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T. Young Associates, Inc.; Revocation of Registration
FR Doc 06-8193 [Federal Register: October 13, 2006 (Volume 71, Number 198)]
[Notices] [Page 60567-60573] From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc06-106]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 04-16]
T. Young Associates, Inc.; Revocation of Registration; Introduction and
Procedural History
On December 17, 2003, the Deputy Assistant Administrator, Office of Diversion
Control, Drug Enforcement Administration, issued an Order to Show Cause to T.
Young Associates of Hermitage, Tennessee (Respondent). The Show Cause Order
proposed to revoke Respondent's DEA Certificate of Registration, 004395TSY, as a
distributor of List I chemicals, and to deny any pending applications for
renewal or modification of the registration, on the ground that Respondent's
registration is inconsistent with the public interest as that term is defined in
21 U.S.C. Sec. 823(h). See 21 U.S.C. Sec. 824(a)(4).
The Show Cause Order alleged in substance that on July 31, 2001, Respondent
applied for a modification of its registration as a List I chemical distributor
requesting registration to handle and distribute phenylpropanolamine, ephedrine
and pseudoephedrine at a new location. See Show Cause Order at 2. The
Show Cause Order further alleged that Respondent sells primarily "gray market
products" to convenience stores and gas stations, that Respondent's owner had
informed DEA Diversion Investigators (DIs) that List I chemical products
amounted to approximately nine percent of his total sales, and that some of the
manufacturers of the products sold by Respondent have received warning letters
from DEA because the products were found during law enforcement seizures of
clandestine laboratories. See id. The Show Cause Order further alleged
that Tennessee led DEA's southeast region in the number of illicit
methamphetamine laboratory seizures, that most illegal methamphetamine is
produced locally, and that methamphetamine production continues unabated. See
id. at 2-3.
The Show Cause Order further alleged that DEA had engaged an expert in the
field of retail marketing and statistics who had studied the purchases of List I
chemical products by hundreds of Tennessee retailers and concluded that these
stores were purchasing these products in amounts that were far in excess of
legitimate demand. See id. at 4. The Show Cause Order alleged that small
illicit laboratories procure the precursor chemicals required to manufacture
methamphetamine from non-traditional retailers such as gas stations and small
retail markets and that some of these retailers use multiple distributors to
mask their acquisition of large amounts of listed chemicals. See id.
Respondent, through its counsel, requested a hearing. The matter was assigned
to Administrative Law Judge (ALJ) Mary Ellen Bittner, who conducted a hearing in
Nashville, Tennessee, on September 28 and 29, 2004. At the hearing, both parties
called witnesses to testify and introduced documentary evidence. Following the
hearing, but before the record was closed, the Government introduced into
evidence the affidavit of its expert witness, Mr. Jonathan Robbin. Respondent
then submitted into evidence his own affidavit addressing the issues raised in
the Robbin affidavit, as well as several other exhibits. Following the closing
of the record, both parties submitted post-hearing briefs.
On October 28, 2005, the ALJ submitted her decision recommending that
Respondent's registration be revoked. Neither party filed exceptions. The record
was then transmitted 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 findings of fact and conclusions of law except as
expressly noted herein. For the reasons set forth below, I concur with the ALJ's
recommendation that Respondent's registration be revoked. I further order that
any pending applications for renewal or modification of Respondent's
registration be denied.
Findings
Respondent is a corporation whose shares are owned entirely by Mr. Roy T.
Young. Respondent is the holder of DEA Certificate of Registration, 004395TSY,
which authorizes it to distribute the List I chemicals phenylpropanolamine,
ephedrine and pseudoephedrine.1 Respondent, which is located in Hermitage,
Tennessee, sells a variety of general merchandise and nonfood items such as ball
caps, sunglasses, cigarette lighters, novelty items and licensed athletic wear
to predominately gas stations and convenience stores in eastern and middle
Tennessee. Mr. Young testified that Respondent "did a couple of million dollars
a year by the early 2000s." Tr. 233. Mr. Young further testified that ephedrine
was "about nine or ten percent of my sales in the chain stores." Id. at
290. Mr. Young also testified that he had decided not to carry pseudoephedrine
although he did sell it "from time to time" to certain customers. Id. at
240.
1 There is no evidence in the record that Respondent had distributed
phenylpropanolamine.
Methamphetamine and the Market for List I Chemicals
While both ephedrine and pseudoephedrine have therapeutic uses,2 they are
also precursor chemicals that are regulated by the Controlled Substances Act.
See 21 U.S.C. 802(34). Moreover, these chemicals are easily extracted from legal
and what typically were over-the-counter products3 and used in the illicit
manufacture of methamphetamine, a schedule II controlled substance. See 21 CFR
1308.12(d).
2 According to the affidavit of Mr. Douglas A. Snyder, a Drug Science
Officer within the Drug and Chemical Evaluation Section in the Office of
Diversion Control, under the Food, Drug and Cosmetic Act's provisions pertaining
to over-the-counter (OTC) products, ephedrine is lawfully marketed as a
bronchodilator used to treat asthma. Govt. Exh. 27, at 3-4. Pseudoephedrine is
lawfully marketed under the Food, Drug and Cosmetic Act's OTC provisions as a
decongestant. See id. at 4.
3 In response to the methamphetamine epidemic,
many States have enacted legislation making pseudoephedrine a Schedule V drug
under State controlled substances acts.
