78734 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Notices 

1The correct statutory citation is actually 21 

U.S.C. 841(c)(2). 

Agency v. U.S. Oil & Refining Co., D.J. 

Ref. 90–5–2–1–09514. 

During the public comment period, 

the Decree may be examined on the 

following Department of Justice Web 

site, http://www.usdoj.gov/enrd/ 

Consent_Decrees.html. A copy of the 

Decree may also be obtained by mail 

from the Consent Decree Library, P.O. 

Box 7611, U.S. Department of Justice, 

Washington, DC 20044–7611 or by 

faxing or e-mailing a request to Tonia 

Fleetwood (tonia.fleetwood@usdoj.gov), 

fax no. (202) 514–0097, phone 

confirmation number (202) 514–1547. In 

requesting a copy from the Consent 

Decree Library, please enclose a check 

in the amount of $19.25 (25 cents per 

page reproduction cost) payable to the 

U.S. Treasury or, if by e-mail or fax, 

forward a check in that amount to the 

Consent Decree Library at the stated 

address. 

Maureen Katz, 

Assistant Section Chief, Environmental 

Enforcement Section, Environment and 

Natural Resources Division. 

[FR Doc. 2010–31551 Filed 12–15–10; 8:45 am] 

BILLING CODE 4410–15–P 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

[Docket No. 06–63] 

R & M Sales Company, Inc.; 

Revocation of Registration 

On June 1, 2006, the Deputy Assistant 

Administrator, Office of Diversion 

Control, Drug Enforcement 

Administration (DEA, or ‘‘the 

Government’’), issued an Order to Show 

Cause to R & M Sales Company, Inc. 

(Respondent), of Blountville, Tennessee. 

The Show Cause Order proposed the 

revocation of Respondent’s DEA 

Certificate of Registration, 004413RAY, 

which authorizes it to distribute List I 

chemicals, as well as the denial of any 

pending application to renew its 

registration, on the ground that 

Respondent’s continued registration is 

‘‘inconsistent with the public interest.’’ 

OTSC at 1 (citing 21 U.S.C. 823(h) & 

824(a)(4)). 

More specifically, the Show Cause 

Order alleged that during an inspection 

for its initial registration, Respondent 

received copies of DEA notices and cites 

to the Code of Federal Regulations 

pertinent to listed chemical distributors. 

Id. Relatedly, the Order alleged that ‘‘Mr. 

Mitchell was further advised by DEA 

personnel on proper record-keeping 

procedures for a DEA registrant, 

including, but not limited to, the 

requirement of maintaining records of 

the destruction of out of date listed 

chemical products.’’ Id. 

Next, the Show Cause Order alleged 

that many of Respondent’s customers 

are convenience stores, gas stations and 

small independent grocers located in 

the Cumberland Plateau area of 

Tennessee, which is known for its 

problem with illicit methamphetamine 

production, and that Respondent 

distributes pseudoephedrine and 

ephedrine products in both tablet and 

gel-capsule form, which are precursor 

chemicals used in the illicit 

manufacture of methamphetamine. Id. 

at 2–3. 

The Show Cause Order further alleged 

that on June 8 and 9, 2005, DEA 

Investigators (DIs) conducted an 

inspection of Respondent, during which 

they performed an accountability audit 

of its handling of two ephedrine 

products, MaxBrand 25 mg. ephedrine 

tablets (48-count bottles) and Ephedrine 

Multi-Action 25 mg. (also 48-count 

bottles), which revealed a shortage of 

each product. Id. at 3–4. The Order thus 

alleged that Respondent ‘‘failed to 

maintain complete and accurate records 

of a regulated transaction as required by 

21 CFR 1310.06(a).’’ Id. at 4. The Order 

also alleged that Respondent ‘‘stores List 

I chemical products in its delivery 

trucks and/or trailers * * * creat[ing] 

the potential for the diversion of List I 

chemicals.’’ Id. (citing 21 U.S.C. 

823(h)(1) and 21 CFR 1309.71). 

Next, the Show Cause Order alleged 

that based on its June 2005 inspection, 

DEA ‘‘developed additional information 

regarding [Respondent’s] sale of large 

quantities of ephedrine to various 

convenience stores and related 

establishments,’’ and that these ‘‘sales 

were vastly in excess of the amounts of 

this over-the-counter product needed to 

meet the medical and scientific needs of 

the community.’’ Id. The Order also 

alleged that Respondent engaged in 35 

regulated transactions with seven 

different customers in which it 

distributed 24-count, 36-count, and 48- 

count bottles of ephedrine products, 

‘‘knowing or having reason to believe 

that its product would be used in the 

illicit manufacture of controlled 

substances in violation of 21 U.S.C. 

841(d)(2).’’ 1 Id., at 4–6. In addition, the 

Order alleged that Respondent failed ‘‘to 

provide notification of ‘suspicious’ 

activity pursuant to 21 U.S.C. 

830(b)(1)(A) and 21 CFR 1310.05(a)(1) 

with respect to’’ these 35 transactions. 

Id. Finally, the Order alleged that DEA 

‘‘conducted [a] customer verification’’ at 

the Fast Stop Covington, a convenience 

store located in Covington, Virginia, 

during which the owner informed a DI 

‘‘that he purchased one case (144 

bottles) of ephedrine products from 

[Respondent] every two to four weeks’’; 

the Order then alleged that these 

purchases were ‘‘far in excess of 

legitimate demand for these products.’’ 

Id. at 6. 

On June 26, 2006, Respondent 

requested a hearing in the matter. ALJ 

Ex. 2. The matter was assigned to a DEA 

Administrative Law Judge (ALJ), who 

conducted a hearing in Arlington, 

Virginia on May 15 and 16, 2007. 

During the hearing, both parties called 

witnesses to testify and introduced 

documentary evidence. Following the 

hearing, both parties submitted briefs 

containing proposed findings of fact, 

conclusions of law, and argument. 

On February 13, 2009, the ALJ issued 

her recommended decision (ALJ), which 

concluded that Respondent’s continued 

registration would be inconsistent with 

the public interest. With respect to 

factor one—the maintenance of effective 

controls against diversion—the ALJ 

found that Respondent violated 21 CFR 

1309.71(b) by storing listed chemicals in 

trucks away from its premises, that it 

sold ‘‘excessive quantities of listed 

chemicals to some customers and failed 

to report suspicious order[s] for these 

chemicals to DEA,’’ and that it ‘‘failed to 

ascertain whether [its] customers 

purchased listed chemicals from other 

distributors.’’ Id. at 36. She therefore 

concluded that ‘‘Respondent does not 

maintain adequate controls against the 

diversion of the listed chemicals it 

sells,’’ and that ‘‘this factor weighs in 

favor of a finding that Respondent’s 

continued registration would be 

inconsistent with the public interest.’’ 

Id. 

With respect to factor two— 

Respondent’s compliance with 

applicable Federal, State and local 

law—the ALJ concluded that 

Respondent’s storage of chemicals away 

from its premises and its failure to 

report suspicious transactions 

constituted violations of Federal law 

and DEA regulations. Id. She also found 

that Respondent had failed to provide 

prior notification to DEA of mail 

shipments of listed chemical products, 

in violation of 21 CFR 1310.03(c), and 

that, having ‘‘sold excessive quantities of 

listed chemicals,’’ Respondent further 

violated 21 U.S.C. 841(c)(2) in that it 

‘‘should have known that some of those 

chemicals were likely to be diverted to 

the illicit manufacture of the controlled 

substance methamphetamine.’’ Id. at 36– 

37. The ALJ thus concluded that this 

factor supported a finding that 


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2 In July 2005, the FDA proposed to remove 

combination ephedrine-guaifenesin products from 

its over-the-counter (OTC) drug monograph and to 

declare them not safe and effective for OTC use. See 

70 FR 40232 (2005). This rulemaking remains 

pending. 

3 In 1988, Congress amended the Controlled 

Substances Act (CSA) by enacting the Chemical 

Diversion and Trafficking Act (CDTA), which 

subjected bulk ephedrine to regulation. GX 5, at 7. 

Shortly thereafter, law enforcement authorities 

encountered ephedrine tablets instead of bulk 

ephedrine at illicit methamphetamine laboratories. 

Id. In 1993, the CSA was again amended by the 

Domestic Chemical Diversion Control Act of 1993 

(DCDCA), which regulated single-entity ephedrine 

products and required distributors of these products 

to register. Id. Illicit methamphetamine 

manufacturers then switched from single-entity 

ephedrine products to OTC combination products 

containing ephedrine. Id. at 8. The DCDCA also led 

to the large-scale diversion of pseudoephedrine 

tablets to the illicit manufacture of 

methamphetamine. Id. In response, Congress 

enacted the Comprehensive Methamphetamine 

Control Act of 1996 (CMCA), which expanded 

regulatory control of lawfully marketed drug 

products containing ephedrine, pseudoephedrine 

and phenylpropanolamine. Id. at 8–9. 

More recently, in 2006, Congress passed the 

Combat Methamphetamine Epidemic Act of 2005 

(CMEA). GX 3, at 5. Under the CMEA, effective 

April 8, 2006, all tablet-form drug products 

containing pseudoephedrine, ephedrine, and/or 

phenylpropanolamine were required to be sold at 

retail in blister packs. Id. Also effective April 8, 

2006, the law imposed a daily transaction limit of 

3.6 grams of base product per person, per day, and 

a sales limit of 9 grams of base product in a 30-day 

period. Id. As of September 30, 2006, these 

products must be placed behind the counter, and 

purchasers must show identification and sign a 

logbook. Id. 

4According to data compiled by the Drug Abuse 

Warning Network (DAWN), between 1993 and 

1999, medical examiners throughout the country 

reported 4,593 methamphetamine related deaths. 

GX 4, at 9. 

5The law limits the sale of tablet-form products 

containing pseudoephedrine or ephedrine to 

pharmacists and licensed pharmacy technicians. Id. 

at 5. In addition, all purchasers must be over 18 

years of age, present photo identification, and sign 

a logbook. Id. While the law limits the sale of the 

tablet forms of list I chemicals, Tr. 90, it exempts 

gel capsules and liquid preparations. Tenn. Code 

Ann. § 39–17–431(b)(3). 

6By contrast, a Government witness 

acknowledged that the number of seizures in 

Virginia is considerably lower than the number in 

Tennessee. Tr. 33. 

Respondent’s continued registration was 

inconsistent with the public interest. Id. 

at 37. 

