Registrant Actions - 2010
FR Doc 2010-20233[Federal Register: August 16, 2010 (Volume 75, Number 157)]
[Notices]
[Page 49951-49955]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au10-98]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 08-15]
Hilmes Distributing, Inc.; Dismissal of Proceeding
On October 31, 2007, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Hilmes Distributing, Inc. (Respondent), of
Trenton, Illinois. The Order proposed the revocation of Respondent's
DEA Certificate of Registration, which authorizes it to distribute List
I chemicals, and the denial of any pending applications for renewal or
modification of the registration, on the ground that its "continued
registration * * * is inconsistent with the public interest, as that
term is defined in 21 U.S.C. 823(h).'' ALJ Ex. 1, at 1.
The Show Cause Order specifically alleged that "[c]onvenience
stores and gas stations continue to be the primary source for
precursors that are diverted to illicit methamphetamine laboratory
operators in many states'' and that Respondent "distributes large
amounts of ephedrine-based products almost exclusively to convenience
stores and gas stations.'' Id. at 1-2. The Order alleged that "the
normal expected sales range to meet legitimate demand for combination
ephedrine products is between $0 and $25 per month, with an average of
$12.58 per month,'' and that Respondent's "sales of combination
ephedrine products greatly surpass the expected sales range to meet any
legitimate demand for combination ephedrine products.'' Id. at 2. The
Order further alleged that Respondent's sales to four stores during the
months of June through August 2006 "greatly surpass[ed] the expected
sales range to meet any legitimate demand for combination ephedrine
products,'' and that while not "exhaustive,'' these sales are
"nonetheless representative of [Respondent's] sales pattern of [sic]
combination ephedrine products'' in amounts which "are inconsistent
with the known legitimate market.'' Id. The Order thus concluded by
alleging that "these types of businesses do not sell such inordinately
large volumes of List I chemicals for legitimate uses,'' that
Respondent's "continued registration will result in the continued
diversion of List I chemicals,'' and that it "is inconsistent with the
public interest.'' Id.
On November 21, 2007, Respondent, through its counsel, requested a
hearing on the allegations. ALJ Ex. 2. The matter was placed on the
docket of the Agency's Administrative Law Judges (ALJs), and a hearing
was held on April 15, 2008, in St. Louis, Missouri. At the hearing,
both parties called witnesses to testify and introduced documentary
evidence. After the hearing, only Respondent filed a brief.
On October 7, 2009, the ALJ issued her recommended decision (also
ALJ) in the matter. Therein, the ALJ examined the five public interest
factors (see 21 U.S.C. 823(h)) and concluded that the Government had
not met its burden of proving that Respondent's continued registration
is inconsistent with the public interest. ALJ at 25.
With respect to the first factor--the maintenance of effective
controls against diversion--the ALJ noted that during a November 2006
inspection of Respondent, there were no deficiencies in its physical
security and that DEA has never advised Respondent that its "physical
security for its listed chemical products was inadequate.'' ALJ at 17.
The ALJ also found that Respondent had implemented various procedures
to ensure its customers followed both Federal and state laws applicable
to the retail distribution of listed chemicals. Id. The ALJ thus
concluded that this factor weighed "in favor of renewing the
Respondent's DEA registration.'' ALJ at 17.
Examining the second and fourth factors together--the registrant's
compliance with applicable State, Federal and local law, as well as its
past experience in the distribution of List I chemicals--the ALJ noted
that while Respondent has held a registration since 1997, it has never
been cited by DEA for any regulatory violations. Id. at 18. Moreover,
the ALJ noted that the Diversion Investigator (DI) who performed the
inspection had testified that Respondent "is probably one of the
better distributors, as far as recordkeeping goes.'' Id.
With respect to the Government's principal allegation, the ALJ
found that the Government had not established a baseline figure
necessary to show that Respondent's sales were so excessive as to
support a finding that the products were being diverted. Id. at 21.
While the ALJ noted that the Government had submitted the declarations
of an expert witness as to the expected sales range of combination
ephedrine products at convenience stores to meet legitimate demand and
had previously relied on this evidence in several cases to prove that
diversion had occurred, the ALJ noted that in a subsequent case, the
expert's methodology was found to be unreliable. Id. (citing Novelty
Distributors, Inc., 73 FR 52689, 52693-95 (2008)). Accordingly, the ALJ
concluded that "the Government has not established by a preponderance
of the evidence that these figures accurately represent the average
dollar amount of expected sales of listed chemical products.'' Id.
