[Federal Register Volume 64, Number 56 (Wednesday, March 24, 1999)] [Notices] [Pages 14269-14273] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 99-7123] ----------------------------------------------------------------------- DEPARTMENT OF JUSTICE Drug Enforcement Administration [Docket No. 98-1] Jacqueline Lee Pierson Energy Outlet; Denial of Application On July 31, 1997, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration (DEA) issued an Order to Show Cause to two businesses with the same address in Westminster, Colorado, The New Connection, and Jacqueline Lee Pierson, Energy Outlet, notifying them of an opportunity to show cause as to why DEA should not deny their applications for registration as a retail distributor of list I chemicals pursuant to 21 U.S.C. 823(h), for reason that the registration would be inconsistent with the public interest. Both The New Connection and Energy Outlet (Respondent) filed a request for a hearing on the issues raised by the Order to Show Cause, and the matters were docketed before Administrative Law Judge Gail A. Randall. On October 21, 1997, Judge Randall issued a Memorandum and Order consolidating the proceedings regarding The New Connection and Respondent, for hearing purposes only and a hearing was held in Denver, Colorado on February 11 and 12, 1998. At the hearing, all parties called witnesses to testify and introduced documentary evidence. After, the hearing, all parties submitted proposed findings of fact, conclusions of law and argument. On September 30, 1998, Judge Randall issued her Opinion and Recommended Ruling, recommending that Respondent's application for registration be denied. On October 20, 1998, Respondent filed exceptions to Judge Randall's Opinion and Recommended Ruling, and on November 5, 1998, Judge Randall transmitted the record of these proceedings to the then-Acting Deputy Administrator. 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 of the Administrative Law Judge. His adoption is in no manner diminished by any recitation of facts, issues and conclusions herein, of any failure to mention a matter of fact or law. The Deputy Administrator finds that ephedrine is a List I chemical that has legitimate uses, but it can also be used to manufacture methamphetamine, a Schedule II controlled substance. Methamphetamine is a very potent central nervous system stimulant and its abuse is a growing problem in the United States. Ephedrine extracted from over- the-counter ephedrine products is often used in the illicit manufacture of methamphetamine. In an effort to curb the use of licit chemicals in the illicit manufacture of controlled substances, Congress amended the Controlled Substances Act in 1988 with the passage of the Chemical Diversion and Trafficking Act (CDTA). Pub. L. 100-690, 102 Stat. 4181 (1988). The CDTA required that records and reports be made of certain transactions involving various chemicals. However, products containing ephedrine were exempt from the recordkeeping and reporting requirements because they were approved for marketing under the Federal Food, Drug, and Cosmetic Act. The CDTA also made it illegal to distribute a listed chemical ``knowing, or having reasonable cause to believe, that the listed chemical will be used to manufacture a controlled substance. . . .'' See 21 U.S.C. 841(d)(2). This provision applied to the distribution of all listed chemicals including ephedrine products. In 1979, Jacqueline Pierson began working as a salesperson for MFC Enterprises which operated a chain of four stores called the Connection. Michael F. Carles was the president of MFC Enterprises. In 1990, Ms. Pierson began working at the Connection store located at 7115 North Federal Boulevard in Westminster, Colorado. According to Ms. Pierson, in 1991 and 1992 almost 100% of the store's sales were of ephedrine products; the store was primarily engaged in small sales; and she did not receive compensation based on her sales. DEA began an investigation of the Connection stores, after receiving information that they were receiving large quantities of ephedrine from an east coast distributor. On July 31, 1991, an undercover DEA agent purchased 10,000 ephedrine tablets from Ms. Pierson at the North Federal Connection store without giving any reason for the purchase. In February 1992, DEA personnel, acting in their official capacity, went to the North Federal Connection store and advised Ms. Pierson of the recordkeeping and reporting requirements imposed by the CDTA. They also advised Ms. Pierson that ephedrine is often used in the illicit manufacture of methamphetamine and that if she suspected that someone was purchasing ephedrine for that purpose, she should contact DEA. The undercover agent returned to the North Federal Connection store on August 28, 1992, and purchased 