[Federal Register: November 22, 2004 (Volume 69, Number 224)]
[Notices]
[Page 67951-67962]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no04-118]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket Nos. 01-12; 01-13]
Indace, Inc., c/o Seegott, Inc.; Malladi, Inc.; Suspension of
Shipments
On January 25, 2001, the then-Administrator of the Drug Enforcement
Administration (DEA) issued an Order to Suspend Shipment to Indace,
Inc., c/o Seegot, Inc. (Indace) of Elgin, Illinois, notifying it that
pursuant to 21 U.S.C. 971, DEA had ordered the suspension of a shipment
of 3,000 kilograms of ephedrine hydrochloride, a listed chemical, from
India into the United States. Indace indicated in its request for
importation that the listed chemical was intended for further shipment
to PDK Laboratories, Inc. (PDK) of Hauppage, New York. The Order to
Suspend Shipment stated that DEA concluded that the listed chemical may
be diverted to the clandestine manufacture of a controlled substance
based upon the appearance of products manufactured from prior imports
of ephedrine and pseudoephedrine destined for PDK at illicit criminal
sites, including methamphetamine clandestine laboratories and dumpsites
throughout the United States.
On January 26, 2001, the then-Administrator of DEA issued an Order
to Suspend Shipment to Malladi, Inc. (Malladi) of Edison, New Jersey,
notifying it that pursuant to 21 U.S.C. 971, DEA had ordered the
suspension of a shipment of 3,000 kilograms of ephedrine hydrochloride,
a listed chemical, from India into the United States. Malladi also had
indicated in its request for importation that the listed chemical was
intended for further shipment of PDK and the Order to Suspend Shipment
similarly stated that DEA had concluded the listed chemical may be
diverted to the clandestine manufacture of a controlled substance,
based upon the appearance of products manufactured from prior imports
of ephedrine and pseudoephedrine destined for PDK at illicit criminal
sites, including methamphetamine clandestine laboratories and dumpsites
throughout the United States.
[[Page 67952]]
On February 8, 2001, PDK requested a hearing in both matters,
asserting standing as a Respondent pursuant to the ruling in PDK
Laboratories, Inc. v. Reno, et al., 134 F.Supp.2d 24 (D.D.C. 2001). DEA
complied with the District Court's ruling and both matters were
docketed before Administrative Law Judge (ALJ) Gail A. Randall.
On March 8, 2001, the ALJ issued an order consolidating both
matters for hearing purposes. Neither Indace nor Malladi requested a
hearing in these matters. Following prehearing procedures, a hearing
was held in Arlington, Virginia, on March 26-30, April 5-6, April 11-13
and April 16-17, 2001. At the hearing, PDK and the Government called
witnesses to testify and introduced documentary evidence. After the
hearing, both parties filed proposed findings of fact, conclusions of
law, and argument.
On April 5, 2002, the ALJ issued a consolidated Recommended
Rulings, Findings of Fact, Conclusions of Law, and Decision of the
Administrative Law Judge (hereinafter ``Recommendation'' or ``Opinion
and Recommended Ruling'') recommending that both suspensions be lifted
and the exporters allowed to complete the shipments. On April 25, 2002,
the Government filed Exceptions to the ALJ's Recommendation. In
response, on May 21, 2002, PDK filed its Response to the Exceptions
Filed by the Government. Subsequently, on June 5, 2002, the ALJ
transmitted the record of these proceedings to the Deputy Administrator
for final action pursuant to 21 CFR 1313.57.
On December 13, 2002, pursuant to 21 CFR 1313.57, then-Deputy
Administrator John B. Brown III, issued his final order regarding the
Indace and Malladi suspensions of shipments. The then-Deputy
Administrator rejected the Opinion and Recommended Ruling of the
Administrative Law Judge. That final order was subsequently published
in the Federal Register on December 19, 2002. See Indace, Inc. c/o
Segott, Inc.; Malladi, Inc. (Indace/Malladi), 67 FR 77805 (2002).
In the ALJ's Opinion and Recommended Ruling, she interpreted the
terms``listed chemical'' and ``the chemical,'' as set forth in 21
U.S.C. 971(c)(1) (hereafter ``971''), to be limited to the actual
material to be imported, in this case, bulk ephedrine. In the event the
Deputy Administrator disagreed with that interpretation, the ALJ made
alternative findings and recommendations that the Government had not
satisfied the ``may be diverted'' portion of 971. The then-Deputy
Administrator rejected the ALJ's interpretation of 971, finding:
The application of 971 is not limited to the imported form of
the listed chemical. The Deputy Administrator concludes that the
provisions of 971 apply to regulated transactions involving listed
chemicals regardless of imported or exported form. i.e., bulk of
finished products. The Deputy Administrator further concludes the
provisions of 971 apply to finished products subsequently
manufactured from bulk imported list chemicals.
Id., 67 FR at 77806.
The then-Deputy Administrator agreed with the ALJ that the evidence
did not show, by a preponderance of the evidence, a violation by PDK of
its obligation to report suspicious sales under 21 CFR 1310.05(a)(1) in
connection with certain mail order sales of 25 mg. ephedrine products
which occurred in 1995 and 1996. The then-Deputy Administrator further
noted there had been testimony presented concerning ``traditional''
versus ``non-traditional'' markets for List I chemical products.
However, in accord with his previous holding on this subject, he found
the probative weight of the evidence introduced in this case to be
minimal, without ``some form of further extrinsic evidence to support
these arguments.'' Indace/Malladi, supra, 67 FR at 77808, quoting
Mediplas Innovations, (Mediplas) 67 FR 41256, 41264 (2002).
However, relying primarily on the issuance of a series of Warning
Letters by DEA between 1999 and 2001, advising PDK that its ephedrine
and pseudoephedrine products had been found at illicit methamphetamine
manufacturing sites, the then-Deputy Administrator concluded sufficient
evidence supported DEA's contention that the chemicals may be diverted.
Secondarily, the then-Deputy Administrator relied on PDK's failure to
report as exports, pursuant to 21 CFR 1313.21(a), four shipments of
ephedrine sold to Sun Labs of Canada between 1994 and 1995, which had
been delivered within the United States.
In making his ruling the then-Deputy Administrator applied the
``totality of the circumstances'' test used in Mediplas, stating:
The Deputy Administrator notes the record is replete with PDK's
contentions that it has worked hard to evaluate its activities and
to cooperate with DEA in stemming diversion. However, the record
shows that diversion of PDK products has continued to occur, and
that, based upon the Warning Letters received, PDK should have known
its remedial actions were insufficient to stem the diversion of its
List I chemical products. Moreover, the record shows evidence that
PDK violated export regulations on at least four occasions by
failing to file the required notifications of its shipments to Sun
Labs. The totality of the circumstances therefore supports the
Government's assertion that the list chemicals sought to be imported
and distributed to PDK may be diverted and furthermore that the
Suspension Orders were proper and should be sustained, Mediplas, 67
FR at 41,264. The fact that PDK products containing ephedrine and
pseudoephedrine have been repeatedly found at the site of
clandestine methamphetamine laboratories and dump sites is a
significant indicator that these products may continue to be
diverted to such illicit activities.
* * * The Deputy Administrator finds that there was sufficient
evidence at the time of the hearing to support DEA's contention that
the chemicals may be diverted. Mediplas, 67 FR at 41260-41261 * * *
Therefore, the Deputy Administrator concludes that the suspensions
set forth in the January 25 and 26, 2001 Orders to Suspend Shipments
of ephedrine hydrochloride issued to Indace and Malladi were
justified.
Indace/Malladi, supra, 67 FR at 77809.
PDK filed a timely petition for review of the final order pursuant
to 21 U.S.C. 877 with the United States Court of Appeals for the
District of Columbia Circuit and on March 26, 2004, the Court issued
its opinion in PDK Laboratories Inc. v. U.S. Drug Enforcement
Administration (PDK Labs), 362 F.3d 786 (D.C. Cir. 2004). Consistent
with the District Court's decision in PDK Labs Inc. v. Reno, supra, 134
F. Supp. at 31, the Court of Appeal concluded PDK had both prudential
and Article III standing to challenge the suspension orders under the
facts and circumstances of this cas. PDK Labs, supra, 363 F.3d at 791-
794; see also PDK Labs Inc. v. Ashcroft, ---- F.Supp.2d ----, 2004 WL
1924930, 4 (D.D.C., decided August 27, 2004).
The Court of Appeal also ruled that the final order of December 13,
2002, should be set aside and remanded to DEA for a new final order.
The entire Court concluded the then-Deputy Administrator had relied in
significant part on PDK's failure to file export notifications
regarding the New York deliveries of tablets containing ephedrine to
Sun Labs of Canada. However, the final order failed to distinguish or
explain its apparent departure from the position taken by the agency in
Alfred Khalily, Inc. (Khalily), 64 FR 31289 (DEA June 10, 1999). PDK
Labs, 363 F.3d at 798-799.
In applying his `totality of the circumstances' approach to
determining whether the listed chemical may be diverted, the Deputy
Administrator ruled that PDK had violated an export notification
regulation when it made four deliveries of tablets containing
ephedrine between 1994 and 1995 to Sun Labs of Canada in New York.
67 FR
[[Page 67953]]
at 77807-08. The Deputy Administrator did not explain how alleged
export violations were relevant to determining whether PDK's
finished products might be used in methamphetamine laboratories. In
any event, the Deputy Administrator failed to distinguish, indeed
did not mention, Alfred Khalily, Inc., 64 FR 31389 (DEA June 10,
1999), which held that a company selling List I chemicals to a
foreign buyer but delivering the chemicals to the buyer in the
United States `was not responsible for filing any export
documentation.' Id. at 31,293 n.2.
