[Federal Register Volume 72, Number 47 (Monday, March 12, 2007)]
[Notices]
[Pages 11055-11058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-1103]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 05-22]
Planet Trading, Inc., d/b/a/ United Wholesale Distributors, Inc.;
Denial of Application
On February 15, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Planet Trading, Inc., (Respondent) of Orlando, Florida.
The Show Cause Order proposed to deny Respondent's pending application
for a DEA Certificate of Registration as a distributor of the list I
chemicals ephedrine and pseudoephedrine on the ground that Respondent's
registration would be inconsistent with the public interest. Show Cause
Order at 1, see also 21 U.S.C. 823(h).
More specifically, the Show Cause Order alleged that both ephedrine
and pseudoephedrine are ``commonly used to illegally manufacture
methamphetamine, a Schedule II controlled substance.'' Show Cause Order
at 1. The Show Cause Order alleged that ``DEA knows by experience''
that a ``gray market'' exists ``in which certain pseudoephedrine and
ephedrine products are distributed only to convenience stores and gas
stations, from where they have a high incidence of diversion'' into the
illicit manufacture of methamphetamine. Id. at 2. Relatedly, the Show
Cause Order alleged that only ``[a] very small percentage'' of
legitimate sales of list I chemical products occur in gray market
retailers and that the average gray market retailer ``could expect to
sell * * * only about $10.00 to $30.00 worth of pseudoephedrine
products'' a month. Id. at 3. The Show Cause Order also alleged that
the expected sales for combination ephedrine products are ``only one-
fourth of'' this amount. Id.
The Show Cause Order alleged that during a pre-registration
investigation, Respondent's president advised DEA investigators that
his firm distributes sundry items and tobacco products to convenience
stores, gas stations, and small independent groceries, which constitute
the gray market for list I chemical products. Id. at 2. The Show Cause
Order further alleged that during an interview, Respondent stated that
he had ``little or no background in handling list I chemical
products.'' Id. The Show Cause Order also alleged that Respondent told
the investigators that he intended to sell list I products that were
marketed in bottles and not blister packs because the latter ``were not
good sellers.'' Id.
The Show Cause Order also alleged that Respondent intended to store
the list I products in a warehouse ``with all other items [and] without
any additional security installed.'' Id. at 3. The Show Cause Order
further alleged that ``[b]ecause [Respondent's] customers are allowed
to serve themselves from the warehouse shelves, all customers will have
unescorted access to the list I chemicals stored in the warehouse.''
Id.
Finally, the Show Cause Order alleged that Respondent's ``proposed
sales of combination ephedrine and pseudoephedrine products are
inconsistent with the known legitimate market and known end-user demand
for products of this type,'' and thus Respondent ``would be serving an
illegitimate market for [these] product[s].'' Id. The Show Cause Order
concluded by alleging that because Respondent's owner had ``no
experience handling list I chemicals'' and its warehouse has
``insufficient security,'' its ``registration would likely lead to
increased diversion of list I chemicals.'' Id.
Respondent, through its owner Mr. Vihang Patel, requested a
hearing. The case was assigned to Administrative Law Judge (ALJ) Mary
Ellen Bittner, who conducted a hearing in Tampa, Florida, on November
1, 2005. At the hearing, both parties put on witnesses and introduced
documentary evidence. Following the hearing, the Government submitted
proposed findings of fact and conclusions of law.
On April 25, 2006, the Administrative Law Judge submitted her
decision which recommended that Respondent's application be denied.
Neither party filed exceptions. The record was then forwarded to me for
final agency action.
Having considered the record as a whole, I hereby issue this
decision and final order. I adopt the ALJ's decision in
[[Page 11056]]
its entirety and conclude that Respondent's registration would be
inconsistent with the public interest. I therefore order that
Respondent's application be denied.
Findings
Respondent, a Florida corporation, sells sundry items and tobacco
products to convenience stores, gas stations, and small independent
groceries. Respondent does not make deliveries. Rather, it operates a
walk-in warehouse which is located in an Orlando, Florida industrial
park. Respondent's President is Mr. Vihang Patel; Mr. Patel and his two
brothers each own one-third of the corporation. See ALJ Dec. at 9-10.
