Federal
Register Notices > Registrant
Actions - 2007 >
Planet Trading, Inc., d/b/a/ United Wholesale Distributors, Inc.;
Denial of Application
FR Doc 07-1103 [Federal Register: March 12, 2007 (Volume 72, Number
47)] [Notices] [Page 11055-11058] From the Federal Register Online via
GPO Access [wais.access.gpo.gov] [DOCID:fr12mr07-134]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 05-22]
Planet Trading, Inc., d/b/a/ United Wholesale Distributors, Inc.;
Denial of Application
On February 15, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Planet Trading, Inc., (Respondent) of Orlando, Florida.
The Show Cause Order proposed to deny Respondent's pending application
for a DEA Certificate of Registration as a distributor of the list I
chemicals ephedrine and pseudoephedrine on the ground that Respondent's
registration would be inconsistent with the public interest. Show Cause
Order at 1, see also
21 U.S.C. 823(h).
More specifically, the Show Cause Order alleged that both ephedrine
and pseudoephedrine are "commonly used to illegally manufacture
methamphetamine, a Schedule II controlled substance.'' Show Cause Order
at 1. The Show Cause Order alleged that "DEA knows by experience'' that
a "gray market'' exists "in which certain pseudoephedrine and ephedrine
products are distributed only to convenience stores and gas stations,
from where they have a high incidence of diversion'' into the illicit
manufacture of methamphetamine. Id. at 2. Relatedly, the Show Cause
Order alleged that only "[a] very small percentage'' of legitimate sales
of list I chemical products occur in gray market retailers and that the
average gray market retailer "could expect to sell * * * only about
$10.00 to $30.00 worth of pseudoephedrine products'' a month. Id. at 3.
The Show Cause Order also alleged that the expected sales for
combination ephedrine products are "only one- fourth of'' this amount.
Id.
The Show Cause Order alleged that during a pre-registration
investigation, Respondent's president advised DEA investigators that his
firm distributes sundry items and tobacco products to convenience
stores, gas stations, and small independent groceries, which constitute
the gray market for list I chemical products. Id. at 2. The Show Cause
Order further alleged that during an interview, Respondent stated that
he had "little or no background in handling list I chemical products.''
Id. The Show Cause Order also alleged that Respondent told the
investigators that he intended to sell list I products that were
marketed in bottles and not blister packs because the latter "were not
good sellers.'' Id.
The Show Cause Order also alleged that Respondent intended to store
the list I products in a warehouse "with all other items [and] without
any additional security installed.'' Id. at 3. The Show Cause Order
further alleged that "[b]ecause [Respondent's] customers are allowed to
serve themselves from the warehouse shelves, all customers will have
unescorted access to the list I chemicals stored in the warehouse.'' Id.
Finally, the Show Cause Order alleged that Respondent's "proposed
sales of combination ephedrine and pseudoephedrine products are
inconsistent with the known legitimate market and known end-user demand
for products of this type,'' and thus Respondent "would be serving an
illegitimate market for [these] product[s].'' Id. The Show Cause Order
concluded by alleging that because Respondent's owner had "no experience
handling list I chemicals'' and its warehouse has "insufficient
security,'' its "registration would likely lead to increased diversion
of list I chemicals.'' Id.
Respondent, through its owner Mr. Vihang Patel, requested a hearing.
The case was assigned to Administrative Law Judge (ALJ) Mary Ellen
Bittner, who conducted a hearing in Tampa, Florida, on November 1, 2005.
At the hearing, both parties put on witnesses and introduced documentary
evidence. Following the hearing, the Government submitted proposed
findings of fact and conclusions of law.
On April 25, 2006, the Administrative Law Judge submitted her
decision which recommended that Respondent's application be denied.
Neither party filed exceptions. The record was then forwarded to me for
final agency action.
Having considered the record as a whole, I hereby issue this decision
and final order. I adopt the ALJ's decision in
[[Page 11056]]
its entirety and conclude that Respondent's registration would be
inconsistent with the public interest. I therefore order that
Respondent's application be denied.
