[Federal Register Volume 64, Number 22 (Wednesday, February 3, 1999)]
[Notices]
[Pages 5314-5319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2561]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration
[Docket No. 96-38]


Daniel Family Pharmacy; Continuation of Registration With 
Restrictions

    On June 24, 1996, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Daniel Family Pharmacy (Respondent) of 
Galesburg, Illinois, notifying the pharmacy of an opportunity to show 
cause as to why DEA should not revoke its DEA Certificate of 
Registration, AD2002626, pursuant to 21 U.S.C. 824(a)(2) and (a)(4), 
and deny any pending applications for registration pursuant to 21 
U.S.C. 823(f).
    By letter dated July 23, 1996, Respondent, through counsel, filed a 
request for a hearing, and following prehearing procedures, a hearing 
was held in Chicago, Illinois on March 11 through 14, 1997, before 
Administrative Law Judge Mary Ellen Bittner. At the hearing, both 
parties called witnesses to testify and introduced documentary 
evidence. After the hearing, counsel for both sides submitted proposed 
findings of fact, conclusions of law and argument. On July 7, 1998, 
Judge Bittner issued her Opinion and Recommended Ruling, Findings of 
Fact, Conclusions of Law and Decision, recommending that Respondent's 
DEA Certificate of Registration be continued subject to certain 
conditions. On July 27, 1998, the Government filed Exceptions to Judge 
Bittner's Opinion and Recommended Ruling, Findings of Fact, Conclusions 
of Law and Decision. Thereafter, Judge Bittner transmitted the record 
of these proceedings to the then-Acting Deputy Administrator on August 
11, 1998.
    On September 30, 1998, Judge Bittner transmitted to the then-Acting 
Deputy Administrator Respondent's Motion for Leave to File its Response 
to Government's Objection which was filed on September 29, 1998. In its 
motion, Respondent's counsel represented that the Government did not 
object to Respondent's request for additional time to file its response 
to the Government's exceptions and that no party would be prejudiced by 
allowing Respondent the opportunity to respond.
    By letter dated October 2, 1998, Government counsel indicated that 
it did in fact object to Respondent being given additional time to 
respond to the Government's exceptions. Government counsel stated that 
the Government attorney who agreed to Respondent's request was not an 
attorney of record in these proceedings and was not authorized to agree 
to Respondent's request. Government counsel noted that 21 CFR 1316.66 
provides the parties with the opportunity to file exceptions to the 
Administrative Law Judge's recommended decision within 20 days of the 
date of the decision and that the Administrative Law Judge can grant 
additional time past the 20 days for the filing of a response to any 
exceptions. Government counsel argued that Respondent did not file any 
response or request for additional time to file a response within 20 
days of Judge Bittner's decision. In addition, the Government argued 
that no good cause was given by Respondent to file a response at such a 
late date; that its request is tantamount to a motion to reopen the 
record; and that allowing Respondent to respond to the Government's 
exceptions at such a late date would delay the publication of a final 
order in this matter.
    Respondent replied to the Government's letter on October 5, 1998, 
and forwarded its Response to the Government's Exceptions to the 
Opinion and Recommended Ruling, Findings of Fact, Conclusions of Law 
and Decision of the Administrative Law Judge. Respondent pointed out 
that it could not have filed anything regarding the Government's 
exceptions within 20 days of Judge Bittner's recommendation since the 
Government did not file its exceptions until the twentieth day, and 
that the delay in filing its response was due to the unavailability of 
Respondent's owner and the work schedules of Respondent's counsel. 
Respondent then noted that 21 CFR 1316.66 allows for extensions ``for 
the filing of a response to the exceptions filed by another party if . 
. . no party will be prejudiced and . . . the ends of justice will be 
served thereby.'' Respondent argued given the delay that had already 
occurred in this proceeding, ``it is difficult to imagine how the 
government will be prejudiced if Daniel Pharmacy is allowed to file its 
Response 41 days after the filing for the Government's Exceptions.''
    The Deputy Administrator recognizes that the regulations permit the 
granting of additional time to file a response to exceptions, however 
Respondent has not given any reason why it did not even request an 
opportunity to file a response until two months after the Government's 
exceptions were filed. Nevertheless, the Deputy Administrator concludes 
that no party will be prejudiced by consideration of Respondent's 
response given the length of time that it has taken to complete these 
proceedings.