PDK Labs, 362 F.3d at 788.
In addition to this ground for remand, a majority of the Court also
concluded that remand was necessary for DEA to interpret 971(c)(1)'s
provision authorizing DEA to ``order the suspension of any importation
* * * of a listed chemical on the ground that the chemical may be
diverted to the clandestine manufacture of a controlled substance.''
See PDK Labs, v. DEA, 362 F.3d at 794-98. One judge issued a concurring
opinion which, while agreeing remand was appropriate for the failure to
distinguish Khalily, disagreed with the majority as to the need for DEA
to provide further interpretation of section 971(c)(1). Id. at 799-810
(Roberts, J., conc.). However, the majority analyzed the crux of the
case as follows:
The main interpretive question in the case is whether, as the
suspension orders assume, `the chemical may be diverted' includes
the prospect that PDK's ephedrine-containing pills in retail stores
will be sold to, or shoplifted by, people who will then use the
pills to produce methamphetamine [fn]. The Deputy Administrator
concluded that the statute plainly meant what the suspension orders
assumed. He reached this conclusion without mentioning any policy
considerations or other means within the agency's expertise.
Apparently for this reason, DEA neither invoked Chevron v. NRDC,
U.S. 837, 843-45 (1984), nor asks us to give special deference to
the Deputy Administrator's judgment about the meaning of the
provision.
PDK Labs, supra, 362 F.3d at 794.
The majority viewed the then-Deputy Administrator's final order as
premised on an erroneous belief that the statute was ``clear'' and
971(c)(1)'s meaning ``plain.'' Id., at 794-95. It held as follows:
We do not agree that the language of Sec. 971(c)(1) plainly
covers the diversion of finished products, or drug products. That a
statute is susceptible of one construction does not render its
meaning plain if it is also susceptible of another plausible
construction, as we believe this statute is. Section 971(c)(1) deals
with importation (and exportation) of listed chemicals. It does not
regulate what a drug manufacturer does with the chemical after
receiving it; other sections of the [Controlled Substances Act, as
amended] control that subject. When Sec. 971(c)(1) states that DEA
may stop the importation if `the chemical may be diverted to the
clandestine manufacture of a controlled substance,' one might ask:
`Diverted from what?' In context, a reading as plausible as the
Deputy Administrator's is that Congress meant only to cover
diversions during importation. On this view, Sec. 971(c)(1) would
authorize suspension orders only if the imported chemical might not
reach its intended destination--the legitimate, domestic
manufacturer.
PDK Labs, supra, 362 F.3d at 796-97 (italics in original).
The majority further concluded,
In short, we do not agree that the meaning of Sec. 971(c)(1) is
as plain as it says it is. It may be that here, as in other cases,
the strict dichotomy between clarity and ambiguity is artificial,
that what we have here is a continuum, a probability of meaning. In
precisely those kinds of cases, it is incumbent upon the agency not
to rest simply on its parsing of the statutory language. It must
bring its experience and expertise to bear in light of competing
interests at stake. See Chevron v. NRDC, 467 U.S. at 865-66, 104 S.
Ct. at 2792-93. But it has not done so here and at this stage it is
not for the court `to choose between competing meanings.'
[Citations].
PDK Labs, supra, 362 F.3d at 797-98.
With this guidance in mind, the Deputy Administrator has considered
the record in its entirety, along with the Court of Appeal's ruling
and, pursuant to 21 CFR 1313.57, hereby issues her final order
regarding the Indace and Malladi suspension of shipments, based upon
findings of fact and conclusions of law as hereinafter set forth. The
Deputy Administrator is issuing one final order regarding both
suspension cases since the same findings of fact and conclusions of law
apply to both suspensions. Except as hereinafter noted, the Deputy
Administrator rejects, in its entirety, the Opinion and Recommended
Ruling of the Administrative Law Judge. Based upon her review of the
record in this matter, including all submissions of both parties, and
exceptions as filed, the Deputy Administrator adopts such findings of
fact and conclusions of law as hereinafter follow.
The Deputy Administrator finds that both Indace and Malladi are
registered with DEA as importers of listed chemicals. Both importers
were advised in the Orders to Suspend Shipment of their right to
request a hearing. Neither importer chose to do so. Furthermore, the
record reflects that the ALJ gave Indace an opportunity to participate
in prehearing matters, but Indace did not respond. Accordingly the
Deputy Administrator concludes that both Indace and Malladi have waived
their right to a hearing pursuant to 21 CFR 1313.54.
It is now the law of the case that in reference to this proceeding,
PDK is ``a regulated person to whom an order applies under 21 U.S.C.
971(c)(2) with respect to the suspension of List I chemicals to be
imported on PDK's behalf.'' PDK Laboratories Inc. v. Reno, et al.,
supra, 134 F.Supp. at 31; PDK Labs, supra, 362 F.3d at 792-95.
Accordingly, the District Court and the Court of Appeal have created a
rule for this case.\1\
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\1\ However, as the Court of Appeal indicated, ``in holding that
PDK has prudential standing, we have avoided placing a judicial
interpretation on Sec. 971(c)(2), the hearing provision.'' PDK
Labs, supra, 362 F.3d at 794. The Deputy Administrator therefore
declines to adopt a rule as DEA policy that a party in PDK's
position (i.e., a wholesale distributor/manufacturer or a downstream
customer of such an entity), is entitled to a hearing under 21
U.S.C. 971(c)(2) as a ``regulated person to whom an order applies
under paragraph (1)'' of that subdivision.
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On January 25 and 26, 2001, DEA issued the Orders to Suspend
Shipment to Indace and Malladi which are the subject of these
proceedings. The Orders asserted as a basis for suspension that the
ephedrine to be imported may be diverted to the illicit production of a
controlled substance. They recited that DEA investigations revealed
that products produced from prior imports of ephedrine and
pseudoephedrine destined for PDK had appeared at clandestine
methamphetamine laboratories in the United States. The Orders also
indicated that traffickers utilize ephedrine and pseudoephedrine in the
illicit production of methamphetamine, that PDK manufactures and
distributes over-the-counter drug products containing the listed
chemicals pseudoephedrine and ephedrine, that these products are
distributed in strength, quantity and packaging unlike the traditional
market (referred to by DEA as ``gray market'' products), and that these
products are generally distributed and sold through non-traditional
retail outlets. The Orders to Suspend Shipment also indicated that DEA
data regarding clandestine laboratory seizures noted that gray market
products are predominantly encountered in clandestine methamphetamine
laboratories.
The issue before the Deputy Administrator is whether or not the
record as a whole establishes by a preponderance of the evidence that
DEA should suspend the two shipments of ephedrine hydrochloride
destined to be shipped from India to the United States, pursuant to 21
U.S.C. 971(c)(1) and 21 CFR 1313.41(a).
[[Page 67954]]
There is no evidence that the shipments of bulk ephedrine
hydrochloride would be diverted before reaching PDK, the intended
recipient within the United States. Thus, if the ALJ's interpretation
of the terms ``listed chemical'' and ``the chemical'' as set forth in
971(c)(1) was correct, the suspensions could not be sustained. However,
the Deputy Administrator rejects the ALJ's interpretation of these
critical terms and concludes they encompass more than just the imported
or exported form of the listed chemical, in this case bulk ephedrine
hydrochloride. Instead, the Deputy Administrator finds the applicable
provisions of 971 apply to regulated transactions involving listed
chemicals, regardless of their imported or exported form, i.e., bulk or
finished products. The Deputy Administrator further concludes the terms
at issue also apply to finished products subsequently manufactured from
bulk imported/exported list chemicals.
The Deputy Administrator believes that the term ``listed
chemical,'' as used in 971(c)(1) should be construed broadly in light
of that term's use in other parts of the same statute, which was
enacted by Congress in 1988. In the previous final order, the then-
Deputy Administrator cited the Ninth Court of Appeal's decision in
United States v. Daas (Dass), 198 F.3d 1167 (9th Cir. 1999). See,
Indace/Malladi, 67 FR at 77806. In that case, the defendant, who had
been convicted under then-21 U.S.C. 841(d)(2) \2\ for distributing a
listed chemical, argued the evidence was insufficient to support his
conviction because that statute, which was enacted at the same time as
971(c)(1), only criminalized the distribution of pure ephedrine or
pseudoephedrine, not a chemical mixture containing these chemicals.
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\2\ Now 21 U.S.C. 841(c)(2).
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The Ninth Circuit rejected that argument, holding that ``Sec.
841(d)(2) encompasses such mixtures as Mini Thins and Pseudo Thins.''
Dass, 198 F.3d at 1174. In particular, the Ninth Circuit noted that the
ephedrine and pseudoephedrine in Mini Thins and Pseudo Thins ``retain a
separate existence,'' (quoting Chapman v. United States, 500 U.S. 453,
461 (1991) and, therefore, that ``[t]he ephedrine and pseudoephedrine
in Mini Thins and Pseudo Thins are plainly `listed chemicals' within
the meaning of Sec. 841(d)(2).'' Id., at 1175.\3\
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\3\ The Mini-Thin ephedrine based product involved in Daas, had
been obtained by the defendant from Body Dynamics Incorporated (BDI)
and sold to the All-Rite Market of Marysville, California between
early 1996 and early 1997. Daas, supra, 198 F.3d at 1171-72. During
this period, PDK was manufacturing the Mini-Thin products and
distributing it exclusively through BDI. In 1998, after DEA executed
a Federal search warrant on BDI and sent a Warning Letter to PDK
concerning BDI labeled products being found at illicit sites, PDK
terminated its contract with BDI.
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For clarification, while Daas referred to the ``plain'' meaning of
the phrase in the criminal statute, the Deputy Administrator does not
view Dass as mandating the adopted interpretation of 971(c)(1).
