalanche pickup to a different location on the
property. When a small black sedan left Respondent’s driveway, she drove her
surveillance vehicle around the block and when she returned the pickup was gone.
Approximately 16 minutes later the pickup returned driven by Respondent with either a
large white window or a bathtub on the back. Subsequently, she saw Respondent
measuring the large white item in the bed of the pickup. She ended the simultaneous
surveillances at 8:30 a.m. At 9:57 a.m. she drove by Respondent’s residence and saw
im leaning out of a window in the garage and the large white item was still on the
pickup. SSA Ex. 6.

SA Hanson and SA Stephen Brown interviewed Peter Cameron on November 6, 2009.
SA Hanson’s Report of Investigation reflects that Peter Cameron identified Respondent
from a photograph. Peter Cameron told SA Hanson that: Respondent worked for him for
approximately the past eight years; Respondent was paid by the job; Respondent worked
three to five hours per day when he worked; the amount of pay depended upon the job
and could be $50, $100, or $500 per job; Respondent would do any type of work;
Respondent could work several weeks in a month and make $700 to $800 or more; he
paid Respondent cash; he paid Respondent from $150 to $1,500 per week depending
upon the job but that he did not pay Respondent $20,000 or $30,000 in a year. SSA Ex. 7
at 1-3; Tr. 122-25. On February 23, 2010, SA Hanson and SA Brown interviewed Peter
Cameron again. SA Hanson reported that Peter Cameron said that Respondent’s work for
him included tiling backsplashes, walls, and floors; hanging doors; trim work, framing,
and taping sheetrock. Peter Cameron also stated that he no longer heard from
Respondent, who did no work for him after the investigators first came around on
November 6, 2009. SSA Ex. 9 at 2.

SA Hanson and SA Brown interviewed Respondent on November 6, 2009. SA Hanson’s
report reflects that Respondent told her that he suffers from rheumatoid arthritis and
lupus and he had a stroke the prior year. Respondent stated that he works once in a while
doing little things and, if there is heavy work, he has friends who help. Respondent
stated that he would make a couple hundred dollars and maybe he could work a few
hours. SA Hanson reported that Respondent told her that he worked for Peter Cameron

14

once in a while, doing little things and he had done so for years. SSA Ex. 7 at 4-6;

Tr. 116-22. SA Hanson and SA Brown continued their interview of Respondent on
November 9, 2009. SA Hanson reported that during this second interview, Respondent
stated that his business dissolved in 1998; he did not work after 1998; he never went back
to work; but he recently started helping out a friend; he denied being paid cash for work
except he might be given $10 or $20 to buy cigarettes. An attorney, Vincent Gallo,
entered the interview room and a designation of representation was executed.
Respondent made a sworn statement. SSA Ex. 8 at 1-4; Tr. 86-87. In his sworn
statement, Respondent stated that he had not been employed from 1998 to November 9,
2009, the date of the statement. SSA Ex. 8 at 6. In response to questions by SA Hanson,
Respondent stated that he helped out Peter Cameron because Cameron helped him with
is house; he was never paid by Cameron but he did receive a gift certificate for a couple
undred dollars from Cameron. Respondent also stated that Peter Cameron lied. SSA
Ex. 8 at 4; Tr. 125-30.

SSA determined that Respondent’s disability ceased effective November 1, 2010, with
the last payment of DIB on January 1, 2011. SSA Ex. 13 at 9-11. SSA determined that
Respondent was overpaid DIB in the amount of $85,325.10 for the period November
2002 through April 2011, based on the determination that Respondent was paid $1,500
per month during an eight year period that began on November 2001. SSA Ex. 11; SSA
Ex 12 at 10. SSA also determined that Respondent’s children were overpaid child
benefits in the amount of $24,377.00. SSA Ex. 12 at 10.

SA Hanson testified in response to my questions that she asked Peter Cameron general
questions. SA Hanson surmised based on Cameron’s responses to general questions that
Respondent had worked for him on and off for eight years, he paid Respondent cash, and
the amount paid depended upon the job and varied from $150 to $1500 per week. Mr.
Cameron was not asked and did not disclose how much he paid Respondent over the
course of a year. But he denied paying Respondent $20,000 to $30,000 per year. SA
Hanson admitted in response to questions from Respondent’s counsel that she definitely
did not know how much Respondent was paid by Mr. Cameron. Tr. 154-58. In response
to my questioning, SA Hanson indicated that an analysis of Respondent’s and his
family’s reported income, resources, liabilities, and expenses did not reflect that
Respondent was receiving significant amounts of unreported cash income. Tr. 178-83.

Respondent testified that he met Peter Cameron in 2000, and they became friends. Tr.
248. He testified that he never worked for Peter Cameron but he gave him construction
related advice. Tr. 250-51. He testified that he did do little things such as going to get
coffee and cigarettes. He denied telling SA Hanson that he used to do things for
Cameron or that he worked for Cameron and that if heavy work was involved friends
elped. He admitted that he received $50 to $100 when doing things for Cameron but
stated the money was a gift. He testified that Peter Cameron gave him a gift at Christmas
and also when Respondent went to Italy. Tr. 253-55. Respondent denied that he worked

15

but agreed that he knew that if he worked he had to report the work to SSA. Tr. 301-02.
On cross-examination Respondent denied working for Peter Cameron but admitted that
he received minimal gifts from him. Tr. 315.

Elisabetta Cappetta, Respondent’s wife, testified that Respondent did not work for Peter
Cameron. Tr. 322-23, 333.

Peter Cameron testified that he has known Respondent for 15 years, having met him
through a mutual friend. Tr. 344. Cameron testified that he and Respondent were friends
but that they have not spoken due to the investigation by SSA. Tr. 344-455. At hearing
he denied that Respondent ever worked for him but testified that Respondent would
show-up at job sites and run to the store for him if he needed materials. Tr. 345-47. He
denied paying Respondent wages but by running errands for him Respondent was paying
back for work Cameron did on his house. Tr. 350. Peter Cameron testified that
sometimes he called Respondent and requested his help and sometimes Respondent just
showed-up. Tr. 350-51. He testified that he gave Respondent gifts at Christmas; he gave
him money for his kids’ birthdays; and he gave him a couple hundred bucks when he
went to Italy. Tr. 352. He also gave Respondent money to go get coffee and donuts and
for the gas Respondent used going to the store. Tr. 352. He denied telling SA Hanson
that Respondent did tiling, taping, sheetrock, backsplashes, grout or mortar work. Tr.
353-54. On cross-examination, Mr. Cameron testified that he did not pay Respondent
wages, by check or otherwise. Tr. 355.