Findings
Respondent, a Florida corporation, sells sundry items and tobacco
products to convenience stores, gas stations, and small independent
groceries. Respondent does not make deliveries. Rather, it operates a
walk-in warehouse which is located in an Orlando, Florida industrial
park. Respondent's President is Mr. Vihang Patel; Mr. Patel and his two
brothers each own one-third of the corporation. See ALJ Dec. at 9-10. On
August 27, 2003, Mr. Patel applied on Respondent's behalf for a DEA
Certificate of Registration to distribute list I chemicals. Gov. Ex. 1.
As relevant here, Respondent sought the registration to distribute
pseudoephedrine and ephedrine.\1\ Id.
---------------------------------------------------------------------------
\1\ Respondent also sought to distribute
phenylpropanolamine (PPA), a product which is the subject of an FDA
rulemaking which proposes to reclassify the drug as not generally safe
and effective. See 70 FR 75988, 75994 (2005). Respondent no longer
seeks registration to distribute PPA products.
---------------------------------------------------------------------------
Methamphetamine and the Market for List I Chemicals
As explained in numerous DEA final orders, both pseudoephedrine and
ephedrine currently have therapeutic uses. See, e.g., Tri-County Bait
Distributors, 71 FR 52160, 52161 (2006).\2\ Both chemicals are, however,
regulated under the Controlled Substances Act because they are precursor
chemicals which are easily extracted from non-prescription products and
used in the illicit manufacture of methamphetamine, a Schedule II
controlled substance. See 21
U.S.C. 802(34); 21
CFR 1308.12(d).
---------------------------------------------------------------------------
\2\ The FDA is, however, currently proposing to
remove combination ephedrine-guaifenesin products from its
over-the-counter (OTC) drug monograph and to declare them not safe and
effective for OTC use. See 70 FR 40232 (2005).
---------------------------------------------------------------------------
Methamphetamine is a powerful and highly addictive central nervous
system stimulant. See, e.g., Tri-County Bait Distributors, 71 FR at
52161. The illegal manufacture and abuse of methamphetamine pose a grave
threat to this country. Methamphetamine abuse has destroyed numerous
lives and families and ravaged communities. Moreover, because of the
toxic nature of the chemicals which are used to make the drug, the
illegal manufacture of methamphetamine causes serious environmental
harms. Id., see also Tr. 12.
The illicit manufacture of methamphetamine is an increasing problem
in the State of Florida. According to the testimony of a DEA Special
Agent, during the period October 1, 2004, through September 30, 2005,
law enforcement authorities seized 340 clandestine laboratories
statewide. Tr. 10-11. A DEA Diversion Investigator (DI) further
testified that the illicit manufacture of methamphetamine is an
especially serious problem in central Florida and the panhandle. Id. at
26.
The record further establishes that there is both a traditional
market and a non-traditional (or gray) market for pseudoephedrine and
ephedrine products. According to the declaration of Jonathan Robbin, who
has testified as an expert on statistical analysis of these markets in
numerous proceedings, pseudoephedrine products sold in the traditional
market typically contained 30 mg. of the chemical, are manufactured "in
combination with other active ingredients,'' and are sold in blister
packs of 24, 36, or 96 count. Gov. Ex. 10, at 3-4. Ephedrine products
sold in the traditional market typically contain 12.5 mg. of ephedrine
and 200 mg. of guaifenesin and are sold in boxes of either 24 or 60
tablets. Id. at 4. By contrast, the products sold in the non-traditional
market typically contain 60 mg. of pseudoephedrine, which is not
combined with any other active ingredient, and are sold in bottles
containing 60, 100, and 120 tablets. Id. at 5; see also Gov. Ex. 6, at
12. Moreover, the ephedrine products sold in the non- traditional market
typically contain 25 mg. of ephedrine combined with 200 mg. of
guaifenesin and are sold in bottles containing 60 tablets. Gov. Ex. 10,
at 6.
