[Federal Register Volume 73, Number 193 (Friday, October 3, 2008)]
[Notices]
[Pages 57655-57668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23395]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket Nos. 05-13 and 05-45]


Sunny Wholesale, Inc.; Revocation of Registration and Denial of 
Application

    On August 24, 2005, I, the Deputy Administrator of the Drug 
Enforcement Administration, issued an Order to Show Cause and Immediate 
Suspension of Registration to Sunny Wholesale, Inc. (Respondent), of 
Forest Park, Georgia. ALJ Ex. 6. The Order immediately suspended 
Respondent's DEA Certificate of Registration, No. 004550SLY, which 
authorizes it to distribute the list I chemicals ephedrine and 
pseudoephedrine, on the ground that it was selling ``excessive 
amounts'' of these chemicals to convenience stores, id. at 6, which are 
the ``primary source'' for the diversion of these chemicals into the 
illicit manufacture of methamphetamine, a schedule II controlled 
substance.\1\ Id. at 4.
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    \1\ On October 20, 2004, the Deputy Assistant Administrator 
issued the initial Order to Show Cause to Respondent; the Order 
proposed the revocation of its registration at its Forest Park 
location and the denial of its pending application for a 
registration at its Decatur, Georgia location. ALJ Ex. 1. Each of 
the allegations of the initial Show Cause Order was repeated 
verbatim in the subsequent Order to Show Cause and Immediate 
Suspension of Registration. On November 19, 2004, Respondent, 
through its counsel, requested a hearing on the allegations of the 
first Show Cause Order. ALJ Ex. 2.
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    More specifically, the Show Cause Order alleged that in July 2005, 
DEA Diversion Investigators (DIs) learned that records seized from 
various north Georgia convenience stores which were ``suspected of 
illegally distributing listed chemical precursors,'' had ``indicated 
that [Respondent] had been distributing 60 count bottles of'' Max Brand 
pseudoephedrine, a product which has been repeatedly found at illicit 
methamphetamine labs ``in full case and double case lots.'' Id. at 6. 
The Show Cause Order alleged that ``law enforcement officials [in 
Tennessee and Georgia] have observed that an overwhelming proportion of 
precursors found at illicit methamphetamine sites has involved non-
traditional brands sold through convenience stores,'' id. at 4, that 
DEA had retained an expert in retail marketing and statistics who had 
concluded that sales of pseudoephedrine products at convenience stores 
in Tennessee and Georgia ``averaged between $15.00 and $60.00 per 
month'' per store and that sales of combination ephedrine products were 
even lower, Id. at 5, and that ``[c]onvenience store purchases of case 
quantities of high count/high strength pseudoephedrine products [are] 
consistent with diversion of the products into the illicit manufacture 
of methamphetamine.'' Id. at 6. The Show Cause Order further alleged 
that Respondent had continued selling large amounts of pseudoephedrine 
``to convenience stores and gas stations,'' notwithstanding that it had 
been ``put on notice of the potential illegal character of its 
activities with the issuance of the original Order to Show Cause'' 
which was served in October 2004. Id. ``[B]ecause of the substantial 
likelihood that [Respondent would] continue to divert listed chemical 
products,'' I thus concluded that Respondent's ``continued 
registration, during the pendency of these proceedings, would 
constitute an immediate danger to the public health and safety.'' Id. 
at 7.\2\
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    \2\ The Order also alleged that in July 2005, DEA DIs discovered 
that Respondent ``was also selling one-ounce bottles of liquid 
iodine to several convenience stores,'' another chemical used in the 
illicit manufacture of methamphetamine. Show Cause Order at 6. The 
Order further alleged that ``[i]odine * * * has miniscule sales for 
use as an antiseptic, even in pharmacies,'' that ``[t]he likelihood 
of sales of iodine to customers in convenience stores approaches 
zero,'' and that while Respondent ``sold between 48 and as many as 
240 bottles of iodine to individual convenience stores,'' it ``never 
reported these transactions * * * as extraordinary sales or 
suspicious transactions.'' Id.
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    In addition to the above, the Show Cause Order alleged that during 
a July 2001 inspection, DEA DIs audited Respondent's handling of listed 
chemical products and determined that it had ``various overages and 
shortages, including an unexplained shortage of approximately 10,000 
bottles of Max Brand, and (another non-traditional brand) Heads Up 60 
count bottles.'' Id. at 5. The Show Cause Order alleged that while 
inventorying Respondent's listed chemical products, it had ``no 
traditional brand * * * products but only `grey market' brands of 
pseudoephedrine and combination ephedrine products'' which are not sold 
at drug stores or supermarkets, but ``are typically only sold in 
locations where goods of these types are not expected to be sold, such 
as liquor stores, head shops, gas stations, and other small retail 
stores.'' Id.
    The Show Cause Order further alleged that following the inspection, 
DEA DIs conducted verifications of Respondent's customers; the DIs 
allegedly found that some of the locations were ``non-existent,'' some 
were residences, and others included such establishments as ``liquor 
stores, gift shops, a Blimpie restaurant * * * and a magazine store.'' 
Id. Relatedly, the Order alleged that in seeking a registration for its 
Decatur location, Respondent provided a list of its proposed list I 
chemical customers which included ``liquor stores, a lotto store, a 
clothing store, a newsstand, and another distributor.'' Id. at 3.
    The Show Cause Order also alleged that Respondent would not 
maintain proper security of listed chemical products at its new 
proposed location because while its owner, Mr. Shaukat Sayani, had 
represented that his customers would place their orders ``in person'' 
and that Respondent would deliver the products by van, the DIs had 
previously determined that Respondent did not conduct business in this 
``manner at [its] Forest Park'' location. Id. The Show Cause Order 
further alleged that Respondent ``intended to co-mingle listed chemical 
products with

[[Page 57656]]

non-regulated products on the warehouse floor,'' that it ``had no 
procedure in place to detect theft or loss at the warehouse,'' that its 
``proposed method of sales recordkeeping * * * was inadequate to comply 
with 21 CFR 1310.06,'' and that it had no means of ``compar[ing] sales 
between its two * * * locations in order to determine if excessive or 
suspicious transactions were being encountered.'' Id. Relatedly, the 
Show Cause Order alleged that warehouse security at the Forest Park 
location was inadequate. Id. at 5.
    On September 13, 2005, Respondent requested a hearing on the 
allegations of the Order to Show Cause and Immediate Suspension and 
moved to consolidate the two proceedings. ALJ Ex. 7. While the hearing 
on the original Show Cause Order had been scheduled to begin on 
September 20, 2005, Respondent's counsel sought a continuance to obtain 
additional time to prepare. Accordingly, the ALJ ordered that the 
original hearing be cancelled. On December 14, 2005, the ALJ conducted 
a pre-hearing conference and set the hearing for March 21, 2006. ALJ 
Decision (ALJ) at 2-3.
    Thereafter, on February 27, 2006, Respondent's counsel filed an 
emergency motion for a continuance. The ALJ granted the motion and 
subsequently rescheduled the hearing to begin on August 15, 2006. Id. 
at 3.
    A hearing was held on August 15 through 18, 2006, at which both 
parties called witnesses to testify and submitted documentary evidence. 
At the hearing, Respondent also submitted a motion for summary 
judgment. Id. (citing RX 26). Following the hearing, both parties 
submitted briefs containing their proposed findings of fact, 
conclusions of law, and argument.
    On May 4, 2007, the ALJ ordered the parties to file a joint status 
report regarding Respondent's Forest Park registration. On June 11, 
2007, the parties filed the report; the report stated that ``it is the 
position of the agency and Respondent that [it] currently has a pending 
application for renewal of its currently suspended registration.'' 
Joint Status Report at 2.
    On August 17, 2007, the ALJ issued her recommended decision. In her 
decision, the ALJ concluded that Respondent did not maintain effective 
controls against diversion because it did not ``verify the legitimacy 
of its customers,'' sold ``suspiciously high quantities of iodine 
products to some customers'' even though its owner ``was repeatedly 
made aware of iodine's role as a methamphetamine precursor,'' had 
``inadequate inventory procedures [and] poor recordkeeping,'' and 
failed ``to report suspicious transactions.'' Id. at 29-30.
    The ALJ also concluded that Respondent was not in compliance with 
federal law because it ``could not account for large quantities of 
missing bottles of product,'' and ``did not keep adequate records'' of 
its sales which ``hindered [its] ability to ascertain whether a 
customer had purchased an amount above the regulated threshold.'' Id. 
at 31. The ALJ further found that ``Respondent has distributed large, 
case quantities of pseudoephedrine and ephedrine products,'' as well as 
``large amounts of 2% iodine,'' and that ``even [its] witness concurred 
that some of [its] sales were in excess of what would be expected.'' 
Id. at 32-33. Finally, the ALJ noted that ``[m]any of the `businesses' 
to which Respondent sold list I chemical products operated within the * 
* * non-traditional market for such products,'' that sales to the non-
traditional market create an ``unacceptable risk of diversion,'' and 
that ``[s]ome of [Respondent's customers] did not even appear to be 
tangentially related to the legitimate sale of pseudoephedrine and 
ephedrine products.'' Id. at 34.
    The ALJ did note that Respondent had improved its security and had 
``conduct[ed] some investigations into some of its customers' business 
identities.'' Id. at 34. The ALJ concluded, however, that Respondent's 
``cooperation is dwarfed by the significant risk of diversion posed [by 
its] continued sales of listed chemical products to [non-traditional] 
customers without adequate sales records or customer verification,'' 
and that it ``has not provided sufficient evidence * * * that its 
future conduct would change to the degree necessary to eliminate the 
threat to the public interest.'' Id. at 35.
    The ALJ further rejected Respondent's arguments that the Government 
was denying it equal protection of the laws under the Due Process 
Clause of the Fifth Amendment. More specifically, Respondent argued 
that it was being held `` `to a different standard than [the 
Government's] published rules dictate,' '' id. (quoting Resp. Br. at 
16), that the Agency had not ``put Respondent on notice as to what 
specific action would be a violation [of its] rules and regulations,'' 
id. (quoting Resp. Br. at 17), and that ``the agency [was] `exercising 
uncontrolled discretion.' '' Id. (quoting Resp. Br. at 20).
    Finally, the ALJ rejected Respondent's contention that it was 
entitled to judgment as a matter of law because its sales did not 
exceed the 1,000 gram monthly threshold (which triggers various 
reporting and recordkeeping) requirements. Id. at 37. Citing several 
DEA decisions, the ALJ explained that ``Respondent need not exceed the 
Government's threshold of allowed sales in order to [be deemed to have] 
act[ed] in a manner inconsistent with the public interest.'' Id. 
(citations omitted).\3\
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    \3\ The ALJ also noted that there was no evidence that supported 
Respondent's contention that it is being discriminated against 
because its owner ``is a legal alien who is attempting to operate a 
business in this country in accordance with its laws.'' ALJ at 37 
(quoting Res. Br. 24).
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    While the ALJ did not make an express finding that Respondent's 
continued registration is inconsistent with the public interest, such a 
finding is implicit in her recommended sanction that Respondent's 
registration at its Forest Park location should be revoked and its 
pending application for a registration at its Decatur location should 
be denied. ALJ at 38. Thereafter, both parties filed exceptions to the 
ALJ's decision.
    The Government's exception noted that while it concurred with the 
ALJ's recommendation, it was ``not apparent whether the ALJ actually 
made a finding that Respondent's continued registration would not be in 
the public interest.'' Gov. Exceptions at 1. The Government thus 
requested that I ``make a finding that Respondent's continued 
registration and pending application for registration are not in the 
public interest as that term is used'' in the applicable provisions of 
the Controlled Substances Act. Id.
    The Government also took exception to three of the ALJ's factual 
findings (FOFs 52, 57, 58), pertaining to the testimony of the 
Government's expert on the expected sale range of listed chemical 
products at convenience stores and other non-traditional retailers of 
these products. Id. at 2. More specifically, the Government took 
exception to the ALJ's findings that Respondent's expert had credibly 
testified that the Government's expert had made several ``flawed 
assumptions'' including ``that everybody sells everything in'' the 
product category, and that as a result, ``the average convenience store 
might sell $173.25 of list I chemical products per month,'' and that 
``this number [is] more credible than the $82 value'' given by the 
Government's expert.\4\ ALJ at 23-24; Gov. Exceptions at 2.
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    \4\ The ALJ noted, however, that ``even using this larger number 
* * *. Respondent repeatedly sold list I chemical products in excess 
of $173.25 per month.'' ALJ at 24.
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    Because ``Respondent sold in excess of both experts' figures,'' the 
Government declined to ``opine'' as to