Gulrukh Niazi, an SSA Claims Representative, testified that she determined that
Respondent had worked based on the investigator reports and she input the information to
stop his receipt of benefits. Tr. 365, 370-74. She also determined that Respondent was
engaged in substantial gainful activity. She testified that to qualify as substantial gainful
activity pay for work had to be $940 per month in in 2008 and $980 per month in 2009,
and that was the limit on how much an individual could earn per month and still be
entitled to receive DIB payments. She testified that she determined the amount of
Respondent’s earnings based on the statements of Peter Cameron to the investigators. Tr.
375-77. Her opinion that Respondent engaged in substantial activity is not credible as the
evidence of record, including the statements of Cameron as recorded by the investigators,
does not support a finding that Respondent actually earned more than the substantial
gainful activity amount or an equivalent in any month. The evidence is also insufficient
to show that Respondent’s work for Cameron was substantial gainful activity based on
either earnings or level of activity.

SSA IG failed to offer any admissible evidence of the monthly or total amount of DIB
payments to Respondent or the CIB payments for his children for the period of December
2006 to November 6, 2009, the period in issue. SSA IG offered copies of an email
marked as SSA Ex. 16. However, Respondent’s objection to the document for lack of
authentication was sustained subject to the document being reoffered with a proper
16

foundation. Tr. 28-33. The SSA IG failed to reoffer the document. The SSA IG alleges
in the July 26, 2012 notice of proposed CMP and assessment that Respondent and his
children improperly received $47,583.60 in DIB and children’s benefits from December
2006 through April 2011. Respondent does not concede that either his DIB or the CIB
payments were improper. The SSA IG evidence does not support the amount alleged in
the July 26, 2012 notice.

There is no dispute that there is no evidence of work activity after November 2009. Tr.
104.

c. Analysis

The SSA IG proposes to impose a CMP of $2,000 per month for each of the 53 months
from December 2006 through April 2011, during which Respondent failed to report that
he worked for Peter Cameron, a total CMP of $106,000. The SSA IG also proposes an
assessment in lieu of damages in the amount of $95,167.20, twice the $47,583.60 amount
of DIB and CIB payments Respondent and his children allegedly received during the
pertinent period. I conclude that there is no basis to impose either a CMP or an
assessment.

A beneficiary entitled to cash benefits for a period of disability, such as Respondent, is
required to promptly notify SSA when his or her condition improves; when he or she
returns to work; when he or she increases the amount of work performed; or when
earnings increase. 20 C.F.R. § 404.1588(a). The term “work” as used in 20 C.F.R.

§ 404.1588(a) is not specifically defined in either the Act or the regulations. According
to 20 C.F.R. § 404.1571:

The work, without regard to legality, that you have done
during any period in which you believe you are disabled may
show that you are able to work at the substantial gainful
activity level. If you are able to engage in substantial gainful
activity, we will find that you are not disabled. ... Even if
the work you have done was not substantial gainful activity, it
may show that you are able to do more work than you
actually did. We will consider all of the medical and
vocational evidence in your file to decide whether or not you
have the ability to engage in substantial gainful activity.

This regulation indicates that any work activity may impact the determination of whether
or not one can perform substantial gainful activity and the determination of entitlement or
continuing entitlement to Social Security benefits. Therefore, the regulation supports an
interpretation that all work activity should be reported — no matter how minimal, whether
for pay or profit or not, whether legal or illegal, or whether in support of a charitable or
17

volunteer organization — which is consistent with the SSA IG’s position. Tr. 421.
However, 20 C.F.R. § 404.1572 creates potential confusion about whether all work
activity need be reported. The regulation defines “substantial gainful activity” as work
activity that is both substantial and gainful. “Substantial work activity” is defined as
significant physical or mental activity. “Gainful work activity” is work of the kind that is
usually done for pay or profit whether or not there is pay or profit. 20 C.F.R.

§ 404.1572(a) —(b). However, the regulatory language suggests that not all work activity
need be reported, even if it rises to the level of substantial gainful activity. The
regulation states that, generally, hobbies, activities of daily living, household tasks, club
activities, school attendance, and social programs are not considered substantial gainful
activity. 20 C.F.R. § 404.1572(c); Social Security Ruling 83-33: Titles II and XVI:
Determining Whether Work Is Substantial Gainful Activity —Employees. The evidence
does not show that Respondent was actually informed about what activities amounted to
work within the meaning of the regulation for which reporting was required by 20 C.F.R.
§ 404.1588(a). However, Respondent does not defend on the basis that he did not know
what activity qualified as work that he had to report. In fact, he admitted at hearing that
he knew if he worked, he was supposed to report to SSA. Tr. 301-02.

Respondent’s argument is that he did no work for Cameron Construction or Peter
Cameron. Respondent’s argument is not persuasive. Respondent admitted that he ran
errands for Peter Cameron and that he received money, items of value, or in kind labor on
his house from Peter Cameron. Tr. 253-55, 315. Therefore, I conclude that Respondent
did engage in some gainful work activity for Peter Cameron. The evidence does not
show that the work rose to the level of “substantial gainful activity;” or when and how
frequently gainful work activity was actually performed. The SSA IG conceded at
hearing that no gainful work activity was performed after about November 6, 2009. It is
not necessary to resolve these specific fact issues given the decision in this case.

Pursuant to section 1129(a)(1)(C) of the Act and 20 C.F.R. § 498.102(a), the SSA IG may
impose a CMP and an assessment in lieu of damages against anyone, if the following
elements are satisfied:

(1) The person:
(a) omits from a statement or representation a material fact or otherwise
withholds disclosure of a material fact
(b) for use in determining
(i) an initial or a continuing right to DIB benefits, or
(ii) the amount of those benefits; and
(2) The person knows or should know the fact is material to the determination of
(a) any initial or continuing right to, or
(b) the amount of monthly benefits; and
(3) The person knows, or should know, that
18

(a) the statement or representation with such omission is false or
misleading, or

(b) the withholding of such disclosure of t

e material fact is misleading.