According to the Government's expert witness, who has examined both
the 1997 and 2002 United States Economic Censuses, approximately 97
percent of all non-prescription drugs are sold in pharmacies,
supermarkets, large discount and general merchandise stores, or through
electronic shopping/mail order houses. Id. at 4. The data also show that
non-prescription drug sales accounted for only 2.6% (in the 2002
Economic Census) "of the overall sales of all convenience stores that
handle'' these products and only 0.6% of the total sales of convenience
stores. Id. at 4-5. The Government's expert further testified that the
sale of pseudoephedrine products comprise "only about 2.6% of the
[Health and Beauty Care] category of merchandise or 0.05% of total in-
store (non-gasoline) sales that occur at convenience stores. Id. The
Government's expert further stated that combination ephedrine products "have
about half the over-the-counter sales volume'' of pseudoephedrine
products. Id. According to the Government's expert, the normal expected
sales range to meet legitimate demand for pseudoephedrine products at a
non-traditional retailer is "between $0 and $40 per month, with an
average of $20.60''; the expected sales range for combination ephedrine
products at a convenience store is "between $0 and $25, with an average
of $12.58'' per month. Id. at 8.
Finally, the Government's expert recounted numerous instances in
which wholesale distributors sold massive quantities of pseudoephedrine
and ephedrine products to convenience stores and other non-traditional
retailers. See id. at 8-14. The expert further concluded that the
massive sales of these products cannot be explained by persons buying
them for non-FDA approved uses such as "weight loss or energy
enhancement.'' Id. at 16. As the Government's expert concluded, DEA has
found that these massive sales are "indicative of diversion to illicit
use.'' Id. at 17.
According to DI Mark J. Rubbins, who served as Chief of the Domestic
Chemical Control Unit of the Office of Diversion Control, "[n]on-traditional
stores * * * tend to knowingly sell [list I products] in large
quantities to `smurfers.' '' Gov. Ex. 6, at 6. DI Rubbins further
explained that smurfers "are groups of individuals affiliated with
methamphetamine traffickers that frequent these establishments at
different times or on different dates, with the aim of buying out a
store's supply of over-the-counter medications.'' Id. at 6-7.
DI Rubbins further testified that certain list I products have been "disproportionately
represented in clandestine lab seizures around the United States.'' Id.
at 12. The pseudoephedrine products are Mini Thin, Mini Twin, Unique,
Action-Pseudo, Revive, OTC-Pseudo, and Twin-Pseudo; the ephedrine
products are Max Brand, Xtreme, Xtreme Relief Dual, Mini Two-Way, and
Max Brand Id. at 11-12. In addition, the brand names MinTwin 2-Way and
Heads-Up are used to sell both pseudoephedrine and ephedrine tablets.
Id. at 12. With respect to the pseudoephedrine products, DI Rubbins
stated that these products are preferred by illicit methamphetamine
producers because pseudoephedrine is their only active ingredient and
they are packaged in "large bottle sizes.'' Id. Moreover, blister packs
are not preferred by methamphetamine producers because it is more "time
consuming'' to extract the product from its packaging. Tr. 35.
[[Page 11057]]
The Pre-Registration Investigation and Respondent's Testimony
On January 27, 2004, a DI visited Respondent's facility and met with
Mr. Vihang Patel, Respondent's president, to conduct a pre- registration
investigation. Tr. 29. During the inspection, Mr. Patel provided the DI
with a list of the list I chemicals products his firm intended to sell.
Gov. Ex. 5.The list included numerous products that are preferred by
illicit methamphetamine producers including bottle sizes of Ephedrine
Two-Way, MiniThin Two-Way, and Max Brand Two-Way.\3\ Id. at 2.
Additionally, the list included a number of products that do not contain
list I chemicals such as Goody Powder, Goody Body Pain Powder, BC
Arthritis Powder, and BC Powder. Id. at 1. Moreover, at the hearing Mr.
