[Federal Register: December 11, 2002 (Volume 67, Number 238)]
[Notices]
[Page 76195-76198]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11de02-56]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Xtreme Enterprises, Inc.: Denial of Request for Registration To
Handle List I Chemicals
I. Background
On December 15, 2000, Xtreme Enterprises, Inc., (Respondent)
applied to be registered with the Drug Enforcement Administration (DEA)
as a distributor of the list I chemical ephedrine. After an
investigation by DEA investigators, on April 6, 2001, the Deputy
Assistant Administrator, Office of Diversion Control, issued an Order
to Show Cause why DEA should not deny Respondent's application. On May
2, 2001, in response to the OSC, Rhonda J. Bryngelson, the owner of
Respondent, requested and administrative hearing.
The requested hearing was held in Milwaukee, Wisconsin on November
7, 2001, before Administrative Law Judge Mary Ellen Bittner. At the
hearing, each party called witnesses to testify and introduced
documentary evidence. After the hearing, each party submitted Proposed
Findings of Fact, Conclusions of Law and Argument. On April 3, 2002,
the Administrative Law Judge issued her Recommended Rulings, Findings
of Fact, Conclusions of Law and Decision, recommending that the Deputy
Administrator grant Respondent's application for registration. Neither
party filed exceptions to the Administrative Law Judge's Findings.
On May 7, 2002, the Administrative Law Judge certified and
transmitted the record to the Deputy Administrator of DEA. The record
included the Recommended Rulings, Findings of Fact, Conclusions of Law
and Decision of the Administrative Law Judge, the findings of fact and
conclusions of law proposed by all parties, all of the exhibits and
affidavits, and the transcript of the hearing sessions.
II. Final Order
The Deputy Administrator does not adopt the Findings of Fact,
Conclusions of Law, and Decision of the Administrative Law Judge. The
Deputy Administrator has carefully reviewed the entire record in this
matter, as defined above, and hereby issues this final rule and final
order prescribed by 21 CFR 1316.67 and 21 CFR 1304.46, based upon the
following findings of fact and conclusions.
At the hearing, John N. Uncapher, then chief of the Domestic
Chemical Control Unit at DEA, credibly testified that the primary
objective of his unit is to reduce or curtail the diversion of listed
chemicals and other clandestine lab supplies, register applicants if
their registration is consistent with the public interest and stop
imports of listed chemicals where there is reason to believe that the
imports may be diverted to the unlawful manufacture of controlled
substances. After the enactment of the Chemical Diversion and
Trafficking Act in 1988 (CDTA), the law imposed reporting, record
keeping and import/export notification requirements for regulated
transactions in controlled chemicals. The law only applied to bulk
ephedrine, however. The law excepted single-entity over the counter
(OTC) ephedrine products.
Mr. Uncapher also testified that ephedrine has a therapeutic use in
both OTC and legend drug products. Ephedrine is lawfully marketed under
the Federal Food, Drug and Cosmetic act for OTC use as a bronchodilator
used in the treatment of asthma. Ephedrine is also available OTC in
combination with other active ingredients. As a legend drug (i.e.
dispensed pursuant to a physician's order or prescription,) ephedrine
is used in injectable form in hospitals as part of an anethesiology
kit. Ephedrine has the beneficial effect of increasing low pressure
very rapidly in the event of hypotensive crisis.
By the late 1980's traffickers and clandestine lab operators
discovered the ease with which ephedrine could be purchased in large
quantities and converted to methamphetamine. In 1994, however, the
Domestic Chemical Diversion Control Act of 1993 (DCDCA) removed the
record keeping and reporting exemption for single entity ephedrine and
required registration of distributors, importers and exporters of all
ephedrine products and other list I chemicals.
The passage of the DCDCA led to the increased diversion of
pseudoephedrine tablets for the illicit production of methamphetamine.
This led to the enactment of the Comprehensive Methamphetamine Control
Act of 1006 (MCA), which expanded regulatory control of lawfully
marketed drug products containing ephedrine, pseudoephedrine, and
phenypropanolamine.
Mr. Uncapher also testified that he had reviewed the file
concerning Respondent's application. The file revealed that
Respondent's owner informed DEA that the Respondent would distribute
ephedrine products to entities that are considered part of the ``non-
traditional market'' (i.e., gas stations and convenience stores). Mr.
Uncapher also testified that one of Respondent's proposed suppliers of
ephedrine is Proactive Labs, Inc., a DEA registered distributor of list
I chemicals located in Austell, Georgia. On November 9, 1999 and again
on January 24, 2001, Proactive Labs was the recipient of warning
letters from DEA informing the company that list I chemicals supplied
by the firm had been associated with the illicit production of
methamphetamine in various parts of the United States. Mr. Uncapher
concluded that Respondent's ephedrine products will likely be diverted
to illicit use, and the Respondent would therefore become a major
source of listed chemicals for illicit traffickers of methamphetamine.
