[Federal Register Volume 88, Number 103 (Tuesday, May 30, 2023)]
[Notices]
[Pages 34523-34543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11369]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 18-31]


Morris & Dickson Co., LLC; Decision and Order

    On May 2, 2018, the Drug Enforcement Administration (DEA or 
Government), issued an Order to Show Cause (OSC) and Immediate 
Suspension of Registration (ISO) to Morris & Dickson Co., LLC 
(Respondent), of Louisiana. Administrative Law Judge (ALJ) Exhibit 
(ALJX) 1, at 1. The OSC informed Respondent of the immediate suspension 
of its Certificates of Registration Nos. RM0314790 and RM0335732 
(registrations) \1\ and proposed their revocation pursuant to 21 U.S.C. 
824(a)(4) and 823(b) because it alleged that Respondent's continued 
registrations were inconsistent with the public interest. Id.
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    \1\ Respondent sought and obtained a temporary restraining order 
against enforcement of the ISO. See ALJX 89, at 7. On May 18, 2018, 
the DEA Acting Administrator rescinded the ISO issued on May 2, 
2018. Tr. 12; see Stip. 26.
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    Respondent requested a hearing before a DEA ALJ, which was 
conducted from May 13 to May 16, 2019. On August 29, 2019, the ALJ 
issued a Recommended Decision (RD), which was transmitted to the Agency 
along with the administrative record on November 26, 2019.\2\ The 
Agency has incorporated portions of the ALJ's RD herein.
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    \2\ On October 8, 2019, Respondent filed Exceptions to the 
Recommended Decision (Resp Exceptions) and on November 7, 2019, the 
Government filed a response to Respondent's Exceptions. On January 
5, 2022, Respondent filed a Motion to Reopen the Administrative 
Record. On January 14, 2022, the Government filed an opposition to 
this motion and on January 21, 2022, Respondent filed a Reply 
Memorandum in Support of its Motion to Reopen the Administrative 
Record. The Agency addresses the Exceptions throughout and the 
Motion to Reopen at the end of this Decision.
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    The Government presented a prima facie case. Respondent ultimately 
admitted to and accepted some responsibility for its failures in 
effectively applying its customer due diligence in assessing orders of 
controlled substances, its failures to implement a suspicious order 
monitoring system ``consistent with best practices for compliance,'' 
and its failures to adequately resolve red flags on orders that it 
shipped. See infra section V. Respondent also admitted that its three 
suspicious order reports to DEA during the relevant time period were 
insufficient. Id. Nonetheless, Respondent presented testimony and 
evidence aimed at rebutting the Government's case with regard to the 
scope of its regulatory noncompliance during the relevant time period.
    After thoroughly reviewing the entire record, the Agency finds 
substantial record evidence that Respondent's continued registration is 
inconsistent with the public interest in light of the long-term, 
egregious failures of Respondent in its responsibility as a distributor 
to maintain effective controls against diversion of controlled 
substances. Furthermore, the Agency finds that Respondent has failed to 
demonstrate that the Agency should continue to entrust it with its 
controlled substance registrations.

I. Summary of the Allegations

    1. The OSC primarily alleged that Respondent failed to maintain 
effective controls against diversion when it failed to report to DEA 
thousands of unusually large orders for hydrocodone and oxycodone, 
which constituted potential suspicious orders, and when it shipped 
orders to customers without resolving red flags of diversion or 
reporting the orders to DEA in violation of 21 U.S.C. 823(b)(1) and 
(e)(1) as well as 21 CFR 1301.71(a) and 1301.74(b). OSC, at 2. Further, 
the OSC alleged that Respondent failed to adequately design and operate 
a system to alert Respondent to suspicious orders of controlled 
substances and failed to report the suspicious orders to DEA in 
violation of 21 CFR 1301.74(b). Id.
    2. The allegations included that, from January 2014 until April 
2018, Respondent shipped approximately 7,000 unusually large orders of 
oxycodone and almost 5,000 unusually large orders of hydrocodone. OSC, 
at 5; Govt Prehearing, at 8. During this time, Respondent filed a total 
of only three suspicious order reports with DEA.
    3. Furthermore, the OSC alleged that, from approximately January 
2014 to April 2018,\3\ Respondent failed to carry out its due diligence 
and suspicious order monitoring policies and failed to conduct or 
failed to document the resolution of meaningful due diligence into 
orders placed by the following pharmacies: Wallace Drug Company, Inc.; 
Bordelon's Super-Save Pharmacy; Folse Pharmacy; Pharmacy Specialties 
Group, Inc.; Dave's Pharmacy; the Wellness Pharmacy, Inc.; Wilkinson 
Family Pharmacy; and Hephzibah Pharmacy, L.L.C. (hereinafter, the 
exemplar pharmacies).
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    \3\ The allegations for three of the exemplar pharmacies only 
spanned a subset of this timeframe: Wellness Pharmacy, January 2014-
December 2017; Wilkinson Family Pharmacy, January 2014-April 2017; 
Hephzibah Pharmacy, April 2017-May 2017. Govt Prehearing, at 3.
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II. The Witnesses

A. The Government's Witnesses

    The Government presented its case through the testimony of six 
witnesses and the introduction of 70 exhibits. The Government's first 
witness was the Acting Section Chief of the Pharmaceutical 
Investigation Section of the DEA (the Section Chief), who testified 
generally regarding the regulatory requirements for distributors. Tr. 
47-87. The Government also presented testimony from two Diversion 
Investigators (DI 1 and DI 2) regarding the history of the 
investigation and the identification of Government exhibits.\4\ See RD, 
at 11-12 (citing Tr. 94-101; 144-177). Next, the Government presented 
testimony from the Chief of the Statistical Services Section of DEA, 
G.R., who was qualified without objection as an expert in ``developing 
and implementing statistical models and methods of analyzing large and 
complex data sets.'' RD, at 13 (citing Tr. 192). G.R. testified to the 
methodology he employed in analyzing the statistical data that was used 
by DEA in its determination that Respondent had failed to report 
suspicious orders.\5\ RD, at 12-15 (citing Tr. 187-245). The Government 
also presented testimony from the Group Supervisor of the New Orleans 
Field Division (the GS), who was accepted as an expert in ``the 
identification of common red flags suggestive of an illicit 
pharmaceutical operation and as well [as] with respect to the 
requirements imposed on DEA registrants to identify and investigate

[[Page 34524]]

such red flags when they become aware of them.'' RD, at 16 (citing Tr. 
282).\6\
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    \4\ The Government presented testimony from a third Diversion 
Investigator (DI 3) to rebut the testimony of Respondent's witness, 
however, the Agency agrees with the RD that the testimony of DI 3 
was not essential to the case and is therefore not including it 
herein. RD, at 20.
    \5\ G.R. testified that he had corrected DEA's admitted error in 
the calculations in the OSC, which applied a Three Interquartile 
Range (IQR) to the median of the data set, or the 50th percentile, 
instead of the 75th percentile, and as a result, produced a larger 
group of outliers. Tr. 204, 208-09. G.R. further acknowledged that 
the error was identified by Respondent's expert. Tr. 218.
    \6\ The Agency adopts the ALJ's credibility findings regarding 
the Section Chief, the DIs, G.R., and the GS. RD, at 11-12, 15, 19.
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B. Respondent's Witnesses

    Respondent presented its case through the testimony of three 
witnesses and the introduction of ten exhibits. Respondent's first 
witness was Kenneth A. Weinstein, Tr. 501-689, who was the Vice 
President of the consulting firm Analysis Group, Inc. (AGI), and was 
accepted without objection as an expert in statistical analysis related 
to controlled substance distribution and in pharmacy ordering and 
inventory management. RD, at 22 (citing Tr. 513-14; 520-21). Weinstein 
authenticated Respondent Exhibit (RX) 14, pages 15-19, and RX 28 and 
29. Tr. 506, 562-68. Weinstein testified generally regarding the use of 
the Tukey analytical model in developing Suspicious Order Monitoring 
systems and testified specifically regarding what he found to be 
deficiencies in G.R.'s statistical analysis in this case. Weinstein 
also testified regarding AGI's compliance work for Respondent after DEA 
had issued the OSC.
    Respondent's second witness was Scott Irelan, Tr. 693-840, who had 
worked for Respondent for 31 years before becoming the Director of 
Corporate Compliance and Security in May 2018 after the OSC was issued. 
Irelan testified regarding his current role at Respondent, the remedial 
measures that Respondent had put in place since the issuance of the 
OSC, Respondent's preexisting compliance measures during the relevant 
time period, and Respondent's acceptance of responsibility.
    Respondent's final witness was Louis Milione,\7\ Tr. 841-1057, who 
was, at the time, the Senior Managing Director of Guidepost Solutions. 
Respondent hired Guidepost Solutions to enhance Respondent's compliance 
system. Tr. 878-79. Milione was previously the Assistant Administrator 
of the Diversion Control Division at DEA and was offered and accepted 
without objection as an expert ``in diversion.'' Tr. 851. He testified 
regarding his factual interactions with Respondent during his tenure at 
DEA \8\ and regarding the work Guidepost performed for Respondent to 
improve its compliance with DEA requirements.\9\
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    \7\ Milione is currently the Principal Deputy Administrator of 
DEA. Despite his return to the Agency, it is noted that Milione has 
not had any contacts with the Administrator nor anyone participating 
in the decisionmaking in this matter about and due to his prior 
involvement with this case.
    \8\ Respondent presented evidence, including testimony from 
Milione, about a meeting with Respondent at Respondent's invitation 
that occurred in August 2016 when Milione was in the role of 
Assistant Administrator of the Diversion Control Division at DEA. 
Tr. 856-861; RX 21; RX 11 (PowerPoint slide deck). Milione testified 
that, at that meeting, he believed that Paul Dickson, Sr., was 
committed to his regulatory obligations and sincere. Tr. 873. The 
powerpoint slides from that meeting, which Respondent submitted into 
evidence, generally support Respondent's statements regarding the 
workings of its previous SOM at a high level and its termination of 
customers pursuant to its due diligence efforts. RX 11; see infra 
n.61 regarding termination of Respondent's customers, and infra n.89 
regarding evidence of the sincerity of Paul Dickson, Sr.
    \9\ The testimonies of Weinstein, Milione, and Irelan are 
afforded full credibility in this Decision on all points that are 
within their expertise and relevant to the final decision as further 
found herein. This Decision has found all major points of conflict 
between the Government's and Respondent's witnesses to be largely 
irrelevant to the Agency's adjudication of the allegations. The 
Agency analyzes the evidentiary weight of portions of the testimony 
of these witnesses in balance with other evidence on the record 
where relevant. It is noted that, although Irelan's testimony 
regarding acceptance of responsibility is analyzed in the Sanction 
Section infra, it is afforded full credibility.
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III. Findings of Fact

    The Parties agree to 47 stipulations (Stips.), which are accepted 
as facts in these proceedings. The Agency incorporates all of these 
into the record--the most relevant of which are summarized here. See 
RD, at 33-38. Between January 2014 and May 2018, Respondent submitted a 
total of three suspicious order reports to DEA. Stip. 7. In this same 
approximate timeframe, Respondent supplied controlled substances, 
including oxycodone and hydrocodone, to Wallace, Bordelon's, Folse, 
Pharmacy Specialties, and Dave's pharmacies. Respondent also supplied 
Hephzibah with controlled substances, including oxycodone and 
hydrocodone, between April and May 2017, Wellness Pharmacy between 
January 2014 and December 2017, and Wilkinson \10\ between January and 
April 2017. See Stips. 11-20. The timeframe of the allegations in the 
OSC are hereinafter referred to as ``the relevant timeframe.''
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    \10\ Wilkinson Family Pharmacy voluntarily surrendered its DEA 
Certificate of Registration for Cause. Stip. 20.
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A. DEA's Investigation

    In 2017, while investigating pharmacies in Louisiana selling high 
volumes of oxycodone and hydrocodone, the DEA New Orleans Division 
discovered that some of those pharmacies were supplied by Respondent. 
Tr. 92. During a subsequent audit, Respondent told DEA that it used Pro 
Compliance Reports and its employees to identify suspicious orders. Tr. 
93.
    DEA served Respondent with three separate subpoenas and several 
requests for clarification between February 1, 2018, and April 
2018.\11\ RD, at 44-50. The subpoenas related to Respondent's 
identification of suspicious orders, due diligence, internal 
investigations, and internal policies and practices, and also 
identified specific pharmacies. Government Exhibits (GX) 7, 8, 10, 12, 
15. Respondent responded via letters and produced some documentation. 
For example, GX 9 contains an undated letter from Jacob Dickson, 
stating that Respondent submitted only two suspicious order reports to 
DEA because it ``utilizes a pro-active approach to avoid diversion of 
controlled drugs, including: screening new pharmacy customers; 
aggressively monitoring orders for controlled drugs; and eliminating 
pharmacy customers who fill orders for controlled drugs in excess of 
acceptable ratios, accept cash payments, fill prescriptions for the 
`Holy Trinity' and/or other unacceptable practices.'' GX 9, at 1; Tr. 
319. The undated letter also states that ``DEA and applicable 
regulations do not require that a wholesale distributor maintain 
records of each and every internal investigation conducted on possible 
suspicious orders.'' GX 9, at 1-2 (emphasis in original); Tr. 319-20. 
The letter further explained that once Respondent has cleared a 
possible suspicious order, ``no record is maintained.'' GX 9, at 2. The 
undated letter explained that Respondent used a ``four-fold approach to 
monitor all prescription drug orders and detect unusual ordering 
patterns, amounts, and cash payments to identify potentially suspicious 
orders.'' GX 9, at 2; Tr. 321. The four-fold approach included: use of 
Pro Compliance Reports; preparing a Market Basket Report of each 
customer on a monthly basis; since April 2017, use of software that 
identifies orders that are more than 10 times the ``average dosage 
units ordered on a given drug on a certain day with the last 90 days of 
ordering patterns of the same drug''; the experience of the employees 
who fill the orders for controlled substances; and the input of 
delivery drivers and salesmen. GX 9, at 3-4.
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    \11\ The Agency adopts the findings of fact in the RD related to 
these subpoenas and Respondent's response and summarizes herein. RD, 
at 44-50.
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    Government Exhibit 11 is Respondent's (signed by Paul Dickson) 
supplemental undated response to DEA following up on subpoenas issued 
to Respondent. Tr. 144-45, 324; GX 11, at 2. This response states that 
``[b]ecause formal records are not kept in the regular course of 
business on the

[[Page 34525]]

investigation of orders which do not result in the finding of a 
`suspicious order' per 21 CFR 1301.74, the email communications 
produced herewith represent the most responsive records maintained.'' 
GX 11, at 2; Tr. 324.
    At the same time, Respondent produced an external hard drive 
containing documents in response to the February subpoenas. Tr. 146. 
Again, DEA emailed Respondent to ensure a complete response, which 
Respondent generally affirmed and also then provided a phone log \12\ 
with the earliest entry dated January 5, 2016. GX 12-14. In response to 
the subpoena for policies and trainings, Respondent informed DEA that 
its training of employees on suspicious order monitoring ``does not 
necessitate or result in the production of documents.'' GX 16, at 1. 
Respondent's reply included two policy and procedure documents, which 
Respondent described as containing ``some limited direction as to 
suspicious order monitoring.'' Id.; Tr. 174-76; GX 17, 18.
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    \12\ Regarding the exemplar pharmacies, the phone log contains 
two entries concerning the Pharmacy Specialties Group, with a DEA 
registration number ending in ``589.'' GX 14, at 4, 31; GX 23, at 1. 
Those entries are dated March 7, 2016, and December 13, 2017. GX 14, 
at 4, 31. There is one entry concerning Dave's Pharmacy, with a DEA 
registration number ending in ``386.'' GX 14, at 23; GX 24, at 1. 
That entry is dated February 16, 2017. GX 14, at 23. There are three 
entries concerning Hephzibah Pharmacy, with a DEA registration 
number ending in ``695.'' GX 14, at 23, 26; GX 25, at 1. Those 
entries are dated March 17 and 21, 2017, and June 20, 2017. GX 14, 
at 23, 26. There are five entries concerning Wilkinson Family 
Pharmacy, with a DEA registration number ending in ``198.'' GX 14, 
at 24; GX 27, at 1. Those entries are dated April 19, 20, 21, and 
24, 2017. GX 14, at 24. There are three entries concerning Wallace 
Drugs, with a DEA registration number ending in ``363.'' GX 14, at 
31; GX 20, at 1. Those entries are all dated January 9, 2018. GX 14, 
at 31; RD, at n.12. See supra section III.D.
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B. General Regulatory Obligations

    21 CFR 1301.74(b) requires distributors to

. . . design and operate a system to disclose to the registrant 
suspicious orders of controlled substances. The registrant shall 
inform the Field Division Office of the Administration in his area 
of suspicious orders when discovered by the registrant. Suspicious 
orders include orders of unusual size, orders deviating 
substantially from a normal pattern, and orders of unusual 
frequency.
    Id.