Methamphetamine "is a powerful and addictive central nervous system
stimulant." D & S Sales, 71 FR 37607, 37608 (2006). The illegal manufacture
and abuse of methamphetamine pose a grave threat to this country.
Methamphetamine abuse has destroyed numerous lives and families and has ravaged
communities. Moreover, because of the toxic nature of the chemicals used in
producing the drug, illicit methamphetamine laboratories cause serious
environmental harms. According to the testimony of DEA Special Agent Guy
Hargreaves, Staff Coordinator for the DEA Methamphetamine Program at DEA
Headquarters, in 1999 there were 101 explosions and at least 64 fires at
clandestine labs throughout the United States. See Gov. Exh. 26, at 9. Moreover,
the annual cost to government agencies to clean up methamphetamine labs is "millions of
dollars." Id. at 10.4
4 According to the Suspicious Order Task Force, as of 1998 the cost to
clean up a small boxed lab site was $30,000. See Gov. Exh. 28, at 18.
The problem of methamphetamine abuse is especially serious in Tennessee.
According to the record, the number of law enforcement seizures of clandestine
laboratories in Tennessee rose from 106 in 1999 to "over 700 labs" in 2003.
See ALJ at 8, Tr. at 14. Moreover, according to a DEA Special Agent, as of
September 28, 2004 (the date of the hearing), there
[[Page 60568]]
had been close to 700 seizures in Tennessee already that year.5 Tr. at 14.
5 As noted in Gregg Brothers Wholesale Co., Inc., 71 FR 59830 (2006), in
2004, law enforcement agencies seized 939 clandestine labs in Tennessee.
A DEA Special Agent who serves in the Nashville office as a clandestine lab
enforcement agent testified that, based on his observations of products found at
clandestine lab sites, as well as interviews he had conducted with various
defendants, there was a trend of methamphetamine cooks obtaining List I
chemicals from "smaller gas stations and convenience stores." Id. at 12.
According to the Special Agent, he had been told in the interviews that meth.
cooks were "able to buy cases, half cases, and such out the back door of"
convenience stores and gas stations. Id. The Special Agent further testified
that some meth. cooks drive around to different stores with four or five
different addicts who go into several stores in different cities and purchase
sub-threshold quantities of List I chemicals.
The Government submitted into
evidence the affidavit of Mark J. Rubbins, a Diversion Investigator who was then
assigned as Chief of the Domestic Chemical Control Unit, Office of Diversion
Control, DEA Headquarters. According to DI Rubbins, DEA has determined that
there is both a traditional and non-traditional market for List I chemical
products. See Gov. Exh. 44, at 5. The traditional market is characterized by a
short chain of distribution. In this market, manufacturers either sell directly
to large chains of grocery stores (such as Giant and Safeway), pharmacies (such
as Rite Aid and CVS), and other larger retailers (such as Wal-Mart), or they
sell to large wholesalers (such as Bergen Brunswig and AmeriSource). See id. at
5-6. Furthermore, List I chemical products sold in this market are typically of
lower strength and lower count sizes such as 30 mg. pseudoephedrine tablets in
small, blister pack sizes of six, twelve, twenty-four and sometimes forty-eight
count. See id. at 5.
In contrast, products sold in the non-traditional market
pass through multiple layers of distribution and are sold by such establishments
as gas stations, small convenience stores, liquor stores, headshops, beauty
parlors, and video stores. See id. at 6. Moreover, the products are typically
stronger than those found in the traditional market and include 60 mg.
pseudoephedrine tablets which are sold in larger package sizes such as 60, 100,
or 120 count bottle sizes. DI Rubbins further stated that non-traditional
retailers tend to knowingly sell large quantities of List I chemical products to
"smurfers," individuals who work for methamphetamine traffickers and attempt
to buy out a store's entire stock of List I chemical products by going to the
store at different times or on different days. See id. at 6-7.
DI Rubbins stated
that because of increased DEA enforcement efforts involving pseudoephedrine
products, methamphetamine traffickers have increasingly gone back to using
combination ephedrine products. See id. at 10. DI Rubbins further stated that in
2002, he contacted the major manufacturers of combination ephedrine/guaifenesin
products and determined that sales for these products amounted to only one-tenth
of the market for legitimate single-entity pseudoephedrine products. See id.
According to DI Rubbins, the names of products that are popular with
methamphetamine traffickers are "MiniThin" and "Mini Twin," which each
contain 60 mg. pseudoephedrine, and "Max Brand" and "Mini Two Way," which
are combination ephedrine products. See id. at 12. Mr. Rubbins further stated
that these brands "have been disproportionately represented in clandestine lab
seizures around the United States involving listed chemical products." Id. at
13.
The Government also submitted the affidavit of John Uncapher, who was then
assigned as a Staff Coordinator with the Domestic Operations Division at DEA
Headquarters. Mr. Uncapher's staff was responsible for the DEA Warning Letter
program. See Gov. Exh. 42, at 3. Under this program, DEA collects information
regarding List I chemicals products that have been found at clandestine lab
sites and identifies the manufacturers of these products. See id. The Government
entered into evidence a list of 35 warning letters issued to PDK Laboratories,
the manufacturer of Max Brand, a product which Respondent distributes. See Gov.
