[Federal Register: October 11, 2006 (Volume 71, Number 196)]
[Notices]
[Page 59834-59837]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11oc06-145]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Premier Holdings, Inc.; Denial of Application
On October 20, 2005, the Acting Deputy Assistant Administrator,
Office of Diversion Control, Drug Enforcement Administration, issued an
Order to Show Cause to Premier Holdings, Inc. (Respondent), d/b/a/
Filmart, of Brooklyn, New York. The Show Cause Order proposed to deny
Respondent's application for a DEA Certificate of Registration as a
distributor of List I chemicals, on the ground that issuance of a
registration would be inconsistent with the public interest. See 21
U.S.C. 823(h); Show Cause Order at 1.
The Show Cause Order specifically alleged that Respondent was
proposing to distribute List I chemical products containing
pseudoephedrine to various firms including convenience stores. See Show
Cause Order at 3. The Show Cause Order alleged that DEA has determined
that convenience stores constitute a non-traditional or ``gray market''
for products containing pseudoephedrine and that there is ``a high
incidence of diversion'' of these products from these retailers into
the illicit manufacture of methamphetamine, a Schedule II controlled
substance. Id. at 2. The Show Cause Order also alleged that even
traditional cold and cough products have been diverted into the illicit
manufacture of methamphetamine. Id. at 2.
The Show Cause Order further alleged that Respondent's owner, Mr.
Eugene Lefkowitz, told DEA investigators that
[[Page 59835]]
his firm, which sells film, phone cards, batteries, and health and
beauty products, was seeking registration because it was ``losing
business.'' Id. at 3. The Show Cause Order alleged that Mr. Lefkowitz
estimated that his sales of List I chemicals products would amount to
approximately 10 percent of his firm's total annual sales of $25
million. See id.
The Show Cause Order also alleged that Mr. Lefkowitz provided
investigators with a list of potential suppliers and a list of products
which Respondent intended to distribute. See id. The Show Cause Order
alleged that while the product list included ``predominately
traditional pseudoephedrine products * * *. these products were not
consistent with the known product lines of several suppliers.'' See id.
The Show Cause Order alleged that Respondent provided the
investigators with a list of 25 prospective customers for List I
chemicals of which only 2 were located in New York State. Id. at 3. The
Show Cause Order alleged that investigators conducted verifications
with 17 of the prospective customers, and that while all of the
customers acknowledged having bought film from Respondent, 15 of them
informed the investigators ``that they had never discussed purchasing
listed chemical products from'' Respondent. Id.
The Show Cause Order further alleged that many of these customers
were large distributors who were ``capable of purchasing products
directly from the manufacturers.'' Id. The Show Cause Order also
alleged that Mr. Lefkowitz subsequently claimed to investigators that
he was ``losing money'' because his customers were requesting that he
sell them List I chemical products and lacked a registration to do so.
Id. Finally, the Show Cause Order alleged that Respondent ``and its
principals * * * failed to provide truthful and accurate information
about the nature of their business * * * and cannot be expected to
properly discharge the duties of a registrant.'' Id.
The Show Cause Order was sent by certified mail to Respondent's
business address as listed on its application. According to United
States Postal Service records, Respondent received the Show Cause Order
on October 31, 2005.
Since the effectuation of service, neither Respondent, nor anyone
purporting to represent it, has responded. Because (1) more than 30
days have passed since Respondent received the Show Cause Order, and
(2) no request for a hearing has been received, I conclude that
Respondent has waived its right to a hearing. See 21 CFR 1309.53(c). I
therefore enter this final order without a hearing based on relevant
material contained in the investigative file and make the following
findings.
Findings
Pseudoephedrine is a List I chemical that, while having therapeutic
uses, can be extracted from lawful non-prescription products and used
to manufacture methamphetamine, a schedule II controlled substance. See
21 U.S.C. 802(34); 21 CFR 1308.12(d). As noted in numerous prior DEA
orders, ``methamphetamine is an extremely potent central nervous system
stimulant.'' Sujak Distributors, 71 FR 50102, 50103 (2006); A-1
Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine abuse has
destroyed lives and families, ravaged communities, and caused serious
environmental harms. Sujak, 71 FR at 50103.