    The Deputy Administrator has considered the record in its entirety, 
and pursuant to 21 CFR 1316.67, hereby issues his final order based 
upon findings of fact and conclusions of law as hereinafter set forth. 
The Deputy Administrator adopts in full the Opinion and Recommended 
Ruling, Findings of Fact, Conclusions of Law and Decision of the 
Administrative Law Judge and includes an additional restriction. The 
Deputy Administrator's adoption is in no manner diminished by any 
recitation of facts, issues and conclusions herein, or of any failure 
to mention a matter of fact or law.
    The Deputy Administrator finds that Respondent is a pharmacy that 
has been in existence since 1988 and is owned by a corporation, Daniel 
Pharmacy, Inc. with George Daniel and his wife holding 51 and 49 
percent of the shares respectively, George Daniel is also the managing 
pharmacist of Respondent.
    In January 1993, an individual who was cooperating with law 
enforcement after being arrested on a burglary charge went to 
Respondent on two occasions and obtained Vicodin, a Schedule III 
controlled substance, from Mr. Daniel without a prescription. On 
January 5, 1993, the cooperating individual was monitored by law 
enforcement personnel. He indicated to Mr. Daniel that he was getting 
ready to move out of state and said, ``Hey, I thought you might give me 
some Vicodin or something just for the road * * *.'' Mr. Daniel gave 
the cooperating individual some Vicodin. During this meeting, the 
cooperating individual gave Mr. Daniel $1,100.00 apparently to repay a 
personal loan. There is no evidence that the cooperating individual 
paid Mr. Daniel for the Vicodin.
    The cooperating individual returned to Respondent on January 6, 
1993. Again he was monitored by law enforcement

[[Page 5315]]

personnel. He indicated to Mr. Daniel that he was leaving town that day 
and stated that ``I kind of thought you might give me a few more of 
that.'' Mr. Daniel gave the cooperating individual some Vicodin. On 
this occasion, the cooperating individual paid off his ex-wife's bill 
at the pharmacy, but did not pay for the Vicodin.
    The cooperating individual was interviewed by law enforcement 
personnel on January 6, 1993, following his visit to Respondent. The 
individual stated that he had known Mr. Daniel since about 1987 and 
worked for Respondent delivering prescriptions. In 1989, he injured his 
back in an accident and was prescribed Vicodin. After his physician 
stopped prescribing him Vicodin in 1991, Mr. Daniel gave him Vicodin 
without a prescription. The cooperating individual stated that Mr. 
Daniel gave him Vicodin regularly and also provided him with morphine 
and Dilaudid, Schedule II controlled substances, and Tussionex, a 
Schedule III controlled substance, without prescriptions.
    On January 7, 1993, a search warrant was executed at Respondent to 
obtain records. Mr. Daniel cooperated with law enforcement personnel 
during the search and consented to a search of his residence and 
another house next door to Respondent. During execution of the warrant, 
DEA investigators, assisted by one of Respondent's pharmacists, 
conducted a physical count of certain controlled substances for later 
use in an accountability audit. DEA conducted several audits of 
Respondent's handling of controlled substances. One audit was of 
selected Schedule II controlled substances for the period September 1, 
1990 to January 7, 1993. The investigators used Respondent's written 
inventory dated September 1, 1990 for the initial inventory figure. 
This audit revealed that Respondent could not account for almost 2,500 
dosage units of various strengths of Dilaudid and for 693 dosage units 
of Percodan. A separate audit was conducted for morphine sulfate 
covering the period August 13, 1992 to January 7, 1993 and revealed 
that Respondent could not account for 2.45 grams. In conducting this 
audit, the investigators used a zero beginning balance whereby 
Respondent was not held accountable for any morphine sulfate that it 
may have had on hand at the beginning of the audit period.
    The investigators conducted a separate audit of various Schedule 
III and IV controlled substances. This audit covered the period 
February 6, 1992 to January 7, 1993, and used a zero beginning balance. 