Exh. 19. According to this exhibit, between January 5, 1999, and September 26,
2002, approximately 1.67 million pseudoephedrine tablets and 107,250 combination
ephedrine tables manufactured by this firm were found in numerous seizures of
clandestine laboratories throughout the United States including Tennessee. The
Government also introduced into evidence a list of 17 warning letters issued to
BDI because their products, which Respondent also distributed, were found during
seizures of clandestine laboratories. See Gov. Exh. 20.
The Government submitted
into evidence the declaration of Jonathan Robbin, an expert in statistical
analysis of demographic, economic, geographic and survey data. Based on his
study of the latest available United States Economic Census of Retail Trade, Mr.
Robbin concluded that "over 97% of all sales of non-prescription drug products
occur in drug stores and pharmacies, supermarkets, large discount merchandisers
and electronic shopping and mail order houses." Gov. Exh. 70, at 4. Moreover,
sales of non-prescription drugs by convenience stores (including both those that
sell and do not sell gasoline), "account for only 2.2% of the overall sales of
all convenience stores that handle the line and only 0.7% of the total sales of
all convenience stores." Id.
Mr. Robbin further testified that based on his
study of U.S. Government Economic Census Data, information obtained from the
National Association of Convenience Stores, and commercially available point of
sale transaction data, he constructed a model of the traditional market for
retail sales of pseudoephedrine. See id. at 5. According to Mr. Robbin, sales of
pseudoephedrine account for "only about 2.6%" of the sales of health and
beauty care products in convenience stores and only "0.05% of total in-store
(non-gasoline) sales." Id.
Mr. Robbin testified that "the normal expected
retail sale of pseudoephedrine (Hcl) tablets in a convenience store may range
between $0 and $40 per month, with an average of $20.60 per month." Id. at 7.
Mr. Robbin also testified that "the expected sale of ephedrine (Hcl) tablets in
a convenience store ranges between $0 and $25, with an average of $12.58." Id.
at 7-8. Mr. Robbin further testified that a monthly retail sale of $40 of
ephedrine or $60 of pseudoephedrine would "occur less than one in 1,000 times
in random sampling." Id. Moreover, a monthly retail sale of $60 of ephedrine or
$100 in pseudoephedrine would "occur about once in a million times in random
sampling." Id.
The Investigation of Respondent
Respondent's initial registered location was 1319 Central Court, Hermitage,
Tennessee. On July 19, 2001, Mr. Young wrote a letter to DEA's Nashville office
informing it that Respondent had relocated its warehouse to 1320 Central Court,
Hermitage, Tennessee, and requesting that DEA issue a registration for the new
address. See Gov. Exh. 3. According to Mr. Young's testimony, Respondent had
leased both the 1319 and 1320 locations
[[Page 60569]]
for some period. When Respondent's lease for the 1319 location came up for
renewal, Mr. Young decided to terminate it and vacate the premises as he was
already leasing the 1320 space and had leased another premises (4706 Lebanon
Pike) which he was using for an office and retail store. See Tr. 242-43. Mr.
Young did not notify DEA, however, until after Respondent moved out of its then
registered location. Id. at 244-45.
Because DEA's regulations provide that a "request for modification shall be handled in the same manner as an application
for registration," 21 CFR 1309.61, on August 7, 2001, two DIs visited
Respondent's 1320 Central Court facility to conduct an investigation. ALJ at 15.
The DIs inspected the facility and obtained from Respondent lists of both its
customers and suppliers. The DIs found that the List I chemical products were
securely stored in a locked area of the warehouse. See id.
The DIs told Mr.
Young that they would conduct an accountability audit. The DIs conducted an
inventory of all List I chemical products on hand and obtained Mr. Young's
signature on their inventory report. Tr. 39-40. The DIs also told Mr. Young that
they needed to know what inventory was on Respondent's delivery trucks. Id. at
40. One of the DIs could not recall, however, whether Mr. Young had said there
were List I chemical products on the trucks. Id. at 41. The DI later testified
that Mr. Young had never gotten back to them regarding List I chemicals that may
have been on the trucks. Id. at 131. In his testimony, Mr. Young confirmed that
the DIs had asked him about "the truck inventory" and whether there were any "inventories on the
truck." Id. at 254.
The DIs then requested the invoices
necessary to conduct an accountability audit. Mr. Young told the DIs that the
records were not kept at the warehouse but were at his office, which was located
at 4706 Lebanon Pike.6 The DIs then went to the office. Id. at 37.
6 The DIs further informed Mr. Young that under Federal regulations,
records of purchases over certain amounts must be maintained at the registered
location. See Tr. 37-38. The record contains an invoice documenting a purchase
from PDK Laboratories of 720 bottles containing 60 tablets of 2 way ephedrine, a
product that contains 25 mg. of ephedrine hydrochloride per tablet. See Gov. Exh.
6. Respondent's purchase of this product did not, however, exceed the one
kilogram threshold. See 21 CFR 1310.04(f)(1); Gov. Exh. 23.
The DI proceeded to perform a 30 day accountability audit 7 of three of the
products--Ephedrine Plus 60 tablet bottles, Max Brand 60 tablet bottles, and
Nyquil two tablet packets. Because there was no beginning inventory, the DIs
assigned a value of zero for each of the products. Id. at 47. The DIs then
examined both the hard copy purchase invoices from Respondent's suppliers and
Respondent's hard copy sales records.8 Id. at 51, 147. The audit determined
that there were overages in the amount of 3,131 Ephedrine Plus bottles and 600
NyQuil packets. Gov. Exh. 12. The audit also found a shortage of 26 bottles of
Max Brand Ephedrine. Id.