Citing my decision in Novelty, 73 FR at 52703-04, the ALJ
calculated the customers' average monthly sales (which she found to be
$ 453.86) and then used this as the baseline for determining whether
its sales to individual stores were in excess of legitimate demand. Id.
The ALJ concluded, however, that while its sales to one gas station
during a three-month period "seem excessive,'' these sales created
only a "suspicion of diversion,'' which under agency precedent was not
sufficient to prove that its products were being diverted. Id. at 21-22
(citing John J. Fotinopoulos, 72 FR 24602, 24604 (2005)). The ALJ thus
found that "th[es]e factor[s] weigh[] in favor of Respondent being
allowed to continue handling listed chemical products.'' Id. at 24.
As for the third factor--Respondent's conviction record under
Federal or State laws relating to controlled substances or listed
chemicals--the ALJ found that neither Respondent nor any of its
employees have been convicted of an offense "related to their handling
of listed chemical products under either Federal or State law.'' Id. at
23. As for the fifth factor--other factors relevant to and consistent
with public health and safety--the ALJ concluded that "absent evidence
of such excessive sales that diversion is a reliable conclusion * * *
Respondent's continued sale of listed chemical products to its
customers, in the manner in which [it] conducts its business, does not
create a risk of diversion of these products to the illicit market.''
Id. at 24. The ALJ thus concluded that the Government had not proved
that Respondent's continued registration would be inconsistent with the
public interest. Id. at 25.
[[Page 49952]]
Neither party filed Exceptions to the ALJ's recommended decision.
Thereafter, the ALJ forwarded the record to me for final agency action.
Having considered the entire record in this matter, I adopt the ALJ
decision in its entirety except for her findings and conclusion that
Respondent has not failed to report suspicious orders. However, because
the Government made no such allegation, the relevant evidence cannot be
considered as the basis for imposing a sanction. Accordingly, the Order
to Show Cause will be dismissed. I make the following findings of fact.
Findings
Respondent is an Illinois corporation, which is owned and operated
by Mr. Gary Hilmes, who also serves as its President. ALJ Ex. 4, at 2;
Tr. 160. Respondent, which has eight employees including Mr. Hilmes,
Tr. 160, is a wholesale distributor of various items to convenience
stores, gas stations, and liquor stores. Tr. 15; GXs 22-24. Its
customers are located in Illinois, Indiana, Missouri, Ohio, Oklahoma,
Wisconsin and Minnesota. Tr. 165. Its product lines include
"automotive products, batteries, candies, cigarette papers, meat
snacks, salty snacks, novelties, seasonal items, toys, maps,'' as well
as List I chemical products. Id. at 13, 162. As for the latter, at the
time of the hearing, Respondent distributed ephedrine products under
the brand names of Mini Ephedrine 2-Way Action and Rapid Action; these
products combine either 12.5 or 25 mgs. of ephedrine with 200 mgs. of
guaifenesin. Id. at 176 & 202. According to the DI, Respondent did not
sell what he called "traditional brand name ephedrine.'' Id. at 18-19.
Respondent, which was then organized as a sole proprietorship,
first obtained a DEA registration in 1997. Id. at 165. Respondent's
registration was renewed every year until the 2007 issuance of the
Order to Show Cause. Id. at 165. According to its Certificate,
Respondent's registration was to expire on October 31, 2007. GX 1.
However, on October 8, 2007, Respondent filed a renewal application.
Id. In accordance with the Administrative Procedure Act and DEA
regulations, because Respondent's application was timely filed, I find
that Respondent's registration has remained in effect pending the
issuance of this Decision and Final Order. See 5 U.S.C. 558(c); 21 CFR
1301.36(i).
Ephedrine in combination with guaifenesin is lawfully marketed
under the Food, Drug and Cosmetic Act for over-the-counter use as a
bronchodilator. GX 15, at 3. However, ephedrine is regulated as a
listed chemical under the Controlled Substances Act (CSA) because it is
easily extracted from these products and is a precursor chemical used
in the illicit manufacture of methamphetamine, a schedule II controlled
substance. ALJ Ex. 4, at 1-2; 21 U.S.C. 802(34); 21 CFR 1308.12(d); Tr.