    Respondent received a copy of a letter sent on September 27, 2006, 
by DEA to distributors of controlled substances. Tr. 62-63; GX 3, at 1. 
The letter emphasized that ``[d]istributors are, of course, one of the 
key components of the distribution chain. If the closed system is to 
function properly as Congress envisioned, distributors must be vigilant 
in deciding whether a prospective customer can be trusted to deliver 
controlled substances only for lawful purposes.'' GX 3, at 1. The 
letter therefore, reminded distributors of their ``responsibilities . . 
. in view of the prescription drug abuse problem our nation currently 
faces.'' Id. Further, the letter reminded distributors of their duty 
under the regulation to ``design and operate a system to disclose to 
the registrant suspicious orders of controlled substances,'' and their 
duty to report suspicious orders to DEA upon discovering the suspicious 
order. Id. at 2. In addition, the letter reminded distributors of their 
duty to exercise due diligence to avoid filling suspicious orders. Id. 
Finally, the letter provided distributors with 14 examples derived from 
DEA investigations of a customer's behavior that might be indicative of 
diversion. Id. at 3. The letter states that these examples are not all-
inclusive and that ``[d]istributors should consider the totality of the 
circumstances when evaluating an order for controlled substances, just 
as DEA will do when determining whether the filling of an order is 
consistent with the public interest within the meaning of 21 U.S.C. 
823(e).'' Id. DEA sent the same letter a second time on February 7, 
2007. Tr. 64-65; GX 69.
    Government Exhibit 4 is a December 20, 2007 letter that the DEA 
sent to every distributor of controlled substances. Tr. 63-64; GX 4, at 
1. The stated purpose of this letter was to again remind distributors 
of the requirement to inform DEA of suspicious orders. GX 4, at 1. The 
letter reminded distributors that in addition to ``maintain[ing] 
effective controls against diversion,'' they are also required to 
``report suspicious orders of controlled substances.'' Id. The letter 
reminded registrants that the regulation requires that these orders be 
reported ``when discovered by the registrant.'' Id. (emphasis in 
original). The letter also reminded distributors ``that their 
responsibility does not end merely with the filing of a suspicious 
order report. Registrants must conduct an independent analysis of 
suspicious orders prior to completing a sale to determine whether the 
controlled substances are likely to be diverted from legitimate 
channels'' in accordance with their requirements to maintain effective 
controls against diversion in 21 U.S.C. 823(e). Id. The letter also 
informed registrants that DEA interpreted the list of types of 
suspicious orders to be ``disjunctive and [ ] not all inclusive.'' 21 
CFR 1301.74(b).
    DEA maintains an Automation of Reports and Consolidated Orders 
System (ARCOS). Tr. 69-70. Distributors are required to report to ARCOS 
all shipments of controlled substances in schedules I and II and all 
narcotic controlled substances in schedule III. Stip. 9; Tr. 70. In 
April 2008, DEA met with Respondent's President Paul Dickson, Sr., and 
discussed Respondent's legal obligations and requirements as a 
distributor, including suspicious order requirements, the need to know 
its customers, and the need to conduct due diligence. Tr. 67-68. At the 
time, DEA reviewed its ARCOS data with Respondent to show customers who 
had anomalies and to demonstrate ``things that [Respondent] should be 
looking at and questioning [its] customers [about].'' Tr. 68-69. In 
2013 and 2015, DEA conducted distributor conferences and Jacob Dickson, 
Respondent's compliance officer,\13\ attended both conferences. Tr. 66-
67. Both sides also presented evidence about a meeting with Jacob 
Dickson, Paul Dickson Sr., C.G. (a former compliance officer at 
Respondent) and officials from DEA, including Milione, in which 
Respondent presented its Suspicious Order Monitoring (SOM) system to 
DEA. See RX 11 (powerpoint); see supra n.8.
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    \13\ The GS testified that ``one time [Jacob Dickson] was marked 
as president and then in the other time it was compliance officer.'' 
Tr. 67. In a letter to DEA in response to subpoenas, Jacob Dickson's 
title was listed as Vice President, SOM Manager. GX 9, at 4.
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    Respondent filed three suspicious order reports during the relevant 
time period. Stip. 7. The first, dated April 7, 2014, states that 
``[a]t this time, and pending further review by you or M&D, M&D has 
stopped selling schedule II through schedule V drugs to the captioned 
pharmacy.'' GX 6, at 1. The next report is dated April 26, 2017, and 
states that the pharmacy in question ``purchased a quantity of 60 
cartons of prefilled 10 mg morphine sulphate syringes . . . This was a 
substantial increase over a total sales of one carton in the prior four 
months.'' GX 6, at 35. The letter states that the order was 
investigated but does not discuss the resolution of this investigation, 
nor whether the order was filled. Id. The final report was filed on the 
same day, April 26, 2017, and gives no facts related to what order was 
deemed suspicious nor any information about an investigation or whether 
the order was shipped. GX 6, at 36.
    Distributors are required to design and operate a suspicious order 
monitoring system that identifies suspicious orders. 21 CFR 1301.74(b). 
Suspicious orders include, but are not

[[Page 34526]]

limited to, three stated criteria: orders of unusual size, orders 
deviating substantially from a normal pattern, and orders of unusual 
frequency. Id.
    Additionally, a distributor's general duty to prevent diversion 
includes the duty to perform due diligence on its customers. Southwood 
Pharmaceuticals, Inc., 72 FR 36487, 36500 (2007); see also Masters 
Pharmaceuticals, Inc., 80 FR 55418, 55476 (2015), pet. for review 
denied, Masters Pharmaceuticals, Inc. v. Drug Enf't Admin., 861 F.3d 
206 (D.C. Cir. 2017). The GS testified that if the required due 
diligence at the customer level identifies red flags indicative of 
diversion, Tr. 328, those red flags render an individual order 
suspicious and trigger the investigation or reporting requirement, even 
if the regulatory criteria in 21 CFR 1301.74(b) are not present, e.g., 
the order size is not unusual. Tr. 477-478; see also Masters Pharm., 
Inc., 80 FR at 55477 (stating that ``an order is not only suspicious by 
virtue of its internal properties--i.e., being of unusual size, 
pattern, or frequency--but by virtue of the suspicious nature of the 
pharmacy which placed [the order]'').
    The Agency's decision in Masters sets forth that a distributor must 
either investigate suspicious circumstances on an order and resolve all 
indicia of diversion or decline to fill the order and report it to DEA. 
Masters Pharm., Inc., 80 FR at 55478.

C. Red Flags--Customer Due Diligence

    The record evidence establishes that customer red flags indicative 
of potential diversion include a pharmacy customer that: dispenses a 
high volume of narcotics; dispenses the trinity drug cocktail; \14\ 
dispenses disproportionally more controlled substances than non-
controlled substances; \15\ fills prescriptions for customers who live 
far away from the pharmacy; fills prescriptions for a high volume of 
patients who pay for prescriptions in cash; \16\ fills prescriptions 
for practitioners whose DEA registrations cannot be verified; \17\ 
fills a disproportionate volume of controlled substance prescriptions 
written by only a few prescribers; and/or orders excessive quantities 
of a limited variety of controlled substances. Tr. 297, 299-301, 335, 
411, 427, 489-90, 648-49, 681, 1037; see also Pro Compliance Reports GX 
20-56. Weinstein noted that red flags are visible in a pharmacy's 
dispensing data and not its ordering data.\18\ Tr. 679. Irelan admitted 
that, during the relevant time period, due diligence was not being 
applied at the ordering level.\19\ Tr. 722-23.
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    \14\ The trinity drug cocktail consists of an opioid, such as 
hydrocodone, a benzodiazepine, such as alprazolam, and a muscle 
relaxer, such as Soma, and the combination of substances is still a 
red flag even if each element is prescribed by different 
prescribers. Tr. 55, 300, 344.
    \15\ The record contains varying evidence as to the threshold 
percentage of a pharmacy customer's controlled substance fills 
relative to its non-controlled substance fills that would trigger a 
red flag for the distributor. See Tr. 351, 461 (The GS testifying 
that if the percentage of controlled substance prescriptions filled 
exceeds 15 percent of total prescriptions, it is a red flag); Tr. 
1030 (Milione testifying that if a pharmacy is filling controlled 
substance prescriptions at a percentage exceeding the national 
average, then the distributor can resolve the red flag without 
reporting a suspicious order); Tr. 867 (Irelan testifying that the 
previous SOM system involved monitoring ``for customers that were 
getting a little closer to 20 percent of that ratio''); RD, at n.5 
(noting that the Masters decision found the threshold to be around 
20 percent for controlled versus 80 to 90 percent for non-
controlled, Masters Pharm., Inc., 80 FR at 55480, but finding that 
the GS presented the most credible evidence at 15 percent).
     The Agency finds the exact percentage threshold to be largely 
irrelevant to determine in this case, because in every instance of 
the Government's allegations, this particular red flag was flagged 
by the Pro Compliance Reports that were created for Respondent. 
Furthermore, all of the pharmacy customers in the allegations were 
dispensing controlled substances at 20 percent or more of their 
total dispensing--with one customer at one point dispensing as high 
as 69 percent controlled substances, see GX 26, at 11 (Wellness). 
The only exception was Bordelon's dispensing at 17 percent 
controlled substances, but which Pro Compliance reported as being 
``slightly higher than national average.'' GX 21, at 6. Furthermore, 
seven of the eight exemplar pharmacies demonstrated multiple red 
flags in addition to this one. It is indisputable that Respondent 
was aware of this red flag for each of these customers at a customer 
level due to the Pro Compliance Reports in its possession.
    \16\ The record contains varying evidence as to the threshold 
percentage of cash payments for controlled substance prescription 
fills at a pharmacy customer that would trigger a red flag for the 
distributor. See Tr. 328 (The GS testifying that any pharmacy 
customer exceeding 9 percent cash payments from customers should 
raise red flags); see also 1036-37 (Milione testifying that a high 
percentage of cash in controlled versus non controlled prescriptions 
is a red flag, but can be resolved with due diligence, the records 
of which must be maintained); Tr. 681 (Weinstein testifying that if 
a pharmacy has ``a substantially higher percentage of cash payments 
for controlled substances than it did for a non-controlled 
substances, that would be a [potential] red flag of diversion,'' but 
that he does not have ``a particular definition of substantial or 
significant,'' because it was more of a ``relative comparison''); 
but see Tr. 649 (Weinstein answered that it was ``fair'' to say that 
when a distributor becomes aware of factors, such as cash payments, 
``they're significant red flags of diversion.'').
    Again, the Agency finds the exact percentage threshold for cash 
payments to be largely irrelevant to determine in this case, because 
in every instance of the Government's allegations, this particular 
red flag was flagged by the Pro Compliance Reports that were created 
for Respondent. As detailed herein, the percentages of cash paid by 
Respondent's customers at issue were also particularly high, see, 
e.g., 41 percent, GX 22, at 12 (Folse). It is indisputable that 
Respondent was aware of this red flag for each of these customers at 
a customer-level based on the Pro Compliance Reports in its 
possession.
    \17\ The Pro Compliance Reports additionally contain reports of 
prescribers whose DEA controlled substance registrations ``could not 
be verified through DEA-Verify.com'' and whose controlled substance 
prescriptions were filled by Respondent's customers. See, e.g., GX 
22, at 17; Tr. 336 (June 2017 Report showing that Folse filled 
controlled substances prescribed by 23 practitioners whose 
registrations could not be verified). Both Irelan and Milione 
testified that the portion of the Pro Compliance Reports concerning 
the verification of prescriber DEA numbers is unreliable. Tr. 765-
66, 797, 901. Milione also testified that a distributor needs to 
hold and report a suspicious order if it is aware that a customer is 
filling prescriptions for a practitioner with no DEA registration. 
Tr. 1025. Although the Agency agrees with the RD, at n.14, that 
during the relevant timeframe, there is no evidence in the record 
that Respondent resolved the red flags presented by these reports 
demonstrating unverified registrations, even if they were 
unreliable, the Agency also finds that there is more than enough 
evidence on the record that Respondent did not resolve the other 
clearly established red flags of diversion and therefore finds it 
unnecessary to address these additional red flags in this Decision.
    \18\ The fact that the red flags applied to the customer 
generally and not to each individual order, see ALJX 89, at 99, is 
irrelevant to this adjudication, because under the relevant legal 
requirements, Respondent cannot ignore red flags that demonstrate 
that its customers are potentially diverting controlled substances 
and continue to fill those individual orders without resolving each 
of those red flags. See Tr. 477-478. At a minimum, Respondent must 
either have stopped the shipments and reported orders to DEA or 
resolved and documented each of the red flags. See Masters Pharm., 
Inc., 861 F.3d at 222-23.
    \19\ It is noted that Respondent attempted to introduce and the 
ALJ rejected, Exhibit 32C, based on lack of identification. Tr. 447. 
Respondent's stated purpose was to impeach the Government's witness 
in demonstrating that Respondent's due diligence files did include 
photographs as described in its policy, Tr. 447, contrary to the 
GS's testimony that he did not ``recall any'' photographs, Tr. 322; 
RX 32C. The GS testified credibly that he did not recall seeing the 
file with the photograph ``at all.'' Tr. 447. The Agency has 
reviewed the document and notes that it did include a photograph; 
however, the Agency is not finding that Respondent's compliance with 
its policy on this issue is relevant to this decision and, 
therefore, the exhibit marked for identification as RX 32C plays no 
role in the adjudication of this matter. Further, if this exhibit 
had been included in the record, standing alone, it bodes poorly for 
Respondent concerning its failure to report suspicious orders for 
terminated customers. See infra n.61.
---------------------------------------------------------------------------

    The GS testified that when Respondent received the Pro Compliance 
Reports in GX 20-56 that demonstrated red flags of diversion, it was 
obligated to resolve the red flags and document their resolution. Tr. 
474-76. Based on the record testimony of the experts, and the Masters 
decision, the Agency finds that when a distributor is aware of red 
flags indicating diversion of controlled substances from a customer, at 
a minimum, it is obligated to investigate further and resolve the red 
flags, or, if it chooses not to investigate and resolve, it must report 
the order as suspicious to DEA and not ship the controlled substances. 
See infra, section IV.A.4.

[[Page 34527]]

D. Pro Compliance and Market Basket Reports

    In conducting customer due diligence, Respondent used, at least up 
to and including during the hearing, Pro Compliance Reports,\20\ which 
provide analysis of a pharmacy's dispensing data to include key 
indicators of red flags of diversion, such as the percentage of a 
customer's business that represents controlled substance dispensing, 
the volume of cash payments, and the amount of trinity drug cocktails 
filled. Tr. 464-65, 716-17. In this case, the reports in Respondent's 
possession for the exemplar pharmacies demonstrated numerous red flags 
of diversion, and the Agency finds substantial record evidence that 
Respondent did not adequately document the resolution of those red 
flags or report the orders to DEA as suspicious.\21\ Additionally, the 
reports in evidence for the exemplar pharmacies appear to demonstrate 
violations of Respondent's purported policy of ``eliminating pharmacy 
customers who fill orders for controlled drugs in excess of acceptable 
ratios, accept cash payments, prescribe the `Holy Trinity' and/or other 
unacceptable practices.'' GX 9, at 1. According to Respondent, Market 
Basket Reports \22\ were prepared for each customer on a monthly basis 
as part of its due diligence. GX 9, at 3-4. The reports identified 
percentages of controlled substances in total dispensing. Id.; see, 
e.g., GX 59. Respondent no longer uses Market Basket reports but 
continues to use Pro Compliance Reports. Tr. 716.
---------------------------------------------------------------------------

    \20\ Each Pro Compliance Report contains a statement regarding 
the Controlled Substances Act (CSA) requirement on manufacturers and 
distributors to design and operate a system that will disclose 
suspicious orders of controlled substances. See, e.g., GX 23, at 11; 
Tr. 355.
    \21\ Respondent argues that ``the Government offered no evidence 
to demonstrate that Respondent failed to dispel suspicion.'' ALJX 
89, at 100. The Agency finds this argument to be circular. 
Respondent did not maintain adequate documentation of its resolution 
of red flags or suspicious orders, so there is no evidence to 
demonstrate whether it did or did not conduct the due diligence 
necessary to resolve the red flags. See infra n.80. As described 
herein, the Agency requires documentation of Respondent's due 
diligence for many reasons.
    \22\ Respondent points out that the GS's testimony regarding the 
Market Basket reports was possibly based on a misinterpretation of 
the numbers. ALJX 89, at 30 (citing Tr. 409, 423-425). In 
adjudicating the allegations, this Decision focuses on the Pro 
Compliance Reports in which there is more than enough information to 
support the Agency's finding that the alleged customers presented 
red flags of diversion, the resolution of which was not adequately 
documented, yet Respondent continued to ship. The Market Basket 
Reports are only considered to demonstrate that Respondent was 
conducting some due diligence.
---------------------------------------------------------------------------

    The GS testified that he did not find evidence that Respondent ever 
rejected a controlled substance order from any of the exemplar 
pharmacies, nor did he find documentation that Respondent dispelled all 
of the red flags in these reports. Tr. 385-86, 316,\23\ 413.
---------------------------------------------------------------------------

    \23\ Respondent points to Irelan's testimony to contest the 
notion that Respondent was not stopping shipments based on reports; 
however, the citations to his testimony support that Respondent was 
generally conducting some due diligence as it had described in its 
letters to DEA in response to the subpoena, not that the red flags 
at issue for the exemplar pharmacies were resolved. ALJX 89, at 16; 
see also, e.g., RX 31.001 (notes on pharmacies other than exemplar).
---------------------------------------------------------------------------

1. Folse Pharmacy
    The record evidence demonstrates that the Pro Compliance Initial 
Risk Evaluation Report provided to Respondent for Folse Pharmacy 
designated the pharmacy as ``high risk.'' GX 22, at 5; Tr. 328. 
Further, Pro Compliance Reports for Folse Pharmacy in Respondent's 
possession demonstrated that during the time period of the allegations, 
Folse Pharmacy's dispensing practices raised numerous red flags, 
including: high percentages \24\ of controlled substance prescriptions, 
high percentages of controlled substance prescriptions paid for in 
cash,\25\ an increase \26\ in the number of oxycodone dosage units 
dispensed, and dispensing of trinity cocktail prescriptions.\27\ See 
RD, at 51-53. Furthermore, in June 2017, a Pro Compliance Report 
recommended that Respondent engage with Folse's owner to ``gain a 
better understanding of [its] dispensing practices . . . .'' GX 22, at 
17. The record does not include evidence of an investigation into or 
resolution of the red flags identified. Further, the record is clear 
that Respondent did not report any orders from this customer to DEA as 
suspicious and there is no record evidence that Respondent stopped 
shipping to this customer as a result of these reports. Tr. 340; Stip. 
13.
---------------------------------------------------------------------------

    \24\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substances during the relevant time period 
ranged from approximately 30 to 36 percent of Folse's total 
dispensing. GX 22, at 12-17.
    \25\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substance dispensing paid for in cash 
ranged from approximately 18 to 41 percent. GX 22, at 12-14, 17.
    \26\ Between September 2013 and November 2014, the number of 
oxycodone dosage units dispensed increased from 40,812 to 52,571. GX 
22, at 12; Tr. 330-31 (The GS describing this increase as ``a very 
big red flag''); see also Tr. 471-74.
    \27\ In June 2017, Folse dispensed nine trinity drug cocktails 
and in September 2016, Folse dispensed twenty-two trinity drug 
cocktails. GX 22, at 17, 14; Tr. 300, 335-36.
---------------------------------------------------------------------------

2. Bordelon's
    Pro Compliance Reports for Bordelon's Super Save Pharmacy in 
Respondent's possession demonstrated that during the time period of the 
allegations, Bordelon's dispensing practices raised numerous red flags, 
including: high percentages \28\ of controlled substance prescriptions, 
higher than average oxycodone and hydrocodone units, and dispensing of 
trinity cocktail prescriptions.\29\ See RD, at 53-54. In March 2017, a 
Pro Compliance Report recommended that Respondent engage with 
Bordelon's owner to ``gain a better understanding of [its] dispensing 
practices . . . .'' GX 21, at 6. The record is clear that Respondent 
did not report any orders from this customer to DEA as suspicious and 
there is no record evidence that Respondent stopped shipping to this 
customer as a result of these reports. Tr. 347-48; Stip. 12.
---------------------------------------------------------------------------

    \28\ In March 2017, the percentage of controlled substances 
dispensed represented 17 percent of Bordelon's total dispensing, 
which Pro Compliance reported to be ``slightly higher than national 
averages.'' GX 21, at 5-6.
    \29\ In March 2017, Bordelon's dispensed four trinity drug 
cocktails. GX 20, at 5-6.
---------------------------------------------------------------------------

3. Wallace Drug Company
    Pro Compliance Reports for Wallace in Respondent's possession 
demonstrated that during the time period of the allegations, Wallace's 
dispensing practices raised numerous red flags, including, but not 
limited to: high percentages of controlled substance prescriptions paid 
for in cash,\30\ higher than average dosages of oxycodone and 
hydrocodone, and dispensing of trinity cocktail prescriptions.\31\ See 
RD, at 54-55. In August 2017, a Pro Compliance Report recommended that 
Respondent engage with Wallace's owner to ``gain a better understanding 
of [its] dispensing practices.'' GX 20, at 6. Respondent produced phone 
log entries on January 9, 2018, for Wallace. See GX 14, at 31 (note 
stating that the pharmacy salesman had been contacted and Respondent 
recommended that he return the order, noting ``might need to check on 
this guy'' and ``looks like he is hitting this stuff hard!''). Another 
note on the same date states that the customer was contacted and the 
customer explained the large order. According to the note, Respondent's 
employee recommended the return of the hydrocodone and the customer 
returned it. This note did not occur

[[Page 34528]]

until five months after the Pro Compliance Report for Wallace, which 
demonstrated multiple additional red flags of diversion for which there 
is no documented resolution. Therefore, it is unclear whether the 
employee flagging this particular order knew that there might be 
further reason to suspect that this pharmacy was engaging in diversion 
in order to be able to adequately resolve the suspicious circumstances 
surrounding the order. Even if this note arguably provided a documented 
resolution of an unusually large order, the other red flags for this 
customer are unresolved and unaccounted for. There is also no record 
evidence that Respondent reported the unusually large order or any 
orders from this customer to DEA and there is no record evidence that 
Respondent stopped shipping to this customer as a result of these 
reports or notes. Tr. 353; Stip. 11.
---------------------------------------------------------------------------

