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Spirit Pharmaceuticals, L.L.C., c/o Novelty, Inc; Denial of
Request for Hearing
FR Doc E7-16936 [Federal Register: August 28, 2007 (Volume 72, Number
166)] [Notices] [Page 49316-49319] From the Federal Register Online via
GPO Access [wais.access.gpo.gov] [DOCID:fr28au07-141]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 07-36]
Spirit Pharmaceuticals, L.L.C., c/o Novelty, Inc; Denial of
Request for Hearing
On June 22, 2007, I, the Deputy Administrator of the Drug Enforcement
Administration, issued an Order to Suspend Shipment to Spirit
Pharmaceuticals, L.L.C., of Fairless Hills, Pennsylvania. See 21
U.S.C. 971(c). The Order suspended Spirit's proposed importation of
2,000 kilograms of Ephedrine Hydrochloride to be purchased from Emmellen
Biotech Pharmaceuticals, LTD., of Mumbai, India. Order at 1.
The factual basis of the Order was that Spirit, a registered
importer, had identified AAA Pharmaceuticals, Inc. (AAA), as the
customer, on the Import Declaration (DEA Form 486) that it filed. Id. at
2. DEA personnel subsequently contacted AAA and determined that the
ephedrine was to be used to manufacture tablets that would be sold to
Novelty, Inc. Id. at 2.
The Order related that ephedrine is a list I chemical, which while
having a legitimate use as a bronchodilator, is also a precursor
chemical which is used in the illicit manufacture of methamphetamine, a
schedule II controlled substance. Id. The Order also related that DEA
has found that non-traditional (or gray-market) retailers, which include
such entities as gas stations, convenience stores, mini-marts, and
liquor stores, "purchase and sell ephedrine * * * OTC products in
quantities that exceed what would be necessary to meet legitimate
demand'' at these establishments, and that the products "are often sold
to persons for use in the illicit manufacture of methamphetamine.'' Id.
Finally, the Order related that "AAA manufactures and Novelty
distributes'' ephedrine products which are "not widely-advertised and
are distributed to 'non-traditional' retail outlets * * * such as
convenience stores and gas stations.'' Id. at 3. Based on DEA's
experience with similar ephedrine products which were distributed to
non-traditional retailers, I found that "the proposed importation of
ephedrine may be diverted to the clandestine manufacture of controlled
substances.'' Id.
The Order notified Spirit that it could request a hearing by filing a
written request within thirty days of its receipt of the Order, and that
if it failed to do so, it would be deemed to have waived its right to a
hearing. Id. Spirit did not, however, request a hearing. Nor did AAA.
Instead, on July 5, 2007, Novelty filed a request for a hearing
asserting that it is "a regulated person to whom an order applies''
under 21 U.S.C. 971(c)(2). ALJ Memorandum at 1; see also Ltr. of
Novelty's Counsel (June 28, 2007), at 1. Novelty also contended that it "is
directly harmed, both in its property and liberty interests,'' and that
it "has an independent due process right to a hearing under the Fifth
Amendment * * * regardless of whether Spirit also requests a hearing on
the order of suspension.'' Ltr. of Novelty's Counsel at 1. Id.
Upon receipt of Novelty's letter, the matter was assigned to
Administrative Law Judge (ALJ) Gail Randall, who initiated pre-hearing
procedures. Shortly thereafter, the Government filed a motion to deny
Novelty a hearing on various grounds including that it is a downstream
distributor and thus not entitled to a hearing under the statute. See
Mot. to Deny Novelty, Inc. an Adjudicatory Hearing Under 21 U.S.C.
971(c)(2) (hereinafter, Mot. to Deny).