[[Page 57657]]

whose expert's sales figures were ``exactly correct'' or whether 
``there is a more precise figure somewhere between their numbers.'' 
Gov. Exceptions at 2-3. The Government nonetheless urged that I not 
adopt the ALJ's finding because Respondent's expert's ``analysis of 
this case was not in detail, but quite limited,'' and the expert ``did 
not perform his own independent analysis of the data, but only compared 
end data from two different parts of [the Government expert's] 
report.'' Id. at 3.
    In its exceptions, Respondent also noted that the ALJ had not made 
a finding as to whether its continued registration would be in the 
public interest and argued that ``no such ruling would be appropriate 
in this matter.'' Resp. Exceptions at 2. More specifically, Respondent 
contends that it has ``complied with every request that was given to it 
by the DEA, repeatedly requested of DEA what they wanted it to do and 
was willing to do anything the DEA wanted.'' Id. at 3. It further 
contends that the Show Cause Orders were based on Respondent's 
exceeding sales levels, but that the Government's evidence on the 
expected sales was ``not credible,'' and that therefore, the Government 
has not carried its burden of showing that its registration would be 
inconsistent with the public interest. Id. at 4.
    Respondent also takes exception to the ALJ's finding that it has 
``inadequate inventory procedures.'' Id. at 4 (citing ALJ at 30). More 
specifically, Respondent contends that ``there is no requirement under 
any of the DEA rules to have an inventory system, and [that it] is once 
again being asked to comply with something that is not in the DEA 
rules.'' Id. at 5. Respondent thus contends that it is ``being held to 
[a] previously unspecified and unpublished * * * guideline[ ],'' and 
that in doing so, the Agency is violating its constitutional rights to 
due process and equal protection. Id. at 5. Finally, Respondent 
contends that the ALJ ``ignore[d] the substantial remedial actions that 
[it] had taken to correct problems of which the DEA had notified it.'' 
Id.
    Thereafter, the record was forwarded to me for final agency action. 
Having considered the record as a whole, as well as the exceptions of 
both parties, I adopt the ALJ findings of fact except as expressly 
noted herein. I further conclude that the Government has made out a 
prima facie case that Respondent's registration would be inconsistent 
with the public interest and that Respondent has failed to present 
sufficient evidence to establish that it will maintain effective 
controls against diversion in the future. I also reject Respondent's 
constitutional claims and its motion for judgment as a matter of law. I 
therefore also adopt the ALJ's recommended sanction that Respondent's 
Forest Park registration be revoked and its applications for renewal of 
the latter registration and for a registration at its Decatur location 
be denied. I make the following findings.

Findings

    Respondent is a corporation which engages in the wholesale 
distribution of assorted products to gas stations, convenience stores, 
dollar stores, beauty stores, and other establishments. Tr. 701. 
Respondent is owned by Mr. Sunny Sayani, id., and operates two 
warehouses which are located in Forest Park and Decatur, Georgia. Id. 
at 702. According to the record, Respondent operates ``a cash and 
carry'' business in which its customers come to the warehouse to 
purchase the products they need. RX 25a, Tr. 731.\5\
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    \5\ Respondent's owner testified that it delivers, but that the 
customer must ``buy more than $1000'' to justify the expenses of 
paying for the driver, gasoline and the truck. Tr. 731.
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    Respondent currently holds DEA Certificate of Registration, 
 004550SLY, which authorizes it to distribute the list I 
chemicals ephedrine and pseudoephedrine out of its Forest Park 
warehouse. Tr. 245; GX 1. While Respondent's registration expired on 
February 28, 2005, it filed a renewal application and paid the 
requisite fee at some point in January 2005. See Joint Status Report at 
1-2. Accordingly, Respondent has a registration, albeit one that has 
been suspended, at its Forest Park location.

Methamphetamine and the Market for List I Chemicals

    Both pseudoephedrine and ephedrine have therapeutic uses and are 
lawfully marketed as non-prescription (OTC) drug products under the 
Federal Food, Drug and Cosmetic Act. GX 15, at 3. Pseudoephedrine is 
approved for marketing as a decongestant; ephedrine (in combination 
with guaifenesin) is approved for marketing as a bronchodilator.\6\ Id. 
at 4. Both pseudoephedrine and ephedrine are, however, regulated as 
list I chemicals under the Controlled Substances Act because they are 
precursor chemicals that are easily extracted from OTC 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); GX 15, 
at 8 (noting that ``the production of methamphetamine from ephedrine or 
pseudoephedrine can be accomplished via a simple one step reaction and 
can be accomplished with little or no chemistry expertise'').
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    \6\ In July 2005, the Food and Drug Administration issued a 
notice of proposed rulemaking which proposes to remove combination 
ephedrine/guaifenesin products from the OTC monograph on the ground 
that these drugs are not safe and effective for OTC use. 70 FR 40232 
(2005).
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    Methamphetamine is a highly addictive and abused central-nervous 
system stimulant. GX 15, at 9. Methamphetamine abuse has destroyed 
numerous lives and families and ravaged communities. Id.; see also 
Rick's Picks, L.L.C., 72 FR 18275, 18276 (2007). Moreover, because of 
the toxic nature of the chemicals used to make the drug, its illicit 
manufacture causes serious environmental harms. Id.; GX 14, at 10.
    A DEA Special Agent from the Atlanta Field Division testified 
regarding the rapid growth of illicit manufacturing of methamphetamine 
during his tenure in Atlanta. Tr. 29. According to the S/A's testimony, 
over ``a short period of time'' the number of meth. lab seizures by DEA 
and local law enforcement had ``multiplied by ten times.'' Id. Other 
evidence showed that between 1999 and 2004, the number of seizures in 
the State of Georgia had increased from 34 to 229.\7\ See GXs 9 & 35.
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    \7\ Between 1999 and 2004, the States adjacent to Georgia also 
experienced large increases in the number of meth. lab seizures. In 
Alabama, the number of seizures increased from 27 to 369; in 
Tennessee, the number increased from 106 to 1251; and in South 
Carolina, the number increased from 5 to 153. See GXs 9 & 35.
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    The Special Agent, who had debriefed over 200 individuals involved 
in the illicit manufacture of methamphetamine, Tr. 39, also testified 
that convenience stores, gas stations, and other small retailers were 
the primary source of the ephedrine and pseudoephedrine which was used 
by ``mom-and-pop'' meth. labs. Id. at 56 & 59. The Agent further 
testified that meth. cooks use individuals known as ``runners'' who 
would travel to different stores and purchase small amounts each day to 
avoid detection. Id. at 62. Moreover, runners generally avoided larger 
retailers such as chain stores because these establishments have ``too 
much security'' and ``too much video surveillance,'' id. at 56, and 
have ``been very militant on * * * limit[ing] sales'' of the drugs. Id. 
at 102; see also id. at 100.
    The S/A also testified that in some instances, meth. cooks 
recruited multiple persons to go to smaller stores and buy the maximum 
amount of product the store would sell them. Id. at 63. Moreover, in 
some instances, either the owner or an employee of a smaller

[[Page 57658]]