    \30\ In August 2017, 31 percent of controlled substance 
prescriptions filled by Wallace were paid for in cash. GX 20, at 5.
    \31\ In August 2017, Wallace dispensed three trinity drug 
cocktails. GX 20, at 5-6; Tr. 349-50.
---------------------------------------------------------------------------

4. Pharmacy Specialties Group
    Pro Compliance Reports for Pharmacy Specialties in Respondent's 
possession demonstrated that during the time period of the allegations, 
Pharmacy Specialties' dispensing practices raised numerous red flags, 
including: high percentages \32\ of controlled substance prescriptions, 
high percentages of controlled substance prescriptions paid for in 
cash,\33\ an increase \34\ in the number of hydrocodone, oxycodone, and 
benzodiazepine dosage units dispensed, and dispensing of trinity 
cocktail prescriptions.\35\ See RD, at 55-57. In February 2016, a Pro 
Compliance Report recommended that Respondent engage with Pharmacy 
Specialties' owner to ``gain a better understanding of [its] dispensing 
practices.'' GX 23, at 6. Respondent's phone logs demonstrate that an 
employee raised a concern on March 7, 2016, regarding Pharmacy 
Specialties Group; however, there is no record documentation of how the 
concern was resolved and Respondent continued to distribute. See GX 14, 
at 4 (``[C]heck out this guys usage for item [ ] compared to his 
overall warehouse purchasing, this seems quite elevated to me. . . . 
.???? ''). This note identifies a suspicious order; however, according 
to the record evidence, Respondent did not report the order to DEA. 
Further, there is no documented investigation or resolution of the 
concern raised by the employee in the record. On December 13, 2017, 
another note reads, ``Henry will give the customer a warning about his 
Oxy purchases. Too much cash, too much growth. Will re-run and if no 
improvement will either restrict or cut off completely.'' Id. at 31. 
Although this note seems to set forth a plan for compliance, it does 
not include any indication of an investigation into or resolution of 
the red flags identified. Further, the record evidence is clear that 
Respondent did not report this order or any orders from this customer 
to DEA and there is no record evidence that Respondent stopped shipping 
to this customer as a result of these reports. Tr. 362; Stip. 14.
---------------------------------------------------------------------------

    \32\ According to the Pro Compliance Reports in evidence, the 
percentages of controlled substances ranged from approximately 24 to 
30 percent of Pharmacy Specialties' total dispensing. GX 23, at 5, 
18; Tr. 353-54.
    \33\ According to the Pro Compliance Reports in evidence, the 
percentages of controlled substances dispensing paid for in cash 
ranged from approximately 28 percent to 31 percent. GX 23, at 5-6, 
16, 18, 18.
    \34\ From February 2016 to October 2016, the number of 
hydrocodone dosage units dispensed increased by 25 percent, while 
from October 2016 to September 2017, the number of dosage units of 
oxycodone, hydrocodone, and benzodiazepines dispensed increased by 
148, 89, and 106 percent respectively. GX 23, at 16, 18; Tr. 358-59.
    \35\ In February 2016, October 2016, and September 2017, 
Pharmacy Specialties dispensed trinity drug cocktails. GX 23, at 6, 
16; Tr. 355, 358-59.
---------------------------------------------------------------------------

5. Dave's Pharmacy
    Pro Compliance Reports for Dave's Pharmacy in Respondent's 
possession demonstrated that during the time period of the allegations, 
Dave's dispensing practices raised numerous red flags, including: high 
percentages \36\ of controlled substance prescriptions, high 
percentages of controlled substance prescriptions paid for in cash,\37\ 
increases \38\ in the number of oxycodone dosage units dispensed, and 
dispensing of trinity cocktail prescriptions.\39\ See RD, at 57-59. In 
March 2014, a Pro Compliance Report recommended that Respondent engage 
with Dave's owner to ``gain a better understanding of [its] dispensing 
practices. . . .'' \40\ GX 24, at 6. It also states that this pharmacy 
``represents a relatively high risk to [Respondent].'' Id. (emphasis in 
original). A year later, on February 16, 2017, Respondent's phone logs 
contain the following note about Dave's: ``Talked to [D.J.] about the 
issues at his store. He will let the doctors know that he will no 
longer be filling these scripts.'' GX 14, at 23. According to the 
record evidence, Respondent did not elicit or document an explanation 
for the red flags and the record is clear that Respondent never 
reported this order or any orders from this customer to DEA. Further, 
there is no record evidence that Respondent stopped shipping to this 
customer as a result of these reports. Tr. 384-85; Stip. 15.
---------------------------------------------------------------------------

    \36\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substances during the relevant time period 
ranged from approximately 20 to 22 percent of Dave's total 
dispensing. GX 24, at 5, 18-21, 24, 30; Tr. 362-67.
    \37\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substance dispensing paid for in cash 
ranged from approximately 17 to 35 percent. GX 24, at 18-21, 23, 24, 
30; Tr. 364-67.
    \38\ For example, from March 2014 to January 2015, the number of 
oxycodone dosage units dispensed increased from 17,889 to 29,994, 
and from May 2014 compared to December 2015, the number of dosage 
units of oxycodone increased by 205 percent. GX 24, at 18, 19, 21; 
Tr. 364; see also RD, at 57-59.
    \39\ Between March 2014 and January 2015, Dave's dispensed 57 
trinity drug cocktails. GX 24, at 18; Tr. 364. Between May 2014 and 
December 2015, Dave's dispensed 27 trinity drug cocktails, and 
between December 2015 and June 2016, Dave's dispensed 33 trinity 
drug cocktails. GX 24, at 19-20. Tr. 365-66. Further, between June 
and November 2016, Dave's dispensed 37 trinity drug cocktails and in 
June 2017, Dave's dispensed 14. GX 24, at 21, 24.
    \40\ This Pro Compliance Report identifies Dave's second highest 
prescriber as having eighty-five incidents of prescribing trinity 
drug cocktails.
---------------------------------------------------------------------------

6. Hephzibah Pharmacy
    A Pro Compliance Report for Hephzibah Pharmacy in Respondent's 
possession demonstrated that during the time period of the allegations, 
Hephzibah's dispensing practices raised numerous red flags, including: 
high percentages \41\ of controlled substance prescriptions, high 
percentages of controlled substance prescriptions paid for in cash,\42\ 
and dispensing of trinity cocktail prescriptions.\43\ See RD, at 59-60. 
In February 2017, a Pro Compliance Report recommended that Respondent 
engage with Hephzibah's owner to ``gain a better understanding of [its] 
dispensing practices. . . .'' GX 25, at 6.
---------------------------------------------------------------------------

    \41\ In February 2017, controlled substance prescriptions 
constituted 27 percent of Hephzibah's total dispensing. GX 25, at 6; 
Tr. 370-71.
    \42\ In February 2017, the percentage of controlled substance 
dispensing paid for in cash was 36 percent. GX 25, at 6, 12; Tr. 
371.
    \43\ In February 2017, Hephzibah dispensed nine trinity drug 
cocktails. GX 25, at 5-6; Tr. 371.
---------------------------------------------------------------------------

    Jacob Dickson sent an email to a DI stating that Respondent had 
ceased business with Hephzibah because Respondent did not support the 
customers who ``wished to change their business model;'' however, 
Respondent ``did not find these accounts to exhibit suspicious activity 
or excessive orders.'' GX 72, at 1. Respondent's phone logs state on 
March 17, 2017, that ``they must work on clearing up issues that Pro 
Compliance found, high cash, trinity & high quantities on Hydrocodone 
and Oxycodone. Will re-run in 90 days.'' GX 14, at 23. On March 21, 
2017, there is a follow up entry that states, ``After a couple of 
months, they decided they would rather change wholesalers than 
cooperate with our compliance program.'' Id. at 26. Although the notes 
demonstrate that Respondent was

[[Page 34529]]

conducting some due diligence, this statement contradicts Jacob 
Dickson's email asserting that Respondent terminated the business 
relationship and also that Respondent did not find the accounts to 
exhibit suspicious activity when it clearly had identified red flags 
through Pro Compliance Reports. See GX 72, at 1 (listing Hephzibah 
Pharmacy as an account that Respondent ``chose to close'').\44\
---------------------------------------------------------------------------

    \44\ The Agency agrees with the ALJ's finding that the phone log 
note deserves more weight as to what occurred with this pharmacy 
than Jacob Dickson's email. RD, at 136 n.60.
---------------------------------------------------------------------------

7. The Wellness Pharmacy
    Pro Compliance Reports for the Wellness Pharmacy in Respondent's 
possession demonstrated that during the time period of the allegations, 
Wellness's dispensing practices raised red flags of very high 
percentages of controlled substance prescriptions and high numbers of 
dosage units of hydrocodone and oxycodone. See RD, at 60-61. Although 
Pro Compliance's initial risk assessment evaluated Wellness as ``low 
risk,'' it also revealed that between April and June 2013, 67 percent 
of all prescriptions dispensed by Wellness were for controlled 
substances. Further Pro Compliance Reports during the relevant time 
period demonstrated that Wellness's percentage of controlled substance 
prescriptions continued to range from approximately 64 to 69 percent. 
GX 26, at 10-12, 14, 21; Tr. 374. There is no record evidence that 
Respondent reported these orders to DEA or any orders from this 
pharmacy, documented the resolution of the red flags, or stopped 
shipping to this customer as a result of the red flags that these 
reports identified. Tr. 384-85; Stip. 17.
8. Wilkinson Family Pharmacy
    Pro Compliance Reports for Wilkinson Family Pharmacy in 
Respondent's possession demonstrated that during the time period of the 
allegations, Wilkinson's dispensing practices raised numerous red 
flags, including: high percentages \45\ of controlled substance 
prescriptions, increases in oxycodone, high percentages of controlled 
substance prescriptions paid for in cash,\46\ higher than average 
dosages of oxycodone and hydrocodone, and dispensing of trinity 
cocktail prescriptions.\47\ See RD, at 61-63. In January 2017, a Pro 
Compliance Report recommended that Respondent engage with Wilkinson's 
owner to ``gain a better understanding of [its] dispensing practices.'' 
GX 27, at 26.\48\ There is no record evidence that Respondent reported 
these orders or any orders from this customer to DEA, or stopped 
shipping to this customer as a result of these reports. Tr. 384-85; 
Stip. 19.
---------------------------------------------------------------------------

    \45\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substances during the relevant time period 
ranged from approximately 9 to 42 percent of Wilkinson's total 
dispensing. GX 27, at 20-23. 25-26; Tr. 367, 378-380.
    \46\ According to the Pro Compliance Reports in evidence, 
percentages of controlled substance dispensing paid for in cash 
ranged from approximately 17 to 38 percent and cash paid for non-
controlled substance prescriptions was significantly lower. GX 27, 
at 20-23; Tr. 378-380.
    \47\ Between March 2014 and January 2015, Wilkinson dispensed 
twenty-six trinity drug cocktails. GX 27, at 21; Tr. 378. Between 
January 2015 and January 2016, Wilkinson dispensed twenty-one 
trinity drug cocktails, and between December January 2016, and 
August 2016, Wilkinson dispensed twenty trinity drug cocktails. GX 
27, at 22-23. Tr. 379. Further, in January 2017, Wilkinson dispensed 
fourteen trinity drug cocktails, and in June 2017, Wilkinson 
dispensed 14. GX 27, at 26, 32.
    \48\ Respondent produced an email from March 4, 2014, from 
Wilkinson, which appeared to be in response to a Pro Compliance 
Report that Respondent had sent to Wilkinson. Wilkinson's 
explanation primarily focuses on cash payments. RX 05.001. The GS 
testified that this showed ``some'' due diligence. Tr. 452. There 
was extensive dispute about the introduction of this exhibit during 
the hearing. Tr. 453-458. It appeared that Respondent did try to 
offer the exhibit into evidence, Tr. 453, and then offered it 
subject to connection. Tr. 455. The ALJ ultimately determined to 
send it to the Agency as part of the administrative record. RD, at 
104 n.41. The Agency has considered this exhibit because the 
contested nature of the hearing at this point has made it difficult 
to determine whether this exhibit was offered. The exhibit 
demonstrates that Respondent conducted ``some'' due diligence on 
Wilkinson. However, it is noted that the document does not 
demonstrate the resolution of each of the red flags of diversion, 
nor does it reflect any independent analysis of Respondent's 
statements regarding the cash red flag. Ultimately, the Agency 
accepts that Respondent conducted ``some'' due diligence for 
Wilkinson. Further, even if Respondent had adequately resolved the 
red flags for this pharmacy, there is more than enough evidence of 
Respondent's failures to conduct due diligence to support the 
Agency's finding that Respondent's registrations are inconsistent 
with the public interest.
---------------------------------------------------------------------------

    The Government has presented substantial record evidence that 
Respondent distributed controlled substances to the exemplar pharmacies 
during the relevant time period in the face of red flags of diversion, 
including high percentages of controlled substance prescriptions, high 
percentages of controlled substance prescriptions paid for in cash, 
dispensing of trinity cocktail prescriptions, and increases and higher 
than average dosages of particular schedule II controlled substances. 
All of these red flags were specifically identified by Pro Compliance 
Reports in Respondent's possession. Although some of the notations 
provided by Respondent demonstrated that employees had suspicions about 
certain orders and had made some contacts, none of the notations 
adequately resolved the red flags and none of the orders were reported 
to DEA as suspicious. In the documents Respondent produced to DEA, the 
GS did not find any indication that the Compliance officer stopped 
shipment of any order of controlled substances identified as 
suspicious. Tr. 315-16, 385. It is noted that most of these customers 
displayed not just one red flag, but multiple red flags of diversion--
most of them well over any arguable threshold that would require 
investigation, see supra notes 15-16--and there is insufficient record 
evidence that Respondent conducted or documented due diligence to 
resolve these numerous red flags of diversion presented by its 
customers.

E. Suspicious Orders Under 21 CFR 1301.74(b)

    The Government alleged that Respondent failed to design and operate 
an effective system to disclose to Respondent suspicious orders and to 
report those orders to DEA. OSC, at 8. DEA used statistical analysis of 
orders placed by Respondent's customers for oxycodone and hydrocodone 
to ``identify extremely large individual pharmacy transactions and 
extremely large monthly volume totals,'' in order to demonstrate the 
failures of Respondent's SOM system and reporting. Id. The GS explained 
that the reporting of suspicious orders is particularly important for 
DEA to be able to ``conduct an investigation'' and identify potential 
diversion. Tr. 284-86.
    G.R. testified regarding the statistical analysis that he performed 
for the investigation, including his use of a statistical methodology 
called the Tukey method to identify outlier transactions that 
represented possible suspicious orders. Tr. 225; 236-37. G.R. testified 
that Tukey uses an interquartile range, which is the difference between 
the first and third quartiles, and then is multiplied by a factor of 
one-and-a-half to six (IQR multiplier). Tr. 202. Although there is no 
single multiplier to use, Tr. 523, the higher the IQR multiplier, the 
fewer outliers will be identified. Tr. 523-24. G.R. used an IQR 
multiplier of 3 to calculate a smaller group of outliers to identify 
``what are called far out or extreme outliers.'' Tr. 203, 233, 242. 
G.R. testified that the transactions that he identified using three IQR 
above the 75th percentile represented unusually large transactions, 
which would normally occur less than one percent of the time. Tr. 238-
39.
    G.R. testified that he analyzed Respondent's sales of oxycodone and

[[Page 34530]]

hydrocodone from January 1, 2014, to April 30, 2018, and compared every 
transaction the pharmacy made from January 1, 2014, to April 30, 2018, 
against every other transaction made during the same time period to the 
same pharmacy, which he called a ``fixed-frame analysis.'' Tr. 197-98; 
226-27. He credibly testified that he used the fixed-frame analysis 
because he was looking for ``a ballpark estimate of scale, size of 
outlier population,'' as opposed to the exact number of outliers. Tr. 
227, 234.
    Government Exhibits 65 and 66 contain all of the transactions 
concerning oxycodone shipments that Respondent reported to DEA between 
January 1, 2014, and April 30, 2018, as well as the results of G.R.'s 
corrected analysis using the above-described methodology. Tr. 71-72. GX 
65, 66; Tr. 71-72, 211-12. G.R.'s corrected analysis identified the 
following amounts of Respondent's oxycodone and hydrocodone sales as 
outliers, i.e., unusually large, from January 1, 2014, to April 30, 
2018.

----------------------------------------------------------------------------------------------------------------
             Substance                  2014         2015         2016         2017      \49\ 2018      Total
----------------------------------------------------------------------------------------------------------------
Oxycodone.........................        2,097        1,857        1,546        1,361          391        7,252
Hydrocodone.......................        1,919        1,314        1,006          536          173        4,948
----------------------------------------------------------------------------------------------------------------

Tr. 212-13; GX 65-66, at Summary tab; Government Demonstrative Exhibit 
(GDX), at 10.
---------------------------------------------------------------------------

    \49\ January 1, 2018, to April 30, 2018. Tr. 212, 226.

