[Federal Register Volume 75, Number 241 (Thursday, December 16, 2010)]
[Notices]
[Pages 78734-78745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31640]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 06-63]
R & M Sales Company, Inc.; Revocation of Registration
On June 1, 2006, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA, or ``the
Government''), issued an Order to Show Cause to R & M Sales Company,
Inc. (Respondent), of Blountville, Tennessee. The Show Cause Order
proposed the revocation of Respondent's DEA Certificate of
Registration, 004413RAY, which authorizes it to distribute List I
chemicals, as well as the denial of any pending application to renew
its registration, on the ground that Respondent's continued
registration is ``inconsistent with the public interest.'' OTSC at 1
(citing 21 U.S.C. 823(h) & 824(a)(4)).
More specifically, the Show Cause Order alleged that during an
inspection for its initial registration, Respondent received copies of
DEA notices and cites to the Code of Federal Regulations pertinent to
listed chemical distributors. Id. Relatedly, the Order alleged that
``Mr. Mitchell was further advised by DEA personnel on proper record-
keeping procedures for a DEA registrant, including, but not limited to,
the requirement of maintaining records of the destruction of out of
date listed chemical products.'' Id.
Next, the Show Cause Order alleged that many of Respondent's
customers are convenience stores, gas stations and small independent
grocers located in the Cumberland Plateau area of Tennessee, which is
known for its problem with illicit methamphetamine production, and that
Respondent distributes pseudoephedrine and ephedrine products in both
tablet and gel-capsule form, which are precursor chemicals used in the
illicit manufacture of methamphetamine. Id. at 2-3.
The Show Cause Order further alleged that on June 8 and 9, 2005,
DEA Investigators (DIs) conducted an inspection of Respondent, during
which they performed an accountability audit of its handling of two
ephedrine products, MaxBrand 25 mg. ephedrine tablets (48-count
bottles) and Ephedrine Multi-Action 25 mg. (also 48-count bottles),
which revealed a shortage of each product. Id. at 3-4. The Order thus
alleged that Respondent ``failed to maintain complete and accurate
records of a regulated transaction as required by 21 CFR 1310.06(a).''
Id. at 4. The Order also alleged that Respondent ``stores List I
chemical products in its delivery trucks and/or trailers * * *
creat[ing] the potential for the diversion of List I chemicals.'' Id.
(citing 21 U.S.C. 823(h)(1) and 21 CFR 1309.71).
Next, the Show Cause Order alleged that based on its June 2005
inspection, DEA ``developed additional information regarding
[Respondent's] sale of large quantities of ephedrine to various
convenience stores and related establishments,'' and that these ``sales
were vastly in excess of the amounts of this over-the-counter product
needed to meet the medical and scientific needs of the community.'' Id.
The Order also alleged that Respondent engaged in 35 regulated
transactions with seven different customers in which it distributed 24-
count, 36-count, and 48-count bottles of ephedrine products, ``knowing
or having reason to believe that its product would be used in the
illicit manufacture of controlled substances in violation of 21 U.S.C.
841(d)(2).'' \1\ Id., at 4-6. In addition, the Order alleged that
Respondent failed ``to provide notification of `suspicious' activity
pursuant to 21 U.S.C. 830(b)(1)(A) and 21 CFR 1310.05(a)(1) with
respect to'' these 35 transactions. Id. Finally, the Order alleged that
DEA ``conducted [a] customer verification'' at the Fast Stop Covington,
a convenience store located in Covington, Virginia, during which the
owner informed a DI ``that he purchased one case (144 bottles) of
ephedrine products from [Respondent] every two to four weeks''; the
Order then alleged that these purchases were ``far in excess of
legitimate demand for these products.'' Id. at 6.
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\1\ The correct statutory citation is actually 21 U.S.C.
841(c)(2).
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On June 26, 2006, Respondent requested a hearing in the matter. ALJ
Ex. 2. The matter was assigned to a DEA Administrative Law Judge (ALJ),
who conducted a hearing in Arlington, Virginia on May 15 and 16, 2007.
During the hearing, both parties called witnesses to testify and
introduced documentary evidence. Following the hearing, both parties
submitted briefs containing proposed findings of fact, conclusions of
law, and argument.
On February 13, 2009, the ALJ issued her recommended decision
(ALJ), which concluded that Respondent's continued registration would
be inconsistent with the public interest. With respect to factor one--
the maintenance of effective controls against diversion--the ALJ found
that Respondent violated 21 CFR 1309.71(b) by storing listed chemicals
in trucks away from its premises, that it sold ``excessive quantities
of listed chemicals to some customers and failed to report suspicious
order[s] for these chemicals to DEA,'' and that it ``failed to
ascertain whether [its] customers purchased listed chemicals from other
distributors.'' Id. at 36. She therefore concluded that ``Respondent
does not maintain adequate controls against the diversion of the listed
chemicals it sells,'' and that ``this factor weighs in favor of a
finding that Respondent's continued registration would be inconsistent
with the public interest.'' Id.
With respect to factor two--Respondent's compliance with applicable
Federal, State and local law--the ALJ concluded that Respondent's
storage of chemicals away from its premises and its failure to report
suspicious transactions constituted violations of Federal law and DEA
regulations. Id. She also found that Respondent had failed to provide
prior notification to DEA of mail shipments of listed chemical
products, in violation of 21 CFR 1310.03(c), and that, having ``sold
excessive quantities of listed chemicals,'' Respondent further violated
21 U.S.C. 841(c)(2) in that it ``should have known that some of those
chemicals were likely to be diverted to the illicit manufacture of the
controlled substance methamphetamine.'' Id. at 36-37. The ALJ thus
concluded that this factor supported a finding that
[[Page 78735]]
Respondent's continued registration was inconsistent with the public
interest. Id. at 37.
Finding that neither Mr. Mitchell (Respondent's owner), nor any of
its employees had ever been convicted of a crime related to controlled
substances or listed chemicals (factor three), the ALJ concluded that
this factor ``weigh[ed] in favor of a finding that Respondent's
continued registration would not be inconsistent with the public
interest.'' Id. As to factor four--Respondent's past experience in the
distribution of listed chemicals--the ALJ referenced Respondent's
inadequate controls against diversion and its violations of applicable
Federal law and found that ``this factor weigh[ed] in favor of a
finding that Respondent's continued registration would not be
consistent with the public interest.'' Id.
As to the fifth factor--such other factors as are relevant to and
consistent with public health and safety--the ALJ found that ``it is
likely that chemicals purchased in Virginia are used to make
methamphetamine in Tennessee'' and that ``methamphetamine can be
produced from liquid-filled dosage form products as well as the sol[i]d
form products.'' Id. at 37-38. The ALJ thus reasoned that this factor
also supported the conclusion that Respondent's continued registration
would be inconsistent with the public interest. Id. at 38.
Based on her consideration of all the factors, the ALJ found ``that
a preponderance of the evidence * * * demonstrates that Respondent's
continued registration would not be consistent with the public
interest.'' Id. The ALJ thus recommended that Respondent's registration
be revoked and that all pending applications for renewal or
modification be denied. Id.
Neither party filed exceptions to the ALJ's decision. Thereafter,
the record was forwarded to me for final agency action.
Having reviewed the record as a whole, I hereby issue this Decision
and Final Order. I adopt the ALJ's findings of fact and conclusions of
law except as explained herein. I further find that Respondent violated
Federal law by knowingly selling drug paraphernalia. I further concur
with the ALJ's ultimate conclusion that Respondent's continued
registration would be inconsistent with the public interest and adopt
her recommendation that its registration be revoked and that any
pending applications be denied. I make the following findings.
Findings
Methamphetamine and 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 4, at 3. Pseudoephedrine is
approved for marketing as a decongestant; ephedrine (in combination
with guaifenesin) is approved for marketing as a bronchodilator.\2\ Id.
at 3-4. 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.\3\ Id.; see GX 4, at 7 (noting that
pseudoephedrine and ephedrine can be converted into methamphetamine in
a simple one-step reaction which can be accomplished with little or no
chemistry expertise).
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\2\ In July 2005, the FDA proposed to remove combination
ephedrine-guaifenesin products from its over-the-counter (OTC) drug
monograph and to declare them not safe and effective for OTC use.
See 70 FR 40232 (2005). This rulemaking remains pending.
\3\ In 1988, Congress amended the Controlled Substances Act
(CSA) by enacting the Chemical Diversion and Trafficking Act (CDTA),
which subjected bulk ephedrine to regulation. GX 5, at 7. Shortly
thereafter, law enforcement authorities encountered ephedrine
tablets instead of bulk ephedrine at illicit methamphetamine
laboratories. Id. In 1993, the CSA was again amended by the Domestic
Chemical Diversion Control Act of 1993 (DCDCA), which regulated
single-entity ephedrine products and required distributors of these
products to register. Id. Illicit methamphetamine manufacturers then
switched from single-entity ephedrine products to OTC combination
products containing ephedrine. Id. at 8. The DCDCA also led to the
large-scale diversion of pseudoephedrine tablets to the illicit
manufacture of methamphetamine. Id. In response, Congress enacted
the Comprehensive Methamphetamine Control Act of 1996 (CMCA), which
expanded regulatory control of lawfully marketed drug products
containing ephedrine, pseudoephedrine and phenylpropanolamine. Id.
at 8-9.
