Registrant Actions - 2010
FR Doc 2010-11951[Federal Register: May 19, 2010 (Volume 75, Number 96)]
[Notices]
[Page 28063-28068]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my10-97]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 06-55]
M & N Distributors; Dismissal of Proceeding
On March 16, 2006, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to M & N Distributors (Respondent), of Springfield,
Tennessee. The Order to Show Cause proposed the revocation of
Respondent's DEA Certificate of Registration as a distributor of list I
chemicals on the ground that its continued registration "is
inconsistent with the public interest, as that term is used in 21
U.S.C. 823(h)." Order to Show Cause at 1.
More specifically, the Show Cause Order made three major
allegations against Respondent. First, it alleged that on November 22,
2005, Agency Investigators performed an accountability audit of
Respondent's handling of three listed-chemical products and found an
overage of "732 bottles (more than five cases) of one 36-count
combination ephedrine product." Id. at 2. Next, the Show Cause Order
alleged that in June 2003, Respondent "reported a loss of a case of
144 bottles of ephedrine, which [Respondent] indicated fell out the
back door of his truck" and that "this product was never recovered."
Id.
Finally, the Show Cause Order alleged that between 2001 and 2005,
DEA retained an expert "in the field of retail marketing and
statistics" "to analyze national sales data for over-the-counter non-
prescription drugs" and that based on his "study of hundreds of
Tennessee retailers," the expert had concluded "that these retail
stores had made purchases of listed chemical products far in excess of
amounts of product that could be reasonably sold for legitimate
purposes in stores of these [sic] kind in Tennessee." Id. at 3. The
Order further alleged that "DEA has observed that many smaller or non-
traditional stores, such as * * * gas stations [ ] and some small
markets, purchase inordinate amounts of these products and become
conduits for the diversion of listed chemical[s] into illicit drug
manufacturing." Id. Because Respondent's owner "told investigators
that he had approximately 120 convenience store and gas station
customers located in Tennessee and Kentucky," id. at 2, the Order
implied, without ever expressly alleging, that Respondent sold listed
chemical products "far in excess of amounts of product that could be
reasonably sold for legitimate purposes." Id. at 3.\1\
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\1\ In her Decision, the Administrative Law Judge (ALJ)
formulated the issue as "whether the Respondent sold quantities of
listed chemical product which it knew, or should have known,
exceeded quantities that could be sold by its customers for
legitimate use." ALJ at 31 (citing Gov't Br. at 9).
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On April 5, 2006, Respondent's owner, Charles Ramsey, requested a
hearing on the allegations and the matter was placed on the docket of
the Agency's Administrative Law Judges (ALJ). ALJ Ex. 2. Thereafter, on
June 5, 2006, Counsel for Respondent entered his appearance, ALJ Ex. 3,
and following pre-hearing procedures, a hearing was held before an ALJ
in Nashville, Tennessee on August 23 and 24, 2006. At the hearing, both
parties called witnesses to testify and introduced documentary
evidence. After the hearing, both parties filed briefs containing their
proposed findings, conclusions of law, and argument.
On December 16, 2008, the ALJ issued her Recommended Decision.
Therein, the ALJ concluded that the Government had not proved that the
continuation of
[[Page 28064]]
Respondent's registration would be inconsistent with the public
interest. ALJ at 42. With respect to factor one--the maintenance of
effective controls against diversion--the ALJ found that Respondent
provided adequate security for the listed chemical products it
distributed, and that while Respondent had once lost a case of a
product (three years earlier), he had reported the loss and taken
corrective action to prevent a reoccurrence. Id. at 29. With respect to
Respondent's recordkeeping, the ALJ found unproven the Government's
contention that its audit of Respondent's handling of three products
had found that it had an overage of 732 bottles of one product. Id. at
30. The ALJ further found, however, that Respondent's "perpetual
inventory logs * * * are difficult to decipher" and "that at least
one of the log pages does not include the name of the product it
purports to track." Id. at 29-30. The ALJ nonetheless concluded that
Respondent maintains effective controls against diversion and that this
factor supported its continued registration. Id. at 30.