Guy J. Hargreaves testified by written declaration that he is a
Special Agent at DEA and has had considerable experience in the
investigation of clandestine methamphetamine laboratories. He routinely
conducts nationwide methamphetamine and clandestine laboratory safety
presentations to civil groups, anti-drug coalitions, and law
enforcement groups on safety awareness, chemical hazards, and the
latest intelligence in clandestine laboratory investigations. Mr.
Hargreaves testified that until the early 1990's, the methamphetamine
trade was fragmented into small organizations dominated by outlaw
motorcycle gangs. Afterwards, organized methamphetamine traffickers
from Mexico began to monopolize the production and delivery of
methamphetamine to make an inexpensive and highly abusable product. An
expanded population of methamphetamine abusers quickly realized the
potential for easily producing methamphetamine for personal or local
use by using the ephedrine/pseudoephedrine reduction technique. As a
result, the proliferation of smaller laboratories has reached epidemic
proportions, on both the west coast and in several Midwestern states.
S/A Hargreaves further testified that most drugs in illicit traffic are
products of illicit processing or synthesis. In the methamphetamine
trade, chemicals are often accumulated and processed by cooks in small
scale production labs or by organized crime groups which operate much
larger scale clandestine laboratories.
Mr. Hargreaves also testified that clandestine laboratory operators
employ a variety of methods to conceal from law enforcement their
purchases of
[[Page 76196]]
chemicals and equipment. One common technique is to use unwitting
individuals or runners to purchase the chemicals or equipment needed
for the laboratory. Mr. Hargreaves also explained the four methods most
commonly used in the illicit manufacture of methamphetamine. All four
of the techniques utilize 1-ephedrine or d-pseudoephedrine as the
precursor chemical. Mr Hargreaves further testified that the number of
clandestine laboratory seizures has seen a spiraling increase in recent
years. DEA participation in methamphetamine lab seizures has increased
from 263 in 1994 to more than 2000 in 1999. He also discussed the
hazards to DEA officials in dismantling of clandestine laboratories and
great expense to DEA in disposing of the hazardous materials often
found there. Interviews that Mr. Hargreaves has conducted with numerous
narcotics officers across the nation indicate that the vast majority of
these laboratories utilized pseudoephedrine and/or ephedrine from
tablets and pills, not bulk powder sources.
Douglas A. Snyder, Drug Science officer within the Drug and
Chemical Evaluation Section at DEA, credibly testified by declaration
that there are 35 chemicals that are regulated under the Controlled
Substance Act's chemical control provisions. The major part of DEA's
regulatory concern is with the listed chemicals ephedrine,
psuedoephedrine and phenylpropanolamine. All three have therapeutic
uses in both over the counter and legend drug products. Methamphetamine
also has therapeutic uses, but it also has a high abuse potential. Dr.
Snyder further testified that the production of methamphetamine from
ephedrine or pseudoephedrine tablets can be accomplished via a simple
one step reaction and can be accomplished with little or no chemistry
expertise. The controlled substances produced from these chemicals,
methamphetamine and amphetamine, have a high abuse potential. The
public health consequences of the manufacture, trafficking and abuse of
these substances are well know and documented.
Nancy Coffey, a staff coordinator in DEA's Office of Diversion
Control, credibly testified by declaration that recent studies show
that illicit manufacturers of methamphetamine have returned to the use
of ephedrine in the manufacturing process. This probably has occurred
as a result of DEA's concentration on the diversion of pseudoephedrine.
DEA enforcement efforts are designed to combat the distribution by non-
traditional establishments of list I chemical products, commonly
referred to as ``gray market'' products. The distribution chain for the
gray market products most commonly consists of small retail
establishments, including, but not limited to, liquor stores, head
shops, mini-marts, beauty parlors, convenience stores and video rental
stores that purchase and sell ephedrine and pseudoephedrine over-the-
counter products in quantities that far exceed what would be necessary
to meet legitimate demand. Ms. Coffey concluded that such products will
likely be diverted to illicit use, and Respondent could therefore
become a major source of listed chemicals for illicit traffickers of
methamphetamine.
Mark J. Rubbins testified by declaration that he is a Staff
Coordinator in the Domestic Control Unit of DEA. He explained that DEA
distinguishes the distribution practices of what is referred to as the
``traditional'' market versus the ``non-traditional'' market.