Act § 1129(a)(1)(C); 20 C.F.R. § 498.102(a). A material fact is a fact that the

Commissioner may conside

payments under the Act. Ai
a beneficiary is engaging in
that fact in evaluating whet
disability payments or the a:
404.401 (a), 404.1505, 404.
is material under the Act an
influence, or was capable o
Miller, 621 F.Supp.2d 323,
2010), citing Kungys v. U.S.

r in evaluating whether an applicant is entitled to benefits or

ct § 1129(a)(2); 20 C.F.R. § 498.101. Generally, the fact that

work is material because the Commissioner may consider

er the beneficiary is entitled initially and to continuing

mount of those payments. 20 C.F.R. §§ 404.315-.321,

510, 404.1589-.1591. A statement of fact or an omitted fact

d most federal statutes, if it “has the natural tendency to
influencing the decision” of the Commissioner. U.S. v.

at 331 (W.D. Va. 2009) aff'd 394 Fed. App’x 18 (4th Cir.

., 485 U.S. 759, 770 (1988). Whether a statement of fact or

omitted fact is material does not depend on whether the Commissioner was deceived or

whether any decision woul
694 (8th Cir. 2005). There

have been different. U.S. v. Henderson, 416 F.3d, 686, at
‘ore, normally I would conclude that Respondent’s failure to

report that he engaged in work activity, no matter how minimal that work activity or how
infrequent, was an omission or failure of Respondent to report a material fact subjecting
him to a CMP and assessment under section 1129(a)(1)(C) of the Act.

Respondent benefits howev:
specifically section 221(m)

(1) In any cas
insurance ben

er from a provision of the Act not addressed by the SSA IG,
of the Act, which provides:

e where an individual entitled to disability
efits under section 223 or to monthly insurance

benefits under section 202 based on such individual’s
disability (as defined in section 223(d)) has received such
benefits for at least 24 months—

(A) no
Commi

continuing disability review conducted by the
issioner may be scheduled for the individual

solely as a result of the individual’s work activity;

(B) no

work activity engaged in by the individual

may be used as evidence that the individual is no

longer

(C) no

disabled; and

cessation of work activity by the individual may

give rise to a presumption that the individual is unable
to engage in work.
19

(2) An individual to which paragraph (1) applies shall
continue to be subject to—

(A) continuing disability reviews on a regularly
scheduled basis that is not triggered by work; and

(B) termination of benefits under this title in the event
that the individual has earnings that exceed the level of
earnings established by the Commissioner to represent
substantial gainful activity.

Act § 221(m) (emphasis added). The foregoing section of the Act is implemented, at
least in part, by 20 C.F.R. § 404.1590(i), 71 Fed. Reg. 66,840, 66,843-66,850 (Nov. 17,
2006).

Respondent was found disabled and entitled to DIB with an onset date of January 15,
1997 (SSA Ex. | at 1-2); which is more than five years before November 2002, the
earliest date that the SSA IG alleges Respondent engaged in gainful work activity that he
failed to report (SSA Ex. 17). Pursuant to section 221(m)(1)(B) of the Act, Congress
prohibited the Commissioner from considering work activity of an individual entitled to
DIB for at least 24 months, as evidence that the individual is no longer disabled. Because
Congress prohibited consideration of Respondent’s work activity as evidence that he was
no longer disabled, his work activity is not a fact that the Commissioner may consider in
evaluating whether Respondent continued to be entitled to benefits or payments under the
Act. Therefore, Respondent’s work activity is not material within the meaning section
1129(a)(2) of the Act and 20 C.F.R. § 498.101. Accordingly, Respondent’s failure to
report his work activity for Cameron Construction is not, as a matter of law, a failure to
report a material fact for which a CMP or assessment is authorized under section
1129(a)(1).*

* Section 221(m) of the Act does not relieve Respondent of his obligation to report work
activity to the Commissioner pursuant to 20 C.F.R. § 404.1588(a). Section 221(m) also
does not prevent the Commissioner from considering whether Respondent was no longer
entitled to DIB because he engaged in substantial gainful activity.
20

II. Conclusion

For the foregoing reasons, I conclude that there is no basis for the imposition of a CMP or
assessment in this case.

/s/
Keith W. Sickendick
Administrative Law Judge

21

STATEMENT OF APPEAL RIGHTS PURSUANT TO 20 C.F.R. § 498.221

(a) Any party may appeal the decision of the ALJ to the DAB
by filing a notice of appeal with the DAB within 30 days of
the date of service of the initial decision. The DAB may
extend the initial 30-day period for a period of time not to
exceed 30 days if a party files with the DAB a request for an
extension within the initial 30-day period and shows good
cause.

ek KK
(c) A notice of appeal will be accompanied by a written brief
specifying exceptions to the initial decision and reasons
supporting the exceptions, and identifying which finding of
fact and conclusions of law the party is taking exception to.
Any party may file a brief in opposition to exceptions, which
may raise any relevant issue not addressed in the exceptions,
within 30 days of receiving the notice of appeal and
accompanying brief. The DAB may permit the parties to fi
reply briefs.
(d) There is no right to appear personally before the DAB, or
to appeal to the DAB any interlocutory ruling by the ALJ.
(e) No party or person (except employees of the DAB) wil
communicate in any way with members of the DAB on any
matter at issue in a case, unless on notice and opportunity for
all parties to participate. This provision does not prohibit a
person or party from inquiring about the status of a case or
asking routine questions concerning administrative functions
or procedures.
(f) The DAB will not consider any issue not raised in the
parties' briefs, nor any issue in the briefs that could have been,
but was not, raised before the ALJ.
(g) If any party demonstrates to the satisfaction of the DAB
that additional evidence not presented at such hearing is
relevant and material and that there were reasonable grounds
for the failure to adduce such evidence at such hearing, the
DAB may remand the matter to the ALJ for consideration of
such additional evidence.

fo)

OK Kk
(i) When the DAB reviews a case, it will limit its review to
whether the ALJ's initial decision is supported by substantial
evidence on the whole record or contained error of law.(j)
Within 60 days after the time for submission of briefs or, if
permitted, reply briefs has expired, the DAB will issue to

22

each party to the appeal and to the Commissioner a copy of
the DAB's recommended decision and a statement describing
the right of any respondent who is found liable to seek
judicial review upon a final decision.