Finding that neither Mr. Mitchell 

(Respondent’s owner), nor any of its 

employees had ever been convicted of a 

crime related to controlled substances or 

listed chemicals (factor three), the ALJ 

concluded that this factor ‘‘weigh[ed] in 

favor of a finding that Respondent’s 

continued registration would not be 

inconsistent with the public interest.’’ 

Id. As to factor four—Respondent’s past 

experience in the distribution of listed 

chemicals—the ALJ referenced 

Respondent’s inadequate controls 

against diversion and its violations of 

applicable Federal law and found that 

‘‘this factor weigh[ed] in favor of a 

finding that Respondent’s continued 

registration would not be consistent 

with the public interest.’’ Id. 

As to the fifth factor—such other 

factors as are relevant to and consistent 

with public health and safety—the ALJ 

found that ‘‘it is likely that chemicals 

purchased in Virginia are used to make 

methamphetamine in Tennessee’’ and 

that ‘‘methamphetamine can be 

produced from liquid-filled dosage form 

products as well as the sol[i]d form 

products.’’ Id. at 37–38. The ALJ thus 

reasoned that this factor also supported 

the conclusion that Respondent’s 

continued registration would be 

inconsistent with the public interest. Id. 

at 38. 

Based on her consideration of all the 

factors, the ALJ found ‘‘that a 

preponderance of the evidence * * * 

demonstrates that Respondent’s 

continued registration would not be 

consistent with the public interest.’’ Id. 

The ALJ thus recommended that 

Respondent’s registration be revoked 

and that all pending applications for 

renewal or modification be denied. Id. 

Neither party filed exceptions to the 

ALJ’s decision. Thereafter, the record 

was forwarded to me for final agency 

action. 

Having reviewed the record as a 

whole, I hereby issue this Decision and 

Final Order. I adopt the ALJ’s findings 

of fact and conclusions of law except as 

explained herein. I further find that 

Respondent violated Federal law by 

knowingly selling drug paraphernalia. I 

further concur with the ALJ’s ultimate 

conclusion that Respondent’s continued 

registration would be inconsistent with 

the public interest and adopt her 

recommendation that its registration be 

revoked and that any pending 

applications be denied. I make the 

following findings. 

Findings 

Methamphetamine and List I Chemicals 

Both pseudoephedrine and ephedrine 

have therapeutic uses and are lawfully 

marketed as non-prescription (OTC) 

drug products under the Federal Food, 

Drug and Cosmetic Act. GX 4, at 3. 

Pseudoephedrine is approved for 

marketing as a decongestant; ephedrine 

(in combination with guaifenesin) is 

approved for marketing as a 

bronchodilator.2 Id. at 3–4. Both 

pseudoephedrine and ephedrine are, 

however, regulated as list I chemicals 

under the Controlled Substances Act 

because they are precursor chemicals 

that are easily extracted from OTC 

products and used in the illicit 

manufacture of methamphetamine, a 

schedule II controlled substance.3 Id.; 

see GX 4, at 7 (noting that 

pseudoephedrine and ephedrine can be 

converted into methamphetamine in a 

simple one-step reaction which can be 

accomplished with little or no 

chemistry expertise). 

Methamphetamine ‘‘is a powerful and 

addictive central nervous system 

stimulant.’’ 4 T. Young Associates, Inc., 

71 FR 60567 (2006). Methamphetamine 

abuse has destroyed numerous lives and 

families and ravaged communities. See 

Rick’s Picks, L.L.C., 72 FR 18275, 18276 

(2007). Moreover, because of the nature 

of the chemicals used to make 

methamphetamine, its illicit 

manufacture poses a significant 

environmental hazard, as it generates 

toxic chemical by-products. Tr. 17–18. 

Not only do the by-products cause 

damage when discarded into waterways 

and public lands, the presence of 

chemical fumes during 

methamphetamine production creates a 

potential for fires and explosions. Id. at 

18–19. Such illicit methamphetamine 

laboratories may be of the ‘‘mom and 

pop type,’’ and be found in motels, 

homes, or trunks of automobiles; the 

toxic fumes they emit also create a 

health hazard for children who are 

exposed to them. Id. 

As evidenced by the number of law 

enforcement seizures of illicit meth. 

labs, the State of Tennessee, which is 

where Respondent is located, has had a 

particularly high incidence of illicit 

methamphetamine manufacturing. More 

specifically, in 2003, Tennessee ranked 

seventh out of 47 reporting states, with 

983 seizures. GX 3, at 4. In 2004, 

Tennessee ranked second of 48 

reporting states, with 1,432 seizures. Id. 

While following the passage of the 

Meth-Free Tennessee Act of 2005 5

(which became effective May 1, 2005), 

the number of illicit lab seizures 

declined, Id. at 4–5; between January 1 

and July 31, 2006, Tennessee still had 

249 illicit methamphetamine laboratory 

seizures according to the statistics 

maintained by DEA’s El Paso 

Intelligence Center (EPIC).6 Tr. 32–33; 

GX 23. Moreover, according to data 

compiled by the National Clandestine 

Laboratory Database of which I take 

official notice, during 2008, law 

enforcement authorities reported 553 

clandestine meth. lab incidents in 

Tennessee. U.S. Drug Enforcement 

Administration, Maps of 

Methamphetamine Lab Incidents, 

available at http://www.usdoj.gov/dea/ 

concern/map_lab_seizures.html/ 


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7Under the Administrative Procedure Act (APA), 

an agency ‘‘may take official notice of facts at any 

stage in a proceeding-even in the final decision.’’ 

U.S. Dept. of Justice, Attorney General’s Manual on 

the Administrative Procedure Act 80 (1947) (Wm. 

W. Gaunt & Sons, Inc., Reprint 1979). In accordance 

with the APA and DEA’s regulations, Respondent 

is ‘‘entitled on timely request, to an opportunity to 

show to the contrary.’’ 5 U.S.C. 556(e); see also 21 

CFR 1316.59(e). Respondent can dispute the facts 

of which I take official notice by filing a properly 

supported motion for reconsideration within twenty 

days of service of this Order, which shall begin on 

the date it is mailed. 

8Neither Mr. Mitchell, nor any of Respondent’s 

employees, has been convicted of a criminal 

offense. Tr. 357–59. Mr. Mitchell further testified 

that he has never had reason to believe that any 

current or former employees have diverted list I 

chemical products. Id. 

9Respondent did not undergo another inspection 

until June 2005. Tr. 82–84. 

10The other notices included a green notice 

which informed Mr. Mitchell that chemicals such 

as red and white phosphorus are being used in the 

illicit manufacture of methamphetamine, and a 

yellow notice, which informed him about the 

increasing theft of pseudoephedrine and ephedrine 

products. See GX 16, at 2–3. 

11According to the DI who testified at the 

hearing, when he conducted his close-out interview 

for the June 2005 inspection, Mr. Mitchell indicated 

that he had never received the colored notices. Tr. 

130. 

12Mr. Mitchell further testified that he took ‘‘the 

attitude that I have no control on what the retail 

public does with the product.’’ Tr. 404. This 

testimony suggests that he was aware of the illicit 

uses of ephedrine products. Moreover, short of 

burying one’s head in the sand, it is hard to imagine 

how anyone engaged in the distribution of these 

products (especially in Tennessee, given the scope 

of the State’s meth. problem) could be unaware that 

they are subject to diversion into the illicit 

manufacture of methamphetamine. 

13There is no dispute that DEA inspected 

Respondent on June 29, 1999. See GX 25; RX 33. 

(visited October 6, 2009).7 The data also 

show that in 2008, Kentucky, another 

State where Respondent distributes List 

I chemicals, had 416 lab incidents, an 

increase from 294 the year before. Id. 

While the majority of seized 

methamphetamine laboratories utilized 

tablet-form pseudoephedrine and 

ephedrine products, DEA scientific 

studies indicate that liquid and gel-cap 

formulations of these precursors can 

easily produce methamphetamine when 

the appropriate reagents or solvents are 

used. GX 23, at 8. 

Respondent’s Business 

Respondent is a wholesale distributor 

of various products including list I 

chemicals to convenience stores and gas 

stations located in rural Appalachia in 

the States of Tennessee, Kentucky, 

Virginia, North Carolina, and South 

Carolina. Tr. 353–54. Respondent was 

founded in 1972 by Mr. Joe Allen 

Mitchell, and was incorporated in 1990. 

Id. at 352–53. Mr. Mitchell is 

Respondent’s President; the firm also 

employs two route salesmen and an 

office manager.8 Id. at 306 & 358. 

Respondent first obtained a DEA 

registration in July 1999, and currently 

holds Certificate of Registration, 

004413RAY, which authorizes it to 

distribute list I chemicals. GX 1. While 

the certificate indicates that the 

registration expired on April 30, 2006, 

on March 16, 2006, Respondent 

submitted a renewal application. GX 2. 

Therefore, 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. See 5 U.S.C. 558(c); 21 CFR 

1309.45. 

The DEA Inspections 

On June 29, 1999, a DEA Diversion 

Investigator (DI) visited Respondent to 

conduct a pre-registration 

investigation.9 GX 25. During the 

inspection, the DI provided Respondent 

with several informational notices 

issued by DEA including a red notice; 

this notice explains, inter alia, that 

combination ephedrine and 

pseudoephedrine products are being 

used in the illicit manufacture of 

methamphetamine and directs 

registrants to report ‘‘suspicious orders’’ 

to their local DEA office.10 GX 16, at 1; 

Tr. 78–81; GX 25, at 1–2.11

In an affidavit, the DI who conducted 

the 1999 inspection testified that he also 

provided Mr. Mitchell with ‘‘copies of 

the Code of Federal Regulation (CFR) 

cites relative to chemical distributors.’’ 

GX 25, at 1. The DI further stated that 

he ‘‘informed Mr. Mitchell that any 

suspicious orders and thefts or losses 

must be reported to the DEA in 

accordance with 21 CFR 1310.05’’ and 

advised him as to ‘‘the threshold 

requirements and * * * the 

recordkeeping requirements pursuant to 

21 CFR 1310.05 including reports of 

theft and loss, suspicious orders, and 

destruction of damaged or out of date 

merchandise.’’ Id. at 2. 