store would sell a case quantity of a listed chemical product to a 
person affiliated with a lab. Id.
    The Government also established that the overwhelming majority of 
commerce in non-prescription drug products occurs in drug stores, 
supermarkets, large discount merchandisers and electronic shopping/mail 
order houses. GX 25. According to the declaration of Jonathan 
Robbin,\8\ who has testified in numerous DEA and federal court 
proceedings as an expert witness on the market for list I chemical 
products containing pseudoephedrine and ephedrine, ``over 97% of all 
sales of non-prescription drug products occur in drug stores and 
pharmacies, supermarkets, large discount merchandisers and electronic 
shopping and mail order houses.'' Id. at 4; see also GX 24, at 3.\9\ 
According to Mr. Robbin, these retailers ``constitute the traditional 
marketplace where [nonprescription drugs for coughs, cold, nasal 
congestion, and asthma] are purchased by ordinary consumers.'' GX 25, 
at 4.
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    \8\ Mr. Robbin holds degrees from Harvard College and Columbia 
University and is an expert in multivariate statistical analysis and 
the processing of economic census and population data. See GX 25, at 
1-2. He also founded Claritas, Inc., a company which is now the 
largest producer and seller of census-based consumer marketing 
information products, systems and services. Id. at 1.
    \9\ According to this report, convenience stores selling 
gasoline account for 1.75% of the non-prescription drug market; 
convenience stores that do not sell gasoline account for .95% of the 
market. GX 24, at 3. All other establishments combined account for 
only .21%. Id.
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    Mr. Robbin has further concluded that sales of non-prescription 
drugs at convenience stores ``account for only 2.2% of the overall 
sales of all convenience stores that handle the line.'' Id. Moreover, 
only 4.87% of convenience store shoppers purchase a non-prescription 
drug product, GX 24, at 5; and only 4.59% of these shoppers purchase a 
pseudoephedrine product.\10\ Id. at 4. Mr. Robbin thus concluded that 
.21% of convenience store shoppers purchased a pseudoephedrine product. 
Id. at 5. In another document, Mr. Robbin explained that by 
extrapolating data from the 1997 U.S. Economic Census data and 
information obtained from surveys of the National Association of 
Convenience Stores, he had estimated that during 2005, ``[t]he expected 
average monthly convenience store sales of nonprescription drug 
products containing pseudoephedrine (hcl) in Georgia were * * * $82.'' 
GX 26 at 2.\11\
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    \10\ While the text accompanying table 3 uses the figure of 
5.59% as the percentage of non-prescription drug buyers who purchase 
pseudoephedrine at convenience stores, the previous table makes 
clear that the actual percent is 4.59%. Compare GX 24, at 5, with 
id. at 4.
    \11\ Mr. Robbin noted that data from the 2002 Economic Census 
for Florida (a neighboring State) indicated that the expected sales 
were 21% lower than the data from the 1997 Economic Census 
suggested. GX 26, at 1-2. Mr. Robbin thus stated that ``using the 
same factor as encountered in Florida would produce an updated 
estimate of $65.'' Id. at 2.
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    Respondent called as an expert witness, Dr. Danny N. Bellenger. Dr. 
Bellenger holds a PhD in Business Administration and is a Professor and 
Marketing Research Fellow at the Robinson College of Business at 
Georgia State University. RX 31, at 2. Dr. Bellenger previously served 
as chairman of the Department of Marketing at Robinson, and was the 
Dean of the College of Business at Auburn University. Id.
    Dr. Bellenger disputed Mr. Robbin's figures for the expected 
monthly sales range of pseudoephedrine at convenience stores. Dr. 
Bellenger testified that he did not agree with the conclusions of Mr. 
Robbin's reports and that reports did not ``agree with each other.'' 
Tr. 521. More specifically, Dr. Bellenger noted that one of Mr. 
Robbin's reports stated that ``two in 1,000 * * * convenience store 
shoppers would be expected to buy Sudafed,'' but in another report, Mr. 
Robbin had stated ``that there's 120,000 purchasers or customers [who] 
come into a convenience store.'' Id. at 523; see also GX 25, at 11 
(stating that ``[t]he average annual number of shoppers in a 
convenience store (excluding gasoline purchases) is about 
120,000'').\12\
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    \12\ With respect to the number of convenience store shoppers 
who would purchase Sudafed, Dr. Bellenger testified that ``[t]he 
numbers which I've computed actually says its 2.7 [out of 1,000], 
but * * * that's a relatively minor difference.'' Tr. 523. Dr. 
Bellenger testified that he used ``the data that was in [Mr. 
Robbin's] report, and [did] exactly the computations [Mr. Robbin] 
did * * * and came out with * * * 2.7 customers in 1,000.'' Id. at 
581. In his testimony, Dr. Bellenger did not specifically identify 
which figures he used, and as explained above, it appears that one 
of Mr. Robbins' reports contains a transcription error. See supra n. 
10.
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    Dr. Bellenger explained that if two out of a 1,000 customers 
purchased pseudoephedrine and a convenience store has 120,000 
customers, at least 240 of these persons would buy the product over the 
course of a year or ``twenty per month for an average convenience 
store.'' Tr. 523. Dr. Bellenger testified that multiplying this number 
``times the average retail price of * * * Sudafed'' gives an ``estimate 
of about $170 * * * based on the numbers that are in the reports.'' Id.
    Dr. Bellenger subsequently testified that he determined the average 
price of Sudafed by ``looking at the wholesale prices and assuming a 
markup,'' and that he ``also looked in Kroger to see what it cost, but 
[the price] would vary a lot * * * by store.'' Id. at 662-63. However, 
Dr. Bellenger did not ``recall the actual figure'' he used for the 
retail price. Id. at 663. Nor did he explain what source he used for 
the wholesale price figure, or what price he used.
    Dr. Bellenger also testified that he confirmed his estimate by 
multiplying the percentage of convenience store shoppers who purchase 
pseudoephedrine (.0027) times the average annual merchandise sales of 
convenience stores ($770,000). Dividing this figure by twelve results 
in a monthly sales figure of $173.25, which is ``a similar number'' to 
the sales figure obtained in the first method. Id. at 524.\13\
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    \13\ Notably, Dr. Bellenger used the figure which appears to be 
based on a transcription error in one of Mr. Robbin's reports. If, 
however, the .0021 (or 2.1 shoppers out of 1,000) figure is used, 
see GX 24, at 5; the average monthly sale is $134.75.
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    Dr. Bellenger further testified that Mr. Robbin's methodology was 
based on several assumptions which he contended ``are not consistent 
with reality.'' Id. at 527. More specifically, he contended that one of 
Mr. Robbin's assumptions was that ``all retailers [including] 
convenience stores carry a full line of all'' non-prescription 
medicinal products that are reported in the Economic Census's 
merchandise line, and that this is ``not consistent with the common 
practice'' because ``a convenience store * * * carries a much narrower 
line of most products.'' Id. at 526; see also id. at 583, 664. 
According to Dr. Bellenger, ``when the conveniences stores sell less 
than a full line and the supermarkets and drugstores sell the full 
line, * * * it distorts the numbers,'' by ``caus[ing] the estimate for 
Sudafed for the convenience store to be lower than it actually should 
be.'' Id. at 664.\14\
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    \14\ Dr. Bellenger also testified that one of Mr. Robbin's 
reports assumed that all stores were ``expected to sell the same 
amount,'' and that this requires the assumption that the stores are 
``all the same size'' and ignores the stores' locations. Tr. 529. As 
Dr. Bellenger further testified, ``[i]f you've got a very large 
store attached to a gasoline station selling on the interstate, the 
mix of products is not going to be the same as a small rural 
store.'' Id. at 530. I note, however, that in one of the reports, 
Mr. Robbin estimated a sales range which was based on ``differences 
in sales occurring as a consequence of store size, location, hours, 
advertising expenditures and management practices.'' GX 25, at 7. 
This would appear to address Dr. Bellenger's testimony on this 
point.
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    While the ALJ credited Dr. Bellenger's testimony that the monthly 
expected sales figure of pseudoephedrine products at convenience stores 
was $173.25, see ALJ at 24, I decline to adopt this finding. While Dr. 
Bellenger's testimony that approximately 240

[[Page 57659]]

persons would purchase pseudoephedrine at a convenience store over the 
course of a year calls into question the validity of the Government's 
figure, he did not establish the source of the wholesale price 
information (and the price) that he relied upon or the amount of markup 
he used. As for his testimony regarding pricing at Kroger, he did not 
testify as to what that price was, what size package it was, and stated 
that the price would vary a lot by store. Finally, while Dr. Bellenger 
``confirmed'' his estimate by multiplying the percentage of convenience 
store shoppers who purchase pseudoephedrine by the average store's 
sales volume, this methodology seems to require a major assumption in 
its own right--that the average amount spent by a customer in 
purchasing pseudoephedrine is the same as the average purchase of those 
convenience store customers who buy other products.
    Accordingly, I conclude that neither the Government's nor 
Respondent's evidence reliably establishes the monthly expected sales 
range.\15\ For purposes of this case, I assume without deciding that 
Dr. Bellenger's figures are accurate.
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    \15\ Accordingly, I agree with the Government's exception and 
decline to adopt the ALJ's finding.
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    Dr. Bellenger also testified regarding several other matters. With 
respect to the size of a retailer's purchases, Dr. Bellenger testified 
that buying a case quantity may be a legitimate business decision ``to 
invest in more inventory so as to lower [its labor] cost of taking 
inventory and processing order forms.'' Tr. 549. According to Dr. 
Bellenger:

    The simple fact that someone, in * * * their business model, 
decides to order in large quantities is not necessarily suspicious 
in and of itself. What would be suspicious to me is if someone 
repeatedly ordered in large quantities. So I would think that 
looking for repeated large quantity orders by the same store or a 
combination of products which go into the production and ordering in 
large quantities * * * of a group of products which are involved in 
the manufacture of some illicit substance would be important for 
determining suspicious orders.

Id. at 549-50.
    Amplifying this testimony, Dr. Bellenger added that to purchase a 
case quantity (144 bottles) is ``one of two things. It's a conscious 
business decision where a store owner has decided it's more efficient 
to order in large quantities, put it in the stockroom, and make fewer 
orders, and have less labor involved.'' Id. at 570. Dr. Bellenger than 
allowed that ``maybe there's some nefarious practice involved here,'' 
but that if this was so, ``you would see repeat purchases of large 
quantities.'' \16\ Id. at 570-71.
---------------------------------------------------------------------------

    \16\ Dr. Bellenger added that he was not ``sure how much of this 
is stuff is required to make the illicit drugs in question,'' and 
that he was ``not sure if 144 [bottles] will make enough to matter 
or not.'' Id. at 571. The Government's evidence showed, however, 
that Georgia and the adjacent States had experienced a proliferation 
in smaller methamphetamine labs which typically produced a quarter 
to a half ounce. Id. at 35. The evidence also showed that ``even 
unskilled persons can obtain a 50-70% yield of methamphetamine.'' GX 
15, at 8. Contrary to Dr. Bellenger's understanding, four sixty-
count bottles of 60 mg. pseudoephedrine would provide enough 
material for even an unskilled person to manufacture a quarter ounce 
of the drug; 144 bottles would provide enough material to make nine 
ounces.
---------------------------------------------------------------------------

    The ALJ also credited Dr. Bellenger's testimony that in reviewing 
the various exhibits, he noted that while ``some of [Respondent's 
customers] were buying by case lot,'' he did not find a pattern of the 
customers ``buying [ten] 144s.'' Tr. 571 (cited at ALJ at 25). 
Respondent's own evidence shows, however, that there were multiple 
instances in which Respondent sold case quantities that suggest that 
the sales were for an illicit purpose. See RX 12.
    For example, during the year 2004, Respondent sold cases (144 
bottles) of Max Brand Pseudo to the Coastal Food Mart of Rockmart, 
Georgia, on eight occasions: January 21, February 2, March 4, April 19, 
June 3, July 14, August 2, and September 5.\17\ Id. at 52, 82, 86, 91, 
93, 97, 99. On cross-examination, Dr. Bellenger acknowledged that the 
store was ``probably * * * buying in excess of what would be 
expected,'' that ``a case over a six-month period is rational,'' but 
this store's purchases ``would raise [his] suspicions.'' Tr. 619-20. 
Moreover, when asked whether this store's retail sales would be ``many 
standard distributions beyond'' the $175 figure he calculated for 
average monthly sales, Dr. Bellenger answered: ``Right.'' Id. at 620. 
Dr. Bellenger also acknowledged that it would not be logical for a 
store to ``order additional inventory on a regular basis unless they 
were selling it.'' Id. at 642.
---------------------------------------------------------------------------

    \17\ Each case sold for $1006.56.
---------------------------------------------------------------------------

    On re-direct, Dr. Bellenger opined that ``it would be highly 
unlikely in the normal course of business'' for an entity like Sunny 
Wholesale to detect these transactions. Id. at 646. According to Dr. 
Bellenger, ``you've got to be looking real, real, real close'' to find 
these transactions ``given the scope of [Respondent's] business,'' and 
the fact that the product category was ``less than two percent of the 
total business and these instances would account for a fraction of 
that.'' Id. at 647.
    The Coastal Food Mart was not, however, the only store to which 
Respondent repeatedly sold large quantities of pseudoephedrine. During 
the same year, it sold a case quantity to Chitra Inc.'s Quick Stop of 
Rome, Georgia, on eight separate dates: January 4, April 8, June 14, 
July 5, August 2, August 20, September 14, and October 11. See RX 12, 
at 80, 91, 94, 95, 97, 98, 100, & 101. It sold a case to the Phillips 
66 Mart of Hapeville on eight occasions: January 5, February 5, March 
22, April 1, May 5, June 3, August 17, and September 12. See id. at 80, 
84, 88, 89, 92, 93, 98 & 99.
    It sold a case to the R & S Grocery of Columbus on nine dates: 
January 21, February 2, March 2, April 1, May 5, June 21, July 7, 
August 30, and September 29. See id. at 82, 86, 89, 92, 95, 96, 98, & 
100. It sold a case to the Stop In of Bremen on nine occasions: January 
5, February 3, March 2, April 1, May 5, June 1, July 27, August 20, and 
September 14. See id. at 52, 80, 83, 86, 89, 92, 93, 98, 100.
    Moreover, the record shows that there were instances in which 
Respondent sold to two customers who used the same address. For 
example, Respondent sold case quantities to the P & K Mini Mart, with 
an address of 461 Columbia Drive, Carrollton, on January 6, February 
10, March 4, April 8, and May 5. See id. at 53, 81, 84, 86, 89. Yet it 
also sold a case to a customer it listed as the ``Quick Stop/Tushar/
BP'' with the same 461 Columbia Drive, Carrollton address, on February 
2, March 4, April 8,\18\ May 5, July 22, and August 1. See id. at 54, 
83, 86, 91, 96, 97. Moreover, Respondent sold a case to the DJ Food 
Mart, with an address of 15582 HWY 27, Trion, on January 6, February 
10, March 4, April 8, May 5, and June 15. See id. at 54, 81, 85, 87, 
90, 94. It also sold a case to a customer it listed as ``BJ's Food 
Market  1'' with the address of 15582 HWY 27 North, Trion, on 
February 10, March 4, April 8, May 5, June 4, July 27, July 22, August 
18, and September 5. See id. at 54, 84, 87, 90, 93, 96, 98, 99.
---------------------------------------------------------------------------

    \18\ The record indicates that on this date, Respondent sold 96 
bottles for a total sale of $671.04. RX 12, at 91.
---------------------------------------------------------------------------

    Relatedly, Dr. Bellenger testified that ``unusual orders become 
very challenging if there's a relatively small number of * * * those 
orders * * * given the large numbers of people [a business is] dealing 
with.'' Id. at 556. Dr. Bellenger acknowledged, however, that ``you 
could create a computer program which would create an exceptions 
report.'' Id. at 648. Dr. Bellenger nonetheless maintained that it 
would be difficult to track these

[[Page 57660]]

purchases and that finding a high volume purchase ``in the normal 
course of business would be an accident.'' Id. at 647.
    I reject Dr. Bellenger's testimony regarding the difficulty of 
detecting excessive purchases. As noted below, during an earlier 
meeting with DEA investigators, Mr. Sayani stated that ``a typical 
sale'' of listed] chemicals ``was two to three boxes,'' with each ``box 
contain[ing] twelve bottles of 60-count tablets.'' Id. at 331. Notably, 
during this meeting, the DI specifically told Mr. Sayani that an order 
of ``ten boxes [or 120 bottles] would be suspicious,'' and that if a 
customer ``requested cases quantities'' or 144 bottles, ``he was to 
notify DEA.'' Id. at 336.
    Moreover, Respondent's records show that many of these customers 
were not trying to hide the size of their purchases by purchasing 
smaller quantities on different dates. Rather, they were openly 
ordering case quantities, see RX 12, at 79-101; and as found above, 
several of these customers did so with disturbing frequency. Finally, 
even crediting Dr. Bellenger's testimony that in some instances, a 
convenience store owner could make a legitimate business decision to 
purchase a case quantity, it does not require that much effort to call 
up a customer's account history to determine how frequently the 
customer was purchasing the products.

