[Federal Register Volume 74, Number 71 (Wednesday, April 15, 2009)]
[Notices]
[Pages 17517-17524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-8621]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 05-43]
Gregg & Son Distributors; Grant of Conditional Registration
On August 3, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Gregg & Son Distributors (Respondent), of Powell,
Tennessee. The Show Cause Order proposed the revocation of, and the
denial of its pending application to renew, Respondent's DEA
Certificate of Registration, which authorizes it to distribute the List
I chemicals pseudoephedrine and ephedrine, on the ground that its
registration ``is inconsistent with the public interest.'' Order to
Show Cause at 1.
More specifically, the Show Cause Order alleged that Respondent's
customers for List I chemical products ``are almost exclusively * * *
entities such as convenience stores and small independent grocery
stores,'' and that these retailers are a primary source for the
diversion of these products into the illicit manufacture of
methamphetamine, a schedule II controlled substance. Id. at 1-2. The
Order further alleged that Respondent was selling ``products that are
not sold in traditional retail outlets, including over one dozen
ephedrine products and various pseudoephedrine products,'' id. at 2-3,
that according to an expert utilized by the Agency, ``the average small
store could expect to sell monthly only about $ 10.00 to $ 30.00 worth
of pseudoephedrine products,'' and ``that the potential for sales of
combination ephedrine products [was] about only one-fourth of [these]
sales levels.'' Id. at 4. Relatedly, the Order alleged that ``it is
highly unlikely that [Respondent's customers] would sell a large volume
of List I chemical products for legitimate uses,'' that Respondent's
``sales of combination ephedrine products and pseudoephedrine products
are inconsistent with the known legitimate market and known end-user
demand for products of this type,'' and that Respondent ``is serving an
illegitimate market for these products.'' Id. at 4-5.
The Show Cause Order further alleged that in March 2005, DEA
Investigators conducted an inspection of Respondent. Id. at 2.
According to the allegations, the Investigators conducted an audit of
six ephedrine products distributed by Respondent between December 27,
2003, and March 15, 2005, and found ``substantial underages and
overages for these products.'' Id. at 3.
The Order also alleged that during the inspection, the
Investigators discovered that Respondent sold ```lovers' roses,'
devices with small roses contained inside a glass vial cylinder,'' and
that ``[t]hese products are considered drug paraphernalia because the
vials are used to smoke methamphetamine and [crack] cocaine.'' Id. The
Order further alleged that Mr. Dennis Gregg, Respondent's owner,
``acknowledged that he was aware of the illicit use of lovers' roses.''
Id.
Finally, the Order alleged that after the inspection, Investigators
visited three of Respondent's customers and obtained information which
indicated that Respondent's products were being diverted. Id. at 3.
More specifically, the Order alleged that at the first store, one
customer purchased two (forty-eight count) bottles each day, and that
at a second store, the manager stated that she had only a few customers
who purchased the products but that they did so regularly, and ``that
she believed that most of the List I chemical products sold in her
store went to `meth labs.''' Id. at 3. Finally, the Order alleged that
at the third store, the owner stated ``that he was a former law
enforcement officer'' and that ``he was certain that most or all of the
ephedrine sold at his store [was] used for illicit methamphetamine
production.'' Id. at 3-4.
On or about August 30, 2005, Respondent requested a hearing on the
allegations; the matter was placed on the docket of the Agency's
Administrative Law Judges (ALJ). On April 18 and 19, 2006, a hearing
was held in Nashville, Tennessee, at which both parties called
witnesses to testify and submitted documentary evidence. Following the
hearing, both parties submitted briefs containing their proposed
findings of fact, legal conclusions, and argument.
On February 29, 2008, nearly twenty-two months after the hearing,
the ALJ issued her recommended decision (ALJ). Because Respondent's
sales levels of ephedrine products ``far exceed the expected legitimate
market demand,'' the ALJ concluded that the Government had established
its prima facie case that its continued registration is inconsistent
with the public interest. ALJ at 41. The ALJ reasoned, however, that a
sanction less severe than revocation was warranted because Tennessee
had recently enacted legislation that ``placed extensive limits upon
the products [Respondent could] sell,'' that Respondent was in
``compliance with the Act,'' id., and that the Agency had not provided
evidence that its sales of gel cap products were excessive. Id. at 39.
The ALJ further concluded that there was a ``lack of evidence in [the]
record showing that soft-gel listed chemical products have actually
been made into methamphetamine at illicit laboratories.'' Id. at 41.
The Government filed exceptions to the ALJ's decision, and
Respondent filed a Response to the Government's exceptions.\1\
Thereafter, the record was forwarded to me for final agency action.
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\1\ Therein, the Government argued that the record not only
showed that listed chemical products in gel cap form have been
diverted, but that in various decisions I have previously rejected
the ALJ's reasoning that the Agency cannot revoke a registration
until the actual diversion of gel cap products is substantiated.
Exceptions at 2-3 (citing Holloway Distributing, 72 FR 42118 (2007),
T. Young Associates, 71 FR 60567 (2006)).
The Government further argued that the ALJ ignored its evidence
of Respondent's sales of gel cap products between June 2005 and
November 2005, which showed it was ``sell[ing] inordinate amounts of
ephredrine-based products in gel cap form.'' Id. at 5. In support of
its contention, the Government provided in its exceptions a list of
Respondent's average monthly sales of these products to its various
customers during this period. Id. at 6-9. Noting testimony in
another proceeding that the average monthly retail sale of ephedrine
products at convenience stores was $12.48, and that a monthly retail
sale of $60.00 ``at a convenience store would occur about once in a
million times in random sampling,'' id. at 9, the Government
contended ``that virtually all'' of Respondent's gel-cap ephedrine
customers were ``selling extraordinary amounts [which are] far
beyond what would be expected in a legitimate market.'' Id.