In his testimony, Mr. Mitchell stated 

that he could not recall ever having 

been ‘‘apprised or informed of [the] 

requirement to report suspicious orders’’ 

and that he had thought that any 

amount ‘‘over the threshold limit would 

be suspicious.’’ Tr. 385–86. Mr. Mitchell 

also testified that he was ‘‘not really’’ 

aware that list I chemicals were used in 

the manufacture of methamphetamine 

or that cigarette lighter fluid was also 

used in the process. Id. at 376.12 In any 

event, because the requirement to report 

suspicious orders is set forth in both 

Federal law and DEA regulations, see 21 

U.S.C. 830(b)(1); 21 CFR 1310.05(a); 

whether Mr. Mitchell was specifically 

notified of the requirement (either in 

conversation with the DI or by being 

provided with the red notice) is 

immaterial.13 See Fed. Crop Ins. Corp. v. 

Merrill, 332 U.S. 380, 385 (1947) (‘‘Just 

as everyone is charged with knowledge 

of the United States Statutes at Large, 

Congress has provided that the 

appearance of rules and regulations in 

the Federal Register gives legal notice of 

their contents.’’) (citation omitted); 

United States v. International Min. & 

Chem. Corp., 402 U.S. 558, 562 (1971) 

(‘‘The principle that ignorance of the law 

is no defense applies whether the law be 

a statute or a duly promulgated and 

published regulation.’’). 

Some time after the 1999 inspection, 

Respondent received a facsimile of a 

DEA memo, ‘‘Guidelines Regarding the 

Submission of Reports,’’ which 

contained a table of ‘‘Threshold 

Quantities’’ for various formulations of 

ephedrine, pseudoephedrine, and 

phenylpropanolamine products. RX 30, 

at 1, 5; Tr. 369. Mr. Mitchell testified 

that ‘‘[t]o me it was the Bible. It showed 

what the threshold limits are. This is the 

information that I went by.’’ Tr. 369. 

According to Mr. Mitchell, he 

‘‘calculated the number of products that 

[he] could sell, and [he] instructed [his] 

salespeople these are [the] limits.’’ Id. 

DEA did not visit Respondent again 

until June 8–9, 2005, when two DIs 

went to Respondent, met Mr. Mitchell 

and presented him with a Notice of 

Inspection, which he signed indicating 

his consent to the inspection. Tr. 84; GX 

6, at 2. The DIs inspected Respondent’s 

security arrangements, reviewed its 

procedures for handling list I products, 

examined its recordkeeping, and 

audited two list I products it 

distributed. 

According to one of the DIs, 

Respondent is located within a ‘‘goodsized building,’’ which is surrounded by 

a chain-link fence with a gate. Tr. 178. 

The building includes an area in the 

front where novelty items are displayed, 

a warehouse in the rear, and offices. Id. 

at 86–87. The building is protected by 

an alarm system, which the DIs tested 

and found to be in working order. Id. at 

123; GX 17. Moreover, Respondent’s 

enclosed yard area is lit with spotlights 

at night. Tr. 360, 363; RX 29. 

Inside the warehouse, the DIs found 

that Respondent stored list I chemical 

products in a caged area; the cage was, 

however, constructed of chicken wire 

and could be easily compromised. Tr. 

176. The DIs also found that Respondent 

stored list I chemicals overnight in its 

delivery trucks, which are parked 

within the chain-link perimeter. Id. at 


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14Max Brand product has been found at seized 

methamphetamine laboratories. Tr. 105, 380. 

15Approximately sixty-five percent (65%) of 

Respondent’s list I chemical business is conducted 

in Virginia, and about thirty percent (30%) occurs 

in Tennessee, often along the border with Virginia. 

Tr. 350–51, 354. 

16 Gross profit is the mark-up minus distribution 

expenses such as commissions, warehouse 

electricity, and the water bill, etc. Tr. 429–30. 

17At the time of the hearing, Respondent did not 

carry pseudoephedrine products. Tr. 428. 

18The Office Manager testified that she had made 

the notation regarding the additional amounts that 

were destroyed apparently because there had been 

additional destructions but there were no records 

documenting them. Tr. 439–40; 446–48 The Office 

Manager further maintained that this statement was 

not accurate and that she made the statement 

because the DIs had told her that ‘‘they needed 

something.’’ Id. at 445. In its brief, the Government 

does not cite to any provision of the CSA or DEA 

regulations which specifically require that the 

destruction of products be reported to the Agency. 

19 DEA has, however, published criteria in the 

Chemical Handlers Manual, as well as the Report 

of the Attorney General’s Suspicious Order Task 

Force. Although the Chemical Handlers Manual 

was withdrawn because it is currently undergoing 

revisions to reflect changes in Federal law, the 

Manual was in effect at the time of the events at 

issue here. In addition, DEA has published its 

‘‘‘Know Your Customer’ Policy,’’ and the 

identification criteria developed by the Suspicious 

Orders Task Force on its website. See http:// 

www.deadiversion.usdoj.gov/chem_prog/susp.htm. 

20The DI testified that ‘‘any businessman is going 

to know their competition and who they’re selling 

to. They’re going to know what people want. For 

instance, Mr. Mitchell even told me himself that 

these were fast movers and that he needed to carry 

these products because if he didn’t carry these 

products that other people would sell those 

products for him if he didn’t sell them.’’ Tr. 158. 

The DI also testified that ‘‘the firm if they’re selling 

in that area, they’re going to be there every few 

weeks. They’re going to know the area a lot more 

than I would as an investigator.’’ Id. at 160. The 

Government did not, however, introduce any 

evidence about comparable sales by Respondent’s 

competitors. 

124. The DI testified that he cited 

Respondent for a violation of DEA 

regulations, because the trailer and 

delivery vehicles are ‘‘mobile, and they 

could easily be broken into.’’ Id. Mr. 

Mitchell testified, however, that he was 

willing to change Respondent’s practice 

and have the trucks parked inside the 

warehouse at night upon their return. 

Id. at 364. 

At the hearing, Mr. Mitchell 

acknowledged that it is Respondent’s 

practice to store list I chemical products 

overnight on the delivery trucks on 

nights when the driver-salesmen are 

staying in hotels along their routes. Id. 

at 397. In Respondent’s twenty-day 

business cycle, one driver-salesman 

stays overnight on his route 

approximately two nights; the other 

driver-salesman stays overnight on his 

route approximately three nights. Id. 

Mr. Mitchell did not express any 

willingness to change this practice. 

As noted above, during the 

inspection, the DIs reviewed 

Respondent’s recordkeeping and 

conducted an audit of two products: 

Max Brand 25 mg. ephedrine 48-count 

bottles 14 and Ephedrine Multi-Action 

25 mg. ephedrine 48-count bottles. Tr. 

105; GX 9. The audit found shortages of 

109 bottles of Max Brand and 275 

bottles of Ephedrine Multi-Action; these 

figures amounted to 1.44% and 2.19% 

of the total quantity of each product 

handled during the audit period. GX 9; 

Tr. 108. According to one of the DIs, the 

shortage could have resulted from 

recordkeeping errors such as 

unrecorded sales, from diversion, or 

from loss. Id. at 108–09. The DI testified, 

however, that he did not consider the 

shortages significant in terms of 

Respondent’s total sales. Id. at 201. 

During an interview, Mr. Mitchell 

stated that his list I chemical products 

were ‘‘fast movers’’ and that 

Respondent’s customer base for the 

products consisted primarily of 

convenience stores and gas stations 

located in eastern Tennessee, Virginia, 

Kentucky, West Virginia, and both 

North and South Carolina.15 Id. at 90. 

Mr. Mitchell further stated that seventyfive percent (75%) of Respondent’s 

customers sell list I products, and that 

thirty-five percent (35%) of 

Respondent’s ‘‘overall business’’ is 

attributable to list I products. Id. at 89– 

90. Mr. Mitchell estimated that at the 

time of the hearing, Respondent had 

approximately 200 customers for all of 

its products and that its gross profit 16

from ephedrine sales was $200,000 

annually.17 Id. at 426, 428. 

During the inspection, the DIs also 

found that Respondent used either the 

U.S. Postal Service or some other 

common carrier to make deliveries of 

list I products. Id. at 90–91. According 

to a spreadsheet which Mr. Mitchell 

gave the DIs, between July 20, 2004, and 

May 25, 2005, there were thirty-four 

instances in which Respondent shipped 

list I products containing 

pseudoephedrine in this manner; the 

shipments were sent to three stores and 

involved such products as Tylenol 

Sinus, Advil Cold and Sinus, NyQuil, 

Dayquil, and Benadryl. GX 22; 21 U.S.C. 

802(34)(K). 

According to the DI, under Federal 

law and DEA regulations, Respondent 

was required to file monthly reports 

with the Agency for each of these 

transactions. Tr. 194; see 21 U.S.C. 

830(b)(3); 21 CFR 1310.03(c). However, 

DEA never received any such reports 

from Respondent. Id. at 194. 

Also during the inspection, a DI 

received a handwritten document from 

Respondent’s office manager detailing 

the destruction of list I chemical 

products by Respondent. Tr. 121; GX 14. 

According to this document, 

Respondent burned twelve bottles of 

Multi-Action (60-count) in March 2005 

and 12 bottles of Mini-Thin (60-count) 

in January 2005. GX 14. The document, 

which was dated and signed by 

Respondent’s Office Manager, states that 

while Respondent had ‘‘destroyed [outof-date] merchandise in the past,’’ ‘‘the 

count would not be any greater than 

what is listed above’’ for the March and 

January 2005 destructions of 

merchandise.18 Id. 

According to the DI, Respondent was 

required to give notification ‘‘prior to the 

destruction,’’ but did not do so. Tr. 121. 

Mr. Mitchell testified that he had been 

unaware of the requirement that DEA be 

notified of the destruction of list I 

chemical products. Id. at 365. He also 

testified that he never contacted DEA 

with questions about the destruction of 

list I chemical products. Id. at 392. 

The DI further testified that during the 

inspections, he found various instances 

of sales that he considered suspicious. 

Tr. 154. His office subsequently 

compiled a record of these suspicious 

sales, which was based on the quantity 

of product sold. Id. at 155; GX 24. 

As found above, the DI who 

performed Respondent’s pre-registration 

inspection had discussed the necessity 

of reporting suspicious transactions 

with Mr. Mitchell. Tr. 162. This DI did 

not, however, testify at the hearing, and 

the DI who performed the 2005 

inspection did not know how, or if, that 

DI had defined ‘‘suspicious orders.’’ Id. 

On cross-examination, the DI further 

testified that, while ‘‘[t]here is no 

document’’ specifying the criteria for 

determining whether an order is 

suspicious,19 during the pre-registration 

investigation, the DI ‘‘explain[ed] the 

criteria.’’ Id. at 161; see also id. at 169. 