7 The audit actually covered the period from July 1, 2001, through August
7, 2001. See Gov. Exh. 12.
8 There was a factual dispute as to whether
Respondent informed the DIs as to the existence of his computerized records. The
ALJ found that "whatever computerized records Respondent maintained showed only
the dollar amount of the sale but not the products sold; this latter information
was shown only on hard copy invoices." ALJ at 15; see also Tr. at 252. Because
the accountability audit was based on the quantity and not dollar amount of the
products, the dispute is immaterial.
The ALJ found that "[t]he investigators did not contact Mr. Young to discuss
the audit results" and noted that "Mr. Young testified that he was not aware
of the audit results until three years after the August 7, 2001 visit." ALJ at
17.9 The ALJ further found that Mr. Young then had his employees go back
through his records and recalculate Respondent's sales; the employees found
overages. See id.; see also Tr. 257-58.
9 There is, however, conflicting testimony by Mr. Young that when the DIs
were through with the audit, "we sat down and had a short meeting out front,
then a reference was made to a large overage in one category" and I told the
DIs "you can't honestly be over." Tr. at 253.
In October 2001, DEA modified Respondent's registration by changing the
address of his registered location to 1320 Central Court. The DI testified that
he had granted the modification because of the financial hardship Mr. Young was
undergoing in maintaining three separate premises. Tr. at 33.
Approximately a
year after the on-site inspection, one of the DIs conducted verification visits
of three of Respondent's customers. ALJ at 18. The manager at each location
verified that the store was a customer of Respondent; each of the managers also
told the DI that they used more than one supplier of List I chemicals. See
id.
At two of the stores, the managers told the DI that they were attempting to
identify customers who they believed were purchasing List I chemical products
for illicit use and report them to law enforcement authorities. See id.
On
September 19, 2003, Mr. Young requested another modification of the registration
to change both the name on the registration and the address of its registered
location to 4706 Lebanon Pike. On December 17, 2003, however, the instant Show
Cause Order was issued. See ALJ at 17.
On February 20, 2004, two DIs and a
Special Agent visited Respondent at its Lebanon Pike location to deliver a
letter from Howard Davis, the Diversion Program Manager for DEA's Atlanta Field
Division. The letter instructed Respondent that he could not store listed
chemicals at his new proposed location until DEA approved the change. Gov. Exh.
46. The letter further explained that DEA would not approve any modification
until the Order to Show Cause was resolved. Id.
During the visit, Mr. Young told
one of the DIs that no List I chemicals were being stored at the Lebanon Pike
location. However, during the visit, one of the DIs found a display rack
containing 24 bottles and 5 packets of ephedrine products on a shelf in the
office. ALJ at 17. Because the products were at a non-registered location, the
DI immediately seized them. Id.
Mr. Young testified that the products were at
the Lebanon Pike location because his son had taken them there to photograph
them for a brochure to be used in marketing them to Respondent's customers. Tr.
277. Mr. Young testified that after the pictures were taken the products should
have been immediately returned to the truck. Id. at 278.
As part of DEA's
investigation, one of the DIs obtained from Respondent's suppliers copies of
invoices documenting its purchases of List I chemical products from January 2003
through July 2004. Tr. at 166-75. According to the invoices from one supplier,
CB Distributors, Respondent purchased 5,616 bottles of Rapid Action (60 tablet
count), 576 bottles of Rapid Action (48 tablet count), 10,850 packets of Rapid
Action (12 tablet count), 3,168 bottles of Mini Two Way (60 tablet count), 576
bottles of Mini Two Way (48 tablet count), 3,456 packets of Mini Two Way (6
tablet count), 15,708 bottles of Max Brand 2-Way (60 tablet count), 17,280
packets of Max Brand 2-Way (6 tablet count), and 1,584 bottles of Twin Tabs (60
tablet count). ALJ at 18.
The Government also introduced two invoices it had
received from another of Respondent's suppliers, Sasser Distributing. The
invoices show that on July 27, 2004, Respondent purchased 288 bottles of
ephedrine products (60 tablet count); the next day, Respondent purchased another
144 bottles of Biotek Ephedrine (48 tablet count), as well as an additional
amount of Ephedrine Plus
[[Page 60570]]
packets (6 tablet count). See Gov. Exhs. 52-53.10
10 During the August 2001 on-site inspection, the DIs received a supplier
list from Mr. Young. Tr. 56. One of the DIs determined that at least two of
Respondent's suppliers had received warning letters from DEA. ALJ at 18.
As stated above, the Government entered into evidence the affidavit of
Jonathan Robbin. According to the affidavit, DEA provided Mr. Robbin with a list
of 801 wholesale transactions involving combination ephedrine and
pseudoephedrine products made by Respondent to 97 Tennessee convenience stores
between January 27, 2003, and November 22, 2004. Gov. Exh. 70, at 12. The
affidavit further stated that during this period Respondent sold 17,271 bottles,
each containing 60 tablets, and 24,520 packages, each containing six tablets, of
combination ephedrine products. See id. The bottles held a total of 1,036,260
tablets and the packets held a total of 147,120 tablets. Id. Respondent also
sold to 31 convenience stores, 1,435 bottles, each containing 60 tablets of Max
Brand 30 mg. pseudoephedrine, for a total of 86,100 tablets of pseudoephedrine
products. Id.