Respondent's History as a Registrant

    In September 1999, Respondent applied for a DEA registration to 
handle list I chemicals at its Forest Park warehouse. Tr. 703. Prior to 
being granted the registration, DEA DIs conducted a pre-registration 
inspection. Id.; see also id. at 323. During the inspection, a DI 
provided Mr. Sayani with a copy of the DEA Chemical Handler's Manual 
and a document which listed the thresholds for pseudoephedrine and 
ephedrine (which trigger additional reporting and recordkeeping 
obligations). Id. at 726-27. Moreover, Mr. Sayani told the DI that ``he 
would deliver [the listed chemical products] to his customers.'' Id. at 
323.\19\ Shortly after the inspection, Respondent obtained a 
registration for this location.
---------------------------------------------------------------------------

    \19\ Mr. Sayani made the same representation during the pre-
registration investigation of Respondent's application for the 
Decatur location. Tr. 323.
---------------------------------------------------------------------------

    On January 31, 2001, Respondent applied for a registration to 
handle pseudoephedrine, ephedrine, and phenylpropanolamine, at its 
Decatur warehouse. GX 2. Accordingly, on March 31, 2001, DEA DIs went 
to Respondent's Decatur facility to conduct a pre-registration 
inspection. Tr. 246. During the inspection, the DIs met with Mr. Sayani 
and provided him with another copy of the Chemical Handler's Manual, as 
well as notices stating that drug products containing 
phenylpropanolamine were being used by drug traffickers to manufacture 
amphetamine, GX 5, and combination ephedrine and pseudoephedrine were 
being used to by traffickers to manufacture amphetamine and 
methamphetamine. GX 6, Tr. 249. The DIs also provided Mr. Sayani with 
notices pertaining to recordkeeping and reporting of theft and losses 
of listed chemical products. Tr. 249.
    The DI had previously requested that Mr. Sayani provide her with 
lists of his suppliers, the products he intended to carry, and his 
proposed customers. Id. 246-47. On the list of suppliers and products, 
Mr. Sayani indicated that he intended to sell products distributed by 
Compare Generics of Hauppauge, New York, including Max Brand and Heads 
Up, two brands of products which ``are notoriously popular [with] 
methamphetamine traffickers.'' \20\ GX 34, at 11; GX 27.
---------------------------------------------------------------------------

    \20\ On its product list, Respondent also indicated that he 
would be distributing four products from BDI Marketing, Inc., 
another firm whose products have been found at numerous illicit 
methamphetamine labs. GX 4. However, according to the DI, none of 
these products contained a list I chemical. Tr. 250.
    Respondent also listed three other suppliers; the listed 
chemical products he listed under these suppliers were nationally 
recognized brands such as Tylenol, Advil, Nyquil, Contac, and Vicks 
44. See GX 27.
---------------------------------------------------------------------------

    During the inspection, the DIs reviewed the Chemical Handler's 
Manual with Mr. Sayani, placing special emphasis on its provisions 
pertinent to record keeping, security, the need to know his customers, 
and requiring proof of identity from his customers. Tr. 321. The DIs 
also discussed with Mr. Sayani the listed chemical thresholds and the 
requirement to report suspicious orders. Id. Mr. Sayani again 
represented that the listed chemical products ``would be delivered just 
like they were at his Forest Park location.'' Id. at 323. The DI 
observed, however, that Respondent did not ``deliver most of the time'' 
as ``[t]he majority of the time the customers were coming'' to the 
warehouse. Id. at 324.\21\
---------------------------------------------------------------------------

    \21\ The DI also obtained information that Respondent had a 
single employee who was ``his delivery guy.'' Tr. 324. The position 
was vacant for some unspecified period of time. Id. at 324-25.
---------------------------------------------------------------------------

    Based on Mr. Sayani's list of proposed customers, one of the DIs 
checked to see if DEA's computer system held information regarding the 
customers. Id. at 255. The DI also visited several of the customers' 
addresses to verify whether there was a business at the location. Id.
    Moreover, the DIs' supervisor decided that before sending the 
report on the Decatur application to DEA Headquarters, the DIs needed 
to inspect Respondent's practices at its Forest Park warehouse because 
the location had ``never been audited.'' Id. at 370. Accordingly, on 
June 30, 2001, several DIs went to the Forest Park warehouse and 
conducted an inspection. Id. at 255.
    Upon their arrival, the DIs met with Mr. Sayani and asked him to 
provide them with an inventory and a list of the listed chemical 
products Respondent distributed. Id. at 256. One of the DIs also asked 
him for a list of his customers and suppliers and provided him with 
another copy of the Chemical Handler's Manual and several DEA notices. 
Id. During the inspection, the DIs observed that Respondent's list I 
products were co-mingled with other products in the warehouse and were 
not stored in a secure area.\22\
---------------------------------------------------------------------------

    \22\ At some point between 2002 and 2005, Respondent built a 
cage at its Forest Park warehouse in which it stored its list I 
chemical products and installed several security cameras. RX 25a. 
The cage had a separate cash register and window at which the 
products were paid for and delivered to the customer. Id.
---------------------------------------------------------------------------

    The DIs then proceeded to conduct an audit of Respondent's handling 
of list I products for the period January 1, 2001, through the close of 
business on June 30, 2001. GX 31. The DIs selected eleven non-
traditional products to audit; with the assistance of Mr. Sayani, they 
counted the actual number on hand of each of the selected products. Tr. 
264 & 275; GX 30.\23\ Because Mr. Sayani did not have a previous 
inventory of the products,\24\ id. at 260, the DIs assigned an opening 
value of zero for each of the products. Id. at 377; GX 31. Assigning an 
opening value of zero for a product should result in an overage if, in 
fact, there was any of the product on hand on the beginning date of the 
audit and the distributor is keeping (and provides) complete records of 
its purchases and distributions.\25\ Tr. 269 & 377.
---------------------------------------------------------------------------

    \23\ The DIs provided Mr. Sayani with a copy of the count. Tr. 
362.
    \24\ At the hearing, a DI testified that DEA's regulations do 
not require that a list I chemical distributor keep an inventory. 
Id. at 261.
    \25\ Assigning an opening value of zero will also result in an 
undercount of a shortage if any product had actually been on hand on 
the opening date of the audit.
---------------------------------------------------------------------------

    To complete the audit, the DIs requested that Mr. Sayani provide 
them with his purchase invoices and sales invoices. Id. at 266. The 
sales invoices did not, however, clearly indicate the package size 
(e.g., whether it was a six count packet or 60 count bottle). Id. at

[[Page 57661]]

267. The DI therefore contacted Mr. Sayani and requested additional 
information. Id. at 266-67. While Mr. Sayani then provided his sales 
tracking reports, even these were sometimes lacking the necessary 
information. Id. at 267.
    The audit found that there were shortages with respect to six of 
the eleven products.\26\ See GX 31. Most significantly, Respondent was 
short 7640 sixty-count bottles of Heads Up and 3656 sixty-count bottles 
of Max Brand. Id. Moreover, Respondent was short 284 sixty-count 
bottles of Mini 2-Way Action. Id. Respondent was also short 180 six-
count packets of Max Brand, 154 six-count packets of Mini 2-Way Action, 
and 262 packets of Max Brand Pseudo (24-count). Id.
---------------------------------------------------------------------------

    \26\ As the DI explained, the audit was conducted by adding 
Respondent's purchases to the opening inventory figure and comparing 
that figure with the total of the ending inventory plus the amounts 
which Respondent distributed to its customers. Tr. 268, GX 31.
---------------------------------------------------------------------------

    Regarding the audit, Mr. Sayani testified that upon being served 
with the Show Cause Order, which had alleged that he was short 
approximately 10,000 bottles of Max Brand and Heads Up, he checked his 
July 2001 inventory and had 2069 bottles on hand and did not ``know 
where this 10,000 figure came from.'' Tr. 715. Mr. Sayani further 
testified that because 10,000 bottles is a large amount, he ``would 
know where [it] is going.'' Id. at 716.
    The ALJ did not make ``precise findings'' on the amount of the 
shortages. ALJ Dec. 30 at n.6. I do.
    Notably, Mr. Sayani's testimony that he had 2069 bottles on hand 
according to his July 2001 inventory is consistent with the total 
amount of product that he and the DIs physically counted.\27\ Moreover, 
the DIs found that the largest shortage was in the Heads Up 60-count 
bottles, yet none of this product was on hand when the physical count 
was on hand. See GX 31. The audit of this product was thus based 
entirely on Respondent's records of its purchases and distributions; if 
the amount was incorrect, Respondent could have produced his records to 
show that.
---------------------------------------------------------------------------

    \27\ Mr. Sayani did not state which products were included in 
his 2069 figure. According to GX 31, the physical count found 1584 
Max Brand (60 count) bottles, 36 Mini 2-Way (48-count) and 428 (60-
count) bottles, and 18 Mini Twins (60 count bottles). These products 
would total 2066 bottles. I further note the testimony that Mr. 
Sayani agreed with the results of the inventory. Tr. 266.
---------------------------------------------------------------------------

    Moreover, for each of the audited products, the amount of the 
shortages (11,296 60-count bottles of Max Brand and Heads Up) was 
determined based on the discrepancy between the amount of these 
products which Respondent obtained from his suppliers during the audit 
period and the sum of the amount it had on hand on June 30 and the 
amount its sales records showed it had distributed during the audit 
period. Mr. Sayani's assertion aside, he offered no credible evidence 
that gives me reason to reject the audit's finding. Accordingly, I 
adopt as findings, the audit results as listed in GX 31.
    As found above, during the visit, the DIs also discussed with Mr. 
Sayani the size of a normal monthly sale to a single store of non-
traditional products. Id. at 330. Mr. Sayani told the DIs that ``[a] 
typical sale was two to three boxes,'' with each ``box contain[ing] 
twelve bottles of 60-count tablets.'' Id. at 331. As found above, 
however, Respondent frequently sold listed chemical products in far 
larger quantities and did so notwithstanding that the DIs had informed 
him that sales of case quantities were suspicious and should be 
reported to DEA. See RX 12; Tr. 336.
    Following the inspection, several DIs were assigned to conduct 
customer verifications.\28\ ALJ at 15-17. The verifications serve 
several purposes including determining whether the customer actually 
exists, the nature of its business and whether it is legitimate, and 
whether the customer has a business relationship with the distributor. 
Tr. 139, 145, 187, 202, 355-56. As the ALJ found, the verifications 
produced ``mixed results.'' ALJ at 15.
---------------------------------------------------------------------------