Upon review of the Government's motion, the ALJ concluded "that the
usual manner of handling an administrative hearing is not appropriate
here.'' ALJ Memorandum at 2. Noting that "[t]he entity asking for a
hearing, Novelty, is not the entity addressed in the Order to Suspend
Shipment, Spirit Pharmaceuticals,'' and that the Government had objected
to granting Novelty a hearing on the validity of the suspension order,
the ALJ concluded that "the designation of this matter for a hearing is
not clear.'' Id. The ALJ thus transmitted the issue to me for
resolution. Id. at 2-3.
For the reasons set forth below, I conclude that Novelty is not "a
regulated person to whom an order applies under [21 U.S.C. 971(c)(1)].''
21 U.S.C. 971(c)(2). Accordingly, I deny Novelty's request for a hearing
to challenge the suspension order. I further order that the proceedings
currently pending before the ALJ be terminated.
Discussion
Under 21
U.S.C. 971(a), "[e]ach regulated person who imports * * * a listed
chemical shall notify the Attorney General of the importation * * * not
later than 15 days before the transaction is to take place.'' (emphasis
added).\1\ In
[[Page 49317]]
addition, in subsection (c)(1), Congress granted the Attorney General
the authority 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.'' Id. Sec.
971(c)(1). Subsection (c)(1) further provides that "[f]rom and after the
time when the Attorney General provides written notice of the order * *
* to the regulated person, the regulated person may not carry out the
transaction.'' Id.
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\1\ In subsection (b), Congress directed that the
Attorney General issue regulations "for circumstances in which the
requirement of subsection (a) * * * does not apply to a transaction
between a regulated person and a regular customer or to an importation
by a regular importer.'' 21 U.S.C. 971(b)(1).
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In the event that the Agency orders the suspension of an importation,
Congress provided that "[u]pon written request to the Attorney General,
a regulated person to whom an order applies under paragraph(1) is
entitled to an agency hearing on the record in accordance with''
subchapter II of the Administrative Procedure Act. Id. Sec. 971(c)(2)
(emphasis added). It is this provision which is at issue in this
proceeding.
Relying on PDK Labs. v. Reno, 134 F. Supp.2d 24 (D.D.C. 2001),
Novelty contends that as a wholesale distributor, it "is a 'regulated
person' within the meaning of 21
U.S.C. 802(38) and, as such, is entitled to a hearing under''
subsection (c)(2). Novelty's Resp. to Mot. to Deny at 7. Novelty also
maintains that it "is a party within the 'zone of interests' designedly
protected by'' the hearing provision and thus entitled to a hearing on
this alternative ground. Id. Relatedly, Novelty contends that to deny it
a hearing would violate the rule of law because PDK Labs. v. Reno "remain[s]
the law governing this agency's construction of the hearing provision,''
id. at 5, and that "DEA possesses no lawful power to act against the
holding of the District Court in'' that case. Id. at 6.
In PDK Labs. v. Reno, the district court addressed the question of
whether a manufacturer (PDK) was entitled to a hearing to challenge this
Agency's refusal to issue a Letter of No Objection (LONO) to Indace,
Inc., an importer which had notified the Agency of its intent to import
bulk ephedrine on behalf of PDK. 134 F.Supp.2d at 28. When the Agency
refused to grant the LONO, PDK filed suit raising various claims
including that the Agency had violated the Administrative Procedure Act
and had "failed to perform its statutory duties.'' \2\ Id. at 27.
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\2\ At the time PDK filed suit, Indace had indicated
that it planned to pursue the matter by having DEA issue a suspension
order. 134 F.Supp.2d at 28. The day after PDK filed suit, Indace
notified the Agency that it considered the matter as being "solely
between'' DEA and PDK and that it no longer intended to pursue the
matter. Id. DEA then notified Indace that it considered the request
for importation to have been withdrawn. Id.
