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Register Notices > Registrant Actions -
2009 >
CBS Wholesale Distributors; Grant of Renewal Application and
Dismissal of Proceeding
FR Doc E9-17688[Federal Register: July 24, 2009 (Volume 74, Number 141)]
[Notices] [Page 36746-36751] From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy09-133]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 07-14]
CBS Wholesale Distributors; Grant of Renewal Application and Dismissal
of Proceeding
On January 5, 2007, the Deputy Assistant Administrator, Office of Diversion
Control, Drug Enforcement Administration, issued an Order to Show Cause to CBS
Wholesale Distributors (Respondent), of Hephzibah, Georgia. The Show Cause
Order proposed the revocation of Respondent's DEA Certificate of Registration
which authorizes it to distribute List I chemicals, and the denial of any
pending applications to renew or modify the registration, on the ground that
his "registration is inconsistent with the public interest.'' Show Cause
Order at 1.
More specifically, the Show Cause Order alleged that Respondent is
"currently registered to distribute the List I chemicals pseudoephedrine
and ephedrine,'' id. at 2, and that both chemicals are "commonly used to
illegally manufacture methamphetamine, a schedule II controlled substance.''
Id. at 1. The Show Cause Order alleged that "there exists a `gray market'
in which certain pseudoephedrine and ephedrine products are distributed only
to convenience stores and gas stations, from where they have a high incidence
of diversion,'' and that these establishments "continue to be the primary
source for precursors to be diverted to illicit methamphetamine laboratory
operations in many states.'' Id. at 1-2.
Next, the Show Cause Order alleged that DEA had retained "an expert in
the field of retail marketing and statistics to analyze national sales data
for over-the-counter non-prescription drugs.'' Id. at 2. The Order alleged
that the expert had determined that "the average small store could expect
to sell monthly only about $10.00 to $30.00 worth of pseudoephedrine
products,'' and "that the potential for sales of combination ephedrine
products [was] only about one-fourth of those sales levels.'' Id.
The Show Cause Order further alleged that Respondent's list I customers
"are almost exclusively convenience stores and gas stations, which are
part of the gray market for diversion'' of these products, id. at 2, and that
Respondent's "sales of combination ephedrine products are inconsistent
with the known legitimate market and known end-user demand for products of
this type.'' Id. at 3. The Order further alleged that Respondent is
"serving an illegitimate market and [that its] continued registration
would likely lead to increased diversion of List I chemicals.'' Id.\1\
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\1\ The Show Cause Order also alleged that Respondent had "assisted
* * * a former DEA registrant, in maintaining his customer base [of
convenience stores and gas stations] for combination ephedrine products,
after he surrendered his * * * registration for cause.'' Show Cause Order at
2. The Government, however, offered no evidence in support of this
allegation.
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Respondent timely requested a hearing on the allegations. The matter was
placed on the docket of the Agency's Administrative Law Judges (ALJ), and an
ALJ conducted a hearing in Savannah, Georgia on December 4-5, 2007. At the
hearing, both the Government and Respondent elicited the testimony of
witnesses and submitted documentary evidence. Following the hearing, both
parties filed briefs containing their proposed findings of fact, conclusions
of law, and arguments.
On June 10, 2008, the ALJ issued her recommended decision (ALJ). In her
decision, the ALJ found persuasive the expert testimony of the Agency's expert
witness that the average monthly sale of ephedrine products to meet legitimate
demand is $14.39 and that Respondent's customers were purchasing between five
to eighty times this amount. ALJ at 33. The ALJ thus concluded that
Respondent's sales of ephedrine products "to gray market entities are so
grossly excessive that there is a high probability that these products are
being diverted for illicit purposes, and that this fact alone outweighs'' the
evidence that Respondent provided adequate physical security for the products,
maintained adequate records, and was selling only to customers who had
obtained the required certification under the Combat Methamphetamine Epidemic
Act. Id. at 34. The ALJ thus also concluded that "Respondent's continued
registration would be inconsistent with the public interest,'' id. at 36, and
recommended that its registration be revoked and that any pending applications
to renew or
[[Page 36747]]
modify its registration be denied. Id. at 37.
Respondent filed Exceptions to the ALJ's decision. Thereafter, the record
was forwarded to me for final agency action.