As to factor two--Respondent's compliance with applicable Federal,
State and local law--the ALJ noted that the record contained no direct
evidence of violations of such laws. Id. Similarly, as to factor
three--Respondent's record of convictions for offenses related to
controlled substance or listed chemicals--the ALJ noted that neither
Respondent, nor its owner, has been convicted of a crime related to the
handling of listed chemical products. Id. at 31. The ALJ thus found
that both factors two and three supported Respondent's continued
registration. Id.
As to factor four--Respondent's past experience in the distribution
of listed chemicals--the ALJ framed the issue as whether Respondent had
sold "quantities of listed chemical products which it knew, or should
have known, exceeded quantities that could be sold by its customers for
legitimate use." Id. Noting that the Government's proof was based on
two affidavits of an expert witness whose methodology was subsequently
founding wanting (at least with respect to combination ephedrine
products) in a subsequent case (Novelty Distributors, 73 FR 52689
(2008)), ALJ at 33-34, and that these affidavits contained "numerous
opinions without stating the bases for those opinions," id. at 35, as
well as inconsistencies between their conclusions, id. at 35-36, the
ALJ found that the Government had not established a valid baseline for
average monthly sales per store and therefore had not shown that
"Respondent sold listed chemical products in amounts sufficient to
support an inference of diversion." Id. at 38. The ALJ thus concluded
that "this factor does not weigh against the continuation of * * *
Respondent's registration." Id. at 39.
As to the final factor--other factors relevant to, and consistent
with, the public health and safety--the ALJ noted that "the Government
has failed to prove by a preponderance of the evidence that Respondent
engaged in excessive sales or created a serious risk of diversion in
its handling of listed chemical products." Id. at 41. The ALJ further
explained that "Respondent's sales alone do not lead to the conclusion
that continuing * * * Respondent's registration would create a
substantial risk to the public health and safety." Id.
The ALJ thus concluded that the Government had failed to meet "its
burden of proof in showing that the Respondent's continued registration
would be against the public interest." Id. at 42. Nonetheless, while
acknowledging that Respondent's perpetual inventory log "exceeded the
DEA's recordkeeping practices," because "the incomplete and illegible
nature of some of its logs render an accurate assessment of its
accountability extremely difficult," the ALJ recommended that I
"admonish * * * Respondent to improve its recordkeeping." Id. at 42-
43. The ALJ further recommended that Respondent's registration be
continued subject to three conditions: (1) That it is only authorized
to distribute soft gel products; (2) that it improve its recordkeeping
so that its sales records are "clearly legible," and that both "the
product sold" and the customer are "clearly identified"; and (3)
that for a period of one year, Respondent consent to inspections
"based on a Notice of Inspection rather than an Administrative
Inspection Warrant." Id. at 43.
Neither party filed exceptions to the ALJ's decision. Thereafter,
the record was forwarded to me for final agency action.
Having considered the entire record in this matter, I adopt the
ALJ's conclusions of law with respect to each of the statutory factors
except for the following: The final paragraph of her discussion of
factor four, which suggests that a registrant cannot be charged with
knowledge that its products were being diverted based on its sales
levels unless the Agency publishes a regulation or provides "other
information" to the registrant, as well as her discussion to the
effect that the Government must show, through "direct evidence * * *
that methamphetamine has actually been made in an illicit
methamphetamine laboratory from soft gel listed chemical products" to
sustain a finding that the continuation of a registration is
inconsistent with the public interest. ALJ at 42. Finally, while I
agree with the ALJ that the Government has not established that
Respondent's continued registration is inconsistent with the public
interest, id. at 43, I further conclude that the conditions she
recommended are not supported by the record. Id. I make the following
findings.