42; GX 4; GX 15, at 8; GX 16, at 7.\1\
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\1\ An ounce of methamphetamine contains 28 grams, and each gram
of methamphetamine yields around eight to ten doses. RX 8, at 15,
19; RX 9, at 17. Around 1,000 ephedrine pills will yield
approximately one gram of methamphetamine in a clandestine
methamphetamine laboratory. Tr. 92. An illicit clandestine
laboratory may manufacture anywhere from a 1-ounce to a 4-ounce
batch. Id. at 125.
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Methamphetamine is a highly addictive central nervous system
stimulant. Tr. 136. Methamphetamine abuse has destroyed numerous lives
and families and ravaged many communities. Id. at 136. Moreover, the
illicit manufacture of methamphetamine produces toxic and explosive
byproducts, including phosphine gas, which is lethal even in low
concentrations, and causes serious environmental harms. RX 9, at 27.
Individuals have lost limbs and even their lives due to explosions
during methamphetamine "cooks.'' \2\ Tr. 136.
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\2\ While methamphetamine imported from Mexico has taken an
increasing share of the domestic market, small toxic and illegal
laboratories in the United States continue to pose an enforcement
challenge. RX 12, at 1-2. This is true even following the
implementation of the Combat Methamphetamine Epidemic Act of 2005
and other state laws restricting the over-the-counter purchase of
List I chemical products. Tr. 131.
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Illicit methamphetamine production is comparatively inexpensive, as
"with $200,'' a person "can buy all the chemicals and equipment [she/
he] needs to make * * * $2,000, $2,500 worth of methamphetamine.'' RX
9, at 30. Typically, methamphetamine is sold in "quarter gram, half
gram, [and] gram units.'' Tr. 129. At the hearing in April 2008, a DEA
Special Agent (SA) testified that a quarter gram might cost $25-$40
while an ounce would cost anywhere from $850 to $1,200. Id. at 129-130.
Respondent distributes products to customers in the States of
Missouri, Illinois, Indiana, Ohio, Oklahoma, Wisconsin, and Minnesota.
Id. at 165. Several of these States have serious problems with
methamphetamine abuse as evidenced by the number of clandestine lab
incidents. See GX 13 (showing that even after the enactment of Federal
legislation, there were still nearly 1260 lab incidents in Oklahoma).
Due to the development of state laws limiting the sale of List I
chemical tablets, at the time of the hearing, Respondent sold
combination ephedrine tablets only in Indiana and Wisconsin; elsewhere
he sold gel cap ephedrine combination products. Tr. 201.
The DEA Inspection of Respondent
On November 28, 2006, a DEA Diversion Investigator conducted an
inspection of Respondent which included reviewing its physical
security, recordkeeping and operating procedures. The Investigator met
Mr. Hilmes, who told him that that his firm had 430 customers, which
include convenience stores, gas stations and liquor stores; of these,
131 purchased combination ephedrine products. Id. at 12-13, 15, 202; GX
36, at 8. See also GXs 22-24 (Respondent's sales records for June
through August 2006) and 26-28 (copies of Respondent's sales receipts
for months of June through August 2006).\3\
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\3\ At the hearing Mr. Hilmes testified that since the passage
of the Combat Methamphetamine Epidemic Act of 2005 (CMEA), those of
his customers who were "independents'' "opted out'' of selling
List I chemical products "for fear of getting caught in some sort
of trouble for not properly'' complying with the CMEA's provisions.
Tr. 164. Consequently, his current List I customer base consists of
only 105 to 110 businesses. Id. Respondent's total customer list,
however, has grown to around 480 to 500 businesses. Id.
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Respondent stores the listed chemical products in "the drug
room,'' a room with locked doors that is continually lit and is
outfitted with an infra-red camera to guard against theft. Tr. 169. As
an additional security precaution, within the room, the List I
chemicals are stored in a steel cage. Id. The room is also protected by
an alarm system with a motion detector; in the event the alarm is
triggered, both the County Sheriff and a monitoring service are
notified; the latter first calls Respondent's business line, then Mr.
Hilmes's cell phone, and, if there is no answer at either, Mr. Hilmes's
father. Id. at 170. Regarding Respondent's security, the DI (who had
also participated in two other inspections of it) testified that DEA
"never had any problems with [Respondent's] security.'' Id. at 96; see
also id. at 178 (testimony of Mr. Hilmes that although DEA has
inspected Respondent four or five times, it has never found its
security inadequate).