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In the course of discussing whether PDK had standing to bring its APA
claims, the district court addressed the Government's arguments that PDK
was "not an intended beneficiary of Sec. 971's procedures,'' and that "the
interests underlying [its] claims [were] not within the 'zone of
interests' protected by'' the statute. Id. at 29-30. In rejecting these
arguments, the court began by noting that under 21 U.S.C. 802(38), "'regulated
persons' included manufactures [sic], distributors, importers, and
exporters of listed chemicals,'' and that "as both a manufacturer and
distributor PDK is a regulated person within the meaning of Sec. 802.''
Id. at 30. Observing that "[s]ection 971 uses both the terms 'importers'
and 'regulated persons,' '' the court reasoned that "Congress easily
could have limited the right to a hearing in Sec. 971(c)(2) exclusively
to 'importers to whom an order applies,' but chose not to do so--instead
extending this right to 'regulated persons.' '' Id. The court then
concluded that "[t]he specific use of the term 'regulated persons' in
Sec. 971(c)(2) at least suggests that Congress intended to permit a
regulated entity to whom an order applies--including a manufacturer like
PDK--to obtain judicial review.'' Id. (emphasis added) The court
buttressed its reasoning asserting that this Agency "itself previously
adopted a similar reading in Yi Heng Enterprises Dev. Co., 64 FR 2234,
2235 (1999).'' Id. While noting that "Yi Heng arose in a different
context * * * because it involved the interests of two importers rather
than an importer and a manufacture [sic],'' the court noted that the "decision
recognized that 'the statute provides the opportunity for a hearing to "a
regulated person to whom an order (suspending shipment) applies,'' not
necessarily the person to whom the order was issued.' '' Id.
After discussing the zone of interests test for review under the APA--a
separate inquiry from that of who is entitled to an agency hearing under
the statute--the court further concluded that "the phrase 'regulated
person to whom any [sic] order applies' is evidence that a manufacturer
affected by a suspension order is protected under Sec. 971's review
provision.'' Id. at 31. The court also noted that because PDK was
specifically listed on the DEA Form 486 as "the intended recipient of''
the proposed importation and that the suspension order "hinge[d] largely
on the identity of the eventual purchaser,'' PDK was "entitled to a
hearing.'' Id.
Most of the district court's analysis of the hearing provision
occurred in the course of its discussion of whether PDK had standing
under the APA. The court nonetheless clearly incorporated this reasoning
in granting PDK's motions for injunctive and declaratory relief. See id.
at 36 ("PDK is a 'regulated person to whom an order applies' within the
meaning of Sec. 971. As such, it is entitled to an expedited hearing of
formal suspension orders that apply to it.''). See also id. at 38. DEA
did not appeal the court's decision, which ordered the Agency to either
issue a LONO or a suspension order. Id. Instead, the Agency complied
with the court's order by issuing orders suspending the importations.
See Indace, Inc., c/o Seegott, Inc., 67 FR 77805 (2002). Thereafter, PDK
requested a hearing and "DEA complied with the court's ruling'' by
granting PDK a hearing. Id.
The Government disagrees with Novelty as to the precedential weight
of PDK Labs. v. Reno. First, the Government argues that Yi Heng, upon
which the district court relied, does not support granting Novelty a
hearing because there, both entities were deemed to be importers and
thus the case did not address "the question of whether someone other
than an importer could obtain a hearing.'' Motion to Deny at 9. The
Government further argues that "Novelty is a step further removed from
the importation than the plaintiff in PDK Labs.,'' and that to grant a
hearing "to any downstream regulated person affected by a suspension
order is a considerable expansion of the flawed reasoning in PDK Labs.
v. Reno.'' Mot. to Deny at 10. Relatedly, the Government contends that "under
Novelty's reasoning, any one of [its] thousands of customers,'' which
are also "regulated persons'' under the statute, "could receive [a
hearing] regardless of whether Spirit, AAA, or even Novelty was
interested in pursuing the importation.'' Id. at 11.
