[Federal Register: October 13, 2006 (Volume 71, Number 198)]
[Notices]
[Page 60567-60573]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc06-106]
[[Page 60567]]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 04-16]
T. Young Associates, Inc.; Revocation of Registration;
Introduction and Procedural History
On December 17, 2003, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to T. Young Associates of Hermitage, Tennessee (Respondent).
The Show Cause Order proposed to revoke Respondent's DEA Certificate of
Registration, 004395TSY, as a distributor of List I chemicals, and to
deny any pending applications for renewal or modification of the
registration, on the ground that Respondent's registration is
inconsistent with the public interest as that term is defined in 21
U.S.C. Sec. 823(h). See 21 U.S.C. Sec. 824(a)(4).
The Show Cause Order alleged in substance that on July 31, 2001,
Respondent applied for a modification of its registration as a List I
chemical distributor requesting registration to handle and distribute
phenylpropanolamine, ephedrine and pseudoephedrine at a new location.
See Show Cause Order at 2. The Show Cause Order further alleged that
Respondent sells primarily ``gray market products'' to convenience
stores and gas stations, that Respondent's owner had informed DEA
Diversion Investigators (DIs) that List I chemical products amounted to
approximately nine percent of his total sales, and that some of the
manufacturers of the products sold by Respondent have received warning
letters from DEA because the products were found during law enforcement
seizures of clandestine laboratories. See id. The Show Cause Order
further alleged that Tennessee led DEA's southeast region in the number
of illicit methamphetamine laboratory seizures, that most illegal
methamphetamine is produced locally, and that methamphetamine
production continues unabated. See id. at 2-3.
The Show Cause Order further alleged that DEA had engaged an expert
in the field of retail marketing and statistics who had studied the
purchases of List I chemical products by hundreds of Tennessee
retailers and concluded that these stores were purchasing these
products in amounts that were far in excess of legitimate demand. See
id. at 4. The Show Cause Order alleged that small illicit laboratories
procure the precursor chemicals required to manufacture methamphetamine
from non-traditional retailers such as gas stations and small retail
markets and that some of these retailers use multiple distributors to
mask their acquisition of large amounts of listed chemicals. See id.
Respondent, through its counsel, requested a hearing. The matter
was assigned to Administrative Law Judge (ALJ) Mary Ellen Bittner, who
conducted a hearing in Nashville, Tennessee, on September 28 and 29,
2004. At the hearing, both parties called witnesses to testify and
introduced documentary evidence. Following the hearing, but before the
record was closed, the Government introduced into evidence the
affidavit of its expert witness, Mr. Jonathan Robbin. Respondent then
submitted into evidence his own affidavit addressing the issues raised
in the Robbin affidavit, as well as several other exhibits. Following
the closing of the record, both parties submitted post-hearing briefs.
On October 28, 2005, the ALJ submitted her decision recommending
that Respondent's registration be revoked. Neither party filed
exceptions. The record was then transmitted to me for final agency
action.
Having considered the record as a whole, I hereby issue this
decision and final order. I adopt the ALJ's findings of fact and
conclusions of law except as expressly noted herein. For the reasons
set forth below, I concur with the ALJ's recommendation that
Respondent's registration be revoked. I further order that any pending
applications for renewal or modification of Respondent's registration
be denied.
Findings
Respondent is a corporation whose shares are owned entirely by Mr.
Roy T. Young. Respondent is the holder of DEA Certificate of
Registration, 004395TSY, which authorizes it to distribute the List I
chemicals phenylpropanolamine, ephedrine and pseudoephedrine.\1\
Respondent, which is located in Hermitage, Tennessee, sells a variety
of general merchandise and nonfood items such as ball caps, sunglasses,
cigarette lighters, novelty items and licensed athletic wear to
predominately gas stations and convenience stores in eastern and middle
Tennessee. Mr. Young testified that Respondent ``did a couple of
million dollars a year by the early 2000s.'' Tr. 233. Mr. Young further
testified that ephedrine was ``about nine or ten percent of my sales in
the chain stores.'' Id. at 290. Mr. Young also testified that he had
decided not to carry pseudoephedrine although he did sell it ``from
time to time'' to certain customers. Id. at 240.
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\1\ There is no evidence in the record that Respondent had
distributed phenylpropanolamine.
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Methamphetamine and the Market for List I Chemicals
While both ephedrine and pseudoephedrine have therapeutic uses,\2\
they are also precursor chemicals that are regulated by the Controlled
Substances Act. See 21 U.S.C. 802(34). Moreover, these chemicals are
easily extracted from legal and what typically were over-the-counter
products \3\ and used in the illicit manufacture of methamphetamine, a
schedule II controlled substance. See 21 CFR 1308.12(d).
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\2\ According to the affidavit of Mr. Douglas A. Snyder, a Drug
Science Officer within the Drug and Chemical Evaluation Section in
the Office of Diversion Control, under the Food, Drug and Cosmetic
Act's provisions pertaining to over-the-counter (OTC) products,
ephedrine is lawfully marketed as a bronchodilator used to treat
asthma. Govt. Exh. 27, at 3-4. Pseudoephedrine is lawfully marketed
under the Food, Drug and Cosmetic Act's OTC provisions as a
decongestant. See id. at 4.
\3\ In response to the methamphetamine epidemic, many States
have enacted legislation making pseudoephedrine a Schedule V drug
under State controlled substances acts.