However, as noted by the majority in PDK Labs, ``There is logic in the
Ninth Circuit's reasoning, and in the Deputy Administrator's reliance
on the decision. When Congress uses the same word in different parts of
a statute, it usually means the same thing. See Sullivan v. Stroop, 496
U.S. 478, 484 (1990); Energy Research Found v. Defense Nuclear Safety
Bd., 917 F.2d 581, 583 (D.C. Cir. 1990).'' PDK Labs, 362 F.3d at 796.
However, the majority went on to note that logic is only one
component of statutory interpretation. The words of the statute should
be ``read in context, the statute's place in `the overall scheme'
should be considered, and the problem Congress sought to solve should
be taken into account [Citations].'' PDK Labs, 362 F.3d at 797.
The Deputy Administrator finds that based upon the evidence in the
record, the listed chemicals ephedrine and pseudoephedrine are marketed
in prescription and over-the-counter drug products which have
legitimate therapeutic uses as a bronchodilator and nasal decongestant,
respectively.
The Deputy Administrator also finds that over the past decades, DEA
has been engaged in enforcement and regulatory activity to control the
large-scale diversion of chemicals, including ephedrine and
pseudoephedrine, into the illicit manufacture of controlled substances.
The controlled substance methamphetamine is easily produced in
clandestine laboratories using either pseudoephedrine or ephedrine. The
process of manufacturing methamphetamine is easily accomplished with
minimal equipment and readily available chemical supplies.
The Controlled Substances Act has always prohibited the illicit
(i.e., without a DEA registration) manufacture of controlled
substances. The earliest illicit methamphetamine laboratories used the
freely available chemical phenyl-2-propanone, also known as
phenylacetone or P2P, to produce methamphetamine, until that substance
was itself scheduled as a controlled substance. In the 1980's
methamphetamine laboratories increasingly began to switch to an
ephedrine process. The Chemical Diversion and Trafficking Act of 1988
(CDTA), Pub. L. 100-690, established the basic scheme of chemical
regulation and imposed reporting and record keeping and import/export
notification requirements on certain regulated transactions involving
chemicals, including bulk ephedrine. However, at the time, listed
chemicals contained in drug products were exempted from the reporting
and record keeping provisions of the CDTA.
In response to these controls, illicit methamphetamine laboratories
began to switch to targeted ``single entity'' ephedrine as a raw
material. The Domestic Chemical Diversion Control Act of 1993 (DCDCA),
Pub. L. 103-200, was then crafted to close the ephedrine ``loophole''
by removing the exemption for ``single entity'' ephedrine products, and
lowering its sales threshold. In addition, the DCDCA initiated a
registration requirement for handlers of List I chemicals.
Subsequently, illicit laboratories shifted to pseudoephedrine and
combination ephedrine drug products as sources of raw material,
prompting the passage of the Comprehensive Methamphetamine Control Act
of 1996 (MCA), Pub. L. 104-237, to establish additional controls and
quantity thresholds for reporting transactions regarding listed
chemicals. The MCA also established a Suspicious Orders Task Force, in
part to assist in alerting the chemical industry to the many devices
used by individuals who seek to divert large quantities of listed
chemicals and listed chemical products into the illicit manufacture of
controlled substances.
Thus, there has been a series of legislative enactments intended to
address the problems of illicit drugs, including methamphetamine. As
illicit manufacturers altered methods of production and choices of
precursor chemicals, Congress enacted legislation intended in
significant part to brunt the efforts of criminals engaged in operating
clandestine methamphetamine laboratories and to thwart or impede their
obtaining the precursor chemicals required to manufacture controlled
substances.
The Deputy Administrator finds nothing in the legislative history
of these enactments compels the narrow interpretation of 971(c)(1)
adopted by the ALJ in her Opinion and Recommended Ruling. Indeed, that
history suggests Congress was very much concerned with the diversion of
finished drug products containing ephedrine. See H.R. Rep. No. 103-
[[Page 67955]]
379(I), at 6 (1993), reprinted in 1993 U.S.C.C.A.N. 2983 [``This
provision removes the exemption * * * for drugs containing ephedrine *
* * because these products are being diverted in significant quantities
for the illicit manufacture of methamphetamine''). As discussed in the
initial final order, when the then-Acting Deputy Administrator made a
report to the House of Representatives Committee considering the DCDCA,
it indicated the legislation was intended, part, to close a
``loophole'' for those who divert ephedrine drug products. Id., at 5, 8
(1993).
As noted by the concurring opinion in PDK Labs, the DEA Acting
Administrator's report to the House explained that ``the so-called
`legal drug exemption' which currently exempts drug products approved
for marketing under the Food, Drug and Cosmetic Act from the regulatory
provisions of our chemical control law had become a `loophole'
exploited by clandestine laboratory operators. H.R. Rep. No. 103-379,
at 8. It is that loophole that the DCDCA and CMCA revoked for drugs
containing ephedrine, see 21 U.S.C. 802(39)(A)(iv)(I)(aa).'' PDK Labs,
362 F.3d at 803 (Roberts, J., conc.) (internal quotation marks
omitted).
However, the majority in PDK Labs observed that the 1993 House
Report came out five years after the 1988 enactment of 971(c)(1), that
the DCDCA did not specifically amend section 971 and the ``loophole''
being closed concerned record keeping and reporting requirements. PDK
Labs, 362 F.3d at 794-95.
Nevertheless, the Deputy Administrator views the totality of these
progressive enactments as part of an overall continuum of Congress'
intent to provide DEA the regulatory means to monitor the domestic
production, manufacture and distribution of List I chemicals and
prevent their illicit use in manufacturing methamphetamine, including
the ability to prevent the importation of bulk chemicals that will be
manufactured into chemical products after arriving into the United
States and then diverted throughout the country to thousands of
clandestine laboratories.
The Deputy Administrator does not view the relevant enactments of
Congress as expressing any clear intent that the term ``listed
chemical,'' as used in 971(c)(1 ), was limited to the particular
chemical being imported or that DEA, as the agency entrusted with
administering that provision, could not consider and take action to
prevent the import of bulk listed chemicals which were to be
manufactured into finished products and then, in the downstream course
of commerce, diverted to the illicit production of methamphetamine.
If Congress wanted to make an express distinction between a bulk
listed chemical and a finished product in section 971(c), it could have
done so. For example, 21 U.S.C. 958(i) is the statute permitting
registered manufacturers to challenge an application for a DEA
registration that seeks to import bulk controlled substances. That
provision explicitly states that it is limited to bulk manufacturers.
Congress could have done likewise, but it did not make such a
distinction between bulk and finished form list chemicals when it
crafted section 971.
The record reflects that once PDK receives its bulk ephedrine, it
combines the ephedrine with the decongestant guaifenesin and binders to
form a listed chemical product. Throughout this process, the chemical
composition of the ephedrine is unaltered. Illicit methamphetamine
manufacturers then purchase or steal the tablets and break the finished
product down to its component parts. This, in effect, yields the same
pure ephedrine that was imported for PDK. In this manner, the listed
chemical itself--ephedrine--is diverted to methamphetamine
manufacturing. As the concurring opinion described the process in PDK
Labs,
At the time of its `diversion,' the ephedrine extracted from PDK
Mini-Two Way Action is just as much a listed chemical as when it was
transported across the high seas in bulk form. Thus, at least
insofar as a listed chemical is readily extractable from its
finished drug product, the text of section 971(c) treats
transactions (including a `diversion') in that drug as transactions
in the listed chemical it contains.
This interpretation comports with common sense. If a
methamphetamine manufacturer steals, for the purpose of making
methamphetamine, a bottle containing pure ephedrine, or pure
ephedrine dissolved in water, or a bottle containing 50 ephedrine
and 50 guaifenesin pills, we would not hear an argument that he did
not divert a listed chemical because he also diverted a bottle, some
water, or some guaifensin. The presence of packaging materials or
other extraneous items does not vitiate the existence of the listed
chemical. Here, a bottle of PDK Mini Two-Way Action contains pills
each consisting of 25 mg of ephedrine and 200 mg of guaifensin and
binders. For purposes of Section 971(c), the decongestant and the
binders are extraneous materials, no more relevant to the analysis
than the bottles and boxes in which the pills are packaged.
PDK Labs, 362 F.3d at 800-801 (Roberts, J., conc.).
The Deputy Administrator agrees with this analogy and finds that it
comports with that of the Ninth Circuit in interpreting ``listed
chemical'' for purposes of 21 U.S.C. 841(d)(2) (now (c)(2)), discussed
earlier. See United States v. Daas, supra, 198 F.3d at 1174-75.
While Congress may not have been as concerned about the diversion
of ephedrine-containing products when it enacted section 971 as it was
in the years that followed, as noted in the concurring opinion, `` `the
fact that a statute can be applied in situations not expressly
anticipated by Congress does not demonstrate ambiguity. It demonstrates
breadth.' PGA Tour, Inc. v. Martin, 532 U.S. 661, 689 (2001) (internal
quotation marks and citations omitted); accord Consumer Elecs. Ass'n,
347 F.3d [291] at 298.'' PDK Labs, 362 at 802-03.
Were the ALJ's strict interpretation of section 971(c)(1) given
effect, as a policy matter it would also create an arbitrary dual
standard. For example, if a listed chemical is imported in bulk form
and if it is a chemical that is not or will not be converted to a drug
product, then under 971(c)(1), that chemical may be suspended based
upon its diversion during any time in its distribution flow, i.e., from
the initial importation downstream to the last retail handler. Under
the ALJ's interpretation, however, the suspension statute would be of
limited use for those bulk products, such as ephedrine, that could be
finished into an over-the-counter drug product somewhere along the
distribution chain. In other words, as a matter of law, based solely
upon the ALJ's statutory interpretation, once the imported bulk
ephedrine is converted into a drug product at some point in the
distribution chain, it is no longer subject to being suspended pursuant
to section 971(c).