Using this data, Mr. Robbin calculated each store's implied
average monthly retail sales and compared that to the normal expected retail
sales discussed above.11 See id. at 13. According to Mr. Robbin, only one of
the 97 stores was selling near the normal expected sales range at 2.8 times
expectation. Id. at 15. The next lowest store was selling over 20 times the
expected sales range. Id. Mr. Robbin explained that in random sampling, sales
over 20 times expectation "could occur only about three times in a billion
raised to the fifth power." Id. Mr. Robbin further explained that "[t]he
probability of an index equal to or greater than 20 is so small as to be near
impossibility." Id. at 16. Finally, Mr. Robbin found that the top 94 stores had
indexes over 25, the top 54 stores sold "over 100 times expectation," and the
top sixteen sold "over 300 times expectation." Id. at 16.
11 Mr. Robbin's affidavit explains in detail his methodology, including the
figure he used for the products' gross margin, to calculate the implied retail
sales value of the products.
Mr. Robbin explained that "[s]uch indexes are not possible in the normal
commerce of these goods at ordinary convenience stores." Id. According to Mr.
Robbin, because the average convenience store serves 120,000 shoppers per year,
if combination ephedrine products were being purchased by customers to treat
asthma (the purpose for which the FDA has approved them), three million persons
would have to shop at the store in a year to account for sales 25 times the
expected amount. Id. Mr. Robbin further explained that while it was possible
that a single customer could purchase a store's entire monthly inventory, this
amount of product would supply the person with enough of the drug to treat an
asthmatic condition at recommended doses for two and one-quarter years. Id. Mr.
Robbin explained that "[i]t is difficult to imagine * * * what such a shopper
would do with all of this material every month except to resell or use it as a
precursor chemical in the illicit manufacture of methamphetamine." Id. at
16-17. Mr. Robbin thus concluded that Respondent "frequently sells combination
ephedrine * * * and single ingredient pseudoephedrine * * * products to these
stores in extraordinary excess of normal or traditional demand by ordinary
convenience store shoppers." Id. at 17.
Mr. Young submitted an affidavit
challenging the factual basis of Mr. Robbin's findings. According to Mr. Young,
he supplied records covering only the 365 day period from September 2003 through
August 2004. Resp. Exh. 19, at 1. Mr. Young further stated that "the total
number of stores serviced fluctuate[d] and was not a hard and fast 97 stores as
stated by Mr. Robbin." Id.
Mr. Young also challenged Mr. Robbin's findings as
to the monthly expected sales range of combination ephedrine and pseudoephedrine
products in convenience stores. Mr. Young asserted that according to the March
28, 2005 edition of Convenience Store News, "the average c- store sold $5,462
worth of cold and cough remedies in 2003." Id. Mr. Young also asserted that
according to the National Association of Convenience Stores State of the
Industry Report for 2003, "the average c-store sold $2,980 of cough & cold
remedies in 2003." Id. at 2. Mr. Young thus contends that "[t]hese independent
studies show average monthly sales of $250 to $450 per store per month for the
c-store industry. This amount is 8 to 14 times greater than what Robin [sic]
reports." Id. Mr. Young further asserted that Respondent's average per store
sales of combination ephedrine products "is within the norms for the sale of
these products to convenience stores that we have experienced in the 14 years
that we have been in business." Id. at 4.
In support of his affidavit, Mr.
Young also submitted into evidence a spreadsheet showing its List I chemical
sales from September 2003 through August 2004. See Resp. Exh. 20. According to
the spreadsheet, Respondent sold a total of $68,568.11 of List I chemical
products to an average of 54 stores per month. See id. The spreadsheet also
indicates that Respondent's average sale per store, per month, was $105.81, and
calculates that the average retail sale per store, per month, was $184.00. Id.
The spreadsheet also indicates that Respondent's sales of traditional branded
products (such as Advil, Aleve, Tylenol, Dayquil and Nyquil that contain
pseudoephedrine) amounted to only $1,507 out of the total of $68,568, or
approximately two percent of its List I chemical product sales. Id.
Discussion
Section 304(a) of the Controlled Substances Act provides that a registration
to distribute a List I chemical "may be suspended or revoked * * * upon a
finding that the registrant * * * has committed such acts as would render his
registration under section 823 of this title inconsistent with the public
interest as determined under such section." 21 U.S.C. Sec. 824(a)(4). 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. Sec. 823(h).
- 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 a registration should be revoked or an application for a modification of
a 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). My analysis of the
factors in this case compels the conclusion that Respondent's continued
registration would be inconsistent with the public interest.
[[Page 60571]]
Factor One--Maintenance of Effective Controls Against Diversion
I acknowledge that Respondent provides effective security against the theft
of listed chemicals. Accurate recordkeeping is, however, another important
control against diversion. See 21 CFR 1309.71(b)(8). As to this system, the
record clearly indicates that Respondent does not maintain effective controls
against diversion.
The accountability audit found that two of the products sold
by Respondent had overages; the other product had a shortage. As the ALJ noted,
the DIs used a zero opening inventory for each product because Respondent did
not have an inventory. Using a zero opening inventory will result in an
over-count if, in fact, a registrant had product on hand on the beginning date
of the audit period. I note, however, that Mr. Young testified that he had his
employees go back through his records and they too came up with overages. Tr.