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Methamphetamine ``is a powerful and addictive central nervous
system stimulant.'' D & S Sales, 71 FR 37607, 37608 (2006). The illegal
manufacture and abuse of methamphetamine pose a grave threat to this
country. Methamphetamine abuse has destroyed numerous lives and
families and has ravaged communities. Moreover, because of the toxic
nature of the chemicals used in producing the drug, illicit
methamphetamine laboratories cause serious environmental harms.
According to the testimony of DEA Special Agent Guy Hargreaves, Staff
Coordinator for the DEA Methamphetamine Program at DEA Headquarters, in
1999 there were 101 explosions and at least 64 fires at clandestine
labs throughout the United States. See Gov. Exh. 26, at 9. Moreover,
the annual cost to government agencies to clean up methamphetamine labs
is ``millions of dollars.'' Id. at 10.\4\
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\4\ According to the Suspicious Order Task Force, as of 1998 the
cost to clean up a small boxed lab site was $30,000. See Gov. Exh.
28, at 18.
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The problem of methamphetamine abuse is especially serious in
Tennessee. According to the record, the number of law enforcement
seizures of clandestine laboratories in Tennessee rose from 106 in 1999
to ``over 700 labs'' in 2003. See ALJ at 8, Tr. at 14. Moreover,
according to a DEA Special Agent, as of September 28, 2004 (the date of
the hearing), there
[[Page 60568]]
had been close to 700 seizures in Tennessee already that year.\5\ Tr.
at 14.
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\5\ As noted in Gregg Brothers Wholesale Co., Inc., 71 FR 59830
(2006), in 2004, law enforcement agencies seized 939 clandestine
labs in Tennessee.
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A DEA Special Agent who serves in the Nashville office as a
clandestine lab enforcement agent testified that, based on his
observations of products found at clandestine lab sites, as well as
interviews he had conducted with various defendants, there was a trend
of methamphetamine cooks obtaining List I chemicals from ``smaller gas
stations and convenience stores.'' Id. at 12. According to the Special
Agent, he had been told in the interviews that meth. cooks were ``able
to buy cases, half cases, and such out the back door of'' convenience
stores and gas stations. Id. The Special Agent further testified that
some meth. cooks drive around to different stores with four or five
different addicts who go into several stores in different cities and
purchase sub-threshold quantities of List I chemicals.
The Government submitted into evidence the affidavit of Mark J.
Rubbins, a Diversion Investigator who was then assigned as Chief of the
Domestic Chemical Control Unit, Office of Diversion Control, DEA
Headquarters. According to DI Rubbins, DEA has determined that there is
both a traditional and non-traditional market for List I chemical
products. See Gov. Exh. 44, at 5. The traditional market is
characterized by a short chain of distribution. In this market,
manufacturers either sell directly to large chains of grocery stores
(such as Giant and Safeway), pharmacies (such as Rite Aid and CVS), and
other larger retailers (such as Wal-Mart), or they sell to large
wholesalers (such as Bergen Brunswig and AmeriSource). See id. at 5-6.
Furthermore, List I chemical products sold in this market are typically
of lower strength and lower count sizes such as 30 mg. pseudoephedrine
tablets in small, blister pack sizes of six, twelve, twenty-four and
sometimes forty-eight count. See id. at 5.
In contrast, products sold in the non-traditional market pass
through multiple layers of distribution and are sold by such
establishments as gas stations, small convenience stores, liquor
stores, headshops, beauty parlors, and video stores. See id. at 6.
Moreover, the products are typically stronger than those found in the
traditional market and include 60 mg. pseudoephedrine tablets which are
sold in larger package sizes such as 60, 100, or 120 count bottle
sizes. DI Rubbins further stated that non-traditional retailers tend to
knowingly sell large quantities of List I chemical products to
``smurfers,'' individuals who work for methamphetamine traffickers and
attempt to buy out a store's entire stock of List I chemical products
by going to the store at different times or on different days. See id.
at 6-7.
DI Rubbins stated that because of increased DEA enforcement efforts
involving pseudoephedrine products, methamphetamine traffickers have
increasingly gone back to using combination ephedrine products. See id.
at 10. DI Rubbins further stated that in 2002, he contacted the major
manufacturers of combination ephedrine/guaifenesin products and
determined that sales for these products amounted to only one-tenth of
the market for legitimate single-entity pseudoephedrine products. See
id. According to DI Rubbins, the names of products that are popular
with methamphetamine traffickers are ``MiniThin'' and ``Mini Twin,''
which each contain 60 mg. pseudoephedrine, and ``Max Brand'' and ``Mini
Two Way,'' which are combination ephedrine products. See id. at 12. Mr.
Rubbins further stated that these brands ``have been disproportionately
represented in clandestine lab seizures around the United States
involving listed chemical products.'' Id. at 13.
The Government also submitted the affidavit of John Uncapher, who
was then assigned as a Staff Coordinator with the Domestic Operations
Division at DEA Headquarters. Mr. Uncapher's staff was responsible for
the DEA Warning Letter program. See Gov. Exh. 42, at 3. Under this
program, DEA collects information regarding List I chemicals products
that have been found at clandestine lab sites and identifies the
manufacturers of these products. See id. The Government entered into
evidence a list of 35 warning letters issued to PDK Laboratories, the
manufacturer of Max Brand, a product which Respondent distributes. See
Gov. Exh. 19. According to this exhibit, between January 5, 1999, and
September 26, 2002, approximately 1.67 million pseudoephedrine tablets
and 107,250 combination ephedrine tables manufactured by this firm were
found in numerous seizures of clandestine laboratories throughout the
United States including Tennessee. The Government also introduced into
evidence a list of 17 warning letters issued to BDI because their
products, which Respondent also distributed, were found during seizures
of clandestine laboratories. See Gov. Exh. 20.