Findings
Both pseudoephedrine and ephedrine are lawfully marketed as non-
prescription drug products under the Food, Drug and Cosmetic Act. GX
13, at 3-4. Pseudoephedrine is approved for marketing as a
decongestant; ephedrine (in combination with guaifenesin) is approved
for marketing as a bronchodilator. Id. Both chemicals are, however,
regulated as list I chemicals under the Controlled Substances Act (CSA)
because they are precursor chemicals that are extractable from non-
prescription drug products and used in the illicit manufacture of
methamphetamine, a schedule II controlled substance. Id. at 7-8; see
also 21 U.S.C. 802(34)(C) & (K); 21 CFR 1308.12(d).
Respondent is a wholesale distributor of items such as lighters,
tobacco products, toys, sunglasses, hats, and list I chemical products
which include pseudoephedrine and ephedrine. Tr. 310. Mr. Charles
Ramsey has owned the business since 1980 and is its sole owner and
employee.\2\ Id. at 309. Mr. Ramsey operates Respondent from his
residence in Springfield, Tennessee, which is also its DEA-registered
location. Id. at 316; GXs 23 & 24.
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\2\ Mr. Ramsey has never been convicted of a crime under State
or Federal law related to the handling of listed chemical products
or controlled substances; nor has anyone residing in his residence
been convicted of such a crime. Tr. 320.
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Respondent has held a DEA registration to distribute list I
chemicals since June 17, 1999. ALJ Ex. 12. Respondent's current
certificate of registration was to expire on January 31, 2007. RX 6.
However, on December 12, 2006, Respondent filed a renewal application.
ALJ Ex. 12. In accordance with the Administrative Procedure Act and DEA
regulations, I find that Respondent's registration has remained in
effect pending the issuance of this Final Order. 5 U.S.C. 558(c); 21
CFR 1309.45.
As of the hearing, Respondent had approximately 120 customers, the
majority of which were convenience stores and grocery stores. Tr. 311-
12, 398. Respondent carried single-dosage
[[Page 28065]]
packages of Dayquil Sinus, which contains pseudoephedrine, and six-
count and twelve-count boxes of Rapid Action, a product which combines
25 milligrams of ephedrine with guaifenesin. Id. at 310-11. However,
prior to passage of the Tennessee Meth Free Act ("the Act") in 2005,
Respondent distributed 36-count bottles of Rapid Action. Id. at 311. In
addition, Respondent previously carried the ephedrine products
BronchEze and Twin Tab. Id. Since the passage of the Act, Respondent
has sold list I gel-cap, or "liquid," products to its Tennessee
customers in a twelve-count blister box or a six-counter blister pack.
Id. at 311-12, 351-53; RX 1.
List I chemical products represented less than ten percent of
Respondent's gross sales in 2004; of its estimated gross sales of
$300,000, approximately $20,000 to $25,000 came from sales of list I
chemical products. Id. at 399. Subsequent to passage of the Act,
Respondent's sales of ephedrine products decreased but remained its
single largest selling product. Id. at 399-400.\3\
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\3\ The ALJ found that the Government produced no evidence that
any list I chemical products distributed by Respondent have been
found at illicit methamphetamine laboratories or that the particular
brands of soft-gel listed chemical products distributed by
Respondent were either discovered at an illicit methamphetamine
laboratory or successfully used to produce methamphetamine. ALJ at
12 (citing Tr. 37, 46-48, 50 & 52); see also id. at 29 & 42. Related
to the latter point, a DEA Special Agent testified that since 2005,
law enforcement authorities have discovered more than 400 illicit
methamphetamine laboratories in southeastern Tennessee alone and
that gel-cap listed chemical products were found in very few of
these labs, with the majority using tablet-form products. Tr. 46-48.
That there is no evidence linking products sold by Respondent to
illicit meth. labs does not, however, foreclose the Agency from
evaluating the adequacy of its diversion controls, its compliance
record, and other factors relevant in the public interest inquiry.
As for the evidence regarding the use of gel caps, the hearing in
this matter was held in August 2006. Given that tablet-form products
were available in Tennessee until May of 2005, as well as in
adjacent States until the passage of the Combat Methamphetamine
Epidemic Act in 2006, it is possible that traffickers bought up as
much tablet-form product as possible before this form was banned,
and that those supplies were still being used.
