[Federal Register Volume 71, Number 196 (Wednesday, October 11, 2006)]
[Notices]
[Pages 59830-59832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-16758]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Gregg Brothers Wholesale Co., Inc.; Denial of Application

    On April 26, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order To Show Cause to Gregg Brothers Wholesale Co., Inc., (Respondent) 
of Powell, Tennessee. The Show Cause Order proposed to deny 
Respondent's application for registration as a distributor of the List 
I chemicals ephedrine, pseudoephedrine, and phenylpropanolamine on the 
ground that its registration would be inconsistent with the public 
interest as that term is defined in 21 U.S.C. 823(h). See Show Cause 
Order at 1.
    The Show Cause Order specially alleged that methamphetamine 
production ``continues unabated within the Tennessee region,'' that the 
State ``has a large number of independent methamphetamine producers,'' 
and that the State leads DEA's southeast region in the number of 
clandestine laboratory seizures. Id. at 2. The Show Cause Order also 
alleged that ``several distributors in Tennessee were selling 
pseudoephedrine and ephedrine products to many of the same retail 
customers.'' Id. at 3.
    The Show Cause Order alleged that Respondent's owner, Mr. Thomas 
Gregg, told DEA Diversion Investigators (DIs) that he intended to 
distribute both traditional pseudoephedrine products and non-
traditional or ``gray market'' products, including products that have 
been found during seizures of clandestine laboratories. Id. at 4. The 
Show Cause Order further alleged that ``during the pre-registration 
inspection, the DIs found that Respondent had several pseudoephedrine 
products in its possession and that Mr. Gregg ``did not realize that 
these products contained pseudoephedrine.'' Id. The Show Cause Order 
also alleged that between 2002 and 2005, Respondent had made ``about 17 
purchases of various pseudoephedrine products,'' and that ``[b]etween 
2002 and 2004, [Respondent] sold about 200 orders of pseudoephedrine 
products to various convenience stores and similar retail 
establishments.'' Id. at 5.
    The Show Cause Order next alleged that Respondent expected to sell 
List I chemical products ``to about 190 various convenience stores and 
similar retail establishments.'' Id. at 5. Finally, the Show Cause 
Order alleged that Respondent's owner had indicated that ``ephedrine 2-
way products would be the largest volume'' List 1 chemical product. Id. 
at 5-6. The Show Cause Order also notified Respondent of its right to a 
hearing.
    The Show Cause Order was served by certified mail, return receipt 
requested, and on May 4, 2005, Respondent acknowledged receipt. 
Thereafter, Respondent, in a letter dated June 1, 2005, but which was 
not received until June 9, 2005, requested a hearing; the matter was 
initially assigned to Administrative Law Judge (ALJ) Mary Ellen 
Bittner.
    On June 16, 2005, the Government moved to deny Respondent a hearing 
on the ground that Respondent had not timely filed its request. See 21 
CFR 1301.43(a). On June 28, 2005, the ALJ issued a memorandum offering 
Respondent the opportunity to respond to the Government's motion by 4 
p.m. on July 21, 2005. When, by August 26, 2005, no response had been 
received, the ALJ granted the government's motion. See Order 
Terminating Proceedings at 1. The ALJ also found that Respondent had 
not timely requested a hearing and thus concluded that it had waived 
its right to a hearing. See id. The ALJ then ordered that the 
proceeding be terminated. See id. at 2.
    Thereafter, the investigative file was forwarded to me for final 
agency action. I adopt the ALJ's finding that Respondent has waived its 
hearing right and hereby enter this final order based on relevant 
material in the investigative file.

Findings

    Respondent is a Tennessee Corporation which is located in Powell, 
Tennessee. Mr. Thomas Gregg is Respondent's President and owns all of 
its shares. Respondent distributes bait, groceries, candy, snack food, 
health and beauty items and novelty items to convenience stores and gas 
stations in East Tennessee, Virginia, Kentucky, and North Carolina. On 
August 15, 2002, Respondent applied for a registration to distribute 
the List I chemicals pseudoephedrine, ephedrine, and 
phenylpropanolamine (PPA).
    While ephedrine and pseudoephedrine have therapeutic uses, they are 
easily extracted from lawful over-the-counter 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). PPA can also be 
used to manufacture methamphetamine. In November 2000, the FDA issued a 
public health advisory regarding PPA based on a study that found that 
the use of PPA increases the risk of hemorrhagic stroke.\1\
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    \1\ More recently, on December 22, 2005, the FDA issued a notice 
of proposed rulemaking, which proposed to reclassify over-the-
counter PPA products as ``not generally recognized as safe and 
effective.'' U.S. FDA, Center for Drug Evaluation and Research, 
Phenylpropanolamine (PPA) Information Page http.//www.fda.gov/cder/drug/infopage/ppa/ (visited June 15, 2006).
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    Methamphetamine is a powerful and addictive central nervous system 
stimulant, see A-1 Distribution Wholesale, 70 FR 28573 (2005), and is a 
schedule II controlled substance. 21 CFR 1308.12(d). The illegal 
manufacture and abuse of methamphetamine pose a grave threat to this 
country. Methamphetamine abuse had destroyed numerous lives and 
families and has ravaged communities. The manufacture of 
methamphetamine also causes serious environmental harms because of the 
toxic nature of the chemicals used to make the drug.
    The problem of methamphetamine abuse is especially serious in 
Tennessee. In 2004, law enforcement agencies seized 939 clandestine 
methamphetamine labs in the State. These seizures were the second 
largest per-state total in the nation.
    On September 1, 2004, two DEA Diversion Investigators (DIs) visited 
Respondent at its proposed registered location to conduct a pre-
registration investigation. The DIs met with Mr. Gregg, who told them 
that he intended to sell both traditional and non-traditional List I 
chemical products and that his suppliers included Sessions Specialty 
Company of Lewisville, North