Having considered the record as a whole (including Respondent's
exceptions), I hereby issue this Decision and Final Order. I conclude that the
Government's allegation that Respondent's sales levels are so excessive as to
warrant the conclusion that its products are being diverted is not proved by
substantial evidence. I further hold that because the Government failed to
provide notice to Respondent in either the Show Cause Order or its pre-hearing
statement that it intended to put in issue Respondent's sales of glass roses,
an item which the Government alleges is used as drug paraphernalia, Respondent
has not been provided with a full and fair opportunity to litigate the issue.
Consistent with the requirements of the Due Process Clause, I conclude that
this issue cannot be considered by the Agency. Accordingly, the Show Cause
Order will be dismissed. I make the following findings.
Findings
Respondent is a wholesale distributor of sundry items to convenience stores
and gas stations which is owned and operated by Charles Marshall, Sr., and
Charles Marshall, Jr. (a/k/a Bubba). Tr. 199. Respondent is located in
Hephzibah, Georgia. Id. at 199, 201-03; GX 1. Among the items Respondent
distributes are non-prescription drug products containing ephedrine, Tr. 202,
a schedule listed chemical product under the Controlled Substances Act. 21
U.S.C. 802(45); see also id. section 802(34).
Respondent has held a DEA Certificate of Registration authorizing it to
distribute listed chemicals since 1999. GX 2. While the expiration date of
Respondent's registration certificate is August 23, 2006, Respondent applied
for a renewal of its registration prior to its expiration date and it is
undisputed that its registration has remained in effecting pending the
issuance of this Order. GX 2; see also 5 U.S.C. 558(c).
Ephedrine (in combination with guaifenesin) is currently approved under the
Food, Drug and Cosmetic Act for marketing as a bronchodilator for use in
treating asthma. GX 7, at 3-4. Ephedrine is, however, regulated as a List I
chemical under the Controlled Substances Act because it is extractable from
non-prescription drug products and frequently diverted into the illicit
manufacture of methamphetamine, a schedule II controlled substance. 21
CFR 1308.12(d).
Methamphetamine "is a powerful and addictive central nervous system
stimulant.'' T. Young Associates, Inc., 71 FR 60567 (2006). As noted in
numerous Agency decisions, the illegal manufacture and abuse of
methamphetamine pose a grave threat to this Nation. See, e.g., id.
Methamphetamine abuse has destroyed numerous lives and families, and has had a
devastating impact on many communities. Id. Moreover, because of the toxic
nature of the chemicals used in making the drug, illicit methamphetamine
laboratories create serious environmental harms. Id.
The Investigation of Respondent
On March 5, 2005, a DEA Diversion Investigator visited Respondent to
conduct a regulatory investigation. Tr. 138-39. The DI met with Charles
Marshall, Sr., and Bubba Marshall. Id. at 149-50. During the inspection, the
DI determined that Respondent was selling combination ephedrine products,
which included a brand that is "notoriously popular [with]
methamphetamine traffickers.'' Compare GX 4 with GX 6 at 12; see also Tr. 24.
The DI also obtained from Respondent a customer list which indicated that it
was selling the products to gas stations, convenience stores, and small
markets. Tr. 135 & GX 5.
During the inspection, the DI concluded that Respondent did not provide
adequate physical security for the products. Tr. 149. More specifically, the
DI found that the products were being left overnight on Respondent's truck and
were not being returned to its storage warehouse. Id. at 152. Moreover, the DI
also noted that Respondent was storing the products in what she described as
"a shed,'' that the shed had a window, and that anyone who knew
"what they were looking for could see the product.'' Id. at 156. The DI
"recommended'' to the Marshalls that they cover the windows so that a
person could not see the product. Id. at 156. It is undisputed, however, that
the Marshalls promptly complied with her recommendation regarding the storage
facility.\2\ Id. at 156- 57, 212. It is also undisputed that following the
inspection, Respondent ceased its practice of leaving the products on its
truck and now returns them to its storage facility each night. Id. at 211.
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\2\ It is also undisputed that in 2003, Respondent had moved to its
current location. Tr. 204. At that time, Respondent sought a modification of
its registration; a DEA Investigator visited Respondent, inspected its
storage facility, and found it satisfactory. Id.