30,000 ephedrine tablets. On this occasion, the undercover agent handed Ms. Pierson a handwritten formula for the manufacture of methamphetamine entitled ``Synthesis for Meth'' and asked her whether the ephedrine tablets he was purchasing would work in the formula. Ms. Pierson indicated that they would. A second undercover agent made visits to the North Federal Connection store. On June 19, 1992, this undercover agent attempted to buy 20 1,000-count bottles of ephedrine at one of the other Connection stores. An employee at that store sold the undercover agent 10 bottles and told him that he could buy the other 20 bottles at the North Federal Connection store. At the North Federal Connection store the undercover agent met Ms. Pierson and told her that on his next visit he wanted to purchase 75 1,000-count bottles of ephedrine. Ms. Pierson indicated that she would need two days advance notice in order to have that amount available and she would have to talk to her boss about the [[Page 14270]] sale. The undercover agent then bought the 10 1,000-count bottles of ephedrine for $250.00. The next visit by the second undercover agent to the North Federal Connection store was on August 20, 1992. He purchased 50,000 ephedrine tablets for $750.00. According to the undercover agent, he indicated to Ms. Pierson that he was concerned with making repeated visits to the store because he did not want the police to figure out that he was buying the ephedrine to make ``meth.'' He further indicated that he was buying the ephedrine for a motorcycle gang, and Ms. Pierson asked him not to tell them where he was buying the tablets. Then at Ms. Pierson's request, the undercover agent helped her remove the labels from the bottles that indicated the store's name and address. On September 15, 1992, the second undercover agent went to the North Federal Connection store, however Ms. Pierson was not at the store that day. He returned to the store on September 17, 1992. The undercover agent did not purchase any ephedrine on this occasion, but he did discuss with Ms. Pierson the possibility of purchasing 100,000 tablets of ephedrine and told her that it would be used to manufacture methamphetamine. Ms. Pierson indicated that she could sell the undercover agent 50,000 tablets at the North Federal Connection store; that he could buy another 50,000 at a different Connection store; that he should return the following day to make the purchase; and that it would cost a total of $1,500. On September 18, 1992, the undercover agent returned to the North Connection Store with only $900.00. He explained to Ms. Pierson that he had already spent $600.00 on hydriodic acid to be used by the motorcycle gang to manufacture methamphetamine. The undercover agent then purchased 60,000 tablets of ephedrine. Ms. Pierson again expressed concern about the removal of the store labels and told the undercover agent that she would put the bottles of ephedrine in black plastic bags so the neighboring businesses would not be suspicious. As a result of the investigation, the corporate officers and employees of the Connection stores, including Ms. Pierson, were indicted in the United States District Court for the District of Colorado and charged with violations of 21 U.S.C. 841(d)(2), 846 and 18 U.S.C. 2. On January 20, 1993, a search warrant was executed at the North Federal Connection store and Ms. Pierson was arrested. At the time of her arrest, Ms. Pierson indicated that Michael Carles had died in approximately October 1992. She also acknowledged that she knew why the undercover agents were purportedly obtaining the ephedrine. Initially, Ms. Pierson agreed to plead guilty to some of the charges against her and to testify on behalf of the Government at the trial of the other employees. During her pretrial debriefing, Ms. Pierson again acknowledged that she understood that the undercover purchases of ephedrine were intended to be used in the illegal manufacture of controlled substances. However, Ms. Pierson subsequently filed a motion to withdraw her guilty pleas and disclosed that she suffered from various mental and emotional disorders. it was also disclosed in her motion that Ms. Pierson was dominated and intimidated by Michael Carles who physically abused her and threatened her with extreme harm. In addition the motion stated that Ms. Pierson ``did not want to sell large quantities of ephedrine to [the] undercover government agents but did so because Michael Carles insisted she do so and informed her that she was not doing anything wrong.'' The Government did not oppose Ms. Pierson's motion indicating that the indictment against Ms. Pierson's co-defendants had been dismissed and that had Ms. Pierson also gone to trial, her case would have similarly been dismissed. Therefore, the criminal charges against