November 11, 2015

FDA Tobacco Compliance—An Opportunity For SEI And NCASEF To Make Common Cause

Eric H. Karp, Esq., General Counsel

 

The dictionary defines making common cause “as uniting one’s interest with another’s.” This is another way of saying that there are certain opportunities, when two parties have similar interests and concerns, to effectuate their goals more effectively by working in concert, collaboratively, cooperatively and in good faith. Over the past 18 months, this has been my mantra to your franchisor on a wide range of issues.

Recent developments in the state of Florida and elsewhere concerning the U.S. Food and Drug Administration’s Tobacco Compliance Inspection programs presents yet another excellent opportunity for SEI and the National Coalition to make common cause with what appears to be a great injustice being carried out against both company-owned and franchised stores.

The State of Florida has entered into an agreement with Information Systems and Networks Corporation to conduct undercover tobacco purchase inspections. More about this company can be found at www.isncorp.com.

With the onset of this new contractor in Florida, the alleged rates of noncompliance have skyrocketed to levels which call into question the validity and reliability of the methods being employed by ISN, especially when compared to noncompliance rates in the state of California, where ISN does not operate and inspections are carried out by the California Department of Health.

In August of this year, we started to bring this to the attention of the SEI legal department through a series of emails. Some of the facts uncovered with respect to the ISN program, with the invaluable assistance of Eric Donihoo, acting on behalf of two Florida FOAs, are as follows:

Florida Results

  • For the 12 months ended June 30, 2015

—11,573 shops were surveyed in Florida, and the failure rate was 21.6 percent.

—619 of those shops were 7-Eleven stores, which had a failure rate of 20.2 percent, or less than the Florida average overall.

  • For the three months ended June 30, 2015

—2,906 shops were surveyed in Florida, and the failure rate was 33.5 percent.

—150 of those shops were 7-Eleven stores, with a failure rate of 24.6 percent, or substantially less than the Florida average overall.

California Results

  • For the 12 months ended June 30, 2015

—4,180 shops were surveyed in California and the failure rate was 3.1 percent.

—158 of those shops were 7-Eleven stores, which had a failure rate of 1.3 percent, or less than the California average overall.

  • For the three months ended June 30, 2015

—1,295 shops were surveyed in California and the failure rate was 3.5 percent.

—48 of those shops were 7-Eleven stores, which had a failure rate of 2.1 percent, or less than the California average overall.

Franchised Stores v. Corporate Stores

We drilled down into the specifics of one particular market in Florida. In this market, 113 7-Eleven shops were surveyed during the 12 months ended June 30, 2015.

  • 24 of those stores were corporate, which had a failure rate of 33.4 percent.
  • 89 of those stores are franchised, which had a collective failure rate of 31.4 percent, or materially less than the corporate failure rate.

Overall Conclusions

  • The California failure rates are quite comparable to the Florida failure rate of 3.2 percent prior to the ISN contract.
  • 7-Eleven stores are consistently outperforming statewide averages.
  • 7-Eleven franchised stores consistently outperform 7-Eleven corporate stores.

Even this limited data shows that this upward spike in alleged noncompliance in Florida is based upon procedures that need to be investigated because the results are implausible and deeply suspect. This also shows that the problem is not just a 7-Eleven franchisee problem. And because corporate stores are consistently underperforming franchise stores, this is not exclusively a franchisee issue.

In my early August communication to the SEI legal department, I specifically requested that all current LONs and default letters issued on tobacco related sales issues be rescinded, and that none be issued until we jointly get to the bottom of this problem.

In early October, with my blessing, Mr. Donihoo met with SEI officials, including Mike Lover (Florida Zone Leader VP), Tim Hall (Asset Protection) and Mary McKaig (HR). By all accounts the meeting was positive and cordial, in recognition of the fact that SEI and its franchisees have a common enemy. The franchisee representatives requested that LONs and breaches stop, that all prior LONs and breaches on tobacco issues be withdrawn, and that the SEI legal department work directly with me as your General Counsel to develop separate joint letters to deal with FDA notices for warnings and civil penalties. I stand ready to work with the SEI legal department on these matters.

I continue to urge SEI to recognize the unassailable fact that the best strategy is that we work together to find a collaborative solution to this problem. Over the last two months, and as of the date of this writing, I have yet to receive any specific promise of, or concrete participation in, such collaborative efforts. My hope is that by the time you read this, SEI will have realized that the optimal way to deal with an issue like this is to make common cause with its hard-working, law-abiding franchisees. Of course, I will continue to keep you informed.