[[Page 59831]]

Carolina, and Proactive Labs of Lithin Springs, Georgia. Among the non-
traditional products which Respondent intended to sell were 2-way 
ephedrine products including bottles containing 48 tablets manufactured 
by Body Dynamics, Inc. (BDI). Of note, DEA has issued numerous warning 
letters to both BDI and ProActive Labs advising them that their 
products have been found at illegal methamphetamine labs. See D & S 
Sales, 71 FR 37607, 37608 (2006).
    During the course of the investigation, the DIs found that 
Respondent had obtained several pseudoephedrine products (3 boxes of 
Tylenol Sinus Tablets and 1 box of Advil Cold and Sinus Tablets) from 
the Sessions Specialty Company. Mr. Gregg further told the DIs that he 
had sold some pseudoephedrine products to his customers. Respondent did 
not, however, have a DEA registration to distribute the products.
    When told by the DIs that Respondent could not lawfully sell these 
products, Mr. Gregg told the DIs that he did not know that the products 
contained List I chemicals. According to the DIs, Mr. Gregg returned 
the List I products to the distributor. There is, however, an invoice 
dated October 11, 2004, documenting the sale of Tylenol Sinus Geltabs 
to a food market; this was a product which Respondent was required to 
return to its distributor because it contained pseudoephedrine.
    A review of Respondent's purchase records shows that Respondent 
purchased pseudoephedrine products sixteen times between January 2002 
and June 2004. Respondent's sales records further show that Respondent 
sold List I chemical products containing pseudoephedrine on 
approximately 160 occasions during the 2002 through 2004 time 
period.\2\
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    \2\ Approximately thirty-six of the invoices documented the sale 
of Alka-Seltzer Plus Cold. The invoices did not, however, specify 
whether these were in tablet or gelcap form. According to the 
manufacturer's web site, while Alka-Seltzer Plus Cold Liqui-Gels 
contain pseudoephedrine, the tablets do not. Because the 
investigative file does not establish the specific product sold, I 
do not count these sales as instances in which Respondent violated 
the CSA.
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    The DIs evaluated Respondent's security measures; the physical 
security of its premises appeared to be adequate. Mr. Gregg further 
told the DIs that he did not allow merchandise to be stored on trucks 
overnight. When the DIs discussed with Mr. Gregg the problem of List I 
chemical diversion into the illicit manufacture of methamphetamine, Mr. 
Gregg told the DIs that he was not responsible because he did not make 
methamphetamine himself and could not control what other people did.
    Mr. Gregg provided the DIs with a customer list. The DIs determined 
that Respondent's customer list included seventeen establishments that 
were also customers of another firm (Rite, Inc.), which was then under 
investigation and ultimately surrendered its registration.
    The DIs determined that Respondent did not have a current business 
license. Finally, the DIs conducted background checks on Mr. Gregg and 
his employees. The backgrounds checks found no adverse information on 
any of these individuals.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless 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 a combination of 
factors, and may give each factor the weight I deem appropriate in 
determining whether an application for registration should be denied. 
See, e.g., David M. Starr, 71 FR 39367 (2006); Energy Outlet, 64 FR 
14269 (1999). Moreover, I am ``not required to make findings as to all 
of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005); 
Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005). In this case, I 
conclude that factors one, two, and four are dispositive. Moreover, 
because the record establishes that Respondent has a substantial 
history of non-compliance with the registration provisions and that 
this provides ample reason for denying its application, I do not make 
any findings on factor five.