Respondent’s request for review by the DAB automatically stays the effective date of this
decision. 20 C.F.R. § 498.223.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Dr. William Montiel
(NPI: 1134332539)
Petitioner,
v.
Centers for Medicare & Medicaid Services

Docket No. C-14-544
Decision No. CR3258

Date: June 10, 2014

DECISION

Petitioner, Dr. William Montiel, is a physician, licensed to practice in the State of
Alabama. Until recently, he participated in the Medicare program as a supplier of
services. The Medical Licensure Commission of Alabama suspended his medical license
from February 27, 2013 until July 12, 2013. Because of the license suspension, the
Centers for Medicare & Medicaid Services (CMS) revoked his Medicare billing
privileges, and Petitioner appeals.

For the reasons explained below, I find that CMS properly revoked Dr. Montiel’s billing
privileges.

Background

Because of issues related to his chemical dependency, Dr. Montiel has been practicing
medicine under a restricted license since June 28, 2005. P. Ex. 2 at 4-9 (“Exhibit A”); P.
Ex. 2 at 1. Among other conditions, he was required to abstain from using all mood-
altering chemicals, including alcohol, and was subject to periodic drug screening. On

February 13, 2013, he failed his drug screen, and then would not comply with the medical
commission’s order that he undergo immediate testing. P. Ex. 2 at 1-2. In an order dated
February 27, 2013, the Medical Licensure Commission of Alabama suspended his license
pending a hearing. P. Ex. | at 1-3; CMS Ex. 2. Following the hearing, the licensure
commission suspended indefinitely his license to practice medicine. P. Ex. 2 at 2-3
(Order dated May 3, 2013). In an order dated July 12, 2013, the licensure commission
modified its earlier order and permitted Dr. Montiel to resume practicing medicine,
subject to supervision, his participation in a treatment program, and other requirements.

P. Ex. 6; CMS Ex. 4.

Dr. Montiel did not advise CMS or the Medicare contractor that his license had been

suspended. The Medicare contractor, Cahaba Government Benefit Administrators, LLC,
apparently learned of it during a routine check of the state board’s licensing information.
CMS Ex. 2.

In a letter dated June 15, 2013, the Medicare contractor advised Dr. Montiel that his
Medicare billing privileges were revoked, effective February 27, 2013, because he lost or
surrendered his medical license, or was otherwise “not authorized by the federal, state, or
local government to perform the services he intends to render.” CMS Ex. 1. The letter
did not cite the regulation that authorizes such a revocation, but (apparently in error) then
quoted the language of 42 C.F.R. § 424.535(a)(2)(1i), which says that CMS may revoke a
supplier’s Medicare billing privileges, if the supplier has been “debarred, suspended, or
otherwise excluded from participating in any other Federal procurement or
nonprocurement program or activity in accordance with the FASA implementing
regulations and the Department of [Health and] Human Services nonprocurement
common rule at 45 C.F.R. part 76.” CMS Ex. 1.

Petitioner requested reconsideration.' In a reconsidered determination, dated November
22, 2013, a CMS health insurance specialist upheld the determination to revoke Dr.
Montiel’s billing privileges. That determination cites 42 C.F.R. § 424.535(a)(1), but also

' It appears that Petitioner’s request for reconsideration was not timely. He requested
reconsideration in a letter dated September 18, 2013, more than 90 days after the initial
determination. On reconsideration, the CMS reviewer seems to have confused the date of
the initial notice letter (June 15) with the date of the reconsideration request (September
18). Although Petitioner complains about this error, he seems to have benefitted from it.
The regulations mandate that a request for reconsideration be filed within 60 days from
receipt of the notice of initial determination. 42 C.F.R. § 498.22(b)(3). Petitioner also
complains that the notice was not sent to his practice or billing locations. P. Br. at 3.

But, inasmuch as CMS sent it to his home, it hardly explains the untimely filing, or his
complaints. See P. Ex. 5.

quotes the language of section 424.535(a)(2)(ii), without citation to that section. CMS
Ex. 5.

Petitioner timely appealed. CMS moves for summary judgment and asks that I sustain
the revocation pursuant to 42 C.F.R. § 424.535(a)(1), because Petitioner’s license was
suspended and 42 C.F.R. § 424.535(a)(9), because he did not report the suspension.

With its motion and brief (CMS Br.), CMS filed five exhibits (CMS Exs. 1-5). Petitioner
has filed a Response (P. Br.) and nine exhibits (P. Exs. 1-9).

In the absence of any objection, I admit into evidence CMS Exs. 1-5 and P. Exs. 1-9.

In my prehearing order, I directed the parties to exchange, as a proposed exhibit, the
written direct testimony of any proposed witness. The order explains that I accept the
written direct testimony as a statement in lieu of in-person testimony. Acknowledgment
and Pre-hearing Order at 3 (¥ 4(c)(iv)), 5 (§] 8) (January 14, 2014). The order also
provides that an “in-person hearing to cross-examine witnesses will be necessary only if a
party files admissible, written direct testimony, and the opposing party asks to cross-
examine.” Jd. at 6 (§ 10). CMS proposes no witnesses. Petitioner lists two witnesses
(himself and another physician), but provides no witness declarations. He is therefore
precluded from calling these witnesses. Even if I allowed a witness’s unauthenticated
statement (see, e.g., P. Ex. 7) to substitute for the written declaration, CMS expresses no
desire to cross-examine either individual. See Pre-hearing Order at 5 (4 9). Because
there are no witnesses to cross-examine, an in-person hearing would serve no purpose.
This matter may therefore be decided on the written record, without considering whether
the standards for summary judgment are satisfied.

Discussion

Because Petitioner’s medical license was suspended, CMS
properly revoked his billing privileges under 42 C.F.R.
§ 424.535(a)().”

Section 424.535(a)(1) allows CMS to revoke a Medicare supplier’s billing privileges, if
the supplier no longer meets the enrollment requirements for a supplier of its type. Those
requirements include complying with federal and state licensure provisions. 42 C.F.R.