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At the hearing, the DI also testified that Respondent's recordkeeping was
inadequate because the invoices "were not complete'' and "[i]t was
very hard to determine * * * who they sold [the products] to, the addresses
where the people were located, [and] how much they sold.'' Id. at 153. The
Government did not, however, offer into evidence any of the invoices the DI
reviewed at the time of the inspection. Moreover, in support of its allegation
that Respondent sells excessive quantities of the products, the Government
introduced into evidence numerous invoices for the period January through
March 2007. See GX 11. Yet the Government does not point to any of these
invoices as evidence that Respondent's recordkeeping practices remain
deficient. See generally Gov. Proposed Findings of Fact and Conclusions of Law
[hereinafter, Gov. Br.]
In support of the principal allegation of its case in chief, the Government
called Jonathan Robbin to testify as an expert witness and introduced several
exhibits which were prepared by him. See GX 8, 9, 14-18. The thrust of Mr.
Robbin's presentation was that the overwhelming majority of the commerce in
non-prescription drugs takes place at pharmacies, supermarkets, large discount
stores, and electronic shopping/mail order retailers, and that convenience
stores and gas stations account for only "a very small percentage of the
sales of '' these products. See GX 9, at 4. Mr. Robbin further testified that
using various data sources such as the U.S. Economic Census, the National
Association of Convenience Stores' 2007 State of the Industry Survey, the
Mediamark Research, Inc. (MRI) survey of consumers, and scanner data, he
determined that the "expected retail sale of ephedrine * * * tablets in a
convenience store ranges between $0 and $29, with an average of $14.39 and a
standard deviation of $5.76.'' Id. at 8. Mr. Robbin further opined that
"[a] monthly retail sale of $60 of ephedrine/guaifenesin (Hcl) tablets
would be expected to occur about once in a million times in random sampling.''
Id.
Both Mr. Robbin's declaration and his testimony failed to adequately
explain how he arrived at his estimates. While Mr. Robbin apparently used NACS
Survey's data which indicates that convenience stores sold a total of $ 292
million of cough and cold remedies nationwide, and asserted under oath that in
calculating the average sales per store figure he used the number of stores
which actually sell non-prescription
[[Page 36748]]
drug products, Tr. 107; in another proceeding, it was shown that in
calculating the same average sales per store figure, he had used the total
number of stores selling any item in the Health and Beauty Care (HABC) line
and not the smaller number of stores which sold non- prescription drugs. See
Novelty Distributors, 73 FR 52689, 52693 (2008).
Moreover, when questioned in this proceeding as to how he determined that
sales of combination ephedrine products constitute eight percent of the sales
of cough and cold products, Mr. Robbin did not submit the documentation to
support this figure and acknowledged that it was "a missing link in this
presentation.'' Tr. 104. While Mr. Robbin maintained "that this eight
percent is an accurate number as reflected by'' the MRI Survey of 50,000
consumers, id. at 105, as I also found in Novelty, the MRI Survey does not ask
questions which are sufficient to establish the extent to which consumers
purchase and use ephedrine products.\4\ See 73 FR 52693-94. Accordingly, as in
Novelty, I conclude that the Government's estimated sales range to meet
legitimate demand for combination ephedrine products is not supported by
substantial evidence. I am therefore also compelled to reject Mr. Robbin's
testimony regarding the statistical probability that Respondent's ephedrine
sales were to meet legitimate demand and that Respondent sold
"combination ephedrine * * * products in extraordinary excess of normal
or traditional demand.'' GX 9 at 13; see also Tr. at 90-92.
To be sure, the estimated retail sales of some of Respondent's ephedrine
customers were several times the average sales for cough and cold products as
reported by the NACS Survey. See GX 10, at 62 (indicating that in 2005, the
average store sold $2,556, and in 2006, the average store sold $2,040 of the
products). It appears, however, that the Survey's average sales figure was
computed by dividing the total volume of cough and cold product sales ($292
million nationwide) by the total number of convenience stores, regardless of
whether the stores sell non-prescription drug products. See GX 10, at 4
(indicating that there are a total of 145,119 convenience stores (including
both stores that sell and do not sell gasoline) in the US). The average sales
of stores actually selling the products is thus likely several times higher
than the figure reported by NACS; and in any event, the NACS Survey not report
any of the information necessary (such as the median and standard deviation)
necessary to determine the statistical probability of various sales levels.