    \28\ According to the record, Mr. Sayani provided two separate 
customer lists. One was a list which Mr. Sayani represented as being 
his actual Forest Park warehouse list I customers; the other was a 
list of his potential list I customers for his Decatur warehouse. 
Tr. 373-74.
---------------------------------------------------------------------------

    One DI, who was assigned twelve verifications, found that several 
of the businesses were convenience stores, gas stations, and a liquor 
store. Tr. 142-45. Moreover, upon visiting the addresses of three of 
the customers, two of which were listed as businesses (Pamela's Unique 
Clothing and Reliance Wholesale Supply), and one which was listed as an 
individual (M.S.), the DI found that they were residences and that 
there were no signs of businesses. Tr. 142 & 144. The DI further found 
that the R.S. Corporation was a Blimpie restaurant, id. at 142, and 
that Artistic Sales was a gift shop which did not sell list I 
chemicals. Id. at 143.
    Another DI testified that when she and her partner went looking for 
Ashley's Boutique, they could neither find the store nor the address 
that Mr. Sayani had given for it. Id. at 202-03, 233. The DIs further 
found that the Atlanta Cleaners Plus ``was closed down.'' Id. at 203. 
While the DIs found that the Matierra Mexicana 3 was a 
supermarket, the store did not purchase items from Respondent. Id. at 
203-04. Moreover, one of the establishments was a liquor and check 
cashing store. Id. at 204.
    Another customer (BDI Inc.) was a Shell gas station whose manager 
stated that while he had purchased products from Respondent nine months 
earlier, he no longer did so. Id. at 205. Moreover, the manager told 
the DIs that Respondent ``did not deliver'' and that ``he had to drive 
to [Respondent's] facility to pick up his products.'' Id. Finally, the 
DIs determined that another customer (Golden Dealers) ``was a house 
that was located in a cul-de-sac'' and there was no store on the 
premises. Id. at 206.
    Following the customer verifications, one of the DIs and her 
supervisor met with Mr. Sayani and his attorney Henry D. Frantz, Esq., 
to discuss their concerns that some of Respondent's customers were not 
legitimate. Id. at 254. More specifically, the DI told Mr. Sayani that 
the DI had ``found numerous suspect customers that normally would not 
be selling these type of products.'' Id. at 372. The DI also expressed 
her concern that some of Respondent's customers were engaged in 
wholesale distribution out of their homes and were therefore required 
to be registered under 21 U.S.C. Sec.  823(h), but were not. Id. at 
259.
    Upon being informed by the DIs that ``some of the customers were 
suspicious,'' Mr. Sayani stated that he had ``provided * * * a list of 
the customers he thought * * * would purchase from him, whether it was 
list I chemicals or other products that he handled.'' Id. at 254. At 
the meeting, the DIs also provided Mr. Sayani and his attorney with a 
list of 147 customers who they deemed suspicious and instructed him to 
investigate them. Id. at 687.
    Several weeks thereafter, Respondent's attorney wrote a letter to 
the DIs reporting that 119 of the customers owned either a convenience 
store or grocery. RX 8, at 1. Respondent's attorney further reported 
that 14 of the customers had ``never purchased a list I'' product and 
that three of them ``have a DEA license.'' Id. As for the remaining 
suspicious customers, the letter stated that Respondent could not 
contact eight of the customers and that three of them were jobbers who 
had purchased small amounts. Id.
    Respondent's attorney further wrote that it ``had tightened up * * 
* his business with regard to checking out the customer on all sales 
pertaining to list I chemicals.'' Id. More specifically, the letter 
stated Respondent ``currently asks

[[Page 57662]]

for a tax identification number, business license[,] as well as a DEA 
permit if the customer does not have a store.'' Id. at 2.\29\
---------------------------------------------------------------------------

    \29\ The letter also stated that Respondent would ``cross-check 
* * * all customers purchasing list I items between'' its two 
warehouses, and that it was maintaining ``an updated inventory.'' RX 
8, at 2.
---------------------------------------------------------------------------

    At the hearing, Mr. Sayani testified that he did not go to a new 
customer's store to verify whether it was legitimate ``because at the 
time of opening the account, we get enough proof from them that they're 
legitimate * * * or that they're who they say'' they are. Tr. 768. Mr. 
Sayani acknowledged, however, that anyone who applied for a state or 
local tax identification number would be issued one. Id. at 769.
    At the hearing, Mr. Sayani further testified that upon being served 
with the Show Cause Order, which referred to Max Brand and Heads Up as 
non-traditional products, he stopped selling the products. Id. at 714. 
As found above, the first Show Cause Order was dated October 20, 2004, 
and served on Respondent no later than November 19, 2004, when his 
counsel requested a hearing.
    Contrary to Mr. Sayani's testimony, Respondent's ``Sales Tracking 
Report'' indicates that it repeatedly sold Max Brand after the first 
Show Cause Order was served and frequently did so in large quantities. 
Moreover, there is evidence that it made multiple large sales to 
several stores.
    For example, on November 30, 2004, it sold $504 of Max Brand 2-Way 
to the Lucky Star of Brookfield, Georgia. RX 12, at 67. This was 
followed by two December 12, 2004 sales, each totaling $1509.84, to the 
Dixie Stop of Twion and the Modern Kwik Shop of Summerville, id. at 
101, and a December 19, 2004 sale of $504 to Jay Swaminarayan, Inc., of 
Tifton, Georgia. Id. at 74. On February 13, 2005, it sold an additional 
$861.12 of the products to both the Dixie Stop and the Modern Kwik 
Shop.\30\ Id. at 104.
---------------------------------------------------------------------------

    \30\ Respondent had also sold $1509.84 of the products to the 
Modern Kwik Stop on November 14, 2004. RX 12, at 53.
---------------------------------------------------------------------------

    On both November 29, 2004, and January 3, 2005, it sold $1006.56 of 
the products to ABJ Ashburn, Inc., of Ashburn. Id. at 106 & 101. 
Respondent made further sales of the products to this store on January 
27, February 17, and February 25, when it sold $430.56 worth on each 
date, and on both March 20 and April 2, when it sold $861.12 of the 
products to this store. Id. at 101-2, 105-6.
    Moreover, on January 8, 2005, it sold $861.12 of Max Brand 
pseudoephedrine to Priya Nidhi, Inc., of Calhoun, Georgia. Id. at 53. 
Notably, it has previously sold this establishment $1006.56 on October 
15, 2004. Id. at 52.
    On February 5, 2005, it made two separate sales of the products 
(one totaling $504, the other totaling $430.56) to the West Gray BP of 
Gray, Georgia, id. at 78 & 112; on February 18, 2005, it sold $504 of 
the product to the Razk, Inc., Marathon of Douglasville. Id. at 64. And 
on February 20, 2005, it made two separate sales (one worth $504, and 
one worth $430.56 of the products) to Krishna Corp. of Huntsville, 
Alabama. Id. at 72 & 107.
    On January 13, February 6, March 1, and April 1, 2005, it sold 
$430.56 worth of the products to the Texaco 10 Opelika of Phenix City, 
Alabama; on January 13, it also sold an additional $576 of the products 
to this store. Id. at 102, 104-06, 113. Moreover, on both February 20 
and April 2, it sold $861.12 of the products to USA Trading Inc., of 
Pheonex (sic) City, Alabama. Id. at 102 & 104. It also sold $861.12 of 
the products to Thakurs Fuel, Inc., of Pinehurst, Georgia, on each of 
these dates: February 25, March 20, and April 8, 2005. Id. at 103, 105 
& 109.
    The evidence further shows numerous other instances in which 
Respondent sold large quantities of Max Brand as late as April 2005. 
Id. at 110-12. More specifically, on April 3, 2005, Respondent sold 
$861.12 of the product to each of the following stores: Amin 
Enterprises, Inc. of Lithonia, the Coastal Food Mart of Rockmart, and 
the Hill Top Gas Station of Bremen. Id. at 110-11. Moreover, on April 
6, it sold $861.12 worth of the products to Wendel's JKF, Inc., 
Discount Tobacco 2, and Discount Tobacco; all three stores 
were located in Americus, Georgia.\31\ Id. at 111. Finally, between 
April 10 and 16, 2005, it sold $504 worth of the products to eleven 
establishments (the DM Cotton Patch of Richland, DM Shopper Stop 
 334 of Cusetta, OM Traders 271, DM Shopper Stops 
s 442 and 451, all of Cataula; KDC Inv. and RDSP, both of 
Columbus; Hyaat Groceries of Covington; Jai Bhrahmani, Inc., of 
Buchanan; Gainesville BP of Gainesville; all in Georgia, and Prem, 
Inc., of Alexander City, Alabama. Id. at 111-12.
---------------------------------------------------------------------------

    \31\ The address of Discount Tobacco  2 is listed as 
137 N. Lee St; the address of Discount Tobacco is listed as 107 
South Lee St. RX 12, at 111.
---------------------------------------------------------------------------

    The ALJ specifically found--based on Mr. Sayani's testimony--that 
``Respondent stopped selling Heads Up and Max Brand products because 
they were identified as `non-traditional' items by the DEA in the 
October 2004 Order to Show Cause.'' ALJ at 21. To the extent this 
finding implies that Mr. Sayani stopped selling the products shortly 
after service of the Order, it is inconsistent with the evidence which 
shows that for approximately five months after the Order was served, 
Respondent continued to sell these products. Indeed, Mr. Sayani's 
testimony begs the question of why, if the products were identified in 
the Show Cause Order, it took five months to stop selling them.
    The Government also produced evidence showing that Respondent had 
distributed iodine tincture to several of its customers. See GX 46, at 
1, 2, 3, 15, & 16. Moreover, Respondent's evidence shows that it 
distributed 2,852 (1 oz.) units of this product to a single store 
between June 8, 2003, and November 6, 2004. RX 16, at 5.
    Regarding the allegation that Respondent sold excessive quantities 
of iodine to convenience stores, the Government offered anecdotal 
evidence in the form of a DI's testimony that she had visited more than 
100 convenience stores in both the course of her official duties and as 
a consumer and had never been able to find tincture of iodine. Tr. 396. 
But in contrast to the extensive evidence the Government introduced 
regarding the expected sales range of pseudoephedrine and ephedrine at 
convenience stores, it produced no such evidence with respect to iodine 
tincture.
    The Government also introduced into evidence several documents 
indicating that iodine was used in manufacturing methamphetamine. The 
first of these was a blue notice, which was reprinted in the Chemical 
Handler's Manual, a copy of which was provided to Mr. Sayani at both 
the pre-registration inspection and the schedule regulatory inspection. 
Tr. 307. The notice stated that ``iodine became a federally regulated 
List II chemical on 10/3/96,'' and that it was being provided to 
``[m]ake you aware that iodine is being used to clandestinely produce 
methamphetamine.'' GX 36a.
    The Government also introduced into evidence an ``Information 
Brief'' published by the National Drug Intelligence Center entitled: 
Iodine in Methamphetamine Production. GX 36B; Tr. 308. The document 
stated that ``[s]mall-scale methamphetamine producers who are unable to 
obtain iodine crystals occasionally produce them from iodine tincture 
by mixing iodine tincture with hydrogen peroxide.'' GX 36B, at 2. This 
document further explained that ``[t]his is a time-consuming process 
that yields a very small amount of iodine crystals in relation to the 
amount of tincture and hydrogen peroxide use,'' and also noted that 
``[i]odine tincture is not regulated