Traditional outlets are typically large chain grocery stores such as
Giant, Safeway and Food Lion, or nationally recognized pharmacy chains
like Rite Aid, Eckerts and CVS. The traditional products are also sold
in larger convenience stores such as 7-11 and Dairy Mart, as well as
large retail outlets such as Walmart and K-Mart. Mr. Rubbins further
testified that in response to DEA enforcement efforts, more and more
traditional firms have discontinued their marketing of 60 mg.
pseudoephedrine and similar OTC medications in bottle sizes with a
single-active ingredient. The traditional manufacturers have also begun
packaging their OTC products in small quantities (i.e., blister packs,)
and have maintained a 30 milligram strength for pseudoephedrine
products. While even smaller blister packs are increasingly diverted to
illicit uses, they are not as attractive to traffickers as OTC products
packaged in large bottle sizes, with a single active ingredient. Mr.
Rubbins also testified that Respondent would be part of what DEA
considers the non-traditional market, in that it is a retail
distributor that specializes in the sale of sundry items, not OTC
pharmaceutical products. Based upon his review of Respondent's file, it
appears that some of Respondent's customers have already requested that
the firm carry 25 milligram tablets in 60 count bottles. Mr. Rubbins
found this factor significant in that the customers at issue requested
the larger packaging that is not normally seen in traditional retail
establishments. This led Mr. Rubbins to the conclusion that Respondent
plans to market its products to the non-traditional market, and would
therefore become a major source of listed chemicals for illicit
traffickers of methamphetamine.
Rhonda Bryngelson, Respondent's owner, testified credibly on behalf
of the Respondent. She is high school educated, and has not taken any
business courses. She has no prior experience handling list I
chemicals. Mrs. Bryngelson testified further that she is the sole owner
of the Respondent and has been in business since January 2001. Her
business is primarily engaged in the sale of various novelty items. She
previously worked for her brother-in-law's company Quality Snacks,
where she delivered beef jerky for the company. Quality Snacks did not
sell ephedrine products. While working for her brother-in-law, Mrs.
Bryngelson also made deliveries for Quality Snack's wholesaler, Mid-
America. Although she made deliveries of ephedrine products on behalf
of Mid-America, she did not know whether Mid-America or her brother-in-
law were licensed to sell these products. Mrs. Bryngelson testified
that when she made the above deliveries of listed chemicals, they were
usually in 50-count boxes, in packets of six. She also delivered,
however, ``a blue or green'' 60-count bottle, but she was unaware of
the product names.
The government also called James Barbe as a witness. At the time of
his testimony, Mr. Barbe was a Diversion Investigator with DEA's
Milwaukee office. Mr. Barbe credibly testified that Mrs. Bryngelson
submitted on behalf of her company an application for DEA registration
as a distributor of the list I chemical ephedrine.\1\ The Respondent's
listed address on the application was in Merton, Wisconsin. The
application was received by the Milwaukee Resident Office. D/I Barbe
further testified that he was assigned to investigate the Respondent's
application. The Respondent's proposed registered address is located in
a residential location owned by Mrs. Bryngelson's sister, Theresa, and
her husband Bruce Johnson. Mrs. Bryngelson stores her novelty products
in a basement at that location. The residence is located in a rural
community, and Mrs. Bryngelson does not reside at that location.
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\1\ At the hearing, Mrs. Bryngelson stated that she believed
that she had applied for registration to sell both ephedrine and
pseudoephedrine.
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In an interview conducted of Mrs. Bryngelson by D/I Barbe, Mrs.
Bryngelson stated that:
[sbull] She had no experience with over the counter medications or
listed chemicals.
[[Page 76197]]
[sbull] Some of her customers had requested that the Respondent
supply listed chemical products in addition to her normal product line,
because they wanted her to be their sole source.
[sbull] When asked which listed chemical products she wished to
distribute, she replied that she wanted to sell those in ``the green
and blue bottle'' and ``Green E'' from Proactive Labs.
[sbull] She estimated that Respondent's percentage of sales of
listed chemicals would be five percent of its total sales.
[sbull] In response to questions regarding the security for
Respondent's proposed location, she said that she would use a locked
door.
[sbull] She informed D/I Barbe that the proposed location is in a
secluded 360 acres in the middle of a cornfield, and that the location
never had break-ins or the like.
After a visit to Respondents location, D/I Barbe testified that he
did not recall seeing a bolt lock on the door leading to the basement
area. Mrs. Bryngelson testified that no alarm system or any electronic
security system had been set up at the proposed registered location.
She also testified that she was willing to have as much security
installed as DEA required.
D/I Barbe also testified that he reviewed ``suspicious order''
procedures with Mrs. Bryngelson. He also discussed matters involving
background checks on customers. D/I Barbe testified that Mrs.
Bryngelson was unaware at that time of how to address suspicious
orders. Mrs. Bryngelson also testified that some of her accounts had
threatened to discontinue their business with Respondent unless she was
able to supply listed chemical products. However, she was only able to
identify three of the twenty-customers disclosed to DEA that had
actually threatened such action. She also testified that she had
recently added 80 additional customers, and that only ``a couple'' had
been interested in obtaining ephedrine.