§ 424.516(a)(2). A physician, such as Dr. Montiel, must obviously be licensed by the
state in which he practices medicine. 42 C.F.R. § 410.20(b). Because his license was
suspended, CMS properly revoked his billing privileges.

> | make this one finding of fact/conclusion of law.
That the suspension of his license was temporary does not alter this result. Once the
suspension is in place, CMS is authorized to revoke billing privileges. The physician’s
“inability to practice medicine for any length of time due to the disciplinary actions
imposed against him trigger[s] his noncompliance with the Medicare enrollment
requirements and authorize[s] revocation of his billing privileges.” Akram A. Ismail,
M._D., DAB No. 2429 at 8 (2011).

Petitioner complains that the reconsideration determination is riddled with errors. I
recognize that the quality of that determination in this case is, at best, sub-par. It refers to
documents, issues, and even to an individual, having nothing to do with Dr. Montiel’s
situation. However, it includes two critical provisions: first, the determination cites 42
C.F.R. § 424.535(a)(1); and, second, it explains that Petitioner’s Medicare billing
privileges are revoked because his medical license was suspended. Petitioner’s hearing
request reflects that he recognized this finding, and he challenged it, arguing that his
license had been reinstated. Hearing Request at 1-2. Further, CMS’s brief, which was
filed well before Petitioner’s brief was due, reiterated that Petitioner’s billing privileges
were revoked because his medical license had been suspended. Petitioner has thus had
ample notice of the reasons for the revocation.*

Conclusion

Because Petitioner’s medical license was suspended, CMS properly revoked his billing
privileges under 42 C.F.R. § 424.535(a)(1).

/s/
Carolyn Cozad Hughes
Administrative Law Judge

> Because his license revocation, by itself, justifies revoking his billing privileges, I need
not consider CMS’s proposal to amend its basis for revoking Petitioner’s billing
privileges to add 42 C.F.R.§ 424.535(a)(9) — failure to report his suspension.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
Hearthstone SN Health Center,
(CCN: 45-5771),
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-152
Decision No. CR3256
Date: June 5, 2014
DECISION

I grant summary judgment in favor of the Centers for Medicare & Medicaid
Services (CMS) and sustain CMS’s determination to impose a per-instance civil
money penalty of $3500 against Petitioner, Hearthstone SN Health Center.
I. Background
Petitioner is a skilled nursing facility participating in the Medicare program. It
requested a hearing to challenge the civil money penalty that I cite in the opening
paragraph of this decision. CMS filed 18 proposed exhibits that are identified as
CMS Ex. 1— CMS Ex. 18. Petitioner filed eight proposed exhibits that are
identified as P. Ex. 1 — P. Ex. 8. CMS and Petitioner filed pre-hearing briefs.

Then, CMS moved for summary judgment and Petitioner opposed the motion.

I receive the parties’ exhibits into the record.
II. Issue, Findings of Fact and Conclusions of Law
A. Issues

The issues are whether the undisputed material facts establish that Petitioner failed
to comply substantially with the requirements of 42 C.F.R. § 483.75(m)(2) and
whether a per-instance civil money penalty of $3500 is a reasonable remedy.

B. Findings of Fact and Conclusions of Law
The regulation that is at issue requires a skilled nursing facility to:

train all employees in emergency procedures when

they begin to work in the facility, periodically review
the procedures with existing staff, and carry out
unannounced staff drills using those procedures.

42 C.F.R. § 483.75(m)(2). Although not stated explicitly in the regulation it is
evident that the regulation requires that whatever training and drills utilized by a
facility to indoctrinate staff in emergency procedures be efficacious. In other
words, it is not enough for a facility just to conduct training classes in emergency
procedures but it must ensure that the staff understands those procedures and that
the staff be able to execute them in an effective manner. Expecting anything less
from a facility would frustrate the intent of the regulation, which is to assure that
facility residents are protected to the maximum extent possible in emergencies.

The undisputed material facts establish that Petitioner failed to carry out the
regulatory intent in providing care to one of its residents, an individual who is
identified as Resident # 14. Petitioner’s staff was not trained effectively to be able
to remove the resident from her room in the event of an emergency demanding
evacuation.

The resident was massively obese, weighing 392 pounds. CMS Ex. 9 at 29. She
had extreme physical limitations due to her obesity and to other medical problems.
Id. at 28. She was unable to get out of bed or even to sit in a chair. Jd. at 22.
Petitioner assigned a special bariatric bed to Resident # 14 in order to
accommodate her bulk. The bed was 38 inches wide and it was fitted with a
mattress that was 48 inches wide. CMS Ex. 12 at 20. That made the bed/mattress
combination five inches wider than the doorway to the resident’s room, which was
43 inches wide. Jd.

It is obvious that special methods would be needed to remove Resident # 14 from
her room in the event of an emergency that demanded evacuation. She was
effectively immobile and helpless due to her massive size and her various medical
conditions. The staff could not simply roll the resident’s bed out of the room with
her lying in it because the bed and mattress were wider than the room’s doorway.
These circumstances mandated that the facility develop techniques to deal with the
resident’s unique circumstances and importantly, assure that the staff knew what
these techniques were and be able to implement them in an emergency situation.

The facts offered by CMS are that Petitioner’s staff — at least, those who were
responsible for Resident # 14’s care — had no idea what they were supposed to do
in the event of an emergency that demanded that the resident be evacuated. Ata
survey of the facility conducted on July 17, 2013, surveyors interviewed six
members of Petitioner’s staff and asked them how they would evacuate the
resident in the event of an emergency. The staff members gave widely different
answers:

e Certified nursing assistant (CNA) Bertha Ortego said that it would take
three people to remove the resident from her room and that removal would
require the use of special equipment known as a Hoyer Lift. CMS Ex. 12 at
1. Ms. Ortego stated additionally that she had no training as to how to
evacuate residents who were in bariatric beds in the event of an emergency.
Id.

e CNA Brenda Rice said that during an emergency evacuation she would pull
the release on the bariatric bed, causing the mattress to collapse to the floor.
Then, she stated, two people would pull the resident out of her room with
the resident lying on the mattress. CMS Ex. 12 at 1.