While I consider the calculations, I note that this data was not
provided--as it should have been--while the record was open. To make
clear, it is the Government's obligation as part of its burden of
proof and not the ALJ's responsbility to sift through the records
and highlight that information which is probative of the issues in
the proceeding. Cf. Southwood Pharmaceuticals, Inc., 72 FR 36487,
36503 n.25 (2007).
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[[Page 17518]]
Having considered the entire record in this matter, I conclude that
the Government has not established a prima facie case that Respondent's
continued registration is inconsistent with the public interest. I
conclude, however, that Respondent violated federal law by distributing
drug paraphernalia. While this conduct warrants the suspension of
Respondent's registration, because it has otherwise complied with
federal law and regulations I conclude that the suspension should be
stayed. I make the following findings.
Findings of Fact
Respondent is a distributor of sundry items including non-
prescription drug products containing ephedrine and pseudoephedrine to
convenience stores, small groceries, and gas stations located in
eastern Tennessee.\2\ Tr. 169. Respondent is owned by Mr. Dennis Gregg
and is run out of Mr. Gregg's home in Powell, Tennessee. Id. at 168-69;
GX 1. Mr. Gregg has been involved in the wholesale distribution
business since 1973 and started Respondent sometime around 1991.\3\ Id.
at 171.
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\2\ Respondent also has customers in North Carolina and
Virginia. Tr. 169.
\3\ The record does not establish whether Respondent is
organized as a corporation, a partnership, or a sole proprietorship.
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Respondent has held a DEA Certificate of Registration to distribute
ephedrine, pseudoephedrine and phenylpropanolamine (PPA) \4\ since
1998. GX 1, at 2. While the expiration date of the last registration
issued to Respondent is September 30, 2005, id., on August 8, 2005,
Respondent filed an application to renew its registration. Joint Status
Report at 1. I therefore find that Respondent filed a timely renewal
application and that its registration remains in effect pending the
issuance of this Order. See 5 U.S.C. Sec. 558(c).
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\4\ While Respondent has held a registration to distribute PPA
since 1998, it is undisputed that Respondent had long since stopped
selling products containing PPA and had requested that it be deleted
from the list of chemicals it is authorized to distribute. Tr. 178.
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Both ephedrine and pseudoephedrine have legitimate therapeutic
uses.\5\ See, e.g., Tri-County Bait Distributors, 71 FR 52160, 52161
(2006). Both chemicals are, however, regulated as list I chemicals
under the Controlled Substances Act because are they extractable from
non-prescription drug products and have been frequently diverted into
the illicit manufacture of methamphetamine, a schedule II controlled
substance. See 21 U.S.C. 802(34); 21 CFR 1308.12(d).
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\5\ Under the Food, Drug and Cosmetic Act, ephedrine (in
combination with guaifenesin) is currently approved for marketing as
a non-prescription bronchodilator. See 70 FR 40233 (2005).
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Methamphetamine ``is a powerful and addictive central nervous
system stimulant.'' T. Young Associates, Inc., 71 FR 60567 (2006). As
noted in numerous Agency decisions, the illegal manufacture and abuse
of methamphetamine pose a grave threat to this Nation. Id.
Methamphetamine abuse has destroyed numerous lives and families, and
has had a devastating impact on many communities. Id. Moreover, because
of the toxic nature of the chemicals used in making the drug, illicit
methamphetamine laboratories create serious environmental harms. Id.
The Investigation of Respondent
Respondent was first inspected by a DEA Investigator in 1998. Tr.
239. At the time of the inspection, Respondent was selling bottled
pseudoephedrine, and during the inspection, the Investigator told Mr.
Gregg that ``pseudoephedrine was a very dangerous product.'' Id. at
179. The DI, however, made no similar reference to ephedrine being
dangerous. Id. at 241. Thereafter, Respondent stopped selling bottled
pseudoephedrine and limited his sales of the product to two-tablet
packages. Id. at 179-80. Respondent did, however, continue to sell
combination ephedrine products in bottles containing forty-eight and
sixty tablets, as well as six-tablet packages. Id. at 180.
In August 2003, another DI requested that Respondent provide him
with information regarding its average monthly sales of List I products
to its various customers. Id. at 182-83. Mr. Gregg's wife compiled the
information and provided it to the DI. Id. at 183-84; see also RX 6.
The DI subsequently called Mr. Gregg's wife and told her that the
report was ``exactly what he needed.'' Tr. 183. The DI did not raise
any objection as to the quantities of products being sold by
Respondent. Id.
On March 15, 2005, several DIs visited Respondent to perform an
inspection. As part of the inspection, the DIs obtained a product list
(GX 3) from Mr. Gregg and chose several products to be audited. Tr. 58-
61. While the DIs obtained various records from Respondent and
commenced an audit, id., the Government did not introduce into evidence
the results of the audit.\6\
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\6\ Mr. Gregg maintained that the audit was inaccurate because
the DIs had left out numerous invoices documenting both Respondent's
purchases and its distributions. See RX 5. Because the Government
did not introduce the audit results, it is unnecessary to resolve
this factual dispute.
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During the audit, and upon determining that Respondent was
distributing what he termed ``gray market products,'' one of the DIs
asked Respondent to voluntarily surrender his registration. Id. at 33.
During the hearing, the DI testified that he did so even though there
was no evidence that Respondent had violated any rule of the Agency and
that he had requested the surrender ``solely based on [Respondent's]
handling * * * of gray market products.'' Id. at 51.
The DI further testified that during the inspection, he determined
that Respondent was selling an item known as a ``Love Rose.'' \7\ Id.
at 33. According to the DI, this item, which includes a small flower
packaged inside of a glass tube, constitutes ``drug paraphernalia''
because it is easily adapted for use in, and frequently used for,
smoking both crack cocaine and methamphetamine, and is ``commonly
referred to as [a] crack pipe.'' Id. at 33-34.
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\7\ Throughout the proceeding, the parties referred to this item
as both a ``Love Rose'' and ``Lover's Rose.'' Accordingly, these
terms are used interchangeably in this decision.
