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Integrity Wholesale, Inc.; Denial of Application
[Federal Register: October 11, 2006 (Volume 71, Number 196)]
[Notices] [Page 59832-59834] From the Federal Register Online via GPO
Access [wais.access.gpo.gov] [DOCID:fr11oc06-144]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Integrity Wholesale, Inc.; Denial of Application
On July 12, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Integrity Wholesale, Inc., (Respondent) of Fairview,
Tennessee. The Show Cause Order proposed to deny Respondent's
application for a DEA Certificate of Registration as a distributor of
the List I chemical pseudoephedrine, on the ground that issuance of a
registration would be inconsistent with the public interest. See 21
U.S.C. 823(h); Show Cause Order at 1.
The Show Cause Order specifically
alleged that Respondent is a wholesale distributor of various products
including batteries, disposable cameras, film, household goods and
health and beauty aids, and that in September 2003, Respondent had
applied for a registration to distribute pseudoephedrine products from
its Tennessee location. Show Cause Order at 1-2. The Show Cause Order
alleged that Respondent's owner, Mr. Andrew Splendorio, had informed DEA
investigators that Respondent distributes products to all fifty states
and that approximately eighty percent of the orders it receives are made
by telephone or the Internet. Id. at 2.
The Show Cause Order alleged
that Respondent provided DEA investigators with a list that included
several hundred proposed customers. See id. at 2. The Show Cause Order
alleged that the list included numerous non-traditional retailers of
over-the-counter drug products including dive shops, paintball shops,
gun shops, rafting and kayak shops, photo shops, audio stores, wildlife
centers and zoos, publishing companies, and a theatre. See id. The Show
Cause Order further alleged that the list included numerous individuals
who were not listed as being affiliated with any particular business. Id.
The Show Cause Order alleged that the proposed customers "have
zero expectation of sales of over the counter drug products." Id.
The Show Cause Order also alleged that only "[a]n extremely small
amount of face-to-face purchases" of pseudoephedrine products occur
in non- traditional retailers, and that DEA has found that these
establishments "purchase inordinate amounts of these products and
become conduits for the diversion" of these products into the
illicit manufacture of methamphetamine. Id.
Finally, the Show Cause
Order alleged that the illicit manufacture of methamphetamine continues
unabated in Tennessee. See id. at 2. The Show Cause Order further
alleged that DEA had noted a trend towards smaller capacity laboratories
and that these laboratories often obtain precursor chemicals from
non-traditional retailers. See id. at 2-3. The Show Cause Order also
alleged that some non-traditional retailers obtain List I chemicals from
multiple distributors and that these products are then diverted into the
illicit manufacture of methamphetamine. See id.
The Show Cause Order was
served on Respondent by certified mail, return receipt requested. On
July 22, 2005, Respondent received the Show Cause Order as evidenced by
the signed return receipt card. Notwithstanding that the Show Cause
Order clearly stated that Respondent's failure to request a hearing
within 30 days after the date of receipt of the Order would be deemed a
waiver of its right to a hearing, Respondent did not request a hearing
until September 27, 2005. In response, on October 5, 2005, the
Government moved for summary disposition
[[Page 59833]]
contending that Respondent had failed to timely file its request for
a hearing.
On October 7, 2005, the Administrative Law Judge (ALJ) issued
a memorandum directing that Respondent file a response to the
Government's motion. Thereafter, on October 13, 2005, Respondent filed a
response stating that it had failed to timely file a request for a
hearing because it was "extremely busy and a little under
staffed." Mr. Splendorio further admitted that he had failed to
give the matter "my immediate attention."
On October 25, 2005,
the ALJ issued an Order terminating the proceeding and directing that
the investigative file be forwarded to me for final agency action. The
ALJ specifically noted that Respondent had neither filed a timely
request for a hearing nor a timely request for an extension of time to
file a request for a hearing. The ALJ further found that Respondent had
not presented sufficient grounds for failing to file a timely request
and that Respondent had waived its right to a hearing.
Having reviewed
the record as a whole, I concur with the ALJ's findings that Respondent
has not presented a sufficient reason to excuse its failure to timely
request a hearing and that Respondent has waived its right to a hearing.