The audit revealed that Respondent could not account for 15,733 dosage 
units of Valium 10 mg. and 2,057 dosage units of Vicodin 5 mg. Again, 
by using a zero beginning balance Respondent was not held accountable 
for any of the substances that it may have had on hand at the beginning 
of the audit period. Therefore, these shortages would have been greater 
if in fact Respondent had any of the substances in stock on February 6, 
1992. The audit revealed overages for the other audited Schedule III 
and IV substances which most likely was the result of using a zero 
beginning balance.
    The Illinois Department of Professional Regulation (IDPR) conducted 
its own audit of Respondent's controlled substances using the records 
that DEA had obtained during the search warrant. The results of the 
IDPR audit were the same as those of DEA with respect to the controlled 
substances that both audited. The IDPR also audited Desoxyn, a Schedule 
II controlled substance, for the period September 1, 1990 to December 
18, 1992. The audit revealed that Respondent could not account for 
approximately 4,750 dosage units.
    On January 21, 1993, Mr. Daniel was indicted in the United States 
District Court for the Central District of Illinois and charged with 
two felony counts of distributing hydrocodone on January 5 and 6, 1993 
in violation of 21 U.S.C. 841(a)(1). According to a DEA agent who was 
present during Mr. Daniel's proffer in the criminal matter on November 
3, 1993, Mr. Daniel stated that he and the cooperating individual were 
friends; in 1990 the individual injured his back and as a result he was 
prescribed prescription painkillers; at some point the cooperating 
individual's physician stopped prescribing Vicodin to the individual, 
yet Mr. Daniel continued to deliver approximately 500 dosage units of 
Vicodin to the individual without prescriptions; and he also provided 
the individual with Tussionex, Dilaudid and morphine without 
prescriptions. The agent further testified that Mr. Daniel also 
indicated during his proffer that sometime before January 5, 1993, he 
realized that the individual had a drug problem after observing him 
take approximately 18 times the normal dosage of Tussionex. In 
addition, Mr. Daniel stated that on November 2 and 7, 1992, he obtained 
Dilaudid from other pharmacies in order to provide it to the individual 
without a prescription. According to the agent, Mr. Daniel stated that 
the individual signed over his trailer home to him in exchange for the 
Dilaudid. However, at the hearing in this matter, Mr. Daniel denied 
that he traded Dilaudid for the individual's trailer home and that he 
ever indicated that this occurred during his proffer. Because of 
conflicting evidence regarding this issue, the Deputy Administrator 
does not find that Mr. Daniel gave the individual Dilaudid in exchange 
for the title to the individual's trailer home. Mr. Daniel further 
stated in his proffer that in December 1992, he gave the individual 
some morphine without a prescription because the individual had 
threatened to tell the authorities that Mr. Daniel had been giving him 
drugs without prescriptions. Finally during the proffer, investigators 
advised Mr. Daniel of the audit results. According to the agent, Mr. 
Daniel thought that he had given the individual approximately 500 
Vicodin, and was surprised that the audit revealed a shortage of at 
least 2,000 dosage units.
    Following his guilty plea, Mr. Daniel was convicted on October 18, 
1994, regarding the unlawful distribution of Vicodin to the cooperating 
individual on January 5, 1993. He was sentenced to two years' probation 
and ordered to spend 60 days in a work release facility, to perform 
community service and to pay a fine.
    On February 23, 1996, the IDPR and Respondent and Mr. Daniel 
entered into a consent order providing, among other things, that (1) 
Mr. Daniel's pharmacist license would be suspended for six months and 
then placed on probation for four years and six months; (2) during the 
suspension, Mr. Daniel would successfully complete 15 hours of a Board-
approved pharmacy law course in addition to his continuing education 
requirements; (3) Mr. Daniel would pay a fine; (4) Respondent's 
pharmacy license would be placed on probation for 5 years; and (5) 
during the pharmacy's probation, Mr. Daniel would be required to 
maintain a perpetual inventory of Schedule II drugs, allow only 
authorized licensees access to the pharmacy and cause the pharmacy to 
submit to random IDPR inspections. It is undisputed that Respondent and 
Mr. Daniel have thus far complied with the terms of the consent order.