More recently, in 2006, Congress passed the Combat
Methamphetamine Epidemic Act of 2005 (CMEA). GX 3, at 5. Under the
CMEA, effective April 8, 2006, all tablet-form drug products
containing pseudoephedrine, ephedrine, and/or phenylpropanolamine
were required to be sold at retail in blister packs. Id. Also
effective April 8, 2006, the law imposed a daily transaction limit
of 3.6 grams of base product per person, per day, and a sales limit
of 9 grams of base product in a 30-day period. Id. As of September
30, 2006, these products must be placed behind the counter, and
purchasers must show identification and sign a logbook. Id.
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Methamphetamine ``is a powerful and addictive central nervous
system stimulant.'' \4\ T. Young Associates, Inc., 71 FR 60567 (2006).
Methamphetamine abuse has destroyed numerous lives and families and
ravaged communities. See Rick's Picks, L.L.C., 72 FR 18275, 18276
(2007). Moreover, because of the nature of the chemicals used to make
methamphetamine, its illicit manufacture poses a significant
environmental hazard, as it generates toxic chemical by-products. Tr.
17-18. Not only do the by-products cause damage when discarded into
waterways and public lands, the presence of chemical fumes during
methamphetamine production creates a potential for fires and
explosions. Id. at 18-19. Such illicit methamphetamine laboratories may
be of the ``mom and pop type,'' and be found in motels, homes, or
trunks of automobiles; the toxic fumes they emit also create a health
hazard for children who are exposed to them. Id.
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\4\ According to data compiled by the Drug Abuse Warning Network
(DAWN), between 1993 and 1999, medical examiners throughout the
country reported 4,593 methamphetamine related deaths. GX 4, at 9.
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As evidenced by the number of law enforcement seizures of illicit
meth. labs, the State of Tennessee, which is where Respondent is
located, has had a particularly high incidence of illicit
methamphetamine manufacturing. More specifically, in 2003, Tennessee
ranked seventh out of 47 reporting states, with 983 seizures. GX 3, at
4. In 2004, Tennessee ranked second of 48 reporting states, with 1,432
seizures. Id.
While following the passage of the Meth-Free Tennessee Act of 2005
\5\ (which became effective May 1, 2005), the number of illicit lab
seizures declined, Id. at 4-5; between January 1 and July 31, 2006,
Tennessee still had 249 illicit methamphetamine laboratory seizures
according to the statistics maintained by DEA's El Paso Intelligence
Center (EPIC).\6\ Tr. 32-33; GX 23. Moreover, according to data
compiled by the National Clandestine Laboratory Database of which I
take official notice, during 2008, law enforcement authorities reported
553 clandestine meth. lab incidents in Tennessee. U.S. Drug Enforcement
Administration, Maps of Methamphetamine Lab Incidents, available at
http://www.usdoj.gov/dea/concern/map_lab_seizures.html/
[[Page 78736]]
(visited October 6, 2009).\7\ The data also show that in 2008,
Kentucky, another State where Respondent distributes List I chemicals,
had 416 lab incidents, an increase from 294 the year before. Id. While
the majority of seized methamphetamine laboratories utilized tablet-
form pseudoephedrine and ephedrine products, DEA scientific studies
indicate that liquid and gel-cap formulations of these precursors can
easily produce methamphetamine when the appropriate reagents or
solvents are used. GX 23, at 8.
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\5\ The law limits the sale of tablet-form products containing
pseudoephedrine or ephedrine to pharmacists and licensed pharmacy
technicians. Id. at 5. In addition, all purchasers must be over 18
years of age, present photo identification, and sign a logbook. Id.
While the law limits the sale of the tablet forms of list I
chemicals, Tr. 90, it exempts gel capsules and liquid preparations.
Tenn. Code Ann. Sec. 39-17-431(b)(3).
\6\ By contrast, a Government witness acknowledged that the
number of seizures in Virginia is considerably lower than the number
in Tennessee. Tr. 33.
\7\ Under the Administrative Procedure Act (APA), an agency
``may take official notice of facts at any stage in a proceeding-
even in the final decision.'' U.S. Dept. of Justice, Attorney
General's Manual on the Administrative Procedure Act 80 (1947) (Wm.
W. Gaunt & Sons, Inc., Reprint 1979). In accordance with the APA and
DEA's regulations, Respondent is ``entitled on timely request, to an
opportunity to show to the contrary.'' 5 U.S.C. 556(e); see also 21
CFR 1316.59(e). Respondent can dispute the facts of which I take
official notice by filing a properly supported motion for
reconsideration within twenty days of service of this Order, which
shall begin on the date it is mailed.
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Respondent's Business
Respondent is a wholesale distributor of various products including
list I chemicals to convenience stores and gas stations located in
rural Appalachia in the States of Tennessee, Kentucky, Virginia, North
Carolina, and South Carolina. Tr. 353-54. Respondent was founded in
1972 by Mr. Joe Allen Mitchell, and was incorporated in 1990. Id. at
352-53. Mr. Mitchell is Respondent's President; the firm also employs
two route salesmen and an office manager.\8\ Id. at 306 & 358.
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\8\ Neither Mr. Mitchell, nor any of Respondent's employees, has
been convicted of a criminal offense. Tr. 357-59. Mr. Mitchell
further testified that he has never had reason to believe that any
current or former employees have diverted list I chemical products.
Id.
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Respondent first obtained a DEA registration in July 1999, and
currently holds Certificate of Registration, 004413RAY, which
authorizes it to distribute list I chemicals. GX 1. While the
certificate indicates that the registration expired on April 30, 2006,
on March 16, 2006, Respondent submitted a renewal application. GX 2.
Therefore, in accordance with the Administrative Procedure Act and DEA
regulations, I find that Respondent's registration has remained in
effect pending the issuance of this Final Order. See 5 U.S.C. 558(c);
21 CFR 1309.45.
The DEA Inspections
On June 29, 1999, a DEA Diversion Investigator (DI) visited
Respondent to conduct a pre-registration investigation.\9\ GX 25.
During the inspection, the DI provided Respondent with several
informational notices issued by DEA including a red notice; this notice
explains, inter alia, that combination ephedrine and pseudoephedrine
products are being used in the illicit manufacture of methamphetamine
and directs registrants to report ``suspicious orders'' to their local
DEA office.\10\ GX 16, at 1; Tr. 78-81; GX 25, at 1-2.\11\
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\9\ Respondent did not undergo another inspection until June
2005. Tr. 82-84.
\10\ The other notices included a green notice which informed
Mr. Mitchell that chemicals such as red and white phosphorus are
being used in the illicit manufacture of methamphetamine, and a
yellow notice, which informed him about the increasing theft of
pseudoephedrine and ephedrine products. See GX 16, at 2-3.
\11\ According to the DI who testified at the hearing, when he
conducted his close-out interview for the June 2005 inspection, Mr.
Mitchell indicated that he had never received the colored notices.
Tr. 130.
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In an affidavit, the DI who conducted the 1999 inspection testified
that he also provided Mr. Mitchell with ``copies of the Code of Federal
Regulation (CFR) cites relative to chemical distributors.'' GX 25, at
1. The DI further stated that he ``informed Mr. Mitchell that any
suspicious orders and thefts or losses must be reported to the DEA in
accordance with 21 CFR 1310.05'' and advised him as to ``the threshold
requirements and * * * the recordkeeping requirements pursuant to 21
CFR 1310.05 including reports of theft and loss, suspicious orders, and
destruction of damaged or out of date merchandise.'' Id. at 2.
In his testimony, Mr. Mitchell stated that he could not recall ever
having been ``apprised or informed of [the] requirement to report
suspicious orders'' and that he had thought that any amount ``over the
threshold limit would be suspicious.'' Tr. 385-86. Mr. Mitchell also
testified that he was ``not really'' aware that list I chemicals were
used in the manufacture of methamphetamine or that cigarette lighter
fluid was also used in the process. Id. at 376.\12\ In any event,
because the requirement to report suspicious orders is set forth in
both Federal law and DEA regulations, see 21 U.S.C. 830(b)(1); 21 CFR
1310.05(a); whether Mr. Mitchell was specifically notified of the
requirement (either in conversation with the DI or by being provided
with the red notice) is immaterial.\13\ See Fed. Crop Ins. Corp. v.
Merrill, 332 U.S. 380, 385 (1947) (``Just as everyone is charged with
knowledge of the United States Statutes at Large, Congress has provided
that the appearance of rules and regulations in the Federal Register
gives legal notice of their contents.'') (citation omitted); United
States v. International Min. & Chem. Corp., 402 U.S. 558, 562 (1971)
(``The principle that ignorance of the law is no defense applies
whether the law be a statute or a duly promulgated and published
regulation.'').
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\12\ Mr. Mitchell further testified that he took ``the attitude
that I have no control on what the retail public does with the
product.'' Tr. 404. This testimony suggests that he was aware of the
illicit uses of ephedrine products. Moreover, short of burying one's
head in the sand, it is hard to imagine how anyone engaged in the
distribution of these products (especially in Tennessee, given the
scope of the State's meth. problem) could be unaware that they are
subject to diversion into the illicit manufacture of
methamphetamine.
\13\ There is no dispute that DEA inspected Respondent on June
29, 1999. See GX 25; RX 33.
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Some time after the 1999 inspection, Respondent received a
facsimile of a DEA memo, ``Guidelines Regarding the Submission of
Reports,'' which contained a table of ``Threshold Quantities'' for
various formulations of ephedrine, pseudoephedrine, and
phenylpropanolamine products. RX 30, at 1, 5; Tr. 369. Mr. Mitchell
testified that ``[t]o me it was the Bible. It showed what the threshold
limits are. This is the information that I went by.'' Tr. 369.