257-58.
The DIs also found that there was a shortage of 26 Max Brand 60 tablet
bottles. This is especially significant because the audit covered only a short
period of time (approximately five weeks). Moreover, if, in fact, Respondent had
product on hand on the beginning date of the audit period, assigning an
inventory of zero would result in an undercount of the shortage.
I further note
the testimony regarding whether there was inventory on the trucks. The ALJ noted
that there was "somewhat inconsistent testimony about whether some List I
chemicals were on" the trucks. See ALJ at 22. I am satisfied, however, that the
DIs asked Respondent whether there were any List I chemicals on the trucks, see
Tr. 40 and 254, and the fact remains that Respondent had no readily obtainable
records showing the amount of inventory, if any, that was on the trucks. I
therefore conclude that Respondent does not maintain effective controls against
diversion. This factor thus supports a finding that Respondent's continued
registration would be inconsistent with the public interest.
Factor Two--Compliance with Applicable Federal, State, and Local Laws
The record here demonstrates that Respondent committed several violations of
Federal law and regulations. First, in July 2001, Respondent moved its List I
chemicals from the 1319 Central Court building, which was its registered
location, to the 1320 Central Court building, without obtaining approval from
DEA. This action violated 21 U.S.C. Sec. 822(e) and 21 CFR 1309.23(a).
The ALJ
also found that Respondent violated 21 CFR 1310.04(c), by storing List I
chemical records at its Lebanon Pike location, which was not registered. See ALJ
at 23. The record does not, however, support this finding. While 21 CFR
1310.04(c) requires that records be maintained "at the regulated person's place
of business where the transaction occurred," id., the provision applies only to
records which must be maintained under 21 CFR 1310.03. The only provision of
that section which is pertinent here is the requirement that a regulated person
keep a record of "a regulated transaction." Id. Sec. 1310.03(a). The
regulations establish that the threshold for transactions in combination
ephedrine products between wholesale distributors is one kilogram. Id. Sec.
1310.04(f)(1)(ii); see also Comprehensive Methamphetamine Control Act of 1996,
Pub. L. No. 104-237, Sec. 401(f), 110 Stat. 3099, 3110 (1996) (adopting one
kilogram threshold for regulated transactions in combination ephedrine products
between wholesale distributors).
The record contains only a single invoice
conceivably documenting a regulated transaction between Respondent and one of
its suppliers, PDK Laboratories, which had occurred at the time of the August
2001 inspection. This invoice indicates that on July 17, 2001, Respondent
purchased 720 bottles containing 60 combination ephedrine tablets of 25 mg.
ephedrine hydrochloride for a total of 43,200 tablets. See Gov. Exh. 6. This
amount of product does not, however, exceed the one kilogram threshold because
the hydrochloride constitutes approximately 18 percent of the chemical. As the
Government's own exhibit demonstrates, the one kilogram threshold was equivalent
to 48,826 combination ephedrine hcl tablets each containing 25 mg. ephedrine hcl.
See Gov. Exh. 23. Because Respondent's purchase was more than 5,000 tablets
under this amount, and there is no other evidence indicating that Respondent
engaged in additional purchases during the month, the record does not establish
that Respondent violated 21 CFR 1310.04(c).
The record does, however, contain
evidence establishing an additional violation of DEA regulations. During the
February 2004 visit, the DIs found a display rack containing 24 bottles and 5
packets of combination ephedrine products at Respondent's Lebanon Pike store/
office. Because Respondent's Lebanon Pike facility was not a registered
location, Respondent's storage of the items at this location violated 21 U.S.C.
Sec. 822(e) and 21 CFR 1309.23(a). Most remarkably, Respondent committed this
second violation after having been served with a Show Cause Order.
Because
Respondent committed multiple violations of the CSA's provisions, I conclude
that Respondent's record of compliance with Federal law supports a finding that
its continued registration would be inconsistent with the public interest.
Factor Three--The Record of Criminal Convictions
The record contains no evidence that Respondent's owner, or any employee, has
been convicted of an offense under laws related to either controlled substances
or listed chemicals. I thus conclude that this factor supports a finding that
Respondent's continued registration would not be inconsistent with the public
interest.
Factor Four--Past Experience in Distributing Listed Chemicals
It is undisputed that Respondent has distributed List I chemical products for
several years. That experience is, however, characterized by several violations
of the CSA, as well as the inability of Respondent to provide an accurate
accounting of its products. Moreover, as described under factor five below,
there is substantial evidence in the record establishing that Respondent's
products have been diverted. Accordingly, this factor supports a finding that
Respondent's continued registration would be inconsistent with the public
interest.
Factor Five--Other Factors That Are Relevant to and Consistent With Public
Health and Safety
The record here establishes--as do numerous agency precedents--that there is
a substantial nexus between the sale of certain non- traditional List I chemical
products by non-traditional retailers and the diversion of these products into
the illicit production of methamphetamine. See, e.g., John Vanags, 71 FR 39365,
39366 (2006); Joey Enterprises, 710 FR 76866, 76887 (2005); TNT
Distributors, 70
FR 12729, 12730 (2005). Indeed, as noted recently in TNT Distributors, which
also involved a Tennessee-based distributor of List I chemicals, "80 to 90
percent of ephedrine and pseudoephedrine being used [in Tennessee] to
manufacture methamphetamine was being obtained from convenience stores." 70 FR
at 12730.