    G.R.'s corrected analysis also identified approximately 450 
potential outliers for Respondent's oxycodone and hydrocodone sales for 
seven \50\ of the exemplar pharmacies from January 1, 2014, to April 
30, 2018. Tr. 213-14, 216-17, 243; GDX, at 11.\51\ See RD, at 68 for 
table. The Agency is considering the review of the exemplar pharmacies' 
unusually large orders for oxycodone and hydrocodone only to further 
demonstrate the general failure of Respondent to identify, investigate 
and report suspicious orders.\52\
---------------------------------------------------------------------------

    \50\ G.R.'s corrected analysis did not identify any unusually 
large transactions of oxycodone or hydrocodone that Respondent 
shipped to Hephzibah Pharmacy. ALJX 14, at 4; Tr. 230. However, the 
Pro Compliance Report for Hephzibah Pharmacy demonstrated multiple 
red flags of diversion. Supra section III.D.6.
    \51\ The tables reflect transaction size, not frequency. Tr. 
244.
    \52\ It is noted that Weinstein conducted a ``look-back'' 
analysis of G.R.'s data; Tr. 537-38, 550-51, 693, RDX-4; see also 
RD, at 73 (table analyzing these amounts). The Agency acknowledges 
that Respondent demonstrated Weinstein's analysis produced 
significantly lower results; ``nearly half of the outlier 
transactions he identified in 2017 and 2018 would not have been 
identified as outliers.'' ALJX 89, at 38 (citing Tr. 529-30, 568; RX 
28 and 29)).
---------------------------------------------------------------------------

    In response to criticism from Respondent's expert, G.R. also 
conducted a ``look-back analysis,'' which, according to G.R., produced 
results ``consistent with what [he] found using the'' \53\ fixed-frame 
analysis method. Tr. 228, 235. In his look-back analysis, G.R. looked 
at ``the entire population'' and not only the seven exemplar pharmacies 
in the OSC showing unusually large transactions. Tr. 230. G.R. 
testified that statistical analysis is ``one piece of the analysis that 
is necessary to comply with DEA's regulations governing distributors.'' 
Tr. 223-24, 1084-90. See GX 73 and 74 (analysis using the look-back 
methodology that Weinstein recommended). The look-back analysis for 
oxycodone transactions revealed 6,816 outlier transactions, a 6 percent 
reduction when compared to the fixed-frame analysis of 7,252 that the 
Government previously found. Tr. 1091; GX 73, at Summary tab. The look-
back analysis for hydrocodone transactions revealed 5,222 outlier 
transactions, a 5.5 percent increase when compared to the fixed-frame 
analysis of 4,948 that the Government previously found. Tr. 1092; GX 
74, at Summary tab.\54\
---------------------------------------------------------------------------

    \53\ Respondent argued in its Exceptions that G.R.'s look-back 
analysis could not be characterized as ``substantially similar'' to 
the fixed-frame analysis because although the numerical size of 
outliers was similar, each analysis found substantially different 
outliers. Resp Exceptions, at 41-42. Respondent's point is noted; 
however, both analyses identified numerous outliers and, ultimately, 
the number of outliers that could have represented suspicious orders 
under both analyses far exceeded the three that Respondent reported 
to DEA during the relevant timeframe. Further, Respondent did not 
demonstrate adequate documentation of its resolution of suspicious 
orders nor is there information on the record that Respondent 
stopped shipping.
    \54\ Respondent contests the Government's introduction of this 
rebuttal evidence in its Exceptions. Resp Exceptions, at 40-41. As 
further explained herein, the Agency credits Weinstein's criticism 
of G.R.'s analysis. The exact number of unreported suspicious orders 
is unnecessary for the Government to prove or the Agency to conclude 
in finding a violation because Respondent was responsible for 
creating and maintaining an adequate SOM system and identifying and 
reporting suspicious orders. Here, it is clear from the evidence 
that Respondent's SOM system during the relevant timeframe was 
inadequate.
---------------------------------------------------------------------------

    Respondent presented the testimony of its own expert, Weinstein, 
who opined that G.R.'s analysis failed to reliably identify unusually 
large or suspicious orders. Tr. 558. Weinstein based his criticism of 
G.R.'s analysis on four factors: (1) the use of a four-year fixed-frame 
as opposed to the look-back method; (2) the failure to consider the 
schedule change of hydrocodone in late 2014 from schedule III to 
schedule II; (3) the failure to consider package size and formulation; 
and (4) the use of the line item approach as opposed to a cumulative 
approach. RD, at 70; Tr. 525-28, 541-46, 558.
    Weinstein credibly explained his criticisms of G.R.'s analysis in 
detail, opining that the factors he identified both over-estimated, 
see, e.g., Tr. 552, and under-estimated, see, e.g., Tr. 552-53, the 
number of outliers that could have potentially constituted suspicious 
orders.
    Weinstein notably ``did not conduct an original analysis to 
determine, retrospectively, which of Respondent's orders from 2014 
through 2018 should have been identified as suspicious.'' Resp 
Exceptions, at 40; see also RD, at 25, 75. Respondent argues that it is 
not Respondent's burden to do so. Resp Exceptions, at 40 (citing 
Steadman v. Securities and Exchange Comm'n, 450 U.S. 91, 100-03 (1981); 
Masters Pharm., Inc., 80 FR at 55473; 21 CFR 130.44(e)).
    Even if the Agency fully credits Weinstein's criticism of G.R.'s 
analysis, the Government has clearly demonstrated its prima facie case 
that Respondent failed to design and operate a system to identify 
suspicious orders and report them to DEA and Respondent admits as much. 
See, e.g., Tr. 666 (Weinstein testifying that the numbers run in early 
2018 would have identified suspicious orders in similar quantities to 
what Respondent is currently reporting); Tr. 813 (Irelan testifying 
that he accepts responsibility for the Government's allegations in the 
OSC, paragraph 10, regarding the failure to design and operate an 
adequate SOM system). The G.R. analysis, according to G.R.'s credible 
testimony, offered a ballpark estimate of the scale of suspicious 
orders that Respondent neglected to identify and report to DEA. RD, at 
12, and 136; accord Tr. 404 (The GS testifying that he asked G.R. to 
conduct an analysis ``to get a sense of just mathematically quantifying 
how many suspicious orders could theoretically have been missed by

[[Page 34531]]

Morris & Dickson'' \55\). Respondent argued that the Government's case 
was founded \56\ on establishing specific outliers that Respondent 
failed report to DEA as suspicious orders. Resp Exceptions, at 43 
(citing e.g., OSC, at 37, 46, 54, 65, 74, 84, 93); see also ALJX 52, at 
20. However, the Agency does not find it necessary to count and 
identify the exact number of specific outliers, and the reason why is 
simple. Respondent is charged with violating a non-prescriptive 
regulation, which clearly places the burden on the distributor to 
design and operate a system to disclose to the distributor suspicious 
orders of controlled substances under Agency guidelines.\57\ The DEA 
regulations notably do not prescribe exactly what SOM system to use or 
what constitutes a suspicious order--what constitutes an order of 
unusual size, an order deviating substantially from a normal pattern, 
etc. Respondent, in its defense, did not attempt to demonstrate that 
the system that it had in place during the relevant time period 
adequately identified suspicious orders--in fact, Irelan took 
responsibility for Respondent's SOM system failures and failure to 
adequately report suspicious orders to DEA. Tr. 731, 733. Based on the 
evidence in the record and Respondent's admitted failures, the Agency 
finds that Respondent clearly violated 21 CFR 1301.74(b) in failing to 
design and operate its system and in failing to investigate or report 
suspicious orders to DEA. Respondent's attempts to distract the Agency 
from the notion that it did not adequately meet the regulatory 
obligation by picking apart DEA's ballpark estimate demonstrating the 
potential magnitude of Respondent's violations are unavailing. The 
Agency notes that Respondent contests the quantity of suspicious orders 
that G.R. identified as unreported to DEA; but G.R.'s analysis, which 
he notably calibrated to only identify extreme outliers, Tr. 203, shows 
that the number of unreported suspicious orders for these two 
controlled substances during the relevant timeframe could have 
potentially been in the thousands.\58\
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    \55\ It is noted that Respondent uses a different quote from the 
GS that stated that the intent of the analysis was ``to quantify, 
you know, just how many orders are we talking about that fell 
outside of just a normal pattern or set amount'' and that ``the 
analysis showed that there were roughly, 14,000 orders that should 
have been reported as suspicious based on the quantity that was 
ordered.'' Respondent's Exceptions, at 45 (quoting Tr. 293). Given 
the several contextual parameters that the GS used in these 
statements, like ``just a normal pattern or set amount'' and ``based 
on the quantity that was ordered,'' the Agency does not find this 
statement to be inconsistent with the GS's statement at Tr. 404, 
regarding the purpose of G.R.'s analysis.
    \56\ The Government's Prehearing Statement states that G.R. 
``will testify that a standard statistical outlier analysis is a 
reasonable method to identify unusual transactions in the context of 
pharmaceutical distribution.'' ALJX 7, at 6. The description of 
G.R.'s testimony in both the Government's Prehearing Statement and 
Third Supplemental Prehearing Statement discusses the manner in 
which G.R. arrived at his calculations and established reasonable 
thresholds. Id. at 6-8; ALJX 52, at 20 (``G.R. will testify that his 
analysis identified the following unusually large transactions for 
the exemplar pharmacies.''). The Agency additionally agrees with the 
rationale of the ALJ that G.R.'s testimony regarding the intent of 
his statistical analysis did not give rise to a new allegation. See 
RD, at 96 n.33.
    \57\ The December 20, 2007 letter that DEA sent to manufacturers 
and distributors stated that ``[t]he regulation clearly indicates 
that it is the sole responsibility of the registrant to design and 
operate such a system. Accordingly, DEA does not approve or 
otherwise endorse any specific system for reporting suspicious 
orders.'' GX 4, at 1.
    \58\ Respondent further made arguments related to what it 
determined as inconsistent analysis in the RD related to G.R.'s 
outlier numbers. Resp Exceptions, at 44-46. The Agency finds that 
G.R.'s analysis provides a ballpark of the egregiousness of 
Respondent's failures to design and operate the required system. See 
Tr. 227, 224.
---------------------------------------------------------------------------

F. Respondent's Policies and Procedures During the Relevant Timeframe

    Respondent produced a Policies and Procedure Manual and a Standard 
Operating Procedures (SOP) Manual in response to DEA's investigation. 
GX 17 and 18. The Policies and Procedure Manual states, ``Where a 
Compliance Officer sees a ratio of controlled drugs ordered out of the 
normal range, or the overall quantity is too high compared with the 
volume of the account, the Compliance Officer has a duty to investigate 
by calling the account. The Compliance Officer may stop shipment on any 
order if he or she finds the order to be unusually suspicious.'' GX 17, 
at 12. The Policies and Procedures Manual notably does not indicate an 
obligation to report suspicious orders to DEA. The GS testified that in 
his review of Respondent's records, he did not see documentation of 
stopped suspicious orders. Tr. 315-16. The SOP Manual \59\ states that 
Respondent ``keeps a system in operation which is designed to discover 
those purchasing patterns of controlled substances which exceed the 
norm and could possibly be related to diversion activities.'' GX 18, at 
19. The GS testified that this statement does not adequately reflect 
the obligations in 21 CFR 1301.74(b). Tr. 307. Further, although the 
SOP Manual describes various analytical reports regarding drug sales 
and drug volumes, the GS testified that he did not see any references 
to these reports in Respondent's relevant records. Tr. 308-09, 491. The 
SOP Manual does clearly state that ``[w]hen a suspicious pattern or 
purchase is identified by any of the above methods the customer is 
contacted in some but not all cases and asked for a written explanation 
for the unusual order. In all cases,\60\ a letter is sent to the DEA 
indicating a possible suspicious order.'' GX 18, at 20.
---------------------------------------------------------------------------

    \59\ The SOP Manual states that the details of Respondent's 
suspicious order monitoring program ``are confidential and therefore 
are not made a part of this manual.'' Tr. 306; GX 18, at 17.
    \60\ The GS testified that customers should be contacted in all 
cases. Tr. 484. Masters may provide some room for nuance if 
Respondent stops shipment of the orders and reports to DEA; however, 
none of this nuance is represented in the SOP Manual. Additionally, 
the policy states that ``in all cases,'' DEA is required to be 
notified, when in fact, DEA was only notified three times during the 
relevant time period and the record evidence established that 
Respondent neither reported to DEA nor adequately documented the 
resolution of red flags for the exemplar pharmacies or generally for 
suspicious orders during the relevant time period. See supra III.D.
---------------------------------------------------------------------------

G. Respondent's Former SOM System

    Irelan testified that Respondent's SOM system during the time 
period comprising the allegations (former SOM System) was ``not as 
robust as what we have today.'' Tr. 738-40 (citing e.g., GX 19, at 3); 
see also RX 31.001 and 31.002 (notes that were part of Respondent's 
former SOM System). The former SOM system included: know your customer 
efforts; an electronic customer profile (ECP); a market basket system; 
reports from Pro Compliance; direct contact with and soliciting of 
information from customers; and reliance on Respondent's sales force 
and those who actually filled orders for controlled substances. Tr. 
866-70; GX 9, at 2-3; GX 17, at 12; GX 18, at 19-20.
    Irelan testified that Respondent's former SOM system would send an 
email or text message to the compliance officer, C.G., when an order 
was flagged as suspicious and the order would ship if C.G. did not take 
action to stop it. Tr. 728, 778.
    Irelan testified that Respondent's former SOM system was ``not 
consistent with best practices . . . . because it didn't hold the 
order. It didn't give an opportunity to resolve red flags before 
shipping.'' Tr. 729. Additionally, Irelan testified that ``the 
calculation that the system was using [to identify potentially 
suspicious orders] was only using ten times a 90-day average,'' which 
made it ``inadequate.'' Tr. 729; see also Tr. 321-22 (The GS testimony 
that 8 times the average could still be a suspicious order); Tr. 652 
(Weinstein testifying that this calculation was not sufficient based on 
DEA guidance). Regarding the former SOM system, Milione testified that 
his ``understanding is they accepted that there were things wrong with 
it, that the

[[Page 34532]]

reporting to DEA was insufficient.'' Tr. 989. Further, he stated, ``it 
was clear that there was an issue'' and that after reviewing the 
system, his company told Respondent that ``there are certain things 
that should be enhanced knowing what DEA expected.'' Tr. 990-91. For 
example, ``one of the big things was a way to flag orders [in] real 
time and in an appropriate way with some kind of an algorithm and then 
report those flagged orders to DEA.'' Tr. 991.
    Respondent also argues that as a result of its former SOM system, 
it had ceased supplying controlled substances to 42 pharmacies from 
2014 to 2016. RX 11, at 14 (powerpoint slide); Tr. 871. Respondent's 
expert acknowledged that if those customers had been terminated based 
on Respondent's SOM program, it should have filed suspicious order 
reports with DEA. Tr. 1015-16; see also Masters Pharm., Inc., 80 FR at 
55477 (holding that a distributor discovering a suspicious order must 
either stop shipping and report to DEA or investigate and resolve the 
red flags). If Respondent stopped shipping and terminated a customer as 
a result of discovering a suspicious order, that order should have been 
reported to DEA. There is no evidence that the 42 customers from 2014 
to 2016 were reported to DEA--in fact, the evidence establishes that 
there was only one suspicious order report filed during this timeframe 
on April 7, 2014. See GX 6, at 1.\61\
---------------------------------------------------------------------------

    \61\ It is also noted that Jacob Dickson's letter stated that 
Respondent had ceased supplying 142 retail pharmacies ``due to 
questions and concerns that the pharmacies were overdispensing 
controlled substances. After ceasing doing business with these `bad 
accounts' [Respondent] has seen very few examples which would 
justify the reporting of a suspicious order.'' GX 9, at 5. Milione 
testified that Mr. Dickson ``specifically took pride in being able 
to say, look, this--every year there has been this--this many 
customers that they focused on and identified. And I think--I don't 
know the exact math. It was 125, 135 customers from 2008 to 2016 
that were terminated or suspended . . . based upon their compliance 
suspicious order monitoring program.'' Tr. 870-71. Respondent 
provided transcribed testimony from Mr. Dickson in a separate 
hearing stating that Respondent eliminated 142 customers ``because 
in some form or fashion they might have been suspicious and 
diverting.'' RX 1, at 61. It is unclear how many of these customers 
were terminated during the relevant timeframe--other than the 42 
customers that were terminated during 2014 to 2016. Without the 
benefit of evidence or testimony regarding the circumstances of the 
terminations during the relevant timeframe, it is difficult for the 
Agency to determine what weight to give these terminations, see RD, 
at n.32; however, the language on the record describing these orders 
as ``suspicious and diverting'' or ``overdispensing'' or ``bad 
accounts'' certainly brings into question whether they could 
constitute additional violations of the suspicious order reporting 
requirement. See also RD, at 136. In sum, without further evidence 
explaining the circumstances of the terminations or the reasons why 
they were unreported to DEA, the Agency cannot give Respondent's 
terminations during the relevant timeframe the weight that 
Respondent requests to demonstrate its compliance. These 
terminations are not being considered as further violations of DEA 
regulations, but they are also not given weight for Respondent in 
the public interest inquiry. Finally, the Agency notes that whether 
Respondent's SOM System was adequate prior to the relevant timeframe 
is not a matter currently before the Agency.
---------------------------------------------------------------------------

H. Respondent's New SOM System

    Respondent requested confidentiality related to its current SOM 
system and policies; therefore, this Decision incorporates by reference 
the findings of the RD related to Respondent's system and summarizes 
herein at as high a level as possible while appropriately adjudicating 
the facts.\62\ See RD, at 75-82. Guidepost \63\ undertook seven 
corrective measures on Respondent's behalf. Tr. 882. Those measures 
included: (1) establishing an anti-diversion compliance regulatory 
affairs team; (2) enhancing Respondent's SOM system; (3) redeveloping 
Respondent's ECP; (4) enhancing Respondent's ``know your customer 
protocols''; (5) enhancing Respondent's due diligence investigative 
protocols; (6) conducting employee training; and (7) documenting 
everything and reporting to DEA. Tr. 882-900. The Analysis Group, Inc., 
(AGI) was also brought in to develop a live real-time order monitoring 
system that would identify suspicious orders. Tr. 885. Between May 14, 
2018, and July 29, 2018, Respondent submitted 58 suspicious order 
reports to the DEA. RX 20. In those 58 reports, Respondent informed the 
DEA of approximately 3,915 suspicious orders. Id. Applying Respondent's 
new SOM program to its orders from early 2018, Weinstein identified a 
similar number of suspicious orders.\64\ Tr. 666, 676, 682-83. 
Respondent's current SOM system holds customer's orders as 
``potentially suspicious'' and prevents the orders from being shipped 
until the Compliance team has reviewed. Tr. 668-69, 672; 582. 
Furthermore, Respondent currently documents its due diligence regarding 
suspicious orders in the Enhanced Customer Profiles in a readily-
retrievable format. Tr. 737, 716; RD, at 79.
---------------------------------------------------------------------------

    \62\ See, e.g., Tr. 15 (Respondent requesting confidentiality 
based on ``proprietary trade secrets of the Analysis Group regarding 
the customized suspicious order monitoring system that they have 
developed for the Respondent, as well as all of the different 
functionality of the Respondent's suspicious order monitoring 
system.''); ALJX 82. The Agency has provided a high-level summary of 
these improvements to demonstrate consideration of the scope of 
Respondent's remedial measures. The numbers of suspicious orders 
have been included because the Agency finds this information to be 
relevant to the adjudication of this matter.
    \63\ Respondent paid Guidepost a large sum of money between the 
time the OSC/ISO was issued and May 2019 to be brought into 
compliance with DEA regulations. Tr. 973-74, 992 (see RD, at 76 for 
further details). Milione testified that Respondent has ``spared no 
expense'' in becoming compliant with DEA regulations. Tr. 992.
    \64\ Although Respondent did not run its new system on the old 
data during the time period covered by the OSC, Tr. 682, 686, 
Weinstein did testify that Respondent applied its current SOM system 
to the orders Respondent received in early 2018 (covering some of 
the allegations in the OSC) and Weinstein testified that using the 
current SOM system ``[c]ertainly there were some that would have 
been identified in those months. And in a similar number to what's 
being identified currently.'' Tr. 666; see also Tr. 676 (data from 
April 2018 (in the relevant timeframe) produced a roughly similar 
volume of flagged orders, which ``tends to be in the hundreds each 
month that are identified by the thresholds''). It is noted that 
these numbers reflect the quantity of orders that would have been 
flagged for suspicion and does not ``take into account any due 
diligence'' etc. Tr. 677. This testimony is not included in this 
Decision to prove the number of suspicious orders that DEA should 
have received in early 2018, but, instead, is included to further 
support the Agency's finding that Respondent's suspicious order 
monitoring and reporting during the relevant timeframe was 
insufficient to meet the regulatory requirements.
---------------------------------------------------------------------------

IV. Analysis

    A distributor's registration may be suspended or revoked upon a 
finding that the distributor ``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). With regard to distributors of schedule II controlled 
substances, Congress has set forth five factors to consider when 
determining whether the distributor's registration would be in the 
public interest. The factors to be considered are:

    (1) maintenance of effective control against diversion of 
particular controlled substances into other than legitimate medical, 
scientific, and industrial channels;
    (2) compliance with applicable State and local law;
    (3) prior conviction record of applicant under Federal or State 
laws relating to the manufacture, distribution, or dispensing of 
such substances;
    (4) past experience in the distribution of controlled 
substances; and
    (5) such other factors as may be relevant to and consistent with 
the public health and safety.

21 U.S.C. 823(b).\65\
---------------------------------------------------------------------------

    \65\ 21 U.S.C. 823(e) also applies to distributors of controlled 
substances. The section sets forth the identical factors to be 
considered regarding a registration to distribute controlled 
substances in schedules III, IV, and V, as are contained in 21 
U.S.C. 823(b) concerning schedules I and II. The Government's 
allegations are focused primarily on Respondent's distribution of 
schedule II controlled substances, but in 2014, during the time 
period of the allegations, hydrocodone was changed from a schedule 
III to a schedule II controlled substance. Tr. 539. Additionally, 
Respondent is a registered distributor of controlled substances in 
schedules II-V; therefore, the Agency, even when referring only to 
(b), considers the identical public interest factors under both 
sections 823(b) and (e) in this section.