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On May 24, 2003, Respondent reported to DEA that three days
earlier, he had lost a case (144 bottles) of sixty-count Max Brand Two
Way, a combination ephedrine product. GX 24. Respondent submitted the
report on the appropriate form and attached a separate letter which
explained the circumstances of the loss,\4\ how he discovered it, and
the efforts he had undertaken to find the lost product. Id. at 3.
Respondent further explained the corrective action he had taken to
prevent a reoccurrence. Id. at 1. Respondent also explained that he did
not report the incident to the local sheriff because he did not believe
that the products had been stolen.\5\ Id. at 3. Respondent had not
experienced any further losses up through the date of the hearing. Tr.
346; ALJ at 8.
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\4\ Respondent explained that the product had been stored on the
back of his truck and that the door to the truck's cargo area had
become unlatched. GX 24.
\5\ There is a factual dispute as to whether Mr. Ramsey provided
oral notification of the loss to DEA. Compare Tr. 156 (testimony of
DI that while he was not in the office then, he checked with his co-
workers and that none of them "can remember a phone call being
received from Mr. Ramsey"), with id. at 345 (Mr. Ramsey's testimony
that he called DEA). The ALJ did not clearly resolve this factual
dispute, which is material because DEA's regulation requires both an
oral and written report. See ALJ at 7.
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On November 22, 2005, two DEA Diversion Investigators (DIs) went to
Respondent's registered location to conduct an inspection. Tr. 139-40.
The DIs met with Mr. Ramsey and presented him with a Notice of
Inspection. Id. at 141. The DIs questioned Mr. Ramsey about the nature
of his business, inspected the physical security (which was clearly
adequate \6\), and examined his records. Id. at 140-45. The DIs also
told Mr. Ramsey that they would be doing an audit; the DIs thus took an
inventory of the listed chemical products he had on hand (which Mr.
Ramsey agreed with), which was to be used as the closing inventory. The
DIs also obtained copies of his records which included his purchase
invoices and a "perpetual inventory"; the latter provided a running
list of sales of each product by date, store, quantity, and invoice
number. Id. at 141, 145-46, 149-53; GX 22; RX 4.
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\6\ Mr. Ramsey stores his listed chemical inventory at his
registered location in a separate, secure room with a locked door,
which has an ADT security system monitor. Id. at 317-19; RX 2, at 1,
6. Within that room, the listed chemical products are stored in a
30-gauge steel cage with welded hinges and padlocks. Tr. 317-20.
Only Mr. Ramsey has access to the keys to the cage, which he stores
in a combination-locked safe. Id. at 319; RX 2, at 3. In Mr.
Ramsey's twenty-seven year residence on the property, he has not
experienced a single theft or break-in. Tr. 319. Finally, Mr. Ramsey
does not stored listed chemical products on his delivery trucks
overnight but instead returns them to the cage. Id. at 320.
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To perform the audit, the DI used January 1, 2005 as the starting
date; because Respondent did not then have any products on hand, he
assigned a value of zero for each of the products. Tr. 151-52; GX 22,
at 2. Based on his review of Respondent's invoices documenting its
purchases from its suppliers, which was added to the zero opening
inventory figure for each product, the DI calculated the total amount
of each product for which Respondent was accountable and entered the
figures on the Computation Chart.\7\ Tr. 152-54; GX 23. The DI also
reviewed Respondent's perpetual inventory to calculate its sales of
listed chemical products and added these figures to the closing
inventory to calculate the total amount that Respondent could account
for. Tr. 145, 153-54; RX 3.
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\7\ According to the computation chart, credits and returns
(presumably to suppliers) were to be counted in determining the
total amount of product Respondent was accountable for. GX 23. For
each product, the chart indicates that the amount of both the
credits and returns was zero.
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The DI then compared the figures for each of the three products. GX
23. While the audit found that two of the products balanced, the audit
found an overage of 732 bottles of the 36-count Rapid Action Ephedrine
2-Way product. Id. According to the DI, "in theory" this suggests
that Respondent had distributed 732 more bottles than it purchased.