    On January 17, 1997, IDPR conducted a controlled substance 
inspection and a pharmacy inspection at Respondent. The only violation 
discovered during the controlled substance inspection involved 
Respondent's failure to timely submit several duplicate prescription 
blanks to the appropriate state agency. Regarding the pharmacy 
inspection, Respondent failed to maintain an updated copy of a specific 
reference book and violated the requirements that the pharmacy 
technician initial hard copies of prescriptions and that

[[Page 5316]]

pharmacists date computer printouts. The IDPR investigator also noted 
that Mr. Daniel did not start the perpetual inventory of Schedule II 
controlled substances until January 1, 1997. Mr. Daniel testified at 
the hearing in this matter that no one explained exactly how a 
perpetual inventory should be taken, but that he is now properly 
maintaining a perpetual inventory after discussing the methodology with 
the IDPR investigator.
    At the hearing in this matter, Mr. Daniel testified that he first 
gave the cooperating individual Vicodin without a prescription in 1991 
believing that the individual's physician would authorize the 
dispensation. Mr. Daniel testified that ``[I] made my big mistake of 
letting him have [Vicodin], thinking that I could call the doctor 
Monday morning and get it okayed.'' According to Mr. Daniel, he felt 
``very sick'' after being told by the individual's physician not to 
give the individual any more Vicodin. Mr. Daniel further testified that 
the individual returned about a month later and persuaded Mr. Daniel to 
give him some Vicodin without a prescription. Mr. Daniel acknowledged 
that he gave the individual the Vicodin knowing that his physician 
would no longer prescribe it and that he was not threatened by the 
individual on this occasion. However, Mr. Daniel also testified that 
``[a]fter the first couple of times he started to threaten that he 
would go to the authorities . . .,'' and that ``I became scared enough 
to the point where it seemed that my only way out was to give it to 
him. And I tried to resist for awhile each time, but each time he would 
coax me or talk me into doing it.''
    Mr. Daniel testified that after being told that Respondent did not 
have any Dilaudid, the individual threatened to ``really cause big 
problems for you because you've got shortages more than you'd even 
believe.'' According to Mr. Daniel, the individual also threatened to 
``get physical,'' made threatening phone calls to Mr. Daniel's wife, 
and passed two threatening letters to him. However, Mr. Daniel 
testified that initially he did not believe the individual's threats 
and one of Respondent's pharmacists testified that he never observed 
Mr. Daniel acting nervous or upset when he was with the individual. Mr. 
Daniel testified that he gave the individual Vicodin seven or eight 
times, Tussionex and morphine once and Dilaudid two times, all without 
prescriptions.
    According to one of Respondent's pharmacists who testified in this 
proceeding, sometime in December 1992 Mr. Daniel instructed all of 
Respondent's employees not to allow the cooperating individual in the 
pharmacy and to call the police if necessary because the individual was 
blackmailing him. Yet, Mr. Daniel allowed the individual in the 
pharmacy on January 5 and 6, 1993, and gave him Vicodin without a 
prescription. Mr. Daniel stated that he did so because he believed that 
the individual was moving out of state and ``[b]ecause I was so sick 
and tired of what he had put myself and my family through and what I 
had stupidly done to start the whole thing, I just wanted him out of my 
life forever.*  *  *''
    Regarding the shortages discovered during the accountability 
audits, Mr. Daniel testified that the controlled substances that he 
provided to the cooperating individual would not account for the 
discrepancies, noting that he did not give the individual some of the 
drugs that had shortages, such as Valium. Mr. Daniel testified that 
following his arrest, he received information that the cooperating 
individual as well as one of Respondent's pharmacy technicians were 
stealing controlled substances from Respondent. Respondent introduced 
into evidence an affidavit from a woman who indicated that between 1987 
and 1993 the cooperating individual frequently contacted her then-
husband and offered to sell him drugs, including Valium, Vicodin and 
Dilaudid that the individual admitted stealing from Respondent. 
According to the woman, some of the bottles the individual brought to 
her home ``were the bottles that pharmacists keep behind their counters 
and from which they fill prescriptions.'' She further stated that 
according to the individual he usually stole drugs from Respondent on 
Thursdays when the pharmacy received its drug shipments. According to 
Mr. and Mrs. Daniel, controlled substance orders were usually delivered 
on Thursdays and Mr. Daniel usually took Thursdays off.