Factor One--Maintenance of Effective Controls Against Diversion

    The investigative file does not establish that Respondent would 
fail to provide effective physical security to protect List I chemicals 
from theft. Moreover, Respondent appears capable of maintaining the 
required records. I have serious reservations, however, as to whether 
Respondent would report suspicious transactions.
    During his discussions with the DIs regarding the diversion of List 
I chemicals, Mr. Gregg made statements to the effect that he was not 
responsible because he did not make methamphetamine himself and could 
not control what other people did. In light of the well documented 
problem of methamphetamine abuse in Tennessee, I find this statement 
extremely disturbing.
    Recently, I ordered the revocation of a List I chemical 
distributor's registration in part because the registrant's attitude 
was that he was not responsible for diversion of his products into the 
illicit manufacture of methamphetamine after he delivered them to his 
customers. See D & S Sales, 71 FR 37607, 37610 (2006). In D & S Sales, 
the registrant had failed to report any suspicious sales 
notwithstanding that he clearly had reason to know that many of his 
customers were purchasing products in amounts that far exceeded 
legitimate demand. As I noted in D & S Sales, a registrant's attitude 
that it is not responsible for what happens to its product after 
delivery ``is fundamentally inconsistent with the obligations of a 
registrant.'' Id. Moreover, ``[t]his attitude is highly relevant in 
assessing the adequacy of [an applicant's] systems for monitoring the 
disposition of List I chemicals.'' Id.
    As DEA has learned in cases such as D & S Sales, the effectiveness 
of our regulation which requires the reporting of suspicious 
transactions is dependent on registrants taking seriously their 
obligation to report. In short, Mr. Gregg's comments do not inspire 
confidence in his willingness to report sales of excessive quantities. 
I therefore conclude that Respondent would not maintain effective 
controls against diversion and that this factor supports a finding that 
Respondent's registration would be inconsistent with the public 
interest.

Factor Two--Compliance With Applicable Laws

    The investigative file establishes that between 2002 and 2004, 
Respondent repeatedly violated the Controlled Substances Act when it 
engaged in approximately 160 distributions of List I chemical products 
without being registered to do so.\3\ See 21 U.S.C.

[[Page 59832]]

823(h); id. section 843(a)(9). Furthermore, according to Respondent's 
records, it sold List I chemical products even after the DIs conducted 
the on-site inspection and told Mr. Gregg that Respondent could not 
distribute these products without a registration. I thus conclude that 
Respondent's numerous and repeated violations of the CSA demonstrate 
that its registration would be inconsistent with the public interest 
and are reason alone to deny its application. I further note that 
Respondent did not produce a valid business license during the on-site 
inspection.
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    \3\ Respondent's sales records indicate that it frequently sold 
several pseudoephedrine products on a single invoice. The 160 figure 
counts each invoice as a single distribution even if the invoice 
documented the sale of several pseudoephedrine products.
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Factor Three--The Applicant's Prior Record of Relevant Criminal 
Convictions

    There is no evidence that Respondent's owner, or any of its 
employees, has been convicted of a crime relating to controlled 
substances or chemicals under either Federal or State law. This factor 
ordinarily supports a finding that Respondent's registration would not 
be inconsistent with the public interest. But in this case, I decline 
to give the factor any weight because of the evidence establishing 
Respondent's non-compliance with the CSA.

Factor Four--The Applicant's Past Experience in the Distribution of 
Listed Chemicals

    According to a letter from Mr. Gregg, Respondent previously 
distributed ephedrine and pseudoephedrine during some unspecified 
period prior to these products becoming regulated. I do not, however, 
consider this to be relevant experience as it occurred before the 
adoption of the current regulatory scheme and thus does not address 
whether Respondent would comply with federal regulations. Furthermore, 
for the reasons discussed under Factor Two, Respondent's past 
experience in distributing List I chemicals involved approximately 160 
distributions over a nearly three year period without being registered 
and Respondent sold pseudoephedrine even after the DIs expressly told 
Mr. Gregg that Respondent could not distribute pseudoephedrine products 
without a registration.
    As I noted in Sato Pharmaceutical, Inc., 71 FR 52165, 52166 (2006), 
there is simply no excuse for Respondent to have engaged in the 
repeated distribution of List I chemical products without a 
registration, or for Respondent's owner or employees to be unaware that 
several of the products it was distributing contained List I chemicals. 
Because Respondent's past experience in distributing List I chemicals 
manifests a lengthy failure of non-compliance with the CSA's 
registration requirements, I therefore conclude that granting 
Respondent's application would be inconsistent with the public 
interest. Finally, because of the seriousness and duration of these 
violations, I deem them dispositive of the ultimate issue and need not 
make findings on the remaining factor. See Hoxie v. DEA, 419 F.3d 477, 
482 (2005); Morall v. DEA, 412 F.3d 165, 173 (2005).

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 
previously submitted application of Gregg Brothers Wholesale, Co., 
Inc., for a DEA Certificate of Registration as a distributor of List I 
chemicals be, and it hereby is, denied. This order is effective 
November 13, 2006.

    Dated: September 29, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-16758 Filed 10-10-06; 8:45 am]
BILLING CODE 4410-09-P