According to Mr. Mitchell, he ``calculated the number of products that
[he] could sell, and [he] instructed [his] salespeople these are [the]
limits.'' Id.
DEA did not visit Respondent again until June 8-9, 2005, when two
DIs went to Respondent, met Mr. Mitchell and presented him with a
Notice of Inspection, which he signed indicating his consent to the
inspection. Tr. 84; GX 6, at 2. The DIs inspected Respondent's security
arrangements, reviewed its procedures for handling list I products,
examined its recordkeeping, and audited two list I products it
distributed.
According to one of the DIs, Respondent is located within a ``good-
sized building,'' which is surrounded by a chain-link fence with a
gate. Tr. 178. The building includes an area in the front where novelty
items are displayed, a warehouse in the rear, and offices. Id. at 86-
87. The building is protected by an alarm system, which the DIs tested
and found to be in working order. Id. at 123; GX 17. Moreover,
Respondent's enclosed yard area is lit with spotlights at night. Tr.
360, 363; RX 29.
Inside the warehouse, the DIs found that Respondent stored list I
chemical products in a caged area; the cage was, however, constructed
of chicken wire and could be easily compromised. Tr. 176. The DIs also
found that Respondent stored list I chemicals overnight in its delivery
trucks, which are parked within the chain-link perimeter. Id. at
[[Page 78737]]
124. The DI testified that he cited Respondent for a violation of DEA
regulations, because the trailer and delivery vehicles are ``mobile,
and they could easily be broken into.'' Id. Mr. Mitchell testified,
however, that he was willing to change Respondent's practice and have
the trucks parked inside the warehouse at night upon their return. Id.
at 364.
At the hearing, Mr. Mitchell acknowledged that it is Respondent's
practice to store list I chemical products overnight on the delivery
trucks on nights when the driver-salesmen are staying in hotels along
their routes. Id. at 397. In Respondent's twenty-day business cycle,
one driver-salesman stays overnight on his route approximately two
nights; the other driver-salesman stays overnight on his route
approximately three nights. Id. Mr. Mitchell did not express any
willingness to change this practice.
As noted above, during the inspection, the DIs reviewed
Respondent's recordkeeping and conducted an audit of two products: Max
Brand 25 mg. ephedrine 48-count bottles \14\ and Ephedrine Multi-Action
25 mg. ephedrine 48-count bottles. Tr. 105; GX 9. The audit found
shortages of 109 bottles of Max Brand and 275 bottles of Ephedrine
Multi-Action; these figures amounted to 1.44% and 2.19% of the total
quantity of each product handled during the audit period. GX 9; Tr.
108. According to one of the DIs, the shortage could have resulted from
recordkeeping errors such as unrecorded sales, from diversion, or from
loss. Id. at 108-09. The DI testified, however, that he did not
consider the shortages significant in terms of Respondent's total
sales. Id. at 201.
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\14\ Max Brand product has been found at seized methamphetamine
laboratories. Tr. 105, 380.
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During an interview, Mr. Mitchell stated that his list I chemical
products were ``fast movers'' and that Respondent's customer base for
the products consisted primarily of convenience stores and gas stations
located in eastern Tennessee, Virginia, Kentucky, West Virginia, and
both North and South Carolina.\15\ Id. at 90. Mr. Mitchell further
stated that seventy-five percent (75%) of Respondent's customers sell
list I products, and that thirty-five percent (35%) of Respondent's
``overall business'' is attributable to list I products. Id. at 89-90.
Mr. Mitchell estimated that at the time of the hearing, Respondent had
approximately 200 customers for all of its products and that its gross
profit \16\ from ephedrine sales was $200,000 annually.\17\ Id. at 426,
428.
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\15\ Approximately sixty-five percent (65%) of Respondent's list
I chemical business is conducted in Virginia, and about thirty
percent (30%) occurs in Tennessee, often along the border with
Virginia. Tr. 350-51, 354.
\16\ Gross profit is the mark-up minus distribution expenses
such as commissions, warehouse electricity, and the water bill, etc.
Tr. 429-30.
\17\ At the time of the hearing, Respondent did not carry
pseudoephedrine products. Tr. 428.
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During the inspection, the DIs also found that Respondent used
either the U.S. Postal Service or some other common carrier to make
deliveries of list I products. Id. at 90-91. According to a spreadsheet
which Mr. Mitchell gave the DIs, between July 20, 2004, and May 25,
2005, there were thirty-four instances in which Respondent shipped list
I products containing pseudoephedrine in this manner; the shipments
were sent to three stores and involved such products as Tylenol Sinus,
Advil Cold and Sinus, NyQuil, Dayquil, and Benadryl. GX 22; 21 U.S.C.
802(34)(K).
According to the DI, under Federal law and DEA regulations,
Respondent was required to file monthly reports with the Agency for
each of these transactions. Tr. 194; see 21 U.S.C. 830(b)(3); 21 CFR
1310.03(c). However, DEA never received any such reports from
Respondent. Id. at 194.
Also during the inspection, a DI received a handwritten document
from Respondent's office manager detailing the destruction of list I
chemical products by Respondent. Tr. 121; GX 14. According to this
document, Respondent burned twelve bottles of Multi-Action (60-count)
in March 2005 and 12 bottles of Mini-Thin (60-count) in January 2005.
GX 14. The document, which was dated and signed by Respondent's Office
Manager, states that while Respondent had ``destroyed [out-of-date]
merchandise in the past,'' ``the count would not be any greater than
what is listed above'' for the March and January 2005 destructions of
merchandise.\18\ Id.
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\18\ The Office Manager testified that she had made the notation
regarding the additional amounts that were destroyed apparently
because there had been additional destructions but there were no
records documenting them. Tr. 439-40; 446-48 The Office Manager
further maintained that this statement was not accurate and that she
made the statement because the DIs had told her that ``they needed
something.'' Id. at 445. In its brief, the Government does not cite
to any provision of the CSA or DEA regulations which specifically
require that the destruction of products be reported to the Agency.
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According to the DI, Respondent was required to give notification
``prior to the destruction,'' but did not do so. Tr. 121. Mr. Mitchell
testified that he had been unaware of the requirement that DEA be
notified of the destruction of list I chemical products. Id. at 365. He
also testified that he never contacted DEA with questions about the
destruction of list I chemical products. Id. at 392.
The DI further testified that during the inspections, he found
various instances of sales that he considered suspicious. Tr. 154. His
office subsequently compiled a record of these suspicious sales, which
was based on the quantity of product sold. Id. at 155; GX 24.
As found above, the DI who performed Respondent's pre-registration
inspection had discussed the necessity of reporting suspicious
transactions with Mr. Mitchell. Tr. 162. This DI did not, however,
testify at the hearing, and the DI who performed the 2005 inspection
did not know how, or if, that DI had defined ``suspicious orders.'' Id.
On cross-examination, the DI further testified that, while
``[t]here is no document'' specifying the criteria for determining
whether an order is suspicious,\19\ during the pre-registration
investigation, the DI ``explain[ed] the criteria.'' Id. at 161; see
also id. at 169. According to the DI, such criteria would include the
location of a customer, a sudden increase in a store's purchasing
patterns, and a store's sales in comparison to ``other stores in the
geographic area.'' \20\ Id. at 157-58. The DI further explained that
even if Respondent did not know the population in an area where one of
its customers is located, ``if you look at their sales in general'' and
``most of the sales are'' for twelve bottles, ``and then you got some
that are 100, 300, 300, 900, that sticks out to me.'' Id. at 160-61;
see also GX 21 (Respondent's DEA Log of distributions).
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\19\ DEA has, however, published criteria in the Chemical
Handlers Manual, as well as the Report of the Attorney General's
Suspicious Order Task Force. Although the Chemical Handlers Manual
was withdrawn because it is currently undergoing revisions to
reflect changes in Federal law, the Manual was in effect at the time
of the events at issue here. In addition, DEA has published its
```Know Your Customer' Policy,'' and the identification criteria
developed by the Suspicious Orders Task Force on its website. See
http://www.deadiversion.usdoj.gov/chem_prog/susp.htm.
\20\ The DI testified that ``any businessman is going to know
their competition and who they're selling to. They're going to know
what people want. For instance, Mr. Mitchell even told me himself
that these were fast movers and that he needed to carry these
products because if he didn't carry these products that other people
would sell those products for him if he didn't sell them.'' Tr. 158.
The DI also testified that ``the firm if they're selling in that
area, they're going to be there every few weeks. They're going to
know the area a lot more than I would as an investigator.'' Id. at
160. The Government did not, however, introduce any evidence about
comparable sales by Respondent's competitors.
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I agree with the DI that a store's location, its sales in
comparison to other stores, and an increase in its purchasing patterns
are relevant (but not the exclusive) criteria which a distributor
[[Page 78738]]
must consider in evaluating whether an order is suspicious. However, I
reject the DI's testimony that a distributor can be charged with
knowledge of the sales levels of list I products at those stores which
are not its customers. Moreover, I reject the DIs testimony that most
of Respondent's sales were for twelve bottles, noting that the exhibit
which he referred to in giving this testimony is obviously
incomplete.\21\
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\21\ To further explain, both Mr. Mitchell's testimony and
Respondent's records establish that the company had far more list 1
customers than GX 21 indicates. Moreover, at the bottom of each page
of the exhibit, there is a notation indicating the page number. See
GX 21. For example, the first page of the exhibit indicates that it
covers January 2004, and the bottom of the page includes the
notation: ``Page 4 of 5.'' Id. at 1. Yet the next page of the
exhibit indicates that it covers February 2004, and includes the
notation: ``Page 1 of 5.'' Id. at 2. The next two pages are for
March 2004; the pages include the notations: ``Page 1 of 5'' and
``Page 2 of 5,'' respectively. Id. at 3-4. This pattern is repeated
throughout the exhibit, which includes no more than two pages for
any one month. See generally GX 21.