The Government submitted into evidence the declaration of Jonathan
Robbin, an expert in statistical analysis of demographic, economic,
geographic and survey data. Based on his study of the latest available
United States Economic Census of Retail Trade, Mr. Robbin concluded
that ``over 97% of all sales of non-prescription drug products occur in
drug stores and pharmacies, supermarkets, large discount merchandisers
and electronic shopping and mail order houses.'' Gov. Exh. 70, at 4.
Moreover, sales of non-prescription drugs by convenience stores
(including both those that sell and do not sell gasoline), ``account
for only 2.2% of the overall sales of all convenience stores that
handle the line and only 0.7% of the total sales of all convenience
stores.'' Id.
Mr. Robbin further testified that based on his study of U.S.
Government Economic Census Data, information obtained from the National
Association of Convenience Stores, and commercially available point of
sale transaction data, he constructed a model of the traditional market
for retail sales of pseudoephedrine. See id. at 5. According to Mr.
Robbin, sales of pseudoephedrine account for ``only about 2.6%'' of the
sales of health and beauty care products in convenience stores and only
``0.05% of total in-store (non-gasoline) sales.'' Id.
Mr. Robbin testified that ``the normal expected retail sale of
pseudoephedrine (Hcl) tablets in a convenience store may range between
$0 and $40 per month, with an average of $20.60 per month.'' Id. at 7.
Mr. Robbin also testified that ``the expected sale of ephedrine (Hcl)
tablets in a convenience store ranges between $0 and $25, with an
average of $12.58.'' Id. at 7-8. Mr. Robbin further testified that a
monthly retail sale of $40 of ephedrine or $60 of pseudoephedrine would
``occur less than one in 1,000 times in random sampling.'' Id.
Moreover, a monthly retail sale of $60 of ephedrine or $100 in
pseudoephedrine would ``occur about once in a million times in random
sampling.'' Id.
The Investigation of Respondent
Respondent's initial registered location was 1319 Central Court,
Hermitage, Tennessee. On July 19, 2001, Mr. Young wrote a letter to
DEA's Nashville office informing it that Respondent had relocated its
warehouse to 1320 Central Court, Hermitage, Tennessee, and requesting
that DEA issue a registration for the new address. See Gov. Exh. 3.
According to Mr. Young's testimony, Respondent had leased both the 1319
and 1320 locations
[[Page 60569]]
for some period. When Respondent's lease for the 1319 location came up
for renewal, Mr. Young decided to terminate it and vacate the premises
as he was already leasing the 1320 space and had leased another
premises (4706 Lebanon Pike) which he was using for an office and
retail store. See Tr. 242-43. Mr. Young did not notify DEA, however,
until after Respondent moved out of its then registered location. Id.
at 244-45.
Because DEA's regulations provide that a ``request for modification
shall be handled in the same manner as an application for
registration,'' 21 CFR 1309.61, on August 7, 2001, two DIs visited
Respondent's 1320 Central Court facility to conduct an investigation.
ALJ at 15. The DIs inspected the facility and obtained from Respondent
lists of both its customers and suppliers. The DIs found that the List
I chemical products were securely stored in a locked area of the
warehouse. See id.
The DIs told Mr. Young that they would conduct an accountability
audit. The DIs conducted an inventory of all List I chemical products
on hand and obtained Mr. Young's signature on their inventory report.
Tr. 39-40. The DIs also told Mr. Young that they needed to know what
inventory was on Respondent's delivery trucks. Id. at 40. One of the
DIs could not recall, however, whether Mr. Young had said there were
List I chemical products on the trucks. Id. at 41. The DI later
testified that Mr. Young had never gotten back to them regarding List I
chemicals that may have been on the trucks. Id. at 131. In his
testimony, Mr. Young confirmed that the DIs had asked him about ``the
truck inventory'' and whether there were any ``inventories on the
truck.'' Id. at 254.
The DIs then requested the invoices necessary to conduct an
accountability audit. Mr. Young told the DIs that the records were not
kept at the warehouse but were at his office, which was located at 4706
Lebanon Pike.\6\ The DIs then went to the office. Id. at 37.
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\6\ The DIs further informed Mr. Young that under Federal
regulations, records of purchases over certain amounts must be
maintained at the registered location. See Tr. 37-38. The record
contains an invoice documenting a purchase from PDK Laboratories of
720 bottles containing 60 tablets of 2 way ephedrine, a product that
contains 25 mg. of ephedrine hydrochloride per tablet. See Gov. Exh.
6. Respondent's purchase of this product did not, however, exceed
the one kilogram threshold. See 21 CFR 1310.04(f)(1); Gov. Exh. 23.
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The DI proceeded to perform a 30 day accountability audit \7\ of
three of the products--Ephedrine Plus 60 tablet bottles, Max Brand 60
tablet bottles, and Nyquil two tablet packets. Because there was no
beginning inventory, the DIs assigned a value of zero for each of the
products. Id. at 47. The DIs then examined both the hard copy purchase
invoices from Respondent's suppliers and Respondent's hard copy sales
records.\8\ Id. at 51, 147. The audit determined that there were
overages in the amount of 3,131 Ephedrine Plus bottles and 600 NyQuil
packets. Gov. Exh. 12. The audit also found a shortage of 26 bottles of
Max Brand Ephedrine. Id.
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\7\ The audit actually covered the period from July 1, 2001,
through August 7, 2001. See Gov. Exh. 12.
\8\ There was a factual dispute as to whether Respondent
informed the DIs as to the existence of his computerized records.