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During the inspection, Mr. Gregg acknowledged that he knew that
this item was used to smoke crack and told the DI ``that he didn't want
to sell them anymore.'' Id. at 35. Mr. Gregg testified that
approximately a month before the inspection he had decided that because
the item was misused, once he sold his remaining stock of the item
(which he did to a single person, id. at 293), he would stop carrying
them. Id. at 218-19. According to Mr. Gregg, several of his customers
had told him that they thought the product was ``being used for a crack
pipe,'' but that he would ``occasionally'' see people in stores buying
this item and that with respect to some of them he ``could tell they're
not going to smoke something with it.''
[[Page 17519]]
Id. at 292. As for other customers he saw purchasing the items, Mr.
Gregg maintained that he could not ``judge them'' and what they would
use the product for because he is ``just a human'' and ``not God.'' Id.
Respondent also introduced into evidence a document which listed
his purchases of this product from the Sessions Specialty Company. RX
10. According to the document, between April 28, 2003, and February 18,
2005, Respondent purchased 225 units at a total cost of $396.25. Id.
Respondent's last purchase of the item was in February 2005, when it
obtained twenty-five units for which it paid $36.25. Id.
Following the inspection, a DI visited three of Respondent's
customers. At the first store, the Westgate Market, the manager told
the DI that there were ``very few customers for the List I'' products
that the store obtained from Respondent, but that the customers ``were
repeat customers.'' Tr. 36.
At the second store, the Sloan Center, which was a truck stop
complex with both a large gas station and convenience store, the
manager told the DI ``that she was aware that all these * * * List I
chemical products were used for methamphetamine.'' Id. at 37. The
manager also stated that the store had sold other products which are
used in the illicit manufacture of methamphetamine including steel
wool, matches, coffee filters, and that because ``in her experience,''
the products ``were selling much too quickly'' to be satisfying
legitimate consumer demand, ``she had removed [the products] from the
shelves.'' Id. at 37-38. The DI also testified that the manager had
told him ``about the only people that bought'' the listed chemical
products, but offered no further details regarding their
characteristics. Id. at 37.
Finally, the DI visited the Tellico Pride, which was managed by a
former police officer. Id. at 39. The manager told the DI that he knew
``from his experience'' as both a police officer and store manager that
the ephedrine products the store sold were being used for
methamphetamine production.\8\ Id. at 39.
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\8\ The DI also visited a law enforcement station located in the
Cherokee National Forest, which was approximately ten miles from the
Tellico Pride store. Tr. 40-41. There, the DI was told that the
authorities had found six sites where waste created by illicit
methamphetamine manufacturers had been dumped. Id. at 40-41.
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The DI did not relate any of this information to Mr. Gregg. Tr. 71-
72. Moreover, Mr. Gregg testified that none of his customers had ever
told him that the combination ephedrine products he sold were being
diverted, id. at 202-03; and that he did not believe that his products
were being diverted. Id. at 260. Mr. Gregg further stated that if a
customer told him this, he would tell them to ``call the officials''
and he ``would not sell to that customer.'' Id. at 203.\9\
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\9\ Mr. Gregg further testified that he did not become aware of
the risk that combination ephedrine products could be diverted until
the spring of 2005, when the DIs explained this to him, and the
State of Tennessee enacted the Meth Free Tennessee Act. Id. at 261.
Respondent also introduced into evidence several posters (which he
provided to his customers) directed at retail store employees which
listed various items used to make methamphetamine including
ephedrine. See RX 7. Mr. Gregg's testimony certainly pushes the
limits of plausibility.
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On cross-examination, Mr. Gregg maintained that he would
periodically ask his customers if they have repeat customers and told
them not to sell more than two thirty-six count blister packs to a
customer. Id. at 322-23. He also did not recall any customer telling
him that people were purchasing the products every other day, although
he acknowledged that some customers had told him that people were
buying the products either once or twice a week. Id. at 323-24. He
further maintained that he told his stores that they should not sell to
persons who showed up every day. Id. at 325.
As evidence of his efforts to prevent diversion, Mr. Gregg provided
posters to some of his customers which listed products that could be
diverted into meth. production. See RX 7. Moreover, even prior to the
enactment of the Meth Free Tennessee Act, Mr. Gregg had provided to
most of his ephedrine customers ``hundreds of * * * acrylic cases'' for
storing the products, which are placed ``behind the counter.'' Tr. 192-
193. Mr. Gregg testified that he placed stickers inside the cabinets
which stated that customers could only purchase ``two bottles a day''
and that the products could not be sold to minors. Id. at 196. Mr.
Gregg maintained that he would stamp his sales invoices with the
following statement: ``Please limit a customer two bottles of ephedrine
per day.'' Id.; see also RX 12.
Furthermore, following the passage of the Meth Free Tennessee Act,
which prohibited sales of tablet-form listed chemical products,
Respondent retrieved the products from his customers and sold them to
stores in neighboring States where the products were still legal. Tr.
202. Nor is it disputed that Respondent provides adequate security for
the products at its registered location. Finally, Respondent offered
evidence that it is conducting weekly audits of its handling of list I
chemical products, id. at 213-14, and Respondent has never been issued
a warning letter regarding its handling of the products.
Respondent's Sales Levels and the Market for List I Chemicals
The Government's principal allegation in this proceeding is that
Respondent was selling combination ephedrine products at levels that
far exceed legitimate demand for the products for their approved
therapeutic use as a bronchodilator, and that the products Respondent
sells are likely being diverted. See Order to Show Cause at 4. As proof
of this allegation, the Government submitted a declaration from an
expert witness which concluded that ``the vast majority of American
consumers'' purchase non-prescription drug products at pharmacies,
supermarkets, large discount merchandisers, or through electronic
shopping/mail-order establishments. GX 10, at 5 (declaration of
Jonathan Robbin). Relatedly, the expert stated that convenience stores
and gas stations such as Respondent's customers ``constitute [the]
nontraditional market for the sale of * * * non-prescription drug
pseudoephedrine products.'' Id. at 6.