    At the hearing, Mr. Daniel conceded that although the cooperating 
individual told him that there were shortages at Respondent, he did not 
conduct any audit to verify whether the individual's assertions were 
accurate. He also testified that had he performed an audit he would 
have known that Respondent could not account for 15,000 dosage units of 
Valium. However, Mr. Daniel also acknowledged that he conducted a 
biennial inventory of controlled substances on December 18, 1992, and 
it does not appear that he noticed that such a large quantity of Valium 
was missing. One of Respondent's pharmacists testified at the hearing 
that he considered the shortages revealed by the audit to be of serious 
concern.
    According to Mr. Daniel and another of Respondent's pharmacists 
there are new security measures in place to prevent unauthorized access 
to controlled substances. After Mr. Daniel was arrested, the cabinet 
containing Schedule II controlled substances was sealed with a headlock 
and the key was put in an area where the registered pharmacist could 
get it, and that only staff personnel were allowed in the prescription 
filling area. Yet, Mr. Daniel conceded that all of the employees knew 
where the key to the Schedule II cabinet is kept, but that the pharmacy 
is so small that ``it would be about impossible for someone to get into 
the cabinet without the pharmacist knowing.'' However, Mr. Daniel also 
conceded that Respondent is the same size as it was when controlled 
substances were allegedly stolen and no one saw either the pharmacy 
technician nor the cooperating individual taking any controlled 
substances.
    According to Respondent's pharmacist who testified at the hearing, 
he conducted a physical inventory of Respondent's controlled substances 
on March 2, 1997 and found no discrepancies with respect to Schedule II 
controlled substances and only minor shortages with respect to 
Schedules III, IV and V controlled substances. The pharmacist indicated 
that these shortages could be the result of miscounting, outdated items 
in process for return, and/or broken tablets. He also testified that 
Respondent is now doing more frequent inventories and audits.
    Both Mr. Daniel and Respondent's other pharmacist who testified at 
the hearing indicated that unlike chain pharmacies in the area, 
Respondent offers its customers drive-up window service, prescription 
compounding, nutritional co-therapy, free local and out-of-town 
delivery, monthly charge accounts and after hours service. Mr. Daniel 
testified that other independent pharmacises may offer similar 
services, however no other pharmacy within 50 miles offers prescription 
compounding which is a service that is especially needed by senior 
citizens.
    A former director of the Illinois Pharmacists Association (IPA), 
and a member of the Illinois Board of Pharmacy (Board), who is also a 
former president of the IPA, testified that in evaluating this case 
they would defer to the action taken by the Board, which did not take 
any action against Respondent's Illinois controlled substances license. 
The former IPA director also testified that if Respondent's DEA 
registration is revoked, the pharmacy will close because controlled 
substances are such

[[Page 5317]]

a substantial part of a pharmacy's business. He further expressed his 
concern with the impact on small towns when independent pharmacies go 
out of business, but conceded that he would also be concerned if a 
pharmacy maintains sloppy records and has significant shortages and 
thefts.
    Both Mr. Daniel and Respondent's other pharmacist testified 
Respondent would go out of business if it loses its DEA registration. 
Controlled substances account for approximately 30 percent of 
Respondent's business and in their opinion customers will not patronize 
a pharmacy unless they can have all of their prescriptions filled 
there. Mrs. Daniel testified that they have received offers to buy 
Respondent however the offers have been substantially less than what 
was paid for the pharmacy.
    Mr. Daniel testified that if permitted to keep Respondent's DEA 
registration, he would be willing to conduct regular physical 
inventories of controlled substances, to submit records of such 
inventories and computer records to DEA or the IDPR, to have DEA 
perform random inspections, to pay for a third party to perform 
physical counts and submit records to DEA, and to hire a pharmacist 
other than himself to be Respondent's pharmacist in charge. Mr. Daniel 
further testified that he would never again engage in the same type of 
misconduct that he did with the cooperating individual, and that ``I 
will never put myself and my family and my business and everybody in 
that kind of position, no.''
    Finally, Respondent introduced into evidence letters that were 
submitted on Mr. Daniel's behalf during the criminal proceedings to the 
United States District Court for the Central District of Illinois. 