However, because this is not possible, such an overage could result
from a delivery of product with no invoice from its supplier, a lost
invoice, or mistaken documentation such as recording the sale of one
product as a different product. Tr. 154-55.
Mr. Ramsey disputed the accuracy of the audit. While he agreed with
the DI's figures for Respondent's purchases of Rapid Action bottles and
the closing inventory, Mr. Ramsey maintained that when he attempted to
recreate the Government's audit, his results did not match. Tr. 326,
334, 357, 367; see also GX 23. According to Mr. Ramsey, his total
amount of the distributions during the audit period was 11,328 bottles
and not the DI's figure of 12,048 bottles. Tr. 367-71. Moreover, his
figure for the "Total List I accounted for" was just 12,240 bottles
and not 12,972 as the DI had found. Tr. 328; see also GX 23.
In his testimony, Mr. Respondent suggested several reasons for why
the DI found the overage. Tr. 329-33. First, Mr. Ramsey claimed that
the DI had apparently not accounted for a return of twelve bottles,
which reduced the discrepancy in the results from 732 to just 720
bottles. Id., see also RX 4, at 4 (invoice documenting return of twelve
bottles). As for the remaining 720-bottle overage, Mr. Ramsey suggested
two explanations. First, that the DI could have erroneously added in
720 bottles of BronchEze to the total amount of the distributions. Tr.
332; see also RX 3, at 25 (listing sales of BronchEze during July
2005).\8\ Second, that the DI could have erroneously added in two other
distributions it received (for 288
[[Page 28066]]
BronchEze and 432 Twin Tabs) to the total amount. Id. at 332-33; RX 3,
at 39, 45.
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\8\ It is undisputed that this document was among those taken by
the Government. Tr. 331.
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Although it bears the burden of proof, the Government offered no
evidence (such as an accounting showing each distribution it included
in calculating the overage) to rebut Mr. Ramsey's contentions.\9\
Moreover, having conducted my own review of Respondent's records, I
agree with Mr. Ramsey's figure for the total amount of Rapid Action
that he distributed. I further conclude that, at most (and even this is
doubtful), twelve bottles are unaccounted for. Consequently, I agree
with the ALJ that the Government failed to prove by a preponderance of
the evidence that the audit revealed a 732-bottle overage for the Rapid
Action product.
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\9\ To make clear, in performing the audit, the Government used
Respondent's perpetual inventory which documented each distribution
it received from a supplier as well as each distribution it made to
a customer.
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As noted above, the Government also apparently alleged that
Respondent was selling listed chemical products to convenience stores
and gas stations in quantities that were "far in excess of [the]
amounts of product that could be reasonably sold for legitimate
purposes." Show Cause Order at 3. In support of the allegation, the
Government introduced two affidavits prepared by an expert witness for
proceedings involving two different distributors. See GXs 20 & 27. The
gist of these affidavits was that the normal expected retail sale of
pseudoephedrine in a convenience store is between $10 and $30 a month,
with an average of $20 per month, and that a sale of more $100 a month
(to meet legitimate demand) could be expected to occur "about once in
a million raised to the tenth power." GX 20, at 8-9. The affidavit
further asserts that the normal expected sales level of combination
ephedrine products at "a convenience store is about one quarter that
of single ingredient products." Id. at 11.
Subsequent to the closing of the record in this proceeding, I found
that the expert's methodology was unreliable for several reasons. See
Novelty Distributors, Inc., 73 FR 52689, 52693-94 (2008). I further
concluded that the Expert's testimony as to the normal expected sales
range of the products and statistical probability that various sales
levels were consistent with legitimate demand did not constitute
substantial evidence. Id. at 52694. As I have previously held, even
when a Respondent has not raised similar challenges to the Expert's
methodology, the Agency cannot ignore the ultimate finding in Novelty
that the expert's conclusions as to the expected sales levels (and
probabilities) do not satisfy the substantial evidence test. See CBS
Wholesale, 74 FR 36746, 36748 (2009); Gregg & Son Distributors, 74 FR
17517, 17520 (2009).