The evidence is therefore insufficient to support the Government's allegation
that Respondent's "sales of combination ephedrine products are
inconsistent with the known legitimate market and known end-user demand for
products of this type.'' Show Cause Order at 3.
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\4\ For example, the survey asks "[h]ow may times in'' different
time periods a person has used one of numerous products. 72 FR at 52694.
While the survey lists a variety of non-prescription cold, sinus, and
allergy products, none of the products contains ephedrine. Id. Indeed, an
ephedrine product is not listed anywhere in the survey.
The survey also asks whether a person has had asthma in the last twelve
months and whether they have used a prescription drug, a non- prescription
drug, an herbal remedy, or have not treated the condition at all. Id. The
survey does not, however, ask any further questions regarding the use of
non-prescription drugs to treat asthma. Id.
It may well be the case that the use of ephedrine products to treat
asthma has become so minimal that the designers of the MRI Survey consider
the product to be inconsequential. But even if this is so, the Government
still has the burden of adequately explaining how it determined that
ephedrine sales constitute eight percent of cough and cold sales.
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The Evidence Related to Respondent's Sales of Glass Roses
The Government also questioned the DI as to whether Respondent sold
"glass roses.'' \6\ Tr. 129. The DI answered "yes''; the Government
then asked what the items were used for. Id. Respondent's counsel promptly
objected to the question. Id. More specifically, Respondent's counsel objected
on two grounds: (1) That the Show Cause Order contained no allegation
regarding Respondent's sale of this product, and (2) that the Government did
not disclose in its Pre-Hearing Statement that it would elicit testimony from
the DI regarding Respondent's sales of the item and its use as drug
paraphernalia. Id. at 129-31.
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\6\ In the pleadings, this item was also referred to a love rose. Both
terms are therefore used in this decision.
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The ALJ overruled the objection. Id. at 133. The Government again asked the
DI whether Respondent sold glass roses; the DI again answered that it did. Id.
The Government again asked the DI what glass roses were used for, and once
more, Respondent's counsel objected. Id. Before ruling on the objection, the
ALJ asked "what are glass roses?'' Id. The DI answered that the product
is "a thin glass container with a rose in it and typically what it's used
for is somebody could come in and give a rose to a friend. But these have been
known to be used for smoking dope. They take the rose out and use them to
smoke dope.'' Id. at 133-34.
The ALJ then stated she was "going to provisionally allow this
testimony,'' but that Respondent could "move to strike it after * * *
it's complete.'' Id. at 134. When the Government stated that the testimony was
complete, Respondent moved to strike it. Id. The ALJ deferred ruling on the
motion, stating that she was taking the matter "under advisement.'' Id.
The record, however, contains no indication that the ALJ ever ruled on the
motion.
On cross-examination, Bubba Marshall admitted that his business sold glass
roses. Id. at 215. The Government then asked Mr. Marshall when he found out
that this item is "being used for drug paraphernalia?'' Id. at 216. Mr.
Marshall answered: "I heard that they'd been used as drug paraphernalia,
I've never witnessed it.'' Id . Under further questioning, Mr. Marshall stated
that he had "probably'' known this for "over a year'' and that he
had continued to sell this product. Id. at 216-17. Continuing, the Government
asked Mr. Marshall whether he had acted responsibly in selling the product.
Id. at 217. When Mr. Marshall reiterated that he had "only heard they
were used as drug paraphernalia,'' the Government asked him if he had
investigated the product's misuse. Mr. Marshall answered "no,'' and added
"how should I investigate it?'' Id.
On re-direct examination, Respondent's counsel asked Mr. Marshall whether
the glass roses had uses other than as drug paraphernalia. Id. at 223. Mr.
Marshall answered: "[i]t's a novelty.'' Id. He also maintained that he
had never been told by any of his customers that the item was used as drug
paraphernalia and that none of his customers had told him that the item was
being purchased in conjunction with ephedrine products. Id. at 224.
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 [its] registration under section 823 of this title inconsistent
with the public interest as determined under such section.'' 21
U.S.C. 824(a)(4). Moreover, under section 303(h), "[t]he Attorney
General shall register an applicant to distribute a list I chemical unless the
Attorney General determines that registration of the applicant is inconsistent
with the public interest.'' 21
U.S.C. 823(h). In making the public interest determination, Congress
directed that the following factors be considered:
[[Page 36749]]
(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. section 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 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).