Having considered the parties' arguments, I agree with the Government
that PDK Labs v. Reno is not controlling authority in this matter. The
statutory scheme, reasonably read, grants a hearing only to those who
are properly deemed to be importers. While in some circumstances, a
manufacturer may also be deemed to be an importer because it is the real
party in interest in an import transaction, Novelty is neither an
importer nor a manufacturer. Rather, it is the purchaser and distributor
of a new and different product combining the ephedrine with guaifenesin,
which has been manufactured in the United States.
[[Page 49318]]
To be sure, a distributor such as Novelty falls within the definition
of a "regulated person.'' 21 U.S.C. 802(38). In subsection (c)(2),
however, Congress did not extend the hearing right to all "regulated
persons.'' Rather, it limited the right to only "a regulated person to
whom an order applies under paragraph(1).'' Id. Sec. 971(c)(2) (emphasis
added). And as paragraph (1) (subsection (c)(1)) makes plain, the "regulated
person to whom an order applies'' is the regulated person that is
seeking to "carry out the transaction'' of the importation and which is
the same regulated person that has previously notified the Agency of the
proposed transaction. Id. Sec. 971(c)(1) (emphasis added). See also id.
Sec. 971(a) ("Each regulated person who imports * * * a listed chemical
shall notify the Attorney General of the importation * * * not later
than 15 days before the transaction is to take place.'') (emphasis
added). As section 971's text and structure demonstrate, an entity's
entitlement to a hearing is not based solely on its status as a "regulated
person,'' but rather, as a "regulated person'' seeking to carry out an
import transaction.
As explained above, the transaction which is the subject of the
suspension order is the importation of bulk ephedrine by Spirit
Pharmaceuticals from Emmellen Biotech Pharmaceuticals of Mumbai, India.
Novelty is not a party to this transaction.
My predecessor's decision in Yi Heng (which the district court relied
on in PDK) provides no comfort to Novelty. In Yi Heng, my predecessor
apparently adopted the ALJ's interpretation that "the statute does not
specify that only one party in a transaction is entitled to a hearing. *
* * [T]he statute provides the opportunity for a hearing to 'a regulated
person to whom an order (suspending shipment) applies,' not necessarily
the person to whom the order was issued.'' 64 FR at 2235 (int.
quotations omitted).
In the decision, my predecessor relied on the Agency's regulation
which defines a "chemical importer'' as "a regulated person who, as "the
principal party in interest in the import transaction'', has the power
and responsibility for determining and controlling the bringing in or
introduction of the listed chemical into the United States.'' Id.
(quoting 21
CFR 1300.02(b)(8)). Because title to the chemical had passed to Yi
Heng's customer "before the chemical entered the United States,'' the
customer was also "a regulated person to whom the suspension order
applies.'' Id.
Unlike Yi Heng's customer, Novelty is not "the principal party in
interest in the import transaction.'' 21 CFR 1300.02(b)(8). Indeed, as
explained above, it is not even a party to the import transaction.
Novelty thus stands on a different footing than a manufacturer (such as
PDK did) which lacks an import registration and which must therefore
import by entering into an agency relationship with a registered
importer.\3\ Novelty does not have "the power and responsibility for
determining and controlling the bringing in or introduction of the
listed chemical into the United States.'' Id. As the Government points
out, even were Novelty to prevail at a hearing, it cannot "compel Spirit
to import the ephedrine.'' Mot. to Deny at 8. Nor does Novelty identify
any consequence that would attach to it were Spirit to violate the
suspension order. See 21
U.S.C. 960(d).
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\3\ As our regulation makes clear, a manufacturer is
an importer only when the registered importer acts as the
manufacturer's agent in importing the chemical and the manufacturer is
the principal party in interest in the transaction. When an importer
proposes to import a listed chemical for its own account, its future
customers are not importers.