I therefore enter this final order without a hearing based on relevant
material contained in the investigative file and make the following
findings.
Findings
Pseudoephedrine is a List I chemical that, while having therapeutic
uses, can be extracted from lawful non-prescription products and used to
manufacture 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." Sujak Distributors, 71 FR 50102, 50103 (2006),
A-1 Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine abuse
has destroyed lives and families, ravaged communities, and caused
serious environmental harms. Sujak, 71 FR at 50103.
Respondent, which is
registered as a Colorado Corporation, is located at 7905 Pinecrest Lane,
Fairview, Tennessee. On September 24, 2003, Respondent's president, Mr.
Andrew Splendorio, submitted an application on behalf of Respondent for
a registration as a distributor of the List I chemical pseudoephedrine.
On March 10, 2004, a DEA Diversion Investigator (DI) conducted an
on-site inspection at Respondent's proposed registered location and met
with Mr. Splendorio. The firm is located in the basement and garage area
of a two-story brick home. Access to the area is gained through a wooden
door which has a dead-bolt lock. The building also has an electronic
alarm system.
Mr. Splendorio informed the DI that Respondent is a
wholesale distributor of assorted products including cameras, film,
batteries, household items, health and beauty aids, and other items. The
DI determined that Respondent's sales territory includes all fifty
states, as well as Puerto Rico, the U.S. Virgin Islands, and American
Samoa. Mr. Splendorio further told the DI that eighty percent of the
orders Respondent receives are are placed by telephone, five percent are
placed over the internet, and the remaining fifteen percent are placed
with the firm's three salespersons who are located in Florida, Nevada,
and Alaska.1 Respondent's salespersons do not, however, handle
products. Rather, Respondent uses the United Parcel Service (UPS) to
ship its products.
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1 Respondent also employs an administrative assistant and a
warehouse manager.
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According to the investigative file, Respondent proposed to
distribute such products as Tylenol Sinus, Tylenol Allergy Sinus,
Tylenol Cold, Advil Cold and Sinus, Sudafed, Claritin and Benadryl.
According to a letter provided by Mr. Splendorio, Respondent would
initially carry products that are packaged in single dose pouches of 1-
2 tablets with 12 pouches in a sleeve. The letter further stated,
however, that Respondent intended to eventually also sell "the 2
smallest multiple dose [packages] offered by each brand."
Respondent's intended supplier was Lil' Drug Stores Products, Inc.
The
DI inspected Respondent's recordkeeping system and found it to be
adequate. The DI also obtained a list of proposed List I chemical
customers from Mr. Splendorio. The list included dive shops, paintball
facilities, camera shops, photo labs, canoe and kayak businesses, pools
and waterparks, several museums and zoos, several markets, and numerous
individuals who were not listed as owning any particular business.
Moreover, the customers were located throughout the United States.
The
DI contacted several of the potential customers; the DI verified that
Respondent was a supplier of each firm and uncovered no other adverse
information. The DI also conducted background checks on Respondent's
officers and employees; the checks found no derogatory information on
any individual.
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 conclude that factors one and five are
dispositive and establish that Respondent's application should be
denied.
Factor One--Maintenance of Effective Controls Against Diversion
I acknowledge that Respondent would provide adequate physical
security to protect List I chemical products in its possession from
theft. I further acknowledge that Respondent's recordkeeping system
appears adequate.
Respondent's proposed method of distributing
pseudoephedrine does not, however, provide adequate controls to protect
against diversion. As found above, most of Respondent's business is
derived from telephone and internet orders and Respondent sells its
goods to all fifty states, as well as Puerto Rico, the U.S. Virgin
Islands, and American Samoa. Moreover, the orders are then shipped by
UPS, a commercial carrier.