---------------------------------------------------------------------------

[[Page 34533]]

    The Agency considers these public interest factors in the 
disjunctive and may rely on any one or a combination of factors and 
give each factor the weight the Agency deems appropriate in determining 
whether to revoke a registration or to deny a pending application for 
renewal of a registration. Masters Pharm., Inc., 80 FR at 55472 
(applying DEA decisions on the public interest factors in 21 U.S.C. 
823(f) to the public interest factors for distributors in 21 U.S.C. 
823(b) and (e)); see also Southwood Pharm, Inc., 72 FR at 36497-98. Any 
one factor, or combination of factors, may be decisive. David H. 
Gillis, M.D., 58 FR 37507, 37508 (1993). There is no need to enter 
findings on each of the factors.\66\ Hoxie v. Drug Enf't Admin., 419 
F.3d 477, 482 (6th Cir. 2005); Masters Pharm., Inc., 80 FR at 55473.
---------------------------------------------------------------------------

    \66\ Respondent argues that ``an independent consideration of 
each of these [five] factors [at 21 U.S.C. 823(b)(1-5)] weigh[s] 
against a finding that Respondent's continued registration is 
inconsistent with the public interest.'' ALJX 89, para. 291. In 
other words, although the Government only submitted evidence 
relevant to Factor One and Factor Four, Respondent urges the Agency 
to find evidence relevant to all five Factors. The Agency declines 
to adjudicate, at Respondent's request, arguments that the 
Government did not make, yet notes that if it were to do as 
Respondent requests, the ensuing analysis of all five Factors would 
continue to point to the revocation of Respondent's registration.
---------------------------------------------------------------------------

    The Government bears the initial burden of proof and must justify 
revocation by a preponderance of the evidence. Steadman, 450 U.S. at 
100-03; Masters Pharm., Inc., 80 FR at 55473; 21 CFR 1301.44(e). If the 
Government makes a prima facie case for revocation, then the burden of 
proof shifts to the registrant to show why its continued registration 
would not be inconsistent with the public interest. Masters Pharm., 
Inc., 80 FR at 55473; see also Med. Shoppe--Jonesborough, 73 FR 364, 
387 (2008).
    In this case, the Government contends that Respondent's continued 
registrations are inconsistent with the public interest based on 
Factors One and Four. ALJ-90, at 27-29.

A. Respondent's Failure To Maintain Effective Controls Against 
Diversion and its Experience With Controlled Substances (Factors One 
and Four) 67
---------------------------------------------------------------------------

    \67\ While listing the five public interest factors of 21 U.S.C. 
823(b), the Government specifically notes that it does not rely on 
Factors Three or Five and makes no argument concerning Factor Two. 
ALJ-90, at 27-29 & n.12. Further, the Government combines its 
analysis of Factors One and Four. Id. at 28-44. The Government notes 
that where it has not made allegations with respect to Factors Three 
and Five, the factors do not weigh for or against revocation. See 
ALJX 90, at n.12. As such, although the Agency has considered all 
five factors, its analysis focuses on Factors One and Four.
---------------------------------------------------------------------------

    With respect to Factor One, concerning the maintenance of effective 
controls against diversion, DEA has promulgated regulations to guide 
the regulated community. Specifically,

    All applicants and registrants shall provide effective controls 
and procedures to guard against theft and diversion of controlled 
substances. In order to determine whether a registrant has provided 
effective controls against diversion, the Administrator shall use 
the security requirements set forth in [21 CFR] 1301.72-1301.76 as 
standards for the physical security controls and operating 
procedures necessary to prevent diversion.

21 CFR 1301.71(a).
    DEA's security regulations further provide that:

    The registrant shall design and operate a system to disclose to 
the registrant suspicious orders of controlled substances. The 
registrant shall inform the Field Division Office of the 
Administration in his area of suspicious orders when discovered by 
the registrant. Suspicious orders include orders of unusual size, 
orders deviating substantially from a normal pattern, and orders of 
unusual frequency.

21 CFR 1301.74(b).
    The OSC alleges that Respondent failed to maintain ``effective 
controls against diversion of particular controlled substances into 
other than legitimate medical, scientific, and industrial channels,'' 
in violation of 21 U.S.C. 823(b)(1) and 21 CFR 1301.71(a). ALJX 1, at 
3, paras. 7, 10. Second, the OSC alleges that Respondent failed to 
adequately ``design and operate a system to disclose to the registrant 
suspicious orders of controlled substances'' and report them to DEA, in 
violation of 21 CFR 1301.74(b). ALJX 1, at 3, paras. 8, 10.
    Factor Four involves a registrant's past experience in the 
distribution of controlled substances, which the Government has argued 
is appropriately considered along with its maintenance of effective 
controls against diversion. See, e.g., Masters Pharm., Inc., 80 FR at 
55473. In this case, Respondent argues that its experience in the 
distribution of controlled substances ``is extensive,'' as it was 
``founded in 1841 and distributes more than 33,000 products,'' and that 
its history of compliance weighs against a finding that Respondent's 
registration is inconsistent with the public interest. ALJX 89, at 115-
116 (citing RX 1, at 13:16, 15:10). Although Respondent's arguments 
have been considered, Respondent's misconduct as described further 
herein precludes a finding that Respondent's experience establishes a 
``history of compliance.'' See Novelty Distributors, Inc., 73 FR 52689, 
52702 (2008) (analyzing the identical factor for distributors under 21 
U.S.C. 823(h)).
1. A Suspicious Order
    To begin, the regulations require distributors to ``design and 
operate a system to disclose to the registrant suspicious orders of 
controlled substances.'' 21 CFR 1301.74(b). The regulations provide 
that, at minimum, a suspicious order includes ``orders of unusual size, 
orders deviating substantially from a normal pattern, and orders of 
unusual frequency.'' Id.; see section IV.A.3. These three criteria are 
non-exclusive and registrants may encounter other considerations beyond 
those spelled out in the regulation that could qualify an order as 
suspicious. Masters Pharm., Inc., 80 FR at 55473-74; Masters Pharm., 
Inc., 861 F.3d at 221 (noting the regulatory criteria for suspicion are 
``exemplary rather than exhaustive''). For example, a distributor might 
find a pharmacy's orders for controlled substances to be suspicious not 
only based on their exhibiting the characteristics set forth in the 
regulation, but also based upon the ``pharmacy's business model, 
dispensing patterns, or other characteristics.'' Masters Pharm., Inc., 
80 FR at 55473-74; see also id. at 55477 (stating that ``an order is 
not only suspicious by virtue of its internal properties--i.e., being 
of unusual size, pattern, or frequency--but by virtue of the suspicious 
nature of the pharmacy which placed [the order]''). The identification 
of a suspicious order that is based on the nature of the pharmacy's 
business takes place at the customer-level. See infra section IV.A.4.
    In order to conclude that an order for controlled substances is 
suspicious, a ``distributor is not required to establish, to a 
statistical certainty, that a pharmacy was likely diverting controlled 
substances.'' Masters Pharm., Inc., 80 FR at 55480. In fact, suspicion 
is a low standard, defined as merely one's `` `apprehension or 
imagination of the existence of something wrong based only on 
inconclusive or slight evidence, or possibly no evidence.' '' Masters 
Pharm., Inc., 80 FR at 55478 (quoting Black's Law Dictionary 1585 (9th 
ed. 2009)). Thus, if a distributor is aware of any indication of ``the 
existence of something wrong'' concerning the size, frequency, or 
pattern of an order, then the distributor is obligated to report it to 
the DEA. Masters Pharm., Inc., 80 FR at 55478. Because suspicion is a 
low standard, a distributor's obligation to report suspicious orders is 
triggered long before the distributor would have

[[Page 34534]]

probable cause to believe that a customer is engaged in diversion. Id. 
As Masters explains, suspicion is not contingent on evidence that the 
order will be diverted or that the customer is engaged in diversion. 
Id. With regard to the reporting requirement, the Agency's emphasis is 
on suspicion and not conclusive proof of diversion. Id. at 55420 
(explaining that tying suspicion to evidence of diversion ``imposes a 
higher standard than that of the plain language of the regulation, 
which requires only that the order be suspicious'').
2. Respondent's Failure To Adequately Design and Operate a Suspicious 
Order Monitoring System
    When a distributor's suspicious order monitoring (SOM) system 
places a hold on a customer's order for controlled substances because 
the order is of unusual size, pattern, or frequency, the order meets 
the specific criteria of being suspicious. Masters Pharm., Inc., 80 FR 
at 55479; Masters Pharm., Inc., 861 F.3d at 216-17 (affirming the 
Acting Administrator's ruling that ``orders held by the [distributor's 
SOM systems] met the regulatory definition of `suspicious orders' ''). 
DEA has made clear that it does not endorse any particular system for 
identifying suspicious orders. GX 4, at 1; Tr. 59-60, 76, 210, 497, 
646.
    In this case, Respondent's SOM system during the relevant time 
period did not have the capability to hold an order that was flagged as 
``potentially suspicious.'' Tr. 728, 778. Therefore, the system could 
not comply with the DEA legal requirements. Tr. 729 (Irelan testifying 
that the SOM system was ``not consistent with best practices'' because 
``[i]t didn't give an opportunity to resolve red flags before 
shipping.'')
    Additionally, the witnesses were in agreement that Respondent's SOM 
system during the relevant time period was inadequate to identify 
orders of unusual size in that it only flagged orders that were ``ten 
times a 90-day average,'' Tr. 729-30, 321, 652.\68\
---------------------------------------------------------------------------

    \68\ DEA sent a letter in December 20, 2007, warning 
distributors that a SOM system ``rely[ing] on rigid formulas to 
define whether an order is suspicious may be failing to detect 
suspicious orders.'' GX 4, at 2.
---------------------------------------------------------------------------

    Further, while Respondent had written policies and procedures, 
those policies and procedures only identified three suspicious orders 
over a period of four years and four months that were reported to the 
DEA. Respondent admits that its previous policies were inadequate. Tr. 
720-21. Respondent had a policy of producing monthly and daily reports, 
yet none is apparent in the Administrative Record, and although 
Respondent maintained a proprietary database, RX 11, at 5, there is no 
record evidence from this database.
    Finally, although Respondent argues that the record supports that 
it was conducting due diligence into its customers, Respondent admits 
that it did not adequately document that due diligence, nor did it 
apply that due diligence at an order level. See infra section IV.A.4. 
Respondent's policy of not documenting its due diligence, GX 9, was 
also inconsistent with the Masters decision. See id.
    In sum, the Agency finds substantial record evidence that 
Respondent failed to design and operate an adequate SOM system in 
violation of 21 CFR 1301.74(b).
3. Respondent's Failure To Report Suspicious Orders Under the Listed 
Criteria in 21 CFR 1301.74(b)
    As explained above, DEA regulations obligate distributors of 
controlled substances to not only design and operate a system to 
identify suspicious orders, but to also report all suspicious orders to 
DEA. 21 CFR 1301.74(b). In other words, DEA regulations require 
distributors like Respondent ``to alert DEA when their retail-pharmacy 
customers attempt to obtain unusual amounts of a controlled substance, 
because such attempts are powerful evidence that the pharmacies are 
operating illegally.'' Masters Pharm., Inc., 861 F.3d at 217-18 
(emphasis in original).\69\ Moreover, the Agency has previously held 
that filing ARCOS reports does not satisfy a distributor's obligation 
to notify DEA of suspicious orders, Southwood Pharm., Inc., 72 FR at 
36501, nor does filing reports on a routine or periodic schedule. 
Masters Pharm., Inc., 80 FR at 55478.
---------------------------------------------------------------------------

    \69\ Suspicious orders meeting the definition in 21 CFR 
1301.74(b) must be reported to DEA, and Respondent did not argue 
otherwise. See, e.g., Tr. 732, 1024; RX 20.001, at 1. There is 
additionally no record evidence that Respondent investigated these 
suspicious orders and resolved them at any time.
---------------------------------------------------------------------------

    The purpose of the DEA's reporting requirement is ``to provide 
investigators in the field with information regarding potential illegal 
activity in an expeditious manner.'' Masters Pharm., Inc., 80 FR at 
55483 n.169 (quoting Southwood Pharm., Inc., 72 FR at 36501). As such, 
when a distributor obtains ``information that an order is suspicious 
but then chooses to ignore that information and fails to report the 
order,'' the distributor violates its regulatory obligation. Id. at 
55478.
    Here, DEA presented evidence using the Tukey statistical model to 
determine a ballpark number of suspicious orders that an adequate SOM 
system might have identified during the time period in the allegations 
both for the eight exemplar pharmacies and for Respondent's customer 
base at large for two frequently abused controlled substances: 
oxycodone and hydrocodone. The ballpark estimate found numerous 
potential suspicious orders for seven out of the eight exemplar 
pharmacies, and for the overall customers, it found that 7,252 sales of 
oxycodone and 4,948 sales of hydrocodone during this time period should 
have possibly been reported as suspicious to DEA.\70\
---------------------------------------------------------------------------

    \70\ It is noted that the ballpark numbers that G.R. testified 
to support a conclusion that Respondent failed to identify, resolve, 
or report suspicious orders under the criteria in Sec.  1301.74(b) 
to DEA--not whether Respondent failed to conduct customer due 
diligence generally.
---------------------------------------------------------------------------

    The ballpark numbers constitute substantial evidence that there 
were far more suspicious orders that should have been identified, 
investigated, or reported than the mere three that Respondent reported 
during the time period. Even taking into consideration all of the 
criticism levied on DEA's modeling by Respondent's expert, he himself 
admitted that the data run during the beginning of 2018 produced 
similar results to the quantity that Respondent was reporting under the 
new system, which, in a little over a year, amounted to 3,915 
suspicious orders. As such, the Agency agrees with the ALJ that the 
three suspicious order reports filed during the relevant timeframe 
``barely scratched the surface,'' RD, at 140, and finds it clear that 
the Government has proven by substantial evidence that Respondent 
failed to investigate or report potentially thousands of suspicious 
orders of oxycodone and hydrocodone to DEA. Supra section III.E.
    Furthermore, the Southwood decision explained that even after a 
suspicious order is reported to DEA, a distributor must conduct some 
due diligence and only ship the order ``if it is able to determine that 
the order is not likely to be diverted into illegal channels.'' Masters 
Pharmaceuticals, 861 F.3d 206 (2017) (citing Southwood Pharm., Inc., 72 
FR at 36500). Here, it is undisputed that Respondent submitted three 
suspicious order reports to DEA during the relevant time period. The GS 
testified that Respondent shipped these orders without documenting any 
resolution of the suspicious circumstances that caused Respondent to 
report them to DEA. Tr. 294. Thus, the Agency finds substantial record 
evidence that Respondent's lack of documentation of its investigation 
into and resolution of these red flags,

[[Page 34535]]

coupled with its shipping of the suspicious orders, demonstrates 
additional violations of Respondent's regulatory obligations to provide 
effective controls and procedures to guard against diversion of 
controlled substances.
4. Customer Due Diligence and Red Flags
    It is inherent in the obligation under 21 CFR 1301.71(a) to 
maintain ``effective controls'' against diversion that ``a registrant 
has an affirmative duty to protect against diversion by knowing its 
customers and the nature of [their controlled substances] sales.'' 
Holloway Distributing, 72 FR 42118, 42124 (2007).\71\ Therefore, a 
distributor is required to act on `` `information which raise[s] 
serious doubt as to the legality of [the customer's] business 
practices,' '' also referred to as red flags,\72\ indicative of 
diversion. Masters Pharm., Inc., 80 FR at 55477 (alteration in 
original) (quoting Southwood Pharm., Inc., 72 FR at 36498). A 
distributor must also ``conduct a reasonable investigation to determine 
the nature of a potential customer's business before it sells to the 
customer.'' Id. Furthermore, a distributor has a continuing obligation 
to perform due diligence of a customer throughout the distributor's 
relationship with that customer. Id. at 55477. Masters clarified that 
``although a distributor's investigation of the order (coupled with its 
previous due diligence efforts) may properly lead it to conclude that 
the order is not suspicious, the investigation must dispel all red 
flags indicating that a customer is engaged in diversion to render the 
order non-suspicious and exempt it from the requirement that the 
distributor `inform' the Agency about the order.'' Id. at 55478.
---------------------------------------------------------------------------

    \71\ See also Holloway Distributing, 72 FR 42118, 42124 (2007) 
(finding that a distributor of List I chemicals' ``policy--which is 
fairly characterized as `see no evil, hear no evil'--is 
fundamentally inconsistent with the obligations of a DEA 
registrant'').
    \72\ It is noted that Agency Adjudications have used the term 
``red flag'' as early as 1998 and federal courts have used the term 
as early as 1986. Jones Total Health Care Pharmacy, L.L.C., & SND 
Health Care, L.L.C., 81 FR 79188, 79195 n.23 (2016), pet. for rev. 
denied, 881 F.3d 823 (11th Cir. 2018). In general, a red flag is any 
``circumstance that does or should raise a reasonable suspicion as 
to the validity of a prescription [or order].'' Pharmacy Doctors 
Enters. d/b/a Zion Clinic Pharmacy, 83 FR at 10896 n.31 (quoting 
Hills Pharmacy, L.L.C., 81 FR at 49839). Red flags are, in essence, 
``warning signs'' or ``suspicious circumstances'' that alert the 
registrant that something is not right. Jones Total Health Care 
Pharmacy, L.L.C., & SND Health Care, L.L.C., 81 FR at 79195 n.23.
---------------------------------------------------------------------------

    The record evidence and testimony from multiple experts in this 
case, the Pro Compliance Reports themselves, and prior DEA decisions 
have all clearly demonstrated that such suspicious circumstances, or 
red flags, include a pharmacy that: dispenses a high volume of 
narcotics; \73\ dispenses the trinity drug cocktail; \74\ dispenses 
disproportionally more controlled substances than non-controlled 
substances; \75\ fills prescriptions for a high volume of patients who 
pay for prescriptions in cash; \76\ fills a disproportionate volume of 
controlled substance prescriptions written by only a few prescribers; 
\77\ and orders excessive quantities of a limited variety of controlled 
substances.\78\ See supra section III.C. A distributor fails to 
maintain effective controls against diversion when the distributor 
continues to distribute controlled substances to a pharmacy that 
exhibits red flags of diversion without resolving those red flags. 
Masters Pharm., Inc., 80 FR at 55457 (faulting the distributor for 
supplying controlled substances ``while ignoring numerous red flags as 
to the legitimacy of the pharmacy's dispensing of controlled 
substances''); cf. Top RX Pharmacy, 78 FR 26069, 26082 (2013) (applying 
a similar principle to pharmacies filling prescriptions that contain 
red flags of abuse or diversion); see also Novelty Distributors, Inc., 
73 FR 52689, 52699 (2008) (applying a similar principle to list I 
chemical distributors under 21 U.S.C. 823(h) (``Fundamental to its 
obligation to maintain effective controls against diversion, a 
distributor must review every order and identify suspicious 
transactions. Further, it must do so prior to shipping the products. 
Indeed, a distributor has an affirmative duty to forgo a transaction 
if, upon investigation, it is unable to determine that the proposed 
transaction is for legitimate purposes.'')).\79\ A distributor has an 
obligation to guard against diversion, and as such, must resolve red 
flags of diversion presented by its customers or decline to ship the 
controlled substance. 21 U.S.C. 823(b), (e); 21 CFR 1301.71(a).
---------------------------------------------------------------------------