The Government, however, bears the burden of proof. 21
CFR 1301.44(d). Having considered the entire record in this matter, I
conclude that Government has failed to establish that Respondent does not
maintain effective controls against diversion. I also conclude that the
allegation that Respondent was selling drug paraphernalia is not properly
before the Agency. Accordingly, the Government has not established that
Respondent has committed acts which render its registration "inconsistent
with the public interest.'' 21
U.S.C. 823(h). The Order to Show Cause will therefore be dismissed.
Factor One--Maintenance of Effective Controls Against Diversion
As established in several agency decisions, this factor encompasses a
variety of considerations including, inter alia, the adequacy of physical
security, the adequacy of recordkeeping, and whether a registrant is selling
excessive quantities of the products. See Holloway Distributing, Inc., 72 FR
42118, 42123 (2007); Rick's Picks, L.L.C., 72 FR 18275, 18278 (2007); John J.
Fotinopoulos, 72 FR 24602, 24605 (2007). In the Order to Show Cause and its
Pre-Hearing Statement, the Government provided notice that it would be
litigating two issues that are relevant to this factor: (1) The adequacy of
Respondent's recordkeeping as purportedly shown by the results of an audit
conducted during the March 2005 inspection, and (2) that Respondent was
selling volumes of listed chemicals products that are inconsistent with
legitimate demand.\7\
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\7\ At the hearing, the DI also testified that during the March 2005
inspection, Respondent's storage facility did not provide adequate physical
security and that Respondent was storing products on its truck overnight and
not returning them to its storage unit. While this issue was not raised in
either the Order to Show Cause or the Government's Pre-Hearing Statement,
Respondent did not object to the testimony. It is undisputed, however, that
Respondent promptly complied with the DI's recommendation to improve the
security of its storage facility and ceased its practice of leaving the
products on its truck. It is thus undisputed that Respondent provides
adequate physical security for its products.
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At the hearing, however, the Government did not introduce into evidence the
audit results. Moreover, while a DI asserted in her testimony that
Respondent's recordkeeping was inadequate because its invoices were
incomplete, the Government did not offer any of the invoices to show why.
Moreover, while the Government obtained numerous other invoices which it used
to calculate Respondent's sales levels during the period of January through
March 2007, here again, it does not cite any of these invoices as proof of its
contention that Respondent's recordkeeping is inadequate. The allegation is
thus rejected.
As for the allegation that Respondent was selling excessive quantities of
combination ephedrine products, even if only a small percentage of the
commerce in non-prescription drugs occurs at non- traditional retailers,
neither the testimony nor the written declaration of the Government's expert
adequately explains how he calculated the average monthly sales figure or the
statistical probability that various sales levels were consistent with
legitimate demand. Moreover, in his testimony, the expert acknowledged that
there was "a missing link in this presentation'' with respect to his
determination that combination ephedrine products comprise eight percent of
the sales of cough and cold products.
In sum, the expert did not provide the underlying documentation necessary
to support this critical component of his testimony. Not only did this deny
Respondent a meaningful opportunity to challenge the expert's conclusion, see
Resp. Proposed Findings of Fact and Conclusions of Law at 23; as I have
previously held, it also precludes a finding that the expert's conclusions are
supported by substantial and reliable evidence. See 5 U.S.C. 556(d); see also
Novelty, 73 FR at 52693-94. The Government's allegation that Respondent was
selling excessive quantities of combination ephedrine products (as well as its
contention that Respondent does not maintain effective controls against
diversion) must therefore be rejected.
Factor Two--Respondent's Compliance With Applicable Laws
At the hearing, the Government was allowed to elicit testimony-- over
Respondent's objection--of the DI who performed the 2005 inspection that
Respondent sold love roses/glass roses, an item which the Government maintains
is drug paraphernalia because it is used to smoke illicit drugs. Moreover,
during its cross-examination of Bubba Marshall, the Government obtained his
admissions that (1) he had heard that this item had been used as drug
paraphernalia, and (2) that Respondent had continued to sell the product. Mr.
