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Sujak Distributors; Denial of Application
FR Doc E6-14048 [Federal Register: August 24, 2006 (Volume 71, Number
164)] [Notices] [Page 50102-50105] From the Federal Register Online via
GPO Access [wais.access.gpo.gov] [DOCID:fr24au06-80]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Sujak Distributors; Denial of Application
On May 18, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Sujak Distributors (Respondent). The Show Cause
Order proposed to deny Respondent's application for a DEA Certificate of
Registration as a distributor of List I chemicals on the ground that
Respondent's registration would be inconsistent with the public
interest. See U.S.C. 823(h).
The Show Cause Order specifically alleged
that Respondent was proposing to sell ephedrine and pseudoephedrine
products, which are precursors used in the manufacture of
methamphetamine, to convenience stores, gas stations and liquor stores
in the Davenport, Iowa area. See Show Cause Order at 2. The
[[Page 50103]]
Show Cause Order alleged that only a small percentage of sales of
non- prescription ephedrine and pseudoephedrine products occur in these
retail outlets and that these establishments are a primary supply source
of these products for the illegal manufacture of methamphetamine. See
id. at 1-2. The Show Cause Order further alleged that Respondent's
proposed registered location was at a storage unit rental facility and
that Respondent's unit was not "sufficiently secure from entry from
adjacent units." Id. at 2.
The Show Cause Order also alleged that
Respondent's co-owner, Mr. Dennis Carney, had told DEA Diversion
Investigators that "25 to 35 percent of his business would consist of
listed chemical product sales to convenience stores, liquor stores and
gas stations." Id. The Show Cause Order alleged that "the average
small store could expect to sell monthly only about $15.00 to $40.00
worth of pseudoephedrine products." Id. at 3. Finally, the Show Cause
Order alleged that methamphetamine is "one of the most popular and
widely abused drugs throughout the Midwest." Id. The Show Cause order
also notified Respondent of its right to a hearing. Id. at 4.
The Show
Cause Order was served on Respondent by certified mail, return receipt
requested, and on June 3, 2005, Respondent acknowledged receipt. Since
that time, neither Respondent, nor anyone purporting to represent it,
has responded. Because (1) more than thirty days have passed since
Respondent's receipt of the Show Cause Order, and (2) no request for a
hearing has been received, I conclude that Respondent has waived its
right to a hearing. See 21 CFR 1309.53(c). I therefore enter this final
order without a hearing based on relevant material in the investigative
file and make the following findings.
Findings
Ephedrine and pseudoephedrine are List I chemicals that, while having
therapeutic uses, are easily extracted from lawful 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). As noted in
numerous prior DEA orders, "methamphetamine is an extremely potent
central nervous system stimulant." David M. Starr, 71 FR 39367 (2006);
A-1 Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine abuse
has destroyed lives and families, ravaged communities, and created
serious environmental harms. Starr, 71 FR at 39637.
Respondent is
organized as a partnership which is co-owned by Mr. and Mrs. Dennis
Carney. The investigate file contains additional information suggesting
that Mr. Greg Glowacki, an employee of Respondent, may also have a
financial interest in Respondent. Respondent is located at 2501 N.
Lincoln Ave, M-3, Davenport, Iowa. The location is a unit in a storage
rental facility.
On July 16, 2004, Respondent, through its co-owner,
submitted an application for a registration to distribute the List I
chemicals ephedrine and pseudoephedrine. On November 18, 2004, two DEA
Diversion Investigators (DIs) visited Respondent at its proposed
registered location to conduct a pre-registration investigation. The DIs
met with Mr. Carney and discussed the nature of Respondent's business.
Respondent supplies general merchandise and seasonal items to
convenience stores, gas stations, and liquor stores in the Davenport,
Iowa area. Respondent's business includes customers in both Iowa and
Illinois.
Mr. Carney advised the DIs that he was seeking registration in
order to sell the following List I chemical products which contain
ephedrine: Mini Two Way 12.5/200 mg. in 6 count packets, 12 count
blister cards, and 48 count bottles; Twin Tabs 12.5/200 mg. in 48 count
bottles; and Rapid Action 12.5/200 mg. in 48 count bottles. Mr. Carney
further advised the DIs that neither he or his wife, nor his employee,
had any experience in handling List I chemicals. Background checks on
Mr. Carney, his wife, and Mr. Glowacki, did not find any adverse
information.
Respondent's proposed registered location was a 10 foot by
20 foot unit in a rental storage facility with approximately 100 units.