    \73\ Masters Pharm., Inc., 80 FR at 5548-81 n.168 (explaining 
where a distributor had information that 50 percent of the 
prescriptions filled by a pharmacy were for controlled substances, 
while the average pharmacy only fills about 20 percent, the 
distributor ``had substantial information which raised a strong 
suspicion as to the legitimacy of [the pharmacy's] dispensing 
practices''); GX 3, at 3.
    \74\ Jones Total Health Care Pharmacy, L.L.C., & SND Health 
Care, L.L.C., 81 FR at 79194 (``The combination of a benzodiazepine, 
a narcotic and carisoprodol is `well known in the pharmacy 
profession' as being used `by patients abusing prescription drugs.' 
'' (quoting E. Main St. Pharmacy, 75 FR 66149, 66163 (2010))).
    \75\ Masters Pharm., Inc., 80 FR at 55456; GX 3, at 3.
    \76\ Jones Total Health Care Pharmacy, L.L.C., & SND Health 
Care, L.L.C., 81 FR at 79194 (`` `[A]ny reasonable pharmacist knows 
that a patient that (sic) wants to pay cash for a large quantity of 
controlled substances is immediately suspect.' '' (quoting E. Main 
St. Pharmacy, 75 FR 66149, 66158 (2010))).
    \77\ GX 3, at 3.
    \78\ Masters Pharm., Inc., 80 FR at 55421; GX 3, at 3.
    \79\ Respondent introduced testimony regarding whether 
Respondent could continue to ship during a due diligence 
investigation into customer-level red flags of diversion--arguing 
that there is a certain amount of discretion involved and that 
stopping shipments would disrupt the supply chain. See, e.g., Tr. 
1049, 1050, 1042; 649. The record does not support a finding that 
Respondent did, in fact, adequately dispel all of the red flags on 
these customers at any time (before or after distributing), or that 
Respondent adequately documented purported resolutions of the red 
flags. The Masters decision cannot be read to intend to create a 
loophole in which a distributor could avoid reporting requirements 
and continue to ship orders of controlled substances while 
conducting lengthy investigations into red flags. Such an 
interpretation would not meet the requirement that a distributor 
maintain effective controls against diversion. To the extent that, 
as Respondent argues, there may be some discretion in the decision 
of when to ship, it is abundantly clear that a distributor cannot 
ship if it cannot determine that the ``proposed transaction is for 
legitimate purposes,'' Novelty Distributors 73 FR at 52699, or 
without resolving `` `information which raise[s] serious doubt as to 
the legality of [a potential or existing customer's] business 
practices.' '' Masters Pharm., Inc., 80 FR at 55477 (alteration in 
original) (quoting Southwood Pharm., Inc., 72 FR at 36,498). 
Further, Respondent's supply chain argument is weakened by the fact 
that Respondent had a duty to and was purportedly running reports on 
prospective customers; therefore, it knew about many of the red 
flags in the eight exemplar pharmacies before engaging in business 
with them. See, e.g., GX 25, at 4 (Initial Risk Evaluation Report 
for Hephzibah Pharmacy LLC); RX 11, at 15 (powerpoint demonstrating 
turned down prospective accounts based on Pro Compliance Reports).
---------------------------------------------------------------------------

    When a customer demonstrates red flags of diversion, the 
distributor must report a suspicious order to DEA unless the 
distributor conducts a due diligence investigation, which ``must dispel 
all red flags indicative that a customer is engaged in diversion.'' 
Masters Pharm., Inc., 80 FR at 55478. ``Put another way, if, even after 
investigating the order, there is any remaining basis to suspect that a 
customer is engaged in diversion, the order must be deemed suspicious 
and the [DEA] must be informed.'' Id.; see also id. at 55479 n.164 
(same).
    In upholding DEA's interpretation of the due diligence requirement 
in the Masters decision, the D.C. Circuit Court of Appeals stated:

    As we have emphasized throughout this opinion, it is not 
necessary for a distributor of controlled substances to investigate 
suspicious orders if it reports them to DEA and declines to fill 
them. But if a distributor chooses to shoulder the burden of 
dispelling suspicion in the hopes of shipping any it finds to be 
non-suspicious, and the distributor uses something like the SOMS 
Protocol to guide its efforts, then the distributor must actually 
undertake the

[[Page 34536]]

investigation. For example, when an employee uses the SOMS Protocol 
to confirm or dispel suspicion based on the amount of controlled 
medication the pharmacy is selling, the employee must request a 
`UR,' i.e., a document showing the pharmacy's `actual dispensing[s] 
. . . of each drug.' [Masters Pharm., Inc.,] 80 FR [55418,] 55420 
[(2015)]. Moreover, the investigating employee must `document' 
customers' explanations for suspicious orders, so that he or she can 
verify those explanations and make sure they are consistent over 
time. Id. at 55428 n.21. Additionally, if a customer's explanation 
for its order is `inconsistent with other information the 
investigator has obtained about or from the customer, . . . the 
[investigator] must conduct `additional investigation to determine 
whether [its customer is] filling legitimate prescriptions.' Id. at 
55477. Finally, the investigation must dispel all of the `red flags' 
that gave rise to the suspicion that the customer was diverting 
controlled substances. Id. at 55478. The Administrator recognized 
that, if investigating employees fail to take such basic steps, the 
SOMS (or similar protocol) does not function as an effective tool 
for dispelling suspicion.

Masters Pharm., Inc., 861 F.3d at 222-23. The D.C. Circuit made clear 
that all red flags must be resolved or the order must be reported to 
DEA as suspicious.
    In this case, Respondent received numerous Pro Compliance Reports 
that raised multiple red flags for each of the relevant customers 
during the relevant time period. See GX 20-56; supra section III.D. The 
Pro Compliance Reports themselves clearly identify specific red flags 
in Respondent's customers' data and frequently recommend further 
discussions and onsite visits to resolve them. See, e.g., GX 21, at 6; 
supra III.E. Although Respondent produced some minimal evidence 
consisting of phone logs for some of the exemplar pharmacies in the 
OSC, see supra n.12 and section III.D., which indicated a few instances 
over the several year timeframe where Respondent had engaged with these 
customers regarding red flags and/or suspicious orders, there is not 
adequate documentation as to how Respondent resolved the red flags, 
even as Respondent continued to fill these orders without reporting 
them to DEA. Moreover, the GS credibly testified that documentation was 
an essential component of due diligence. Tr. 298-99 (``[I]f you don't 
document it how are you going to remember it, how are you going to be 
able to prove it happened''). The Masters decision further pointed out 
that documentation is essential in maintaining effective controls 
against diversion to ensure that customers are consistent in their 
explanations regarding red flags. Masters Pharm., Inc., 80 FR at 55428 
n.21. The D.C. Circuit also affirmed the Agency's position that if a 
distributor undertakes an investigation into its customer's potential 
diversion, then it must document and ``dispel all of the `red flags' 
that gave rise to the suspicion that the customer was diverting 
controlled substances'' to avoid the requirement to report the 
suspicious order to DEA. Masters Pharm., Inc., 861 F.3d at 222-23.
    Here, Respondent acknowledged the paucity of documentation in its 
records that might show that it had resolved red flags. See, e.g., Tr. 
720; GX 9, at 1-2. Contrary to Respondent's argument (ALJ-89, at 101-
03, paras. 272-75), the absence of documentation of resolving red flags 
does indeed constitute evidence that the red flags were never resolved. 
See Masters Pharm., Inc., 861 F.3d at 218.\80\ While Respondent did 
conduct some due diligence, such as by obtaining Pro Compliance Reports 
and by preparing its own monthly Market Basket Reports of its 
customers, ordering the reports without taking appropriate action based 
on the content of those reports does not come close to satisfying the 
regulatory obligation to conduct due diligence. These Pro Compliance 
Reports identify multiple red flags from Respondent's pharmacy 
customers--demonstrating that Respondent was aware of these red flags--
while the records it produced do not resolve them in any substantive 
way to demonstrate effective controls against diversion. See, e.g., GX 
20-56 (the Pro Compliance Reports for the exemplar pharmacies). 
Respondent's employees even noted occasions where information in the 
Pro Compliance Reports was specifically concerning to them or where 
they were aware of additional indicia of diversion or suspicious 
orders, yet these orders were neither reported to DEA nor is there 
record evidence to support a finding that Respondent resolved all of 
the red flags that gave rise to the suspicion. See, e.g., Respondent's 
employee's comments, at GX 14, at 4 (``[T]his seems quite elevated to 
me. . . . .????'') and 31 (``Henry will give the customer a warning 
about his Oxy purchases. Too much cash, too much growth. Will re-run 
and if no improvement will either restrict or cut off completely.''). 
The note documenting this interaction not only fails to offer any 
resolution of the suspicious circumstances or indicate any reporting to 
DEA, but also indicates that Respondent knew of the existence of a 
suspicious order and that the customer was given a warning--providing 
it with a chance to amend its behavior and further avoid detection from 
DEA. The regulations require resolution or reporting, not 
implementation of a ``second chance'' or ``three strikes you're out'' 
program.
---------------------------------------------------------------------------

    \80\ To permit Respondent to escape any liability for its lack 
of adequate controls to protect against diversion merely because 
Respondent created a policy that did not require documentation of 
how those controls were exercised would nullify the purpose of the 
statutory and regulatory requirements. Further, the Agency agrees 
with the ALJ that Respondent's intentional strategy of not 
presenting the testimony of any witness who was actually involved in 
Respondent's purported resolution of red flags further undermines 
its argument that the red flags were actually resolved. Id. Finally, 
Agency decisions have frequently described the importance of 
documentation to meet DEA regulatory requirements in other contexts. 
See Kaniz F. Khan-Jaffery, M.D., 85 FR 45667, 45686 (2020) (``DEA's 
ability to assess whether controlled substances registrations are 
consistent with the public interest is predicated upon the ability 
to consider the evidence and rationale of the practitioner at the 
time that she prescribed a controlled substance--adequate 
documentation is critical to that assessment.'' (citing Cynthia M. 
Cadet, M.D., 76 FR 19450, 19464 (2011))). In particular, the Masters 
decision affirmatively stated the requirement for distributors to 
document their resolutions of red flags and gave a rational basis 
for that requirement--ensuring that the information is memorialized 
for the resolution of future indicia of diversion. Masters Pharm., 
Inc., 80 FR at 55,428 n.21. This basis is very apparent here where 
Respondent's customer base is large and the shipments are numerous. 
As such, the Agency finds that Respondent's failure to maintain 
adequate documentation indicates a violation of the requirements to 
maintain effective controls against diversion.
---------------------------------------------------------------------------

    A distributor fails to conduct meaningful due diligence that 
satisfies its regulatory duties where it merely ``accept[s] at face 
value whatever superficial explanation'' the pharmacy offers and then 
fails to independently verify it. Masters Pharm., Inc., 80 FR at 55457. 
Further, conducting due diligence but then failing to act on the 
findings is also inadequate. See Southwood Pharm., Inc., 72 FR at 36500 
(finding the distributor's due diligence efforts to be inadequate where 
the distributor possessed information that customers were diverting 
controlled substances yet the distributor continued to provide them 
with controlled substances). Thus, as the GS credibly testified as an 
expert witness, the Agency finds that even though Respondent produced 
some due diligence files to DEA, Respondent seemed to ``conduct due 
diligence and ignore the red flags that are in [its] face and continue 
to ship'' without documenting the resolution of red flags or reporting 
to DEA, in violation of DEA regulations. Tr. 463; see also Tr. 80 
(testimony of the Section Chief: ``[Y]ou can ask for all these things, 
but you have to do something with it.''). As the evidence shows, 
Respondent continued to distribute controlled substances despite the 
red flags raised in its due

[[Page 34537]]

diligence files and without either adequately documenting an 
investigation or resolution of the red flags or refusing to ship and 
reporting the orders to DEA. As such, Respondent's due diligence was 
clearly insufficient to meet DEA's legal requirements. See also RD, at 
120-128 (finding that Respondent did not either dispel all red flags 
for Folse, Bordelon's, Wallace, Pharmacy Specialties, Dave's Pharmacy, 
Hephzibah, Wellness, and Wilkinson or report the customers to DEA and 
refuse to ship).
5. Summary of Public Interest Factors
    There is substantial record evidence that Respondent failed to 
adequately design a suspicious order monitoring system and failed to 
report suspicious orders to DEA. Further, Respondent failed to report 
controlled substance orders from customers displaying red flags of 
diversion and in such cases failed to either cease shipment, or, 
alternatively, to investigate, resolve, and document the resolution of 
the red flags. Thus, the Agency finds that Respondent failed to 
maintain effective controls against diversion of controlled substances 
into other than legitimate medical, scientific, and industrial channels 
in violation of 21 CFR 1301.71(a). The Agency also finds that 
Respondent failed to adequately design and operate a system to disclose 
to the registrant suspicious orders of controlled substances and report 
those orders to DEA in violation of 21 CFR 1301.74(b). See also RD, at 
138. These violations constitute failures to maintain effective 
controls against diversion under 21 U.S.C. 823(b)(1) and demonstrate 
negative experience in distribution under 21 U.S.C. 823(b)(4) and weigh 
strongly in favor of revoking Respondent's Certificates of 
Registration.

B. Respondent's Integrated Enterprise

    DEA has requested revocation of both Respondent's registration at 
its distribution center in Shreveport, Louisiana, and Respondent's 
second registration in New Orleans (Jefferson Parish). Respondent 
argues that DEA has not ``alleged any misconduct to have occurred at 
Respondent's Jefferson location or adduced any evidence or testimony at 
the hearing regarding Respondent's Jefferson registration.'' Resp 
Exceptions, at 49.
    The Agency has frequently ``treat[ed] two separately organized 
business entities as one integrated enterprise . . . based on the 
overlap of ownership, management, and operations of the two entities.'' 
Jones Total Health Care Pharmacy, L.L.C., and SND Health Care, L.L.C., 
81 FR 79188, 79222 (2016) (citing MB Wholesale, Inc., 72 FR 71956, 
71958 (2007)). ``[W]here misconduct has previously been proved with 
respect to the owners, officers, or key employees of a pharmacy, the 
Agency can deny an application or revoke a registration of a second or 
subsequent pharmacy where the Government shows that such individuals 
have influence over the management or control of the second pharmacy.'' 
Superior Pharmacy I and Superior Pharmacy II, 81 FR 31310, 31341, n.71 
(2016). Further, the Agency may revoke a registration without 
misconduct attributable to that particular registration if the Agency 
finds that the registrant committed egregious misconduct under a second 
registration. Roberto Zayas, M.D., 82 FR 21410, 21430 (2017) (revoking 
physician's DEA registration in Florida due to conduct attributed to a 
Texas registration that had expired).
    When a practitioner registrant acts in a manner inconsistent with 
the public interest, in determining whether to revoke, DEA looks to 
whether the practitioner can be entrusted with a registration. See, 
e.g. Arvinder Singh, M.D., 81 FR 8247, 8248 (2016). If a practitioner 
holding multiple registrations cannot be entrusted with one, then it 
would be difficult to justify entrusting the same practitioner with 
another in a separate location. Similarly, when a corporate entity is 
owned and operated by individuals who have acted inconsistently with 
the public interest and have misused one of their registrations, the 
Agency cannot ignore this fact when considering whether to entrust 
those same individuals with another registration. Furthermore, even if 
Respondent has not used the Jefferson registration for distribution, 
this fact does not prevent it from using its registration for 
distribution in the future.\81\ See Suntree Pharmacy and Suntree 
Medical Equipment, LLC, 85 FR 73753, 73766 (2020).
---------------------------------------------------------------------------

    \81\ The ALJ noted that Respondent's exhibits demonstrate that 
it uses the Jefferson location to ``secure controlled substances'' 
and makes distributions out of its Shreveport facility. RD, at 156 
(citing RX 1, at 15, 16).
---------------------------------------------------------------------------

    The lens through which Congress has instructed the Agency to assess 
each distributor registration is whether or not such registration is 
consistent with the public interest. 21 U.S.C. 823(b). In this case, if 
Respondent was allowed to simply shift its operations to an entity with 
the same ownership, then the effect of the violations found herein 
against Respondent would be a nullity and there would be nothing to 
prevent Respondent's Jefferson location from continuing to act 
inconsistently with the public interest. It would be inconsistent with 
the intent of the CSA to permit such an easily implementable loophole, 
while it is consistent with Agency decisions to close the loophole by 
treating the two overlapping entities as one integrated enterprise for 
purposes of sanction.
    Therefore, due to the uncontested commonality of ownership, 
management, and operations, see RD, at 154, the Agency finds that it is 
appropriate to treat Respondent's two registrations as one integrated 
enterprise.

V. Sanction

    The Government has established a prima facie case to revoke 
Respondent's registration; therefore, the Agency will review any 
evidence and argument that Respondent submitted to determine whether or 
not Respondent has presented ``sufficient mitigating evidence to assure 
the Administrator that [it] can be trusted with the responsibility 
carried by such a registration.'' Samuel S. Jackson, D.D.S., 72 FR 
23848, 23853 (2007) (quoting Leo R. Miller, M.D., 53 FR 21931, 21932 
(1988)). `` `Moreover, because ``past performance is the best predictor 
of future performance,'' ALRA Labs, Inc. v. Drug Enf't Admin., 54 F.3d 
450, 452 (7th Cir. 1995), [the Agency] has repeatedly held that where a 
registrant has committed acts inconsistent with the public interest, 
the registrant must accept responsibility for [the registrant's] 
actions and demonstrate that [registrant] will not engage in future 
misconduct.' '' Jayam Krishna-Iyer, 74 FR 459, 463 (2009) (quoting 
Medicine Shoppe, 73 FR 364, 387 (2008)); see also Samuel S. Jackson, 
D.D.S., 72 FR at 23853; John H. Kennnedy, M.D., 71 FR 35705, 35709 
(2006); Prince George Daniels, D.D.S., 60 FR 62884, 62887 (1995). The 
issue of trust is necessarily a fact-dependent determination based on 
the circumstances presented by the individual respondent; therefore, 
the Agency looks at factors, such as the acceptance of responsibility 
and the credibility of that acceptance as it relates to the probability 
of repeat violations or behavior and the nature of the misconduct that 
forms the basis for sanction, while also considering the Agency's 
interest in deterring similar acts. See Arvinder Singh, M.D., 81 FR 
8247, 8248 (2016).