Such an artificial distinction between over-the-counter drug
products and other chemicals that will not be converted into any
finished drug product is not tenable and is certainly inconsistent with
the criminal penalty provisions of the law involving imports. For
example, if DEA had facts to show that an importer had reasonable cause
to believe that a listed chemical was to be imported, tableted, and
distributed to a clandestine laboratory, then the importer would be
subject to a lengthy term of imprisonment under 21 U.S.C. 960(d)(3).
However, even if DEA knew those same facts, under the ALJ's standard,
the import shipment could not be suspended.
For consideration only of the policy issues involved in
interpreting 971(c)(1), as opposed to the sufficiency of the evidence
to show that in this particular case the List I chemical ``may be
[[Page 67956]]
diverted,'' (inasmuch as no additional extrinsic evidence was
introduced at the hearing regarding the gray market; see Mediplas,
supra, 67 FR at 41264; Indace/Malladi, supra, 67 FR 77808), a series of
cases decided after this matter was litigated and/or originally acted
upon by the then-Deputy Administrator, illustrate the problems DEA,
state regulators and law enforcement agencies throughout the country
currently face as a result of the proliferation of clandestine
laboratories--using precursor chemicals, obtained by theft or purchase
of listed chemical products which have often been made from bulk
chemicals imported into the United States and then distributed to
convenience stores and gas stations as a part of the grey market.
See, e.g., OTC Distribution Co., 68 FR 70538, 70539 (2003)
(``Pseudoephedrine bulk powder is usually imported from China or India,
tableted by DEA-registered manufacturers, distributed to various
distributors, wholesalers and then to retail outlets. Of DEA's
approximately 3,500 chemical registrants in 2000, over 3,100 were
distributors. While illegal diversion can occur at any point in the
distribution chain, it usually occurs after the manufacturer has sold
its product to a distributor.''; see also Branex Incorporated, 69 FR
8682, 8690-93 (2004); Xtreme Enterprises, Inc., 67 FR 76195, 76196-97
(2002); Sinbad Distributing, 67 FR 10232, 10233-34 (2002). For
additional background as to the diversion of List I over-the-counter
chemical products after distribution to retail establishments as it
bears on DEA's interpretation of 971(c)(1), see also DEA's Proposed
Rules on Security Requirements for Handlers of Pseudoephedrine,
Ephedrine, and Phenylpropanolamine, 69 FR 45616, 45617 (2004).
In sum, DEA and other Federal, State and local law enforcement
agencies are faced with a growing problem of listed chemicals being
imported into the United States in bulk form, which are then converted
into List I chemical products, distributed to the grey market and
diverted to illicit production of methamphetamine. Section 971(c)(1) is
considered by DEA to be a significant component of the regulatory
arsenal given it by Congress to combat this immense and growing public
problem.
If the language of a law is ambiguous and there exists two
competing reasonable interpretations and the agency interpretation,
which best suits its goals, is consistent with the intent of Congress,
that interpretation should be granted great deference. Such a construct
would be especially true here, because section 971 (similar to many
other statutes under the Controlled Substances Act) is remedial and
since it was passed to protect the public interest, it should be
construed broadly to effectuate its purpose. See Jefferson County
Pharmaceutical Association v. Abbott Laboratories et al., 460 U.S. 150,
159 (1983) (holding that the Robinson-Patman Act had to be construed
liberally and broadly to effectuate its purpose, which was to prevent
anti-trust price discrimination); Federal Trade Commission v. Mandel
Brothers, Inc., 359 U.S. 385, 389 (1959) (holding that the Federal
Trade Commission's interpretation of a retail labeling act would be
upheld because the legislation was remedial, i.e., it was enacted to
protect consumers).
The Deputy Administrator therefore concludes that the
interpretation adopted in this final order is consistent with the words
of the statute, its place in the overall drug enforcement legislative
scheme and the problems Congress was attempting to address.
In adopting her limited interpretation of ``listed chemical'' under
971(c)(1), the ALJ cited three prior DEA cases in support of her
position: Suspension of Shipment Cases,\4\ 65 FR 51333 (2002); Yi Heng
Enterprises Dev. Co., 64 FR 2234 (1999); and Neil Laboratories, Inc.,
64 FR 30063 (1999). The Deputy Administrator finds these cases readily
distinguishable, as they did not involve or discuss the question of
chemical identity, which is at issue here. Instead, each of these cases
dealt with other listed chemicals which were distributed in their
original state and, unlike the PDK-bound imports, were not destined to
be subjected to the introduction of fillers and coatings in order to
transform them into over-the-counter drug products after importation
and then placed into commerce.
---------------------------------------------------------------------------
\4\ January 17, 1998, Shipment of 10,000 Kilograms of Potassium
Permanganate, December 16, 1997 Shipment of 20,000 Kilograms of
Potassium Permanganate and November 17, 1997, Shipment of 20,000
Kilograms of Potassium Permanganate; Suspension of Shipments
(collectively referred to as Suspension of Shipment Cases).
---------------------------------------------------------------------------
While remanding, the Court of Appeal implicitly suggested that the
then-Deputy Administrator's interpretation of 971(c)(1)'s ``listed
chemical'' was permissible. However, in the majority's view it was
arrived at under the erroneous impression that the statute ``plainly
meant what the suspending orders assumed.'' PDK Labs, 362 F.3d at 794.
Disavowed of that view by the majority's guidance, based on the
foregoing, the Deputy Administrator re-adopts the interpretation given
by her predecessor to 971(c)(1)'s terms ``listed chemical'' and ``the
chemical'' and holds they apply to regulated transactions involving
listed chemicals regardless of imported or exported form, i.e., bulk or
finished products and that the provisions of 971 apply to finished
products subsequently manufactured from bulk imported or exported
listed chemicals.
The Deputy Administrator does not view this interpretation as
managed by the ``plain language'' of the 971(c)(1). Instead, based on
its experience and expertise, DEA concludes this is a reasonable
interpretation which is consistent with the intent and language of the
statute. It is also compatible with an in furtherance of the will of
Congress in enacting the overall series of drug control laws serving to
deter the illicit manufacturing, distribution and use of controlled
substances and in furtherance of DEA's mission. Accordingly, should
this final order be the subject of judicial scrutiny, it is requested
that it be afforded appropriate deference. See, Chevron v. NRDC, supra,
467 U.S. at 865-66; PDK Labs, supra, 362 F.3d at 794.
The ALJ also disagreed with the Government's interpretation of
971(c), finding it would create a form of ``strick liability'' for the
importers in this case. As discussed previously, although the
suspension was directed against the importers, the party in interest in
this proceeding is the manufacturer-customer of the importers. It is
the conduct of that party, PDK, and its customers, and the fact that
the product which it manufactured and distributed ended up in
clandestine drug laboratories, that forms the basis of the Government's
contention that the ephedrine ``may be diverted.''
The then-Deputy Administrator concluded in Mediplas, supra, 67 FR
41,256, published subsequent to the ALJ's recommendation in the instant
case, that whether a regulated person foresaw or knew of diversion was
not a determining factor as to whether the listed chemical ``may be
diverted.'' While knowledge of a regulated person, or its party in
interest customer, may be relevant in a totality of the circumstances
analysis, the ultimate issue is whether the listed chemical being
imported into the United States ``may be diverted'' and then, whether
or not the Deputy Administrator should exercise her discretion to
sustain the suspension of shipment.
The focus of the factual inquiry is the ultimate destination of the
listed chemical, not the culpability of the regulated person. Indeed
section 971(1), by its terms, makes no mention of a
[[Page 67957]]
showing of intent, recklessness, negligence, knowledge, or any type of
mens rea. Rather the plain language of the provision focuses solely
upon whether the chemical ``may be diverted.'' Any contention that the
``may be diverted'' standard should be interpreted to contain a
culpability element, cannot be squared with the plain language of that
provision. See American Tobacco C. v. Patterson, 456 U.S. 63, 68 (1982)
(``As in all cases involving statutory construction, our starting point
must be the language employed by Congress and we assume that the
legislative purpose is expressed by the ordinary meaning of the words
used.'' (internal quotations omitted); United States v. Green Drugs,
905 F.2d 694,697-98 (3rd Cir. 1990) (holding that strict liability may
be imposed for civil violations of the recordkeeping provisions of the
CSA because ``[o]ur starting point is, of course, the text of the
statute itself, which plainly shows an absence of the scienter
requirement for civil violations of the recordkeeping
provisions.'').\5\
---------------------------------------------------------------------------
\5\ In 1998, Congress amended the recordkeeping requirements of
the CSA to include a negligence provision. See 21 U.S.C. 842(a)(5),
(a)(10). Notably, however, Congress did not similarly amend section
971(c) to include such a provision.
---------------------------------------------------------------------------
While Mediplas was published after the ALJ issued her Opinion and
Recommendation, the argument that an importer and, by logical
extension, PDK as its party in interest, must have some degree of
responsibility for the diversion, had previously been rejected by DEA
ion a transshipment case. In Yi Heng Enterprises Dev. Co., supra, 64 FR
2,234, a transshipper of potassium permanganate through a U.S. port
argued it had committed no violations in the past when it sold listed
chemical to customers in Colombia. Even though the record demonstrated
the transshipper's customers had committed numerous violations with
listed chemicals purchased from the transshipper, that company
contended that it had no control, and thus, should not be responsible
for the transgressions of its downstream customers. Yi Heng
unequivocally rejected this argument holding, ``[t]he prior conduct of
[the transshipper's] customers * * * is clearly relevant in determining
whether the shipments may be diverted.'' Id., at 2,235.