---------------------------------------------------------------------------
The ALJ further noted that ``Respondent did not controvert [the
DI's] testimony that most if its customers purchased twelve or twenty-
four bottles per month.'' ALJ at 35. The ALJ ignored, however, that
Respondent introduce several exhibits showing its sales of various
products to its customers. Moreover, my review of this data suggests
that Respondent's sales were considerably greater than twelve to
twenty- four bottles per month.
At the hearing, Mr. Mitchell also claimed that he was unaware of
these criteria and that no one had told him that he required to monitor
his sales and report suspicious orders. Id. at 372. While Mr. Mitchell
testified that he was obliged to know how to identify a suspicious
order, he nonetheless insisted that DEA was responsible for giving him
information on suspicious orders. Id. at 394. Mr. Mitchell admitted,
however, that he had never requested this information from DEA.\22\ Id.
at 392, 394.
---------------------------------------------------------------------------
\22\ Mr. Mitchell maintained that he had on several occasions
refused to sell to people who had come to his warehouse seeking to
``buy ephedrine and ephedrine only.'' Tr. 433.
---------------------------------------------------------------------------
Mr. Mitchell testified that he thought that only those transactions
which exceeded the threshold amounts as indicated on the fax he
received (RX 30, at 3) were suspicious orders. Tr. 386. The DI
testified, however, that while the threshold amounts for sales to
retail establishments trigger reporting requirements, they are not
related to the determination of whether a given sale should be
considered suspicious. Id. at 168. In answer to the question, ``[i]s
there a relationship between these threshold amounts and what you term
suspicious sales?,'' the DI testified:
No, because of the extreme number of variables. You couldn't put
a number on suspicious sales in black and white because each
geographical area would be different. If DEA said if you sell over
1,000 that's suspicious, well, 1,000 in northern Virginia is quite
different from 1,000 being sold in Eastern Tennessee because there's
a larger customer base.
Id. at 168-69.
The DI concluded that in thirty-five instances, Respondent's
monthly sales constituted suspicious orders based solely on the
quantities; he also testified that these sales should have been
reported to DEA but were not. Id. at 154-55. The Government submitted
into evidence its compilation of the sales (GX 24), which shows the
following sales by store and number of bottles:
------------------------------------------------------------------------
Number
of
bottles
------------------------------------------------------------------------
Chevron Food Mart, Hazard, Kentucky
------------------------------------------------------------------------
January 2004.................................................. 324
February 2004................................................. 144
March 2004.................................................... 252
April 2004.................................................... 432
May 2004...................................................... 288
June 2004..................................................... 156
August 2004................................................... 228
September 2004................................................ 216
October 2004.................................................. 288
November 2004................................................. 240
December 2004................................................. 240
January 2005.................................................. 216
February 2005................................................. 216
March 2005.................................................... 396
April 2005.................................................... 216
May 2005...................................................... 180
------------------------------------------------------------------------
Fast Stop, Covington, Virginia
------------------------------------------------------------------------
September 2004................................................ 168
October 2004.................................................. 60
February 2005................................................. 156
March 2005.................................................... 144
April 2005.................................................... 156
May 2005...................................................... 144
------------------------------------------------------------------------
Fast Mart Appomattox, Appomattox, Virginia
------------------------------------------------------------------------
September 2004................................................ 84
October 2004.................................................. 144
December 2004................................................. 144
------------------------------------------------------------------------
Holiday Chevron, Marion, Virginia
------------------------------------------------------------------------
January 2005.................................................. 468
February 2005................................................. 708
March 2005.................................................... 948
April 2005.................................................... 900
May 2005...................................................... 984
------------------------------------------------------------------------
Garner Mountain Food Market, Isom, Kentucky
------------------------------------------------------------------------
May 2005...................................................... 108
------------------------------------------------------------------------
Glade Spring Chevron, Glade Spring, Virginia
------------------------------------------------------------------------
April 2005.................................................... 168
May 2005...................................................... 60
------------------------------------------------------------------------
Hillbilly Market, Bristol, Virginia
------------------------------------------------------------------------
April 2005.................................................... 324
May 2005...................................................... 144
------------------------------------------------------------------------
GX 24.
Notably, this compilation provides no information as to the number
of tablets in each bottle, the strength of the ephedrine in each
tablet, and the chemical composition of the ephedrine (hcl or sulfate).
Mr. Mitchell admitted, however, that Respondent's sales in March, April
and May of 2005 to the Holiday Chevron in Marion, Virginia, exceeded
the threshold amount of 1000 grams, which was then in effect, and which
made the distributions a regulated transaction under Federal law.\23\
Tr. 372-73; see 21 CFR 1310.04(f) (2004 & 2005). Mr. Mitchell further
testified that the salesman who handled the Holiday Chevron's account
had told him that the store's owner ``had two locations, and he
sometimes moved product from one place to the other.'' Tr. 380-81.
---------------------------------------------------------------------------
\23\ Following the enactment of the Combat Methamphetamine
Epidemic Act of 2005, the thresholds for combination ephedrine
products were eliminated. Accordingly, all transactions involving
ephedrine, ``regardless of size, are subject to recordkeeping and
reporting requirement as set forth in 21 CFR part 1310.'' 21 CFR
1310.04(g).
---------------------------------------------------------------------------
In addition, according to Respondent's compilation of its sales to
the Holiday Chevron, it sold even greater quantities of ephedrine
products to the store in the months of August (1272 bottles totaling
54,864 tablets), October (1284 totaling 55,440 tablets), and November
2005 (1248 totaling 55,872 tablets). See RX 39, at 4-6. Each of these
transactions exceeded the 1,000 gram threshold and yet none of them
were reported to the Agency.
The Government also relied on Respondent's DEA Log (GX 21), as
support for its contention that it had engaged in excessive sales. See
Tr. 143. Beyond the fact that the log is incomplete, the Government did
not use this data to calculate an average monthly sale of ephedrine
products per store or the statistical probability that any sale was
excessive.\24\
---------------------------------------------------------------------------
\24\ Apparently based on these transactions, the Government also
alleged that Respondent's ``sales were vastly in excess of the
amounts of this * * * product needed to meet'' legitimate medical
needs. Show Cause Order at 4. The Government did not, however,
introduce any studies to support this contention. Instead, the
Government apparently relies on findings made in other cases which
were based on expert testimony. See Gov. Br. at 22-23. However, in
Novelty Distributors, Inc., 73 FR 52689, 52693-94 (2008), I noted
that there were serious flaws in the methodology used by the
Government's expert in determining the level of sales which is
consistent with legitimate demand. I thus make no findings on the
issue.
---------------------------------------------------------------------------
[[Page 78739]]
As to the Holiday Chevron in Marion, Virginia, Mr. Mitchell
testified that he still sold listed chemical product to it and that the
store was visited twice a month. Tr. 413. He also testified that he
knew the store had purchased listed chemicals from another distributor
in the past, but maintained that he did not know if the store was still
doing so. Id.
Mr. Mitchell also admitted that he had not inquired as to whether
several of the stores identified in GX 24 were obtaining listed
chemicals from other distributors. Tr. 422 (Hillbilly Market); id. at
424 (Holiday Chevron). He then admitted that he knew that the Hillbilly
Market, the Fast Mart, and again the Holiday Chevron, had had accounts
with other distributors, and yet Respondent had continued to sell to
them. Id. at 422-25. He also admitted that his route salesmen had
``been told of other stores that receive this product by mail in large
quantities.'' Id. at 409.
More generally, Mr. Mitchell stated that he did not think that his
salesmen would, in soliciting a new customer, ask the customer whether
they were purchasing listed chemical products from another distributor.
Id. at 430-31. He also acknowledged that a customer's purchasing of
list I chemicals from another distributor had never affected
Respondent's decision to sell to that customer and that Respondent
would continue to sell to it. Id. at 408. According to the DI, a
retailer's having multiple distributors for list I chemical products
was typical for sales in the illicit market. Id. at 139.
After the on-site inspection, the DIs visited two of the stores to
which Respondent distributed list I products (David's Market in
Bristol, Tennessee, and the Fast Stop in Covington, Virginia) to verify
that they were customers. Tr. 134. The manager at David's Market, Ms.
A.O., provided copies of receipts which matched Respondent's sales
records. Id. at 135. According to the DI, Ms. A.O. indicated that the
list I chemical products sold quickly and, because she saw bad things
happening in the market's parking lot, she believed people were buying
the products for the ``wrong reason.'' Id. at 135-36. As to the parking
lot, Ms. A.O. stated that she had found what looked like a syringe and
that she witnessed what she believed to be drug dealing taking place
there. Id. at 136. According to Ms. A.O., David's Market also received
list I chemical products from another distributor. Id. at 138-39.
At the Fast Stop, the owner indicated initially that he received
list I chemical products every two to four weeks. Tr. 141.
Subsequently, however, the owner told another DI that he only ordered
such products every six to nine weeks. Id.
During the June 2005 investigation, the testifying DI asked Mr.
Mitchell whether he had ever considered giving up the list I chemical
products business, given its relationship to the illicit manufacture of
methamphetamine. Id. at 131. Mr. Mitchell responded that ``he was doing
a pretty good business selling these products and was not interested in
giving up the DEA registration at that time.'' \25\ Id.