In this declaration (which was initially prepared five years
earlier for a proceeding which involved a different Tennessee
wholesaler), the expert further concluded that ``the normal expected
retail sale of pseudoephedrine (hcl) tablets in a convenience store may
range between $10 and $30 per month, with an average of about $20 per
month,'' and that the average store would spend ``about $12 per month
acquiring an inventory of pseudoephedrine (hcl) tablets at wholesale
from a distributor.'' Id. at 8-9. The expert also stated that a sale of
pseudoephedrine by a convenience store ``of over $100 a month * * *
would be expected to occur in random sampling about once in a million
raised to the tenth power, a number nearly equal to a count of all the
atoms in the universe.'' Id. at 8.
The expert further opined that sales of combination ephedrine
products are about one-fourth the amount of pseudoephedrine sales and
thus sales of ephedrine at the same level as pseudoephedrine sales are
considerably less likely to be for legitimate demand than sales of
pseudoephedrine. Id. at 10-11. The expert thus concluded that sales of
listed chemical products in
[[Page 17520]]
amounts similar to Respondent's sales \10\ are inconsistent with
legitimate demand for the products. Id. at 11.
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\10\ The expert did not review any data pertaining to
Respondent.
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Notably, the expert's declaration contains no explanation as to his
basis for concluding that ephedrine sales are only one-fourth of
pseudoephedrine sales. See generally id. at 1-12. Moreover, after the
record closed in this matter, the expert's methodology for calculating
the sales levels of ephedrine was challenged in another proceeding and
found wanting. See Novelty Distributors, Inc., 73 FR 52689, 52693-94
(2008).
It is true that in this matter, Respondent did not raise similar
challenges to the expert's methodology.\11\ The Agency cannot, however,
ignore the ultimate finding in Novelty which rejected the expert's
conclusions as to the expected sales range of ephedrine products.
Moreover, since the issuance of the Novelty decision, the Government
has not offered any briefing as to why it would still be appropriate to
adopt the expert's conclusions.\12\ I therefore conclude that the
expert's declaration does not constitute substantial evidence as to the
expected sales range of ephedrine products to meet legitimate demand at
convenience stores and gas stations. See 5 U.S.C. Sec. 556(d).
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\11\ Respondent did, however, argue that the declaration should
be given ``minimal consideration'' because it was executed in
September 2003, the expert did not review ``any information
concerning'' Respondent, and it was ``not based upon the most recent
statistical figures available.'' Resp. Proposed Findings at 19.
\12\ Nor has the Government sought a remand to put on additional
evidence as to the expected sales range to meet legitimate demand.
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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 (DC Cir. 2005).
The Government, however, bears the burden of proof. 21 CFR
1301.44(d). Having considered the entire record in this matter, I
conclude that the Government has not established that Respondent does
not maintain effective controls against diversion. Moreover, while I
find that Respondent violated Federal law when it sold the Lover's
Roses even after he became aware that this item is used to smoke
illicit drugs, I conclude that this single violation, which involved a
nominal amount of this item, does not support the revocation of its
registration. Based on the extensive evidence of Respondent's efforts
to responsibly comply with Federal and state laws, I conclude that
Respondent's registration should be suspended but that the suspension
should be stayed for a period of probation.
Factor One--The Maintenance of Effective Controls Against Diversion
It is undisputed that Respondent maintains adequate security with
respect to the storage of listed chemicals at its registered location.
In the Show Cause Order, the Government alleged, however, that
Respondent did not maintain effective controls against diversion for
two additional reasons: (1) an audit performed during the March 2005
inspection found ``substantial underage and overages'' for several
products, and (2) Respondent's sales of combination ephedrine products
were ``inconsistent with the known legitimate market and known end-user
demand for products of this type,'' and therefore Respondent ``is
serving an illegitimate market for these products.'' Show Cause Order
at 3-4.
Neither of these allegations is supported by substantial evidence.
As for the allegations pertaining to the audit, while the record
establishes that an audit was conducted during the March 2005
inspection, the Government did offer the audit results into evidence.
Accordingly, there is no basis to conclude that Respondent does not
maintain adequate ``systems for monitoring the receipt, distribution
and disposition'' of the List I products it distributes. See 21 CFR
1309.71(b)(8). The allegation is therefore rejected.
The Government also argues that Respondent was distributing
combination ephedrine products in quantities that greatly exceed
legitimate demand for these products at convenience stores, small
markets and gas stations, and that its sales levels are consistent with
diversion of the products into the illicit manufacture of
methamphetamine. See Gov. Exceptions at 3-9. Moreover, the Government
contends that even though Respondent complied with Tennessee law by
ceasing its distribution of tablet-form products and selling only gel-
caps to its Tennessee customers, even those sales are excessive. See
Gov. Exceptions at 6-9 (listing Respondent's average monthly sales of
gel cap products).
The Government's theory is based on expert testimony, which was
credited in other cases, regarding the average monthly retail sale of
ephedrine products at convenience stores and the statistical
improbability that various sales levels were consistent with legitimate
demand. However, as explained above, in Novelty Distributors, I found
that the methodology used by the Government's expert in determining
these figures was unreliable. I further concluded that the expert's
figures for the average monthly sale and the statistical improbability
of various sales of ephedrine to meet legitimate demand were not
supported by substantial evidence.
Here, the Government relies on the expert's written testimony,
which putting aside that it primarily addressed pseudoephedrine and
offered nothing more than a conclusory assertion as to the level of
ephedrine sales, appears to have been based on the same methodology
which I rejected in Novelty.\13\ I therefore again conclude
[[Page 17521]]
that the Government's figures as to the monthly expected sales range to
meet legitimate demand (and the statistical improbability of certain
sales levels in legitimate commerce) are not supported by substantial
evidence. Consistent with these findings, I am compelled to reject the
Government's contention that Respondent's sales of gel-cap ephedrine
products ``are far in excess of any legitimate market for the product''
and ``that the products are being diverted to the illicit manufacture
of methamphetamine.'' \14\ Gov. Exceptions at 5; see also Show Cause
Order at 3-4.