The ALJ found that ``whatever computerized records Respondent
maintained showed only the dollar amount of the sale but not the
products sold; this latter information was shown only on hard copy
invoices.'' ALJ at 15; see also Tr. at 252. Because the
accountability audit was based on the quantity and not dollar amount
of the products, the dispute is immaterial.
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The ALJ found that ``[t]he investigators did not contact Mr. Young
to discuss the audit results'' and noted that ``Mr. Young testified
that he was not aware of the audit results until three years after the
August 7, 2001 visit.'' ALJ at 17.\9\ The ALJ further found that Mr.
Young then had his employees go back through his records and
recalculate Respondent's sales; the employees found overages. See id.;
see also Tr. 257-58.
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\9\ There is, however, conflicting testimony by Mr. Young that
when the DIs were through with the audit, ``we sat down and had a
short meeting out front, then a reference was made to a large
overage in one category'' and I told the DIs ``you can't honestly be
over.'' Tr. at 253.
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In October 2001, DEA modified Respondent's registration by changing
the address of his registered location to 1320 Central Court. The DI
testified that he had granted the modification because of the financial
hardship Mr. Young was undergoing in maintaining three separate
premises. Tr. at 33.
Approximately a year after the on-site inspection, one of the DIs
conducted verification visits of three of Respondent's customers. ALJ
at 18. The manager at each location verified that the store was a
customer of Respondent; each of the managers also told the DI that they
used more than one supplier of List I chemicals. See id. At two of the
stores, the managers told the DI that they were attempting to identify
customers who they believed were purchasing List I chemical products
for illicit use and report them to law enforcement authorities. See id.
On September 19, 2003, Mr. Young requested another modification of
the registration to change both the name on the registration and the
address of its registered location to 4706 Lebanon Pike. On December
17, 2003, however, the instant Show Cause Order was issued. See ALJ at
17.
On February 20, 2004, two DIs and a Special Agent visited
Respondent at its Lebanon Pike location to deliver a letter from Howard
Davis, the Diversion Program Manager for DEA's Atlanta Field Division.
The letter instructed Respondent that he could not store listed
chemicals at his new proposed location until DEA approved the change.
Gov. Exh. 46. The letter further explained that DEA would not approve
any modification until the Order to Show Cause was resolved. Id.
During the visit, Mr. Young told one of the DIs that no List I
chemicals were being stored at the Lebanon Pike location. However,
during the visit, one of the DIs found a display rack containing 24
bottles and 5 packets of ephedrine products on a shelf in the office.
ALJ at 17. Because the products were at a non-registered location, the
DI immediately seized them. Id.
Mr. Young testified that the products were at the Lebanon Pike
location because his son had taken them there to photograph them for a
brochure to be used in marketing them to Respondent's customers. Tr.
277. Mr. Young testified that after the pictures were taken the
products should have been immediately returned to the truck. Id. at
278.
As part of DEA's investigation, one of the DIs obtained from
Respondent's suppliers copies of invoices documenting its purchases of
List I chemical products from January 2003 through July 2004. Tr. at
166-75. According to the invoices from one supplier, CB Distributors,
Respondent purchased 5,616 bottles of Rapid Action (60 tablet count),
576 bottles of Rapid Action (48 tablet count), 10,850 packets of Rapid
Action (12 tablet count), 3,168 bottles of Mini Two Way (60 tablet
count), 576 bottles of Mini Two Way (48 tablet count), 3,456 packets of
Mini Two Way (6 tablet count), 15,708 bottles of Max Brand 2-Way (60
tablet count), 17,280 packets of Max Brand 2-Way (6 tablet count), and
1,584 bottles of Twin Tabs (60 tablet count). ALJ at 18.
The Government also introduced two invoices it had received from
another of Respondent's suppliers, Sasser Distributing. The invoices
show that on July 27, 2004, Respondent purchased 288 bottles of
ephedrine products (60 tablet count); the next day, Respondent
purchased another 144 bottles of Biotek Ephedrine (48 tablet count), as
well as an additional amount of Ephedrine Plus
[[Page 60570]]
packets (6 tablet count). See Gov. Exhs. 52-53.\10\
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\10\ During the August 2001 on-site inspection, the DIs received
a supplier list from Mr. Young. Tr. 56. One of the DIs determined
that at least two of Respondent's suppliers had received warning
letters from DEA. ALJ at 18.
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As stated above, the Government entered into evidence the affidavit
of Jonathan Robbin. According to the affidavit, DEA provided Mr. Robbin
with a list of 801 wholesale transactions involving combination
ephedrine and pseudoephedrine products made by Respondent to 97
Tennessee convenience stores between January 27, 2003, and November 22,
2004. Gov. Exh. 70, at 12. The affidavit further stated that during
this period Respondent sold 17,271 bottles, each containing 60 tablets,
and 24,520 packages, each containing six tablets, of combination
ephedrine products. See id. The bottles held a total of 1,036,260
tablets and the packets held a total of 147,120 tablets. Id. Respondent
also sold to 31 convenience stores, 1,435 bottles, each containing 60
tablets of Max Brand 30 mg. pseudoephedrine, for a total of 86,100
tablets of pseudoephedrine products. Id.
Using this data, Mr. Robbin calculated each store's implied average
monthly retail sales and compared that to the normal expected retail
sales discussed above.\11\ See id. at 13. According to Mr. Robbin, only
one of the 97 stores was selling near the normal expected sales range
at 2.8 times expectation. Id. at 15. The next lowest store was selling
over 20 times the expected sales range. Id. Mr. Robbin explained that
in random sampling, sales over 20 times expectation ``could occur only
about three times in a billion raised to the fifth power.'' Id. Mr.