Under Federal law and DEA regulations, a
distributor who uses a
[[Page 59834]]
commercial carrier to distribute to a non-regulated person nine grams
or more of pseudoephedrine in the course of a calendar month engages in
a regulated transaction. See 21 U.S.C. 802(39)(A)(iv), id. section
830(b)(3); 21 CFR 1310.03(c), id. 1310.04(f). Federal law further
provides that "[i]t is the duty of each regulated person who
engages in a regulated transaction to identify each other party to the
transaction." 21 U.S.C. 830(a)(3); see also 21 CFR 1310.07. Under
DEA's regulations, "[f]or sales to individuals * * * the type of
documents and other evidence of proof must consist of at least a
signature of the purchaser, a driver's license and one other form of
identification." 21 CFR 1310.07(d).2
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2 For sales to a new customer that is "not an individual * *
*, the regulated person shall establish the identity of the authorized
purchasing agent or agents and have on file that person's signature,
electronic password, or other identification." 21 CFR 1310.07(e). A
regulated person must also "verify the existence and apparent
validity of a business entity." Id. at 1310.07(b).
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It seems highly likely that Respondent's sales would frequently
exceed the threshold. Most significantly, Respondent does not appear to
have in place any procedures to verify the identity of its customers,
most of which are located outside of Tennessee and at a great distance
from Respondent's three salespersons. I thus find that Respondent lacks
effective controls to prevent diversion. While this factor is reason
alone to conclude that granting Respondent's application would be
inconsistent with the public interest, a discussion of factor five is
also warranted.
Factor Five--Other Factors That Are Relevant to and Consistent With
Public Health and Safety
The record establishes that Respondent's proposed customers are not
participants in the traditional retail market for pseudoephedrine
products. See, e.g. D & S Sales, 71 FR 37607, 37608-09 (2006);
Joy's Ideas, 70 FR at 33197. Indeed, dive shops and paint ball facilities seem
to be an even less likely source for legitimate consumer purchases of
pseudoephedrine than convenience stores and gas stations, establishments
which DEA has repeatedly found to be "sources for the diversion of
listed chemical products." Joey Enterprises, 70 FR 76866, 76867
(2005). Moreover, Respondent's customer list included numerous
individuals with no listed business affiliation. Why these individuals
would need to purchase pseudoephedrine from a wholesaler rather than a
retailer is not clear.
DEA final orders have repeatedly recognized 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." Tri-County Bait Distributors, 71 FR
52160, 52164 (2006). See also 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). 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.
I acknowledge that Respondent proposed to sell only name brand
pseudoephedrine products in lower dosage counts. While these products
have not been preferred by illicit methamphetamine manufacturers, they
have nonetheless been subject to diversion. See, e.g., TNT
Distributors,
70 FR 12729, 12730 (2005). Indeed, in light of recently enacted
restrictions on the sale of List I chemical products imposed by both
Congress and numerous state legislatures, it is reasonable to expect
that methamphetamine traffickers will resort to using increasing amounts
of name-brand products.
As I recently explained, "[b]ecause of the
methamphetamine epidemic's devastating effects, 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." Tri-County Bait, 71 FR
at 52164. Thus, even though Respondent proposes to distribute only
name-brand pseudoephedrine products, the fact that its proposed
customers are primarily non- traditional retailers (and also include
individuals with no known business affiliation) and that it has no
effective measures to identify its customers and determine whether their
purchases would be to meet legitimate consumer demand, creates an
unacceptable risk that its products would be diverted. Therefore, while
I acknowledge that none of Respondent's officers or employees has a
record of criminal convictions (factor three) and that the investigative
file does not otherwise establish that Respondent would fail to comply
with applicable laws (factor two), I conclude that granting Respondent's
application would be inconsistent with the public interest. See Joy's
Ideas, 70 FR at 33199 (registrant's "lack of a criminal record,
previous general compliance with the law and regulations and willingness
to comply with regulations and guard against diversion, are far
outweighed by [registrant's] intent to continue selling * * *
pseudoephedrine exclusively in the gray market").
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 Integrity Wholesale, Inc., for a DEA Certificate of
Registration as a distributor of List I chemicals be, and it hereby is,
denied. This order is effective November 13, 2006.
Dated: September 29, 2006.
Michele M. Leonhart, Deputy Administrator.
[FR Doc. E6-16757 Filed 10-10-06; 8:45 am]
BILLING CODE 4410-09-P
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