To the extent the ALJ here concluded the Government's
interpretation of ``may be diverted'' represents a ``radical shift in
policy'' that must be accomplished through rulemaking, as opposed to
adjudication, the Deputy Administer disagrees. The statute's language
on this point and its meaning are sufficiently clear. DEA need not
issue an array of regulations to anticipate every situation where a
List I chemical may be diverted and the importer/exporter is entitled
to an ``agency hearing on the record in accordance with subchapter 5 of
Title 5.'' 21 U.S.C. 971(c)(2). The statute clearly envisions
permitting the agency to proceed by adjudication.
Further, the instant suspension orders entail no new standards.
They simply require a determination of specific facts. Similarly, the
Government's position cannot be characterized as a ``radical
departure.'' To the contrary, it is consistent with prior rulings,
particularly Yi Heng and Mediplas.\6\
---------------------------------------------------------------------------
\6\ To the extent a future reviewer should disagree with the
Deputy Administrator's reading of 971(c)(1)'s ``may be diverted''
language and determine it is ambiguous, the agency position should
be given due deference under Chevron, See, INS v. Anibal Aguirre,
526 U.S. 415, 425 (1999).
---------------------------------------------------------------------------
Applying the interpretations of 971(c)(1) discussed above and the
totality of the circumstances test applied in Mediplas and the initial
action on this matter, the Deputy Administrator now determines whether
evidence exists to support the suspensions, based upon a finding that
the List I chemicals may be diverted.
The Deputy Administrator finds DEA initiated a program intended to
inform listed chemical registrants of situations when their listed
chemicals products were discovered at illicit clandestine laboratory
sites. According to DEA, a Warning Letter program was developed to
assist registrants in identifying products that had been diverted and
so they could decide appropriate remedial action.
On March 19, 1998, DEA issued a Warning Letter to PDK indicating
that, from April 2, 1997, through December 20, 1997, PDK List I
chemical products were found in 51 sites in Oklahoma, Missouri,
Arkansas, Alabama, Kansas, California, Texas, Tennessee, Ohio, Florida,
Iowa, Michigan, South Dakota, Arizona, Utah and Colorado, all in
connection with the clandestine manufacture of controlled substances.
For investigative reasons, DEA did not resume sending any Warning
Letters to PDK until February 15, 2000, when it issued a Warning Letter
indicating that during 1998-99, PDK's ``Max Brand Pseudo 60's,'' ``Mini
Tabs,'' ``Max Alert Pseudo,'' ``Mini Pseudo,'' ``Mini Two Way'', ``Mini
Two Way Action'' and ``Mini Thins'' products were found in
approximately 49 sites in eleven states, all in connection with the
clandestine manufacture of controlled substances.
On February 15, 2000, DEA issued a Warning Letter to PDK indicating
that 500 bottles of PDK's ``Max Brand Mini-Tabs'' product were found on
June 25, 1999, in connection with the clandestine manufacture of
controlled substances.
On February 17, 2000, DEA issued a Warning Letter to PDK indicating
that 48 bottles of PDK ``Mini Pseudo'' product were found on October
26, 1999, in Dooly County, Georgia; that 1564 bottles of PDK ``Mini
Pseudo'' product were found on March 24, 1999, in San Bernardino
County, in California; that 8 bottles of PDK ``Mini Two Way Action''
product were found on March 23, 1999, in Detroit, Michigan; that 12,931
bottles of PDK ``Max Brand Pseudo 60's'' product were found on February
18, 1999, in Chatsworth, California; and that 40 bottles of PDK ``Mini
Pseudo'' product were found on February 12, 1999, in Seattle,
Washington, all in connection with the clandestine manufacture of
controlled substances.
On February 28, 2000, DEA issued a Warning Letter to PDK indicating
that 96 bottles of PDK ``Max Brand Pseudo 60's'' product and 144
bottles of PDK ``Two Way Max Brand'' product were found on January
27,2000, in McCrory, Arkansas; and that 13 bottles of PDK ``Max Brand
Pseudo 60's'' product were found on February 14, 2000, in Dallas,
Texas, both in connection with the clandestine manufacture of
controlled substances.
On June 26, 2000, DEA issued a Warning Letter to PDK indicating
that 1 bottle of PDK ``Max Brand Pseudo 60's'' product was found on
December 22, 1999, in San Dimas, California; and that 143 bottles of
PDK ``Max Brand Pseudo 60's'' product were found on January 6, 2000, in
Las Vegas, Nevada, both in connection with the clandestine manufacture
of controlled substances.
On June 6, 2000, DEA issued a Warning Letter to PDK indicating that
1 bottle of PDK ``Two Way Max Brand'' product and 2 bottles of PDK
``Max Brand Pseudo 60's'' product were found on January 6, 2000, in
Sparta, Tennessee; that 4 bottles of PDK ``Max Brand Pseudo 60's''
product were found on May 11, 2000, in Lawrence, Kansas; and that 5
bottles of PDK ``Two Way Brand'' product were found on May 19, 2000, in
Hamilton, Alabama, all in connection with the clandestine manufacture
of controlled substances.
On June 8, 2000, DEA issued a Warning Letter to PDK indicating that
9 bottles of PDK ``Max Brand Pseudo 60's'' product were found on May
11, 2000, in Lawrence, Kansas; that 6 bottles of PDK ``Max Brand Pseudo
60's'' product were found on May 12, 2000, in Signal Mountain,
Tennessee; that 144 bottles of PDK ``Max Brand
[[Page 67958]]
Pseudo 60's'' product were found on May 31, 2000, in Auburn,
Washington; and that 2 bottles of PDK ``Max Brand Pseudo 60's'' product
were found on June 5, 2000, in Ozawkie, Kansas, all in connection with
the clandestine manufacture of controlled substances.
On July 5, 2000, DEA issued a Warning Letter to PDK indicating that
1,871 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
April 12, 2000, in Temecula, California, in connection with the
clandestine manufacture of controlled substances.
On July 7, 2000, DEA issued a Warning Letter to PDK indicating that
6 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
December 17, 1999, in Freeport, Florida; and that 1 empty case
indicating a volume of 144 bottles of PDK ``Two Way Max Brand,'' and 78
bottles of PDK ``Max Brand Pseudo 60's'' product were found on April
14, 2000, in Sherman, Texas, all in connection with the clandestine
manufacture of controlled substances.
On July 7, 2000, DEA issued a Warning Letter to PDK indicating that
672 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
February 29, 2000, in Hillsboro, Oregon; that 12 bottles of PDK ``Max
Brand Pseudo 60's'' product were found on March 23, 2000, in Gales
Creek, Oregon; and that 3 bottles of PDK ``Max Brand Pseudo 60's''
product were found on April 6, 2000, in Washington County, Oregon, all
in connection with the clandestine manufacture of controlled
substances.
On July 13, 2000, DEA issued a Warning Letter to PDK indicating
that 157 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
July 7, 2000, in Plano, Texas, in connection with the clandestine
manufacture of controlled substances.
On September 23, 2000, DEA issued a Warning Letter to PDK
documenting that 24 bottles of PDK ``Max Brand Pseudo 60's'' product
were found on June 21, 2000, in Las Vegas, Nevada; that 36 bottles of
PDK ``Max Brand Pseudo 60's'' product were found on August 3, 2000, in
Portland Oregon; that 217 bottles and 2,880 packets of PDK ``Max Brand
Pseudo 60's'' product and 7 packets of PDK ``Pseudo 60's'' product were
found on September 8, 2000, in Las Vegas, Nevada, all in connection
with the clandestine manufacture of controlled substances.
On September 23, 2000, DEA issued a Warning Letter to PDK
indicating that 72 bottles of PDK ``Max Brand Pseudo 60's'' product
were found on April 25, 2000, in Copeville, Texas; that 2 bottles of
PDK ``Two Way Max Brand'' product were found on May 2, 2000, in
Charlotte, North Carolina; that 142 bottles of PDK ``Max Brand Pseudo
60's'' product were found on July 7, 2000, in Reno, Nevada; and that
341 bottles of PDK ``Max Brand Pseudo 60's'' product and 7 packets of
PDK ``Pseudo 60's'' product were found on September 1, 2000, in
Portland, Oregon, all in connection with the clandestine manufacture of
controlled substances.
On September 25, 2000, DEA issued a Warning Letter to PDK
indicating that approximately 400 bottles of PDK ``Mini-Pseudo''
product were found on September 7, 2000, in Fallbrook, California, in
connection with the clandestine manufacture of controlled substances.
On October 24, 2000, DEA issued a Warning Letter to PDK indicating
that 15 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
August 22, 2000, in Cedar Rapids, Iowa; and that 1,152 bottles of PDK
``Max Brand Pseudo 60's'' product were found on March 14, 2000, in
Turlock, California, both in connection with the clandestine
manufacture of controlled substances.
On October 27, 2000, DEA issued a Warning Letter to PDK indicating
that 287 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
October 20, 2000, in Lake Havasu City, Arizona, in connection with the
clandestine manufacture of controlled substances.
On November 9, 2000, DEA issued a Warning Letter to PDK indicating
that 504 bottles and 35 boxes of PDK ``Max Brand Pseudo 60's'' product
were found on October 12, 2000, in Portland, Oregon, in connection with
the clandestine manufacture of controlled substances.
On November 13, 2000, DEA issued a Warning Letter to PDK indicating
that 15 bottles of ``Mini Tabs Two Way,'' 5 packets of PDG ``Two Way
Max Brand'' product and 480 packets of PDK ``Max Brand Pseudo 60's''
product were found on July 31, 2000, in Little Rock, Arkansas; and that
approximately 1,700 bottles of PDK ``Max Brand Pseudo 60's'' product
were found on July 26, 2000, in Lawrence, Kansas, all in connection
with the clandestine manufacture of controlled substances.