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\13\ It is noted that the expert's methodology involves various
steps and that some of the problems identified with respect to
ephedrine (such as the expert's purported use of consumer survey
data which did not report any information specific to ephedrine, see
73 FR at 52693-94), may not be a valid criticism of the methodology
as it is applied to pseudoephedrine (because there may be more
extensive data). Even so--and ignoring that the declaration
discusses pseudoephedrine and not ephedrine (the chemical at issue
in this case)--the expert's declaration contains none of the
underlying data and calculations such as the number of stores used
in determining the average sales per store.
\14\ It is further noted that while the Government calculated
the average monthly purchase of Respondent's various List I
customers, it did not calculate the mean and standard deviation for
all stores and did not show any instances in which sales to
particular stores greatly exceeded what its typical customer
purchases. See 73 FR at 52700.
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It is true that the Government's evidence included testimony
regarding the hearsay statements of two store managers which raise the
suspicion that Respondent's products were being diverted by customers
of those stores. But there is no evidence that the managers ever
related their suspicions to Respondent, and Mr. Gregg testified that he
would cut off sales to a customer if the customer told him that the
products were being diverted.\15\ Relatedly, while in 2003, Respondent
had submitted--at the Agency's request--a report regarding its
estimated sales of list I products at each of its customers, no one at
the Agency ever raised any objection regarding the quantities it was
selling.
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\15\ Indeed, the Government's figures for Respondent's monthly
sales to the two stores do not stand out as suggesting that
diversion was occurring.
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Nor did the Government introduce any evidence to question the
credibility of Mr. Gregg's testimony that he had stopped selling
bottled pseudoephedrine and sold only two tablet packages of this
product upon being told by a DI years earlier that these products were
dangerous and that the DI had not mentioned combination ephedrine
products as raising the same concern. Finally, the record establishes
that Respondent attempted to educate its customers regarding diversion
and provided special cases to them for storing the products and had
done so years before the enactment of laws requiring that they be kept
either behind the counter or in a locked case. See 21 U.S.C. Sec.
830(e)(1)(A). In sum, the record as a whole does not establish that
Respondent has failed to maintain effective controls against diversion.
Factor Two--Respondent's Compliance With Applicable Laws
The Government further maintains that Respondent violated Federal
law because he knowingly sold drug paraphernalia (i.e., the Love
Roses). Gov. Proposed Findings at 8 (citing 21 U.S.C. 863). According
to the testimony of a DI, this product is easily modified and used to
smoke such substances as crack cocaine and methamphetamine. Moreover,
at the hearing, Mr. Gregg acknowledged that shortly before the March
2005 inspection and his final sale of the product, he had become aware
that the product was used to smoke crack. Notwithstanding this
information, Respondent sold his remaining supply which amounted to
approximately twenty-five of the Lover's Roses and stopped carrying the
product.
The ALJ rejected the Government's argument as ``tenuous,'' noting
that under Federal law the term ``drug paraphernalia'' is defined as an
item ``primarily intended or designed for use in ingesting, inhaling,
or otherwise introducing [controlled substances] into the human body.''
ALJ at 33 (quoting 21 U.S.C. 863(d)). According to the ALJ, ``the
primary purpose of a love rose appears to be decorative in nature * * *
[and] [t]hus, this product was not primarily manufactured or designed
to be used for the ingestion of a controlled substance.'' Id. (quoting
Tr. 218) (testimony of Mr. Gregg; ``when it first started out, all it
was, was a cute little rose in a tube'').
The ALJ, however, failed to acknowledge Supreme Court precedent
interpreting the same statutory language which was used in the since
repealed statute, 21 U.S.C. Sec. 857. See Posters `N' Things, Ltd. v.
United States, 511 U.S. 513, 516 n.5 (1994).\16\ In Posters `N' Things,
the Court explained that Section 863(d) ``identifies two categories of
drug paraphernalia: items `primarily intended * * * for use' with
controlled substances and items `designed for use' with such
substances.'' Id. at 518. With respect to the latter category, the
Court explained that ``[a]n item is `designed for use' * * * if it `is
principally used with illegal drugs by virtue of its objective
features, i.e., features designed by the manufacturer.' '' Id. (quoting
Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 501
(1982)).
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\16\ As the Supreme Court explained in Posters `N' Things: ``The
language of Sec. 863 is identical to that of former Sec. 857
except in the general description of the offense.'' 511 U.S. at 516
n.5. Of note, section 863 expanded the scope of prohibited acts with
respect to drug paraphernalia and did not alter the definition of
the term ``drug paraphernalia.'' See id. Accordingly, the Court's
interpretation of the term applies here.
---------------------------------------------------------------------------
As for the ``primarily intended * * * for use'' language, the Court
acknowledged that the term ``could refer to the intent of
nondefendants, including manufacturers, distributors, retailers, buyers
or users.'' Id. at 519. Based on its analysis of the statute's text and
structure, the Court concluded that the term ``is to be understood
objectively and refers generally to an item's likely use.'' Id at 521.
The Court further explained that where an item has multiple uses, ``it
is the likely use of customers generally, [and] not [of] any particular
customer, that can render a multiple-use item drug paraphernalia.'' Id.
at 522 n.11.
While the Court construed section 857 as imposing a scienter
requirement of knowledge, the Court held that ``the knowledge standard
in this context [does not] require knowledge on the defendant's part
that a particular customer actually will use an item of drug
paraphernalia with illegal drugs.'' Id. at 524. The Court further
explained that ``[i]t is sufficient that the defendant be aware that
customers in general are likely to use the merchandise with drugs.