A. Acceptance of Responsibility

1. Standing and Authority To Accept Responsibility
    Respondent contends that it has unequivocally accepted 
responsibility

[[Page 34538]]

for the proven misconduct and that Irelan, as its Controlled Substance 
Compliance Officer, was both authorized by Respondent and an 
appropriate person to accept responsibility on behalf of Respondent. 
Resp Exceptions, at 8. The Agency agrees that neither Agency 
regulations nor prior Agency decisions clearly preclude Irelan from 
accepting responsibility on behalf of Respondent and will therefore 
consider his acceptance of responsibility on its merits. Further, the 
Agency finds that the record supports that Mr. Irelan is responsible 
for preventing the reoccurrence of Respondent's compliance failures and 
accepts that Irelan obtained authority from Respondent to accept 
responsibility at the hearing. See Tr. 803 (Irelan is responsible for 
continued remedial measures), Tr. 1072-74; \82\ but see Tr. 804 
(decisions also go through the chain of command and to the Board).
---------------------------------------------------------------------------

    \82\ The ALJ did not admit RX 54; however, the Agency accepts 
that Irelan had authority to make compliance decisions and speak for 
Respondent in the proceeding.
---------------------------------------------------------------------------

    Ultimately, as explained above, the Agency has long stated that 
when the Government has presented a prima facie case, the burden shifts 
to the respondent to demonstrate why it can still be entrusted with a 
registration in spite of its misconduct and the Agency has emphatically 
emphasized the requirement that respondent unequivocally accept 
responsibility to establish that trust. See, e.g., Jeffrey Stein, M.D., 
84 FR 46968, 46972 (2019); see also Leo R. Miller, M.D., 53 FR 21931, 
21932 (1988) (describing revocation as a remedial measure ``based upon 
the public interest and the necessity to protect the public from those 
individuals who have misused controlled substances or their DEA 
Certificate of Registration, and who have not presented sufficient 
mitigating evidence to assure the Administrator that they can be 
trusted with the responsibility carried by such a registration''). For 
several reasons, Irelan's testimony has not adequately convinced the 
Agency that Respondent unequivocally accepts responsibility for its 
past misconduct.
2. Minimization and Characterization of the Misconduct
    Here, Irelan accepted responsibility for Respondent failing to 
effectively apply its customer due diligence in assessing orders of 
controlled substances, Tr. 722-23, for Respondent failing to implement 
and maintain a suspicious order monitoring system ``consistent with 
best practices for compliance,'' Tr. 729, 731,\83\ and for the fact 
that ``[t]he reporting that was being done, there were three suspicious 
order reports to the DEA, and that was insufficient,'' Tr. 731, 733. 
Irelan also testified that he accepted responsibility for Respondent 
shipping orders of controlled substances from January 2014 to May 2018 
without resolving red flags and testified that he is responsible ``for 
preventing reoccurrence of the company's past failures with respect to 
application of customer due diligence.'' Tr. 807, 721.\84\
---------------------------------------------------------------------------

    \83\ Compare Tr. 731 (Respondent's counsel asked whether the SOM 
system ``was consistent with best practices and compliance'' 
(emphasis added)). Whether or not this distinction from the previous 
statement was an error of speech, the Agency finds this statement to 
not differ significantly from the previous statement--in both, there 
was clearly a purposeful avoidance of taking responsibility for the 
full scope of Respondent's actions and an attempt to characterize 
the DEA regulations as being merely best practices as opposed to 
affirmative legal requirements.
    \84\ When Government Counsel asked him whether he accepted 
responsibility in several specific paragraphs of the OSC, Irelan 
either refused or testified that he was not in a position to answer. 
See RD, at 86. For a few of the paragraphs, Irelan's reservations 
seemed to be that Respondent conducted at least some additional due 
diligence on some of the eight pharmacies, but Irelan admitted that 
the due diligence was not properly applied. See, e.g., Tr. 832-33, 
828-29. Given the contested nature of this part of the hearing, the 
Agency does not find these failures to accept responsibility to 
imply that Irelan has not accepted responsibility for the 
misconduct. See Resp Exceptions, at 24 (arguing that these were not 
proven allegations). However, the Agency does find, as explained 
herein, that Irelan's continual insistence on referring to all of 
the due diligence that Respondent was conducting--while not 
documenting it in a retrievable manner nor applying it to the 
orders--was clearly intended to minimize Respondent's misconduct.
---------------------------------------------------------------------------

    In discussing his acceptance of responsibility for Respondent's 
failure to apply its customer due diligence, Irelan specifically 
testified that, based on his review of Respondent's records before May 
2018, Respondent conducted ``a tremendous amount of due diligence'' on 
its customers. Tr. 704-05, 710. Irelan caveated that Respondent did not 
keep the due diligence documentation ``in such a way as to make it . . 
. easily accessible.'' Tr. 705 (referring to ``notes on paper,'' 
``notes . . . kept in a database'' and ``limited notes in our enhanced 
customer profile''). Nonetheless, the Agency finds that Irelan's 
statements claiming a ``tremendous amount of due diligence'' were aimed 
at minimizing the extent of Respondent's misconduct, which the Agency 
has previously weighed against a finding of unequivocal acceptance of 
responsibility. See Ronald Lynch, M.D., 75 FR 78745, 78754 (2010) 
(finding that Respondent did not accept responsibility after noting 
that he ``repeatedly attempted to minimize his [egregious] 
misconduct''; see also Michael White, M.D., 79 FR 62957, 62967 (2014)). 
Additionally, Irelan's insistence that Respondent was conducting this 
``tremendous amount'' of due diligence ``but it was not applied at the 
order level,'' e.g., Tr. 828, not only minimizes the violation but 
fails to acknowledge its scope. At the end of the day, the fact that 
Respondent was not applying the due diligence to the orders 
(investigating/stopping/reporting) is possibly the most impactful 
aspect of Respondent's violation. If Respondent was conducting due 
diligence that was not documented or could not be retrieved such that 
it could be applied to the actual filling of orders, then Respondent 
was not exercising effective controls against diversion because 
employees filling future orders would not know if there were customer-
level red flags or whether they were resolved.
    Further, Irelan's statements regarding whether Respondent's 
monitoring systems were ``consistent with best practices'' also clearly 
minimized the scope of Respondent's misconduct and did not demonstrate 
a full grasp of the breadth of the misconduct alleged--which was that 
Respondent had violated DEA regulations,\85\ not failed to implement 
``best practices.'' Respondent's attempt to characterize the DEA 
regulations as being merely best practices as opposed to affirmative 
legal requirements both minimizes the severity of the violations and 
also demonstrates a failure to grasp of the significance of the 
requirements.
---------------------------------------------------------------------------

    \85\ Even if Respondent chose its language to avoid drawing 
legal conclusions, the use of the term ``best practices'' was not 
sufficient to accurately describe the violations found herein and 
was clearly aimed at minimizing them. See supra n.83.
---------------------------------------------------------------------------

3. Scope of the Misconduct
    The requisite acceptance of responsibility hinges on the respondent 
demonstrating an understanding both of the past misconduct and its 
extent. See Jones, 881 F.3d at 833. Here, the ALJ found that Irelan did 
not ``acknowledge the scope of the Respondent's misconduct,'' and 
therefore, his acceptance was equivocal. RD, at 151 (citing Arvinder 
Singh, M.D., 81 FR at 8250-51).
    As Respondent stated in its Exceptions:

    Multiple United States Courts of Appeal have upheld DEA's 
acceptance of responsibility requirement as rational on the grounds 
that if a respondent ``does not understand the extent of the past 
misconduct or its current responsibilities under the law,

[[Page 34539]]

the DEA rationally could doubt that the [respondent] would 
faithfully comply in the future with its obligations under the 
CSA.'' Jones Total Health Care Pharmacy, LLC v. [Drug Enf't Admin.], 
881 F.3d 823, 833 (11th Cir. 2018); accord MacKay v. [Drug Enf't 
Admin.], 664 F.3d 808, 820 (10th Cir. 2011) (admittance of fault is 
relevant to Administrator's consideration of whether a respondent 
will change its future behavior). As Respondent's current Compliance 
Director, Mr. Irelan has assessed Respondent's past controlled 
substance compliance failures and is responsible for preventing 
their reoccurrence.

Resp Exceptions, at 13.
    In contrast to Respondent's final statement above, there were a few 
times where Irelan's limited involvement and knowledge of the 
misconduct indisputably impeded his ability to accept full 
responsibility, such as when, regarding Wellness Pharmacy, he was 
unable to state what due diligence ``specifically was performed for 
that account.'' Tr. 831. The Agency finds that Irelan's admission that 
he had not familiarized himself with the specific due diligence 
performed by Respondent for the exemplar pharmacies demonstrates that 
he did not actually have the knowledge required to accept unequivocal 
responsibility on behalf of Respondent for the full extent of the 
violations found. Irelan's assertion that Respondent did conduct a 
``tremendous amount'' of due diligence is also inconsistent with his 
stated lack of knowledge regarding the amount of due diligence 
conducted for the limited number of customers included in the OSC's 
allegations. It seems logical that in cultivating an understanding of 
Respondent's violations in order to adequately accept responsibility, 
Irelan would have focused his review on the customers most relevant to 
the allegations. Therefore, Irelan does not seem to have been equipped 
to meet Respondent's burden in accepting responsibility.
4. Trust in Respondent
    Although the Agency does not challenge Irelan's authority to act on 
behalf of Respondent in accepting responsibility, the burden is on 
Respondent to credibly and candidly demonstrate that it can be 
entrusted with a registration. Respondent chose to meet that burden by 
presenting Irelan's testimony in lieu of a principal or an individual 
who had knowledge of the full scope of the violations. Although the 
Agency does not contest that Respondent could choose Irelan to accept 
responsibility on its behalf, that finding does not mean that Irelan 
was equipped to do so unequivocally.
    It is noted that the Agency has long held that the misconduct of an 
entity's principal is properly considered in determining whether to 
revoke the entity's registration. Chip RX, L.L.C., d/b/a City Ctr. 
Pharmacy, 82 FR 51433, 51438 (2017) (citing G & O Pharmacy of Paducah, 
68 FR 43752, 43753 (2003)). An essential element of Respondent's 
showing of trust is that the registrant and its principals accept 
responsibility for their misconduct by acknowledging their wrongdoing. 
Sun & Lake Pharmacy, 76 FR 24533 (citing Medicine Shoppe, 73 FR at 387; 
Jackson, 72 FR at 23853; Kennedy, 71 FR at 35709). In this case, at 
least one of Respondent's principals, Paul Dickson, Sr., bears at least 
some responsibility for the misconduct, and Irelan bears none. See Tr. 
723.
    Irelan opined that C.G. and Jacob Dickson, who were in charge of 
compliance during the relevant time period, were responsible for 
Respondent's misconduct, but was not sure enough of the ``dynamics'' or 
``reporting process'' to opine about whether Paul Dickson, Sr., carried 
any responsibility. Tr. 808-09. The extent of the misconduct is an 
important factor in the Agency's ability to determine whether to 
entrust Respondent with a registration and Irelan's inability to 
testify to the level of involvement and knowledge of Respondent's 
principals in the misconduct demonstrates another reason why the Agency 
cannot deem his acceptance of responsibility to be adequate such that 
the Agency can entrust Respondent with a registration. In fact, 
Respondent's submitted evidence includes testimony from the Hearing on 
the Motion for Temporary Restraining Order \86\ in which Paul Dickson, 
Respondent's president, testified that he was primarily responsible for 
development of Respondent's SOM program and that he designed the 
system. RX 1, at 33. Paul Dickson further told the Court that in 
designing the system, he knew that he ``didn't do a perfect job,'' but 
that ``it was the best that [he] could do. And [he] think[s] it's dang 
good. And [he doesn't] think a single person has gotten hurt by [their] 
drugs. [He] sure do[esn't] know of one . . . . So [he] think[s] it 
works.'' RX 1, at 57. These statements from the president of a family-
owned and -operated company so strongly miss the point of the 
requirements of a DEA registrant that they further undercut the 
Agency's ability to entrust Respondent with a registration. To equate a 
registrant's compliance with an agency's closed regulatory system with 
the consequence of knowing whether anyone was hurt ``by [their] drugs'' 
exhibits a stark misunderstanding of the regulatory requirement.
---------------------------------------------------------------------------

    \86\ It is noted that the ALJ excluded pages 147 to 216 of this 
transcript as irrelevant, but allowed pages 1 through 146 because 
Respondent offered it as remedial, mitigation, or community impact 
evidence. ALJX 59, at 6 (citing ALJX 29, at 2, 4.) Although it is 
also noted that the hearing in which these statements were made was 
related to the public interest in the context of the ISO, the ALJ 
found, and the Agency agrees, that this evidence bears some 
relevance to the current inquiry. Id. Furthermore, Respondent argues 
in its Exceptions that ``[t]his testimony is relevant evidence of 
Respondent's credibility and good faith intent in working with DEA 
to stop diversion.'' Resp Exceptions, at 31. For the reasons stated 
above, the Agency finds that, if anything, Paul Dickson's remarks 
seem indignant that DEA is pursuing enforcement, seem aimed at 
minimizing the misconduct, and display a lack of understanding and 
respect for the regulatory requirements.
---------------------------------------------------------------------------

    The Agency finds that Irelan's inability to describe Paul Dickson's 
involvement in the proven misconduct further demonstrates the 
inadequacy of Respondent's acceptance of responsibility in this 
proceeding. In all, Irelan's lack of understanding and recognition of 
the full scope of the misconduct and attempts to minimize the 
misconduct lead the Agency to conclude that Respondent's acceptance of 
responsibility was equivocal and insufficient to ensure that Respondent 
can be entrusted with a registration.

B. Remedial Measures

    When a registrant fails to make the threshold showing of acceptance 
of responsibility, the Agency has stated that it need not address the 
registrant's remedial measures. Daniel A. Glick, D.D.S., 80 FR 74800, 
74,810 (2015); see also Ajay S. Ahuja, M.D., 84 FR at 5498 n.33; Jones 
Total Health Care Pharmacy, L.L.C., & SND Health Care, L.L.C., 81 FR at 
79202; The Medicine Shoppe, 79 FR 59504, 59510 (2014). A registrant 
does not unequivocally accept responsibility for its actions simply by 
taking remedial measures. Holiday CVS, L.L.C., d/b/a CVS/Pharmacy Nos. 
219 & 5195, 77 FR 62316, 62346 (2012). Refusal to acknowledge the full 
scope of misconduct, even with remedial measures, is a risk to the 
public interest. Arvinder Singh, M.D., 81 FR 8247, 8250-51 (2016) 
(emphasis added).
    The ALJ characterized Respondent's remedial measures as 
``impressive.'' RD, at 152. The Agency similarly credits the efforts 
that the record reflects Respondent undertook to improve its compliance 
with DEA's requirements after being served with the OSC. As the ALJ 
appropriately stated, the Agency has also made it abundantly clear that 
remediation alone is not adequate to avoid a sanction and that limited-
to-no-weight is given to remedial measures when the effort is not made 
until after

[[Page 34540]]

enforcement begins. See Mireille Lalanne, M.D., 78 FR 47750, 47777 
(2013) (quoting Liddy's Pharmacy, L.L.C., 76 FR 48887, 48897 (2011) 
(``The Agency has recognized that a cessation of illegal behavior only 
when `DEA comes knocking at one's door,' can be afforded a diminished 
weight borne of its own opportunistic timing.'')); see also Southwood 
Pharm. Inc., 72 FR at 36503 (giving no weight to respondent's ``stroke-
of-midnight decision'' to cease supplying suspect pharmacies with 
controlled substances and to employ a compliance officer).\87\
---------------------------------------------------------------------------

    \87\ In its Exceptions, Respondent points to the factual 
distinctions between cited cases in the RD and the circumstances in 
this case and also points to numerous other settled cases that, in 
Respondent's opinion, demonstrate that the sanction here is unfair. 
Resp Exceptions, at 25 and 33. However, ``the issue of trust is 
necessarily a fact-dependent determination based on the 
circumstances presented by the individual respondent,'' and it is 
the respondent's burden to bear. See, e.g., Stein, 84 FR at 46,972. 
And contrary to Respondent's arguments, the proposed sanction is 
supported by similar sanctions in other recent distributor 
adjudications where the Agency similarly found that respondents' 
registrations were inconsistent with the public interest and that 
those respondents had not demonstrated that they could be entrusted 
with a registration. See Southwood Pharm., Inc., 72 FR at 36487 
(rejecting the ALJ's sanction because it was ``insufficient to 
protect the public interest. While [the Agency is] mindful of the 
corrective measures engaged in by Respondent, its sales of 
extraordinary quantities of controlled substances to entities which 
it had reason to know were diverting the drugs caused extraordinary 
harm to public health and safety.''); see also Masters Pharm., Inc., 
80 FR at 55501.
---------------------------------------------------------------------------

    Additionally, the ALJ found that, based on prior Agency decisions, 
he could give no weight to Respondent's remedial measures given the 
lack of Respondent's unequivocal acceptance of responsibility. RD, at 
152.88 89 As the Agency has consistently held, ``past 
performance is the best predictor of future performance.'' Lesly Pompy, 
M.D., 84 FR 57749, 57761 (2019); see also Jones Total Health Care 
Pharmacy, LLC v. Drug Enf't Admin., 881 F.3d 823, 833 (11th Cir. 2018) 
(affirming refusal to consider remedial measures where registrant did 
not accept responsibility for its misconduct); Pharmacy Doctors 
Enterprises, Inc. v. Drug Enf't Admin., 789 F. App'x 724, 2019 WL 
4565481, at *7-8 (11th Cir. Sept. 20, 2019) (same).\90\
---------------------------------------------------------------------------

    \88\ Respondent repeatedly asserts that these adjudications are 
difficult to defend due to what it claims is an unfair system--that 
Respondent must accept responsibility prior to knowing what 
misconduct has been proven. Resp Exceptions, at 7. Respondent chose 
litigation strategies presumably based on the longstanding structure 
and content of Agency decisions in these adjudications and the 
Agency does not fault it for those decisions. In the end, Respondent 
had the burden to prove that it could be entrusted with a 
registration and it has failed to meet that burden. See Masters 
Pharm., Inc., 861 F.3d 206 (D.C. Cir. 2017) (rejecting arguments 
that DEA's structure of requiring acceptance of responsibility is 
unfair, because ``under longstanding DEA precedent, once DEA 
presents enough evidence at hearing to show that a registered vendor 
or distributor of controlled substances has `committed acts 
inconsistent with the public interest,' the `registrant must 
present[] . . . mitigating evidence' including evidence that it has 
`accept[ed] responsibility for its actions and demonstrate[d] that 
it will not engage in future misconduct''' (quoting Medicine Shoppe-
Jonesborough, 73 FR 364, 387 (2008)). Furthermore, the Agency's 
finding on this issue does not hinge on whether Irelan has accepted 
responsibility for each proven allegation, but instead hinges on 
Irelan's persistent minimization of the misconduct and further on 
Respondent's overall failure to demonstrate that Respondent has 
unequivocally accepted responsibility and can be trusted with a 
registration.
    \89\ Respondent argues that Milione's testimony regarding the 
August 2016 meeting with Paul Dickson, Sr., supra n.8, demonstrates 
Respondent's ``good faith and sincerity, which flatly contradict the 
ALJ's intent-laden description of Respondent's compliance as 
`cavalier''' and argues that this fact is relevant in considering 
Respondent's likelihood towards recidivism. Resp Exceptions, at 30 
(citing RD, at 156). The Agency cannot give this meeting or Paul 
Dickson's sincerity during this moment in time the weight that 
Respondent requests it be afforded given that the evidence 
demonstrates that for approximately two years prior to this meeting 
and two years afterwards, Respondent was not complying with DEA 
regulations. Further, Respondent did not present the Agency with 
Paul Dickson's testimony at this hearing to be able to weigh his 
credibility and sincerity either in 2016, when this meeting 
occurred, or at the time of the hearing. The transcribed testimony 
that Respondent did submit from Paul Dickson demonstrated that he 
believed his SOM system to be ``dang good''--a statement with which 
the Agency emphatically disagrees. See RX 1, at 57.
    \90\ See also Hills Pharmacy, LLC, 81 FR 49815, 49847 (2016) 
(``[T]here is no need to consider Respondent's remedial efforts as 
they are rendered irrelevant by its failure to acknowledge its 
misconduct.''); Daniel A. Glick, D.D.S., 80 FR 74800, 74810 (2015) 
(``[S]ince the Respondent has not tendered an unequivocal acceptance 
of responsibility, under established Agency precedent, [it] is 
foreclosed from a favorable result in these proceedings and the 
issue of remedial actions is irrelevant.'').
---------------------------------------------------------------------------

    In this case, even if the Agency gave weight to Respondent's 
remedial measures, the measures are outweighed by the fact that it has 
not adequately established that Respondent as an entity fully 
understands the scope of the misconduct such that it can be entrusted 
with regulatory compliance in the future.