With respect to Respondent's recordkeeping, the DI testified that
it is "one of the better distributors as far as record keeping goes.''
Id. at 62-63. The DI further stated that "there was nothing wrong with
* * * [Respondent's] recordkeeping and as a matter of fact,
[Respondent] is one of the few chemical distributors that we work with
that had most of their records on a database, which made it easily
accessible.'' Id. at
[[Page 49953]]
96. The DI further described Mr. Hilmes as "very cooperative'' at the
inspections. Id. at 62-63.
Respondent also put on extensive testimony as to its procedures for
handling listed chemical products. Upon receipt of the products,
Respondent stamps them. Id. at 171. Each Friday, Respondent takes an
inventory and maintains a record of what products have been taken by
each salesman. Id. It then compares this figure (prior week's inventory
minus the product taken by its drivers) with the new inventory. Id. at
171-72.
Each Friday, Respondent requires that each driver account for the
merchandise he has taken; if there is a discrepancy, the driver does
not leave on his route the next week until it is resolved. Id. at 172-
73. Respondent also retains a copy of its sales invoices and makes a
copy on which its drivers record the product's lot number at the store,
"prior to the actual transaction.'' Id. at 174.
Under company policy, Respondent will not sell to customers who
seek to buy only List I chemical products. Id. at 177. Since the
implementation of the Combat Methamphetamine Epidemic Act of 2005,
Respondent distributes List I chemical products only to those
businesses that have self-certified in compliance with the Act;
Respondent also requires its drivers to visually inspect the self-
certification and note the expiration date. Id. at 189. Some thirty to
ninety days prior to the expiration of a customer's certification,
Respondent sends a letter notifying it of the upcoming expiration and
indicating that Respondent will not continue to sell product to it
after the expiration of its certification unless the store re-
certifies. Id. In addition, since the enactment of the CMEA,
Respondent's drivers will not service a new customer until they confirm
visually that the customer has a logbook as required by law. Id. at
191.
Since it first became registered, Respondent has provided its
customers with acrylic cases for storing the combination ephedrine
products. Id. at 193. The cases which Respondent currently provides
have keyed locks on the back thus preventing a customer from acquiring
the product without the assistance of a store clerk. Id.
Since the enactment of the CMEA's requirement that retailers self-
certify, Respondent has provided a print-out of the training materials
from the DEA website which follows the online self-certification
process prior to his first delivery to new customers. Id. at 194; RX 6.
The training materials include such information as the single-day (3.6
grams) and thirty-day (9 grams) limits on an individual's purchase of
combination ephedrine products. Id. at 194; RX 6, at 12. Mr. Hilmes
testified that while his drivers cannot by law examine a customer's
logbook, if it were proven that a customer violated those limits,
Respondent would no longer sell List I chemical products to that
customer. Tr. 195.
The DI, who had worked on two prior inspections of Respondent,
testified that he was not aware of Respondent's ever having been cited
for regulatory infractions by DEA, including after the inspection of
November 2006. Id. at 60-61. Similarly, Mr. Hilmes testified that he
had no knowledge of any regulatory infractions by his firm. Id. at 178.
Respondent's total sales volume of all products from January 1,
2004 through the close of business October 13, 2006, was $6,336,943.18.
GX 21. According to the DI, Mr. Hilmes told him at the 2006 inspection
that thirty percent of his gross sales were attributable to combination
ephedrine products. Tr. 15, 83. However, at the hearing, Mr. Hilmes
contested this, testifying that he "specifically recall[ed] stating''
that the percentage of gross sales attributable to List I chemical
products "was 20 percent or less.'' Id. at 197.
Mr. Hilmes testified that he ran the figures for June through
August 2006 (the time period referenced in the Show Cause Order) and
found that the percentage of sales attributable to List I chemical
products was 19.39 percent. Id. at 198. Mr. Hilmes further testified
that, at the time of the hearing, the quantity of List I chemical
product it was selling was down but, due to price increases, its total
sales remained about the same.\4\ Id. at 196.
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\4\ Mr. Hilmes testified that Respondent had not purchased gel
caps since the preceding September "when the industry ran out
nationwide, because the company that makes gel caps shut their
operation down.'' Tr. 175. At the time of the hearing, Respondent no
longer stocked 6-count, 12-count, and 24-count gel cap packages but
only 12-tablet and 24-tablet blister packs. Id. at 176. Lacking gel
caps in its inventory, Respondent had only twelve active List I
customers, all located in either Indiana or Wisconsin; but Mr.