On August 27, 2003, Mr. Patel applied on Respondent's behalf for a
DEA Certificate of Registration to distribute list I chemicals. Gov.
Ex. 1. As relevant here, Respondent sought the registration to
distribute pseudoephedrine and ephedrine.\1\ Id.
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\1\ Respondent also sought to distribute phenylpropanolamine
(PPA), a product which is the subject of an FDA rulemaking which
proposes to reclassify the drug as not generally safe and effective.
See 70 FR 75988, 75994 (2005). Respondent no longer seeks
registration to distribute PPA products.
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Methamphetamine and the Market for List I Chemicals
As explained in numerous DEA final orders, both pseudoephedrine and
ephedrine currently have therapeutic uses. See, e.g., Tri-County Bait
Distributors, 71 FR 52160, 52161 (2006).\2\ Both chemicals are,
however, regulated under the Controlled Substances Act because they are
precursor chemicals which are easily extracted from non-prescription
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).
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\2\ The FDA is, however, currently proposing to remove
combination ephedrine-guaifenesin products from its over-the-counter
(OTC) drug monograph and to declare them not safe and effective for
OTC use. See 70 FR 40232 (2005).
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Methamphetamine is a powerful and highly addictive central nervous
system stimulant. See, e.g., Tri-County Bait Distributors, 71 FR at
52161. The illegal manufacture and abuse of methamphetamine pose a
grave threat to this country. Methamphetamine abuse has destroyed
numerous lives and families and ravaged communities. Moreover, because
of the toxic nature of the chemicals which are used to make the drug,
the illegal manufacture of methamphetamine causes serious environmental
harms. Id., see also Tr. 12.
The illicit manufacture of methamphetamine is an increasing problem
in the State of Florida. According to the testimony of a DEA Special
Agent, during the period October 1, 2004, through September 30, 2005,
law enforcement authorities seized 340 clandestine laboratories
statewide. Tr. 10-11. A DEA Diversion Investigator (DI) further
testified that the illicit manufacture of methamphetamine is an
especially serious problem in central Florida and the panhandle. Id. at
26.
The record further establishes that there is both a traditional
market and a non-traditional (or gray) market for pseudoephedrine and
ephedrine products. According to the declaration of Jonathan Robbin,
who has testified as an expert on statistical analysis of these markets
in numerous proceedings, pseudoephedrine products sold in the
traditional market typically contained 30 mg. of the chemical, are
manufactured ``in combination with other active ingredients,'' and are
sold in blister packs of 24, 36, or 96 count. Gov. Ex. 10, at 3-4.
Ephedrine products sold in the traditional market typically contain
12.5 mg. of ephedrine and 200 mg. of guaifenesin and are sold in boxes
of either 24 or 60 tablets. Id. at 4. By contrast, the products sold in
the non-traditional market typically contain 60 mg. of pseudoephedrine,
which is not combined with any other active ingredient, and are sold in
bottles containing 60, 100, and 120 tablets. Id. at 5; see also Gov.
Ex. 6, at 12. Moreover, the ephedrine products sold in the non-
traditional market typically contain 25 mg. of ephedrine combined with
200 mg. of guaifenesin and are sold in bottles containing 60 tablets.
Gov. Ex. 10, at 6.
According to the Government's expert witness, who has examined both
the 1997 and 2002 United States Economic Censuses, approximately 97
percent of all non-prescription drugs are sold in pharmacies,
supermarkets, large discount and general merchandise stores, or through
electronic shopping/mail order houses. Id. at 4. The data also show
that non-prescription drug sales accounted for only 2.6% (in the 2002
Economic Census) ``of the overall sales of all convenience stores that
handle'' these products and only 0.6% of the total sales of convenience
stores. Id. at 4-5. The Government's expert further testified that the
sale of pseudoephedrine products comprise ``only about 2.6% of the
[Health and Beauty Care] category of merchandise or 0.05% of total in-
store (non-gasoline) sales that occur at convenience stores. Id. The
Government's expert further stated that combination ephedrine products
``have about half the over-the-counter sales volume'' of
pseudoephedrine products. Id. According to the Government's expert, the
normal expected sales range to meet legitimate demand for
pseudoephedrine products at a non-traditional retailer is ``between $0
and $40 per month, with an average of $20.60''; the expected sales
range for combination ephedrine products at a convenience store is
``between $0 and $25, with an average of $12.58'' per month. Id. at 8.