According to the DI, such criteria would 

include the location of a customer, a 

sudden increase in a store’s purchasing 

patterns, and a store’s sales in 

comparison to ‘‘other stores in the 

geographic area.’’ 20 Id. at 157–58. The DI 

further explained that even if 

Respondent did not know the 

population in an area where one of its 

customers is located, ‘‘if you look at 

their sales in general’’ and ‘‘most of the 

sales are’’ for twelve bottles, ‘‘and then 

you got some that are 100, 300, 300, 900, 

that sticks out to me.’’ Id. at 160–61; see 

also GX 21 (Respondent’s DEA Log of 

distributions). 

I agree with the DI that a store’s 

location, its sales in comparison to other 

stores, and an increase in its purchasing 

patterns are relevant (but not the 

exclusive) criteria which a distributor 


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21To further explain, both Mr. Mitchell’s 

testimony and Respondent’s records establish that 

the company had far more list 1 customers than GX 

21 indicates. Moreover, at the bottom of each page 

of the exhibit, there is a notation indicating the page 

number. See GX 21. For example, the first page of 

the exhibit indicates that it covers January 2004, 

and the bottom of the page includes the notation: 

‘‘Page 4 of 5.’’ Id. at 1. Yet the next page of the 

exhibit indicates that it covers February 2004, and 

includes the notation: ‘‘Page 1 of 5.’’ Id. at 2. The 

next two pages are for March 2004; the pages 

include the notations: ‘‘Page 1 of 5’’ and ‘‘Page 2 of 

5,’’ respectively. Id. at 3–4. This pattern is repeated 

throughout the exhibit, which includes no more 

than two pages for any one month. See generally GX 

21. 

22Mr. Mitchell maintained that he had on several 

occasions refused to sell to people who had come 

to his warehouse seeking to ‘‘buy ephedrine and 

ephedrine only.’’ Tr. 433. 

23Following the enactment of the Combat 

Methamphetamine Epidemic Act of 2005, the 

thresholds for combination ephedrine products 

were eliminated. Accordingly, all transactions 

involving ephedrine, ‘‘regardless of size, are subject 

to recordkeeping and reporting requirement as set 

forth in 21 CFR part 1310.’’ 21 CFR 1310.04(g). 

24Apparently based on these transactions, the 

Government also alleged that Respondent’s ‘‘sales 

were vastly in excess of the amounts of this * * * 

product needed to meet’’ legitimate medical needs. 

Show Cause Order at 4. The Government did not, 

however, introduce any studies to support this 

contention. Instead, the Government apparently 

must consider in evaluating whether an 

order is suspicious. However, I reject 

the DI’s testimony that a distributor can 

be charged with knowledge of the sales 

levels of list I products at those stores 

which are not its customers. Moreover, 

I reject the DIs testimony that most of 

Respondent’s sales were for twelve 

bottles, noting that the exhibit which he 

referred to in giving this testimony is 

obviously incomplete.21

The ALJ further noted that 

‘‘Respondent did not controvert [the 

DI’s] testimony that most if its 

customers purchased twelve or twentyfour bottles per month.’’ ALJ at 35. The 

ALJ ignored, however, that Respondent 

introduce several exhibits showing its 

sales of various products to its 

customers. Moreover, my review of this 

data suggests that Respondent’s sales 

were considerably greater than twelve to 

twenty- four bottles per month. 

At the hearing, Mr. Mitchell also 

claimed that he was unaware of these 

criteria and that no one had told him 

that he required to monitor his sales and 

report suspicious orders. Id. at 372. 

While Mr. Mitchell testified that he was 

obliged to know how to identify a 

suspicious order, he nonetheless 

insisted that DEA was responsible for 

giving him information on suspicious 

orders. Id. at 394. Mr. Mitchell 

admitted, however, that he had never 

requested this information from 

DEA.22 Id. at 392, 394. 

Mr. Mitchell testified that he thought 

that only those transactions which 

exceeded the threshold amounts as 

indicated on the fax he received (RX 30, 

at 3) were suspicious orders. Tr. 386. 

The DI testified, however, that while the 

threshold amounts for sales to retail 

establishments trigger reporting 

requirements, they are not related to the 

determination of whether a given sale 

should be considered suspicious. Id. at 

168. In answer to the question, ‘‘[i]s 

there a relationship between these 

threshold amounts and what you term 

suspicious sales?,’’ the DI testified: 

No, because of the extreme number of 

variables. You couldn’t put a number on 

suspicious sales in black and white because 

each geographical area would be different. If 

DEA said if you sell over 1,000 that’s 

suspicious, well, 1,000 in northern Virginia 

is quite different from 1,000 being sold in 

Eastern Tennessee because there’s a larger 

customer base. 

Id. at 168–69. 

The DI concluded that in thirty-five 

instances, Respondent’s monthly sales 

constituted suspicious orders based 

solely on the quantities; he also testified 

that these sales should have been 

reported to DEA but were not. Id. at 

154–55. The Government submitted into 

evidence its compilation of the sales 

(GX 24), which shows the following 

sales by store and number of bottles: 

Number 

of 

bottles 

Chevron Food Mart, Hazard, Kentucky 

January 2004 .................................. 324 

February 2004 ................................ 144 

March 2004 ..................................... 252 

April 2004 ....................................... 432 

May 2004 ........................................ 288 

June 2004 ....................................... 156 

August 2004 ................................... 228 

September 2004 ............................. 216 

October 2004 .................................. 288 

November 2004 .............................. 240 

December 2004 .............................. 240 

January 2005 .................................. 216 

February 2005 ................................ 216 

March 2005 ..................................... 396 

April 2005 ....................................... 216 

May 2005 ........................................ 180 

Fast Stop, Covington, Virginia 

September 2004 ............................. 168 

October 2004 .................................. 60 

February 2005 ................................ 156 

March 2005 ..................................... 144 

April 2005 ....................................... 156 

May 2005 ........................................ 144 

Fast Mart Appomattox, Appomattox, Virginia 

September 2004 ............................. 84 

October 2004 .................................. 144 

December 2004 .............................. 144 

Holiday Chevron, Marion, Virginia 

January 2005 .................................. 468 

February 2005 ................................ 708 

March 2005 ..................................... 948 

April 2005 ....................................... 900 

May 2005 ........................................ 984 

Garner Mountain Food Market, Isom, 

Kentucky 

May 2005 ........................................ 108 

Number 

of 

bottles 

Glade Spring Chevron, Glade Spring, Virginia 

April 2005 ....................................... 168 

May 2005 ........................................ 60 

Hillbilly Market, Bristol, Virginia 

April 2005 ....................................... 324 

May 2005 ........................................ 144 

GX 24. 

Notably, this compilation provides no 

information as to the number of tablets 

in each bottle, the strength of the 

ephedrine in each tablet, and the 

chemical composition of the ephedrine 

(hcl or sulfate). Mr. Mitchell admitted, 

however, that Respondent’s sales in 

March, April and May of 2005 to the 

Holiday Chevron in Marion, Virginia, 

exceeded the threshold amount of 1000 

grams, which was then in effect, and 

which made the distributions a 

regulated transaction under Federal 

law.23 Tr. 372–73; see 21 CFR 1310.04(f) 

(2004 & 2005). Mr. Mitchell further 

testified that the salesman who handled 

the Holiday Chevron’s account had told 

him that the store’s owner ‘‘had two 

locations, and he sometimes moved 

product from one place to the other.’’ Tr. 

380–81. 

In addition, according to 

Respondent’s compilation of its sales to 

the Holiday Chevron, it sold even 

greater quantities of ephedrine products 

to the store in the months of August 

(1272 bottles totaling 54,864 tablets), 

October (1284 totaling 55,440 tablets), 

and November 2005 (1248 totaling 

55,872 tablets). See RX 39, at 4–6. Each 

of these transactions exceeded the 1,000 

gram threshold and yet none of them 

were reported to the Agency. 

The Government also relied on 

Respondent’s DEA Log (GX 21), as 

support for its contention that it had 

engaged in excessive sales. See Tr. 143. 

Beyond the fact that the log is 

incomplete, the Government did not use 

this data to calculate an average 

monthly sale of ephedrine products per 

store or the statistical probability that 

any sale was excessive.24


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relies on findings made in other cases which were 

based on expert testimony. See Gov. Br. at 22–23. 

However, in Novelty Distributors, Inc., 73 FR 52689, 

52693–94 (2008), I noted that there were serious 

flaws in the methodology used by the Government’s 

expert in determining the level of sales which is 

consistent with legitimate demand. I thus make no 

findings on the issue. 

25Mr. Mitchell testified that, although the MethFree Tennessee Act reduced his sales of ephedrine, 

even soft-gel formulations of List I chemical 

products were ‘‘fast movers.’’ Tr. 388–89, 418. 

26The DI maintained that the product does not 

have a legitimate purpose. Tr. 191. When asked by 

Respondent’s counsel if he had ‘‘ever give[n] a loved 

one a rose?,’’ the DI answered: ‘‘Not a plastic rose 

that’s three inches tall in a plastic vial for $ 1 from 

the convenience store.’’ Id. 

27 I acknowledge that Respondent has been 

registered since 1999. However, as explained below, 

because the record establishes that Respondent has 

violated several provisions of Federal law and does 

Continued 

As to the Holiday Chevron in Marion, 

Virginia, Mr. Mitchell testified that he 

still sold listed chemical product to it 

and that the store was visited twice a 

month. Tr. 413. He also testified that he 

knew the store had purchased listed 

chemicals from another distributor in 

the past, but maintained that he did not 

know if the store was still doing so. Id. 

Mr. Mitchell also admitted that he 

had not inquired as to whether several 

of the stores identified in GX 24 were 

obtaining listed chemicals from other 

distributors. Tr. 422 (Hillbilly Market); 

id. at 424 (Holiday Chevron). He then 

admitted that he knew that the Hillbilly 

Market, the Fast Mart, and again the 

Holiday Chevron, had had accounts 

with other distributors, and yet 

Respondent had continued to sell to 

them. Id. at 422–25. He also admitted 

that his route salesmen had ‘‘been told 

of other stores that receive this product 

by mail in large quantities.’’ Id. at 409. 

More generally, Mr. Mitchell stated 

that he did not think that his salesmen 

would, in soliciting a new customer, ask 

the customer whether they were 

purchasing listed chemical products 

from another distributor. Id. at 430–31. 

He also acknowledged that a customer’s 

purchasing of list I chemicals from 

another distributor had never affected 

Respondent’s decision to sell to that 

customer and that Respondent would 

continue to sell to it. Id. at 408. 