Respondent is a corporation which is located at 4111 Glenwood Road,
Brooklyn, New York. On June 8, 2004, Respondent submitted an
application for a Certificate of Registration to distribute
pseudoephedrine.
On October 19, 2004, two DEA Diversion Investigators (DIs) visited
Respondent at its proposed registered location to conduct a pre-
registration investigation. The DIs met with Mr. Eugene Lefkowitz,
Respondent's President, and Mr. Aron Kohn, its General Manager. The DIs
presented their credentials, discussed the nature of their visit,
inspected the facility and interviewed Mssrs. Lefkowitz and Kohn
regarding the firm's business.
Respondent is located in an industrial area of Brooklyn and
occupies a warehouse built of brick and cinderblock. According to the
investigative file, the warehouse has motion detectors, cameras, and an
alarm system. All visitors are screened and warehouse access is limited
to certain employees. The List I chemicals would be stored on shelves
located near the warehouse manager's desk. The investigative file
indicates that only four employees would have access to List I
chemicals. Moreover, the investigation did not uncover any adverse
information as to any of these employees or the firm's officers.
Finally, Respondent's recordkeeping practices apparently would comply
with DEA regulations.
During the interview, the DIs were informed that Respondent had
total annual sales of approximately $25 million and that the firm had
been in business for approximately 10 years. Respondent sells film,
batteries, and health and beauty products to drug stores, supermarkets,
wholesalers, and convenience stores throughout the United States.
Most significantly, Respondent had no experience in distributing
List I chemicals. Mssrs. Kohn and Lefkowitz told the DIs that the firm
intended to distribute name brand, over-the-counter, cold and flu
medications containing pseudoephedrine. Mssrs. Kohn and Lefkowitz also
stated to the DIs that their customers frequently requested name brand
cold and flu remedies.
Mr. Kohn provided the DIs with a list of the products Respondent
intended to distribute. The List contained only traditional name brand
products. Mr. Kohn also provided the DIs with a list of suppliers.
Several of the firms were, however, under investigation for supplying
products that have been diverted into the illicit manufacture of
methamphetamine.
Mr. Kohn also provided the DIs with a list of twenty-five potential
customers. All but two of these customers were located outside of New
York State. The customer list included large grocery and drug store
chains, as well as large wholesalers who supply grocery and drug store
chains and convenience stores.\1\ Most of the firms already had DEA
registrations authorizing them to distribute List I chemicals.
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\1\ The customer list included Winn Dixie Stores, Inc., which
owns approximately 920 grocery and drug stores in the southeastern
U.S.; Wakefern Food Corp., a cooperative of independent grocers who
operate more than 200 Shop Rite Supermarkets (more than half of
which have pharmacies) throughout the northeastern U.S.; and
Brookshire Grocery, which operates more than 150 stores in Texas and
adjacent states. The list also included USA Drugs, which distributes
health and beauty products to more than 1,000 grocery, drug, and
discount stores, and which operates more than 170 drug stores in
Arkansas and adjacent states; and Discount Drug Mart, Inc., which
operates more than 60 stores in Ohio. The list further included Eby-
Brown Co., the largest privately owned wholesale distributor of
various products to convenience stores in the U.S. with more than
25,000 customers in the midwestern and southeastern U.S.; Spartan
Stores, which owns and operates 68 supermarkets and 19 drugstores in
Michigan and Ohio, and which also distributes products to more than
350 independent grocery stores in the midwestern U.S.; and Grocery
Supply Co., which supplies more than 15,000 independently-owned
supermarkets, convenience stores, wholesale houses, discount stores
and other retailers.
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Thereafter, a DI contacted five of the firms. Three of the firms
told the DI that they were no longer buying products from Respondent.
On March 23, 2005, Mr. Lefkowitz called Ms. Margaret Brophy, the
Diversion Program Manager for the New York Field Division to inquire
about the status of his application. During the conversation, Mr.
Lefkowitz related that
[[Page 59836]]
he was losing business because he could not fully service his customers
by selling them pseudoephedrine products and that his customers had
told him that if his firm could not provide them with all the items
they required, they would take their business to a firm that would. Mr.