Patel demonstrated a general lack of knowledge as to whether particular
products contained either pseudoephedrine or ephedrine. When asked
during cross-examination whether certain products (Nyquil, Dayquil,
Tylenol Cold, Tylenol Sinus, Tylenol Allergy, Advil Cold, Tylenol PM)
contained pseudoephedrine, Mr. Patel answered: "I'm not sure if any one
of them does or not. We have to * * * go to the chemical contents, or
ingredients of that particular product.'' Tr. 106. When asked whether
any of these products contained ephedrine, Mr. Patel stated: "I think
they do.'' Id. at 107. However, none of the products contain ephedrine.
---------------------------------------------------------------------------
\3\ Ephedrine Two-Way tablets are manufactured by
ProActive Labs Inc.; MiniThin Two-Way tablets are manufactured by
B.D.I. Pharmaceutical. Gov. Ex. 5, at 2. Because of the extent to
which these products have been found in illicit methamphetamine labs,
DEA has sent numerous warning letters to both of these firms. See D
& S Sales, 71 FR 37607, 37608 (2006).
---------------------------------------------------------------------------
During the inspection, Mr. Patel told the DI that "he would be
selling bottles'' and that "he would not be selling blister packs
because his customers didn't like them or want them.'' Id. at 50. At the
hearing, however, Mr. Patel testified that he was no longer interested
in selling gray market products but only traditional allergy and cold
medicines such as Nyquil and Tylenol Sinus. Id. at 91, 96.
Mr. Patel also told the DI that he had been "an aeronautical engineer
for eleven years,'' and that he "had minimal experience'' in selling
listed chemicals. Id. at 38. According to the record, Respondent's
experience involved working on weekends in a similar business owned by
his family that is located in Lakeland, Florida. Id.
Discussion
Under 21
U.S.C. 823(h), an applicant to distribute list I chemicals is
entitled to be registered unless the registration would be "inconsistent
with the public interest.'' In making this determination, Congress
directed that I consider the following factors:
(1) Maintenance by the applicant of effective controls against
diversion of listed chemicals into other than legitimate channels;
(2) compliance by the applicant with applicable Federal, State, and
local law;
(3) any prior conviction record of the applicant under Federal or
State laws relating to controlled substances or to chemicals
controlled under Federal or State law;
(4) any past experience of the applicant in the manufacture and
distribution of chemicals; and
(5) such other factors as are relevant to and consistent with the
public health and safety.
Id.
"These factors are considered in the disjunctive.'' Joy's Ideas, 70
FR 33195, 33197 (2005). I may rely on any one or a combination of
factors, and may give each factor the weight I deem appropriate in
determining whether an application for registration should be denied.
See, e.g., David M. Starr, 71 FR 39367, 39368 (2006); Energy Outlet, 64
FR 14269 (1999). Moreover, I am "not required to make findings as to all
of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005);
Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005).
In this case, I acknowledge that factors two and three would not bar
granting Respondent a registration. I conclude, however, that Respondent
lacks effective controls against diversion (factor one), lacks relevant
experience in the distribution of list I chemicals (factor four), and
intends to distribute list I chemicals to the gray market (factor five),
a market in which the risk of diversion is substantial. Consistent with
DEA precedents, I thus hold that Respondent's registration would be
inconsistent with the public interest.
Factor One--Maintenance of Effective Controls Against Diversion
I concur with the ALJ that the Government has not proved that
Respondent would fail to provide adequate physical security for the list
I chemicals stored at its facility. However, " `prior agency rulings
have applied a more expansive view of factor one than mere physical
security.' '' D & S Sales, 71 FR 37607, 37610 (2006) (quoting OTC
Distribution Co., 68 FR 70538, 70542 (2003)). A registrant is "required
to exercise a high degree of care in monitoring its customers'
purchases'' of list I chemical products to prevent diversion. Id.
