[Federal Register Volume 71, Number 164 (Thursday, August 24, 2006)]
[Notices]
[Pages 50102-50105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-14048]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Sujak Distributors; Denial of Application

    On May 18, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Sujak Distributors (Respondent). The Show Cause 
Order proposed to deny Respondent's application for a DEA Certificate 
of Registration as a distributor of List I chemicals on the ground that 
Respondent's registration would be inconsistent with the public 
interest. See U.S.C. 823(h).
    The Show Cause Order specifically alleged that Respondent was 
proposing to sell ephedrine and pseudoephedrine products, which are 
precursors used in the manufacture of methamphetamine, to convenience 
stores, gas stations and liquor stores in the Davenport, Iowa area. See 
Show Cause Order at 2. The

[[Page 50103]]

Show Cause Order alleged that only a small percentage of sales of non-
prescription ephedrine and pseudoephedrine products occur in these 
retail outlets and that these establishments are a primary supply 
source of these products for the illegal manufacture of 
methamphetamine. See id. at 1-2. The Show Cause Order further alleged 
that Respondent's proposed registered location was at a storage unit 
rental facility and that Respondent's unit was not ``sufficiently 
secure from entry from adjacent units.'' Id. at 2.
    The Show Cause Order also alleged that Respondent's co-owner, Mr. 
Dennis Carney, had told DEA Diversion Investigators that ``25 to 35 
percent of his business would consist of listed chemical product sales 
to convenience stores, liquor stores and gas stations.'' Id. The Show 
Cause Order alleged that ``the average small store could expect to sell 
monthly only about $15.00 to $40.00 worth of pseudoephedrine 
products.'' Id. at 3. Finally, the Show Cause Order alleged that 
methamphetamine is ``one of the most popular and widely abused drugs 
throughout the Midwest.'' Id. The Show Cause order also notified 
Respondent of its right to a hearing. Id. at 4.
    The Show Cause Order was served on Respondent by certified mail, 
return receipt requested, and on June 3, 2005, Respondent acknowledged 
receipt. Since that time, neither Respondent, nor anyone purporting to 
represent it, has responded. Because (1) more than thirty days have 
passed since Respondent's receipt of the Show Cause Order, and (2) no 
request for a hearing has been received, I conclude that Respondent has 
waived its right to a hearing. See 21 CFR 1309.53(c). I therefore enter 
this final order without a hearing based on relevant material in the 
investigative file and make the following findings.