Lefkowitz further claimed that he was being forced to offer deep
discounts to maintain his customer base.
Ms. Brophy asked Mr. Lefkowitz why most of Respondent's customers
were located outside of New York. Mr. Lefkowitz stated that he had lost
New York customers because his firm could not supply them with all the
products they required. Mr. Lefkowitz further related that his non-New
York based customers were less demanding with respect to purchasing all
of their products from one source.
Thereafter, in May 2005, a DI conducted additional inquiries of the
firms listed on Respondent's customer list and contacted seventeen of
the firms. While all of the firms verified that they had purchased film
from Respondent, fifteen of the firms informed the DI that they had
never discussed with Respondent the purchase of List I chemical
products from it.\2\
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\2\ Two of the firms had discussed purchasing List I chemicals
from Respondent.
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Discussion
Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals
is entitled to be registered unless I determine that the registration
would be ``inconsistent with the public interest.'' 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. ``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 an application for registration should be denied.
See, e.g., David M. Starr, 71 FR 39367, 39368 (2006); Energy Outlet, 64
FR 14269, 14271 (1999). In this case, I conclude that factors four and
five are dispositive and establish that Respondent's application should
be denied.
Factor One--Maintenance of Effective Controls Against Diversion
The investigative file does not establish that Respondent would
fail to maintain effective controls against the theft and diversion of
listed chemicals. Respondent's facility appears to meet DEA's
regulations pertaining to physical security. See 21 CFR 1309.71(b)(1)-
(7). Moreover, it appears that Respondent has an adequate system ``for
monitoring the receipt, distribution, and disposition of List I
chemicals.'' Id. Sec. 1309.71(b)(8). I thus conclude that this factor
supports a finding that Respondent's registration would be consistent
with the public interest.
Factors Two and Three--Compliance With Applicable Law and the
Applicant's Prior Record of Relevant Criminal Convictions
The investigative file does not establish that Respondent has
failed to comply with applicable Federal, State, and local laws.
Moreover, there is no evidence establishing that Respondent, any of its
officers, or any employee with access to List I chemicals has been
convicted of a criminal offense related to controlled substances or
chemicals. Both factors thus support a finding that Respondent's
registration would be consistent with the public interest.
Factor Four--The Applicant's Past Experience In Distributing Chemicals
The investigative file establishes that Respondent has no
experience distributing List I chemicals. Moreover, Respondent did not
provide evidence to the DIs that any of its employees have experience
in distributing List I chemicals. Because of the high risk of
diversion, DEA has repeatedly held that an applicant's (and its
employees') lack of experience in distributing List I chemicals is a
factor that weighs heavily against granting an application for a
registration. Sujak Distributors, 71 FR at 50104; Jay Enterprises, 70
FR 24620, 24621 (2005); ANM Wholesale, 69 FR 11652, 11653 (2004). This
factor thus supports a finding that Respondent's registration would be
inconsistent with the public interest.
Factor Five--Other Factors That Are Relevant To and Consistent With
Public Health and Safety
Numerous DEA cases recognize that the sale of List I chemical
products by non-traditional retailers such as convenience stores is an
area of particular concern in preventing diversion of these products
into the illicit manufacture of methamphetamine. See, e.g., Joey
Enterprises, 70 FR 76866, 76867 (2005). As Joey Enterprises explains,
``[w]hile there are no specific prohibitions under the Controlled
Substances Act regarding the sale of listed chemical products to
[convenience stores], DEA has nevertheless found that [these entities]
constitute sources for the diversion of listed chemical products.'' Id.
See also TNT Distributors, 70 FR 12729, 12730 (2005) (special agent
testified that ``80 to 90 percent of ephedrine and pseudoephedrine
being used [in Tennessee] to manufacture methamphetamine was being
obtained from convenience stores''); OTC Distribution Co., 68 FR 70538,
70541 (2003) (noting ``over 20 different seizures of [gray market
distributor's] pseudoephedrine product at clandestine sites,'' and that
in an eight month period distributor's product ``was seized at
clandestine laboratories in eight states, with over 2 million dosage
units seized in Oklahoma alone.''); MDI Pharmaceuticals, 68 FR 4233,
4236 (2003) (finding that ``pseudoephedrine products distributed by
[gray market distributor] have been uncovered at numerous clandestine
methamphetamine settings throughout the United States and/or discovered
in the possession of individuals apparently involved in the illicit
manufacture of methamphetamine'').