---------------------------------------------------------------------------
\25\ Mr. Mitchell testified that, although the Meth-Free
Tennessee Act reduced his sales of ephedrine, even soft-gel
formulations of List I chemical products were ``fast movers.'' Tr.
388-89, 418.
---------------------------------------------------------------------------
Moreover, during the June 2005 inspection, the DI observed that
Respondent was selling ``Love Roses,'' a product which is ``a small
glass cylinder that contains a plastic rose inside it,'' which is three
to four inches in length and which has a removable cork at the ends.
Tr. 118. The DI testified that this product is ``commonly used'' as a
crack pipe, that it does not have a legitimate purpose, and that it is
drug paraphernalia.\26\ Id. at 191.
---------------------------------------------------------------------------
\26\ The DI maintained that the product does not have a
legitimate purpose. Tr. 191. When asked by Respondent's counsel if
he had ``ever give[n] a loved one a rose?,'' the DI answered: ``Not
a plastic rose that's three inches tall in a plastic vial for $ 1
from the convenience store.'' Id.
---------------------------------------------------------------------------
The DI further testified that he told Mr. Mitchell what the product
was used for and that Mr. Mitchell found this information surprising.
Id. at 192. While Mr. Mitchell testified that he was unaware that Love
Roses were used as drug paraphernalia until the 2005 inspection, id. at
375; he admitted that Respondent was still selling the product as of
the date of the hearing. Id. at 390.
On cross-examination, Mr. Mitchell testified that he did not know
why the pill forms of ephedrine were ``moving as fast as they were.''
Id. at 403. When asked whether he had ``ever pause[d] to think that
these products could be'' resold ``to the illicit market?''; Mr.
Mitchell answered: ``You know I guess I've taken the attitude that I
have no control on what the retail public does with the [list I
chemical] product.'' Id. at 404.
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 any 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 [registrant] of effective controls
against diversion of the listed chemicals into other than legitimate
channels;
(2) Compliance by the [registrant] with applicable Federal,
State, or local law;
(3) Any prior conviction record of the [registrant] under
Federal or State laws relating to controlled substances or to
chemicals controlled under Federal or State law;
(4) Any past experience of the [registrant] 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 may be 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 to revoke an existing registration
or to deny an application to renew a registration. Robert A. Leslie, 68
FR 15227, 15230 (2003). 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); see also Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005).
In this matter I have considered all of the statutory factors.
While I find that several of the allegations are not proved, I conclude
that the record as a whole establishes that Respondent does not
maintain effective controls against diversion (factor one) and that
Respondent violated both the CSA's requirement to report suspicious
orders and its prohibitions against the knowing sale of drug
paraphernalia (factor two). While I have also considered Respondent's
(and its employees') lack of criminal convictions, and its experience
in distributing chemicals,\27\ I
[[Page 78740]]
nonetheless conclude that factors one and two make out a prima facie
case that Respondent's continued registration ``is inconsistent with
the public interest.'' 21 U.S.C. 823(h). I further conclude that
Respondent has not adequately addressed the violations of law and the
deficiencies identified in its diversion controls, and that therefore,
it has not rebutted the Government's prima facie case. Accordingly,
Respondent's registration will be revoked and its pending application
to renew its registration will be denied.
---------------------------------------------------------------------------
\27\ I acknowledge that Respondent has been registered since
1999. However, as explained below, because the record establishes
that Respondent has violated several provisions of Federal law and
does not maintain effective controls against diversion, I conclude
that it is not necessary to make findings under this factor.
---------------------------------------------------------------------------
Factor One--Maintenance of Effective Controls Against Diversion
Under DEA precedent and regulations, this factor encompasses a
variety of considerations. See Novelty Distributors, Inc., 73 FR 52689,
52698 (2008). These include, inter alia, the adequacy of the
registrant's/applicant's security arrangements, the adequacy of its
recordkeeping and reporting, and its distribution practices. Id.
Moreover, a distributor must exercise a high degree of care in
monitoring its customer's purchases. See Sunny Wholesale, Inc., 73 FR
57655, 57663 (2008). In evaluating a registrant's security controls and
procedures, DEA regulations direct that the Agency consider numerous
factors including ``[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).
In its brief, the Government does not contend that Respondent's
physical security arrangements at its registered location are
inadequate. See Gov. Br. at 22-24. While I note the DI's testimony that
the cage in which the products are stored in its warehouse could be
easily breached, I further note that Respondent's facility is protected
by an alarm system and its perimeter is surrounded by a chain link
fence. I thus agree with the ALJ that Respondent provides adequate
physical security for those products which are kept inside the
warehouse.
The record, however, also establishes that Respondent has a
practice of storing list I products on its delivery trucks overnight
(which do not appear to have alarms), both on the night before a
salesman leaves on his route, as well as on those nights when a
salesman stays in a hotel. DEA has previously held that this practice
does not provide adequate security for list I products. As I have
previously explained, when products are left overnight on trucks, a
thief does not have to spend time offloading the products, but can
steal the entire vehicle with its cargo, and do so in a manner of
seconds. See Novelty Distributors, Inc., 73 FR 52689, 52698 (2008),
pet. for review denied, 571 F.3d 1176 (D.C. Cir. 2009); McBride
Marketing, 71 FR 35710, 35711 (2006).
During the inspection, the DIs further found that Respondent had
shortages of 109 bottles of Max Brand and 275 bottles of Ephedrine
Multi-Action. While the DI testified that he did not consider the
shortages to be significant in terms of Respondent's total sales of the
products,\28\ it is still a factor to be considered in assessing the
adequacy of its controls against diversion.
---------------------------------------------------------------------------
\28\ It is also noted that the audit involved only two products
and covered only a five-month period. See GX 9.
---------------------------------------------------------------------------
Relatedly, the record establishes that Respondent destroyed
products on at least two occasions. GX 14. While Respondent was not
required to report the destructions to DEA under Federal law or Agency
regulations, it did not make a contemporaneous record of either
destruction. Id. Given the frailties of human memory, the creation of a
contemporaneous record is essential to maintaining an accurate
accounting of the products that were destroyed.
The ALJ further found that Respondent does not maintain effective
controls against diversion because some of its customers purchase list
I products from other distributors and Respondent's personnel do not
ask its customers whether they are purchasing from other distributors.
ALJ at 36. While a customer can seek out another supplier for a
legitimate business reason (i.e., because it offers a lower price),
when the store is actively buying from multiple distributors, the
distributor has an obligation to determine whether the quantities it is
obtaining are excessive in relation to what the distributor knows about
typical purchasing patterns of stores serving similar markets, and if
so, not sell to the store. Mr. Mitchell's failure to instruct his
salesmen to make these inquiries of his customers, as well as his
admission that he continued to sell to several stores even though he
knew that they were purchasing listed chemical products ``by mail in
large quantities'' from other distributors, Tr. 409, provides further
support for a finding that Respondent does not maintain effective
controls against diversion. See Holloway Distributing, 72 FR 42118,
42124 (2007) (``[A] registrant has an affirmative duty to protect
against diversion by knowing its customers and the nature of their list
I chemical sales * * *. A registrant cannot avoid the requirements of
Federal law by instructing its sales force to ask no questions of its
customers and thereby be deliberately ignorant of diversion.'').
I thus conclude that Respondent does not maintain effective
controls against diversion. This finding provides reason alone to
conclude that Respondent's continued registration is inconsistent with
the public interest.\29\
---------------------------------------------------------------------------
\29\ In its post-hearing brief, the Government argued that I
should apply the ``market analysis performed by a DEA expert in the
field regarding the `normal expected sales range' of listed chemical
products by `non-traditional retailers.''' Gov't Br. at 22 (citing
Holloway Distributing, 72 FR at 42123). Conceding that ``the
Government did not present a market study in these proceedings,''
the Government nonetheless argued that I apply the ``findings of
marketing expert Jonathan Robbin who found that `* * * the expected
sales range for combination ephedrine products at a convenience
store is `between $0 and $25, with an average of $12.58 per
month.''' Id. at 23 (citing Planet Trading, Inc. d/b/a United
Wholesale Distributors, Inc., 72 FR 11055, 11056 (2007)). However,
in Novelty Distributors, I found that the methodology for
determining the normal expected sales range for convenience stores'
marketing of ephedrine products was unreliable. 73 FR at 52693-94.
Accordingly, I reject the Government's argument.
---------------------------------------------------------------------------
Factor Two--Respondent's Compliance With Applicable Laws
At the hearing, the Government put on evidence suggesting four
different ways in which Respondent violated Federal law.\30\ More
specifically, the Government alleged that: (1) It was required to
report the transactions which it shipped by mail, (2) it failed to
report suspicious transactions, (3) it sold drug paraphernalia, and (4)
it knowingly or intentionally distributed ephedrine having reasonable
cause to believe the product would be used in the illicit manufacture
of methamphetamine.
---------------------------------------------------------------------------
\30\ As discussed under factor one, the Government also elicited
testimony from an Investigator to the effect that Respondent was
required to report the destruction of List I products. In its brief,
the Government does not cite this testimony as evidence relevant to
any of the public interest factors. See Gov. Br. 22-29. More
importantly, a destruction of a listed chemical does not fall within
any of the circumstances which trigger the obligation to report to
the Agency under Federal law or DEA regulations. See 21 U.S.C.
830(b); 21 CFR 1310.05(a). As explained above, a destruction should,
however, be documented in the registrant's records.