On November 15, 2000, DEA issued a Warning Letter to PDK indicating
that 528 packets of PDK ``Max Brand Pseudo 60's'' product were found on
September 27, 2000, in South Jordan, Utah, in connection with the
clandestine manufacture of controlled substances.
On December 18, 2000, DEA issued a Warning Letter to PDK indicating
that 354 bottles of PDK ``Ephedrine Two Way'' product were found on
August 12, 2000, in Yakima, Washington, in connection with the
clandestine manufacture of controlled substances.
On December 28, 2000, DEA issued a Warning Letter to PDK indicating
that 12 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
February 24, 2000, in Stevenson, Alabama; that 1 bottle of PDK ``Max
Brand Psuedo 60's'' and 1 bottle of PDK ``Two Way Ephedrine Max Brand''
product were found on September 6, 2000, in Russellville, Alabama; and
that 144 bottles of PDK ``Max Brand Pseudo 60's'' product were found on
December 12, 2000, in Dallas, Texas, all in connection with the
clandestine manufacture of controlled substances.
On January 23, 2001, DEA issued a Warning Letter to PDK indicating
that 25 bottles of PDK ``Two Way Max Brand'' product were found on June
20, 2000, in Sicklerville, New Jersey; and that 369 bottles of PDK
``Two Way Max Brand'' product were found on December 6, 2000, in Carson
City, Nevada, both in connection with the clandestine manufacture of
controlled substances.
It is recognized that the above Warning Letters reflect that
pseudoephedrine listed products were found at these clandestine
laboratories and dump sites, along with PDK's ephedrine chemical
products. However, DEA is aware that there is a close relationship
between these two listed chemicals in the methamphetamine manufacturing
process and PDK used the same or similar distribution chain to
distribute both forms of listed chemical products. Based on agency
experience, DEA knows that the same or similar methods of diversion are
employed by clandestine methamphetamine manufacturers to obtain both
pseudoephedrine and ephedrine listed chemical products and that a
history of diversion of one product is probative as to the potential
for diversion of the other. Thus, the Deputy Administrator concludes
that the diversion of PDK's pseudoephedrine chemical products reflected
in the Warning Letters is highly relevant to the potential for future
diversion of its ephedrine chemical products.
The Government did not introduce evidence as to the quantity of
other manufacturer's listed chemical products that have been found to
be diverted, only the quantities and types of PDK's products which had
been the subject of Warning Letters for the period at issue. It is also
recognized that section 971(c)(1) requires an exercise of agency
discretion, given that all ephedrine chemical products require the
importation of the listed chemical into the United States at some point
in their manufacturing and/or distribution chain. Thus, literally every
shipment is
[[Page 67959]]
subject to a theoretical possibility that it ``may'' be diverted.
DEA recognizes that it and other law enforcement agencies are aware
of and able to take action against only a small number of the total
clandestine methamphetamine laboratories and dump sites in this
country. Accordingly, the specific universe of PDK product diverted,
vis a vis, all other manufacturers' products, is a number which cannot
be established with specificity. However, the Deputy Administrator
notes that at a March 1998 meeting between DEA and PDK, DEA personnel
concluded that PDK's listed chemical products were being reported as
the most prevalently found products at illicit settings in this
country, i.e., ``PDK products were number one in terms of being seized
at methamphetamine labs.'' Tr. 1613.
Given the quantities and diverse locations of PDK listed chemical
products discovered at illicit sites reflected in the Warning Letters,
DEA is able to draw a reasonable inference regarding the likelihood
that the instant shipments may be diverted and to exercise its
discretion as to the need to prohibit their import.
In Mediplas, without having to undergo any attempt at a comparative
statistical analysis, the Deputy Administrator found ``the nine Warning
Letters issued to Mediplas provided substantial evidence documenting
the diversion of thousands of bottles of its previously imported List I
chemical Products * * *.'' Mediplas, supra, 67 FR at 41262. In
comparison, PDK's 22 Warning Letters detail diversion of thousands of
bottles of its previously imported List I chemicals to approximately
140 illicit methamphetamine laboratory-related sites located in at
least 18 states.
The fact that a company's product has been discovered in
clandestine laboratories and dump sites has been a regular basis for
DEA taking adverse action against manufacturers and distributors of
List I chemical products, again without attempting statistical
comparative analysis. See OTC Distribution, supra, 68 FR at 70544 (14
Warning Letters in 21 months a factor in revoking registration of List
I chemical product distributor); Sinbad Distributing, supra, 67 FR at
10233 (registration as a distributor of listed chemical products denied
in part because two potential suppliers of applicant had received 15
Warning Letters between them); CHM Suppliers, 67 FR 9985, (2002)
(same).
In Neil Laboratories, Inc. v. Ashcroft, 217 F. Supp.2d 80 (D.D.C.
2002), DEA had issued an immediate suspension of a List I
manufacturer's registration under 21 U.S.C. 824(d). The registrant
challenged that action and the district court upheld the DEA order
based, in part, on the fact that ``Neil Labs received approximately 30
warning letters from the DEA between February 4, 1999, and March 11,
2002, that identified various instances in which Neil Labs' product had
been diverted to illicit uses.'' Id., at 87.
The Deputy Administrator finds the record shows through testimony
and documentary evidence that over a period of several years, PDK and
DEA corresponded and met with the intention of resolving problems
pertaining to the diversion of PDK's ephedrine and pseudoephedrine
products. Evidence presented by PDK indicated it had taken steps to
implement controls in its plant and distribution chain and during this
period, DEA permitted certain listed chemical shipments, destined for
PDK, to be imported. Nevertheless, as documented by the Warning
Letters, PDK's products continued to appear at illicit settings in
substantial amounts, despite remedial efforts undertaken or promised by
the company. As the Court of Appeal observed in ALRA Laboratories, Inc.
v. DEA, 54 F.3d 450 (7th Cir. 1995), ``An agency rationally may
conclude that past performance is the best predictor of future
performance.'' Id., at 452.
As a collateral matter, it is noted that the individual responsible
for implementing PDK's operating procedures for responding to DEA
Warning Letters was Mr. Michael Lulkin. Beginning in 1990, Mr. Lulkin,
an attorney, had served as PDK's outside counsel. In 1995, he was hired
as in-home counsel and became PDK's Vice President of Legal Affairs and
subsequently it's Director of Administrative Affairs. In 1998, Mr.
Lulkin, along with PDK's then-President, Mr. Michael Krasnoff, was
convicted in Federal court of four felony counts relating to securities
fraud, money laundering and mail fraud. The mail fraud offenses
involved PDK. Mr. Lulkin was subsequently disbarred from the practice
of law in 1999.
PDK's Board of Directors and its current President, Mr. Reginald
Spinello, who had worked for Mr. Krasnoff as PDK's Executive Vice
President for Operations since 1991, allowed Mr. Krasnoff and Mr.
Lulkin to remain associated with PDK. After resigning as President in
1998, Mr. Krasnoff continued to serve as a consultant to the company.
Mr. Lulkin continues as an employee of PDK, where his duties include
overseeing the company's regulatory compliance.
Neither of these personnel decisions, but particularly the
retention of Mr. Lulkin as a key overseer of regulatory matters,
despite his convictions for fraud and a felony against the company,
generates confidence on the part of the Deputy Administrator that PDK
is sufficiently committed to complying with the myriad of regulatory
requirements designed to prevent diversion of listed chemicals.
In sum, the Deputy Administrator finds, based on the foregoing,
that the bulk ephedrine which is the subject of the Suspension of
Shipment Orders is a ``listed chemical'' that ``may be diverted'' and
that the orders should be sustained.
As discussed earlier, the full court in PDK Labs agrees remand was
necessary because the then-Deputy Administrator had also concluded PDK
violated export notification requirements in connection with the sale
and delivery of ephedrine products to Sun Labs of Canada. Because the
evidence showed the product was actually delivered to the customer
within the United States, the Court concluded the then-Deputy
Administrator had failed to explain the agency's apparent divergence
from its decision in Alfred Khalily, Inc., supra 65 FR 31,289 (1999).
See PDK labs, supra, 362 F.3d at 798-99.
In Khalily, the then-Deputy Administrator agreed with the ALJ that
the respondent company was not responsible for filing export
documentation regarding its sale of a listed chemical, hydriotic acid,
to a Mexican based company, R.J. Meyer. The key findings were that
``R.J. Meyers's purchase orders revealed that the shipments were either
consigned to Jose Gutierrez, and sometimes Gus Pimental c/o Sky Harbor
Delivery in Tucson, Arizona, or to Jose Gutierrez c/o Gus Pimental ata
warehouse in Phoenix, Arizona'' and ``According to Respondent's
invoices, Respondent sold the hydriotic acid to R.J. Meyer, but it was
shipped to Jose Gutierrez at Sky Harbor Delivery. These shipments were
`FOB Destination,' which according to Mr. Khalily means that the
shipper's responsibility ends when the product is delivered to the
specified location.'' Khalily, supra, 64 FR at 31, 290.
The chemicals had been shipped to the Arizona warehouse and
subsequently picked up by Mr. Gutierrez who, it turned out, was not a
representative of R.J. Meyer. The chemicals were then loaded into a
rental truck and disappeared. R.J. Meyer's personnel testified that the
shipments never entered Mexico and DEA was
[[Page 67960]]
unable to determine their disposition after they left the Arizona
warehouse.