Respondent's list of potential customers included wholesale
distributors to convenience stores. Moreover, during the on-site
inspection, the DIs determined that Respondent sells various products
to convenience stores. DEA final orders recognize that there is a
substantial risk of diversion of List I chemicals into the illicit
manufacture of methamphetamine when these products are sold by these
non-traditional retailers. See, e.g., Joy's Ideas, 70 FR at 33199
(finding that the risk of diversion was ``real, substantial and
compelling''); Jay Enterprises, 70 FR at 24621 (noting ``heightened
risk of diversion'' should application be granted).
I acknowledge that Respondent's list of potential customers
included grocery chains, drug store chains, and wholesale distributors
to these firms. DEA has found that these firms constitute the
traditional market for pseudoephedrine products. See, e.g., D & S
Sales, 71 FR 37607, 37608-09 (2006); Joy's Ideas, 70 FR at 33196-97.
[[Page 59837]]
There is, however, substantial reason to question the validity of
the customer information Respondent provided to DEA. In DEA's
experience, many of the firms listed as potential customers are of
large enough size that they are able to purchase List I chemical
products either directly from manufacturers or from large wholesalers.
See John Vanags, 71 FR 39365, 39366 (2006). Indeed, it seems unlikely
that Respondent could offer prices that are competitive with those
offered by the manufacturers of List I products or large wholesalers.
Most significantly, the investigative file establishes that Mr.
Lefkowitz represented to DEA investigators that Respondent's customers
had requested List I chemical products from his firm and that he had
lost business and was forced to offer deep discounts to keep other
customers. Yet all but two of the firms contacted by the DI told her
that they had never discussed the purchase of List I products with
Respondent. Moreover, several of the firms told the DI that they were
no longer purchasing products from Respondent.
That the overwhelming majority of the customers told the DI that
they had never discussed purchasing List I products from Respondent
(and that some of the firms no longer bought any products from it)
raises a serious question as to the validity of Mr. Lefkowitz's
statements to DEA personnel. Indeed, the information uncovered by the
customer verifications suggests that Respondent may have provided the
customer list (which contains legitimate businesses) to induce DEA to
grant it a registration, which it would then use to distribute List I
products into the non-traditional market, the principle supply source
of mom-and-pop methamphetamine labs. Whether this was the intent of
Respondent's officers I need not decide because DEA will not grant any
application when there is reason to question the validity of the
information an applicant has provided.
As it is, it is indisputable that Respondent's customers include
convenience stores. Under DEA precedents, an applicant's proposal to
sell List I products into the non-traditional market weighs heavily
against the granting of a registration under factor five. So too here.
DEA has repeatedly denied an application when an applicant proposed
to sell into the non-traditional market and the analysis of one of the
other statutory factors supports the conclusion that granting the
application would create an unacceptable risk of diversion. Thus, in
Xtreme Enterprises, 67 FR 76195, 76197 (2002), my predecessor denied an
application, observing that the respondent's ``lack of 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.''
More recently, I denied an application, observing that the
respondent's ``lack of a criminal record and any intent to comply with
the law and regulations are far outweighed by his lack of experience
and the company's intent to sell ephedrine and pseudoephedrine
exclusively to the gray market.'' Jay Enterprises, 70 FR at 24621.
Accord Prachi Enterprises, 69 FR 69407, 69409 (2004). Consistent with
these precedents, and considering the serious concern raised by the
investigation as to Respondent's intended customers, I conclude that
granting Respondent's application for a registration would be
inconsistent with the public interest.
Order
Accordingly, pursuant to the authority vested in me by 21 U.S.C.
823(h), as well as 28 CFR 0.100(b) and 0.104, I hereby order that the
application of Premier Holdings, Inc., d/b/a/ Filmart, for a DEA
Certificate of Registration as a distributor of List I chemicals be,
and it hereby is, denied. This order is effective November 13, 2006.
Dated: September 29, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-16756 Filed 10-10-06; 8:45 am]
BILLING CODE 4410-09-P