Relatedly, DEA has repeatedly revoked the registrations of list I
chemical distributors for selling quantities of products that clearly
exceeded legitimate demand and were likely diverted into the illicit
manufacture of methamphetamine. See T. Young Associates, Inc., 71 FR
60567, 60572-73 (2006); D & S Sales, 71 FR at 37611-12; Joy's Ideas,
70 FR at 33198-99; Branex, Inc., 69 FR 8682, 8693-96 (2004).
Here, I conclude that it is likely that Respondent would not properly
monitor its customers' purchases. Both during the pre- registration
investigation and at the hearing, Respondent's president demonstrated a
lack of familiarity with OTC drug products. During the pre-registration
investigation, he represented that certain products contained list I
chemicals when they did not. At the hearing, he did not know which
products contained which chemicals and again referred to products
(Tylenol PM and Tylenol Arthritis) that do not contain either ephedrine
or pseudoephedrine as if they did. Respondent's president further
admitted that he would have to check the ingredients of the particular
product to be sure of whether it contained a list I chemical. In short,
his lack of such basic product knowledge does not inspire confidence
that his firm would know which products must be monitored to ensure that
they were not being purchased in excessive quantities and being diverted
into the illicit manufacture of methamphetamine. I thus conclude that
this factor support a finding that granting Respondent a registration
would be inconsistent with the public interest.
Factors Two and Three--Compliance With Applicable Laws and the
Applicant's Prior Record of Relevant Criminal Convictions
There is no evidence that Respondent is not in compliance with
applicable Federal, State, or local laws. Furthermore, there is no
evidence that Respondent, or any person affiliated with it, has ever
been convicted of a crime under either Federal or State laws relating to
controlled substances or listed chemicals. I thus conclude that both
factors weigh in favor of granting Respondent's application.
Factor Four--The Applicant's Past Experience in the Distribution
of Listed Chemicals
DEA precedent establishes that "an applicant's lack of experience in
distributing list I chemicals creates a greater risk of diversion and
thus weighs heavily against the granting of an application.'' Tri-
County Bait Distributors, 71 FR at 52163. According to the record,
Respondent itself has no experience in distributing list I chemicals.
The ALJ found, however,
[[Page 11058]]
that Respondent's president does have "some limited experience''
working on weekends at another firm which distributes list I chemicals.
ALJ Dec. at 15.
Distributors of list I chemicals are subject to a comprehensive and
complex regulatory scheme. See 21 CFR Pts. 1309 & 1310. Moreover, as
I explained in Tri-County Bait Distributors, merely working as a sales
clerk does not establish that an applicant has relevant experience. 71
FR at 52163. Rather, for an applicant's (or its key employee's)
experience to be relevant, the applicant must have been actively
involved in the fulfillment of a registrant's regulatory obligations and
demonstrate adequate knowledge of list I products.
While this standard may not have been clear at the time of the
hearing, I nonetheless conclude that a remand is unnecessary. As
explained above (and as the ALJ found), Respondent's president "has
little knowledge of which products on his proposed product list
contained ephedrine or pseudoephedrine.'' ALJ Dec. at 15-16. Thus, even
if Respondent's president had established that he had performed
regulatory obligations, his lack of knowledge of basic product
information would still lead me to conclude that his experience was
inadequate. I thus hold that this factor supports a finding that
Respondent's registration would be inconsistent with the public
interest.
Factor Five--Other Factors That Are Relevant to and Consistent
With Public Health and Safety
Numerous DEA orders recognize that convenience stores and gas
stations constitute the non-traditional retail market for legitimate
consumers of products containing pseudoephedrine and ephedrine. See,
e.g., Tri-County Bait Distributors, 71 FR at 52161; D & S Sales, 71
FR at 37608-09; Branex, Inc., 69 FR at 8690-92. DEA orders also
establish that the sale of list I chemical products by non-traditional
retailers is an area of particular concern in preventing diversion of
these products into the illicit manufacture of methamphetamine. See,
e.g., Joey Enterprises, 70 FR 76866, 76867 (2005). As Joey Enterprises
explains, "[w]hile there are no specific prohibitions under the
Controlled Substances Act regarding the sale of listed chemical products
to [gas stations and convenience stores], DEA has nevertheless found
that [these entities] constitute sources for the diversion of listed
chemical products.'' Id. See also TNT Distributors, Inc., 70 FR 12729,
12730 (2005) (special agent testified that "80 to 90 percent of
ephedrine and pseudoephedrine being used [in Tennessee] to manufacture
methamphetamine was being obtained from convenience stores''); OTC
Distribution Co., 68 FR 70538, 70541 (2003) (noting "over 20 different
seizures of [gray market distributor's] pseudoephedrine product at
clandestine sites,'' and that in an eight-month period distributor's
product "was seized at clandestine laboratories in eight states, with
over 2 million dosage units seized in Oklahoma alone''); MDI
Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding that "pseudoephedrine
products distributed by [gray market distributor] have been uncovered at
numerous clandestine methamphetamine settings throughout the United
States and/or discovered in the possession of individuals apparently
involved in the illicit manufacture of methamphetamine'').