D/I Barbe also testified that he had asked Mrs. Bryngelson how many
bottles she planned on selling, and she replied that it would be
approximately twelve bottles per week Mrs. Bryngelson testified at the
hearing, however, that this estimate was ``a wild guess.''
D/I Barbe further testified that he had obtained a list of
Respondent's customers, and he verified the identity of these customers
through telephone calls and visits. He found that most of Respondent's
accounts were gas stations. D/I Barbe further testified that
Respondent's customers were part of what DEA considers the non-
traditional market, in that they were retail distributors that
specialized in the sale of sundry items, not OTC pharmaceutical
products. The customers were comprised primarily of gas stations and
convenience stores. D/I Barbe also testified that some of Respondent's
customers had already requested that Respondent carry 25 milligram
tablets in 60 count bottles of ephedrine. D/I Barbe explained that
these requests were significant in that the customers at issue had
already begun requesting list I chemicals from the Respondent, a
specific type of product, in packaging that is not normally seen in
traditional retail establishments.
The Government also presented the transcribed testimony of Jonathan
Robbin, of Ricercar, Incorporated, in Bethesda, Maryland. Mr. Robbin is
a consultant in marketing information systems, databases and in the
building of analytical models to assist businesses in decision making.
Mr. Robbin provided the transcribed testimony on behalf of the
Government in a previous DEA proceeding involving Branex, Incorporated.
He was offered as an expert in statistical analysis, specifically in
multi-varient statistics and the processing of population and economic
census data. Mr. Robbin was also offered as an expert in quantitative
marketing research specifically with respect to retail marketing and
targeting. Mr. Robbin testified that according to the economic census,
the normal or traditional place where consumers would purchase non-
prescription drugs would be in drug stores, supermarkets and discount
merchandise houses. Mr. Robbin testified that the expected sale of
these products at convenience stores and convenience stores attached to
gas stations were not significant enough to warrant inclusion in the
most recent census data form for cold, sinus and allergy products. Mr.
Robbin continued that such products represented ``a very small part of
[the] total line of goods'' for convenience stores, whether or not they
sell gasoline.
Based upon the above, the Deputy Administrator will now consider
the factors used by DEA to determine the public interest. Under 21
U.S.C. 823(h), the Attorney General shall register an applicant to
distribute a list I chemical unless the Attorney General determines
that the registration of the applicant is inconsistent the public
interest.\2\ In considering the public interest, the Deputy
Administrator shall consider:
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\2\ This function has been redelegated to the Deputy
Administrator of DEA.
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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 laws;
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.
Consideration of the first factor weighs against Respondent.
Although Mrs. Bryngelson agreed to provide increased security at the
residence where list I chemicals will be stored, she appears to have
only a rudimentary knowledge of what would constitute a suspicious
order.
With regard to the second factor, there was no evidence that the
Respondent has failed to comply with Federal, State or local law. As
for the third factor, there is no evidence that Mr. Bryngelson has any
prior convictions related to controlled substances or chemicals.
Accordingly, the second and third factors weigh in Respondent's favor.
Addressing the fourth factor, Mrs. Bryngelson has no experience in the
manufacture or distribution of chemicals, which weighs against
Respondent.
With regard to the fifth factor, many considerations weigh heavily
against registering Respondent as a distributor of list I chemicals.
Virtually all of Respondent's's customers, consisting of gas stations
and convenience stores, are considered part of the gray market, in
which large amounts of listed chemicals are diverted to the illicit
manufacture of amphetamine and methamphetamine. Some of these customers
have already requested 60 count bottles of ephedrine, the favored
packaging of illicit methamphetamine manufacturers. Mrs. Bryngelson
also appears to have little idea of the extent of her market for listed
chemicals. She testified that she expected to sell approximately 12
bottles of ephedrine each week, but she admitted that this was a ``wild
guess.''
The Deputy Administrator finds that Mrs. Bryngelson's lack of a
criminal record, compliance with the law and willingness to upgrade her
security system are far outweighed by her lack of experience with
selling list I chemicals and the fact that she intends to sell
ephedrine almost exclusively in the gray market. Accordingly, the
Deputy Administrator of the Drug Enforcement Administration, pursuant
to the
[[Page 76198]]
authority vested in him by 21 U.S.C. 823 and 824 and 28 CFR 0.100 and
0.104, hereby finds that registration of Respondent as a distributor of
list I chemicals is not in the public interest. The Deputy
Administrator hereby orders that the application for a DEA certificate
of registration and any requests for renewal or modification submitted
by Respondent Xtreme Enterprises be, and hereby are, denied.
Dated: December 2, 2002.
John B. Brown, III,
Deputy Administrator.
[FR Doc. 02-31210 Filed 12-10-02; 8:45 am]
BILLING CODE 4410-09-M