The facility's office hours were 9 a.m. to 5 p.m., Monday through
Friday. All occupants have access to the main corridor where
Respondent's unit is located and can apparently obtain access to the
facility at any time through use of a key-pad entry system. Moreover,
the main corridor is wide enough so that a motor vehicle can be driven
into the facility. The facility has at least two video cameras in place;
one covers the main entrance, another covers the corridor adjacent to
Respondent's unit and the loading dock. The entry system records the
identification number of any person who has entered or exited the
facility. In the event of a break-in, the security company notifies the
local police department. Respondent's unit is protected by a padlock.
Mr. Carney also told the DIs that he intended to purchase a steel
storage cabinet for the List I chemical products. However, Mr. Carney
has not provided documentation that the cabinet was in fact purchased.
Upon entering Respondent's storage unit, the DIs observed that the unit
did not have a solid ceiling. Instead, the top of the unit was comprised
of wire, which was run both length and width wise at perhaps one foot
intervals.1 The DIs found that the wire could easily be tampered with
and that a person could gain access to Respondent's unit from other
storage units.
1The estimates of the interval is based on the photographs. No
actual measurement was taken.
The DIs also discussed with Mr. Carney his firm's business practices.
Mr. Carney told the DIs that he did not have any procedures to determine
whether new customers are legitimate purchasers other than visiting
their businesses and "checking them out." The DIs found that Mr.
Carney understood the record-keeping requirements. Mr. Carney also
appears to have adequate procedures for receiving and delivering List I
chemicals. Mr. Carney further told the DIs that he would not engage in
any transactions triggering the reporting threshold, see 21 CFR 1310.04
and 1310.05, and that he would contact DEA in the event a customer
placed a suspicious order.
Subsequent to the pre-registration
investigation, the DIs conducted customer verifications. The
verifications did not uncover any adverse information.
Discussion
Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals
is entitled to be registered unless I determine that 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 combination of factors,
and may
[[Page 50104]]
give each factor the weight I deem appropriate in determining whether
a registration should be revoked or an application for a registration be
denied." Starr, 71 FR 39368. See also Energy Outlet, 64 FR 14269
(1999). In this case, I conclude that factors one, four and five
establish that Respondent's application should be denied.
Factor One--Maintenance of Effective Controls Against Diversion
The investigative file does not establish that Respondent would fail
to properly comply with DEA's regulations pertaining to recordkeeping
and reports. But "the adequacy [of an] applicant's systems for
monitoring the receipt, distribution, and disposition of List I
chemicals," 21 CFR 1309.71(b)(8), is only one part of the inquiry under
factor one.
Determining whether an applicant will provide proper
physical security of listed chemicals is also critical in evaluating the
effectiveness of an applicant's controls against diversion. See 21 CFR
1309.71(b). Here, the investigative file establishes that Respondent's
proposed location does not provide adequate security for listed
chemicals for several reasons. First, Respondent's storage unit lacks an
adequate ceiling. Thus, even individuals who have lawful access to the
facility could easily break in to the unit.
Second, DEA's regulations
specifically mandate that I consider "the extent of unsupervised public
access to the facility." Id. 1309.71(b)(5). Here, there are 100 rental
units in the facility and it is apparent that a large number of people
have access to the building. Beyond that, it appears that the facility
has employees on-site only from Monday through Friday, and only between
the hours of 9 a.m. to 5 p.m. The facility is however, accessible 24
hours a day, every day of the year. Thus, access to the facility is
largely unsupervised.
Moreover, Respondent does not know whether any of
the other tenants have criminal records. Nor does it control who the
landlord rents to. While Respondent's owner claimed to the DIs that no
other occupant of the facility would be aware that he was handling List
I chemicals, it is certainly possible, if not likely, that other
occupants would eventually find out either through word of mouth or by
observing Respondent's employees. Perhaps none of the other tenants (and
the acquaintances they may bring to the facility) is a criminal, but
this is a risk I decline to assume. I thus conclude that Respondent's
proposed registered location does not provide adequate security for
storing listed chemicals. This factor thus weighs heavily in support of
denying Respondent's application.2
2Having concluded that Respondent's proposed location does not
provide adequate security, I do not decide whether Respondent has
adequate procedures for verifying the legitimacy of customers.
Factors Two and Three--Compliance With Applicable Law and the
Applicant's Prior Record of Relevant Criminal Convictions
While there is evidence that Respondent failed to comply with Federal
regulations when it was run by its previous owner, I have already
concluded that those violations are not relevant. The more important
question is whether there is any evidence that either the co- owners of
Respondent or its employee have failed to comply with applicable
Federal, state or local laws. The investigative file does not establish
that any of these persons has failed to comply with applicable laws.