Therefore, the Government must establish that the defendant knew that
the items at issue are likely to be used with illegal drugs.'' Id.
(emphasis added) (citing United States v. United States Gypsum Co., 438
U.S. 422, 444 (1978) (``knowledge of `probable consequences' sufficient
for conviction'')).\17\
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\17\ See also United States v. Mishra, 979 F.2d 301, 307 (3d
Cir. 1992) (``Government must prove that defendant `contemplated, or
reasonably expected under the circumstances, that the item sold or
offered for sale would be used with illegal drugs'') (quoted at 511
U.S. at 524 n.13); United States v. Schneiderman, 968 F.2d 1564,
1567 (2d Cir. 1992) (``Government must prove that defendant `knew
there was a strong probability the items would be so used.' '')
(quoted at 511 U.S. at 524 n.13).
---------------------------------------------------------------------------
The ALJ's reasoning that an item is not ``drug paraphernalia,''
unless it was ``primarily manufactured or designed to be used for the
ingestion of a controlled substance,'' ALJ at 33, ignores the Supreme
Court's holding that section 863(d) identifies two different categories
of drug paraphernalia and that the ``primarily intended * * * for use''
category ``refers generally to an item's likely use'' by those who use
it. 511 U.S. at 521. Applying this standard, the evidence establishes
that a Love Rose's likely use is to smoke illicit drugs and that
Respondent sold the products
[[Page 17522]]
knowing that they were ``likely to be used with illegal drugs.'' Id. at
524.
At the outset, it should be noted that Congress expressly included
in the definition of ``drug paraphernalia,'' a list of items which
``constitute[e] per se drug paraphernalia.'' Id. at 519. Of relevance
here, Congress included in this list ``metal, wooden, acrylic, glass,
stone, plastic, or ceramic pipes with or without screens.'' 21 U.S.C.
863(d). As the record shows, a Love Rose is nothing more than a small
and fake flower inserted in a glass pipe, Tr. 33; that the pipe
contains a flower does not make it any less a pipe.\18\ See Posters `N'
Things, 511 U.S. at 518 (observing that certain items ``including
bongs, cocaine freebase kits, and certain kinds of pipes, have no other
use besides contrived ones (such as use of a bong as a flower vase)'').
The item thus falls within the statutory definition of ``drug
paraphernalia.'' See 21 U.S.C. 863(d).
---------------------------------------------------------------------------
\18\ Indeed, even if one is cheap, if one is intent on
expressing his/her affection for a loved one, there are plenty of
other ways of doing so such as buying a real flower and not a fake
one.
---------------------------------------------------------------------------
Furthermore, even if the Love Rose does not fall strictly within
the ``list of * * * items constituting per se drug paraphernalia,'' 511
U.S. at 519, there was ample evidence establishing that the item's
``likely use'' is to ingest illicit drugs. Id. at 521. An agency
Investigator testified that the Lover's Roses are ``commonly referred
to as crack pipes,'' and that they are ``used to smoke crack'' and
methamphetamine. Tr. 34; cf. Sharon Tubbs, A Crack Pipe by Any Other
Name, St. Petersburg Times (Aug. 10, 2001) (Floridian Section) (``The
outsider assumes the rose tubes are meant to attract the impulse buyer
who picks up a chintzy gift for his sweetie. But for addicts, the buy
is anything but an impulse. Addicts go to stores looking for rose
tubes, calling them `stems'--street talk for [a] crack pipe.'').
The DI further explained the ease with which this item is adapted
for use as a crack or meth. pipe. Id. Finally, it is undisputed that at
the time of the inspection--and before he sold his final stock--Mr.
Gregg was aware of what this item was used for. Id. at 35. Indeed, Mr.
Gregg testified that several of his customers had told him what the
item was used for. Id. at 292. Thus, at the time he sold his remaining
supply, Mr. Gregg was ``aware that customers in general [we]re likely
to use the merchandise with drugs.'' 511 U.S. at 524.
Contrary to the ALJ's reasoning, ALJ at 34, once Mr. Gregg became
aware of the product's likely use, it was unlawful for him to sell it.
As for the ALJ's rational that ``at some point the responsibility for
the misuse of the * * * product * * * must rest upon the person * * *
illegally ingesting a controlled substances through * * * the tube,''
id., Congress, by prohibiting the knowing sale of drug paraphernalia,
has concluded otherwise. I thus hold that Respondent violated federal
law when it sold its remaining stock of love roses. 21 U.S.C.
863(a)(1).
The record establishes, however, that Respondent's violation
involved only the sale of a small quantity of this item, which was
likely no more than twenty-five units (and for which Respondent paid $
36.25). RX 10. Moreover, it is undisputed that Respondent stopped
selling the product after this sale. Furthermore, other evidence
suggests that Respondent has promptly complied with the requirement of
recently enacted state and federal laws. See Tr. 224-25. Accordingly,
while Respondent's violation of 21 U.S.C. Sec. 863(a) cannot be
condoned, the limited nature of the violation and Respondent's overall
record of compliance with applicable laws does not support the
conclusion that its continued registration is inconsistent with the
public interest.\19\
---------------------------------------------------------------------------
\19\ It is further noted that neither Respondent, nor its owner,
has been convicted of an offense related to controlled substances or
listed chemicals.
---------------------------------------------------------------------------
Factor Four--Respondent's Experience in the Distribution of Chemicals
Respondent has been registered since 1998. During this period, it
has never been issued a warning letter and the record does not
establish any other deficiencies in its handling of list I
chemicals.\20\ Furthermore, with the exception of the violation
discussed above, the record indicates that Respondent has been
attentive to his responsibilities as a registrant.
---------------------------------------------------------------------------
\20\ Based on her finding that Respondent sold excessive
quantities of listed chemical products, the ALJ concluded that
``absent any change in marketing or product line, this factor would
weigh in favor of revocation.'' ALJ at 37. Because I conclude that
the Government's figures as to the expected sales range and
probability of various sales levels are not supported by substantial
evidence, I reject the ALJ's conclusion with respect to factor four.