Hilmes stated that he intended to supply a total of 108 customers
once gel caps were again available. Id. at 201.
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The Government entered into evidence a spreadsheet created by the
DI which showed Respondent's sales of combination ephedrine products to
its various customers during the period of June through August 2006. GX
35; Tr. 21. The DI testified that Respondent's customer's monthly
retail sales of ephedrine products exceeded $15 a month, an amount
which the Government maintained represents the normal expected retail
sales range of these products at convenience stores for legitimate
uses. Id. at 31; see also ALJ Ex. 1, at 2 (Show Cause Order ] 6).
As for the stores specifically identified in paragraph 7 of the
Show Cause Order, the Government produced evidence showing that,
between June 8 and August 24, 2006, the FISCA Oil Co. of West Alton,
Mo., had purchased ephedrine products with a total retail value of
approximately $15,600. GX 35, at 7-8. Mr. Hilmes testified that this
customer is a gas station, liquor store and smoke shop that benefits
from being just over the border in Missouri where taxes are lower on
gasoline and cigarettes than they are in Illinois. Tr. 181. He also
indicated that during this time period, Illinois law limited purchases
of ephedrine gel caps to one package of 6-count or 12-count blister
packs, while under Missouri law, an individual could buy two 36-count
packages. Id. According to Mr. Hilmes, the store "sell[s] a lot of
pills because [it] sell[s] a lot of everything else.'' Id. at 182.
The Government's evidence showed that between June 7 and August 23,
2006, the Gas Mart 11 of St. Louis, Mo., had purchased
ephedrine products with a total retail value of $8,573. GX 35, at 9.
Mr. Hilmes testified that this customer is a high-volume store located
so as to draw both local and interstate traffic and also "sell[s] a
lot of everything.'' Tr. 182.
The Government's evidence showed that between June 13 and August
22, 2006, Blue Goose Liquor of Centralia, Ill., purchased ephedrine
products with a total retail value of $5,079. GX 35, at 2. Mr. Hilmes
testified that Blue Goose Liquor is "the number one Anheuser-Busch
retailer in that county,'' was his "largest dollar [customer]
overall,'' "that it's like a country WalMart liquor store,'' and is
even outfitted with a "drive-up window.'' Tr. 183. Moreover, the store
is located in an industrial area and there are "three shifts of people
coming in there 24 hours a day.'' Id. at 184.
The Government's evidence showed that between June 9 and August 25,
2006, the Hit-n-Run 8 of Bethalto, Ill., purchased ephedrine
products with a total retail value of $4,699. GX 35, at 18. Mr. Hilmes
testified that "[i]t's always been an extremely high dollar ephedrine
account'' because no other store in Bathalto, Illinois, with the
exception of the pharmacy and Walgreen's, carries ephedrine. Id. He
added that when Walgreen's opened, his ephedrine sales to this account
dropped by half. Id.
The Government's evidence showed that between June 7 and August 23,
2006, the 7-11 19889 of St. Louis, Mo., purchased ephedrine
products with a total retail value of $2,916. GX 35, at 1.
[[Page 49954]]
Mr. Hilmes testified that, similar to Gas Mart, the store is located in
a high population density area of South St. Louis and is open twenty-
four hours per day, seven days per week. Id. at 185. Summarizing his
sales to all the above-mentioned stores, Mr. Hilmes testified that
"they bought a whole lot of'' other products besides ephedrine. Id.
During January and February 2008, a DI went to eight Moto Marts
(which are chain gas stations and convenience stores) in southern
Illinois to verify whether they were Respondent's customers and to
review their logbooks. Id. at 30-31 & 69. The DI found that "the same
people were buying similar products at--within the component of eight
[stores] we worked on, various stores within that component.'' Id. at
31, 69. Moreover, the same four "individuals accounted for 42 percent
of the total monthly sales'' of combination ephedrine products at Moto
Mart 3111 for the period October 9, 2007 through February 29,
2008. Id. at 34. Of the logbook review, he commented that the customer
establishments were running close to CMEA limits but not exceeding
them. Id. at 70-71.
The Government also entered into evidence two affidavits prepared
by an expert witness\5\ for other proceedings regarding the normal
expected sales range of ephedrine products at convenience stores in
legitimate commerce. In one of these affidavits, the expert opined that
in August 2007, he "analyzed national sales data for over-the-counter
non-prescription drugs that contain ephedrine (Hcl).'' GX 36, at 4.