According to the DI, a retailer’s having 

multiple distributors for list I chemical 

products was typical for sales in the 

illicit market. Id. at 139. 

After the on-site inspection, the DIs 

visited two of the stores to which 

Respondent distributed list I products 

(David’s Market in Bristol, Tennessee, 

and the Fast Stop in Covington, 

Virginia) to verify that they were 

customers. Tr. 134. The manager at 

David’s Market, Ms. A.O., provided 

copies of receipts which matched 

Respondent’s sales records. Id. at 135. 

According to the DI, Ms. A.O. indicated 

that the list I chemical products sold 

quickly and, because she saw bad things 

happening in the market’s parking lot, 

she believed people were buying the 

products for the ‘‘wrong reason.’’ Id. at 

135–36. As to the parking lot, Ms. A.O. 

stated that she had found what looked 

like a syringe and that she witnessed 

what she believed to be drug dealing 

taking place there. Id. at 136. According 

to Ms. A.O., David’s Market also 

received list I chemical products from 

another distributor. Id. at 138–39. 

At the Fast Stop, the owner indicated 

initially that he received list I chemical 

products every two to four weeks. Tr. 

141. Subsequently, however, the owner 

told another DI that he only ordered 

such products every six to nine weeks. 

Id. 

During the June 2005 investigation, 

the testifying DI asked Mr. Mitchell 

whether he had ever considered giving 

up the list I chemical products business, 

given its relationship to the illicit 

manufacture of methamphetamine. Id. 

at 131. Mr. Mitchell responded that ‘‘he 

was doing a pretty good business selling 

these products and was not interested in 

giving up the DEA registration at that 

time.’’ 25 Id. 

Moreover, during the June 2005 

inspection, the DI observed that 

Respondent was selling ‘‘Love Roses,’’ a 

product which is ‘‘a small glass cylinder 

that contains a plastic rose inside it,’’ 

which is three to four inches in length 

and which has a removable cork at the 

ends. Tr. 118. The DI testified that this 

product is ‘‘commonly used’’ as a crack 

pipe, that it does not have a legitimate 

purpose, and that it is drug 

paraphernalia.26 Id. at 191. 

The DI further testified that he told 

Mr. Mitchell what the product was used 

for and that Mr. Mitchell found this 

information surprising. Id. at 192. While 

Mr. Mitchell testified that he was 

unaware that Love Roses were used as 

drug paraphernalia until the 2005 

inspection, id. at 375; he admitted that 

Respondent was still selling the product 

as of the date of the hearing. Id. at 390. 

On cross-examination, Mr. Mitchell 

testified that he did not know why the 

pill forms of ephedrine were ‘‘moving as 

fast as they were.’’ Id. at 403. When 

asked whether he had ‘‘ever pause[d] to 

think that these products could be’’ 

resold ‘‘to the illicit market?’’; Mr. 

Mitchell answered: ‘‘You know I guess 

I’ve taken the attitude that I have no 

control on what the retail public does 

with the [list I chemical] product.’’ Id. at 

404. 

Discussion 

Section 304(a) of the Controlled 

Substances Act provides that a 

registration to distribute a list I chemical 

‘‘may be suspended or revoked * * * 

upon a finding that the registrant * * * 

has committed such acts as would 

render [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 any 

applicant to distribute a list I chemical 

unless the Attorney General determines 

that registration of the applicant is 

inconsistent with the public interest.’’ 

21 U.S.C. 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 the 

listed chemicals into other than legitimate 

channels; 

(2) Compliance by the [registrant] with 

applicable Federal, State, or 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. § 823(h). 

‘‘These factors may be 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 to 

revoke an existing registration or to 

deny an application to renew a 

registration. Robert A. Leslie, 68 FR 

15227, 15230 (2003). Moreover, I am 

‘‘not required to make findings as to all 

of the factors.’’ Hoxie v. DEA, 419 F.3d 

477, 482 (6th Cir. 2005); see also Morall 

v. DEA, 412 F.3d 165, 173–74 (D.C. Cir. 

2005). 

In this matter I have considered all of 

the statutory factors. While I find that 

several of the allegations are not proved, 

I conclude that the record as a whole 

establishes that Respondent does not 

maintain effective controls against 

diversion (factor one) and that 

Respondent violated both the CSA’s 

requirement to report suspicious orders 

and its prohibitions against the knowing 

sale of drug paraphernalia (factor two). 

While I have also considered 

Respondent’s (and its employees’) lack 

of criminal convictions, and its 

experience in distributing chemicals,27 I 


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not maintain effective controls against diversion, I 

conclude that it is not necessary to make findings 

under this factor. 

28 It is also noted that the audit involved only two 

products and covered only a five-month period. See 

GX 9. 

29 In its post-hearing brief, the Government 

argued that I should apply the ‘‘market analysis 

performed by a DEA expert in the field regarding 

the ‘normal expected sales range’ of listed chemical 

products by ‘non-traditional retailers.’’’ Gov’t Br. at 

22 (citing Holloway Distributing, 72 FR at 42123). 

Conceding that ‘‘the Government did not present a 

market study in these proceedings,’’ the 

Government nonetheless argued that I apply the 

‘‘findings of marketing expert Jonathan Robbin who 

found that ‘* * * the expected sales range for 

combination ephedrine products at a convenience 

store is ‘between $0 and $25, with an average of 

$12.58 per month.’’’ Id. at 23 (citing Planet Trading, 

Inc. d/b/a United Wholesale Distributors, Inc., 72 

FR 11055, 11056 (2007)). However, in Novelty 

Distributors, I found that the methodology for 

determining the normal expected sales range for 

convenience stores’ marketing of ephedrine 

products was unreliable. 73 FR at 52693–94. 

Accordingly, I reject the Government’s argument. 

30As discussed under factor one, the Government 

also elicited testimony from an Investigator to the 

effect that Respondent was required to report the 

destruction of List I products. In its brief, the 

Government does not cite this testimony as 

evidence relevant to any of the public interest 

factors. See Gov. Br. 22–29. More importantly, a 

destruction of a listed chemical does not fall within 

any of the circumstances which trigger the 

obligation to report to the Agency under Federal 

law or DEA regulations. See 21 U.S.C. 830(b); 21 

CFR 1310.05(a). As explained above, a destruction 

should, however, be documented in the registrant’s 

records. 

31While the ALJ cited Respondent’s failure to 

report suspicious transactions under both factors 

one and two, her reasoning was provided under 

factor one. See ALJ at 35–37. Because this 

requirement is directly imposed by statute, I discuss 

it under factor two. However, whether the 

requirement is discussed under factor one or two is 

not significant as what matters is the extent of the 

violations, if any. 

nonetheless conclude that factors one 

and two make out a prima facie case 

that Respondent’s continued registration 

‘‘is inconsistent with the public 

interest.’’ 21 U.S.C. 823(h). I further 

conclude that Respondent has not 

adequately addressed the violations of 

law and the deficiencies identified in its 

diversion controls, and that therefore, it 

has not rebutted the Government’s 

prima facie case. Accordingly, 

Respondent’s registration will be 

revoked and its pending application to 

renew its registration will be denied. 

Factor One—Maintenance of Effective 

Controls Against Diversion 

Under DEA precedent and 

regulations, this factor encompasses a 

variety of considerations. See Novelty 

Distributors, Inc., 73 FR 52689, 52698 

(2008). These include, inter alia, the 

adequacy of the registrant’s/applicant’s 

security arrangements, the adequacy of 

its recordkeeping and reporting, and its 

distribution practices. Id. Moreover, a 

distributor must exercise a high degree 

of care in monitoring its customer’s 

purchases. See Sunny Wholesale, Inc., 

73 FR 57655, 57663 (2008). In 

evaluating a registrant’s security 

controls and procedures, DEA 

regulations direct that the Agency 

consider numerous factors including 

‘‘[t]he adequacy of the registrant’s or 

applicant’s systems for monitoring the 

receipt, distribution, and disposition of 

List I chemicals in its operations.’’ 21 

CFR 1309.71(b)(8). 

In its brief, the Government does not 

contend that Respondent’s physical 

security arrangements at its registered 

location are inadequate. See Gov. Br. at 

22–24. While I note the DI’s testimony 

that the cage in which the products are 

stored in its warehouse could be easily 

breached, I further note that 

Respondent’s facility is protected by an 

alarm system and its perimeter is 

surrounded by a chain link fence. I thus 

agree with the ALJ that Respondent 

provides adequate physical security for 

those products which are kept inside 

the warehouse. 

The record, however, also establishes 

that Respondent has a practice of storing 

list I products on its delivery trucks 

overnight (which do not appear to have 

alarms), both on the night before a 

salesman leaves on his route, as well as 

on those nights when a salesman stays 

in a hotel. DEA has previously held that 

this practice does not provide adequate 

security for list I products. As I have 

previously explained, when products 

are left overnight on trucks, a thief does 

not have to spend time offloading the 

products, but can steal the entire vehicle 

with its cargo, and do so in a manner 

of seconds. See Novelty Distributors, 

Inc., 73 FR 52689, 52698 (2008), pet. for 

review denied, 571 F.3d 1176 (D.C. Cir. 

2009); McBride Marketing, 71 FR 35710, 

35711 (2006). 

During the inspection, the DIs further 

found that Respondent had shortages of 

109 bottles of Max Brand and 275 

bottles of Ephedrine Multi-Action. 

While the DI testified that he did not 

consider the shortages to be significant 

in terms of Respondent’s total sales of 

the products,28 it is still a factor to be 

considered in assessing the adequacy of 

its controls against diversion. 

Relatedly, the record establishes that 

Respondent destroyed products on at 

least two occasions. GX 14. While 

Respondent was not required to report 

the destructions to DEA under Federal 

law or Agency regulations, it did not 

make a contemporaneous record of 

either destruction. Id. Given the frailties 

of human memory, the creation of a 

contemporaneous record is essential to 

maintaining an accurate accounting of 

the products that were destroyed. 

The ALJ further found that 

Respondent does not maintain effective 

controls against diversion because some 

of its customers purchase list I products 

from other distributors and 

Respondent’s personnel do not ask its 

customers whether they are purchasing 

from other distributors. ALJ at 36. While 

a customer can seek out another 

supplier for a legitimate business reason 

(i.e., because it offers a lower price), 

when the store is actively buying from 

multiple distributors, the distributor has 

an obligation to determine whether the 

quantities it is obtaining are excessive in 

relation to what the distributor knows 

about typical purchasing patterns of 

stores serving similar markets, and if so, 

not sell to the store. Mr. Mitchell’s 

failure to instruct his salesmen to make 

these inquiries of his customers, as well 

as his admission that he continued to 

sell to several stores even though he 

knew that they were purchasing listed 

chemical products ‘‘by mail in large 

quantities’’ from other distributors, Tr. 