Robbin further explained that ``[t]he probability of an index equal to
or greater than 20 is so small as to be near impossibility.'' Id. at
16. Finally, Mr. Robbin found that the top 94 stores had indexes over
25, the top 54 stores sold ``over 100 times expectation,'' and the top
sixteen sold ``over 300 times expectation.'' Id. at 16.
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\11\ Mr. Robbin's affidavit explains in detail his methodology,
including the figure he used for the products' gross margin, to
calculate the implied retail sales value of the products.
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Mr. Robbin explained that ``[s]uch indexes are not possible in the
normal commerce of these goods at ordinary convenience stores.'' Id.
According to Mr. Robbin, because the average convenience store serves
120,000 shoppers per year, if combination ephedrine products were being
purchased by customers to treat asthma (the purpose for which the FDA
has approved them), three million persons would have to shop at the
store in a year to account for sales 25 times the expected amount. Id.
Mr. Robbin further explained that while it was possible that a single
customer could purchase a store's entire monthly inventory, this amount
of product would supply the person with enough of the drug to treat an
asthmatic condition at recommended doses for two and one-quarter years.
Id. Mr. Robbin explained that ``[i]t is difficult to imagine * * * what
such a shopper would do with all of this material every month except to
resell or use it as a precursor chemical in the illicit manufacture of
methamphetamine.'' Id. at 16-17. Mr. Robbin thus concluded that
Respondent ``frequently sells combination ephedrine * * * and single
ingredient pseudoephedrine * * * products to these stores in
extraordinary excess of normal or traditional demand by ordinary
convenience store shoppers.'' Id. at 17.
Mr. Young submitted an affidavit challenging the factual basis of
Mr. Robbin's findings. According to Mr. Young, he supplied records
covering only the 365 day period from September 2003 through August
2004. Resp. Exh. 19, at 1. Mr. Young further stated that ``the total
number of stores serviced fluctuate[d] and was not a hard and fast 97
stores as stated by Mr. Robbin.'' Id.
Mr. Young also challenged Mr. Robbin's findings as to the monthly
expected sales range of combination ephedrine and pseudoephedrine
products in convenience stores. Mr. Young asserted that according to
the March 28, 2005 edition of Convenience Store News, ``the average c-
store sold $5,462 worth of cold and cough remedies in 2003.'' Id. Mr.
Young also asserted that according to the National Association of
Convenience Stores State of the Industry Report for 2003, ``the average
c-store sold $2,980 of cough & cold remedies in 2003.'' Id. at 2. Mr.
Young thus contends that ``[t]hese independent studies show average
monthly sales of $250 to $450 per store per month for the c-store
industry. This amount is 8 to 14 times greater than what Robin [sic]
reports.'' Id. Mr. Young further asserted that Respondent's average per
store sales of combination ephedrine products ``is within the norms for
the sale of these products to convenience stores that we have
experienced in the 14 years that we have been in business.'' Id. at 4.
In support of his affidavit, Mr. Young also submitted into evidence
a spreadsheet showing its List I chemical sales from September 2003
through August 2004. See Resp. Exh. 20. According to the spreadsheet,
Respondent sold a total of $68,568.11 of List I chemical products to an
average of 54 stores per month. See id. The spreadsheet also indicates
that Respondent's average sale per store, per month, was $105.81, and
calculates that the average retail sale per store, per month, was
$184.00. Id. The spreadsheet also indicates that Respondent's sales of
traditional branded products (such as Advil, Aleve, Tylenol, Dayquil
and Nyquil that contain pseudoephedrine) amounted to only $1,507 out of
the total of $68,568, or approximately two percent of its List I
chemical product sales. Id.
Discussion
Section 304(a) of the Controlled Substances Act provides that a
registration to distribute a List I chemical ``may be suspended or
revoked * * * upon a finding that the registrant * * * has committed
such acts as would render his registration under section 823 of this
title inconsistent with the public interest as determined under such
section.'' 21 U.S.C. Sec. 824(a)(4). In making this determination,
Congress directed that I consider the following factors:
(1) Maintenance by the applicant of effective controls against
diversion of listed chemicals into other than legitimate channels;
(2) compliance by the applicant with applicable Federal, State,
and local law;
(3) any prior conviction record of the applicant under Federal
or State laws relating to controlled substances or to chemicals
controlled under Federal or State law;
(4) any past experience of the applicant in the manufacture and
distribution of chemicals; and
(5) such other factors as are relevant to and consistent with
the public health and safety.
Id. Sec. 823(h).
These factors are considered in the disjunctive.'' Joy's
Ideas, 70 FR 33195, 33197 (2005). I may rely on any one or a
combination of factors, and may give each factor the weight I deem
appropriate in determining whether a registration should be revoked or
an application for a modification of a registration should be denied.
See, e.g., David M. Starr, 71 FR 39367, 39368 (2006); Energy Outlet, 64
FR 14269 (1999). Moreover, I am ``not required to make findings as to
all of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005);
Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005). My analysis of
the factors in this case compels the conclusion that Respondent's
continued registration would be inconsistent with the public interest.
[[Page 60571]]
Factor One--Maintenance of Effective Controls Against Diversion
I acknowledge that Respondent provides effective security against
the theft of listed chemicals. Accurate recordkeeping is, however,
another important control against diversion. See 21 CFR 1309.71(b)(8).
As to this system, the record clearly indicates that Respondent does
not maintain effective controls against diversion.