Based on his review of data from various sources, the affidavit asserts
that during the year 2006, "about $172 per year or about $14 per month
of in-store sales [at convenience stores] could be attributed to
combination ephedrine/guaifenesin tablet products.'' Id. at 5. The
expert further opined that "the normal expected retail sale of
ephedrine (Hcl) tablets in a convenience store ranges between $0 and
$29, with an average of $14.39 and a standard deviation of $5.76.'' Id.
at 7-8. In addition, the expert opined that "[a] monthly retail sale
of $60 of ephedrine/guaifenesin (Hcl) tablets would be expected to
occur about once in a million times in random sampling.'' Id. at 8.
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\5\ The expert did not testify in this proceeding.
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However, during a proceeding which was litigated simultaneously
with this matter, the methodology used by the Government's expert to
determine the expected sales range was found to be unreliable. See
Novelty Distributors, Inc., 73 FR 52689, 52694 (2008). As I have noted
in other cases, even though Respondent did not challenge the
methodology of the Government's expert,\6\ "the Agency cannot . . .
ignore the ultimate finding in Novelty which rejected the expert's
conclusions as to the expected sales range of ephedrine products'' at
convenience stores. Gregg & Son Distributors, 74 FR 17517, 17520
(2009). See also Mr. Checkout North Texas, 75 FR 4418, 4421 (2010); CBS
Wholesale Distributors, 74 FR 36746, 36748 (2009). Accordingly, I again
conclude that the Government's figures for the monthly expected sales
by convenience stores of combination ephedrine products for legitimate
uses, as well as for the statistical probability of various sales
levels in legitimate commerce, are not supported by substantial
evidence.
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\6\ Respondent did, however, challenge the expert's credibility.
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Finally, the DI testified that he was not aware that Respondent's
sales exceeded the then-existing threshold of 1,000 grams per thirty-
day period. Tr. 68; see also 21 CFR 1310.04(f)(1)(ii)(2006).\7\
Moreover, the record contains no evidence that either Respondent's
owner or any of its employees have ever been convicted of an offense
related to related to controlled substances.
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\7\ To make clear, the 1,000 gram threshold for sales (within a
thirty-day period) of combination ephedrine products by a
distributor to a retail store triggered various recordkeeping and
reporting requirements. The provision neither prohibited sales in
excess of the threshold nor provided a safe harbor for sales when a
distributor had reason to know that the products were likely to be
diverted. See United States v. Kim, 449 F.3d 933, 944 (9th Cir.
2006); Sunny Wholesale, Inc., 73 FR 57655, 57665 (2008); Rick's
Picks, 72 FR 18275, 18278 (2007). This remains the case with respect
to those chemicals for which thresholds remain in place.
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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 the 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,
74 FR at 17520; 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 deny an application for renewal of a
registration. Gregg & Son, 74 FR at 17520; Jacqueline Lee Pierson
Energy Outlet, 64 FR 14269, 14271 (1999). Moreover, I am not required
to make findings as to all of the factors. Morall v. DEA, 412 F.3d 165,
173-74 (D.C. Cir. 2005).
The Government bears the burden of proof. 21 CFR 1309.54. However,
where the Government has made out a prima facie case, the burden shifts
to the Respondent to show why its continued registration is consistent
with the public interest.
Having considered the Government's evidence and the relevant
factors, I conclude that the Government has not satisfied its prima
facie burden of showing that Respondent's continued registration is
inconsistent with the public interest. Accordingly, Respondent's
renewal application will be granted and the Order to Show Cause will be
dismissed.
The Government did not challenge the adequacy of Respondent's
physical security, its recordkeeping, or its procedures for monitoring
its receipt and distribution of listed chemicals, all of which are
relevant in assessing the adequacy of its diversion controls. See,
e.g., Gregg & Son, 74 FR at 17520. Instead, the Government's sole basis
for seeking the revocation of Respondent's registration was the
allegation that it sold combination ephedrine products in quantities
which "greatly surpass the expected sales range [by convenience
stores] to meet legitimate demand for combination ephedrine products''
and that these stores constitute a gray market which is the "primary
source for precursors that are diverted to illicit
[[Page 49955]]
methamphetamine laboratory operators.'' ALJ Ex. 1 (]] 6 & 3).