Other Evidence
Mr. Ramsey personally stocks his listed chemical products in
plexiglass display cases, which he has provided to his customers at his
own expense to prevent theft. Tr. 338-40, 407-08. According to Mr.
Ramsey, the cases prevent the public from having direct access to the
product. Id. at 338. Mr. Ramsey further testified that he had provided
the cases for more than ten years and had been doing so long before the
2006 enactment of the Combat Methamphetamine Epidemic Act (CMEA), which
made placement of the product behind-the-counter a Federal requirement.
Id. at 339. He also posted signs on the cases indicating the amount of
a product that can be sold on a daily basis and testified that he was
then in the process of sending his customers a letter explaining what
they needed to do to comply with the CMEA's logbook requirement. Id. at
342.
Mr. Ramsey further testified that following Tennessee's enactment
of the Tennessee Meth Free Act, which prohibited his customers from
selling tablet-forms of ephedrine, he has not sold any tablet-form
products and instead is selling only soft-gel products in blister
packs. Id. at 352-53. Moreover, he accepted returned tablets and sent
them, along with his remaining inventory, to a reverse distributor for
destruction. Id. at 351-52. He also retained records of the destroyed
products. Id.; see also RX 3, at 14-15.
Discussion
Section 304(a) of the Controlled Substances Act (CSA) provides that
a registration to distribute a list I chemical "may be suspended or
revoked * * * upon a finding that the registrant * * * has committed
such acts as would render [its] registration under section 823 of this
title inconsistent with the public interest as determined under such
section." 21 U.S.C. 824(a)(4). Moreover, under section 303(h), "[t]he
Attorney General shall register an applicant to distribute a list I
chemical unless the Attorney General determines that registration of
the applicant is inconsistent with the public interest." Id. Sec.
823(h). In making the public interest determination, Congress directed
that the following factors be considered:
(1) Maintenance by the [registrant] of effective controls
against diversion of listed chemicals into other than legitimate
channels;
(2) Compliance by the [registrant] with applicable Federal,
State, and local law;
(3) Any prior conviction record of the [registrant] under
Federal or State laws relating to controlled substances or to
chemicals controlled under Federal or State law;
(4) Any past experience of the [registrant] 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." Gregg & Son
Distributors, 74 FR 17517, 17520 (2009); see also Joy's Ideas, 70 FR
33195, 33197 (2005). I may rely on any one or a combination of factors,
and I may give each factor the weight I deem appropriate in determining
whether to revoke an existing registration or to deny an application
for renewal of a registration. Gregg & Son, 74 FR at 17520; Energy
Outlet, 64 FR 14269 (1999). Moreover, I am not required to make
findings as to all of the factors. Volkman v. DEA, 567 F.3d 215, 222
(6th Cir. 2009); Morall v. DEA, 412 F.3d 165, 173-74 (DC Cir. 2005).
The Government, however, bears the burden of proof. 21 CFR 1309.54.
Having considered all of the factors, I conclude that the Government
has failed to prove that Respondent's continued registration is
inconsistent with the public interest. While I have also considered the
ALJ's recommendation that I impose several compliance conditions on
Respondent's registration, I conclude that the record does not support
doing so. Accordingly, the Order to Show Cause will be dismissed.
As noted above, the Government's case was based primarily on
Respondent's putative failure to maintain effective controls against
diversion. More specifically, the Government alleged that: (1)
Respondent had once lost a case of ephedrine, and that he failed to
timely report the loss, (2) that Respondent was selling list I products
in quantities which were "far in excess" of legitimate demand, and
(3) that an audit found an overage of 732 bottles of one product. Show
Cause Order at 2-3.
As explained in numerous cases, maintaining proper security for
list I chemicals is a highly important consideration under factor one.