The then-DEA Deputy Administrator concluded, ``While Respondent was
selling above threshold quantities of hydriotic acid to a Mexican
company, these sales were ``FOB Destination'' transactions and
therefore Respondent's responsibility ended when the chemicals were
delivered to the warehouse in Arizona. Respondent did not send or take
the listed chemicals out of the United States, nor was it the
`principal party in interest' with the power and control for sending
the chemicals out of the United States. Therefore, it was not
responsible for filing any export documentation.'' Khalily, 64 FR at
31293 (emphasis added).
In the instant case, the then-Deputy Administrator concluded that
``[g]iven the circumstances of these sales, and especially given that
PDK actually believed the product was destined for export, that PDK
should have complied with DEA export regulations in effect at the
time.'' 67 FR at 77808. He also concluded the ``record shows that PDK
violated DEA export regulations on at least four occasions by failing
to file the required notifications of its shipments to Sun Labs.'' 67
FR at 77809.
Notwithstanding Khalily, under the unique facts of this case the
Deputy Administrator agrees that PDK should have filed export
notifications with DEA.
The evidence shows that between 1994 and 1995, PDK sold Sun Labs of
Canada at least four shipments of ephedrine and ephedrine
hydrochloride, a listed chemical. During these proceedings, the parties
disputed whether these shipments were ``exports,'' which required
filing of a DEA Form 486 report within 15 days of the ``export,''
pursuant to 21 CFR 1313.21. That regulation provides, in relevant part,
``no person shall export or cause to be exported from the United States
any [listed chemical] * * * until such time as the Administrator has
been notified. Notification must be made not later than 15 days before
the transaciton is to take place.'' 21 CFR 1313.21(a).
Neither PDK nor Sun Labs, nor their then-principals, were
strangers. At the time, the President and owner of Sun Labs was Mr.
Perry Krape, a former principal and a founder of PDK who, up until
November of 2000, retained 8% ownership in PDK.
The ALJ noted in her findings that Mr. Krasnoff, discussed earlier
as the subject of felony convictions involving the company, was PDK's
President during this period. Mr. Krasnoff testified that these orders
were delivered to Sun Labs at PDK's facility in Hauppauge, New York. He
further testified it was PDK's belief that, after picking up the
product, Mr. Krape's immediate intention was to transport it to his
storage facilities in New York. Although there was no testimony that
the ephedrine product was actually shipped to Canada, the Deputy
Administrator finds it reasonable to infer that it was destined for
Canada and to only remain in the United States temporarily.
The invoices indicated the customer was Sun Labs, located in
Mississauga, Ontario, Canada. A DEA diversion investigator testified
that ``the address on the invoices and the shipping labels, the
shipping documents, indicated it was going to Ontario, Canada.''
Additionally, the investigator testified that each of the bills of
lading for these transactions stated the ephedtine was being billed to
and shipped to Sun Labs in Ontario, Canada.
While there were no shipping charges on the invoices and the ``Name
of Carrier'' on the bills of lading listed either ``Pick-up'' or
``Perry Krape,'' the invoices, which were introduced into evidence,
stated a ``Ship to'' address of ``Sun Labs, Inc., 300-2400 Dun Dun St
West, Mississauga ON L5K2R8.'' The ``Bill to'' address on the invoices
was the same foreign location. The bills of lading further identified
the ``To Consignee'' as Sun Labs Inc. at its Mississauga, Ontario
address.
Mr. Krasnoff also assumed Sun Lab's owner was going to distribute
this product in Canada, as Mr. Krasnoff testified PDK had a ``no-
compete'' agreement with Sun Labs in which Sun Labs agreed it would not
sell ephedrine in PDK's territory, which included the entire United
States. Further, Mr. Krasnoff testified in reference to these
transactions, that he ``believe[d] that [Sun Labs] intention was to
take the product to Canada at some point in time and that [Sun Labs]
was putting together a distribution system in order to distribute that
produce in Canada.'' Finally, Mr. Krasnoff states that Mr. Krape had
said he ``was going to be the ephedrine king of Canada.'' \7\
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\7\ Although he is no longer with PDK, Mr. Krasnoff was also
quoted as saying in May of 1996, ``it's none of my business if
someone gets high off of this stuff,'' demonstrating an improper
attitude for an officer of a DEA registrant and a cavalier approach
toward complying with DEA regulations, including those pertaining to
exports.
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For purposes of these export regulations, 21 CFR 1312.02, defines
the term ``chemical export'' to cover more than just the physical
sending or taking of the listed chemical out of the United States.
Instead it provides ``The term `chemical export' means transferring
ownership or control, or the sending of listed chemicals out of the
United States (whether or not such sending or taking out constitutes an
exportation within the meaning of the Customs and related laws of the
Unites States).'' 21 CFR 1313.02(a) (1995), now 21 CFR 1300.02(b)(5)
(italics in original, emphasis added).
In Khalily, the shipment was consigned ``F.O.B'' to a buyer at an
Arizona warehouse and the ALJ and then-Deputy Administrator were
obviously focused on the implications of the ``F.O.B'' transfer i.e.,
``Respondent's responsibility ended when the chemicals were delivered
to the warehouse in Arizona.'' Khalily, supra, 64 FR at 31,293.
Further, there was no evidence that the listed chemicals were ever sent
to Mexico. The facts here are distinguishable.
The invoices and bills of lading identify the listed chemical
products as being purchased by and ``shipped to'' Sun Labs, a Canadian
company at its foreign address in Ontario. While the bills of lading
also indicated the product was going to be ``picked up'' at PDK's
Hauppauge premises, even if the product was not being immediately
transported across the border, ``ownership'' and ``control'' was
knowingly transferred by PDK to a company located outside of the United
States, thus falling within the definition of ``chemical export''--
which ``no person'' (including PDK) ``shall export or cause to be
exported from the United States * * * until such time as the
Administrator has been notified.'' 21 CFR 1313.21(a).
While Mr. Krape apparently picked the listed chemicals up at PDK's
New York location, the Deputy Administrator concludes PDK knew the
listed chemicals were going to be physically taken outside the United
States, albeit at an uncertain date, which the company never sought to
ascertain and/or report. Where ownership and control was transferred to
a foreign company, under the unique facts of this case, the Deputy
Administrator concludes that export regulations required PDK to notify
DEA of the transactions.
Compliance with regulatory requirements is relevant to the risk of
diversion the listed chemicals will face as they progress through the
chain of commerce from importation and/or exportation, manufacture and
ultimate distribution through wholesalers and retailers. With regard to
exports, DEA is aware that precursor chemicals can be brought into the
United States from their countries of origin and then exported to other
countries, where they are diverted to the manufacture of
[[Page 67961]]
methamphetamine and other controlled substances and then subject to
being smuggled back into the United States. See e.g., Neil
Laboratories, supra, 64 FR at 30,064 (exportation of pseudoephedrine
from New Jersey to Mexico suspended because of risk of diversion).
Further, the government's evidence showed that Sun Labs had a toll free
800 number and took orders from customers in the United States for List
I chemical products, thereby returning them to this country.
Additional, the Government offered testimony that DEA ``was beginning
to see Canadian product showing up in large numbers in [clandestine]
labs.'' Tr. at 753.
An exporter/transshipper's failure to comply with the notification
requirements of 21 CFR 1313.31 has previously been cited as a ground
for suspending shipments. See e.g., Yi Heng Enterprises Dev. Co.,
supra, 64 FR at 2,235 (respondent transshipper concedes point and DEA
holds ``it is undisputed that no advance notification of * * *
shipments * * * was provided to DEA as required by the regulations and
that this provides a basis for the suspension of these shipments.'');
Suspension of Shipments, supra, 65 FR at 51,338 (``Finally, [the
transhipper] failed to file advance notification of these
shipments.'').
The Deputy Administrator recognizes that PDK's regulatory omissions
are mitigated by the facts of their age and that the company's failure
to file notifications did not involve the specific shipments at issue
in the suspension orders. Nevertheless, PDK's non-compliance with
regulatory requirements in these instances is considered relevant.\8\
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\8\ For clarification should this final order be appealed, the
Deputy Administrator finds that the evidence of diversion reflected
in the series of Warning Letters provides a sufficient basis for
sustaining the suspension orders, independent of the export
notification infractions.
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The Orders to Suspend Shipments also alleged that in 1995, PDK made
direct mail orders sales of its ephedrine chemical products to
individuals who were later arrested and convicted of manufacturing and
possessing methamphetamine with intent to distribute and admitted
obtaining their precurser chemicals from PDK. Based on her view of the
evidence, the ALJ declined to find that these sales were suspicious
transactions which should have been reported by PDK pursuant to 21 CFR
1310.05(a)(1).
The evidence showed that David Chapin ordered and received over
12,000 tablets of ephedrine, 25 mg, during February 1995 and Jason
Young received over 8,800 tablets of the same product between June and
October of 1995. Based on his consultations with a pharmacist, a DEA
diversion investigator deemed these sales to be excessive, given the
individual therapeutic dosage units recommended in the Physician's Desk
Reference and the United States Pharmacy Index for a one month period
of time. Based on a recommended dosage of six tablets per day, the
investigator testified that ``[e]very individual (purchase) on the mail
order from 1995 was excessive.'' David Chapin was subsequently arrested
for having an operational methamphetamine lab and stated that the PDK
was the source of his ephedrine. He was subsequently convicted and
sentence to 96 months in Federal prison.
However, based primarily upon Mr. Krasnoff's testimony, the ALJ
concluded that PDK believed Chapin and Young were repackaging the
single-entity ephedrine tablets purchased from PDK for resale, thus the
quantities would not have appeared to be suspicious and need not have
been reported to DEA. While the Deputy Administrator agrees there was
no evidence introduced that PDK specifically knew of the buyers'
illicit manufacturing, the evidence indicates a disturbing willingness
on the part of PDK to turn a blind eye toward diversion of its product.