409, provides further support for a 

finding that Respondent does not 

maintain effective controls against 

diversion. See Holloway Distributing, 72 

FR 42118, 42124 (2007) (‘‘[A] registrant 

has an affirmative duty to protect 

against diversion by knowing its 

customers and the nature of their list I 

chemical sales * * *. A registrant 

cannot avoid the requirements of 

Federal law by instructing its sales force 

to ask no questions of its customers and 

thereby be deliberately ignorant of 

diversion.’’). 

I thus conclude that Respondent does 

not maintain effective controls against 

diversion. This finding provides reason 

alone to conclude that Respondent’s 

continued registration is inconsistent 

with the public interest.29

Factor Two—Respondent’s Compliance 

With Applicable Laws 

At the hearing, the Government put 

on evidence suggesting four different 

ways in which Respondent violated 

Federal law.30 More specifically, the 

Government alleged that: (1) It was 

required to report the transactions 

which it shipped by mail, (2) it failed to 

report suspicious transactions, (3) it 

sold drug paraphernalia, and (4) it 

knowingly or intentionally distributed 

ephedrine having reasonable cause to 

believe the product would be used in 

the illicit manufacture of 

methamphetamine. 

In her decision, the ALJ concluded 

that Respondent violated Federal law by 

failing to report suspicious 

transactions,31 by failing to file monthly 


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32Unless otherwise noted in this discussion, all 

citations and quotations to the U.S. Code and DEA 

regulations are to the statute and regulations that 

were in effect at the time of the conduct at issue 

and as they were then numbered. 

33While this version does not list ephedrine, the 

statute was subsequently amended to include this 

chemical. See 21 U.S.C. 802(49)(A). 

reports of transactions which were 

shipped by mail, and by knowingly 

distributing listed chemicals when it 

had reasonable cause to believe the 

products would be diverted. ALJ at 36– 

37. The ALJ did not, however, address 

whether Respondent violated Federal 

law by selling drug paraphernalia. 

Respondent’s Failure To Report MailOrder Transactions 

As found above, on thirty-four 

occasions between July 20, 2004, and 

May 25, 2005, Respondent shipped list 

I products containing pseudoephedrine 

to three stores using either the mail or 

some other common carrier. GX 22. 

Moreover, it is undisputed that 

Respondent did not file reports for any 

of the shipments. Based on these 

findings, the ALJ concluded that 

Respondent violated DEA regulations, 

reasoning that ‘‘21 CFR 1310.03(c) at 

relevant times required handlers of 

listed chemicals to file monthly reports 

of transactions by mail.’’ ALJ at 36–37. 

The CSA specifically requires that: 

[e]ach regulated person who engages in a 

transaction with a nonregulated person 

* * * which— 

(i) involves ephedrine, pseudoephedrine, 

or phenylpropanolamine (including drug 

products containing these chemicals); and 

(ii) uses or attempts to use the Postal 

Service or any private or commercial carrier; 

shall, on a monthly basis, submit a report 

of each such transaction conducted during 

the previous month to the Attorney General 

in such form, containing such data, and at 

such times as the Attorney General shall 

establish by regulation. 

21 U.S.C. 830(b)(3)(B); see also 21 CFR 

1310.03(c) (‘‘Each regulated person who 

engages in a transaction with a 

nonregulated person * * * that 

involves ephedrine [or] 

pseudoephedrine * * * including drug 

products containing these chemicals, 

and uses or attempts to use the Postal 

Service or any private or commercial 

carrier must file monthly reports of each 

such transaction * * * .’’).32

The CSA further defines ‘‘[t]he term 

‘regulated person’ ’’ to mean in relevant 

part, ‘‘a person who manufactures, 

distributes, imports, or exports a listed 

chemical.’’ 21 U.S.C. 802(38). Moreover, 

the Act defines ‘‘[t]he term ‘distribute’ ’’ 

to mean ‘‘to deliver (other than by 

administering or dispensing) * * * a 

listed chemical.’’ 21 U.S.C. 802(11). 

Respondent is thus clearly a 

‘‘regulated person’’ under the Act and 

subject to the mail order reporting 

provision. However, as the text of the 

mail order reporting provision makes 

clear, the reporting requirement does 

not apply to all mail order transactions 

which a regulated person engages in, 

but rather, only those it engages in ‘‘with 

a nonregulated person,’’ 21 U.S.C. 

830(b)(3)(B), a term which neither 

Congress nor the Agency have defined. 

See generally 21 U.S.C. 802; 21 CFR 

1300.02. The critical question therefore 

is whether a retail store is a 

‘‘nonregulated person’’ under this 

provision. 

Neither the Government in its brief, 

nor the ALJ in her decision, even 

acknowledge the statutory text, let alone 

address this issue. See generally Gov. 

Br. at 22–29; ALJ at 36–37. Moreover, 

there are numerous reasons that support 

the conclusion that retail stores were— 

even prior to the enactment of the 

CMEA—regulated persons under the 

Act. 

The first reason is that a retail store 

which sells listed chemicals engages in 

distribution as that term is defined by 

the Act—it delivers (other than by 

administering or dispensing) a chemical 

to a customer. See 21 U.S.C. 802(11). 

Relatedly, Congress defined the term 

‘‘retail distributor’’ to ‘‘mean a grocery 

store, general merchandise store, drug 

store, or other entity or person whose 

activities as a distributor relating to 

pseudoephedrine or 

phenylpropanolamine products are 

limited almost exclusively to sales for 

personal use * * * either directly to 

walk-in customers or in face-to-face 

transactions by direct sales.’’ 33 Id. 

section 802(46)(A); see also 21 CFR 

1300.02(b)(29). It is thus clear that 

under the Act, retail sales constitute 

distribution. 

Second, while DEA has exempted 

from registration list I retail distributors 

‘‘whose activities * * * are limited to 

the distribution of below-threshold 

quantities of a pseudoephedrine * * * 

or combination ephedrine product 

* * * in a single transaction to an 

individual for legitimate medical use,’’ 

21 CFR 1309.24(e), DEA regulations 

further provided that ‘‘[a]ny person 

exempted from the registration 

requirement under this section shall 

comply with the security requirements 

set forth in § 1309.71–1309.73 of this 

part and the record-keeping and 

reporting requirement set forth under 

parts 1310 and 1313 of this chapter.’’ Id. 

§ 1309.24(k). A retail distributor was 

thus (and remains) subject to Agency 

regulations and cannot be deemed to be 

a ‘‘nonregulated person’’ under 21 U.S.C. 

830(b)(3)(B). 

This conclusion finds further support 

in the exceptions which Congress 

created to the reporting requirement. 

See id. section 830(b)(3)(D). Among 

these is the exception for 

‘‘[d]istributions of drug products by 

retail distributors that may not include 

face-to-face transactions to the extent 

that such distributions are consistent 

with the activities authorized for a retail 

distributor as specified in section 

802(46).’’ Id. section 830(b)(3)(D)(ii). 

Because the reporting requirement only 

applies to regulated persons, there 

would be no need to exempt retail 

distributors if they were nonregulated 

persons. Accordingly, I am compelled to 

reject the ALJ’s conclusion that 

Respondent violated Federal law when 

it failed to report the mail order 

transactions. 

Respondent’s Failure To Report 

Suspicious Transactions 

The Government argued, and the ALJ 

concluded, that Respondent violated 

Federal law and DEA regulations by 

failing to report suspicious transactions. 

More specifically, the ALJ apparently 

found that Respondent violated Federal 

law by failing to report each of the 

thirty-five transactions identified in 

Government Exhibit 24. See ALJ at 35– 

36. She further rejected Respondent’s 

contention that this requirement only 

applies to sales which exceed the 

threshold amount. Id. at 36; see also 

Gov. Br. at 23 (asserting that DEA has 

rejected the defense that a registrant is 

not required to report suspicious 

transactions which are below the 

threshold). 

Adopting the Government’s 

reasoning, the ALJ explained that: 

First, * * * a sale of an over-the-threshold 

amount of listed chemical is subject to 

recordkeeping and reporting requirements, 

and may or may not be a suspicious 

transaction. Likewise, a sale of a quantity less 

than the threshold amount may nonetheless 

be suspicious. Second, and more 

importantly, an order from a small retailer for 

hundreds of bottles of a product that is 

regulated precisely because it can be used for 

illicit purposes should immediately cause the 

distributor of that product concern as to why 

his customer is ordering such quantities. 

ALJ at 35–36. 

Here again, neither the ALJ in her 

decision, nor the Government in its 

brief, even acknowledge the text of the 

relevant statute, 21 U.S.C. 830(b)(1). See 

id. at 35–37. The statute provides in 

pertinent part: 

(1) Each regulated person shall report to 

the Attorney General, in such form and 

manner as the Attorney General shall 

prescribe by regulation— 


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34Under the regulation, whether the threshold 

had been reached (and a regulated transaction had 

occurred) was based on ‘‘the cumulative amount for 

multiple transactions within a calendar month.’’ 21 

CFR 1310.04(f). The thresholds were eliminated by 

the Combat Methamphetamine Epidemic Act of 

2005. See USA Patriot Improvement and 

Reauthorization Act of 2005, Pub. L. 109–177, 

section 712(b), 120 Stat. 192, 264 (2006). For all 

transactions occurring after the effective date of the 

legislation, ‘‘the size of the transaction is not a factor 

in determining whether the transaction meets the 

definition of a regulated transaction * * *. All such 

transactions, regardless of size, are subject to 

recordkeeping and reporting requirements as set 

forth in * * * part [1310] and notification 

provisions as set forth in part 1313 * * *.’’ 21 CFR 

1310.04(g). 

35 In light of Mr. Mitchell’s admission, I deem 

waived any argument that the sales did not exceed 

the 1000 gram threshold. 

36 In her discussion of Respondent’s obligation to 

report suspicious orders, the ALJ explained that 

‘‘Respondent did not controvert [the DI’s] testimony 

that most of its customers purchased twelve or 

twenty-four bottles per month.’’ ALJ at 35. A review 

of Respondent’s evidence suggests that its average 

monthly sale was considerably more. Respondent 

did not, however, provide any statistical analysis to 

show what its average sale was. 