Here, however, there is no dispute that Respondent maintains proper
security of the products at its registered location. Rather, the
Government relies on a single incident, which had occurred
[[Page 28067]]
nearly three years before the Show Cause Order was even filed, in which
Respondent lost a case of product out the back of its truck.
It is undisputed that upon discovering the loss, Mr. Ramsey
attempted to find the product. He reported the loss in writing to DEA
within three days. See 21 U.S.C. 830(b)(1)(C). He also took corrective
action to prevent a reoccurrence and there is no evidence that there
has been one.
The Government nonetheless asserts that Respondent violated Federal
law because it "failed to timely report" the loss "pursuant to 21
CFR 1310.05(a)(3) and (b)." Gov. Br. at 9. The Government does not
explain, however, whether it relies on the provision of the regulation
which requires that "whenever possible," an oral report shall be made
"at the earliest practicable opportunity," or the provision which
requires that a written report be filed "within 15 days after the
regulated person becomes aware of the circumstances of the event." 21
CFR 1310.05(b); see also Gov. Br. 9.
What is clear is that Respondent's written report complied with the
regulation. Moreover, it is not the role of those who perform quasi-
judicial functions to make the Government's argument for it. Because
the Government did not advance the argument that its allegation is
based on Respondent's failure to give oral notification, I do not
consider it. Accordingly, I reject the allegation that Respondent
violated Federal law by failing to timely report the 2003 loss of
listed chemicals.
I am also compelled to reject the allegation that Respondent was
selling excessive quantities of listed chemicals. As noted above,
because the Government Expert's methodology is unreliable, his findings
as to both the monthly expected sales range and the statistical
improbability of certain sales levels of ephedrine products in
legitimate commerce at convenience stores are not supported by
substantial evidence.\10\ Novelty Distributors, 73 FR at 52693-94; see
also CBS Wholesale, 74 FR at 36746.
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\10\ While the Government has the burden of proof, it also
failed to produce any analysis of Respondent's sales data to show
what its average monthly sale was. See also Resp. Br. 22 (arguing
that the Government "presented no evidence that [the Expert] review
any information concerning [its] business practices or its List I
sales"). Accordingly, even if its Expert's methodology had not been
subsequently shown to be invalid, I would still be compelled to
reject the allegation.
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Finally, the Government alleged that its audit of Respondent found
an overage of 732 bottles of 36-count Rapid Action combination
ephedrine tablets. Here again, the Government failed to meet its
evidentiary burden. As noted above, the primary dispute over the audit
involved the amount of Respondent's distributions to its customers. The
Government did not, however, document how it arrived at its figure by
showing what invoices (or transactions \11\) it included. Moreover,
Respondent's evidence (which included the purchase invoices and the
perpetual inventories Mr. Ramsey maintained) establishes that Mr.
Ramsey's testimony accurately reflects the amount of the product he had
distributed to the stores during the audit period. Finally, the
Government failed to rebut this evidence. I thus reject the allegation
as unsupported by substantial evidence.
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\11\ The Government did not use Respondent's sales invoices, but
rather, the perpetual inventories it maintained for each lot of
product it obtained from a distributor.
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While the ALJ found this allegation unproven, and further noted
that Respondent's "perpetual inventory" records "exceeded the DEA's
requirements to some extent," she nonetheless found that the logs
submitted into evidence were "difficult to decipher, which makes a
proper evaluation of their accuracy nearly impossible." ALJ at 29. The
ALJ therefore recommended that as a condition of continuing his
registration, I require that "Respondent shall improve and maintain
its records of listed chemical product sales such that they are (a)
clearly legible, (b) the product sold is clearly identified, and (c)
the customer to whom products are sold is clearly identified such that
all of its sales can be accounted for." \12\ Id. at 43 (footnotes
omitted).
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\12\ The ALJ suggested that Respondent could improve the
legibility of his records by either "typing or carefully
handwriting the logs." ALJ at 43 n.15.
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Neither Federal law nor Agency regulations require that a list I
chemical distributor maintain a perpetual inventory.\13\ See 21 CFR
1310.03(a). And even assuming that the Agency has authority to impose
conditions based on a registrant's maintenance of a record he has no
obligation under the law to maintain, I conclude that the ALJ's
conditions are unwarranted for several reasons.