---------------------------------------------------------------------------
For example, it is undisputed that upon being told that bottled
pseudoephedrine was a dangerous product, Respondent stopped carrying
the product and limited his sales to two-tablet packages. When
Tennessee banned tablet-form products, Respondent retrieved the
products from his customers.
Moreover, Respondent voluntarily submitted to the Agency
information regarding its sales of the products and no one from the
Agency ever objected to the quantities of products it was selling.
Respondent also provided posters from Tennessee Meth Watch (a program
of the Tennessee Bureau of Investigation) and the Southeast Tennessee
Methamphetamine Task Force which identified numerous products which are
used in the illicit manufacture of methamphetamine. RX 7. In addition,
Respondent took steps--long before they were required by state or
federal law--to protect the products from theft at his customers.
While proof that Respondent was selling quantities of products that
are consistent diversion would outweigh all of the above and would
support an adverse finding under this factor, as explained above, the
Government has not met its burden of proof on this allegation. I
therefore conclude that this factor supports the continuation of
Respondent's registration.
Factor Five--Other Factors Relevant to and Consistent With Public
Health and Safety
At the hearing, a DI testified that it was agency policy to seek
the revocation of the registration issued to any person or entity which
distributes listed chemicals to the non-traditional market. Tr. 82.
Based on this testimony, Respondent contends that the Agency is in
violation of the Administrative Procedure Act (APA) because it has
adopted a substantive ``rule for effecting automatic registration
revocations of all entities distributing List I products to gray market
entities'' without engaging in notice and comment rulemaking under 5
U.S.C. 553. Resp. Prop. Findings at 25-26.
Relatedly, in an appendix, the ALJ opined that there is an
``agency-wide policy of revoking the registrations of `gray market'
distributors'' and that this policy ``is substantive, rather than
procedural, in nature.'' ALJ at 46. Continuing, the ALJ recommended
``that the [A]gency should not proceed against listed chemical
distributors on such a `rule' alone because the [A]gency has not''
engaged in notice and comment rulemaking. ALJ at 47 (emphasis added).
Neither Respondent's argument nor the ALJ's reasoning is
persuasive. As an initial matter, at most the evidence establishes a
policy of seeking the revocation of such registrations.\21\ See Tr. 141
(testimony of DI acknowledging that ``the mere fact that someone sells
on the gray market is cause for DEA to
[[Page 17523]]
seek [the] revocation of their registration'') (emphasis added). A
policy of seeking the revocation of the registrations issued to a
particular class of registrants is not, however, the same as a policy
of revoking such registrations. Indeed, to equate the former with the
latter ignores that the ultimate decision in any proceeding under
section 304 of the Act does not rest with those who prosecute but with
the Deputy Administrator. See 28 CFR 0.104 (Appendix section 7(h)).
---------------------------------------------------------------------------
\21\ Notably, in its Exceptions, the Government disputes that
there is any such policy. Exceptions at 10-11. (arguing that ``[t]he
ALJ had no basis on which to assume that DEA has a policy of
revoking the * * * registrations of all List I chemical distributors
that distribute * * * in the gray market. * * * The opinions of non-
managerial employees attesting to the existence of an agency policy,
without more, can hardly be a sufficient basis for a fact-finder to
make a formal finding, or in this case, to simply assume, that a
federal agency has implemented a substantial policy.'').
---------------------------------------------------------------------------
Moreover, contrary to the understanding of both Respondent and the
ALJ, the above described policy is not a rule within the meaning of the
APA. As numerous courts have recognized, a policy does not constitute a
rule unless it establishes a ``binding norm'' or ``a standard of
conduct which has the force of law.'' See Pacific Gas & Elec. Co. v.
FPC, 506 F.2d 33, 38 (D.C. Cir. 1974). The policy merely reflects the
decision of those with prosecutorial authority to focus the Agency's
resources on a particular and serious aspect of the diversion problem.
As such, it ``does not establish a `binding norm[,]' '' which has the
force and effect ``of law.'' Id. at 38; see also Center for Auto Safety
v. NHTSA, 452 F.3d 798, 806 (D.C. Cir. 2006) (noting that one line of
inquiry ``considers the effects of an agency's action, inquiring
whether the agency has `(1) imposed any rights and obligations, or (2)
genuinely [left] the agency and its decision-makers free to exercise
discretion' '') (other citation omitted).\22\ Notably, in her appendix,
the ALJ did not cite to any decision of this Agency which holds that
the mere act of distributing to the non-traditional market constitutes
a per se ground for revocation of an existing registration or the
denial of an application. \23\
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\22\ The other line of inquiry focuses on the ``[A]gency
expressed intentions.'' Center for Auto Safety, 452 F.3d at 798. As
the Government points out, ``[t]here was no evidence that [the DIs]
were authorized to speak on behalf of the agency regarding agency
policy, that the two employees had any involvement in the
formulation of the alleged policy, or were in managerial or
executive positions.'' Exceptions at 11. Thus, the employees'
testimony does not express the Agency's intention.
\23\ In her appendix, the ALJ observed that she ``could find no
agency final order where * * * the DEA registration was continued
for a DEA-registered distributor selling listed chemical products to
the `gray market,' as defined by the'' Agency. ALJ at 37. The
absence of any such decision does not establish that there is such a
rule because each case is decided with respect to the five factors
set forth in 21 U.S.C. Sec. 823(h).