The accountability audit found that two of the products sold by
Respondent had overages; the other product had a shortage. As the ALJ
noted, the DIs used a zero opening inventory for each product because
Respondent did not have an inventory. Using a zero opening inventory
will result in an over-count if, in fact, a registrant had product on
hand on the beginning date of the audit period. I note, however, that
Mr. Young testified that he had his employees go back through his
records and they too came up with overages. Tr. 257-58.
The DIs also found that there was a shortage of 26 Max Brand 60
tablet bottles. This is especially significant because the audit
covered only a short period of time (approximately five weeks).
Moreover, if, in fact, Respondent had product on hand on the beginning
date of the audit period, assigning an inventory of zero would result
in an undercount of the shortage.
I further note the testimony regarding whether there was inventory
on the trucks. The ALJ noted that there was ``somewhat inconsistent
testimony about whether some List I chemicals were on'' the trucks. See
ALJ at 22. I am satisfied, however, that the DIs asked Respondent
whether there were any List I chemicals on the trucks, see Tr. 40 and
254, and the fact remains that Respondent had no readily obtainable
records showing the amount of inventory, if any, that was on the
trucks. I therefore conclude that Respondent does not maintain
effective controls against diversion. This factor thus supports a
finding that Respondent's continued registration would be inconsistent
with the public interest.
Factor Two--Compliance with Applicable Federal, State, and Local Laws
The record here demonstrates that Respondent committed several
violations of Federal law and regulations. First, in July 2001,
Respondent moved its List I chemicals from the 1319 Central Court
building, which was its registered location, to the 1320 Central Court
building, without obtaining approval from DEA. This action violated 21
U.S.C. Sec. 822(e) and 21 CFR 1309.23(a).
The ALJ also found that Respondent violated 21 CFR 1310.04(c), by
storing List I chemical records at its Lebanon Pike location, which was
not registered. See ALJ at 23. The record does not, however, support
this finding. While 21 CFR 1310.04(c) requires that records be
maintained ``at the regulated person's place of business where the
transaction occurred,'' id., the provision applies only to records
which must be maintained under 21 CFR 1310.03. The only provision of
that section which is pertinent here is the requirement that a
regulated person keep a record of ``a regulated transaction.'' Id.
Sec. 1310.03(a). The regulations establish that the threshold for
transactions in combination ephedrine products between wholesale
distributors is one kilogram. Id. Sec. 1310.04(f)(1)(ii); see also
Comprehensive Methamphetamine Control Act of 1996, Pub. L. No. 104-237,
Sec. 401(f), 110 Stat. 3099, 3110 (1996) (adopting one kilogram
threshold for regulated transactions in combination ephedrine products
between wholesale distributors).
The record contains only a single invoice conceivably documenting a
regulated transaction between Respondent and one of its suppliers, PDK
Laboratories, which had occurred at the time of the August 2001
inspection. This invoice indicates that on July 17, 2001, Respondent
purchased 720 bottles containing 60 combination ephedrine tablets of 25
mg. ephedrine hydrochloride for a total of 43,200 tablets. See Gov.
Exh. 6. This amount of product does not, however, exceed the one
kilogram threshold because the hydrochloride constitutes approximately
18 percent of the chemical. As the Government's own exhibit
demonstrates, the one kilogram threshold was equivalent to 48,826
combination ephedrine hcl tablets each containing 25 mg. ephedrine hcl.
See Gov. Exh. 23. Because Respondent's purchase was more than 5,000
tablets under this amount, and there is no other evidence indicating
that Respondent engaged in additional purchases during the month, the
record does not establish that Respondent violated 21 CFR 1310.04(c).
The record does, however, contain evidence establishing an
additional violation of DEA regulations. During the February 2004
visit, the DIs found a display rack containing 24 bottles and 5 packets
of combination ephedrine products at Respondent's Lebanon Pike store/
office. Because Respondent's Lebanon Pike facility was not a registered
location, Respondent's storage of the items at this location violated
21 U.S.C. Sec. 822(e) and 21 CFR 1309.23(a). Most remarkably,
Respondent committed this second violation after having been served
with a Show Cause Order.
Because Respondent committed multiple violations of the CSA's
provisions, I conclude that Respondent's record of compliance with
Federal law supports a finding that its continued registration would be
inconsistent with the public interest.
Factor Three--The Record of Criminal Convictions
The record contains no evidence that Respondent's owner, or any
employee, has been convicted of an offense under laws related to either
controlled substances or listed chemicals. I thus conclude that this
factor supports a finding that Respondent's continued registration
would not be inconsistent with the public interest.
Factor Four--Past Experience in Distributing Listed Chemicals
It is undisputed that Respondent has distributed List I chemical
products for several years. That experience is, however, characterized
by several violations of the CSA, as well as the inability of
Respondent to provide an accurate accounting of its products. Moreover,
as described under factor five below, there is substantial evidence in
the record establishing that Respondent's products have been diverted.
Accordingly, this factor supports a finding that Respondent's continued
registration would be inconsistent with the public interest.
Factor Five--Other Factors That Are Relevant to and Consistent With
Public Health and Safety
The record here establishes--as do numerous agency precedents--that
there is a substantial nexus between the sale of certain non-
traditional List I chemical products by non-traditional retailers and
the diversion of these products into the illicit production of
methamphetamine. See, e.g., John Vanags, 71 FR 39365, 39366 (2006);
Joey Enterprises, 710 FR 76866, 76887 (2005); TNT Distributors, 70 FR
12729, 12730 (2005). Indeed, as noted recently in TNT Distributors,
which also involved a Tennessee-based distributor of List I chemicals,
``80 to 90 percent of ephedrine and pseudoephedrine being used [in
Tennessee] to manufacture methamphetamine was being obtained from
convenience stores.'' 70 FR at 12730.