e Assistant Director of Nursing Ashley Williamson, R.N., averred that the
resident’s bariatric bed could be broken down in an emergency in order to
enable the resident to be removed from her room. CMS Ex. 12 at 1.

e Incontrast, Shelly Erhardt, R.N., asserted that the resident’s bed could not
be broken down. CMS Ex. 12 at 1. She said that she would use a Hoyer
Lift and remove the resident from her room during an emergency with the
assistance of one other person. Jd. Nurse Erhardt stated that she had
received no training on use of the bariatric bed. Id.

e CNA Carolina Trejo asserted that there was a lever on the resident’s
bariatric bed that could be pushed and that would cause the bed to “go in,”
thereby enabling the staff to roll the bed through the resident’s room’s
doorway in the event of an emergency. CMS Ex. 12 at 1.
e Janet Goldman-Hayat, an employee of Petitioner’s activities department,
averred that extenders on the resident’s mattress could be removed in the
event of an emergency and that extenders on the resident’s bed could be
pushed in, thereby making the bed sufficiently narrow so that it could be
rolled out of the resident’s room’s doorway. CMS Ex. 12 at 2.

The gross disparities in staff’s understanding of what to do for Resident # 14 in the
event of an emergency permit only one inference. Staff had no idea what to do
because they had not been trained to deal with the special circumstances
surrounding the resident. They were unprepared to deal with the unique problems
presented by Resident # 14. Thus, Resident # 14 was left unprotected and that
constituted a violation of the regulation.

Petitioner contends that there are disputed issues of material fact that preclude
summary judgment. However, and as I shall discuss, although Petitioner
challenges some of the facts offered by CMS it hasn’t challenged the core facts
that establish that Petitioner’s staff was unprepared to deal with Resident # 14 and
the special problems that this resident posed.

Petitioner asserts that it had a plan that was designed to deal with emergencies.
Petitioner’s Response to Respondent’s Motion for Summary Judgment (Response)
at 11. This document, entitled “Disaster Planning Manual” contains specific
instructions for dealing with bedridden residents, according to Petitioner. Id.; P.
Exs. 1-2. But, the fact that Petitioner had a plan for dealing with emergencies is
meaningless if the staff doesn’t understand what that plan says. And, it is
especially meaningless if the staff is unable to articulate how it would be
implemented in the case of a resident like Resident # 14, who suffered from
specific disabilities that made standard evacuation methods impossible in her case.

Resident # 14 was not just a disabled resident. She was an individual who
manifested unique problems that called for the staff to develop a unique approach
to dealing with her in the event of an emergency. It should have been apparent to
Petitioner and its staff that, given the resident’s enormous weight and her utter
helplessness, normal evacuation methods simply would not work for this resident
in the event of an emergency.

Petitioner argues that it did not specifically train its staff in the evacuation of a
resident in a bariatric bed because facility doorways were too narrow to
accommodate a bed that is so wide. Response at 12. That is obvious. That made
it imperative that Petitioner train its staff effectively to utilize an alternative to
attempting to roll a bariatric bed through too-narrow doorways. That is clearly
something that Petitioner failed to do, as is evident from the absence of any
facility plan to deal with Resident # 14 and her specific needs.
Petitioner contends that it trained its staff in a removal technique that it calls the
“Blanket Drag.” Response at 13. This technique involves placing a disabled
resident to be evacuated on a blanket and dragging the resident through a doorway
and out of the room. Jd. None of the six staff members interviewed by surveyors
on July 17, 2013 cited the “Blanket Drag” technique as a way of removing
Resident # 14 from her room. One of them, CNA Brenda Rice, thought that the
resident could be removed from her room by dragging her out while she lay on the
bed’s mattress. That is not the “Blanket Drag” technique and not a workable
functional equivalent inasmuch as the mattress utilized by the resident is five
inches wider than her room’s door.

Petitioner suggests that the surveyors’ interview questions to the staff were
misleading because they focused on how the staff would deal with Resident # 14
instead of on their general training to handle emergencies. Response at 14. But,
the training that the staff would utilize to evacuate Resident # 14 was precisely
what the surveyors wanted to know about given the resident’s unique problems
and circumstances. Indeed, the surveyors would have been remiss if they had kept
their questions limited to the general issue of emergency training and had not
questioned staff about the specific issues presented by Resident # 14.

Petitioner offers the testimony of only one of the six staff members that the
surveyors interviewed. That is the testimony of Ashley Williamson, R.N. P. Ex.
6. She contends that a surveyor told her, and that she witnessed other staff
members being told by the surveyor, that the “Blanket Drag” was not an
acceptable technique for removing a resident from her room in the event of an
emergency. According to Ms. Williamson:

I remember staff initially telling the surveyor that the
resident in the bariatric bed would be moved by
blanket drag. The surveyor would tell the staff
member that blanket drag was not an option. The staff
member would then pick another option.

P. Ex. 6 at 2.

Ms. Williamson’s testimony raises credibility issues about the surveyors’ reports
of what the other staff members said. I would rule that there is no basis for
summary judgment in this case if it were necessary for me to resolve these issues.

That is not the case, however. That is so because even if all of the staff members
told the surveyors that they had been trained to use the “Blanket Drag” to remove
disabled residents from their rooms in emergencies, none of them, including Ms.
Williamson, offered any explanation as to how that technique would be used for
Resident # 14 in light of her special needs.

How does one move a 392-pound individual who is helpless to the point of not
being able to sit without assistance from her bed to a blanket placed on the floor?
How many staff members would be needed to accomplish that task? Was there
sufficient space in the resident’s room to be able to maneuver the resident from her
bed to the floor? How many staff members would be needed to drag a 392-pound
individual from her room? What special precautions would be needed to protect
the resident from injury — given her bulk and her helplessness — while dragging
her? How would the resident be transported once she was out of her room? How
much time would be allotted to accomplishing all of this in an emergency and
would the staff be able to do what was necessary for Resident # 14 quickly
enough? What plans did Petitioner write to deal with Resident # 14’s specific
problems? What specific training did Petitioner give to its staff vis a vis Resident
# 14?