Significantly, all of Respondent's proposed customers participate in
the non-traditional market for ephedrine and pseudoephedrine products.
DEA orders recognize that there is a substantial risk of diversion of
list I chemicals into the illicit manufacture of methamphetamine when
these products are sold by non-traditional retailers. See, e.g., Joy's
Ideas, 70 FR at 33199 (finding that the risk of diversion was "real''
and "substantial''); Jay Enterprises, Inc., 70 FR 24620, 24621 (2005)
(noting "heightened risk of diversion'' should application be granted).
Under DEA precedents, an applicant's proposal to sell into the
non-traditional market weighs heavily against the granting of a
registration under factor five. So too here.
Because of the methamphetamine epidemic's devastating impact on
communities and families throughout the country, DEA has repeatedly
denied an application when an applicant proposed to sell into the non-
traditional market and analysis of one of the other statutory factors
supports the conclusion that granting the application would create an
unacceptable risk of diversion. Thus, in Xtreme Enterprises, Inc., 67 FR
76195, 76197 (2002), my predecessor denied an application observing that
the respondent's "lack of a criminal record, compliance with the law and
willingness to upgrade her security system are far outweighed by her
lack of experience with selling list I chemicals and the fact that she
intends to sell ephedrine almost exclusively in the gray market.'' More
recently, I have denied applications explaining that an applicant's "lack
of a criminal record and any intent to comply with the law and
regulations are far outweighed by his lack of experience and the
company's intent to sell ephedrine and pseudoephedrine exclusively to
the gray market.'' Jay Enterprises, 70 FR at 24621. Accord Prachi
Enterprises, Inc., 69 FR 69407, 69409 (2004).
Here, Respondent clearly lacks effective controls against diversion,
its key employee has only limited experience in the wholesale
distribution of list I chemical products during which he apparently
learned very little about the products he seeks to carry, and yet it
intends to distribute these products to non-traditional retailers, a
market in which the risk of diversion is substantial.\4\ See Taby
Enterprises of Osceola, Inc., 71 FR 71557, 71559 (2006). Given these
findings, it is indisputable that granting Respondent's application
would be "inconsistent with the public interest.'' 21
U.S.C. 823(h).
---------------------------------------------------------------------------
\4\ Initially, Respondent also sought to sell high
strength, high count list I products including several brands that DEA
has frequently found during seizures of illicit methamphetamine
laboratories. See Gov. Exh. 5, at 2. See also OTC Distribution, 68 FR
at 70541, MDI Pharmaceuticals, 68 FR at 4236. At the hearing, however,
Respondent expressed a willingness to carry only smaller packages of
traditional cold and allergy medicines. See ALJ Dec. at 11. For the
reasons stated above, I nonetheless conclude that the Government has
shown that Respondent's registration would be inconsistent with the
public interest.
---------------------------------------------------------------------------
Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h), and 28
CFR 0.100(b) & 0.104, I order that the application of Planet
Trading, Inc., d/b/a United Wholesale Distributors, Inc., for a DEA
Certificate of Registration as a distributor of list I chemicals be, and
it hereby is, denied. This order is effective April 11, 2007.
Dated: February 28, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 07-1103 Filed 3-9-07; 8:45 am]
BILLING CODE 4410-09-P
NOTICE: This is an
unofficial version. An official version of these publications may be obtained
directly from the Government Printing Office (GPO).
|