37 I note Respondent’s evidence that the owner of 

the Holiday Chevron was purportedly buying for 

two stores. See RX 53. This contention is legally 

irrelevant as the transactions occurred with a single 

person. Significantly, while Congress exempted ‘‘a 

domestic lawful distribution in the usual course of 

business between agents or employees of a single 

regulated person’’ from the definition of a regulation 

transaction, it did not exempt the distribution to 

that regulated person. 21 U.S.C. 802(39)(A) & (A)(i). 

Indeed, were such transactions exempt from 

reporting, the purpose of the statute would be 

seriously undermined. 

38This provision makes it a felony for ‘‘[a]ny 

person who knowingly or intentionally * * * 

possesses or distributes a listed chemical knowing, 

or having reasonable cause to believe, that the listed 

chemical will be used to manufacture a control 

substance except as authorized by’’ the CSA. 21 

U.S.C. 841(c)(2). 

(A) any regulated transaction involving an 

extraordinary quantity of a listed chemical, 

an uncommon method of payment or 

delivery, or any other circumstance that the 

regulated person believes may indicate that 

the listed chemical will be used in violation 

of this subchapter. 

21 U.S.C. 830(b)(1)(A) (emphasis 

added). See also 21 CFR 1310.05(a)(1) 

(‘‘Each regulated person shall report to 

the Special Agent in Charge of the DEA 

Divisional Office for the area in which 

the regulated person making the report 

is located, as follows: * * * Any 

regulated transaction involving an 

extraordinary quantity of a listed 

chemical, an uncommon method of 

payment or delivery, or any other 

circumstance that the regulated person 

believes may indicate that the listed 

chemical will be used in violation of 

this part.’’). 

Notably, Congress did not require that 

any transaction ‘‘involving an 

extraordinary quantity of a listed 

chemical’’ (or involving the other two 

circumstances set forth in this 

paragraph) be reported by a regulated 

person. 21 U.S.C. 830(b)(1)(A). Rather, it 

required the reporting only of a 

‘‘regulated transaction involving an 

extraordinary quantity of a listed 

chemical,’’ or a regulated transaction 

involving the other two circumstances. 

Id. (emphasis added) 

Moreover, Congress defined ‘‘[t]he 

term ‘regulated transaction’ ’’ to mean ‘‘a 

distribution, receipt, [or] sale * * * of, 

a listed chemical, or if the Attorney 

General establishes a threshold amount 

for a specific listed chemical, a 

threshold amount, including a 

cumulative threshold amount for 

multiple transactions * * * of a listed 

chemical[.]’’ Id. § 802(39)(A). With 

respect to the combination ephedrine 

products at issue here, DEA regulations 

in effect at the time of the transactions 

set a threshold of 1000 grams ‘‘within a 

calendar month’’ for distributions 

between Respondent and a retail store 

customer.34 21 CFR 1310.04(f) & (f)(ii) 

(2004) & (2005). Accordingly, only those 

cumulative transactions which met the 

1000 gram threshold within a given 

calendar month constituted regulated 

transactions for the purpose of the 

requirement to report a suspicious order 

under 21 U.S.C. 830(b)(1). 

As noted above, the ALJ held that all 

of the transactions identified by the 

Government in its exhibit 24 were 

suspicious orders which Respondent 

was required to report. The ALJ’s 

holding was based entirely on policy 

considerations and was not grounded in 

the relevant statutory texts. While these 

policy considerations are undoubtedly 

valid, they cannot trump the clear and 

unambiguous text of the statute. As the 

Supreme Court has explained: ‘‘When a 

court reviews an agency’s construction 

of the statute it administers * * * [i]f 

the intent of Congress is clear, that is the 

end of the matter; for the court, as well 

as the agency, must give effect to the 

unambiguously expressed intent of 

Congress.’’ Chevron, U.S.A., Inc., v. 

NRDC, Inc., 467 U.S. 837, 842–43 

(1984). In short, on this issue, Congress 

made the policy determination when it 

limited the reporting requirement to 

those transactions which met the 

definition of a ‘‘regulated transaction.’’ 

Mr. Mitchell admitted, however, that 

the sales his firm made in March, April 

and May 2005 to the Holiday Chevron 

in Marion, Virginia exceeded the 

threshold.35 The record establishes that 

these sales were for 948, 900, and 984 

bottles in the respective months. In 

addition, Respondent’s evidence further 

showed that it sold even greater 

quantities, and which exceeded the 

threshold, in August (1272 bottles), 

October (1284 bottles), and November 

(1248 bottles) of 2005. 

According to Respondent’s brief, 

‘‘[a]ny sales above the[] ‘threshold’ 

quantities * * * [Mr.] Mitchell 

considered ‘suspicious’ and any 

quantity less than the computed 

‘threshold’ [Mr.] Mitchell did not 

consider suspicious.’’ Resp. Br. at 4 

(proposed findings of fact at ¶8). 

Notwithstanding Mr. Mitchell’s 

acknowledgement that sales above 

threshold were suspicious, he did not 

report any of the six sales to DEA. 

Moreover, while I reject the ALJ’s 

finding that most of Respondent’s 

customers were purchasing only twelve 

to twenty-four bottles, I conclude that 

these six sales ‘‘involved [an] 

extraordinary quantity’’ based on both 

the absolute amount of each sale and 

that the sales were approximately 

double to nearly triple what Respondent 

had sold to this store in a previous 

month (468 bottles). Any responsible 

person would have recognized that 

these sales were suspicious and Mr. 

Mitchell admitted that they were.36

Accordingly, these sales involved an 

‘‘extraordinary quantity’’ and were 

subject to reporting under section 

830(b)(1)(A).37 I therefore hold that 

Respondent violated Federal law and 

DEA regulations by failing to report 

these sales. 

Alleged Violations of 21 U.S.C. 841(c)(2) 

The Government also alleged that 

Respondent violated 21 U.S.C. 

841(c)(2),38 because ‘‘Respondent had 

‘reasonable cause to believe’ that the 

large quantities of ephedrine products it 

sold to Fast Stop Covington, Chevron 

Food Mart[,] * * * [and] Holiday 

Chevron * * * would be used to 

manufacture methamphetamine.’’ Gov. 

Br. at 26. The Government further 

argues that it ‘‘is not required to prove 

that the products were actually used to 

manufacture methamphetamine,’’ and 

that there is no quantity threshold 

which exempts a merchant from 

criminal liability under the statute. Id. 

(citing cases). The ALJ agreed with the 

Government and found that Respondent 

violated 21 U.S.C. 841(c)(2) because it 

sold ‘‘excessive quantities of listed 

chemicals’’ and ‘‘it should have known 

that some of those chemicals were likely 

to be diverted to the illicit manufacture 

of * * * methamphetamine.’’ ALJ at 37. 

The Government is correct that it 

need not show that the ephedrine 

Respondent distributed was actually 

used to manufacture methamphetamine 

and that the then-existing threshold that 

triggered reporting requirements did not 


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39Moreover, while months before the hearing, 

Respondent provided the Government with 

additional sales records, the Government offered no 

statistical analysis of the data to show why, based 

on its sales level alone, Respondent had ‘‘reasonable 

cause to believe’’ that the products it distributed 

would be used to manufacture methamphetamine. 

21 U.S.C. 841(c)(2). 

40While Posters ‘N’ Things addressed the prior 

version of the Federal drug paraphernalia statute, 

the Court explained that ‘‘[t]he language of § 863 is 

identical to that of former § 857 except in the 

general description of the offense.’’ 511 U.S. at 516 

n.5. Of note, section 863 expanded the scope of 

prohibited acts with respect to drug paraphernalia 

and did not alter the definition of the term ‘‘drug 

paraphernalia.’’ See id. Accordingly, the Court’s 

interpretation of the term remains lawful authority. 

41See also 511 U.S. at 524 n.13 (quoting United 

States v. Mishra, 979 F.2d 301, 307 (3d Cir. 1992) 

(‘‘Government must prove that defendant 

‘contemplated, or reasonably expected under the 

circumstances, that the item sold or offered for sale 

would be used with illegal drugs’ ’’) and United 

States v. Schneiderman, 968 F.2d 1564, 1567 (2d 

Cir. 1992) (‘‘Government must prove that defendant 

‘knew there was a strong probability the items 

would be so used.’ ’’)). 

create a safe harbor which allowed a 

registrant to distribute a listed chemical 

product in disregard for the ultimate 

disposition of those products. Holloway 

Distributing, 72 FR 42118, 42124 (2007) 

(collecting cases); see also United States 

v. Kim, 449 F.3d 933, 941 (9th Cir. 2006) 

(‘‘ ‘[t]here is no quantity threshold 

exempting a merchant from criminal 

liability under section 841(c)(2).’ ’’). 

The Government ignores, however, 

that to establish a violation of this 

provision it must show that Respondent 

(or its principal) knew facts that 

provided ‘‘reasonable cause to believe’’ 

that the ephedrine it distributed would 

be used to illicitly manufacture 

methamphetamine. Holloway, 72 FR at 

42124. As one court of appeals has 

explained, the Government must show 

that Respondent ‘‘knew, or knew facts 

that would have made a reasonable 

person aware, that the [ephedrine] 

would be used to make 

methamphetamine.’’ United States v. 

Kaur, 362 F.3d 1155, 1158 (9th Cir. 

2004). 

In support of her conclusion that 

Respondent was selling excessive 

quantities, the ALJ cited the DI’s 

testimony that Respondent was selling 

only twelve to twenty-four bottles a 

month to most of its customers (Tr. 143). 

The DI’s testimony was based on his 

review of an exhibit (GX 21), which 

purports to be a record of Respondent’s 

monthly sales to each customer. The 

record is, however, clearly incomplete 

and was missing data (for every month 

no less) for most of Respondent’s 

customers. While it is unclear why this 

record is incomplete, what is clear is 

that this evidence is not reliable and 

does not satisfy the substantial evidence 

test. See 5 U.S.C. 556(d) (‘‘A sanction 

may not be imposed or rule or order 

issued except on consideration of the 

whole record or those parts thereof cited 

by a party and supported by and in 

accordance with the reliable, probative, 

and substantial evidence.’’).39 I therefore 

conclude that the Government has not 

met its burden and that this allegation 

is not proved. 

Alleged Sales of Drug Paraphernalia 

The Government further alleged that 

Respondent sold Love Roses, a product 

consisting of a small glass tube which 

contains a plastic flower and has 

removable ends. It is undisputed that 

this item is ‘‘commonly used’’ to smoke 

crack cocaine, and that it has no 

legitimate purpose. Tr. 191. It is also 

undisputed that during the June 2005 

inspection, the DI told Respondent that 

this item was used to smoke crack and 

yet Respondent continued to sell the 

product and was still doing so at the 

time of the hearing. The ALJ did not, 

however, address the allegation in her 

decision. See ALJ at 36–38. 