C. The Extent of the Misconduct

    The record demonstrates that Respondent's violations of the law 
were not isolated occurrences, but took place over the course of four 
years and involved multiple customers. See Garrett Howard Smith, M.D., 
83 FR at 18910 (collecting cases) (``The egregiousness and extent of 
[the] misconduct are significant factors in determining the appropriate 
sanction.''). In spite of its self-described status as a privately-
owned company that has been in business for 177 years,\91\ Respondent 
maintained sparse documentation of its SOM procedures generally and 
maintained very little documentation of its resolution of red flags of 
diversion displayed by its customers or of individual suspicious 
orders. The record evidence demonstrates that Respondent attended two 
conferences, held a personal meeting with DEA, and received multiple 
letters in which DEA emphasized the critical importance of a 
distributor's role in preventing diversion given the opioid crisis in 
the nation and reminded distributors of their obligations under the 
law. A letter from DEA dated September 27, 2006, stated ``[G]iven the 
extent of prescription drug abuse in the United States, along with the 
dangerous and potentially lethal consequences of such abuse, even just 
one distributor that uses its DEA registration to facilitate diversion 
can cause enormous harm.'' GX 3, at 2. In spite of Respondent's 
established knowledge regarding the criticality of its role in 
preventing ``dangerous and potentially lethal consequences,'' 
Respondent did not adequately resolve or document investigation into 
the numerous red flags indicating diversion that its own Pro Compliance 
Reports identified on the exemplar pharmacies and failed to report a 
multitude of suspicious orders to DEA.
---------------------------------------------------------------------------

    \91\ See also RX 1, at 21 (estimating Respondent's number of 
retail pharmacy customers at ``approximately 600 primary . . . and 
another 200 secondary that fluctuates'') and 22-23 (``[O]nly 
competition are what's called `the big three,' the global 
companies'').
---------------------------------------------------------------------------

D. Deterrence

    Finally, both specific and general deterrence strongly weigh in 
favor of revoking Respondent's registration. See Daniel A. Glick, 
D.D.S., 80 FR at 74810. The record demonstrates that Respondent 
violated DEA regulations over a lengthy time period--failing to report 
a multitude of suspicious orders to DEA and depriving DEA of valuable 
information about pharmacies and practitioners who might have been 
engaging in diversion or violating their obligations as DEA 
registrants, thus contributing to the country's devastating 
prescription drug abuse problem. Under these circumstances and on this 
record, a sanction less than revocation \92\ would

[[Page 34541]]

send a message to the current and prospective registrant community that 
compliance with DEA regulations is not a condition precedent to 
maintaining a DEA registration and that a distributor can spend years 
insufficiently reporting suspicious orders and inadequately resolving 
red flags presented by its customers, so long as it finally invests in 
the procedures it should have had in place all along after it is caught 
and faces potential consequences.\93\
---------------------------------------------------------------------------

    \92\ Respondent argues without support that a sanction short of 
revocation would serve the same deterrence goals and would prevent 
harm to the community that would result from closing Respondent. 
Resp Exceptions, at 28, 31. The Agency does not consider community 
impact in its decisions. See infra n.96. As Respondent notes, it is 
difficult to know what level of sanction would deter future non-
compliance in the registrant community, but in Respondent's case, 
where the violations were blatant, long-term, and impactful, the 
Agency finds, given the record before it, that revocation offers an 
appropriate deterrent effect. Furthermore, again, Respondent has not 
adequately established trust, see supra Section V.A.4, which is 
crucial to demonstrate the appropriateness of a sanction less than 
revocation under the Agency's consideration of specific deterrence. 
Respondent also argues that the ALJ erred in its deterrence analysis 
by failing to consider the Government's purported unwillingness to 
engage Respondent in settlement negotiations. Resp Exceptions, at 
33-35. While a settlement agreement between the Government and a 
respondent may be a way to provide enforceable assurances of the 
respondent's future compliance, the parties have not reached such a 
settlement here. Accordingly, and although the Agency has considered 
alternative sanctions as Respondent has requested, it has decided 
that revocation currently is the most appropriate sanction as 
explained herein.
    \93\ DEA decisions have demonstrated concern that giving weight 
to last minute remedial measures would show the regulated community 
that a registrant ``can unlawfully distribute controlled substances 
until [it] gets caught, and as long as [it] then acknowledges 
wrongdoing and puts on evidence that [it] has reformed, [it] will 
get a slap on the wrist.'' David Ruben, M.D., 78 FR 38363, 38387 
(2013); see also Southwood Pharm., Inc., 72 FR 36487, 36504 (2007) 
(``A precedent which ignores how irresponsibly a registrant has 
acted and allows it to maintain its registration based on its claim 
of having reformed its business practices, could well prompt other 
registrants to ignore their obligations under the Act and sell 
massive quantities of controlled substances to diverters.'').
---------------------------------------------------------------------------

    Although Respondent has implemented remedial measures, it has not 
adequately demonstrated that its leadership can be entrusted to 
continue these measures and prevent reoccurrence of what happened prior 
to the issuance of the OSC, which amounted to a SOM system that was not 
designed or operated in a way that would adequately prevent diversion 
of controlled substances nor provide DEA with information critical to 
its mission. Respondent argues that the ALJ erred in finding that ``the 
continued registration of a fully remediated registrant with an 
`impressive' anti-diversion regime, along with evidence of good faith 
desire to prevent diversion, does not serve the public interest.'' \94\ 
Resp Exceptions, at 1. However, Respondent's argument neglects to 
mention that remediation is irrelevant without continued trust. 
Respondent wants credit for ``commission[ing] former top DEA officials 
to design their ideal anti-diversion system,'' id., because it believes 
that as long as it has invested the money now, it will prevent DEA from 
enforcing against it. There are several considerations other than 
remediation that the Agency uses in determining sanction as explained 
herein. The fact is that, under these circumstances and on this record, 
Respondent has not adequately convinced the Agency that it can be 
entrusted with a registration--its acceptance of responsibility did not 
prove that it or its principals understand the full extent of their 
wrongdoing, the effect that it had on the Agency and the American 
public, and the potential harm that it caused.\95\ It was Respondent's 
burden to prove that it could be entrusted to protect the public 
interest in maintaining a DEA registration--and it has failed to do so.
---------------------------------------------------------------------------

    \94\ Respondent argues that its ``current conduct is the best 
evidence that its continued registration is consistent with the 
public interest.'' Resp Exceptions, at 7. However, remediation is 
notably not an enumerated public interest factor under 21 U.S.C. 
823(b). Remediation is a factor that the Administrator considers in 
reviewing the extent to which sanctions are appropriate and only 
after the Government has made a prima facie case demonstrating that 
the allegations support a finding that Respondent's continued 
registration is not in the public interest. See, e.g., Samuel S. 
Jackson, D.D.S., 72 FR at 23,853.
    \95\ Respondent attached to its Exceptions the Department of 
Justice Office of the Inspector General (OIG) September 2019 Review 
of the Drug Enforcement Administration's Regulatory and Enforcement 
Efforts to Control the Diversion of Opioids--claiming that the 
report is DEA's motivation for pursuing ``the harshest sanction'' 
against Respondent. The report is dated September 2019--a month 
after the ALJ's issuance of the RD. Furthermore, DEA subpoenaed 
Respondent as early as February 1, 2018; therefore, temporally, the 
OIG's findings could not have motivated the Agency's investigation 
into Respondent. Such allegations are a distraction from the issue 
at hand--Respondent failed to comply with its regulatory obligations 
and neither the Agency nor the country could possibly have the 
ability to know what might have happened had those suspicious orders 
been reported to DEA and to what extent diversion and abuse might 
have been prevented. What the Agency does know is that Respondent's 
failures were monumental, and Respondent clearly misses the point in 
arguing that ``had the Respondent more consistently reported 
suspicious orders with the DEA, it has been established that the 
reports would have been ignored.'' Resp Exceptions, at 5.
---------------------------------------------------------------------------

    Having reviewed the record in its entirety, the Agency finds that 
Respondent cannot be entrusted with a DEA registration and orders that 
its registration be revoked. The Agency addresses collateral matters 
and additional issues raised in Respondent's Exceptions before issuing 
a final Order.

VI. Motion To Reopen

    On January 5, 2022, Respondent filed a Motion to Reopen the 
Administrative Record. Respondent seeks to introduce evidence of post-
hearing conduct that it argues demonstrates acceptance of 
responsibility and successful remediation.\96\ Although not 
specifically contemplated in the CSA or regulations, DEA decisions have 
repeatedly held that the Administrator may, in her discretion, order 
that the administrative record be reopened. The party moving to reopen, 
however, bears a heavy burden. See INS v. Abudu, 485 U.S. 94, 110 
(1988); see also Cities of Campbell v. FERC, 770 F.2d 1180, 1191 (D.C. 
Cir. 1985) (``Reopening an evidentiary hearing is a matter of agency 
discretion and is reserved for extraordinary circumstances.'' 
(citations omitted)); Nance v. EPA, 645 F.2d 701, 717 (9th Cir. 1981).
---------------------------------------------------------------------------

    \96\ Respondent also requests to reopen the record to introduce 
evidence of the impact revoking its registration would have on the 
community. Motion to Reopen, at 20-22. The Agency has consistently 
found that community impact is not a relevant consideration under 
the public interest factors. E.g., Stephen E. Owusu, D.P.M., 87 FR 
3343, 3351 n.21 (2022); George Pursley, M.D., 85 FR 80,162, 80,188 
n. 82 (2020); Frank Joseph Stirlacci, M.D., 85 FR 45229, 45239 
(2020). Accordingly, Respondent's community impact evidence is not 
grounds to reopen the record. Further, Respondent made arguments 
that it should be allowed to introduce evidence that it concedes is 
not an independent basis to reopen the record but argues is properly 
admitted if the record is reopened. Reply ISO Motion to Reopen, at 
12. Nonetheless, the Agency is not reaching a finding on the 
admissibility of this evidence because it is not granting 
Respondent's Motion to Reopen.
---------------------------------------------------------------------------

    The Agency finds that Respondent has not met its burden to reopen 
the record. In all DEA administrative proceedings, there is inevitably 
at least some delay between the hearing and the final decision of the 
Administrator.\97\ Allowing parties to reopen the record to introduce 
evidence of acceptance of responsibility and remedial measures taken 
during that delay would create a recursive loop further delaying the 
conclusion of proceedings to the detriment of the public interest. See, 
e.g., Abudu, 485 U.S. at 107; Qoku v. Gonzales, 156 F. App'x. 703, 705 
(5th Cir. 2005). As the Supreme Court observed in Vermont Yankee 
Nuclear Power Corp. v. NRDC, ``[a]dministrative consideration of 
evidence . . . always creates a gap between the time the

[[Page 34542]]

record is closed and the time the administrative decision is 
promulgated . . . . If upon the coming down of the order litigants 
might demand rehearings as a matter of law because some new 
circumstance has arisen, some new trend has been observed, or some new 
fact discovered, there would be little hope that the administrative 
process could ever be consummated in an order that would not be subject 
to reopening.'' 435 U.S. 519, 554-55 (1978) (quoting ICC v. Jersey 
City, 322 U.S. 503, 514 (1944) (citing Northern Lines Merger Cases, 396 
U.S. 491, 521 (1970)).
---------------------------------------------------------------------------

    \97\ The delay between the hearing and the issuance of the final 
decision in this matter was longer than is typical for the Agency, 
but the proceedings were delayed partially at Respondent's request. 
On March 9, 2020, Respondent wrote a letter to the then-Acting 
Administrator asking that the Agency postpone issuing a Final Order 
``to allow the COVID-19 crisis to abate or the parties to reach a 
final settlement . . . .'' See Letter from Respondent. Respondent 
then requested yet another delay in its Motion to Reopen asking that 
the Administrator delay the issuance of a final order ``until after 
[Respondent's] new counsel has had an opportunity to resolve the 
matter with DEA's Chief Counsel.'' Motion to Reopen, at 4, n.4. 
Respondent cannot request to delay the proceedings and then claim 
that a failure to reopen the record is somehow prejudicial to 
Respondent because of its requested delay.
---------------------------------------------------------------------------

    Respondent had the opportunity to, and did, introduce evidence 
related to its acceptance of responsibility and remedial measures at 
the hearing. That evidence was entered into the record and considered 
in the ALJ's Recommended Decision and this Final Order.

VII. Lucia

    The Agency has carefully considered Respondent's Exceptions to the 
Recommended Decision, has addressed them throughout the record, and 
addresses the remaining herein.
    In its Exceptions, Respondent notes that ``as [it] has repeatedly 
and consistently objected, including at the hearing, this entire 
proceeding was unconstitutional.'' (citing Tr. 20:23-22:17). Respondent 
contends that ``[t]he presiding ALJ in this matter was 
unconstitutionally appointed when these proceedings began and 
unconstitutionally continued to preside over these proceedings after 
the Attorney General purportedly ratified his appointment.'' (citing 
Lucia v. Securities and Exchange Comm'n, 138 S. Ct. 2044, 2055 (2018) 
(hereinafter, Lucia)). The Agency will note the factual sequence of 
events surrounding Respondent's Lucia claims.
    Respondent's Prehearing Statement, filed on August 3, 2018, 
averred, ``Respondent may file a motion before this Tribunal related to 
the constitutionality of the DEA's administrative process given the 
U.S. Supreme Court's recent decision in [Lucia].'' ALJX 8, at 37. 
During the Prehearing Conference, Respondent's attorney stated, ``with 
regards to the Lucia case, this is obviously no disrespect intended to 
the Court but we do think that it's a significant issue that should we 
proceed to hearing, we do want to address and I would like to file a 
motion about it.'' The ALJ replied, ``Well, if you're going to file a 
motion about it, I obviously would need to take a look at it . . . . 
Apparently, if you file a motion, there's a good chance you'll wind up 
with a different Judge . . . . I'm just putting you on notice that 
that's what's likely to happen.'' Prehearing, Tr. 36. The ALJ ordered 
that ``[y]ou obviously can file motions tomorrow if you want to but any 
motions I'm going to need to rule on I would like to have no later than 
October 23rd. . . .'' Tr. 42-43.
    On October 26, 2018, Respondent submitted a letter on the record 
alerting the Tribunal that it had commenced an action in the United 
States District Court for the Western District of Louisiana seeking an 
``injunction enjoining DEA and DOJ from requiring Morris & Dickson to 
appear in any administrative proceeding, including the upcoming hearing 
scheduled for November 13, 2018, unless and until a constitutionally 
valid administrative system has been established.'' ALJX 26, at 1. On 
October 31, 2018, Respondent filed another letter with the Tribunal 
explaining that it did not file a motion with the ALJ because the 
Agency ``has no authority to entertain a facial constitutional 
challenge'' and that ``[t]he Louisiana Court will resolve that 
question. Morris & Dickson simply provides this Tribunal notice of that 
filing and requests sufficient time to allow the Louisiana Court (and, 
if necessary, the Fifth Circuit Court of Appeals) to make its ruling.'' 
ALJX 34, at 1-2.
    On December 31, 2018, Respondent submitted a letter notifying the 
Tribunal that ``[o]n December 28, 2018, the District Court in the 
Western District of Louisiana dismissed Respondent's complaint without 
prejudice, finding that it did not have jurisdiction to hear Morris & 
Dickson's claims'' and attaching the decision. ALJX 47, at 1. The 
Decision stated that, although Respondent's argument was ``somewhat 
close,'' ``in light of the policy problem created by crafting a 
`constitutional claim' exception to Congress's ability to channel 
initial review through agencies, the Court finds that Morris & 
Dickson's separation-of-powers claims are not `wholly collateral' to 
the proceeding before Judge Dorman because they were raised in an 
attempt to delay or defeat administrative enforcement of the CSA.'' Id. 
at 30.
    On January 15, 2019, the ALJ issued an Order Lifting the Stay and 
Third Prehearing Ruling. ALJX 51. The Order stated that Respondent 
indicated during a telephonic conference on the previous day that it 
``w[ould] not seek to maintain the stay in this case pending its appeal 
to the United States Court of Appeals for the Fifth Circuit'' \98\ and 
that ``it w[ould] not file a motion seeking to recuse [the ALJ] from 
this case based on the Supreme Court's decision in Lucia . . . .'' Id. 
at 1.
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    \98\ Respondent's appeal to the United States Court of Appeals 
for the Fifth Circuit was dismissed by its own motion. See Morris 
and Dickson v. William Barr, et al., No. 19-30043, 2019 WL 3230978 
(5th Cir. Apr. 1, 2019).
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    The next time Respondent raised the Lucia issue was at the 
beginning of the hearing on May 13, 2019. Respondent's lawyer made a 
self-described ``statement of the record, simply,'' Tr. 23, that ``we 
respectfully renew for the record our objection to the hearing and 
proceeding.'' Tr. 22. However, Respondent's lawyer also agreed that 
Respondent was ready to go to hearing that day and made no further 
motions or requests for a new ALJ. Tr. 24.
    On October 25, 2018, the Attorney General ratified the prior 
appointment of the DEA ALJs, including ALJ Dorman, and ``approved their 
appointments as his own under the Constitution.'' See Office of the 
Attorney General, Order No. 4.315-2018.\99\ It is noted that, at the 
time that the hearing took place in this matter, ALJ Dorman's 
appointment as an Administrative Law Judge had been ratified. 
Respondent never formally requested reassignment nor availed itself of 
the opportunity to request interlocutory review to the Administrator on 
any ruling of the ALJ or any Lucia-related issue pursuant to 21 CFR 
1316.62. Had Respondent contested the matter formally with the Agency, 
the Agency would have assigned another ALJ, see Prehearing, Tr. 36, and 
saved significant Agency resources. The Agency further finds that ALJ 
Dorman's appointment was ratified before the hearing. Due to 
Respondent's calculated choice to preserve the matter for the record, 
Tr. 23, but not raise it in any way that the Agency might have had the 
capacity to address and remedy itself, the Agency considers the 
argument waived for purposes of finalizing this adjudication.
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    \99\ Although not considered material to this Decision, a copy 
of this Order will be included in the administrative record for 
future reference.
---------------------------------------------------------------------------

    Having found that Respondent cannot be entrusted with a DEA 
registration, the Agency issues the following Order revoking 
Respondent's DEA registrations.

Order

    Pursuant to 28 CFR 0.100(b) and the authority vested in me by 21 
U.S.C. 824(a)(4) and 21 U.S.C. 823(b), (e), I hereby revoke DEA 
Certificates of Registration Nos. RM0314790 and RM0335732 issued to 
Morris & Dickson, Co., LLC. Further, pursuant to 28 CFR 0.100(b) and 
the authority vested in me by 21 U.S.C. 824(a)(4) and 21 U.S.C.

[[Page 34543]]

823(b), (e), I hereby deny any pending application of Morris & Dickson, 
Co., LLC to renew or modify these registrations, as well as any other 
pending application of Morris & Dickson, Co., LLC. This Order is 
effective August 28, 2023.

Signing Authority

    This document of the Drug Enforcement Administration was signed on 
May 19, 2023, by Administrator Anne Milgram. That document with the 
original signature and date is maintained by DEA. For administrative 
purposes only, and in compliance with requirements of the Office of the 
Federal Register, the undersigned DEA Federal Register Liaison Officer 
has been authorized to sign and submit the document in electronic 
format for publication, as an official document of DEA. This 
administrative process in no way alters the legal effect of this 
document upon publication in the Federal Register.

Scott Brinks,
Federal Register Liaison Officer, Drug Enforcement Administration.
[FR Doc. 2023-11369 Filed 5-26-23; 8:45 am]
BILLING CODE 4410-09-P