Finally, the Government's expert recounted numerous instances in
which wholesale distributors sold massive quantities of pseudoephedrine
and ephedrine products to convenience stores and other non-traditional
retailers. See id. at 8-14. The expert further concluded that the
massive sales of these products cannot be explained by persons buying
them for non-FDA approved uses such as ``weight loss or energy
enhancement.'' Id. at 16. As the Government's expert concluded, DEA has
found that these massive sales are ``indicative of diversion to illicit
use.'' Id. at 17.
According to DI Mark J. Rubbins, who served as Chief of the
Domestic Chemical Control Unit of the Office of Diversion Control,
``[n]on-traditional stores * * * tend to knowingly sell [list I
products] in large quantities to `smurfers.' '' Gov. Ex. 6, at 6. DI
Rubbins further explained that smurfers ``are groups of individuals
affiliated with methamphetamine traffickers that frequent these
establishments at different times or on different dates, with the aim
of buying out a store's supply of over-the-counter medications.'' Id.
at 6-7.
DI Rubbins further testified that certain list I products have been
``disproportionately represented in clandestine lab seizures around the
United States.'' Id. at 12. The pseudoephedrine products are Mini Thin,
Mini Twin, Unique, Action-Pseudo, Revive, OTC-Pseudo, and Twin-Pseudo;
the ephedrine products are Max Brand, Xtreme, Xtreme Relief Dual, Mini
Two-Way, and Max Brand Id. at 11-12. In addition, the brand names
MinTwin 2-Way and Heads-Up are used to sell both pseudoephedrine and
ephedrine tablets. Id. at 12. With respect to the pseudoephedrine
products, DI Rubbins stated that these products are preferred by
illicit methamphetamine producers because pseudoephedrine is their only
active ingredient and they are packaged in ``large bottle sizes.'' Id.
Moreover, blister packs are not preferred by methamphetamine producers
because it is more ``time consuming'' to extract the product from its
packaging. Tr. 35.
[[Page 11057]]
The Pre-Registration Investigation and Respondent's Testimony
On January 27, 2004, a DI visited Respondent's facility and met
with Mr. Vihang Patel, Respondent's president, to conduct a pre-
registration investigation. Tr. 29. During the inspection, Mr. Patel
provided the DI with a list of the list I chemicals products his firm
intended to sell. Gov. Ex. 5.The list included numerous products that
are preferred by illicit methamphetamine producers including bottle
sizes of Ephedrine Two-Way, MiniThin Two-Way, and Max Brand Two-Way.\3\
Id. at 2. Additionally, the list included a number of products that do
not contain list I chemicals such as Goody Powder, Goody Body Pain
Powder, BC Arthritis Powder, and BC Powder. Id. at 1. Moreover, at the
hearing Mr. Patel demonstrated a general lack of knowledge as to
whether particular products contained either pseudoephedrine or
ephedrine. When asked during cross-examination whether certain products
(Nyquil, Dayquil, Tylenol Cold, Tylenol Sinus, Tylenol Allergy, Advil
Cold, Tylenol PM) contained pseudoephedrine, Mr. Patel answered: ``I'm
not sure if any one of them does or not. We have to * * * go to the
chemical contents, or ingredients of that particular product.'' Tr.
106. When asked whether any of these products contained ephedrine, Mr.
Patel stated: ``I think they do.'' Id. at 107. However, none of the
products contain ephedrine.