---------------------------------------------------------------------------
In her decision, the ALJ concluded that Respondent violated Federal
law by failing to report suspicious transactions,\31\ by failing to
file monthly
[[Page 78741]]
reports of transactions which were shipped by mail, and by knowingly
distributing listed chemicals when it had reasonable cause to believe
the products would be diverted. ALJ at 36-37. The ALJ did not, however,
address whether Respondent violated Federal law by selling drug
paraphernalia.
---------------------------------------------------------------------------
\31\ While the ALJ cited Respondent's failure to report
suspicious transactions under both factors one and two, her
reasoning was provided under factor one. See ALJ at 35-37. Because
this requirement is directly imposed by statute, I discuss it under
factor two. However, whether the requirement is discussed under
factor one or two is not significant as what matters is the extent
of the violations, if any.
---------------------------------------------------------------------------
Respondent's Failure To Report Mail-Order Transactions
As found above, on thirty-four occasions between July 20, 2004, and
May 25, 2005, Respondent shipped list I products containing
pseudoephedrine to three stores using either the mail or some other
common carrier. GX 22. Moreover, it is undisputed that Respondent did
not file reports for any of the shipments. Based on these findings, the
ALJ concluded that Respondent violated DEA regulations, reasoning that
``21 CFR 1310.03(c) at relevant times required handlers of listed
chemicals to file monthly reports of transactions by mail.'' ALJ at 36-
37.
The CSA specifically requires that:
[e]ach regulated person who engages in a transaction with a
nonregulated person * * * which--
(i) involves ephedrine, pseudoephedrine, or phenylpropanolamine
(including drug products containing these chemicals); and
(ii) uses or attempts to use the Postal Service or any private
or commercial carrier;
shall, on a monthly basis, submit a report of each such
transaction conducted during the previous month to the Attorney
General in such form, containing such data, and at such times as the
Attorney General shall establish by regulation.
21 U.S.C. 830(b)(3)(B); see also 21 CFR 1310.03(c) (``Each regulated
person who engages in a transaction with a nonregulated person * * *
that involves ephedrine [or] pseudoephedrine * * * including drug
products containing these chemicals, and uses or attempts to use the
Postal Service or any private or commercial carrier must file monthly
reports of each such transaction * * * .'').\32\
---------------------------------------------------------------------------
\32\ Unless otherwise noted in this discussion, all citations
and quotations to the U.S. Code and DEA regulations are to the
statute and regulations that were in effect at the time of the
conduct at issue and as they were then numbered.
---------------------------------------------------------------------------
The CSA further defines ``[t]he term `regulated person' '' to mean
in relevant part, ``a person who manufactures, distributes, imports, or
exports a listed chemical.'' 21 U.S.C. 802(38). Moreover, the Act
defines ``[t]he term `distribute' '' to mean ``to deliver (other than
by administering or dispensing) * * * a listed chemical.'' 21 U.S.C.
802(11).
Respondent is thus clearly a ``regulated person'' under the Act and
subject to the mail order reporting provision. However, as the text of
the mail order reporting provision makes clear, the reporting
requirement does not apply to all mail order transactions which a
regulated person engages in, but rather, only those it engages in
``with a nonregulated person,'' 21 U.S.C. 830(b)(3)(B), a term which
neither Congress nor the Agency have defined. See generally 21 U.S.C.
802; 21 CFR 1300.02. The critical question therefore is whether a
retail store is a ``nonregulated person'' under this provision.
Neither the Government in its brief, nor the ALJ in her decision,
even acknowledge the statutory text, let alone address this issue. See
generally Gov. Br. at 22-29; ALJ at 36-37. Moreover, there are numerous
reasons that support the conclusion that retail stores were--even prior
to the enactment of the CMEA--regulated persons under the Act.
The first reason is that a retail store which sells listed
chemicals engages in distribution as that term is defined by the Act--
it delivers (other than by administering or dispensing) a chemical to a
customer. See 21 U.S.C. 802(11). Relatedly, Congress defined the term
``retail distributor'' to ``mean a grocery store, general merchandise
store, drug store, or other entity or person whose activities as a
distributor relating to pseudoephedrine or phenylpropanolamine products
are limited almost exclusively to sales for personal use * * * either
directly to walk-in customers or in face-to-face transactions by direct
sales.'' \33\ Id. section 802(46)(A); see also 21 CFR 1300.02(b)(29).
It is thus clear that under the Act, retail sales constitute
distribution.
---------------------------------------------------------------------------
\33\ While this version does not list ephedrine, the statute was
subsequently amended to include this chemical. See 21 U.S.C.
802(49)(A).
---------------------------------------------------------------------------
Second, while DEA has exempted from registration list I retail
distributors ``whose activities * * * are limited to the distribution
of below-threshold quantities of a pseudoephedrine * * * or combination
ephedrine product * * * in a single transaction to an individual for
legitimate medical use,'' 21 CFR 1309.24(e), DEA regulations further
provided that ``[a]ny person exempted from the registration requirement
under this section shall comply with the security requirements set
forth in Sec. 1309.71-1309.73 of this part and the record-keeping and
reporting requirement set forth under parts 1310 and 1313 of this
chapter.'' Id. Sec. 1309.24(k). A retail distributor was thus (and
remains) subject to Agency regulations and cannot be deemed to be a
``nonregulated person'' under 21 U.S.C. 830(b)(3)(B).
This conclusion finds further support in the exceptions which
Congress created to the reporting requirement. See id. section
830(b)(3)(D). Among these is the exception for ``[d]istributions of
drug products by retail distributors that may not include face-to-face
transactions to the extent that such distributions are consistent with
the activities authorized for a retail distributor as specified in
section 802(46).'' Id. section 830(b)(3)(D)(ii). Because the reporting
requirement only applies to regulated persons, there would be no need
to exempt retail distributors if they were nonregulated persons.
Accordingly, I am compelled to reject the ALJ's conclusion that
Respondent violated Federal law when it failed to report the mail order
transactions.
Respondent's Failure To Report Suspicious Transactions
The Government argued, and the ALJ concluded, that Respondent
violated Federal law and DEA regulations by failing to report
suspicious transactions. More specifically, the ALJ apparently found
that Respondent violated Federal law by failing to report each of the
thirty-five transactions identified in Government Exhibit 24. See ALJ
at 35-36. She further rejected Respondent's contention that this
requirement only applies to sales which exceed the threshold amount.
Id. at 36; see also Gov. Br. at 23 (asserting that DEA has rejected the
defense that a registrant is not required to report suspicious
transactions which are below the threshold).
Adopting the Government's reasoning, the ALJ explained that:
First, * * * a sale of an over-the-threshold amount of listed
chemical is subject to recordkeeping and reporting requirements, and
may or may not be a suspicious transaction. Likewise, a sale of a
quantity less than the threshold amount may nonetheless be
suspicious. Second, and more importantly, an order from a small
retailer for hundreds of bottles of a product that is regulated
precisely because it can be used for illicit purposes should
immediately cause the distributor of that product concern as to why
his customer is ordering such quantities.
ALJ at 35-36.
Here again, neither the ALJ in her decision, nor the Government in
its brief, even acknowledge the text of the relevant statute, 21 U.S.C.
830(b)(1). See id. at 35-37. The statute provides in pertinent part:
(1) Each regulated person shall report to the Attorney General,
in such form and manner as the Attorney General shall prescribe by
regulation--
[[Page 78742]]
(A) any regulated transaction involving an extraordinary
quantity of a listed chemical, an uncommon method of payment or
delivery, or any other circumstance that the regulated person
believes may indicate that the listed chemical will be used in
violation of this subchapter.
21 U.S.C. 830(b)(1)(A) (emphasis added). See also 21 CFR 1310.05(a)(1)
(``Each regulated person shall report to the Special Agent in Charge of
the DEA Divisional Office for the area in which the regulated person
making the report is located, as follows: * * * Any regulated
transaction involving an extraordinary quantity of a listed chemical,
an uncommon method of payment or delivery, or any other circumstance
that the regulated person believes may indicate that the listed
chemical will be used in violation of this part.'').
Notably, Congress did not require that any transaction ``involving
an extraordinary quantity of a listed chemical'' (or involving the
other two circumstances set forth in this paragraph) be reported by a
regulated person. 21 U.S.C. 830(b)(1)(A). Rather, it required the
reporting only of a ``regulated transaction involving an extraordinary
quantity of a listed chemical,'' or a regulated transaction involving
the other two circumstances. Id. (emphasis added)
Moreover, Congress defined ``[t]he term `regulated transaction' ''
to mean ``a distribution, receipt, [or] sale * * * of, a listed
chemical, or if the Attorney General establishes a threshold amount for
a specific listed chemical, a threshold amount, including a cumulative
threshold amount for multiple transactions * * * of a listed
chemical[.]'' Id. Sec. 802(39)(A). With respect to the combination
ephedrine products at issue here, DEA regulations in effect at the time
of the transactions set a threshold of 1000 grams ``within a calendar
month'' for distributions between Respondent and a retail store
customer.\34\ 21 CFR 1310.04(f) & (f)(ii) (2004) & (2005). Accordingly,
only those cumulative transactions which met the 1000 gram threshold
within a given calendar month constituted regulated transactions for
the purpose of the requirement to report a suspicious order under 21
U.S.C. 830(b)(1).
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\34\ Under the regulation, whether the threshold had been
reached (and a regulated transaction had occurred) was based on
``the cumulative amount for multiple transactions within a calendar
month.'' 21 CFR 1310.04(f). The thresholds were eliminated by the
Combat Methamphetamine Epidemic Act of 2005. See USA Patriot
Improvement and Reauthorization Act of 2005, Pub. L. 109-177,
section 712(b), 120 Stat. 192, 264 (2006). For all transactions
occurring after the effective date of the legislation, ``the size of
the transaction is not a factor in determining whether the
transaction meets the definition of a regulated transaction * * *.