[[Page 57663]]

by law.'' Id. Putting aside the statement that iodine tincture was not 
regulated, the Government produced no evidence that this document was 
ever provided to Mr. Sayani.
    To counter the Government, Respondent introduced a copy of a Notice 
of Proposed Rulemaking (NPRM) in which the Agency proposed ``the 
control of chemical mixtures containing greater than 2.2 percent 
iodine.'' DEA, Changes in the Regulation of Iodine Crystals and 
Chemical Mixtures Containing Over 2.2 Percent Iodine, 71 FR 46144, 
46145 (Aug. 11, 2006); RX 28. The NPRM expressly stated that ``[i]odine 
two percent tincture and solution U.S.P. are sold at a wide variety of 
retail outlets and have household application as antiseptic and 
antimicrobial products. These products will not become regulated under 
the proposed regulation.'' 71 FR at 46146. The NPRM further noted that 
``[w]hile the regulatory controls placed on iodine apply to iodine 
crystals, they have not pertained to iodine tinctures (which are 
considered chemical mixtures).'' Id. (emphasis added).
    In discussing the rationale for the proposed rule, the NPRM further 
explained that because ``seven percent iodine tincture and solutions 
are the predominant iodine-containing chemical mixtures diverted by 
traffickers * * * these chemical mixtures should be subject to CSA 
chemical regulatory controls.'' Id. at 46149. The NPRM then noted that 
``[t]wo percent iodine tincture and solutions are also diverted, but 
DEA has not documented the frequent diversion of these materials at 
clandestine laboratories. Therefore, DEA does not intend to regulate 
the two percent iodine tincture or solution at this time.'' Id.
    Respondent also called as a witness a sales representative for the 
company which supplied him with iodine tincture. The sales rep. 
testified that he had sold Respondent iodine tincture with an iodine 
concentration of only one to two percent, Tr. 437-38, and there is no 
evidence refuting this. See RX 11a & b. The sales rep. further 
testified that it was his understanding that a DEA registration was not 
required to sell these products, and that while he had been selling the 
products for eight to nine years, he had ``no idea'' that iodine 
tincture was being diverted into the illicit manufacture of 
methamphetamine. Tr. 439 & 442.

Discussion

    Section 304(a) of the Controlled Substances Act provides that a 
registration to distribute a list I chemical ``may be suspended or 
revoked * * * upon a finding that the registrant * * * has committed 
such acts as would render [its] registration under section 823 of this 
title inconsistent with the public interest as determined under such 
section.'' 21 U.S.C. 824(a)(4). Moreover, under section 303(h), ``[t]he 
Attorney General shall register an applicant to distribute a list I 
chemical unless the Attorney General determines that registration of 
the applicant is inconsistent with the public interest.'' 21 U.S.C. 
823(h). In making the public interest determination, Congress directed 
that the following factors be considered:
    (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. Sec.  823(h).

    ``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 a registration should be revoked or an application 
for a 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).
    While I reject the Government's allegations based on Respondent's 
sales of iodine tincture, I nonetheless conclude that the evidence 
under factors one, four, and five make out as prima facie case that 
Respondent's continued registration would be ``inconsistent with the 
public interest.'' 21 U.S.C. 823(h). Moreover, while I acknowledge that 
Respondent has improved its physical security, it has otherwise failed 
to demonstrate that it has adequate procedures in place to protect the 
public from the diversion of listed chemical products. Finally, I find 
especially disturbing Respondent's conduct in continuing to sell large 
quantities of listed chemical products even after the service of the 
initial Show Cause Order.
    Finally, I reject Respondent's argument that revoking his 
registration would violate its constitutional right to due process 
because it has not sold listed chemicals ``in excess of the quantities 
authorized in the published rules * * * of the DEA.'' Resp. Prop. 
Findings at 16. I also find unavailing his claim--based on the ALJ's 
finding that his inventory procedures were inadequate--that it ``is 
once again being asked to comply with something that is not in the DEA 
rules,'' and that this is another violation of its right to due 
process. Resp. Exceptions at 6. Accordingly, Respondent's Forest Park 
registration will be revoked; its pending renewal application for its 
Forest Park facility and its application for a registration at its 
Decatur facility will also be denied.

Factor One--Maintenance of Effective Controls Against Diversion

    Under DEA precedent and regulations, this factor encompasses a 
variety of considerations and is not limited to whether the registrant 
maintains adequate physical security of listed chemical products. ALJ 
at 29-30. A DEA regulation requires the consideration of the adequacy 
of a registrant's ``systems for monitoring the receipt, distribution, 
and disposition of List I chemicals in its operations.'' 21 CFR 
1309.71(b)(8). Relatedly, a registrant must exercise a high degree of 
care in monitoring its customer's purchases. Rick's Picks, 72 FR 18275, 
18278 (2007), John J. Fotinopoulos, 72 FR 24602, 24605 (2007), D & S 
Sales, 71 FR 37607, 37610 (2006); Joy's Ideas, 70 FR 33195, 33197-98 
(2005).
    It is undisputed that Respondent upgraded its physical security by 
building storage cages, installing video cameras, and assigning a 
person to distribute the products from the cage. This, however, is only 
one part of a registrant's obligation to maintain effective controls 
against diversion.
    Here, the record shows that Respondent's procedures for verifying 
the legitimacy of its listed chemical customers were wholly inadequate 
to prevent diversion. Moreover, those procedures remain so. While 
following the meeting in which agency investigators notified Respondent 
of their concerns regarding the legitimacy of its customers, 
Respondent's counsel stated that it had ``tightened up'' its procedures 
and was requiring that its customers produce a tax identification 
number and business license, RX 8, at 1-2 2, these documents can be 
easily obtained by anyone. While Mr. Sayani

[[Page 57664]]

testified that this provided ``enough proof'' that his customers were 
``legitimate,'' he did not have an employee personally visit a new 
customer to determine whether it was a legitimate business with a need 
for listed chemical products.
    Moreover, Respondent generally operated as a ``cash and carry'' 
business and only delivered if a customer ordered at least $ 1,000 
worth of the items and requested that it do so. Thus, a customer could 
be obtaining listed chemical products from multiple sources and 
Respondent would have no knowledge of this. See Holloway Distributing, 
72 FR 42118, 42124 (2007) (noting a registrant's obligation to 
determine whether a customer is receiving listed chemical products from 
other suppliers).
    As the results of the customer verifications demonstrate, 
Respondent was indifferent to its obligation to determine whether a 
potential list I customer had a legitimate need for the products. 
Moreover, Mr. Sayani's testimony indicates that Respondent did not 
change its practices. Indeed, Respondent's practices are fundamentally 
inconsistent with its obligations as a registrant, and are a 
prescription for wide-spread diversion. Id., see also D & S Sales, 71 
FR at 37610. Respondent's unwillingness to reform them provides reason 
alone to conclude that it does not--and will not--maintain effective 
controls against diversion and that its registration would be 
``inconsistent with the public interest.'' 21 U.S.C. 823(h).
    Buttressing this finding is the evidence pertaining to the audit. 
As found above, the audit, which covered a six-month period, found that 
Respondent had massive shortages of several listed chemical products 
including 7640 sixty-count bottles of Head Up, 3656 sixty-count bottles 
of Max Brand, and 284 sixty-count bottles of Mini 2-Way Action.\32\ See 
GX 31. In total, Respondent was short 11,580 sixty-count bottles of 
pseudoephedrine and combination ephedrine products, or nearly 695,000 
dosage units. This was so notwithstanding that the DIs used 0 as the 
opening inventory for each of the products (the consequence of this is 
that if any product had, in fact, been on hand on the opening date of 
the audit, the audit would result in an undercount of the shortage), 
and that the time period was of limited duration.
---------------------------------------------------------------------------

    \32\ Respondent also had substantial shortages of three other 
products. GX 31.
---------------------------------------------------------------------------

    Based on the ALJ's finding that its ``lack of an inventory system, 
alone, provides persuasive weight against Respondent's continued 
registration,'' ALJ at 30 n.6, Respondent argues that ``there is no 
requirement under any of the DEA rules to have an inventory system, and 
[that it] is * * * being asked to comply with something that is not in 
the DEA rules.'' Resp. Exceptions at 6. Respondent contends that it is 
``being held to * * * unpublished DEA guidelines,'' and that this is 
``a violation of due process * * * and equal protection guarantees.'' 
Id.
    Respondent is correct that there is no regulation which explicitly 
requires that it maintain an inventory system. However, in enacting 
section 303(h), Congress made plain that in determining the public 
interest, the Attorney General was to consider the applicant's (and in 
a revocation/suspension proceeding, the registrant's) ``maintenance * * 
* of effective controls against diversion of listed chemicals into 
other than legitimate channels.'' 21 U.S.C. 823(h).
    Moreover, in 1995, DEA promulgated 21 CFR 1309.71(a), which 
directed that ``[a]ll applicants and registrants shall provide 
effective controls and procedures to guard against theft and diversion 
of List I chemicals.'' This regulation, which remains in effect, 
further explained that ``[i]n evaluating the effectiveness of security 
controls and procedures, the Administrator shall consider * * * [t]he 
adequacy of the registrant's or applicant's systems for monitoring the 
receipt, distribution, and disposition of List I chemicals in its 
operations.'' 21 CFR 1309.71(b)(8).
    Federal law further requires that a registrant report ``any 
regulated transaction involving an extraordinary quantity of a listed 
chemical,'' 21 U.S.C. 830(b)(1)(A), and a ``regulated transaction'' is 
based on ``the quantitative threshold or the cumulative amount for 
multiple transactions within a calendar month.'' 21 CFR 1310.04(f). 
Federal law also requires a distributor to report to this Agency ``any 
unusual or excessive loss or disappearance of a listed chemical under 
the control of the regulated person.'' 21 U.S.C. 830(b)(1)(C). 
Accordingly, to satisfy 21 CFR 1309.71(b)(8), a registrant's 
recordkeeping must be sufficient so as to enable it to comply with its 
reporting obligations under Federal law.\33\ See Fotinopoulos, 72 FR at 
24605.
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    \33\ Typically, this requires no more than maintaining the 
records that a registrant keeps in the normal course of business. 
See, e.g. , DEA, Implementation of the Domestic Chemical Diversion 
Control Act of 1993, 60 FR 32447, 32451 (1995) (noting ``that most 
of the information required by the regulations is already maintained 
in general business records for all transactions'').
---------------------------------------------------------------------------

    Here, Respondent has no satisfactory explanation as to the 
disposition of approximately 11,580 sixty-count bottles or 695,000 
dosage units of listed chemical products. Whether the shortages are due 
to poor recordkeeping, theft, or some other reason, the magnitude of 
these shortages provides a further reason to conclude that Respondent 
does not maintain effective controls against diversion and that its 
continued registration would be ``inconsistent with the public 
interest.'' 21 U.S.C. 823(h).

Factor Four--Respondent's Past Experience in Distributing Listed 
Chemicals

    Under this factor, the ALJ further concluded that Respondent made 
``excessive sales of both list one chemical products and iodine'' that 
``pose a risk to the public interest.'' ALJ at 32. While the ALJ found 
the testimony of Respondent's expert ``more persuasive'' than the 
Government's evidence on the expected sales level of list I chemical 
products, as she further explained, even the Respondent's expert 
witness ``concurred that some of the [sales of] Respondent's List I 
chemical products * * * were in excess of what would be expected.'' Id. 
at 33. While I adopt the ALJ's conclusions with respect to list I 
chemicals, I reject them with respect to iodine.
    With respect to its distributions of iodine, the ALJ found that 
``Respondent has knowingly distributed large amounts of 2% iodine, 
another methamphetamine precursor.'' ALJ at 32. In support of her 
conclusion, the ALJ relied on the testimony of Respondent's expert that 
there were ``five instances where the quantity [of iodine] purchased 
might be suspiciously high,'' Tr. 571, as well as on Mr. Sayani's 
testimony that he was aware that one of his customers was purchasing 
hundreds of bottles but that he thought the customer was distributing 
to other small retailers. Id. at 744; see also ALJ at 32.
    The Government's own evidence establishes, however, that the 2% 
iodine product which Respondent sold ``is not regulated by law,'' GX 
36B at 2, and the NPRM which announced the Agency's intent to regulated 
iodine tinctures containing more than 2.2 percent iodine noted that 2% 
iodine tincture products ``are sold at a wide variety of retail outlets 
and have household application as antiseptic and antimicrobial 
products.'' 71 FR 46146. The same NPRM also explained that the 
``frequent diversion'' of two percent iodine tincture at clandestine 
laboratories ``has not [been] documented.'' Id. at 46149.