Likewise in this case, there is undisputed testimony by a DEA
Special
[[Page 60572]]
Agent establishing that Tennessee-based methamphetamine cooks were
purchasing large quantities of List I chemicals from smaller stores
such as gas stations and convenience stores. Tr. at 12. Respondent's
List I chemical sales were principally made to these types of retail
establishments.
Moreover, Respondent's Exhibit 20, which was a compilation of its
sales of List I chemical products for the period September 2003 through
August 2004, establishes that 98 percent of its sales were of non-
traditional products including those of several manufacturers who have
received warning letters from this agency because their products have
frequently been found during seizures of clandestine methamphetamine
labs. Respondent's Exhibit 20 further establishes that during this
period, its average sale per store, per month, was $105.81, which would
result in an average retail sale per store, per month, of $184.
The ALJ found ``persuasive'' the affidavit of Mr. Robbin, the
Government's expert witness who testified about the market for List I
chemical products. ALJ at 23. Based on this evidence, the ALJ further
concluded that ``Respondent sold quantities of List I chemicals to
convenience stores that far exceeded what the stores could reasonably
be expected to sell to legitimate consumers.'' Id. The ALJ also
rejected Mr. Young's assertion in his post-hearing affidavit
challenging Mr. Robbin's testimony as to the normal expected sales of
combination ephedrine and pseudoephedrine products in convenience
stores. See id. According to Mr. Young, the average convenience store
sold between $250 and $450 per store, per month, an amount that ``is 8
to 14 times greater than what Robin [sic] reports.'' Resp. Exh. 19, at
2.
As the ALJ observed, combination ephedrine products cannot be
lawfully marketed over-the-counter as a cold and cough remedy and most
of Respondent's sales were of this type of product. See ALJ at 23; 21
CFR 341.76. Moreover, products containing pseudoephedrine are only a
subset of over-the-counter cold remedies. Respondent has produced no
evidence establishing the percentage of over-the-counter cold remedies
that include pseudoephedrine. I therefore credit Mr. Robbin's expert
testimony as to the normal expected sales ranges of both ephedrine
combination and pseudoephedrine products in non-traditional retailers.
Mr. Young also challenged the factual basis for Mr. Robbin's
findings that were based on data supplied to the latter by DEA.
According to Mr. Robbin's affidavit, the findings that were specific to
Respondent were based on ``a list supplied to the DEA by T. Young of
801 wholesale transactions drawn from invoices to 97 convenience stores
in Tennessee,'' which covered the period from January 27, 2003, through
November 22, 2004. Govt. Exh. 70, at 12. Mr. Robbin further stated that
the ``[d]ata given for each transaction included invoice date, store
name, a product description and number of units sold.'' Id. at 13. Mr.
Young asserts, however, that he supplied DEA with ``data from September
2003 thru August 2004,'' that the data ``was for 365 days, not for 665
and the total number of stores serviced fluctuate[d] and was not a hard
and fast 97 stores as stated by Mr. Robbin.'' Resp. Exh. 19, at 1.
The ALJ did not address this factual dispute. Mr. Robbin's
declaration makes clear that he did not review the actual invoices but
rather data provided him by the Government. The Government did not,
however, submit into evidence the list of transactions referred to by
Mr. Robbin or the documentary evidence upon which the list was based.
Moreover, while Mr. Young clearly provided data to DEA regarding
Respondent's sales, see Resp. Exh. 19, at 1, the Government did not
elicit any testimonial evidence from a witness with personal knowledge
of how the list was obtained that establishes the scope of the data
contained therein and refutes Respondent's contention. Accordingly,
while I have credited Mr. Robbin's testimony regarding the expected
sales ranges for combination ephedrine products and pseudoephedrine in
non-traditional retailers, I do not adopt his findings that were based
on Respondent's sales.
Respondent's own evidence nonetheless demonstrates that it sold
List I chemical products to non-traditional retailers in quantities
that far exceeded legitimate demand and thus supports a finding that
its products were diverted. During the period of September 2003 through
August 2004, Respondent sold at wholesale prices an average of $ 105.81
to each store, each month. See Resp. Exh. 20, at 1. By Respondent's
calculation, these List I chemical products produced an average retail
sale of $184 per store, per month. See id.\12\
---------------------------------------------------------------------------
\12\ While this figure is an average, it is unlikely that all
stores bought right at the average. Some stores bought less, some
bought more.
---------------------------------------------------------------------------
Mr. Robbin found as a general matter that the expected retail sales
range of ephedrine (Hcl) in a convenience store is ``between $0 and
$25, with an average of $12.58.'' Govt. Exh. 70 at 8. Mr. Robbin
further found that a monthly retail sale of ``$60 of ephedrine (Hcl)
tablets would be expected to occur about once in a million times in
random sampling.'' Id. By Respondent's own calculation, its customers'
average monthly retail sale of ephedrine products was several times
this amount. Moreover, this average was based on 54 stores over a
twelve month period. It is thus even more improbable (than a one in a
million probability) that these sales were to meet legitimate consumer
demand for these products. I therefore conclude that a preponderance of
the evidence establishes that a substantial portion of Respondent's
products were diverted. See D & S Sales, 71 FR at 37611 (finding
diversion occurred ``[g]iven the near impossibility that * * * sales
were the result of legitimate demand''); Joy's Ideas, 70 FR at 33198
(finding diversion occurred in the absence of ``a plausible explanation
in the record for this deviation from the expected norm'').