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Indeed, in this matter, the Government does not argue that
Respondent's registration should be revoked solely because it
distributes to the non-traditional market. Rather, the Government
relied primarily on what it alleged were various practices of
Respondent (such as excessive sales and poor recordkeeping) that
increased the risk that its products were being diverted. Moreover,
were the Government to seek revocation solely on the basis that a
registrant was distributing to the non-traditional market (rather than
on the basis that its policies and practices were increasing the risk
of diversion), it would be required ``to present evidence and reasoning
supporting its'' position, Center for Auto Safety, 452 F.3d at 807
(quoting Pacific Gas, 506 F.2d at 38); and the registrant would be
entitled to challenge the Government's evidence and reasoning.\24\
---------------------------------------------------------------------------
\24\ Relying on Ford Motor Co. v. FTC, 673 F.2d 1008, 1009 (9th
Cir. 1982), Respondent asserts that because the purported rule
``creates a general and widespread standard for revocation'' it must
be ``subject[ed] to notice and comment rulemaking.'' Resp. Proposed
Findings at 25 & n.70. Respondent's reliance on Ford is peculiar
because it is widely recognized as a sport case.
As several leading commentators have explained: ``The Ninth
Circuit's decision in Ford almost certainly is an aberration. It has
been severely criticized. It is inconsistent with both [SEC v.
Chenery, 352 U.S. 194 (1947), and NLRB v. Bell Aerospace Co., 415
U.S. 199 (1974)]. Indeed, even the Ninth Circuit seems not to have
followed it in subsequent cases.'' Richard J. Pierce, et al.,
Administrative Law and Process 295 (1985).
Moreover, the preeminent treatise squarely states that Ford was
``wrongly decided and should not be followed.'' I Richard J. Pierce,
Administrative Law Treatise Sec. 6.9, at 384 (4th ed. 2002). As
this authority explains: ``The [Ford] court rested its holding on
the proposition that `an agency must proceed by rulemaking if it
seeks to change the law and establish rules of widespread
application.' That proposition is not supportable in Supreme Court
decisions; rather it is directly contradicted by such decisions and
is inconsistent with the routine practice of all courts and
agencies.'' Id.
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To be sure, based on its experience, DEA has frequently recognized
that the distribution of listed chemical products through non-
traditional retailers presents a heightened risk of diversion and has
considered this to be an important factor in the public interest
analysis. See, e.g., Joy's Ideas, 70 FR 33195, 33199 (2005). But as
this case demonstrates, there is no per se rule prohibiting the
distribution of listed chemicals to the non-traditional market and
subjecting a registration to revocation for the mere act of
distributing to the non-traditional market.
Sanction
In her decision, the ALJ concluded that the Agency had met its
burden of proof by showing that Respondent was selling excessive
quantities of listed chemicals. Based in part on Respondent's
compliance with the Meth Free Tennessee Act,\25\ the ALJ further
concluded that the revocation of Respondent's registration would be too
severe a sanction and recommended that its registration be continued
subject to two conditions--(1) that Respondent be limited to selling
only soft-gel products, and (2) that Respondent consent to periodic
inspections by the Agency based on a Notice of Inspection and without a
warrant.
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\25\ The ALJ also based her recommendation on what she
maintained was ``the lack of evidence in this record showing that
soft-gel listed * * * products have actually been made into
methamphetamine at illicit laboratories.'' ALJ at 41. I have
previously rejected this reasoning, and would have done so again had
the Government proved that Respondent was selling quantities of
products that are consistent with diversion. See Holloway
Distributing, 72 FR 42118, 42126 (2007); T. Young Associates, 71 FR
60567, 60573 (2006). As I have previously explained, `` `experience
has taught DEA that in the aftermath of every major piece of
legislation addressing the illicit manufacture of methamphetamine,
traffickers have quickly found ways to circumvent the restrictions.'
This Agency is not required to wait until the diversion of gelcap
and liquid forms of pseudoephedrine reach epidemic proportions
before acting to protect the public interest.'' Holloway
Distributing, 72 FR at 42126 (quoting 71 FR at 60573).
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In Janet L. Thornton, 73 FR 50354, 50356 (2008), I explained that
``[w]hile in some instances, this Agency has placed restrictions on a
practitioner's registration, such restrictions must be related to what
the Government has alleged and proved in any case.'' The ALJ's proposed
conditions were based on her finding that Respondent had engaged in
excessive sales. But having rejected the Government's proof as
insufficient to support this allegation, there is no basis to impose
these conditions.
The only violation proved on this record is Respondent's sale of
drug paraphernalia (i.e., the Love Roses). But as found above, the
evidence supports the conclusion that Respondent committed only a
single violation of the statute, and the violation involved only a
nominal amount. Moreover, it is undisputed that following this sale,
Respondent stopped carrying the item.
Respondent's sale of any amount of this product (once Mr. Gregg
learned how it was being used) violated Federal law and is a criminal
offense. Indeed, it is stunning that Mr. Gregg sold this product after
being told by several of his customers that it was being used to smoke
crack cocaine. Contrary to his testimony that because he is ``not
God,'' he could not determine why some of the persons he saw buying the
product were
[[Page 17524]]
doing so, this Agency does not expect its registrants to possess divine
powers. It does, however, expect that its registrants exercise common
sense and act responsibly.
Respondent's and Mr. Gregg's violation in selling this product
cannot be condoned. I therefore conclude that Respondent's registration
should be suspended for a period of six months. However, in light of
the total record in this case, which establishes that Respondent has
otherwise attempted to obey applicable laws and regulations, I conclude
that the suspension should be stayed for a period of three years at
which time the suspension will be rescinded provided Respondent does
not commit any further violation of federal or state laws or
regulations related to listed chemicals or controlled substances.
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 the
application of Gregg & Son Distributors to renew its DEA Certificate of
Registration be, and it hereby is, granted. I further order that the
DEA Certificate of Registration issued to Gregg & Son Distributors be,
and it hereby is suspended for a period of six months, but that the
suspension shall be stayed for a period of three years from the date of
this Order provided Respondent complies with all applicable laws and
regulations as set forth above. This Order is effective immediately.
Dated: April 3, 2009.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E9-8621 Filed 4-14-09; 8:45 am]
BILLING CODE 4410-09-P