Answering these questions is vital given the resident’s special needs. Having a
general plan in place to remove disabled residents via the “Blanket Drag” is
meaningless for a resident like Resident # 14 unless that plan is adapted for her
special needs and unless the staff is well-versed in implementing those
adaptations. And, yet, Petitioner offered nothing at all to show that it and its staff
had considered any of the critical questions posed above much less did it offer any
facts showing that the staff had been trained to address the special needs of
Resident # 14. Thus, I find no dispute of fact as to the inadequacy of Petitioner’s
plans to deal with Resident # 14 and her special needs even if I accept as true
every word of Ms. Williamson’s declaration.

The surveyors cited Petitioner’s noncompliance with the requirements of 42
C.F.R. § 483.75(m)(2) as being at the immediate jeopardy level of noncompliance.
The level of Petitioner’s noncompliance is not an issue that I may address in this
decision: CMS’s determination to impose a per-instance as opposed to a per-diem
civil money penalty precludes consideration of whether the noncompliance on
which the penalty is based is at the immediate jeopardy level. 42 C.F.R.

§ 488.408(d)(1)(iv), (e)(1)(iv).

However, the amount of the penalty, as opposed to the level of noncompliance, is
potentially an issue in every case in which a per-instance civil money penalty is
imposed. But, Petitioner did not challenge the penalty amount here. It did not
argue that the penalty amount of $3500 is unreasonable even if it is found to be
noncompliant with regulatory requirements. For that reason I sustain the civil
money penalty without considering the factors that underlie the determination of
penalty amount.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Eleazar Lopez d/b/a Western Alliance Mobility,
(PTAN: 5649200001),
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-567
Decision No. CR3255

Date: June 4, 2014

DECISION

Petitioner, Eleazar Lopez d/b/a Western Alliance Mobility, is a supplier of durable
medical equipment, prosthetics, orthotics, and supplies (DMEPOS), located in Rio
Grande City, Texas who, until recently, participated in the Medicare program. The
Centers for Medicare & Medicaid Services (CMS) has revoked his Medicare provider
number, and Petitioner appeals. CMS now moves for summary judgment.

CMS presents the written declaration of only one witness, and Petitioner has no
witnesses. Petitioner has not asked to cross-examine CMS’s witness, so an in-person
hearing would serve no purpose. See Acknowledgment and Prehearing Order at 5-6 ({§
8-10). This matter may therefore be decided on the written record, without considering
whether the standards for summary judgment are satisfied.

Because the supplier was not open for inspection during its posted hours, CMS properly
revoked its supplier number.
Background

Until its Medicare supplier number was revoked, effective September 11, 2013, Petitioner
participated in the Medicare program as a supplier of DMEPOS. See 42 C.F.R. § 424.57.
In a letter dated September 27, 2013, the Medicare contractor, National Supplier
Clearinghouse (a division of Palmetto GBA), notified Petitioner that its Medicare
supplier number was 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 August 26 and September

11, 2013. The business was closed on both occasions, so the representative could not
inspect the premises. CMS Ex. 4.

Petitioner sought reconsideration. In a reconsideration determination dated November
25, 2013, a Medicare hearing officer affirmed the revocation of Petitioner’s supplier
number. CMS Ex. 1. Petitioner now appeals that determination pursuant to 42 C.F.R.
§ 424.545,!

With its brief, CMS submits eleven exhibits (CMS Exs. 1-11). Petitioner submits a brief
(P. Br.), which it has captioned “Petitioner’s Motion to Dismiss,” with two documents
attached, including a copy of CMS Ex. 7, page 3, and page 6 from a Medicare application
form, CMS-855S. In the absence of any objection, I admit into evidence CMS Exs. 1-11.
I also admit as P. Ex. 1, page 6 of the CMS-855S.

' In reaching her determination, the hearing officer considered whether the supplier was
“operational,” i.e. had a qualified practice location, was open to the public for the purpose
of providing healthcare related services, was prepared to submit valid Medicare claims,
and was properly staffed, equipped and stocked. She concluded that, because the
inspector was not able to complete a site investigation, despite multiple attempts, and was
unable to verify compliance with supplier standards, particularly standard 7 (42 C.F.R.

§ 424.57(c)(7)), the contractor properly revoked its billing privileges. Thus, even though
the hearing officer may have omitted citation to 42 C.F.R. § 424.535(a)(5)(ii), she
explicitly found that the supplier was not operational within the meaning of 42 C.F.R.

§ 424.535. CMS Ex. 1 at 3; see CMS Ex. 3 (in which the contractor argues, at the
reconsideration level, that it properly revoked the supplier’s billing privileges because the
supplier violated 42 C.F.R. §§ 424.535(a)(5)(ii) and 424.57).
Discussion

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 be operational and
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), (5). To be operational, the supplier must, among other requirements,
have a qualified physical practice location, be open to the public, and be properly staffed,
equipped, and stocked to furnish items and services. 42 C.F.R. § 424.502. Among other
requirements, 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. It
must permit CMS or its agents to conduct on-site inspections to ascertain its compliance
with governing regulations. 42 C.F.R. § 424.57(c)(7) and (8). Where, as here, a
contractor’s representative finds the facility closed during its posted hours, the supplier
does not meet the requirements of section 424.57(c), and CMS may appropriately revoke
its billing privileges. [ta Udeobong, d/b/a Midland Care Med. Supply and Equip., DAB
No. 2324 (2010) see 42 C.F.R. § 424.535(a)(5)(ii) (authorizing CMS to revoke billing
privileges, if the supplier fails to satisfy any Medicare enrollment requirement).

Here, according to a site investigation report, signed by Inspector Carolyn Morris, she
visited the facility at 1:04 p.m. on August 26, 2013 and returned at 8:50 a.m. on
September 11, 2013. CMS Ex. 7 at 2; CMS Ex. 11 at 2 (Morris Decl.). The facility’s
hours of operation were posted: 8:00 a.m. to 5:00 p.m. Monday through Friday closed
Saturday and Sunday. CMS Ex. 7 at 3, 13. On both occasions, the premises were closed;
the door was locked, and the inspector’s knocks on the door were not answered. CMS
Ex. 7 at 3, 7; CMS Ex. 11 at 2 (Morris Decl.). The inspector took pictures on both days,
and the pictures indicate the dates and times cited in the report. CMS Ex. 7 at 13; CMS
Ex. 11 at 2 (Morris Decl.).