Ms. Pierson were ultimately dismissed. Recognizing, among other things that the use of over-the-counter ephedrine products in the illegal manufacture of methamphetamine was increasing, Congress passed the Domestic Chemical Diversion Control Act of 1993 (DCDCA). Pub. L. 103-200, 107 Stat. 2333 (1993). The DCDCA removed the exemption from recordkeeping and reporting requirements for single entity ephedrine products. In addition, the DCDCA also established a registration system for certain handlers of List I chemicals, including retail distributors. DEA temporarily exempted from registration anyone who submitted an application by November 13, 1995, until such time as DEA either approves or denies the application. See 21 CFR 1310.09 (1996). According to Ms. Pierson, she assumed ownership of the North Federal Connection Store after Michael Carles died in October 1992. Ms. Pierson submitted an application dated August 10, 1995, for registration for the New Connection located at 7115 North Federal Boulevard, Westminster, Colorado, as a retail distributor of ephedrine, pseudoephedrine and phenylpropanolamine. It was determined during the course of the hearing in this matter that a retail distributor does not need to be registered with DEA to distribute pseudoephedrine and phenylpropanolamine. Therefore the only chemical relevant to the application in this proceeding is ephedrine. In February 1996, DEA personnel conducted a preregistration inspection of the New Connection. One of the investigators who conducted this inspection testified at the hearing in this matter that the security system at The New Connection was suitable for registration purposes and that the store's records appeared to be in order. During the inspection, DEA personnel discussed the relevant requirements with Ms. Pierson and two other employees in the back room of the store. One of the employees left the discussion on two to three occasions to conduct business transactions in the front of the store. As the DEA investigator was leaving the store he noticed three sales records that had been left on the counter that contained only the names of the customers and no other information. When questioned, Ms. Pierson and the employee indicated that these were repeat customers and the remaining information would be filled in when the store was not so busy. The investigator was unable to say at the hearing what substances were sold during the three transactions, and Ms. Pierson indicated that the forms were used for both ephedrine and pseudoephedrine sales. On March 12, 1996, Ms. Pierson submitted an application for registration as a retail distributor of ephedrine for Respondent, the Energy Outlet, also located at 7115 North Federal Boulevard, Westminster, Colorado. During a telephone conversation with the DEA investigator, Ms. Pierson indicated that she simply was trying to effectuate a name change and thought that she had to submit another application. According to the investigator, because it was the same location as the New Connection which had just been inspected the month before, no additional preregistration inspection was conducted. Ms. Pierson testified that she is not operating two businesses at the North Federal location and only wants a DEA registration for the Energy Outlet. At the hearing in this matter Ms. Pierson testified that she reported every large transaction to Michael Carles who told her that he would make the proper reports. She stated that she was afraid of Michael Carles because he abused and threatened her and he told her that if she did not make the sales, he would find someone who would. Ms. Pierson [[Page 14271]] testified that ``in an effort to improve her self-esteem, as part of her efforts to separate herself from Michael Carles' control,'' she took a ``life skills'' course. Ms. Pierson further testified that the undercover agents used the word ``meth'' and at that time she did not know what ``meth'' meant. However, she also stated that she suspected that the 1992 purchases were being used to manufacture controlled substances. With respect to the removal of the labels, Ms. Pierson testified that this was done at Michael Carles' request and also because she was afraid of motorcycle gangs and she did not want them to know where the ephedrine came from. Ms. Pierson testified that currently ephedrine accounts for 60-75% of her sales at Respondent and she has not made any large sales since she took over the store from Michael Carles. It is her current policy to sell no more than two 250-count bottles to any customer in a week. At the time of the hearing, Ms. Pierson was still suffering from panic attacks and severe anxiety. However, she testified that her condition did not interfere with her ability to operate her business. The Government contends that granting