All such transactions, regardless of size, are subject to
recordkeeping and reporting requirements as set forth in * * * part
[1310] and notification provisions as set forth in part 1313 * *
*.'' 21 CFR 1310.04(g).
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As noted above, the ALJ held that all of the transactions
identified by the Government in its exhibit 24 were suspicious orders
which Respondent was required to report. The ALJ's holding was based
entirely on policy considerations and was not grounded in the relevant
statutory texts. While these policy considerations are undoubtedly
valid, they cannot trump the clear and unambiguous text of the statute.
As the Supreme Court has explained: ``When a court reviews an agency's
construction of the statute it administers * * * [i]f the intent of
Congress is clear, that is the end of the matter; for the court, as
well as the agency, must give effect to the unambiguously expressed
intent of Congress.'' Chevron, U.S.A., Inc., v. NRDC, Inc., 467 U.S.
837, 842-43 (1984). In short, on this issue, Congress made the policy
determination when it limited the reporting requirement to those
transactions which met the definition of a ``regulated transaction.''
Mr. Mitchell admitted, however, that the sales his firm made in
March, April and May 2005 to the Holiday Chevron in Marion, Virginia
exceeded the threshold.\35\ The record establishes that these sales
were for 948, 900, and 984 bottles in the respective months. In
addition, Respondent's evidence further showed that it sold even
greater quantities, and which exceeded the threshold, in August (1272
bottles), October (1284 bottles), and November (1248 bottles) of 2005.
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\35\ In light of Mr. Mitchell's admission, I deem waived any
argument that the sales did not exceed the 1000 gram threshold.
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According to Respondent's brief, ``[a]ny sales above the[]
`threshold' quantities * * * [Mr.] Mitchell considered `suspicious' and
any quantity less than the computed `threshold' [Mr.] Mitchell did not
consider suspicious.'' Resp. Br. at 4 (proposed findings of fact at
]8). Notwithstanding Mr. Mitchell's acknowledgement that sales above
threshold were suspicious, he did not report any of the six sales to
DEA.
Moreover, while I reject the ALJ's finding that most of
Respondent's customers were purchasing only twelve to twenty-four
bottles, I conclude that these six sales ``involved [an] extraordinary
quantity'' based on both the absolute amount of each sale and that the
sales were approximately double to nearly triple what Respondent had
sold to this store in a previous month (468 bottles). Any responsible
person would have recognized that these sales were suspicious and Mr.
Mitchell admitted that they were.\36\ Accordingly, these sales involved
an ``extraordinary quantity'' and were subject to reporting under
section 830(b)(1)(A).\37\ I therefore hold that Respondent violated
Federal law and DEA regulations by failing to report these sales.
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\36\ In her discussion of Respondent's obligation to report
suspicious orders, the ALJ explained that ``Respondent did not
controvert [the DI's] testimony that most of its customers purchased
twelve or twenty-four bottles per month.'' ALJ at 35. A review of
Respondent's evidence suggests that its average monthly sale was
considerably more. Respondent did not, however, provide any
statistical analysis to show what its average sale was.
\37\ I note Respondent's evidence that the owner of the Holiday
Chevron was purportedly buying for two stores. See RX 53. This
contention is legally irrelevant as the transactions occurred with a
single person. Significantly, while Congress exempted ``a domestic
lawful distribution in the usual course of business between agents
or employees of a single regulated person'' from the definition of a
regulation transaction, it did not exempt the distribution to that
regulated person. 21 U.S.C. 802(39)(A) & (A)(i). Indeed, were such
transactions exempt from reporting, the purpose of the statute would
be seriously undermined.
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Alleged Violations of 21 U.S.C. 841(c)(2)
The Government also alleged that Respondent violated 21 U.S.C.
841(c)(2),\38\ because ``Respondent had `reasonable cause to believe'
that the large quantities of ephedrine products it sold to Fast Stop
Covington, Chevron Food Mart[,] * * * [and] Holiday Chevron * * * would
be used to manufacture methamphetamine.'' Gov. Br. at 26. The
Government further argues that it ``is not required to prove that the
products were actually used to manufacture methamphetamine,'' and that
there is no quantity threshold which exempts a merchant from criminal
liability under the statute. Id. (citing cases). The ALJ agreed with
the Government and found that Respondent violated 21 U.S.C. 841(c)(2)
because it sold ``excessive quantities of listed chemicals'' and ``it
should have known that some of those chemicals were likely to be
diverted to the illicit manufacture of * * * methamphetamine.'' ALJ at
37.
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\38\ This provision makes it a felony for ``[a]ny person who
knowingly or intentionally * * * possesses or distributes a listed
chemical knowing, or having reasonable cause to believe, that the
listed chemical will be used to manufacture a control substance
except as authorized by'' the CSA. 21 U.S.C. 841(c)(2).
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The Government is correct that it need not show that the ephedrine
Respondent distributed was actually used to manufacture methamphetamine
and that the then-existing threshold that triggered reporting
requirements did not
[[Page 78743]]
create a safe harbor which allowed a registrant to distribute a listed
chemical product in disregard for the ultimate disposition of those
products. Holloway Distributing, 72 FR 42118, 42124 (2007) (collecting
cases); see also United States v. Kim, 449 F.3d 933, 941 (9th Cir.
2006) (`` `[t]here is no quantity threshold exempting a merchant from
criminal liability under section 841(c)(2).' '').
The Government ignores, however, that to establish a violation of
this provision it must show that Respondent (or its principal) knew
facts that provided ``reasonable cause to believe'' that the ephedrine
it distributed would be used to illicitly manufacture methamphetamine.
Holloway, 72 FR at 42124. As one court of appeals has explained, the
Government must show that Respondent ``knew, or knew facts that would
have made a reasonable person aware, that the [ephedrine] would be used
to make methamphetamine.'' United States v. Kaur, 362 F.3d 1155, 1158
(9th Cir. 2004).
In support of her conclusion that Respondent was selling excessive
quantities, the ALJ cited the DI's testimony that Respondent was
selling only twelve to twenty-four bottles a month to most of its
customers (Tr. 143). The DI's testimony was based on his review of an
exhibit (GX 21), which purports to be a record of Respondent's monthly
sales to each customer. The record is, however, clearly incomplete and
was missing data (for every month no less) for most of Respondent's
customers. While it is unclear why this record is incomplete, what is
clear is that this evidence is not reliable and does not satisfy the
substantial evidence test. See 5 U.S.C. 556(d) (``A sanction may not be
imposed or rule or order issued except on consideration of the whole
record or those parts thereof cited by a party and supported by and in
accordance with the reliable, probative, and substantial
evidence.'').\39\ I therefore conclude that the Government has not met
its burden and that this allegation is not proved.
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\39\ Moreover, while months before the hearing, Respondent
provided the Government with additional sales records, the
Government offered no statistical analysis of the data to show why,
based on its sales level alone, Respondent had ``reasonable cause to
believe'' that the products it distributed would be used to
manufacture methamphetamine. 21 U.S.C. 841(c)(2).
---------------------------------------------------------------------------
Alleged Sales of Drug Paraphernalia
The Government further alleged that Respondent sold Love Roses, a
product consisting of a small glass tube which contains a plastic
flower and has removable ends. It is undisputed that this item is
``commonly used'' to smoke crack cocaine, and that it has no legitimate
purpose. Tr. 191. It is also undisputed that during the June 2005
inspection, the DI told Respondent that this item was used to smoke
crack and yet Respondent continued to sell the product and was still
doing so at the time of the hearing. The ALJ did not, however, address
the allegation in her decision. See ALJ at 36-38.
Under Federal law, ``[i]t is unlawful for any person * * * to sell
or offer for sale drug paraphernalia.'' 21 U.S.C. 863(a). As relevant
here, this statute defines ``[t]he term `drug paraphernalia' [to]
mean[] any equipment, product, or material of any kind which is
primarily intended or designed for use in * * * ingesting, inhaling, or
other introducing into the human body a controlled substance,
possession of which is unlawful under the'' CSA. Id. section 863(d).
Section 863(d) further provides that drug paraphernalia ``includes
items primarily intended or designed for use in ingesting, inhaling, or
otherwise introducing marijuana, cocaine, hashish, hashish oil, PCP,
methamphetamine, or amphetamines into the human body, such as * * *
metal, wooden, acrylic, glass, stone, plastic, or ceramic pipes with or
without screens, permanent screens, hashish heads, or punctured metal
bowls.'' Id. section (d) & (1).
The Supreme Court has explained that Section 863(d) ``identifies
two categories of drug paraphernalia: those items `primarily intended *
* * for use' with controlled substances and those items `designed for
use' with such substances.'' Posters `N'' Things, Ltd. v. United
States, 511 U.S. 513, 518 (1994).\40\ 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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\40\ While Posters `N' Things addressed the prior version of the
Federal drug paraphernalia statute, the Court explained that ``[t]he
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 remains lawful authority.
---------------------------------------------------------------------------
In construing the ``primarily intended * * * for use'' language,
the Court acknowledged that the phrase ``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 863 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'')).\41\
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\41\ See also 511 U.S. at 524 n.13 (quoting 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' '') and 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.'
'')).
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The evidence establishes that a Love Rose's likely use is to smoke
illicit drugs, and that Respondent sold this item knowing that they
were ``likely to be used with illegal drugs.'' Id. As explained above,
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; that the pipe contains a flower does not make it any less a
pipe. Tr. 118; See also 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).