Likewise in this case, there is undisputed testimony by a DEA Special
[[Page 60572]]
Agent establishing that Tennessee-based methamphetamine cooks were purchasing
large quantities of List I chemicals from smaller stores such as gas stations
and convenience stores. Tr. at 12. Respondent's List I chemical sales were
principally made to these types of retail establishments.
Moreover, Respondent's
Exhibit 20, which was a compilation of its sales of List I chemical products for
the period September 2003 through August 2004, establishes that 98 percent of
its sales were of non- traditional products including those of several
manufacturers who have received warning letters from this agency because their
products have frequently been found during seizures of clandestine
methamphetamine labs. Respondent's Exhibit 20 further establishes that during
this period, its average sale per store, per month, was $105.81, which would
result in an average retail sale per store, per month, of $184.
The ALJ found "persuasive" the affidavit of Mr. Robbin, the Government's expert witness who
testified about the market for List I chemical products. ALJ at 23. Based on
this evidence, the ALJ further concluded that "Respondent sold quantities of
List I chemicals to convenience stores that far exceeded what the stores could
reasonably be expected to sell to legitimate consumers." Id. The ALJ also
rejected Mr. Young's assertion in his post-hearing affidavit challenging Mr.
Robbin's testimony as to the normal expected sales of combination ephedrine and
pseudoephedrine products in convenience stores. See id. According to Mr. Young,
the average convenience store sold between $250 and $450 per store, per month,
an amount that "is 8 to 14 times greater than what Robin [sic] reports." Resp.
Exh. 19, at 2.
As the ALJ observed, combination ephedrine products cannot be
lawfully marketed over-the-counter as a cold and cough remedy and most of
Respondent's sales were of this type of product. See ALJ at 23; 21 CFR 341.76.
Moreover, products containing pseudoephedrine are only a subset of
over-the-counter cold remedies. Respondent has produced no evidence establishing
the percentage of over-the-counter cold remedies that include pseudoephedrine. I
therefore credit Mr. Robbin's expert testimony as to the normal expected sales
ranges of both ephedrine combination and pseudoephedrine products in
non-traditional retailers.
Mr. Young also challenged the factual basis for Mr.
Robbin's findings that were based on data supplied to the latter by DEA.
According to Mr. Robbin's affidavit, the findings that were specific to
Respondent were based on "a list supplied to the DEA by T. Young of 801
wholesale transactions drawn from invoices to 97 convenience stores in
Tennessee," which covered the period from January 27, 2003, through November
22, 2004. Govt. Exh. 70, at 12. Mr. Robbin further stated that the "[d]ata
given for each transaction included invoice date, store name, a product
description and number of units sold." Id. at 13. Mr. Young asserts, however,
that he supplied DEA with "data from September 2003 thru August 2004," that
the data "was for 365 days, not for 665 and the total number of stores serviced
fluctuate[d] and was not a hard and fast 97 stores as stated by Mr. Robbin."
Resp. Exh. 19, at 1.
The ALJ did not address this factual dispute. Mr. Robbin's
declaration makes clear that he did not review the actual invoices but rather
data provided him by the Government. The Government did not, however, submit
into evidence the list of transactions referred to by Mr. Robbin or the
documentary evidence upon which the list was based. Moreover, while Mr. Young
clearly provided data to DEA regarding Respondent's sales, see Resp. Exh. 19, at
1, the Government did not elicit any testimonial evidence from a witness with
personal knowledge of how the list was obtained that establishes the scope of
the data contained therein and refutes Respondent's contention. Accordingly,
while I have credited Mr. Robbin's testimony regarding the expected sales ranges
for combination ephedrine products and pseudoephedrine in non-traditional
retailers, I do not adopt his findings that were based on Respondent's sales.
Respondent's own evidence nonetheless demonstrates that it sold List I chemical
products to non-traditional retailers in quantities that far exceeded legitimate
demand and thus supports a finding that its products were diverted. During the
period of September 2003 through August 2004, Respondent sold at wholesale
prices an average of $ 105.81 to each store, each month. See Resp. Exh. 20, at
1. By Respondent's calculation, these List I chemical products produced an
average retail sale of $184 per store, per month. See id.12
12 While this figure is an average, it is unlikely that all stores bought
right at the average. Some stores bought less, some bought more.
Mr. Robbin found as a general matter that the expected retail sales range of
ephedrine (Hcl) in a convenience store is "between $0 and $25, with an average
of $12.58." Govt. Exh. 70 at 8. Mr. Robbin further found that a monthly retail
sale of "$60 of ephedrine (Hcl) tablets would be expected to occur about once
in a million times in random sampling." Id. By Respondent's own calculation,
its customers' average monthly retail sale of ephedrine products was several
times this amount. Moreover, this average was based on 54 stores over a twelve
month period. It is thus even more improbable (than a one in a million
probability) that these sales were to meet legitimate consumer demand for these
products. I therefore conclude that a preponderance of the evidence establishes
that a substantial portion of Respondent's products were diverted. See D & S
Sales, 71 FR at 37611 (finding diversion occurred "[g]iven the near
impossibility that * * * sales were the result of legitimate demand"); Joy's
Ideas, 70 FR at 33198 (finding diversion occurred in the absence of "a
plausible explanation in the record for this deviation from the expected norm"). That Respondent may have lacked any intent to divert or to sell to
customers who were diverting to the illicit manufacture of methamphetamine (See
Resp. Br. 8) is irrelevant. "In determining the public interest," Congress
granted the Attorney General broad discretion to consider any other factor that
is "relevant to and consistent with the public health and safety." 21 U.S.C.
