U.S. distributors sued for illegal sales: how should Chinese vape companies respond?

FLOW-wrap: break-word !important"> In our July 11 tweet Taste ban comes true?4 New York dealers filed federal lawsuit by the mayor, we mentioned that The mayor of New York has issued a report on 4e-cigarettesThe distributor has filed a lawsuit in federal court to stop selling flavored e-cigarettes that are attractive to minors.

This incident has attracted the attention of many practitioners. Due to the differences in laws between states in the United States, will dealer behavior affect China #p#paginated title #e#e-cigarette enterprisesOperations in the United States? How to deal with such problems when they arise again? Regarding the above questions, Zheng Mingwei's legal team answered them in today's tweet.

The following is the original text

On July 10, 2023, New York City filed a lawsuit against four e-cigarette dealers with their main offices in New York State, mainly because their distribution and sale of disposable e-cigarettes in New York City seriously affected the health of teenagers. The lawsuit involved many ChinaShenzhen e-cigarettesEnterprise products, exports from China to the United Statese-cigarette productsThe compliance requirements of the company have once again sounded the alarm. Once the court makes a determination of non-compliance, risks such as FDA enforcement and consumer claims will increase. This article will discuss the prosecution content of this lawsuit, its association with China e-cigarette companies, and its implications for China e-cigarette companies.# p#pagination title #e#

1. Contents of the indictment

1. Defendant

Four dealersThe defendants are Magellan Technology Inc. (hereinafter referred to as "Magellan"), Ecto World, LLC d/b/a Demand Vape (hereinafter referred to as "Demand Vape"), Mahant Krupa 56 LLC d/b/a Empire Vape Distributors (hereinafter referred to as "Empire Vape") and Star Vape Corp. (hereinafter referred to as "Star Vape").

According to the New York City complaint, Magellan received a warning letter from the FDA on October 12, 2018, citing the fact that the e-cigarettes it distributed and sold did not submit a Premarket Tobacco Product Application (PMTA). On October 6, 2022, the PMTA submitted by Magellan was rejected. This lawsuit is mainly aimed at his distribution and sale of disposable flavor e-cigarettes. The other three distributors were sued for the same reason, all of which distributed and sold disposable flavor e-cigarettes.

2. Reason #p#Pagination title #e#

First, four dealers were accused of violating the U.S. Prevention of All Cigarette Trafficking Act (Prevent All Cigarettes Trafficking Act (PACT), which is manifested in (1) failure to indicate on the outside of the package that there are cigarettes in the package;(2) distribution and sale of disposable e-cigarettes does not comply with New York State and New York City laws;(3) failure to require adult signatures when delivering the package;(4) failure to register with the New York State and New York City Tobacco Tax Administrators;(5) Failure to submit sales reports to New York State and New York City on the 10th of each month;(6) failure to ensure that taxes are paid to the government at each place of delivery; and (7) failure to ensure that a single sale or delivery cannot exceed 10 pounds.

Secondly, because the defendants failed to comply with the legal provisions of (1)(4)(5) above, their actions were classified as concealing the distribution and sale of disposable flavor e-cigarettes, which constituted illegal transactions respectively.

Third, the defendants 'joint distribution and sale of the same brand of disposable flavor e-cigarettes constituted an illegal trade organization and violated the U.S. Racketeer Affected and Corrupt Organizations Act (RICO).

Finally, New York State's Public Health Law and New York City's Administrative Code prohibit the sale of flavored e-cigarettes.Four dealers were accused of distributing and selling disposable flavored e-cigarettes that would cause damage to the health, safety and welfare of a large number of residents and constitute public nuances.

3. Request

New York City Request Court Permanently bans the four dealers for the alleged violations and pays fines.Under section 2(d) of the Prevention of All Cigarette Trafficking Act (15 U.S.C § 377(b)(1)(A)(ii)), fines for violations of the Prevention of All Cigarette Trafficking Act can amount to 2% of total tobacco sales in the one year immediately preceding the date the violation ended.

2. Association with China e-cigarette companies

1. Product direct association

According to the complaint filed by New York City, the manufacturers of disposable flavor e-cigarettes are mainly from Shenzhen, China, and are popular in the United Statese-cigarette brandsMost of them are produced by China e-cigarette companies.

2. Indirect association of compliance responsibilities

Because the litigation reasons in this case involve issues such as whether the product is compliant and whether it causes damage to the health, safety and welfare of residents, the court will make a positive discussion and determination on this part of the issue during the trial. Once the product is determined in compliance, and assuming that the court finally determines that it is non-compliant, the FDA cannot ignore the judgment and will inevitably carry out enforcement activities based on the judgment results. For example, including China producers on the import warning list. Individual brands should pay special attention to them. In law enforcement activities such as the FDA's warning letters and import warning red lists to China e-cigarette companies, it has repeatedly pointed out that they have the problem of attracting young people to use flavored e-cigarettes (see "Three Questions FDA's" E-Cigarette Warning Letter ": Why was it issued? Send it to whom? How to deal with it?", "U.S. FDA Import Alerts and Removal Applications Guidelines for E-Cigarette Companies (2)"). As popular brands in countries such as the United States, the United States and the United States, individual brands are among the models of branding operation of China e-cigarette companies. It is not easy to achieve the current achievements. At present, many countries have raised compliance issues with them, and they must be careful to protect existing achievements. Achievements, strong men turn to compliance, protect hard-won brands, and avoid further targeted law enforcement.# p#pagination title #e#

3. Association of public intrusion responsibilities

If this court refers to various reports and tests and determines that the e-cigarette products involved constitute public nuisance (causing health, safety and welfare damage to a large number of residents), it may trigger claims from distributors and American consumers.