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Furthermore, here, in contrast to the PDK case, not even the
manufacturer (AAA) filed a request for a hearing. Moreover, under
Novelty's construction of the statute, any one of a manufacturer's
wholesale-distributor customers (and some manufacturers have numerous
wholesaler customers) would be entitled to a hearing even if the
manufacturer had decided that it no longer desired to pursue the
importation and manufacture the product. I will not adopt a construction
of the statute that would lead to such an absurd result.\4\ Cf. Griffin
v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982).
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\4\ Novelty also argues that importers "have little
interest or incentive to do battle in a hearing with DEA,'' and that "the
importer has no way of discerning the intricacies of its client's
business.'' Novelty's Resp. at 8 n.3. Novelty ignores, however, that
in an agency relationship, the "principal has the right to control the
conduct of the agent with respect to matters entrusted to him.'' 1
American Law Institute, Restatement (Second) of Agency Sec. 14, at 60
(1958). Presumably, the principal's right to control its agent should
be sufficient to induce the agent to request a hearing, at which the
manufacturer would intervene and litigate the basis for the order.
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The text and structure of section 971 thus provide ample evidence
that Congress intended to grant a hearing only to those regulated
persons who are principal parties to a proposed import transaction.
Because Novelty is not such a party but rather the purchaser of a new
and different product, which has been manufactured in the United States,
it is not "a regulated person to whom an order applies.'' 21
U.S.C. 971(c)(2). It is therefore not entitled to a hearing.\5\
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\5\ For the same reasons, I also reject Novelty's
contention that it is entitled to a hearing because it is within the
zone of interests protected by section 971.
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Novelty further argues that to deny it a hearing would deprive it of
liberty and property interests in violation of the Due Process Clause.
Novelty's Resp. at 16-17. Relatedly, Novelty argues that under the
avoidance doctrine, DEA must construe the statute to provide it with a
hearing.
Novelty has not established that the suspension order has deprived it
of either a liberty or property interest. Novelty maintains that it "has
a liberty interest in avoiding damage to its reputation * * * that will
result from the stigmatizing suspension DEA creates by its effective
import ban.'' Novelty Resp. at 17. This contention is easily dismissed
because in Paul v. Davis, 424 U.S. 693, 712 (1976), the Supreme Court
held that one's "interest in reputation'' is "neither 'liberty' nor 'property'
'' under the Due Process Clause.
Novelty further asserts that "the stigmatizing effects'' of the
suspension order will "preclude[ it] from obtaining 10-15% of its
revenue.'' Novelty Resp. at 17. The Suspension Order does not, however,
prevent Novelty from obtaining product from any one of the numerous
other manufacturers of these products and thus does not preclude Novelty
"from pursuing its core business.'' PDK Labs. v. Reno, 134 F.Supp.2d at
33. As for Novelty's claimed property interest, the PDK court held that "[n]othing
in the overall scheme of the [Chemical Diversion and Trafficking Act]
justifies the finding that [a manufacturer] has an entitlement to import
List I chemicals.'' Id. at 33. The same is equally true with respect to
a distributor. I therefore conclude that construing the statute to deny
Novelty a hearing--as Congress intended--does not raise any
constitutional question.\6\
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\6\ Novelty also argues that "DEA's refusal to grant
[it] a hearing violates the DEA Administrator's oath of office to
uphold the Constitution and the laws of the United States,'' Novelty
Resp. at 19, and kindly reminds me that "[v]iolation of the oath is an
offense punishable by judicial action.'' Id. at 20. Novelty can be
assured that both I and the Administrator fully appreciate our
obligation to faithfully discharge the duties of our offices.
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Order
Pursuant to the authority vested in me by 28 CFR 0.100(b) &
0.104, I hereby order that the request of Novelty, Inc., for a hearing
to challenge the Order to Suspend Shipment issued to Spirit
Pharmaceuticals, Inc., be, and it hereby is, denied. I further order
that the proceedings in this matter be, and they
[[Page 49319]]
hereby are, terminated. This Order is effectively immediately.
Dated: August 17, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E7-16936 Filed 8-27-07; 8:45 am]
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