These letters essentially state that Mr. Daniel was active and well-
regarded in the community, concerned for his family, and responsible in 
practicing his profession.
    Pursuant to 21 U.S.C. 824(a)(2), the Deputy Administrator may 
revoke a DEA Certificate of Registration upon a finding that the 
registrant ``has been convicted of a felony * * * relating to any 
substance defined * * * as a controlled substance. * * *'' In addition, 
pursuant to 21 U.S.C. 823(f) and 824(a)(4), the Deputy Administrator 
may revoke a DEA Certificate of Registration and deny any application 
for such registration, if he determines that the continued registration 
would be inconsistent with the public interest. Section 823(f) requires 
that the following factors be considered:
    (1) The recommendation of the appropriate state licensing board or 
professional disciplinary authority.
    (2) The applicant's experience in dispensing, or conducting 
research with respect to controlled substances.
    (3) The applicant's conviction record under federal or state laws 
relating to the manufacture, distribution, or dispensing of controlled 
substances.
    (4) Compliance with applicable state, federal, or local laws 
relating to controlled substances.
    (5) Such other conduct which may threaten the public health or 
safety.
    These factors are to be considered in the disjunctive; the Deputy 
Administrator may rely on any one or a combination of factors and may 
give each factor the weight he deems appropriate in determining whether 
a registration should be revoked or an application for registration be 
denied. See Henry J. Schwarz, Jr., M.D., 54 FR 16,422 (1989).
    First, the Deputy Administrator must determine whether 21 U.S.C. 
824(a)(2) is a basis for revocation in these proceedings. While the 
Order to Show Cause raised both 21 U.S.C. 824(a)(2) and (a)(4) as 
grounds for the proposed revocation, the issue as proposed in the 
Government's Prehearing Statement and framed in the Prehearing Ruling 
issued by Judge Bittner referred only to whether Respondent's continued 
registration would be inconsistent with the public interest pursuant to 
21 U.S.C. 824(a)(4).
    Throughout the prehearing proceedings, Respondent argued in various 
filings that there is no basis for the revocation of Respondent's DEA 
registration since the statute refers to acts and convictions of the 
registrant to support such action, and the registrant in this case is 
the pharmacy, not Mr. Daniel. Respondent argued that the acts and 
conviction of Mr. Daniel should not be imputed to Respondent. The 
Government argued that DEA has consistently held that the actions and/
or conviction of a natural person who is an owner, officer or key 
employee, or has some responsibility for the operation of the 
registrant's controlled substances business are considered in 
determining whether a pharmacy's registration should be revoked. The 
Government cited, among others, Maxicare Pharmacy, 61 FR 27,368 (1996) 
and Farmacia Ortiz, 61 FR 726 (1996) for this proposition.
    Subsequent to the issuance of the Prehearing Ruling, on February 
25, 1997, Judge Bittner issued a Memorandum to Counsel finding that Mr. 
Daniel's conduct is relevant to the issue of whether Respondent's 
continued registration is inconsistent with the public interest.
    Thereafter, on March 5, 1997, Respondent moved to strike the Order 
to Show Cause to the extent that it referred to 21 U.S.C. 824(a)(2) as 
a basis for revocation and again argued that the section refers to a 
registrant's felony conviction and since Mr. Daniel is not the 
registrant, this provision does not apply. In a Memorandum to Counsel 
and Rulings dated March 7, 1997, Judge Bittner noted that the 
parameters of a proceeding are established by the Prehearing Ruling and 
since the issue framed in the Prehearing Ruling referred only to 21 
U.S.C. 824(a)(4) as a basis for revocation, 21 U.S.C. 824(a)(2) is not 
at issue in this proceeding.
    However, the Deputy Administrator agrees with Judge Bittner that 
had the Government not waived reliance on 21 U.S.C. 824(a)(2) in its 
Prehearing Statement, Mr. Daniel's conviction would constitute grounds 
for revoking Respondent's registration pursuant to that section. DEA 
has consistently held that a corporate registrant's registration may be 
revoked based upon the controlled substance-related felony conviction 
of an officer, agent or employee. As Judge Bittner noted, the then-
Administrator found in Lynnfield Drug, Inc., 42 FR 8435 (1977), ``[t]o 
hold otherwise would result in the revocation of the registration of a 
feloniously violative sole proprietor while denying the same sanction 
to an equally violative registrant, merely because the latter had 
adopted a corporate or partnership form. Such a result would not only 
be not equitable, but would be contrary to the legislative intent 
behind the enactment of sections 303 and 304 of the Controlled 
Substances Act.''