Respondent's application for registration would be inconsistent with the public interest due to Ms. Pierson's sales of ephedrine in 1991 and 1992 to the undercover agents when she had reason to believe that the ephedrine would be used to illegally manufacture a controlled substance and due to Respondent's failure to keep complete and accurate records of the three sales transactions that occurred during DEA's preregistration inspection in February 1996. Respondent contends however that the Government has failed to establish that issuance of a DEA registration to Respondent would be inconsistent with the public interest. Respondent argues that Ms. Pierson should not be punished for activities that occurred in 1991 and 1992 while the store was under different ownership and that Respondent has been operating in a legal manner since Ms. Pierson became its owner. Further, Respondent contends that how the business is currently being run is more relevant than what occurred in 1991 and 1992. Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an application for a DEA Certificate of Registration, if he determines that granting the registration would be inconsistent with the public interest. Section 832(h) requires that the following factors be considered in determining the public interest: (1) Maintenance by the applicant of effective controls against diversion of listed chemicals into other than legitimate channels; (2) Compliance by the applicant with applicable Federal, State, and local law; (3) Any prior conviction record for the applicant under Federal or State laws relating to controlled substances or to chemicals controlled under Federal or State law; (4) Any past experience of the applicant in the manufacture and distribution of chemicals; and (5) Such other factors as are relevant to and consistent with the public health and safety. In passing the DCDCA, Congress intended to create a registration system parallel to that in place for controlled substances: This registration system is precisely patterned after the system which has been successfully applied to legitimate controlled substances for over 20 years. It will enable DEA to prevent a firm from distributing these covered chemicals if it can be shown that registration of the firm is contrary to the public interest. 139 Cong. Rec. E2341 (daily ed. Oct. 5, 1993) (statement of Rep. Stupak). Therefore, consistent with this congressional intent, these factors are to be considered in the disjunctive; the Deputy Administrator may properly rely on any one or a combination of these factors, and give each factor the weight he deems appropriate in determining whether an application should be denied. See Henry J. Schwarz, Jr., M.D., 54 FR 16,422 (1989). As a preliminary matter, DEA has consistently held that a retail store operates under the control of its owners, stockholders, or other employees, and therefore the conduct of these individuals is relevant in evaluating the fitness of an applicant or registrant for registration. See, e.g., Rick's Pharmacy, 62 FR 42,595 (1997); Big T Pharmacy, Inc., 47 FR 51,830 (1982). Since Ms. Pierson is the owner of Respondent, her conduct is relevant in determining whether or not to grant Respondent's application for registration. Regarding factor one, the preregistration inspection that was conducted in February 1996 revealed that Respondent's security system was suitable for registration and its records appeared to be in order. While this preregistration inspection was conducted based upon the application filed by Ms. Pierson for The New Connection, it is clear that the application that is the subject of this proceeding was filed by Ms. Pierson merely to change the name of the business from The New Connection to the Energy Outlet. Therefore, it is reasonable to consider the findings of the February 1996 preregistration inspection in evaluating Energy Outlet's application for registration. As to factor two, the Deputy Administrator finds that based upon the law in place at the time of the undercover transactions in 1991 and 1992, Ms. Pierson was not required to maintain records of these transactions. However, Ms. Pierson clearly violated 21 U.S.C. 841(d)(2) by distributing ephedrine to the undercover agents knowing or having reasonable cause to believe that the ephedrine would be used to manufacture methamphetamine. On August 28, 1992, Ms. Pierson sold 30,000 ephedrine tablets to the first undercover agent even though he handed her a formula for the manufacture of methamphetamine entitled ``Syntheses for Meth,'' and asked her whether the tablets would work in the formula. The second undercover agent purchased 50,000 ephedrine tablets from Ms. Pierson on August 20, 1992. During this visit, the undercover agent indicated that he was concerned with making repeated visits