The ALJ specifically fond that Mr. Kranoff told DEA investigators
in a May 1996 investigation concerning these sale, that he could care
less who ordered what and how much. He also stated that ``it's none of
my business if someone gets high off this stuff.'' Significantly, the
ALJ found Mr. Krasnoff's sworn testimony at the hearing, in which he
denied making these statements, to be incredible. The Deputy
Administrator agrees that this witness was not credible and that his
credibility is also diminished by his convictions of felony offenses
involving moral turpitude.
When pressed on cross-examination as to his belief that ``smallest
of distributors were repackaging or reselling,'' Mr. Krasnoff testified
that:
We got the sense that there was a network of distributors who
distributed his product that we manufactured either in a Tupperware-
type setting of [sic] door to door sales, and/or some of them
distributing the product through the mail, ad hoc mail order
companies.
Tr. 1993 (emphasis added).
The Deputy Administrator finds this testimony, suggesting that mail
order recipients were emptying tablets out of a 1,000 count bottle and
reselling them in a Tupperware setting or door to door to be
incredible, particularly when considered in light of its self-serving
nature, Mr. Kraasnoff's other untruths while testifying, and his fraud
based felony convictions. Accordingly, the Deputy Administrator finds
that the subject sales should have been reported as suspicious.
Further, this evidence establishes that in 1995, PDK, sold ephedrine
products directly to individuals who diverted them to illicit purposes.
However, it also noted these transactions occurred a number of
years ago, Mr. Krasnoff's relationship with PDK has finally been
severed, PDK ceased its mail order sales and the company has reported a
series of suspicious sales to DEA on other occasions. Nevertheless, the
Deputy Administrator finds that PDK's past attitude and its engaging in
these transactions, along with its failure to report them as
suspicious, are relevant as to whether the current suspensions should
be sustained.\9\
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\9\ However, again for clarification of future reviewers,
notwithstanding the above findings, the Deputy Administrator finds
that the evidence of diversion reflected in the series of Warning
Letters provid3es a sufficient independent basis for concluding that
the List I chemicals may be diverted and the suspension orders
sustained.
---------------------------------------------------------------------------
At the hearing, DEA witnesses testified regarding traditional
retail outlets and non-traditional retail outlets and the types of
listed chemical products distributed to these outlets. The traditional
market is characterized by a short distribution pattern to large chain
grocery stores, large chain convenience stores, large chain drug
stores, large discount retailers and large chain convenience stores.
These products are packaged in blister packs and are 30 mg in strength.
The non-traditional outlets are characterized by a very lengthy
distribution chain of listed chemical products packaged in higher
strength and in bottles of 60 or more dosage units. The higher strength
products are those products usually found at the illicit
methamphetamine production sites.
The Suspicious Orders Task Force also identified as suspicious,
customers who resell large volumes of listed chemical products to the
``independent convenience store'' market. While PDK does not currently
distribute List I chemical products directly to the public or to retail
sales outlets, including convenience stores, witnesses indicated that
through its distribution scheme, PDK is the largest supplier of generic
List I chemical products to the convenience store market.
Since the hearing on this matter, a series of DEA final orders have
addressed the distribution of listed
[[Page 67962]]
chemical products through the gray market and in particular, through
independent convenience stores. In Mediplas, my predecessor discounted
the probative weight of the Government's ``anecdotal'' evidence
``without some form of further extrinsic evidence to support these
arguments.'' Mediplas, supra, 67 FR at 41,264. In sustaining the
shipments in the initial final order here, my predecessor noted the
evidence in PDK's hearing was ``essentially identical'' to the evidence
in Mediplas. Accordingly, he applied the same rule and declined to find
that the Government's evidence of PDK's gray market distribution chain
supported the suspension orders. See, e.g., Indace/Malladi, supra, 67
FR at 77808.
In Branex, Incorporated, supra, 69 FR at 8696 while then-Acting
Deputy Administrator, I approve use of the above Mediplas evidentiary
standard:
In deference to my predecessor's ruling in [Mediplas], a finding
regarding convenience stores [as] conduits for the diversion of
listed chemicals does not necessarily translate to a finding
regarding the existence of the so-called `traditional' versus `non-
traditional' markets for products containing ephedrine and
pseudoephedrine. Rather, in Mediplas, the then-Deputy Administrator
found there was little probative value to such evidence, and the
probative weight of evidence regarding traditional and non-
traditional markets is `minimal without some form of further
extrinsic evidence to support these arguments [Citation].' The
Acting Deputy Administrator notes further, my predecessor's
conclusion that a registrant's sale of large quantities of list I
chemicals do not, in and of themselves, demonstrate that the
chemicals may be diverted.
Branex, supra, 69 FR at 8693.
However, at the Branex hearing the Government did introduce
substantial extrinsic evidence satisfying the Mediplas standard. In
that regard, I held:
The Acting Deputy Administrator concurs with Judge Bittner's
conclusion that the government met the Mediplas evidentiary
requirement by showing that Respondent sold pseudoephedrine to
customers that did not have a reasonable expectation of being able
to resell the product to a legitimate customer base. Specifically,
the Government presented a relevant comparison analysis involving
the marketing and sale of bottled pseudoephedrine products to a
relatively small market by OTC Distribution (a supplier of listed
chemicals to Respondent) versus that of nationally recognized
pharmaceutical manufacturers and distributors of those products
(i.e., Pfizer and the L. Perrigo Company). The Acting Deputy
Administrator also finds telling, the testimony of Pfizer and
Perrigo representatives that neither were aware of OTC Distribution
as a possible competitor. More persuasive however, was the testimony
and documentary evidence prepared by the Government expert in
statistical analysis, Jonathan Robbin. * * *
[T]he Acting Deputy Administrator . . . finds compelling Mr.
Robbin's conclusion of the unlikelihood that convenience stores
would sell more than $27.00 worth of pseudoephedrine per month to
consumers purchasing decongestant products, as purportedly sold by
Respondent's customers. The Acting Deputy Administrator further
credits Mr. Robbin's finding regarding the inconceivability of
customers purchasing a year's supply of list I chemical products
from convenience stores and related establishments on a monthly
basis.
The Acting Deputy Administrator also finds persuasive the
conclusion of Mr. Robbin that the pseudoephedrine products supplied
by Respondents to its customers did not follow the normal channel of
distribution of goods of this kind. This finding is given further
credence when one considers the quantities of pseudoephedrine the
respondent sold to its convenience store customers and the
exorbitant price some of these customers were willing to pay the
Respondent for those products. The Acting Deputy Administrator finds
that the compelling nature of Mr. Robbin's market study casts doubt
on the legitimacy of the Respondent's customers, and brings some
context to the diversion of the respondent's listed chemical
product.
Branex, supra, 69 FR at 8,693; see e.g., Xtreme Enterprises, Inc,
supra, 67 FR at 76,197 (denying registration as a listed chemical
distributor after testimony by Mr. Robbin on graymarket and holding
that applicant's positive factors were ``far outweighed'' by lack of
experience and ``the fact that she intends to sell ephedrine almost
exclusively in the gray market.''). See also Value Wholesale, 69 FR
58,548 (2004) (citing Xtreme Enterprises, Inc. and denying registration
inpart on intent to distribute to grey market); K & Z Enterprises,
Inc., 69 FR 51475 (2004) (same); William E. ``Bill'' Smith d/b/a B&B
Wholesale, 69 FR 22559 (2004) (same); John E. McCrae d/b/a J & H
Wholesale, 69 FR 51480 (2004) (same); SPA Dynamic Wholesalers, 68 FR
61466 (2003) (citing Robbin study and denying registration as
distributor to grey market).
While DEA has concluded in the above series of cases that grey
market establishments, such as convenience stores and gas stations,
constitute sources for the diversion of listed chemical products and
can form the basis for adverse action against registrants and potential
registrants, the Government's evidence which formed the basis for those
holdings was not presented at PDK's hearing. Thus, PDK has not had an
opportunity to refute or contest that evidence and it is outside the
record.
Accordingly, the Deputy Administrator will continue to apply the
Mediplas evidentiary standard to the instant record and declines to
find that the vidence concerning the gray market introduced in this
specific case supports a factual finding that the listed chemicals
which are the subject of the two suspension orders ``may be
diverted.''\10\
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\10\ However, as noted earlier, for the limited purpose of
interpreting the term ``listed chemical'' as it appears in section
971(c)(1) and the policy implications of the alternatives, the
findings and conclusions contained in the above cited cases are
considered relevant to DEA's application of the agency's current
knowledge and expertise.
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In arriving at this decision, the Deputy Administrator has
considered PDK's stature and business activities in the business
community, its efforts at compliance, as well as the evidence available
to DEA up to the time of the hearing. The Deputy Administrator finds
that there was sufficient evidence at the time of the hearing to
support DEA's contention that the chemicals may be diverted. ``As the
Deputy Administrator has previously noted, [e]vidence of a violation of
law is not necessary to demonstrate that suspensions were lawful.''
Mediplas, supra, 67 FR at 41,262 citing Suspension of Shipments, supra,
65 FR at 51337. Therefore, the Deputy Administrator concludes that the
suspensions set forth in the January 25 and 26, 2001, Order to Suspend
Shipments of ephedrine hydrochloride issued to Indace and Malladi were
justified.
Accordingly, the Deputy Administrator of the Drug Enforcement
Administration, pursuant to the authority vested in her by 21 U.S.C.
971 and 28 CFR 0.100(b) and 0.104, hereby orders that the suspensions
of the above described shipments, be, and hereby are, sustained, and
that these proceedings are hereby concluded.
This final order is effective immediately.
Dated: November 9, 2004.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 04-25695 Filed 11-19-04; 8:45 am]
BILLING CODE 4410-09-M