Marshall also maintained, however, that the item had other legitimate uses,
such as as a novelty item.
The Government did not, however, allege in the Order to Show Cause that
Respondent had sold these items and had violated either Federal or State law
in selling them. The Government likewise did not disclose in its pre-hearing
statement that Respondent's sales of this product would be at issue in this
proceeding. Finally, the Government failed to disclose at any time prior to
the hearing that it intended to put this conduct in issue. As explained below,
consistent with fundamental principles of Due Process and the requirements of
the Administrative Procedure Act, the Government's failure to provide any
notice that this allegation would be litigated precludes the Agency's
consideration of the issue.
One of the fundamental tenets of Due Process is that Agency must provide a
Respondent with notice of those acts which the Agency intends to rely on in
seeking the revocation of its registration so as to provide a full and fair
opportunity to challenge the factual and legal basis for the Agency's action.
See NLRB v. I.W.G., Inc., 144 F.3d 685, 688-89 (10th Cir. 1998); Pergament
United Sales, Inc., v. NLRB, 920 F.2d 130, 134 (2d Cir. 1990). See also 5
U.S.C. 554(b) ("Persons entitled to notice of an agency hearing shall be
timely informed of * * * the matters of fact and law asserted.'').
To be sure, " `[p]leadings in administrative proceedings are not
judged by the standards applied to an indictment at common law.' '' Citizens
State Bank of Marshfield v. FDIC, 751 F.2d 209, 213 (8th Cir. 1984) (quoting
Aloha Airlines v. Civil Aeronautics Bd., 598 F.2d 250, 262 (D.C. Cir. 1979)).
[[Page 36750]]
Thus, the failure of the Government to disclose an allegation in the Order
to Show Cause is not dispositive and an issue can be litigated if the
Government otherwise timely notifies a Respondent of its intent to litigate
the issue.
The Agency has recognized, however, that "the parameters of the
hearing are determined by the prehearing statements.'' Darrell Risner, D.M.D.,
61 FR 728, 730 (1996). Accordingly, in Risner, the Agency held that where the
Government has failed to disclose "in its prehearing statements or
indicate at any time prior to the hearing'' that an issue will be litigated,
the issue cannot be the basis for a sanction. 61 FR at 730. See also Nicholas
A. Sychak, d/b/a Medicap Pharmacy, 65 FR 75959, 75961 (2000) (noting that the
function of pre-hearing statements is to provide Due Process through
"adequate * * * disclosure of the issues and evidence to be submitted in
* * * proceedings''); cf. John Stafford Noell, 59 FR 47359, 47361 (1994)
(holding that notice was adequate where allegations were not included in Order
to Show Cause but "were set forth in the Government's Prehearing
Statement'').
As noted above, the Show Cause Order contained no allegations pertaining to
Respondent's sales of the love roses and this item's use as drug
paraphernalia. Moreover, in its prehearing statement, the Government did not
disclose that it intended to elicit testimony from the DI to this effect. The
Government thus failed to provide adequate notice to Respondent that its sales
of this product would be at issue in the proceeding and it was error for the
ALJ to allow the testimony in the Government's case. See Risner, 61 FR at 730.
Even if it was properly within the scope of cross examination (in light of
Mr. Marshall's testimony as to what products Respondent sold) for the
Government to question Mr. Marshall and obtain his admission that he sold love
roses, the fundamental error remains. As explained above, the function of
notice is to provide Respondent with a "full and fair opportunity'' to
litigate both the factual and legal basis of the Government's theory. While
the issue of whether an allegation "has been fully and fairly litigated
is so peculiarly fact-bound as to make every case unique,'' Pergament, 920
F.2d at 136, "the simple presentation of evidence important to an
alternative [allegation] does not satisfy the requirement'' that Respondent be
afforded with a full and fair opportunity to litigate the alternative
allegation. I.W.G., 144 F.3d at 688 (quoting NLRB v. Quality C.A.T.V., Inc.,
824 F.2d 542, 547 (7th Cir. 1987) (other citation omitted)). Moreover, it is
settled that where the Government's case "focus[es] on another issue and
[the] evidence of [an] uncharged violation [is] `at most incidental,' '' the
Government has not satisfied its constitutional obligation to provide a full
and fair opportunity to litigate the issue and it cannot rely on the
incidental issue as the basis for imposing a sanction. Pergament, 920 F.2d at
136 (quoting NLRB v. Majestic Weaving Co., 355 F.2d 854, 861-62 (2d Cir.