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\3\ Ephedrine Two-Way tablets are manufactured by ProActive Labs
Inc.; MiniThin Two-Way tablets are manufactured by B.D.I.
Pharmaceutical. Gov. Ex. 5, at 2. Because of the extent to which
these products have been found in illicit methamphetamine labs, DEA
has sent numerous warning letters to both of these firms. See D & S
Sales, 71 FR 37607, 37608 (2006).
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During the inspection, Mr. Patel told the DI that ``he would be
selling bottles'' and that ``he would not be selling blister packs
because his customers didn't like them or want them.'' Id. at 50. At
the hearing, however, Mr. Patel testified that he was no longer
interested in selling gray market products but only traditional allergy
and cold medicines such as Nyquil and Tylenol Sinus. Id. at 91, 96.
Mr. Patel also told the DI that he had been ``an aeronautical
engineer for eleven years,'' and that he ``had minimal experience'' in
selling listed chemicals. Id. at 38. According to the record,
Respondent's experience involved working on weekends in a similar
business owned by his family that is located in Lakeland, Florida. Id.
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, 39368 (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 acknowledge that factors two and three would not
bar granting Respondent a registration. I conclude, however, that
Respondent lacks effective controls against diversion (factor one),
lacks relevant experience in the distribution of list I chemicals
(factor four), and intends to distribute list I chemicals to the gray
market (factor five), a market in which the risk of diversion is
substantial. Consistent with DEA precedents, I thus hold that
Respondent's registration would be inconsistent with the public
interest.
Factor One--Maintenance of Effective Controls Against Diversion
I concur with the ALJ that the Government has not proved that
Respondent would fail to provide adequate physical security for the
list I chemicals stored at its facility. However, `` `prior agency
rulings have applied a more expansive view of factor one than mere
physical security.' '' D & S Sales, 71 FR 37607, 37610 (2006) (quoting
OTC Distribution Co., 68 FR 70538, 70542 (2003)). A registrant is
``required to exercise a high degree of care in monitoring its
customers' purchases'' of list I chemical products to prevent
diversion. Id. Relatedly, DEA has repeatedly revoked the registrations
of list I chemical distributors for selling quantities of products that
clearly exceeded legitimate demand and were likely diverted into the
illicit manufacture of methamphetamine. See T. Young Associates, Inc.,
71 FR 60567, 60572-73 (2006); D & S Sales, 71 FR at 37611-12; Joy's
Ideas, 70 FR at 33198-99; Branex, Inc., 69 FR 8682, 8693-96 (2004).
Here, I conclude that it is likely that Respondent would not
properly monitor its customers' purchases. Both during the pre-
registration investigation and at the hearing, Respondent's president
demonstrated a lack of familiarity with OTC drug products. During the
pre-registration investigation, he represented that certain products
contained list I chemicals when they did not. At the hearing, he did
not know which products contained which chemicals and again referred to
products (Tylenol PM and Tylenol Arthritis) that do not contain either
ephedrine or pseudoephedrine as if they did. Respondent's president
further admitted that he would have to check the ingredients of the
particular product to be sure of whether it contained a list I
chemical. In short, his lack of such basic product knowledge does not
inspire confidence that his firm would know which products must be
monitored to ensure that they were not being purchased in excessive
quantities and being diverted into the illicit manufacture of
methamphetamine. I thus conclude that this factor support a finding
that granting Respondent a registration would be inconsistent with the
public interest.
Factors Two and Three--Compliance With Applicable Laws and the
Applicant's Prior Record of Relevant Criminal Convictions
There is no evidence that Respondent is not in compliance with
applicable Federal, State, or local laws. Furthermore, there is no
evidence that Respondent, or any person affiliated with it, has ever
been convicted of a crime under either Federal or State laws relating
to controlled substances or listed chemicals. I thus conclude that both
factors weigh in favor of granting Respondent's application.
Factor Four--The Applicant's Past Experience in the Distribution of
Listed Chemicals
DEA precedent establishes that ``an applicant's lack of experience
in distributing list I chemicals creates a greater risk of diversion
and thus weighs heavily against the granting of an application.'' Tri-
County Bait Distributors, 71 FR at 52163. According to the record,
Respondent itself has no experience in distributing list I chemicals.