to the store because he did not want the police to figure out that he was buying ephedrine for the manufacture of ``meth.'' It was also on this occasion that Ms. Pierson requested that the labels with the store's name and address be removed from the bottles. Finally, Ms. Pierson sold the undercover agent 60,000 ephedrine tablets on September 18, 1992, even after the undercover agent stated that he had earlier purchased $600.00 worth of hydriodic acid to be used by a motorcycle gang to make ``meth.'' On this occasion, not only did Ms. Pierson express concerns regarding the bottles' labels, but she also stated that she would put the bottles of ephedrine in black plastic bags so the neighboring businesses would not be suspicious. At the hearing, Ms. Pierson testified that she did not understand what the agents meant by ``meth.'' However, the Deputy Administrator finds Ms. Pierson's contention beyond belief. First, DEA personnel specifically discussed with her in February 1992 that ephedrine is used in the illegal manufacture of methamphetamine. Also, at the time the second undercover agent was discussing that the ephedrine was to be used to manufacture ``meth,'' he was also stating that he was concerned that the police would figure out why he was purchasing the ephedrine. Clearly, Ms. Pierson knew or had reasonable cause to believe that the ephedrine she distributed to the undercover agents was going to be used [[Page 14272]] in the illegal manufacture of methamphetamine. The Government contends that Respondent failed to fully record three sales transactions that occurred during the February 1996 preregistration inspection in violation of 21 U.S.C. 830 and 21 CFR 1310.06. However, the Deputy Administrator agrees with Judge Randall that the Government has failed to prove by a preponderance of the evidence that a violation occurred. Pursuant to 21 CFR 1310.03, records must be made of regulated transactions. But, there is no evidence that the transactions in question were in fact regulated transactions. The investigator did not determine what substances were sold during these transactions. Therefore, the Deputy Administrator cannot find that a record was even required to be made of transactions. But even assuming that these were regulated transactions requiring a record, there is no requirement that a record of a transaction must be made simultaneously with the transaction. Ms. Pierson and her employee indicated that these were repeat customers and the records would be completed when the store was not as busy. Consequently, the Deputy Administrator finds that the record does not establish that there was a violation of the recordkeeping requirements in February 1996. Regarding factor three, there is no evidence that an owner, shareholder or employee of Respondent has been convicted of any crimes relating to controlled substances of listed chemicals. As to Respondent's experience in distributing chemicals, Ms. Pierson has been involved in the distribution of chemicals since approximately 1986. As discussed previously, in 1991 and 1992, Ms. Pierson distributed large quantities of ephedrine tablets knowing or having reasonable cause to believe that they would be used for illegal purposes. However, the record also indicates that since Ms. Pierson became the owner of Respondent in approximately October 1992, there have been no allegations of improper distributions. According to Ms. Pierson, her current policy is to sell no more than two 250-count bottles to any customer in a week. Regarding factor five, Judge Randall expressed concern regarding Ms. Pierson's ability to responsibly handle ephedrine in the future. Ms. Pierson testified that her behavior in 1991 and 1992 was a result of her fear of Michael Carles. As Judge Randall stated, ``Jacqueline Pierson's previous vulnerability to intimidation and coercion is significant, particularly in light of the serious problem with methamphetamine abuse and the dangerous nature of the illicit market.'' Judge Randall noted that ``the record contains no basis for assurances that, in the future, Ms. Pierson would not be equally intimidated by an abusive customer into engaging in similar conduct.'' The Deputy Administrator finds it particularly troubling that at the time of the hearing Ms. Pierson suffered from panic attacks and severe anxiety and there is no evidence in the record regarding her ongoing treatment for these disorders. However, there is no evidence in the record of any improper conduct by Ms. Pierson since 1992, and as Judge Randall noted, ``this passage of time is also significant, for it adds credence to Ms. Pierson's assertions that her mental and emotional difficulties do not interfere with her ability to manage the Respondent business.'' Judge Randall concluded that Respondent's registration would