[[Page 57665]]

    Furthermore, DEA's regulations provide that two conditions must be 
met for a chemical mixture to be exempted from regulation. 21 CFR 
1310.13(a). First, ``[t]he mixture [must be] formulated in such a way 
that it cannot be easily used in the illicit production of a controlled 
substance.'' Id. Sec.  1310.13(a). Second, ``[t]he listed chemical or 
chemicals contained in the chemical mixture cannot be readily 
recovered.'' Id. Sec.  1310.13(b). Given the criteria for exempting a 
chemical mixture from regulation, neither the ALJ nor the Government 
explained why large sales of 2% iodine tincture are, by themselves, 
enough to give rise to a reasonable belief that the chemical contained 
therein is likely to be diverted.
    Here, there is no evidence that Respondent sold these products with 
knowledge that they would be diverted for use in the illicit 
manufacture of methamphetamine, and in any event, the Government's 
allegation that Respondent was selling excessive amounts of iodine 
tincture is not supported by substantial evidence. The Government's 
evidence is limited to the testimony of a diversion investigator that 
she had visited 100 convenience stores and had never found iodine 
tincture. Yet the Agency's NPRM noted that these products, which have 
several legitimate uses, are sold at ``a wide variety of retail 
outlets.'' 71 FR at 46146.
    More importantly, even assuming that the investigator was 
specifically looking for iodine tincture at the convenience stores she 
visited, the testimony amounts to nothing more than anecdotal evidence. 
As such, it does not conclusively establish the extent to which these 
products are sold at convenience stores and the statistical 
improbability that Respondent's sales of these products were to meet 
legitimate demand. Indeed, the evidence stands in contrast to the 
quantum of the evidence the Government introduced regarding the 
expected sales levels of list I chemical products at convenience 
stores.\34\ Accordingly, I conclude that Respondent's sales of iodine 
do not support a finding that its continued registration is 
inconsistent with the public interest.
---------------------------------------------------------------------------

    \34\ Because 2% iodine tincture is not regulated, the 
Government's allegation that it engaged in regulated transactions 
which it failed to report as suspicious transactions is also 
rejected.
---------------------------------------------------------------------------

    On the other hand, Respondent's sales of list I chemical products 
clearly were excessive and support a finding that its continued 
registration is inconsistent with the public interest. Even assuming 
that the monthly expected sales figure of $173 for pseudoephedrine 
given by Respondent's expert is accurate, and that some stores might 
make a legitimate business decision to purchase a case quantity to 
reduce their costs, the evidence shows that Respondent repeatedly sold 
case quantities to multiple customers including the Coastal Food Mart, 
Chitra Inc.'s Quick Stop, the Phillips 66 Mart, the R & S Grocery, and 
the Stop In.
    The evidence also shows that Respondent sold case quantities to two 
customers which gave the same address. For example, between January 6 
and August 1, 2004, Respondent sold a total of eleven cases to the P & 
K Mini Mart and the Quick Stop/Tushar/BP, both of which used the same 
address. Moreover, between January 6 and September 5, 2004, it sold a 
total of fifteen cases to the DJ Food Mart and BJ Food Market 
1, which gave their respective addresses as 15582 HWY 27 and 
15582 HWY 27 North in Trion, Georgia.
    With respect to the Coastal Food Mart, which purchased eight cases 
between January 21 and September 5, 2004, even Respondent's expert 
acknowledged that this store's purchases were many times the expected 
norm. Tr. 619-20. And as found above, several of Respondent's customers 
purchased even larger amounts of list I chemical products than did the 
Coastal Food Mart. As Respondent's expert allowed with respect to those 
customers who were repeatedly purchasing large quantities, ``maybe 
there's some nefarious practice involved here'' and the customers are 
``doing something that * * * they shouldn't be doing.'' Id. 570.\35\
---------------------------------------------------------------------------

    \35\ As DEA has found in numerous other cases, where there is a 
pattern of distributions which are so large as to be statistically 
improbable to meet legitimate demand, a finding that the products 
have been diverted is warranted. See Holloway Distributing, 72 FR at 
42125; T. Young Associates, Inc., 71 FR 60567, 60572 (2006); D & S 
Sales, 71 FR at 37611; Joy's Ideas, 70 FR at 33198.
---------------------------------------------------------------------------

    Respondent raises two arguments in response to the allegations that 
it sold excessive quantities of list I chemical products. First, it 
argues that given the nature and size of its business, it would be 
``almost impossible to find'' the excessive sales. Resp. Prop. Findings 
at 15.
    Second, it argues that is ``has not sold any restricted item in 
excess of the quantities authorized in the published rules and 
regulations * * * which show the threshold quantities of restricted 
items the wholesalers * * * are allowed to sell without * * * putting 
their DEA license at risk.'' Id. at 16. Relatedly, Respondent raises 
again a due process argument that ``[i]f the Government is proceeding 
on any basis other than Respondent having exceeded the sale quantity 
thresholds which the Government has specifically published (such as 
`not in the public interest'), then the Government is proceeding under 
a rule or statute which is void for vagueness as it does not put 
Respondent on notice as to what specific action would be violative of 
[its] rules and regulations.'' Id. at 17-18.
    As for the argument that it would be nearly impossible to detect 
excessive purchases, Respondent's expert acknowledged that a computer 
program could be written to detect such purchases. Tr. 648. Nor would 
it require more than minimal effort to call up a customer's account to 
determine the frequency and amounts of its purchases before selling 
additional amounts of the products to it.
    Also unavailing is Respondent's contention that because it did not 
sell more than the threshold quantities, its registration cannot be 
revoked. Contrary to Respondent's understanding, selling under 
threshold amounts does not relieve a registrant from its obligation to 
taking necessary measures ``to determine the ultimate disposition of 
[its] products.'' Rick's Picks, 72 FR at 18278. The thresholds simply 
trigger additional recordkeeping and reporting requirements. As I 
explained in Rick's Picks:

    Congress's imposition of recordkeeping and reporting 
requirements for regulated transactions does not mean that one can 
engage in below-threshold transactions without any further 
obligation to determine whether the products are likely to be 
diverted. Indeed, DEA has found that products which have been 
distributed to non-traditional retailers in sub-threshold 
transactions are routinely diverted. Contrary to Respondent's view, 
the threshold provisions pertaining to regulated transactions do not 
create a safe harbor which allows a registrant to sell list I 
chemicals without any further duty to investigate how the products 
are being used.

Id. Cf. United States v. Kim, 449 F.3d 933, 944 (9th Cir. 2006) 
(``[T]he recording and reporting statutes establish no safe harbor from 
prosecution under [21 U.S.C.] 841(c)(2).''). I therefore reject 
Respondent's contention (as raised in both its Exceptions and Motion 
for Judgment as a Matter of Law) that this proceeding should be 
dismissed because it did not sell in excess of the thresholds.
    Finally, there is no merit to Respondent's related contention that 
it has been denied fair ``notice as to what specific action would be 
violative of [DEA's] rules and regulations.'' Resp. Prop. Findings at 
18. Contrary to

[[Page 57666]]

Respondent's view, the standards, which it was expected to conform to, 
were identifiable ``with ascertainable certainty'' by reviewing DEA's 
public pronouncements. Trinity Broadcasting, Inc., v. FCC, 211 F.3d 
618, 628 (D.C. Cir. 2000).
    In section 304(a), Congress made clear that a registration is 
subject to revocation where a registrant ``has committed such acts as 
would render his registration * * * inconsistent with the public 
interest as determined under'' under section 303. 21 U.S.C. 824(a)(4). 
And in section 303(h), Congress clearly provided that one of the 
criteria for determining the public interest is whether a registrant 
maintains ``effective controls against diversion of listed chemicals 
into other than legitimate channels.'' Id. Sec.  823(h)(1). The statute 
itself thus provides fair warning to a registrant that is must not sell 
to diverters.
    Moreover, in several decisions which pre-dated nearly all of the 
listed chemical distributions discussed above, this Agency made clear 
that selling in quantities that greatly exceed legitimate demand for 
these products supports a finding of diversion and that such conduct 
can be the basis for the revocation of a registration. See, e.g., 
Branex, Inc., 69 FR 8682, 8690-94 (2004) \36\ (revoking registration 
noting that distributor's sales of pseudoephedrine to convenience 
stores greatly exceeded the expected sales range at such stores and 
supported a finding that the pseudoephedrine was likely diverted); MDI 
Pharmaceuticals, 68 FR 4233, 4238 (2003) (revoking registration on 
ground that ``firm distributed large quantities of pseudoephedrine 
tablets to smoke shops and * * * convenience stores in quantities that 
apparently exceeded legitimate demand for these products''); Ace 
Wholesale & Trading Co., 67 FR 12574, 12576 (2002) (revoking 
registration on grounds that registrant ``was distributing large 
quantities of pseudoephedrine to [a convenience store] and other 
establishments that appeared far in excess of legitimate demand'').\37\ 
In these decisions, all of which were also published on the Agency's 
Web site as well as in the Federal Register, DEA provided fair warning 
that Respondent's conduct in selling large quantities of listed 
chemicals could result in the revocation of its registration.
---------------------------------------------------------------------------

    \36\ The Branex decision was published in the Federal Register 
on February 25, 2004, before Respondent made many of the case 
quantity distributions.
    \37\ In addition, in publications such as the Chemical Handler's 
Manual, DEA explained that ``[i]t is fundamental for sound 
operations that handlers take reasonable measures to identify their 
customers, understand the normal and expected transactions typically 
conducted by those customers, and, consequently, identify those 
transactions conducted by their customers that are suspicious in 
nature.''Chemical Handler's Manual 15 (2002).
    The Chemical Handler's Manual also sets forth numerous criteria 
for recognizing suspicious transactions including ``resell[ing] to 
non-traditional outlets for regulated OTC products, e.g., hair 
salons, head shops, drug paraphernalia stores, liquor stores, record 
stores, video shops, auto parts stores,'' and ``resell[ing] large 
volumes into the `independent convenience store' market.'' Id. at 
42. The manual also listed as relevant criterion ``[a]ny customer 
who asks for large bottle sizes, 60 count or higher,'' or ``buy[s] 
only the largest size available.'' Id.
---------------------------------------------------------------------------

    Respondent's argument rings hollow for another reason. In the first 
Show Cause Order, Respondent was put on notice that ``Max Brand 
products have been found on numerous occasions in situations related to 
the illicit manufacture of methamphetamine,'' Show Cause Order I, at 3; 
that the monthly expected sales range of pseudoephedrine products at 
convenience stores in Georgia ``averaged between $15 and $60,'' id. at 
4; and that its sales of listed chemical products were ``wildly 
inconsistent with the expectation of sales'' by convenience stores. Id. 
at 5. Mr. Sayani even testified under oath that at the ``end of 2004, 
starting of 2005,'' and after receiving the Show Cause Order, he had 
stopped selling Max Brand products. Tr. 713. Respondent's records 
establish, however, that it continued to sell the products for months 
past the date when Mr. Sayani claimed it had stopped; it also shows 
numerous instances in which Respondent sold half-case quantities or 
larger for several months thereafter.\38\ I thus reject Respondent's 
contention that it lacked fair warning that its excessive sales could 
be grounds for the revocation of its registration.
---------------------------------------------------------------------------

    \38\ Relatedly, Mr. Sayani told the DI during one of the 2001 
inspections that ``a typical sale'' would be two to three boxes 
containing 12 bottles; in the same conversation, the DI told Mr. 
Sayani that a sale of a case quantity would be suspicious. Tr. 330-
31. Many of Respondent's sales were well in excess of a typical 
sale. Respondent thus not only ignored the DI's instruction, it also 
ignored its own understanding of the market. Moreover, at the 
various visits, Respondent was provided with a copy of several 
notices which explained that pseudoephedrine and combination 
ephedrine were being diverted into the illicit manufacture of 
methamphetamine.
---------------------------------------------------------------------------

    Accordingly, while Respondent was authorized to distribute list I 
chemicals for approximately six years, its experience is characterized 
by its frequent disregard of its obligation to protect against the 
diversion of these products. This conclusion provides an additional 
basis, which is sufficient by itself, to find that Respondent's 
continued registration is ``inconsistent with the public interest.'' 21 
U.S.C. 823(h).