Although the lawsuit filed in New York City did not directly sue China e-cigarette companies and thus bear legal consequences, the mention of China e-cigarette companies in the indictment means that China e-cigarette companies have been involved in the whirlpool of e-cigarette product compliance litigation under U.S. law. The final result is related to the China e-cigarette companies involved, whether it is possible FDA enforcement due to a chain reaction or claims based on public harassment. Compliance risks have escalated.# p#pagination title #e#

3. Enlightenment from China e-cigarette companies

The biggest reason why New York City filed a lawsuit against four e-cigarette dealers was that the four e-cigarette dealers knowingly committed the crime when New York State and New York City banned the sale of single-flavor e-cigarettes. In addition to New York, California, Massachusetts, New Jersey and Rhode Island also ban the sale of flavored e-cigarettes; among them, Massachusetts and California also ban the sale of mint-flavored e-cigarettes. Maine, Oregon, South Dakota, Utah and Vermont have banned the sale of disposable flavored e-cigarettes online. In addition, a total of 378 counties and cities in the United States have imposed varying degrees of restrictions on the sales of flavored e-cigarettes.

New York City's lawsuit brings inspiration to China e-cigarette companies:

1. Propose limitations and division of responsibilities in the contract

In order to avoid legal liability for violating U.S. law, a wise response for China e-cigarette companies should stipulate in their contracts with U.S. distributors or consignees that the shipper's e-cigarette products cannot be distributed or sold in places where there are restrictions on the sales of e-cigarettes, or that U.S. distributors or consignees cannot violate U.S. e-cigarette laws and regulations when distributing or selling. The consequences of liability related to violations shall be borne by the dealer. Enterprises with conditions should establish a special compliance system.

Especially after this lawsuit, the above restrictions and division of responsibilities are necessary, and the factory involved should stop supplying goods to New York. Otherwise, it will be a very typical intentional offense and greater responsibility.

2. Invest manpower to verify dealer behavior

British and American countries place great emphasis on compliance requirements on effectiveness rather than paper compliance. Therefore, even if restrictions are proposed and responsibilities are divided in the contract, necessary manpower is invested to verify whether the dealer's behavior is in compliance with the agreement, and penalties such as warnings and fines are imposed if they are not in compliance with the agreement, it is a determination to determine whether the e-cigarette company is sincere and effective in implementing the contract. The main basis for judging the paper agreement. If the necessary manpower and material resources are not invested to implement the contract agreement, it will be difficult to be regarded as effective compliance under the compliance thinking of British and American countries, and good liability defense and mitigation effects cannot be achieved.# p#pagination title #e#

Of course, there is also some room for freedom to judge the paper agreement on investing manpower and material resources in implementing the contract. For example, issues such as how much manpower to invest, how to invest, and how to punish are left to the enterprise itself, as long as it can prove that it is sincere and effective.

3. Retain evidence

Common law heavy evidence. When e-cigarette companies implement compliance content 1 and 2 above, they should retain sufficient evidence, of which objective evidence is particularly important, such as emails, bank records, communication records, pictures and photos, etc. Evidence such as stamped documents and signed instructions that can be made temporarily can be used as an auxiliary tool, but do not rely too heavily on it.# p#pagination title #e#

Under the influence of this e-cigarette lawsuit, China e-cigarette companies should be more cautious about future import transactions with American distributors, and if necessary, they can seek guidance from a professional Chinese and American legal team to draw up contracts. Otherwise, they will be considered by the court to have knowingly committed the crime and face more serious penalties in the lawsuit. If the court determines that China e-cigarette products are non-compliant, it may cause the U.S. FDA to issue a warning letter and an import alert against the China companies involved in the case; if the court's litigation decision contains a determination that e-cigarette products from China are non-compliant or harmful to public health, China e-cigarette companies may face difficulties such as consumer claims and dealer claims.

Conclusion

China is the largest producer of e-cigarettes, while the United States is the largest in the worlde-cigarette market。If China e-cigarette companies are indifferent to the laws, regulations and policies related to e-cigarettes in the United States, continue to violate regulations and be targeted by law enforcement, it will surely affect the future development of my country's e-cigarette industry as a whole and affect the long-term goal of earning foreign exchange through exports. Although New York City's lawsuit against U.S. distributors will not have direct legal consequences on China e-cigarette companies, New York City has mentioned the specific names of several e-cigarette manufacturers in Shenzhen, China in its complaint. If such lawsuits increase, it may affect the reputation of China e-cigarette companies and increase the risk of FDA enforcement, distributors and consumer claims.

This lawsuit warns China's e-cigarette companies of escalating compliance risks. E-cigarette companies, especially leading companies, should consider from the standpoint of the entire industry and not destroy China because of targeted sanctions for violationse-cigarette industryIn the future, we will deal with future transactions with a prudent attitude and professional means, and immediately carry out measures such as restricted areas, division of responsibilities, manpower inspections, and suspension of goods in New York to avoid further expansion of the risk of violations and save hard-won brands.

The author of this article is:

Zheng Mingwei, Master of International Law from Shenzhen University, Director of the Corporate Comprehensive Business Committee and Equity Partner of Beijing BOC (Shenzhen) Law Firm.

Lin Hongping, Master of Civil and Commercial Law, Huazhong University of Science and Technology, Master of Advanced Accounting, Chinese University of Hong Kong;

Jiang Yubin, Master of Laws, University of Birmingham, UK;

Yang Aoyu, Bachelor of Laws from the University of Hong Kong, Doctor of Laws from the University of California, Irvine, passed the California Bar Examination.