That Respondent may have lacked any intent to divert or to sell to
customers who were diverting to the illicit manufacture of
methamphetamine (See Resp. Br. 8) is irrelevant. ``In determining the
public interest,'' Congress granted the Attorney General broad
discretion to consider any other factor that is ``relevant to and
consistent with the public health and safety.'' 21 U.S.C. Sec.
823(h)(5). The statutory text imposes no requirement that the
Government prove that a Registrant has acted with any particular mens
rea. Indeed, the diversion of List I chemicals into the illicit
manufacture of methamphetamine poses the same threat to public health
and safety \13\ whether a registrant sells the products knowing they
will be diverted, sells them with a reckless disregard for the
diversion, See D & S Sales, 71 FR at 37610-12, or sells them being
totally unaware that the products were being diverted. Cf. Joy's Ideas,
70 FR at 33198 (revoking registration notwithstanding that distributor
was ``an unknowing and unintentional contributor to [the]
methamphetamine problem.'').\14\
---------------------------------------------------------------------------
\13\ In contrast to the provision pertaining to practitioners,
the public interest determination applicable to List I chemical
distributors does not limit the Attorney General's discretion to
considering only those factors that ``threaten public health and
safety.'' Compare 21 U.S.C. Sec. 823(h)(5) with id. Sec. 823(f)(5)
(``such other factors as are relevant to and consistent with public
health and safety''). The discussion in the text to the threat
caused by the diversion of List I chemicals is used only to
demonstrate the point that a registrant's mens rea is irrelevant.
\14\ Mr. Young asserts that ``[t]he average per store sales of
all ephedrine products to our stores is within the norms for the
sale of these products to convenience stores that [his firm has]
experienced in the 14 years that we have been in business,'' and
that these figures predate the methamphetamine problem. Resp. Ex.
19. at 4. The ALJ did not, however, credit this testimony. Moreover,
Respondent did not produce any documentary evidence establishing its
sales levels prior to the emergence of the methamphetamine epidemic
in Tennessee. Thus, to the extent this testimony was offered to show
that Respondent's more recent sales were consistent with the
traditional and legitimate demand for List I chemical products and
therefore rebut a finding that diversion occurred, I decline to
credit it. To the extent the testimony was offered to show that
Respondent did not intend that it products be diverted, it is
irrelevant.
---------------------------------------------------------------------------
[[Page 60573]]
Respondent points to the testimony of the DI who conducted
verification visits of three of Respondent's customers. According to
Respondent, this establishes that ``respondent's customers
conscientiously keep[] track of the materials sold and report[ ] any
excess sales to local police.'' Resp. Br. at 6. The record establishes,
however, that the verification visits involved only a small fraction of
Respondent's customers and thus this testimony does not refute the
finding that its products were diverted.
Respondent further asserts that following Tennessee's enactment of
the Meth-Free Tennessee Act of 2005, as well as new laws in Georgia and
Kentucky, revoking his registration would be ``an arbitrary
overreaching act'' because the new laws restrict the products that can
be sold by non-traditional retailers to those in gel-cap or liquid form
and he is selling only these products. Resp. Br. 7. DEA is already
aware, however, of several studies showing that methamphetamine can be
produced from List I chemicals sold as liquid-filled gel caps and
liquids. See Drug Enforcement Administration, Microgram Bulletin 96-
97,102 (June 2005) (discussing studies conducted by Washington State
Patrol Crime Laboratory and McNeil Consumer and Specialty
Pharmaceuticals). Moreover, experience has taught DEA that in the
aftermath of every major piece of legislation addressing the illicit
manufacture of methamphetamine, traffickers have quickly found ways to
circumvent the restrictions.
Moreover, even assuming that Respondent will fully comply with the
Tennessee and Kentucky laws, the Georgia statute would apparently not
prohibit Respondent from selling combination ephedrine products to non-
traditional retailers. See Georgia Code Sec. 16-13-30.3 (allowing
convenience stores to sell ephedrine products). Respondent would also
be able to distribute products to non-traditional retailers in other
States which have not imposed similar restrictions. Therefore, I
conclude that factor five supports a finding that Respondent's
continued registration would be inconsistent with the public interest.
In sum, Respondent has committed several violations of the CSA. See
21 U.S.C. Sec. 823(h)(2). Moreover, Respondent has no effective means
of accounting for List I chemical products. Id. Sec. 823(h)(1).
Finally, the record establishes that Respondent sold large amounts of
non-traditional products into the non-traditional or ``gray market,'' a
market which DEA has repeatedly found to be a substantial source for
diversion, and the statistical improbability that these sales were to
meet legitimate consumer demand supports a finding that the products
were diverted into the illicit manufacture of methamphetamine. Id.
Sec. 823(h)(5). See also Joy's Ideas, 70 FR at 33199; Branex, Inc., 69
FR 8682, 8693 (2004); Xtreme Enterprises, Inc., 67 FR 76195, 76197
(2002). Thus, it is clear that continuing Respondent's registration
would be inconsistent with the public interest.
Order
Accordingly, pursuant to the authority vested in me by 21 U.S.C.
Sec. 823(h) & Sec. 824(a), as well as 28 CFR 0.100(b) & 0.104, I
hereby order that DEA Certificate of Registration, 004395TSY, issued to
T. Young Associates, Inc., be, and it hereby is, revoked. I further
order that any pending applications for renewal or modification of such
registration be, and they hereby are, denied. This order is effective
November 13, 2006.
Dated: September 14, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 06-8193 Filed 10-12-06; 8:45 am]
BILLING CODE 4410-09-P