Relatedly, none of these persons has been convicted of a criminal
offense relating to controlled substances or chemicals. I thus conclude
that both of these factors support granting Respondent's application.
Factor Four--Past Experience in the Manufacture or Distribution of
Controlled Substances
Neither of Respondent's co-owners, nor its sole employee, have any
prior experience in the manufacture or distribution of List I chemicals.
Because of the potential for diversion, DEA has repeatedly held that an
applicant's lack of experience in distributing List I chemicals is a
factor which weighs heavily against granting an application for
registration. See, e.g., Starr, 71 FR at 39368; Jay
Enterprises, 70 FR
24620, 24621 (2005); ANM Wholesale, 69 FR 11652, 11653 (2004). The fact
that neither of Respondent's co-owners, nor its employee, has any
experience thus provides a substantial reason to deny the application.
Factor Five--Other Factors That Are Relevant to and Consistent With
Public Health and Safety
Numerous DEA cases recognize that the sale of certain 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,
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 8-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").
Moreover,
during clandestine lab seizures, DEA has frequently found high count
List I chemical products, thus indicating that these are the preferred
products for illicit methamphetamine manufacturers. See OTC
Distribution, 68 FR at 70541, MDI Pharmaceuticals, 68 FR at 4236.
Respondent proposed to sell similar high count products.
Significantly,
all of Respondent's proposed customers participate in the
non-traditional market for ephedrine and pseudoephedrine products. DEA
final 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,
substantial and compelling"); Jay Enterprises, 70 FR at 24621 (noting "heightened risk of
diversion" should application be granted); Xtreme Enterprises, 67 FR at 76197. 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.
Furthermore, 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, my predecessor denied an application
[[Page 50105]]
observing that the respondent's "lack of 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." 67 FR at 76197. More recently, I denied an application
observing that the respondent'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, 69 FR 69407, 69409 (2004).
I also
note that the State of Iowa recently enacted legislation making all
ephedrine products Schedule V controlled substances. See 2005 Iowa Acts
Ch.15, S.F. 169 (codified at Iowa Code Ann. 124.212 (West 2006)). Under
Iowa law, all ephedrine products must be sold in licensed pharmacies.
Therefore, it appears that none of Respondent's customers can now
lawfully sell the products that Respondent proposed to distribute.3
See Iowa Code Ann. 124.302. Relatedly, Respondent can not distribute
ephedrine products without obtaining an Iowa controlled substances
registration. See id. As I have previously explained, where, as here,
state efforts to combat the illicit manufacture of methamphetamine are
consistent with Federal policy, it is appropriate to give them due
weight in determining whether the granting of a registration would be
consistent with public health and safety. See McBride Marketing, 71 FR
35710, 35711 (2006); Joy's Ideas, 70 FR 33195, 33199 (2005). I thus
conclude that granting Respondent's application would be inconsistent
with public health and safety.
3The Iowa Act also placed limits on the sale of pseudoephedrine
products, generally limiting their sale to pharmacies except for
packages of liquid, liquid capsule, and liquid-filled gel caps that
contain 360 milligrams or less. Respondent also has customers in
Illinois. Respondent did not, however, include any customers from
Illinois in its list of potential List I chemical customers. I therefore
do not consider the effect of Illinois' recently enacted Methamphetamine
Precursor Control Act.
In summary, there are several factors which support the conclusion
that granting the application would be inconsistent with the public
interest. Respondent's proposed security measures are plainly inadequate
and are thus grounds alone to deny the application. Moreover, Respondent
lacks experience in the distribution of List I chemicals and proposes to
sell into the non-traditional market. Furthermore, none of Respondent's
customers can lawfully sell ephedrine products under Iowa law. I
therefore conclude that granting Respondent's application would be "inconsistent with the public
interest." 21 U.S.C. 823(h).
Order
Accordingly, pursuant to the authority vested in me by 21 U.S.C.
823(h) and 28 CFR 0.100(b) and 0.104, I hereby order that the
application of Sujak Distributors for a DEA Certificate of Registration
as a distributor of List I chemicals be, and it hereby is, denied. This
order is effective August 24, 2006.
Dated: August 16, 2006.
Michele M. Leonhart, Deputy Administrator.
[FR Doc. E6-14048 Filed 8-23-06; 8:45 am]
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