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

    As found above, the illicit manufacture and abuse of 
methamphetamine have had pernicious effects on families and communities 
throughout the nation.\39\ Cutting off the supply sources of 
methamphetamine traffickers is of critical importance in protecting the 
public from the devastation wreaked by this drug.
---------------------------------------------------------------------------

    \39\ As found above, methamphetamine trafficking has increased 
substantially in Georgia and the adjacent States.
---------------------------------------------------------------------------

    While listed chemical products containing both ephedrine and 
pseudoephedrine have legitimate medical uses, DEA orders have 
established that convenience stores, gas-stations, and other small 
retailers, constitute the non-traditional retail market for legitimate 
consumers of products containing these chemicals. See, e.g., Tri-County 
Bait Distributors, 71 FR 52160, 52161-62 (2006); D & S Sales, 71 FR at 
37609; Branex, Inc., 69 FR 8682, 8690-92 (2004). DEA has further found 
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'' if application to distribute to non-traditional 
retailers was granted). For this reason, DEA has repeatedly revoked the 
registrations and denied an application for registration when a 
registrant distributes (or an applicant proposes to distribute) listed 
chemicals to non-traditional retailers and other evidence (such as 
excessive sales, inadequate diversion controls, previous violations/
criminal convictions or a lack of adequate experience) confirm that the 
registrant/applicant is unlikely to responsibly handle the products. 
See Rick's Picks, 72 FR at 18278-80; John J. Fotinopoulos, 72 FR at 
24605-07; Tri-County Bait Distributors, 71 FR at 52163-64; D & S Sales, 
71 FR at 37610-12; Joy's Ideas, 70 FR at 33197-99; Xtreme Enterprises, 
67 FR 76195, 76197-98 (2002).
    The record here likewise establishes a substantial nexus between 
the sale of non-traditional list I chemicals products and the diversion 
of these products into the illicit manufacture of

[[Page 57667]]

methamphetamine. According to the testimony of a DEA Special Agent, who 
had debriefed more than 200 individuals involved in the illicit 
manufacture of methamphetamine, convenience stores, gas stations and 
other small retailers were the primary and preferred source of 
pseudoephedrine and ephedrine that was used by smaller meth. labs. Tr. 
56 & 59; see also TNT Distributors, 70 FR 12729, 12730 (2005) (noting 
Special Agent's testimony that ``80 to 90 percent of ephedrine and 
pseudoephedrine being used [in Tennessee] to manufacture 
methamphetamine was being obtained from convenience stores'').
    The record establishes that Respondent's list I customer base was 
comprised primarily of the same type of establishments. More 
specifically, Respondent's list I customers included gas stations, 
convenience stores, dollar stores, liquor stores, beauty stores, gift 
shops, and some customers (such as those located at private residences) 
whose business was not even clear. As the ALJ observed ``[s]ome of 
these businesses did not even appear to be tangentially related to the 
legitimate sale of pseudoephedrine and ephedrine products.'' ALJ at 34. 
As the ALJ further noted, notwithstanding the substantial risk of 
diversion present when distributing to these establishments, as well as 
the testimony that non-traditional retailers were the primary supply 
source for illicit meth. cooks, Respondent offered no evidence that it 
``would cease dealing with'' these establishments. Id.
    Moreover, while Respondent disputed the amount of monthly sales of 
pseudoephedrine at convenience stores to meet legitimate demand, it did 
not challenge the Government's evidence that sales of non-prescription 
drugs account for only a small percentage of the total sales of 
convenience stores that handle the products. Nor did it offer any 
evidence to refute the Government's evidence that only a small number 
(approximately two in one thousand) of convenience store customers 
purchase a pseudoephedrine product. And even using the monthly expected 
sales figures put forth by its expert, as found above, Respondent 
repeatedly sold to multiple non-traditional retailers quantities of 
list I chemical products that greatly exceeded legitimate demand for 
these products.
    Having concluded that the Government made out its prima facie case, 
the ALJ then turned to assessing whether Respondent had produced 
sufficient evidence that it would protect the public interest from the 
diversion of the products. Id. at 34. As the ALJ noted, Respondent did 
improve its physical security. Id. The ALJ also noted that Respondent 
had conducted ``some investigations into some of its customer's 
business identities.'' Id. Yet at the hearing, Mr. Sayani testified 
that he did not go to a new customer's store to verify whether it was a 
legitimate business and that a new customer's presentation of a tax 
identification number and business license provided sufficient proof of 
the customer's bona fides. Tr. 768-69. Mr. Sayani offered no testimony 
that Respondent was willing to change this practice.\40\
---------------------------------------------------------------------------

    \40\ There was also evidence that on one occasion, Respondent's 
attorney reported an incident involving an individual who, in 
attempting to purchase products, admitted to Mr. Sayani that he did 
not have a store, and then showed Mr. Sayani a van full of products 
which he had purchased from a competitor of Respondent. RX 29. While 
the letter provided information regarding the practices of 
Respondent's competition, it did not report the name of the 
individual or give the license plate number (or a description) of 
the van. See id.
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    The ALJ nonetheless concluded that Respondent ``does demonstrate a 
willingness to comply with DEA directions'' because it did not handle 
list I chemical products at its Decatur location while its application 
was pending and at its Forest Park location after that registration was 
suspended. ALJ at 34-35. The ALJ also reasoned that Respondent 
``stopped selling non-traditional listed chemical products in 2004, 
after the DEA served its first Order to Show Cause.'' Id. at 35.
    Both the handling of a list I chemical product at an unregistered 
location and the distribution of a list I product out of a location 
with a suspended registration would, however, constitute felony 
offenses under Federal law. See 21 U.S.C. 841(f)(1); id. Sec.  
843(a)(9); id. Sec.  844(a). Even if Respondent's compliance with these 
provisions is probative of its willingness to cooperate (a debatable 
proposition given that its non-compliance would expose it to 
substantial criminal penalties), the remaining basis for the ALJ's 
conclusion is not supported by the record.
    As found above, Respondent continued selling non-traditional 
products--and made numerous large quantity transactions--well into 
April 2005, approximately five to six months after service of the first 
Show Cause Order. Indeed, Mr. Sayani's testimony regarding when 
Respondent stopped selling the products is clearly refuted by the 
documentary evidence. The weight of the evidence thus does not support 
the ALJ's conclusion that Respondent is willing to comply with DEA's 
direction.
    In any event, notwithstanding her finding, the ALJ concluded that 
Respondent's ``cooperation is dwarfed by the significant risk of 
diversion posed to the public by * * * Respondent's continued sales of 
listed chemical products to [non-traditional retailers] without 
adequate sales records or customer verification.'' ALJ at 35. While 
Respondent contends that the ALJ ``ignore[d] the substantial remedial 
actions that [it] had taken to correct [the] problems of which'' it was 
notified, Resp. Exceptions at 6, the ALJ considered them and properly 
concluded that they only partially addressed the problems identified by 
the Agency. See ALJ at 35 (noting that Respondent has ``not provided 
sufficient evidence to convince [the Agency] that its future conduct 
would change to the degree necessary to eliminate the threat to the 
public interest'').
    In short, Respondent offered no evidence of its willingness to 
change its practices for determining whether its customers are 
legitimate. It offered no evidence that it has in place systems to 
accurately account for the products it handles and to properly identify 
those customers who are purchasing excessive quantities.
    Likewise, it has offered no credible evidence that it is willing to 
change its practices to limit its sales of these products. Its claim 
that it stopped selling the products shortly after service of the first 
Show Cause Order, is contradicted by the documentary evidence. 
Moreover, its argument that the thresholds establish the ``quantities 
of restricted items the wholesalers * * * are allowed to sell without * 
* * putting their DEA license at risk, [and] are what both the 
Government and the public are bound to abide by,'' Resp. Prop. Findings 
at 16--a theme which is repeated throughout its brief--makes plain its 
view that it can continue to sell up to the thresholds with no 
obligation to limit its distributions to those establishments at which 
there is only limited consumer demand for these products for their 
lawful use. Because this view is fundamentally inconsistent with a 
distributor's obligation under the CSA, I conclude that Respondent's 
registration ``is inconsistent with the public interest.'' 21 U.S.C. 
823(h).\41\
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    \41\ Respondent also contends that ``the Government had no 
reasonable justification in summarily proceeding to seize his 
products and summarily revoke his license without affording him a 
due process right to a hearing.'' Id. at 20. Respondent ignores, 
however, that section 304(d) of the CSA expressly authorizes the 
suspension of ``any registration simultaneously with the institution 
of proceedings under this section, in cases where he finds that 
there is an imminent danger to the public health and safety.'' 21 
U.S.C. 824(d).
    Respondent does not argue that the statute is unconstitutional. 
Nor could it, as the Supreme Court has repeatedly upheld the use of 
post-deprivation process in emergency situations. See, e.g., Gilbert 
v. Homar, 520 U.S. 924 (1997). Moreover, in this case, the evidence 
of Respondent's continued large sales of listed chemical products, 
even after being served with the first Show Cause Order, supports 
the finding that Respondent's continued registration during the 
pendency of the proceeding posed an imminent danger to public health 
and safety. Respondent could also have sought review of the 
suspension in a ``court of competent jurisdiction.'' 21 U.S.C. 
824(d).
    Finally, Respondent asserts that ``the effect of the DEA's 
arbitrary actions [in its] case [is] to discriminate against him 
because he is a legal alien'' in violation of his right to equal 
protection of the laws. Resp. Prop. Findings at 25. Respondent does 
not, however, contend that the Agency is intentionally 
discriminating against its owner, see Hernandez v. New York, 500 
U.S. 352, 359-60 (1991), a requirement for stating a claim under the 
Equal Protection Clause, and in any event, it has produced no 
evidence to support its claim. Respondent is just one of many list I 
chemical distributors whose registrations have been revoked for 
committing acts inconsistent with the public interest.

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[[Page 57668]]

Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h) & 
824(a), as well as 28 CFR 0.100(b) & 0.104, I order that DEA 
Certificate of Registration, 040450SLY, issued to Sunny Wholesale, 
Inc., 120 Forest Parkway, Forest Park, Georgia, be, and it hereby is, 
revoked, and that its application to renew this registration be, and it 
hereby is, denied. I further order that Sunny Wholesale, Inc.'s, 
application for a DEA Certificate Registration at 2935 N. Decatur Road, 
Suite C, Decatur, Georgia, be, and it hereby is, denied. These orders 
are effective November 3, 2008.

    Dated: September 26, 2008.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E8-23395 Filed 10-2-08; 8:45 am]
BILLING CODE 4410-09-P