    Notwithstanding that 21 U.S.C. 824(a)(2) cannot be relied upon as a 
basis for revocation in this proceeding, the Deputy Administrator 
concurs with Judge Bittner that Mr. Daniel's conduct and his conviction 
may be considered under 21 U.S.C. 823(f) and 824(a)(4). DEA has 
consistently held since 1984, when 21 U.S.C. 824(a)(4) was added as a 
ground for revocation, that the conduct of owners, agents and/or key 
employees constitute a basis for revoking the registrations of 
corporate registrants upon a finding that the continued registration 
would be inconsistent with the public interest. See, Dobson Drug Co., 
Inc. 56 FR 46,445 (1991).
    In evaluating the factors listed in 21 U.S.C. 823(f), the Deputy 
Administrator finds that while no action has been taken by the State of 
Illinois against Respondent's controlled substance license, the Board 
has required Respondent to maintain a perpetual inventory of its 
Schedule II controlled

[[Page 5318]]

substances. Therefore, Respondent's handling of controlled substances 
has been affected by the Board's action. But, Respondent is currently 
authorized to handle controlled substances in Illinois. As Judge 
Bittner noted, ``[i]nasmuch as state authorization to handle controlled 
substances is a necessary but not sufficient condition for DEA 
registration * * * this factor is not dispositive.''
    As to factors two and four, it is undisputed that Mr. Daniel 
dispensed Vicodin and other controlled substances without a 
prescription in violation of 21 U.S.C. 841(a)(1). The Deputy 
Administrator finds that Mr. Daniel's explanation that he was being 
threatened by the cooperating individual does not justify or excuse his 
behavior. First, Mr. Daniel himself admitted that initially he did not 
take the cooperating individual's threats seriously. Second, the other 
pharmacist at Respondent testified that Mr. Daniel did not appear 
nervous or upset when he observed Mr. Daniel with the cooperating 
individual. Finally, if in fact Mr. Daniel felt threatened by the 
cooperating individual he should have reported it to the proper 
authorities rather than continuing to unlawfully dispense controlled 
substances to him for over a year.
    In addition, the significant shortages revealed by the audits 
indicate that Respondent did not maintain complete and accurate records 
of its handling of controlled substances as required by 21 U.S.C. 827. 
While there is some evidence that controlled substances were being 
stolen from Respondent, this does not minimize Respondent's 
responsibility for the shortages. It is quite disturbing that Mr. 
Daniel did not detect that over 17,000 dosage units were missing from 
Respondent in less than a one year period. As a DEA registrant, 
Respondent must ensure that controlled substances are properly 
dispensed. Respondent clearly abrogated this responsibility.
    The Deputy Administrator notes that according to Respondent's 
pharmacists, more frequent inventories are now being conducted at 
Respondent and access to the controlled substances has been limited.
    Regarding factor three, it is undisputed that Mr. Daniel was 
convicted of a felony relating to controlled substances, and as 
discussed above, Mr. Daniel's conviction is properly considered in 
determining what action to take against Respondent's registration.
    The Deputy Administer agrees with Judge Bittner that there was no 
evidence presented of other conduct by Mr. Daniel or Respondent that 
would threaten the public health and safety.
    Judge Bittner concluded that the Government made a prima facie case 
for revoking Respondent's DEA Certificate of Registration. However, she 
recommended that Respondent should nonetheless be permitted to remain 
registered. While expressing extreme concern regarding Mr. Daniel's 
``egregious abuse of his responsibilities as a pharmacist and as a DEA 
registrant,'' Judge Bittner also found that ``Mr. Daniel seemed 
genuinely remorseful and that * * * he now understands the enormity of 
his misconduct.'' Judge Bittner recommended that Respondent's continued 
registration be subject to the conditions that:
    (1) Respondent maintain a perpetual inventory of all controlled 
substances for at least three years following issuance of a final order 
in this proceeding;
    (2) Respondent verify the perpetual inventory by a physical count, 
reduced to writing, of all controlled substances for each calendar 
quarter of that three year period;
    (3) Respondent submit the perpetual inventory and quarterly 
verification to the Special Agent in Charge of the DEA field office 
having jurisdiction over Respondent; and
    (4) Respondent consent to undergo unannounced inspections by DEA 
diversion investigators, without an administrative inspection warrant.