The ALJ found, however,
[[Page 11058]]
that Respondent's president does have ``some limited experience''
working on weekends at another firm which distributes list I chemicals.
ALJ Dec. at 15.
Distributors of list I chemicals are subject to a comprehensive and
complex regulatory scheme. See 21 CFR Pts. 1309 & 1310. Moreover, as I
explained in Tri-County Bait Distributors, merely working as a sales
clerk does not establish that an applicant has relevant experience. 71
FR at 52163. Rather, for an applicant's (or its key employee's)
experience to be relevant, the applicant must have been actively
involved in the fulfillment of a registrant's regulatory obligations
and demonstrate adequate knowledge of list I products.
While this standard may not have been clear at the time of the
hearing, I nonetheless conclude that a remand is unnecessary. As
explained above (and as the ALJ found), Respondent's president ``has
little knowledge of which products on his proposed product list
contained ephedrine or pseudoephedrine.'' ALJ Dec. at 15-16. Thus, even
if Respondent's president had established that he had performed
regulatory obligations, his lack of knowledge of basic product
information would still lead me to conclude that his experience was
inadequate. I thus hold that this factor supports a finding that
Respondent's registration would be inconsistent with the public
interest.
Factor Five--Other Factors That Are Relevant to and Consistent With
Public Health and Safety
Numerous DEA orders recognize that convenience stores and gas
stations constitute the non-traditional retail market for legitimate
consumers of products containing pseudoephedrine and ephedrine. See,
e.g., Tri-County Bait Distributors, 71 FR at 52161; D & S Sales, 71 FR
at 37608-09; Branex, Inc., 69 FR at 8690-92. DEA orders also establish
that the sale of 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, Inc., 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 eight-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'').
Significantly, all of Respondent's proposed customers participate
in the non-traditional market for ephedrine and pseudoephedrine
products. DEA 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'' and ``substantial''); Jay Enterprises,
Inc., 70 FR 24620, 24621 (2005) (noting ``heightened risk of
diversion'' should application be granted). 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.
Because of the methamphetamine epidemic's devastating impact on
communities and families throughout the country, 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, Inc., 67
FR 76195, 76197 (2002), my predecessor denied an application observing
that the respondent's ``lack of a 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.'' More recently, I have denied applications explaining that an
applicant'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, Inc., 69 FR 69407, 69409 (2004).
Here, Respondent clearly lacks effective controls against
diversion, its key employee has only limited experience in the
wholesale distribution of list I chemical products during which he
apparently learned very little about the products he seeks to carry,
and yet it intends to distribute these products to non-traditional
retailers, a market in which the risk of diversion is substantial.\4\
See Taby Enterprises of Osceola, Inc., 71 FR 71557, 71559 (2006). Given
these findings, it is indisputable that granting Respondent's
application would be ``inconsistent with the public interest.'' 21
U.S.C. 823(h).
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\4\ Initially, Respondent also sought to sell high strength,
high count list I products including several brands that DEA has
frequently found during seizures of illicit methamphetamine
laboratories. See Gov. Exh. 5, at 2. See also OTC Distribution, 68
FR at 70541, MDI Pharmaceuticals, 68 FR at 4236. At the hearing,
however, Respondent expressed a willingness to carry only smaller
packages of traditional cold and allergy medicines. See ALJ Dec. at
11. For the reasons stated above, I nonetheless conclude that the
Government has shown that Respondent's registration would be
inconsistent with the public interest.
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Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h), and 28
CFR 0.100(b) & 0.104, I order that the application of Planet Trading,
Inc., d/b/a United Wholesale Distributors, Inc., for a DEA Certificate
of Registration as a distributor of list I chemicals be, and it hereby
is, denied. This order is effective April 11, 2007.
Dated: February 28, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 07-1103 Filed 3-9-07; 8:45 am]
BILLING CODE 4410-09-P