Findings

    Ephedrine and pseudoephedrine are List I chemicals that, while 
having therapeutic uses, are easily extracted from lawful products and 
used in the illicit manufacture of methamphetamine, a schedule II 
controlled substance. See 21 U.S.C. 802(34); 21 CFR 1308.12(d). As 
noted in numerous prior DEA orders, ``methamphetamine is an extremely 
potent central nervous system stimulant.'' David M. Starr, 71 FR 39367 
(2006); A-1 Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine 
abuse has destroyed lives and families, ravaged communities, and 
created serious environmental harms. Starr, 71 FR at 39637.
    Respondent is organized as a partnership which is co-owned by Mr. 
and Mrs. Dennis Carney. The investigate file contains additional 
information suggesting that Mr. Greg Glowacki, an employee of 
Respondent, may also have a financial interest in Respondent. 
Respondent is located at 2501 N. Lincoln Ave, M-3, Davenport, Iowa. The 
location is a unit in a storage rental facility.
    On July 16, 2004, Respondent, through its co-owner, submitted an 
application for a registration to distribute the List I chemicals 
ephedrine and pseudoephedrine. On November 18, 2004, two DEA Diversion 
Investigators (DIs) visited Respondent at its proposed registered 
location to conduct a pre-registration investigation. The DIs met with 
Mr. Carney and discussed the nature of Respondent's business. 
Respondent supplies general merchandise and seasonal items to 
convenience stores, gas stations, and liquor stores in the Davenport, 
Iowa area. Respondent's business includes customers in both Iowa and 
Illinois.
    Mr. Carney advised the DIs that he was seeking registration in 
order to sell the following List I chemical products which contain 
ephedrine: Mini Two Way 12.5/200 mg. in 6 count packets, 12 count 
blister cards, and 48 count bottles; Twin Tabs 12.5/200 mg. in 48 count 
bottles; and Rapid Action 12.5/200 mg. in 48 count bottles. Mr. Carney 
further advised the DIs that neither he or his wife, nor his employee, 
had any experience in handling List I chemicals. Background checks on 
Mr. Carney, his wife, and Mr. Glowacki, did not find any adverse 
information.
    Respondent's proposed registered location was a 10 foot by 20 foot 
unit in a rental storage facility with approximately 100 units. The 
facility's office hours were 9 a.m. to 5 p.m., Monday through Friday. 
All occupants have access to the main corridor where Respondent's unit 
is located and can apparently obtain access to the facility at any time 
through use of a key-pad entry system. Moreover, the main corridor is 
wide enough so that a motor vehicle can be driven into the facility. 
The facility has at least two video cameras in place; one covers the 
main entrance, another covers the corridor adjacent to Respondent's 
unit and the loading dock. The entry system records the identification 
number of any person who has entered or exited the facility. In the 
event of a break-in, the security company notifies the local police 
department. Respondent's unit is protected by a padlock. Mr. Carney 
also told the DIs that he intended to purchase a steel storage cabinet 
for the List I chemical products. However, Mr. Carney has not provided 
documentation that the cabinet was in fact purchased.
    Upon entering Respondent's storage unit, the DIs observed that the 
unit did not have a solid ceiling. Instead, the top of the unit was 
comprised of wire, which was run both length and width wise at perhaps 
one foot intervals.\1\ The DIs found that the wire could easily be 
tampered with and that a person could gain access to Respondent's unit 
from other storage units.
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    \1\ The estimates of the interval is based on the photographs. 
No actual measurement was taken.
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    The DIs also discussed with Mr. Carney his firm's business 
practices. Mr. Carney told the DIs that he did not have any procedures 
to determine whether new customers are legitimate purchasers other than 
visiting their businesses and ``checking them out.'' The DIs found that 
Mr. Carney understood the record-keeping requirements. Mr. Carney also 
appears to have adequate procedures for receiving and delivering List I 
chemicals. Mr. Carney further told the DIs that he would not engage in 
any transactions triggering the reporting threshold, see 21 CFR 1310.04 
and 1310.05, and that he would contact DEA in the event a customer 
placed a suspicious order.
    Subsequent to the pre-registration investigation, the DIs conducted 
customer verifications. The verifications did not uncover any adverse 
information.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless I determine that the registration 
would be inconsistent with the public interest. In making this 
determination, Congress directed that I consider the following factors:
    (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 of 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.
    Id. ``These factors are considered in the disjunctive.'' Joy's 
Ideas, 70 FR 33195, 33197 (2005). I ``may rely on any one or 
combination of factors, and may

[[Page 50104]]

give each factor the weight I deem appropriate in determining whether a 
registration should be revoked or an application for a registration be 
denied.'' Starr, 71 FR 39368. See also Energy Outlet, 64 FR 14269 
(1999). In this case, I conclude that factors one, four and five 
establish that Respondent's application should be denied.