be inconsistent with the public interest in light of Ms. Pierson's 1992 distributions of ephedrine knowing or having reasonable cause to believe that it would be used in the illicit manufacture of a controlled substance and her susceptibility to intimidation ``that is not rebutted by evidence in the record, except by the passage of time without any further documented incidents.'' Judge Randall further found that Ms. Pierson has failed to present adequate assurances ``that she has developed the needed self-esteem to withstand potential customer abuses from the customer base her products attract.'' Accordingly, Judge Randall recommended that the application of Energy Outlet be denied. In its exceptions to Judge Randall's Opinion and Recommended Ruling, Respondent argues that Judge Randall unfairly interjected a new issue, Ms. Pierson's lack of self-esteem, into the proceedings. However, as stated in Judge Randall's opinion ``[t]he issue in this case is whether or not the record as a whole establishes by a preponderance of the evidence that the DEA should deny the application, dated March 12, 1996, for a DEA Certificate of Registration as a retail distributor of the List I chemical ephedrine, of the Energy Outlet, pursuant to 21 U.S.C. 823(h), because to grant such application would be inconsistent with the public interest.'' In light of Ms. Pierson's behavior in 1991 and 1992, the Government clearly established a prima facie case for denial of Respondent's application for registration. In determining whether Respondent's application should be granted or denied, the Deputy Administrator must look at all of the evidence presented. During the course of these proceedings, Respondent raised the issue of Ms. Pierson's susceptibility to intimidation and her lack of self-esteem in explaining her behavior in 1991 and 1992. In evaluating whether Respondent can responsibly handle the listed chemical ephedrine in the future, it is reasonable to consider whether the same susceptibility to intimidation and lack of self-esteem still exists. The Deputy Administrator concludes that Respondent's registration with DEA would be inconsistent with the public interest. Although there have been no allegations of any wrongdoing since 1992, Ms. Pierson's behavior in 1991 and 1992 was unconscionable. She clearly sold ephedrine to the undercover agents knowing or having reasonable cause to believe that it would be used to illegally manufacture methamphetamine. In attempting to explain her behavior, Ms. Pierson testified that she was intimidated by the previous owner of the store, and lacked the self-esteem to withstand his intimidation. The Deputy Administrator is extremely troubled by this explanation. In a previous DEA case involving a practitioner registered with DEA to handle controlled substances, the practitioner also attributed his improper conduct to intimidation by another. James B. Rivers, D.M.D., 53 FR 20,382 (1988). In revoking the practitioner's DEA registration, the then-Administrator concluded that: Respondent does not appreciate the enormous responsibility which accompanies DEA registration. Registrants under the Controlled Substances Act are required to prevent the diversion of controlled substances into the illicit market. Respondent's conduct reflects a failure to take adequate action to protect the public health and safety. Respondent has failed to provide any satisfactory assurances that a situation such as the one he alleges occurred with the individual is unlikely to recur. Id. Similarly, those registered to distribute List I chemicals must prevent the diversion of the chemicals to the illegal manufacture of controlled substances. Here, the Deputy Administrator is not convinced that Ms. Pierson could withstand intimidation in the future by an individual seeking to purchase ephedrine for illegal purposes. Other than Ms. Pierson's statement that she took a ``self-help class,'' there is no evidence in the record regarding any treatment that she has received. In fact, Ms. Pierson still suffers from panic attacks and anxiety. The Deputy Administrator recognizes that there have been no allegations of wrongdoing by Ms. Pierson since 1992, however this [[Page 14273]] is outweighed by the lack of adequate assurances that Ms. Pierson has the needed self-esteem to withstand being intimidated to sell ephedrine for illegal purposes in the future. 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 CFR 0.100(b) and 0.104, hereby orders that the application for registration as a retail distributor of ephedrine, submitted by Jacqueline Lee Pierson, d/b/a Energy Outlet, be, and it hereby is, denied. This order is effective April 23, 1999. Dated: March 17, 1999. Donnie R. Marshall, Deputy Administrator. [FR Doc. 99-7123 Filed 3-23-99; 8:45 am] BILLING CODE 4410-09-M