    The Government filed exceptions to Judge Bittner's recommended 
decision objecting to the continuation of Respondent's registration on 
the sole basis that George Daniel appears remorseful. The Government 
argued that Mr. Daniel was remorseful to the extent that he got caught 
and that his DEA registration is now threatened with revocation; that 
Mr. Daniel refused to take any responsibility for the shortages; and 
that Mr. Daniel's contention that he was threatened into unlawfully 
dispensing controlled substances is hard to believe. In its response to 
the Government's exceptions, Respondent argued that Judge Bittner's 
assessment of George Daniel's credibility should control and that there 
is substantial evidence in the record to support her finding that Mr. 
Daniel is remorseful. In addition, Respondent again indicated that it 
is agreeable to even stricter conditions being imposed on its 
registration than those recommended by Judge Bittner.
    The Deputy Administrator is deeply concerned by the egregious 
conduct of Respondent and Mr. Daniel. Mr. Daniel actively diverted 
controlled substances by dispensing them without a prescription and 
allowed additional significant diversion to occur as evidenced by the 
shortages revealed during the audits. However, the Deputy Administrator 
notes that this conduct occurred in January 1993. Had this case been 
adjudicated at that time, or even right after his criminal conviction 
in October 1994, the Deputy Administrator would have revoked 
Respondent's DEA Certificate of Registration. But, in the subsequent 
six years, Respondent has maintained its DEA registration and available 
evidence indicates that it has acted in a responsible manner as 
demonstrated by the January 1997 state inspection which revealed only 
minor violations. In addition, the Deputy Administrator concurs with 
Judge Bittner's conclusion that Mr. Daniel has exhibited remorse for 
his actions, and finds it significant that Respondent is the only 
pharmacy in the area that performs prescription compounding. Therefore, 
the Deputy Administrator concludes that it would not be in the public 
interest to revoke Respondent's registration at this time. This 
decision however, should in no way be interpreted as an endorsement of 
the past illegal behavior of Mr. Daniel and Respondent. Mr. Daniel's 
remorse and the fact that available evidence indicates that the 
pharmacy has acted responsibly in the past six years provide adequate 
assurance that the prior illegal activity at Respondent will not be 
repeated.
    However, the Deputy Administrator agrees with Judge Bittner that 
some restrictions must be placed on Respondent's registration to 
adequately monitor Respondent's handling of controlled substances and 
to protect the public health and safety. Therefore, Respondent's 
registration shall be continued subject to the following restrictions 
for three years:
    (1) Respondent shall maintain a perpetual inventory of all 
controlled substances.
    (2) Respondent shall verify the perpetual inventory by a physical 
count, reduced to writing, of all controlled substances for each 
calendar quarter of the three year period.
    (3) Respondent shall submit the perpetual inventory and quarterly 
verification to the Special Agent in Charge of the DEA Chicago Field 
Division or his designee.
    (4) Respondent shall arrange for audits to be conducted two times 
per year by an independent auditor at Respondent's expense with the 
results submitted to the Special Agent in Charge of the DEA Chicago 
Field Division or his designee.

[[Page 5319]]

    (5) Respondent shall consent to unannounced inspections by DEA 
personnel without requiring an administrative inspection warrant.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in him by 21 U.S.C. 
823 and 824 and 28 C.F.R. 0.100(b) and 0.104, hereby orders that DEA 
Certificate of Registration AD2002626, previously issued to Daniel 
Family Pharmacy, be and it hereby is continued, subject to the above 
described restrictions. This order is effective March 5, 1999.

    Dated: January 28, 1999.
Donnie R. Marshall,
Deputy Administrator.
[FR Doc. 99-2561 Filed 2-2-99; 8:45 am]
BILLING CODE 4410-09-M