Petitioner concedes that the facility was closed on the dates and times in question and has
offered several excuses. In his request for reconsideration, Petitioner Lopez claimed that
August 26, 2013 was the first day of school, so the office opened an hour late that day.
On September 11, 2013, staff (his wife and himself) “were in and out of the office doing

> T make this one finding of fact/conclusion of law.
deliveries” and assessing a client that day. He also claimed that the facility put up a sign
with instructions for contacting staff if staff are out on delivery. CMS Ex. 5.

Now, Petitioner maintains that staff were still at lunch when the inspector arrived on
August 26. Further, he asserts that the facility’s actual hours of operation are 8:00 a.m.to
noon and 1:00 p.m. to 5:00 p.m. Petitioner attaches to his brief a page from a Medicare
application showing that, effective April 3, 2013, these were the business’s new hours.

P. Ex. 1.

On September 11, he claims that no one was in the office, because his wife was sick, and
he was out on a delivery.

Based on these facts, I find that Petitioner was not in compliance with all of the standards
set forth in section 424.57(c). First, the facility’s posted hours of operation were 8:00
a.m. to 5:00 p.m. Yet, as Petitioner admits, it was closed from noon until 1:00 p.m. every
day. On a regular basis, the facility was not open and accessible to beneficiaries during
its posted hours of operation. It therefore did not comply with 42 C.F.R. § 424.57(c)(7).
The standard would have no meaning if suppliers were not also required to adhere to the
posted hours of operation. Posting an “out-to-lunch” or a “will-return” sign whenever the
office is closed is not sufficient to satisfy the requirement that the facility actually be
open and accessible during its posted hours of operation. Udeobong, DAB No. 2324 at
6-7.

Moreover, because the contractor was unable to perform an on-site review, it could not
determine that the supplier was operational. Because of this, and because the supplier
failed to satisfy all Medicare enrollment requirements, CMS properly revoked its billing
privileges. 42 C.F.R. §§ 424.57(d); 424.535(a)(5)(ii).

> To sustain its supplier number, a DMEPOS supplier must permit CMS or its agents to
conduct on-site inspections. 42 C.F.R. § 424.57(c) (8). Here, Petitioner had two
opportunities to meet this requirement, but, by his own admission, the business was not
accessible and therefore did not permit the on-site inspection. I note that CMS and its
contractors must, with scarce resources, monitor the performance of a vast number of
providers and suppliers. Inspections are supposed to be unannounced. An investigator
should be able to rely on the posted hours of operation in determining when to conduct an
inspection. Requiring an investigator to return multiple times to a single facility in the
hopes of finding it open is simply unreasonable.
Conclusion

Because 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


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Joseph Rowen
d/b/a Indiana Joe’s,

Respondent.

Docket No. C-14-899
FDA Docket No. FDA-2014-H-0390

Decision No. CR3254

Date: June 4, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, Joseph Rowen d/b/a Indiana Joe’s, that alleges
facts and legal authority sufficient to justify the imposition of a civil money
penalty of $250. Respondent did not 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 $250.

CTP began this case by serving the Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent impermissibly sold
cigarettes to minors, thereby violating the Federal Food, Drug, and Cosmetic Act
(Act), 21 U.S.C. § 301 et seq., and its implementing regulations, Cigarettes and
Smokeless Tobacco, 21 C.F.R. Part 1140 (2012). CTP seeks a civil money
penalty of $250.
On April 8, 2014, 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 should
pay the proposed 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 ordering Respondent to pay the full
amount of the proposed penalty.

Respondent has not filed an answer within the time provided by regulation, nor
has it requested an extension. Pursuant to 21 C.F.R. § 17.11(a), 1am required to
“assume the facts alleged in the [C]omplaint to be true” and, if those facts
establish liability under the Act, issue a default judgment and impose a civil
money penalty. Accordingly, I must determine whether the allegations in the
Complaint establish violations of the Act.

Specifically, CTP alleges the following facts in its Complaint:

e Respondent owns Indiana Joe’s, an establishment that sells tobacco
products and is located at 2501 East Indiana Avenue, Philadelphia,
Pennsylvania 19134. Complaint § 3.

e During a May 1, 2013 inspection of Respondent’s establishment, at
approximately 5:45 PM, an FDA-commissioned inspector observed that “a
person younger than 18 years of age was able to purchase a package of
Newport Menthol Gold Box cigarettes ....” Complaint § 10.

e¢ On May 16, 2013, CTP issued a Warning Letter to Respondent regarding
the inspector’s observations from May 1, 2013. The letter explained that
the observations constituted a violation of a regulation found at 21 C.F.R.
§ 1140.14(a), and that the named violation was not necessarily intended to
be an exhaustive list of all violations at the establishment. The Warning
Letter went on to state that if Respondent failed to correct the violation,
regulatory action by the FDA or a civil money penalty action could occur
and that Respondent is responsible for complying with the law. Complaint
q 10.

e Although United Parcel Service records show that an individual named
“Thomas” signed for the Warning Letter, CTP never received a response.
Complaint § 11.

e During an October 15, 2013 inspection of Respondent’s establishment, at
approximately 5:33 PM, FDA-commissioned inspectors documented that “a
person younger than 18 years of age was able to purchase a package of
Newport Box cigarettes ....” Complaint § 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 distributed or offered for sale in any state 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). 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); 21 U.S.C. § 387f(d)(1); 75 Fed.
Reg. 13,229 (Mar. 10, 2010). The regulations prohibit the sale of cigarettes to any
person younger than 18 years of age. 21 C.F.R. § 1140.14(a).

Taking the above alleged facts as true, Respondent violated the prohibition against
selling cigarettes to persons younger than 18 years of age on May 1, 2013, and
October 15, 2013. 21 C.F.R. § 1140.14(a). Therefore, Respondent’s actions
constitute violations of law that merit a civil money penalty.

CTP has requested a fine of $250, which is a permissible civil money penalty
under the regulations. 21 C.F.R. § 17.2. Therefore, I order Respondent to pay a
civil money penalty of $250.

/s/
Steven T. Kessel
Administrative Law Judge