Factor One--Maintenance of Effective Controls Against Diversion

    The investigative file does not establish that Respondent would 
fail to properly comply with DEA's regulations pertaining to 
recordkeeping and reports. But ``the adequacy [of an] applicant's 
systems for monitoring the receipt, distribution, and disposition of 
List I chemicals,'' 21 CFR 1309.71(b)(8), is only one part of the 
inquiry under factor one.
    Determining whether an applicant will provide proper physical 
security of listed chemicals is also critical in evaluating the 
effectiveness of an applicant's controls against diversion. See 21 CFR 
1309.71(b). Here, the investigative file establishes that Respondent's 
proposed location does not provide adequate security for listed 
chemicals for several reasons. First, Respondent's storage unit lacks 
an adequate ceiling. Thus, even individuals who have lawful access to 
the facility could easily break in to the unit.
    Second, DEA's regulations specifically mandate that I consider 
``the extent of unsupervised public access to the facility.'' Id. 
1309.71(b)(5). Here, there are 100 rental units in the facility and it 
is apparent that a large number of people have access to the building. 
Beyond that, it appears that the facility has employees on-site only 
from Monday through Friday, and only between the hours of 9 a.m. to 5 
p.m. The facility is however, accessible 24 hours a day, every day of 
the year. Thus, access to the facility is largely unsupervised.
    Moreover, Respondent does not know whether any of the other tenants 
have criminal records. Nor does it control who the landlord rents to. 
While Respondent's owner claimed to the DIs that no other occupant of 
the facility would be aware that he was handling List I chemicals, it 
is certainly possible, if not likely, that other occupants would 
eventually find out either through word of mouth or by observing 
Respondent's employees. Perhaps none of the other tenants (and the 
acquaintances they may bring to the facility) is a criminal, but this 
is a risk I decline to assume. I thus conclude that Respondent's 
proposed registered location does not provide adequate security for 
storing listed chemicals. This factor thus weighs heavily in support of 
denying Respondent's application.\2\
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    \2\ Having concluded that Respondent's proposed location does 
not provide adequate security, I do not decide whether Respondent 
has adequate procedures for verifying the legitimacy of customers.
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Factors Two and Three--Compliance With Applicable Law and the 
Applicant's Prior Record of Relevant Criminal Convictions

    While there is evidence that Respondent failed to comply with 
Federal regulations when it was run by its previous owner, I have 
already concluded that those violations are not relevant. The more 
important question is whether there is any evidence that either the co-
owners of Respondent or its employee have failed to comply with 
applicable Federal, state or local laws. The investigative file does 
not establish that any of these persons has failed to comply with 
applicable laws. Relatedly, none of these persons has been convicted of 
a criminal offense relating to controlled substances or chemicals. I 
thus conclude that both of these factors support granting Respondent's 
application.

Factor Four--Past Experience in the Manufacture or Distribution of 
Controlled Substances

    Neither of Respondent's co-owners, nor its sole employee, have any 
prior experience in the manufacture or distribution of List I 
chemicals. Because of the potential for diversion, DEA has repeatedly 
held that an applicant's lack of experience in distributing List I 
chemicals is a factor which weighs heavily against granting an 
application for registration. See, e.g., Starr, 71 FR at 39368; Jay 
Enterprises, 70 FR 24620, 24621 (2005); ANM Wholesale, 69 FR 11652, 
11653 (2004). The fact that neither of Respondent's co-owners, nor its 
employee, has any experience thus provides a substantial reason to deny 
the application.

Factor Five--Other Factors That Are Relevant to and Consistent With 
Public Health and Safety

    Numerous DEA cases recognize that the sale of certain List I 
chemical products by non-traditional retailers is an area of particular 
concern in preventing diversion of these products into the illicit 
manufacture of methamphetamine. See, e.g., Joey Enterprises, 70 FR 
76866, 76867 (2005). As Joey Enterprises explains, ``[w]hile there are 
no specific prohibitions under the Controlled Substances Act regarding 
the sale of listed chemical products to [gas stations and convenience 
stores], DEA has nevertheless found that [these entities] constitute 
sources for the diversion of listed chemical products.'' Id. See also 
TNT Distributors, 70 FR 12729, 12730 (2005) (special agent testified 
that ``80 to 90 percent of ephedrine and pseudoephedrine being used [in 
Tennessee] to manufacture methamphetamine was being obtained from 
convenience stores''); OTC Distribution Co., 68 FR 70538, 70541 (2003) 
(noting ``over 20 different seizures of [gray market distributor's] 
pseudoephedrine product at clandestine sites,'' and that in an 8-month 
period distributor's product ``was seized at clandestine laboratories 
in eight states, with over 2 million dosage units seized in Oklahoma 
alone.''); MDI Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding that 
``pseudoephedrine products distributed by [gray market distributor] 
have been uncovered at numerous clandestine methamphetamine settings 
throughout the United States and/or discovered in the possession of 
individuals apparently involved in the illicit manufacture of 
methamphetamine'').
    Moreover, during clandestine lab seizures, DEA has frequently found 
high count List I chemical products, thus indicating that these are the 
preferred products for illicit methamphetamine manufacturers. See OTC 
Distribution, 68 FR at 70541, MDI Pharmaceuticals, 68 FR at 4236. 
Respondent proposed to sell similar high count products.
    Significantly, all of Respondent's proposed customers participate 
in the non-traditional market for ephedrine and pseudoephedrine 
products. DEA final orders recognize that there is a substantial risk 
of diversion of List I chemicals into the illicit manufacture of 
methamphetamine when these products are sold by non-traditional 
retailers. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the 
risk of diversion was ``real, substantial and compelling''); Jay 
Enterprises, 70 FR at 24621 (noting ``heightened risk of diversion'' 
should application be granted); Xtreme Enterprises, 67 FR at 76197. 
Under DEA precedents, an applicant's proposal to sell into the non-
traditional market weighs heavily against the granting of a 
registration under factor five. So too here.
    Furthermore, DEA has repeatedly denied an application when an 
applicant proposed to sell into the non-traditional market and analysis 
of one of the other statutory factors supports the conclusion that 
granting the application would create an unacceptable risk of 
diversion. Thus, in Xtreme Enterprises, my predecessor denied an 
application