As found above, the Government's figures for the expected sales
range and the statistical probability of certain sales level of
ephedrine products in legitimate commerce at convenience stores are not
supported by substantial evidence. Accordingly, there is no basis for
concluding that Respondent's sales of these products "greatly surpass
the expected sales range to meet legitimate demand.'' Id. at 2 (] 6).
The ALJ also acknowledged that when compared to Respondent's
average monthly sales to its other customers ($454), Respondent's sales
to the FISCA Oil Company and some other stores seem excessive. ALJ at
21-22. While this evidence is disturbing, I agree with the ALJ's
conclusion that this evidence only creates a suspicion that diversion
was occurring.\8\ Id. at 22.
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\8\ The record does not establish the standard deviation for
Respondent's sales. Nor did the Government rebut Respondent's
evidence regarding the stores which purchased the largest quantities
such as their locations and the nature of their businesses.
Moreover, the Government did not file a brief at any stage of
this matter. I thus conclude that the Government does not rely on
the disparity between Respondent's average sale and its sales to
stores such as FISCA to prove that Respondent's products were being
diverted.
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Finally, based on the DI's testimony, the ALJ also found that there
is no evidence that Respondent failed to report any suspicious
transactions. ALJ at 6 & 18. Notwithstanding the DI's testimony, this
finding is erroneous.
On March 9, 2006, the Combat Methamphetamine Epidemic Act of 2005
was signed into law. See USA PATRIOT Improvement and Reauthorization
Act of 2005, Public Law 109-177, Title VII, 120 Stat.192, 256-77.
Section 712(b) of the Act eliminated the 1,000 gram threshold for
combination ephedrine products. 102 Stat. 264. While Congress provided
an effective date for other provisions of the Act, see, e.g., section
711(b)(2) & (c)(3), 120 Stat. 261, it provided no effective date for
section 712(b).
As the Supreme Court has explained, "absent a clear direction by
Congress to the contrary, a law takes effect on the date of its
enactment.'' Gozlon-Peretz v. United States, 498 U.S. 395, 404 (1991)
(other citations omitted). And "`where Congress includes particular
language in one section of a statute but omits it in another section of
the same Act, it is generally presumed that Congress acts intentionally
and purposely in the disparate inclusion or exclusion.''' Id. at 404-05
(quoting Russello v. United States, 464 U.S. 16, 23 (1983) (internal
quotations omitted)).
It is therefore clear that the provision eliminating the threshold
for combination ephedrine products became effective with the Act's
enactment on March 9, 2006. Accordingly, thereafter every transaction
in a combination ephedrine product by a distributor became a regulated
transaction under the CSA, and thus, all transactions became subject to
the recordkeeping and reporting requirements of 21 U.S.C. 830,
including the requirement to report "any regulated transaction
involving an extraordinary quantity of a listed chemical.'' 21 U.S.C.
830(b).
Respondent's sales to the FISCA Oil Company, which occurred after
the threshold was eliminated and which were more than ten times its
average monthly sale (as well as its sales to several other stores
which were also multiple times greater than its average sale) involved
an "extraordinary quantity'' within the meaning of the statute. While
the evidence does not establish that the products Respondent sold in
these transactions were diverted, it cannot be seriously disputed that
the transactions were suspicious and should have been reported to the
Agency. See ALJ at 25 ("[T]he Respondent should remain more vigilant
in determining when a customer is purchasing listed chemical products
in suspicious amounts.'').
It is acknowledged that the Government did not allege that
Respondent violated Federal law by failing to report these
transactions. Accordingly, consistent with the Due Process Clause, the
Agency cannot impose a sanction on Respondent for these violations.
See, e.g., Darrell Risner, D.M.D., 61 FR 728, 730 (1996). However,
while the Order to Show Cause must be dismissed, Respondent is now on
notice that its failure to report similar transactions in the future
may give rise to further proceedings seeking the revocation of its
registration.
Order
Pursuant to the authority vested in me by 21 U.S.C. Sec. Sec.
823(h) and 824(a), as well as by 28 CFR 0.100(b) and 0.104, I hereby
order that the application of Hilmes Distributing, Inc., for renewal of
its DEA Certificate of Registration be, and it hereby is, granted. I
further order that the Order to Show Cause be, and it hereby is,
dismissed. This order is effective immediately.
Dated: August 4, 2010
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 2010-20233 Filed 8-13-10; 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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