Sec. 823(h)(5). The statutory text imposes no requirement that the Government
prove that a Registrant has acted with any particular mens rea. Indeed, the
diversion of List I chemicals into the illicit manufacture of methamphetamine
poses the same threat to public health and safety 13 whether a registrant
sells the products knowing they will be diverted, sells them with a reckless
disregard for the diversion, See D & S Sales, 71 FR at 37610-12, or sells
them being totally unaware that the products were being diverted. Cf. Joy's
Ideas, 70 FR at 33198 (revoking registration notwithstanding that distributor
was "an unknowing and unintentional contributor to [the] methamphetamine
problem.").14
13 In contrast to the provision pertaining to practitioners, the public
interest determination applicable to List I chemical distributors does not limit
the Attorney General's discretion to considering only those factors that "threaten public health and
safety." Compare 21 U.S.C. Sec. 823(h)(5) with id.
Sec. 823(f)(5) ("such other factors as are relevant to and consistent with
public health and safety"). The discussion in the text to the threat caused by
the diversion of List I chemicals is used only to demonstrate the point that a
registrant's mens rea is irrelevant. 14 Mr. Young asserts that "[t]he average
per store sales of all ephedrine products to our stores is within the norms for
the sale of these products to convenience stores that [his firm has] experienced
in the 14 years that we have been in business," and that these figures predate
the methamphetamine problem. Resp. Ex. 19. at 4. The ALJ did not, however,
credit this testimony. Moreover, Respondent did not produce any documentary
evidence establishing its sales levels prior to the emergence of the
methamphetamine epidemic in Tennessee. Thus, to the extent this testimony was
offered to show that Respondent's more recent sales were consistent with the
traditional and legitimate demand for List I chemical products and therefore
rebut a finding that diversion occurred, I decline to credit it. To the extent
the testimony was offered to show that Respondent did not intend that it
products be diverted, it is irrelevant.
[[Page 60573]]
Respondent points to the testimony of the DI who conducted verification
visits of three of Respondent's customers. According to Respondent, this
establishes that "respondent's customers conscientiously keep[] track of the
materials sold and report[ ] any excess sales to local police." Resp. Br. at 6.
The record establishes, however, that the verification visits involved only a
small fraction of Respondent's customers and thus this testimony does not refute
the finding that its products were diverted.
Respondent further asserts that
following Tennessee's enactment of the Meth-Free Tennessee Act of 2005, as well
as new laws in Georgia and Kentucky, revoking his registration would be "an
arbitrary overreaching act" because the new laws restrict the products that can
be sold by non-traditional retailers to those in gel-cap or liquid form and he
is selling only these products. Resp. Br. 7. DEA is already aware, however, of
several studies showing that methamphetamine can be produced from List I
chemicals sold as liquid-filled gel caps and liquids. See Drug Enforcement
Administration, Microgram Bulletin 96- 97,102 (June 2005) (discussing studies
conducted by Washington State Patrol Crime Laboratory and McNeil Consumer and
Specialty Pharmaceuticals). Moreover, experience has taught DEA that in the
aftermath of every major piece of legislation addressing the illicit manufacture
of methamphetamine, traffickers have quickly found ways to circumvent the
restrictions.
Moreover, even assuming that Respondent will fully comply with the
Tennessee and Kentucky laws, the Georgia statute would apparently not prohibit
Respondent from selling combination ephedrine products to non- traditional
retailers. See Georgia Code Sec. 16-13-30.3 (allowing convenience stores to sell
ephedrine products). Respondent would also be able to distribute products to
non-traditional retailers in other States which have not imposed similar
restrictions. Therefore, I conclude that factor five supports a finding that
Respondent's continued registration would be inconsistent with the public
interest.
In sum, Respondent has committed several violations of the CSA. See 21
U.S.C. Sec. 823(h)(2). Moreover, Respondent has no effective means of accounting
for List I chemical products. Id. Sec. 823(h)(1). Finally, the record
establishes that Respondent sold large amounts of non-traditional products into
the non-traditional or "gray market," a market which DEA has repeatedly found
to be a substantial source for diversion, and the statistical improbability that
these sales were to meet legitimate consumer demand supports a finding that the
products were diverted into the illicit manufacture of methamphetamine. Id. Sec.
823(h)(5). See also Joy's Ideas, 70 FR at 33199; Branex, Inc., 69 FR 8682, 8693
(2004); Xtreme Enterprises, Inc., 67 FR 76195, 76197 (2002). Thus, it is clear
that continuing Respondent's registration would be inconsistent with the public
interest.
Order
Accordingly, pursuant to the authority vested in me by 21 U.S.C. Sec. 823(h)
& Sec. 824(a), as well as 28 CFR 0.100(b) & 0.104, I hereby order that
DEA Certificate of Registration, 004395TSY, issued to T. Young Associates, Inc.,
be, and it hereby is, revoked. I further order that any pending applications for
renewal or modification of such registration be, and they hereby are, denied.
This order is effective November 13, 2006.
Dated: September 14, 2006.
Michele M. Leonhart, Deputy Administrator.
[FR
Doc. 06-8193 Filed 10-12-06; 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).
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