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observing that the respondent's ``lack of criminal record, compliance 
with the law and willingness to upgrade her security system are far 
outweighed by her lack of experience with selling List I chemicals and 
the fact that she intends to sell ephedrine almost exclusively in the 
gray market.'' 67 FR at 76197. More recently, I denied an application 
observing that the respondent's ``lack of a criminal record and any 
intent to comply with the law and regulations are far outweighed by his 
lack of experience and the company's intent to sell ephedrine and 
pseudoephedrine exclusively to the gray market.'' Jay Enterprises, 70 
FR at 24621. Accord Prachi Enterprises, 69 FR 69407, 69409 (2004).
    I also note that the State of Iowa recently enacted legislation 
making all ephedrine products Schedule V controlled substances. See 
2005 Iowa Acts Ch.15, S.F. 169 (codified at Iowa Code Ann. 124.212 
(West 2006)). Under Iowa law, all ephedrine products must be sold in 
licensed pharmacies. Therefore, it appears that none of Respondent's 
customers can now lawfully sell the products that Respondent proposed 
to distribute.\3\ See Iowa Code Ann. 124.302. Relatedly, Respondent can 
not distribute ephedrine products without obtaining an Iowa controlled 
substances registration. See id. As I have previously explained, where, 
as here, state efforts to combat the illicit manufacture of 
methamphetamine are consistent with Federal policy, it is appropriate 
to give them due weight in determining whether the granting of a 
registration would be consistent with public health and safety. See 
McBride Marketing, 71 FR 35710, 35711 (2006); Joy's Ideas, 70 FR 33195, 
33199 (2005). I thus conclude that granting Respondent's application 
would be inconsistent with public health and safety.
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    \3\ The Iowa Act also placed limits on the sale of 
pseudoephedrine products, generally limiting their sale to 
pharmacies except for packages of liquid, liquid capsule, and 
liquid-filled gel caps that contain 360 milligrams or less.
    Respondent also has customers in Illinois. Respondent did not, 
however, include any customers from Illinois in its list of 
potential List I chemical customers. I therefore do not consider the 
effect of Illinois' recently enacted Methamphetamine Precursor 
Control Act.
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    In summary, there are several factors which support the conclusion 
that granting the application would be inconsistent with the public 
interest. Respondent's proposed security measures are plainly 
inadequate and are thus grounds alone to deny the application. 
Moreover, Respondent lacks experience in the distribution of List I 
chemicals and proposes to sell into the non-traditional market. 
Furthermore, none of Respondent's customers can lawfully sell ephedrine 
products under Iowa law. I therefore conclude that granting 
Respondent's application would be ``inconsistent with the public 
interest.'' 21 U.S.C. 823(h).

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823(h) and 28 CFR 0.100(b) and 0.104, I hereby order that the 
application of Sujak Distributors for a DEA Certificate of Registration 
as a distributor of List I chemicals be, and it hereby is, denied. This 
order is effective August 24, 2006.

    Dated: August 16, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-14048 Filed 8-23-06; 8:45 am]
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