Furthermore, even if the Love Rose does not fall strictly within
the ``list of * * * items constituting per se drug
[[Page 78744]]
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.
The DI testified that Love Roses are ``commonly used'' to smoke crack
and that the product has no legitimate purpose.\42\ Tr. 191; see also
Gregg & Son Distributors, 74 FR 17517, 17522 (2009) (quoting 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 testified as to how
the product is adapted for use to smoke crack by removing the cork. Tr.
118.
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\42\ 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 inside a small glass pipe. Mr. Mitchell's testimony proved this
point. When asked on cross-examination what he understood the
product was used for, Mr. Mitchell initially testified: ``Well they
take them home to their wives to keep from getting beat up.'' Tr.
390-91. Before the Government's counsel could even ask his next
question, Mr. Mitchell added: ``I don't know. I'd get beat up if I
took one home.'' Tr. 391. Mr. Mitchell then acknowledged that he had
been told that the product was used as drug paraphernalia. Id.
---------------------------------------------------------------------------
Moreover, it is undisputed that Mr. Mitchell was told by the DI
during the June 2005 inspection that the product was used to smoke
crack. Mr. Mitchell was thus ``aware that customers in general [we]re
likely to use the merchandise with drugs.'' Posters N' Things, 511 U.S.
at 524. Yet Mr. Mitchell admitted that Respondent continued to sell the
product and was still doing so at the time of the inspection. I thus
conclude that Respondent violated Federal law by selling drug
paraphernalia. 21 U.S.C. 863(a).
In conclusion, I find that Respondent violated Federal law and DEA
regulations by failing to report six regulated transactions which were
suspicious and by knowingly selling drug paraphernalia. These findings
further support the conclusion that Respondent's continued registration
is inconsistent with the public interest.
Factor Five--Other Factors Relevant to and Consistent With Public
Health and Safety
The illicit manufacture and abuse of methamphetamine have had
pernicious effects on families and communities throughout the nation.
This is especially so in States such as Tennessee and Kentucky, which,
notwithstanding the enactment of laws at both the state and Federal
level which more closely regulate or restrict the sale of certain
listed chemical products, still have an extraordinarily serious problem
with illicit methamphetamine production and its abuse. As the record
demonstrates, in 2008, law enforcement authorities in Tennessee and
Kentucky still seized 553 and 416 illegal meth. lab sites respectively.
The illicit production of methamphetamine thus remains a grave threat
to public health and safety in both States. Cutting off the supply
source of methamphetamine traffickers is of critical importance in
protecting the citizens of Tennessee and Kentucky (as well as the
citizens of adjoining States) from the devastation wreaked by this
drug.
While listed chemical products containing ephedrine can still be
lawfully marketed for over-the-counter use as a bronchodilator,
numerous DEA orders have found (and the record here establishes) that
convenience stores and gas stations constitute the non-traditional
retail (or gray) 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); Resp. Br. 13 (``Respondent's evidence demonstrates that
it sold List I chemical product to non-traditional retailers.''). 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 Sunny Wholesale,
Inc., 73 FR 57655, 57667 (2008) (noting testimony of special agent, who
had debriefed more than 200 individuals involved in the illicit
manufacture of methamphetamine, that gas stations, convenience stores,
and other small retailers ``were the primary and preferred source of''
list I chemicals used by smaller meth. labs); TNT Distributors, Inc.,
70 FR 12729, 12730 (2005) (special agent testified that ``80 to 90
percent of ephedrine and pseudoephedrine being used [in Tennessee] to
manufacture methamphetamine was being obtained from convenience
stores'').\43\ See also Joy's Ideas, 70 FR at 33199 (finding that the
risk of diversion was ``real'' and ``substantial''); Jay Enterprises of
Spartanburg, Inc., 70 FR 24620, 24621 (2005) (noting ``heightened risk
of diversion'' if application to distribute to non-traditional
retailers was granted).
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\43\ See OTC Distribution Co., 68 FR 70538, 70541 (2003) (noting
``over 20 different seizures of [gray market distributor's]
pseudoephedrine product at clandestine sites,'' and that in an
eight-month period, distributor's product ``was seized at
clandestine laboratories in eight states, with over 2 million dosage
units seized in Oklahoma alone.''); MDI Pharmaceuticals, 68 FR 4233,
4236 (2003) (finding that ``pseudoephedrine products distributed by
[gray market distributor] have been uncovered at numerous
clandestine methamphetamine settings throughout the United States
and/or discovered in the possession of individuals apparently
involved in the illicit manufacture of methamphetamine'').
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For this reason, DEA has closely scrutinized the adequacy of the
diversion controls and the compliance records of those entities which
distribute listed chemicals into this market. Moreover, even where a
distributor's violations are not extensive and/or identified
inadequacies in its diversion controls might be redressed through
compliance conditions, DEA may still conclude that revocation is
necessary to protect the public interest based on evidence that a
registrant and/or its principals do not take seriously their
responsibility either to prevent diversion or to comply with the CSA.
See, e.g., Novelty Distributors, Inc., 73 FR 52689, 52703 (2008)
(revoking registration and rejecting ALJ's recommendation to impose
compliance conditions based, in part, on registrant's failure to
enforce its own policies), pet. for review denied, 571 F.3d 1176 (D.C.
Cir. 2009); Holloway Distributing, 72 FR at 42126 (revoking
registration and noting that while registrant had ``taken corrective
actions, these measures [were] still not adequate to protect against
the diversion of its products'').\44\
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\44\ Under the Administrative Procedure Act, an Agency is not
required to give a licensee the ``opportunity to demonstrate or
achieve compliance with all lawful requirements'' prior to revoking
a license ``in cases of willfulness or those in which public health,
interest, or safety requires otherwise.'' 5 U.S.C. 558(c). While
this exception likely applies here given the continued scope of the
methamphetamine problem, especially in the States where Respondent
distributes its products, I apply DEA's longstanding precedent that
where ``the Government has proved that a registrant has committed
acts inconsistent with the public interest, a registrant must
present sufficient mitigating evidence to assure the Administrator
that [it] can be entrusted with the responsibility carried by such a
registration.'' Medicine Shoppe-Jonesborough, 73 FR 364, 387 (2008)
(quoting cases). See also id. (``DEA has repeatedly held that where
a registrant has committed acts inconsistent with the public
interest, the registrant must accept responsibility for its actions
and demonstrate that it will not engage in future misconduct.'').
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As found above, Respondent's diversion controls are inadequate for
four reasons: (1) Its practice of storing products on the trucks
overnight, both at Respondent's facility and while the salesmen are
servicing their routes; (2) it could not account for all of each
product that was audited and did not have a contemporaneous record of
products it destroyed; (3) its employees
[[Page 78745]]
do not ask their customers whether they are purchasing from other
distributors; and (4) Mr. Mitchell acknowledged that he continued to
sell to stores even when he knew they were obtaining ``large
quantities'' from other distributors. Regarding these four
deficiencies, Mr. Mitchell addressed only one of them--the storage of
products on its trucks--and did so only with respect to when the trucks
were at his facility.\45\
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\45\ It is acknowledged that Respondent undertook to ensure that
its customers obtained the necessary certifications required by the
CMEA. Tr. 399. Yet this is only one of many factors that are
properly considered in assessing whether Respondent's registration
is consistent with the public interest.
---------------------------------------------------------------------------
The evidence also showed that Respondent failed on six occasions to
report suspicious monthly sales to a store as required by Federal law
even though Mr. Mitchell acknowledged that the transactions were
suspicious. Here again, Respondent did not offer any evidence that it
has instituted a program to identify and report suspicious orders.
Relatedly, when asked whether he had ``ever pause[d] to think''
that the ephedrine products his firm distributes could be resold to
traffickers, Mr. Mitchell explained: ``I've guess I've taken the
attitude that I have no control on what the retail public does with the
product.'' Tr. 404. As noted above, consistent with this attitude, Mr.
Mitchell admitted that his firm had continued to sell to stores even
when he knew the stores were buying large quantities from other
distributors. And as if further evidence of Mr. Mitchell's and his
firm's indifference to their obligations to comply with the law is
needed, the record further showed that Respondent violated the CSA by
selling a product whose likely use is as drug paraphernalia, and did so
even after the DI told Mr. Mitchell that the product was used for this
purpose.
Mr. Mitchell's and his firm's clear disregard of their
responsibility to protect against diversion and comply with the law
``is fundamentally inconsistent with the obligations of a DEA
registrant.'' Holloway, 72 FR at 42124; see also D & S Sales, 71 FR 71
FR at 37610 (noting that a registrant is ``required to exercise a high
degree of care in monitoring its customers' purchases'') (int.
quotations and citations omitted). Because it is clear that Mr.
Mitchell does not understand the nature of his firm's obligations, I
conclude that Respondent's continued registration ``would be
inconsistent with the public interest.'' 21 U.S.C. 823(h). Accordingly,
Respondent's registration will be revoked and any pending application
will be denied.
Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h) and
824(a), as well as by 28 CFR 0.100(b) and 0.104, I order that DEA
Certificate of Registration, 004413RAY, issued to R & M Sales Company,
Inc., be, and it hereby is, revoked. I further order that any pending
application of R & M Sales Company, Inc., for renewal or modification
of its registration, be, and it hereby is, denied. This order is
effective January 18, 2011.
Dated: December 3, 2010.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 2010-31640 Filed 12-15-10; 8:45 am]
BILLING CODE 4410-09-P