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\13\ Nor is there a requirement that a registrant who handles
controlled substances maintain a perpetual inventory. See 21 CFR
1304.21(a).
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First, the records are copies, and as such, do not necessarily
establish that the originals are illegible. Second, the legibility of a
person's handwriting is like beauty--it is in the eyes of the beholder.
Having reviewed the records, I find that they are legible enough to
understand. Third, the records were compiled from the invoices
Respondent created for each store and transaction. In the event an
entry was unreadable--and the Government does not maintain that any of
the entries were--the original invoice could have been reviewed. Yet
none of Respondent's sales invoices are in the record, and thus, it is
not possible to assess whether they were being properly maintained and
were legible.\14\ Accordingly, there is no basis to support the ALJ's
conclusion that Respondent's records "render an accurate assessment of
its accountability extremely difficult." ALJ at 42. The evidence
therefore supports neither "admonish[ing] the Respondent to improve
its recordkeeping," nor the imposition of the ALJ's proposed
condition. Id.
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\14\ In light of the fact that Combat Methamphetamine Epidemic
Act eliminated the thresholds for combination ephedrine products
such that all "transactions, regardless of size, are subject to
recordkeeping and reporting requirements as set forth in" 21 CFR
1310, 21 CFR 1310.04(g), Respondent should ensure that its
recordkeeping complies with the regulations.
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The ALJ also recommended that I impose the condition that
"Respondent is only authorized to handle soft gel listed chemical
products." Id. at 43. As I have previously explained, conditions on a
registration "must be related to what the Government has alleged \15\
and proved in any case." Janet L. Thornton, 73 FR 50354, 50356 (2008).
In her decision, the ALJ noted that there is "no evidence that the
Respondent has violated the [Tennessee] Meth Act," and that "the
record demonstrates that the Respondent is effectively adhering to the
[Tennessee] Meth Act and has limited the sales to its customers
strictly to gel-form ephedrine." ALJ at 41. Likewise, there is no
evidence that Respondent had violated the then newly enacted Combat
Methamphetamine Epidemic Act.
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\15\ To make clear, conditions can be imposed based on any
allegation which the Government provides adequate notice of in
accordance with the Due Process Clause and Administrative Procedure
Act (and DEA regulations) and which it proves at a hearing.
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This being so, there is no basis for imposing this condition. The
purpose of conditions is not simply to replicate what is already
required by State or Federal law. Cf. Joseph Gaudio, 74 FR 10083, 10095
(2009) (rejecting ALJ's recommendation to continue a registration on
the condition that a registrant refrain from illegal activity, noting
that there were numerous State and Federal laws which already
prohibited the activity). Rather, the purpose is to remedy identified
and proven deficiencies in a registrant's policies and practices where
those deficiencies are not so serious or
[[Page 28068]]
extensive as to warrant revocation of a registration but which
nonetheless threaten the public interest. Because there is no evidence
that Respondent has sold forms of list I products in violation of
either State or Federal law, there is no basis to impose the
condition.\16\
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\16\ For the same reason, there is no basis to impose the ALJ's
third condition.
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In conclusion, the Government has not established that Respondent
has committed any acts which either render its registration
inconsistent with the public interest or which would support the
imposition of conditions on its registration. Accordingly, the Order to
Show Cause will be dismissed.
Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h) and
824(a), as well as 28 CFR 0.100(b) and 0.104, I order that the
application of M & N Distributors for renewal of its DEA Certificate of
Registration be, and it hereby is, granted. I further order that the
Order to Show Cause issued to M & N Distributors be, and it hereby is,
dismissed. This order is effective immediately.
Dated: May 6, 2010.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 2010-11951 Filed 5-18-10; 8:45 am]
BILLING CODE 4410-09-P
NOTICE: This is an unofficial version. An official version of this publication may be obtained
directly from the Government Printing Office (GPO).
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