1966)).
Significantly, while the Government contends in its post-hearing brief that
"Respondent has continued to sell drug paraphernalia even after he was
told that the `love roses' he was selling were used to smoke drugs,'' Gov. Br.
at 12, the Government does not cite either the Drug Paraphernalia statute,
which sets forth both criteria for determining whether an item constitutes
drug paraphernalia and lists numerous items which constitute per se drug
paraphernalia, see 21
U.S.C. 863(d) & (e), or Supreme Court precedent interpreting the
statute and setting forth the legal standard for determining whether an item,
which may have multiple uses, constitutes drug paraphernalia. See Posters `N'
Things, Ltd., v. United States, 511 U.S. 513, 521 n.11 (1994). Notably, in
Posters `N' Things, the Supreme Court explained that the Drug Paraphernalia
statute creates two categories of drug paraphernalia: those that are designed
by the manufacturer for use with illicit drugs, id. at 518, and those items
which are drug paraphernalia based on the item's "likely use'' in the
community. Id. at 521.
The Government's brief offers no explanation as to whether it maintains
that the item constitutes drug paraphernalia because it is included on the
list of items constituting per se paraphernalia, whether it believes the item
was designed by its manufacturer for use as paraphernalia, or whether it
believes the item is paraphernalia because its "likely use'' in the
community is to ingest drugs. The Government's failure to set forth its legal
theory indisputably denied Respondent a meaningful opportunity to present
argument to the contrary.
It is acknowledged that Respondent was able to present some evidence on the
issue when Mr. Marshall testified on re-direct that the item had an alternate
use as a novelty item and that none of his customers had ever told him that
the item was being used for drug paraphernalia. Nonetheless, the Government's
failure to raise this issue until the hearing itself denied Respondent the
opportunity to present other evidence regarding the various factors which are
relevant in the determination of whether an item constitutes drug
paraphernalia. See 21
U.S.C. 863(e) (providing a non-exclusive list of eight factors to be
considered including "the existence and scope of legitimate uses of the
item in the community,'' and "expert testimony concerning its use'').
Of further significance, the focus of the Government's case was
Respondent's alleged excessive sales of ephedrine products and not its sales
of the love roses. Indeed, in its brief, the Government does not argue that
Respondent's sales of the love roses are themselves violations of Federal law
which are properly considered in assessing its compliance with applicable
laws. See generally Gov. Br. at 10-13; see also 21
U.S.C. 823(h)(2). Rather, the Government appears to argue that the
evidence establishes that Respondent's owners are irresponsible. Gov. Br. at
12 (arguing that Respondent's sales of the love roses are "a clear sign
that [its] owners are indifferent to the methamphetamine problem in this
country''). The issue was "at most incidental'' to the Government's case.
Pergament, 920 F.2d at 136 (other citations omitted); see also Majestic
Weaving, 355 F.2d at 861- 62. Respondent has therefore been denied a full and
fair opportunity to litigate the issue; to consider the evidence as an
independent ground to revoke Respondent's registration or impose even a lesser
sanction would violate the Due Process Clause and the Administrative Procedure
Act.
In sum, the Government has failed to prove by substantial evidence its
contention that Respondent does not maintain effective controls against
diversion and was selling excessive quantities of ephedrine products. And
because the Government failed to provide adequate and timely notice that
Respondent's sales of love roses would also be at issue, there is no lawful
basis for concluding that Respondent has committed acts which render its
registration "inconsistent with the public interest.'' 21
U.S.C. 824(a)(4). The Order to Show Cause must therefore be dismissed.
Order
Pursuant to the authority vested in me by 21
U.S.C. 823(h) & 824(a), as well as 28 CFR 0.100(b) & 0.104, I
order that the application of CBS Wholesale Distributors for renewal of its
DEA Certificate of Registration be, and it hereby is, granted. I further order
that the Order to Show Cause issued to CBS
[[Page 36751]]
Wholesale Distributors be, and it hereby is, dismissed. This Order is
effective immediately.
Dated: July 16, 2009.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E9-17688 Filed 7-23-09; 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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