Under Federal law, ‘‘[i]t is unlawful 

for any person * * * to sell or offer for 

sale drug paraphernalia.’’ 21 U.S.C. 

863(a). As relevant here, this statute 

defines ‘‘[t]he term ‘drug paraphernalia’ 

[to] mean[] any equipment, product, or 

material of any kind which is primarily 

intended or designed for use in * * * 

ingesting, inhaling, or other introducing 

into the human body a controlled 

substance, possession of which is 

unlawful under the’’ CSA. Id. section 

863(d). Section 863(d) further provides 

that drug paraphernalia ‘‘includes items 

primarily intended or designed for use 

in ingesting, inhaling, or otherwise 

introducing marijuana, cocaine, 

hashish, hashish oil, PCP, 

methamphetamine, or amphetamines 

into the human body, such as * * * 

metal, wooden, acrylic, glass, stone, 

plastic, or ceramic pipes with or 

without screens, permanent screens, 

hashish heads, or punctured metal 

bowls.’’ Id. section (d) & (1). 

The Supreme Court has explained 

that Section 863(d) ‘‘identifies two 

categories of drug paraphernalia: those 

items ‘primarily intended * * * for use’ 

with controlled substances and those 

items ‘designed for use’ with such 

substances.’’ Posters ‘N’’ Things, Ltd. v. 

United States, 511 U.S. 513, 518 

(1994).40 With respect to the latter 

category, the Court explained that ‘‘[a]n 

item is ‘designed for use’ * * * if it ‘is 

principally used with illegal drugs by 

virtue of its objective features, i.e., 

features designed by the manufacturer.’ ’’ 

Id. (quoting Hoffman Estates v. Flipside, 

Hoffman Estates, Inc., 455 U.S. 489, 501 

(1982)). 

In construing the ‘‘primarily intended 

* * * for use’’ language, the Court 

acknowledged that the phrase ‘‘could 

refer to the intent of nondefendants, 

including manufacturers, distributors, 

retailers, buyers or users.’’ Id. at 519. 

Based on its analysis of the statute’s text 

and structure, the Court concluded that 

the term ‘‘is to be understood objectively 

and refers generally to an item’s likely 

use.’’ Id at 521. The Court further 

explained that where an item has 

multiple uses, ‘‘it is the likely use of 

customers generally, [and] not [of] any 

particular customer, that can render a 

multiple-use item drug paraphernalia.’’ 

Id. at 522 n.11. 

While the Court construed section 863 

as imposing a scienter requirement of 

knowledge, the Court held that ‘‘the 

knowledge standard in this context 

[does not] require knowledge on the 

defendant’s part that a particular 

customer actually will use an item of 

drug paraphernalia with illegal drugs.’’ 

Id. at 524. The Court further explained 

that ‘‘[i]t is sufficient that the defendant 

be aware that customers in general are 

likely to use the merchandise with 

drugs. Therefore, the Government must 

establish that the defendant knew that 

the items at issue are likely to be used 

with illegal drugs.’’ Id. (emphasis added) 

(citing United States v. United States 

Gypsum Co., 438 U.S. 422, 444 (1978) 

(‘‘knowledge of ‘probable consequences’ 

sufficient for conviction’’)).41

The evidence establishes that a Love 

Rose’s likely use is to smoke illicit 

drugs, and that Respondent sold this 

item knowing that they were ‘‘likely to 

be used with illegal drugs.’’ Id. As 

explained above, Congress expressly 

included in the definition of ‘‘drug 

paraphernalia,’’ a list of items which 

‘‘constitute[e] per se drug 

paraphernalia.’’ Id. at 519. Of relevance 

here, Congress included in this list 

‘‘metal, wooden, acrylic, glass, stone, 

plastic, or ceramic pipes with or 

without screens.’’ 21 U.S.C. 863(d). As 

the record shows, a Love Rose is 

nothing more than a small and fake 

flower inserted in a glass pipe; that the 

pipe contains a flower does not make it 

any less a pipe. Tr. 118; See also Posters 

‘N’ Things, 511 U.S. at 518 (observing 

that certain items ‘‘including bongs, 

cocaine freebase kits, and certain kinds 

of pipes, have no other use besides 

contrived ones (such as use of a bong as 

a flower vase)’’). The item thus falls 

within the statutory definition of ‘‘drug 

paraphernalia.’’ See 21 U.S.C. 863(d). 

Furthermore, even if the Love Rose 

does not fall strictly within the ‘‘list of 

* * * items constituting per se drug 


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42 Indeed, even if one is cheap, if one is intent 

on expressing his/her affection for a loved one, 

there are plenty of other ways of doing so such as 

buying a real flower and not a fake one inside a 

small glass pipe. Mr. Mitchell’s testimony proved 

this point. When asked on cross-examination what 

he understood the product was used for, Mr. 

Mitchell initially testified: ‘‘Well they take them 

home to their wives to keep from getting beat up.’’ 

Tr. 390–91. Before the Government’s counsel could 

even ask his next question, Mr. Mitchell added: ‘‘I 

don’t know. I’d get beat up if I took one home.’’ Tr. 

391. Mr. Mitchell then acknowledged that he had 

been told that the product was used as drug 

paraphernalia. Id. 

43See 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’’). 

44Under the Administrative Procedure Act, an 

Agency is not required to give a licensee the 

‘‘opportunity to demonstrate or achieve compliance 

with all lawful requirements’’ prior to revoking a 

license ‘‘in cases of willfulness or those in which 

public health, interest, or safety requires otherwise.’’ 

5 U.S.C. 558(c). While this exception likely applies 

here given the continued scope of the 

methamphetamine problem, especially in the States 

where Respondent distributes its products, I apply 

DEA’s longstanding precedent that where ‘‘the 

Government has proved that a registrant has 

committed acts inconsistent with the public 

interest, a registrant must present sufficient 

mitigating evidence to assure the Administrator that 

[it] can be entrusted with the responsibility carried 

by such a registration.’’ Medicine ShoppeJonesborough, 73 FR 364, 387 (2008) (quoting 

cases). See also id. (‘‘DEA has repeatedly held that 

where a registrant has committed acts inconsistent 

with the public interest, the registrant must accept 

responsibility for its actions and demonstrate that 

it will not engage in future misconduct.’’). 

paraphernalia,’’ 511 U.S. at 519, there 

was ample evidence establishing that 

the item’s ‘‘likely use’’ is to ingest illicit 

drugs. Id. at 521. The DI testified that 

Love Roses are ‘‘commonly used’’ to 

smoke crack and that the product has no 

legitimate purpose.42 Tr. 191; see also 

Gregg & Son Distributors, 74 FR 17517, 

17522 (2009) (quoting Sharon Tubbs, ‘‘A 

Crack Pipe by Any Other Name,’’ St. 

Petersburg Times (Aug. 10, 2001) 

(Floridian Section) (‘‘The outsider 

assumes the rose tubes are meant to 

attract the impulse buyer who picks up 

a chintzy gift for his sweetie. But for 

addicts, the buy is anything but an 

impulse. Addicts go to stores looking for 

rose tubes, calling them ‘stems’—street 

talk for [a] crack pipe.’’)). The DI further 

testified as to how the product is 

adapted for use to smoke crack by 

removing the cork. Tr. 118. 

Moreover, it is undisputed that Mr. 

Mitchell was told by the DI during the 

June 2005 inspection that the product 

was used to smoke crack. Mr. Mitchell 

was thus ‘‘aware that customers in 

general [we]re likely to use the 

merchandise with drugs.’’ Posters N’ 

Things, 511 U.S. at 524. Yet Mr. 

Mitchell admitted that Respondent 

continued to sell the product and was 

still doing so at the time of the 

inspection. I thus conclude that 

Respondent violated Federal law by 

selling drug paraphernalia. 21 U.S.C. 

863(a). 

In conclusion, I find that Respondent 

violated Federal law and DEA 

regulations by failing to report six 

regulated transactions which were 

suspicious and by knowingly selling 

drug paraphernalia. These findings 

further support the conclusion that 

Respondent’s continued registration is 

inconsistent with the public interest. 

Factor Five—Other Factors Relevant to 

and Consistent With Public Health and 

Safety 

The illicit manufacture and abuse of 

methamphetamine have had pernicious 

effects on families and communities 

throughout the nation. This is especially 

so in States such as Tennessee and 

Kentucky, which, notwithstanding the 

enactment of laws at both the state and 

Federal level which more closely 

regulate or restrict the sale of certain 

listed chemical products, still have an 

extraordinarily serious problem with 

illicit methamphetamine production 

and its abuse. As the record 

demonstrates, in 2008, law enforcement 

authorities in Tennessee and Kentucky 

still seized 553 and 416 illegal meth. lab 

sites respectively. The illicit production 

of methamphetamine thus remains a 

grave threat to public health and safety 

in both States. Cutting off the supply 

source of methamphetamine traffickers 

is of critical importance in protecting 

the citizens of Tennessee and Kentucky 

(as well as the citizens of adjoining 

States) from the devastation wreaked by 

this drug. 

While listed chemical products 

containing ephedrine can still be 

lawfully marketed for over-the-counter 

use as a bronchodilator, numerous DEA 

orders have found (and the record here 

establishes) that convenience stores and 

gas stations constitute the nontraditional retail (or gray) market for 

legitimate consumers of products 

containing these chemicals. See, e.g., 

Tri-County Bait Distributors, 71 FR 

52160, 52161–62 (2006); D & S Sales, 71 

FR at 37609; Branex, Inc., 69 FR 8682, 

8690–92 (2004); Resp. Br. 13 

(‘‘Respondent’s evidence demonstrates 

that it sold List I chemical product to 

non-traditional retailers.’’). DEA has 

further found that there is a substantial 

risk of diversion of list I chemicals into 

the illicit manufacture of 

methamphetamine when these products 

are sold by non-traditional retailers. See 

Sunny Wholesale, Inc., 73 FR 57655, 

57667 (2008) (noting testimony of 

special agent, who had debriefed more 

than 200 individuals involved in the 

illicit manufacture of 

methamphetamine, that gas stations, 

convenience stores, and other small 

retailers ‘‘were the primary and 

preferred source of’’ list I chemicals 

used by smaller meth. labs); TNT 

Distributors, Inc., 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’’).43 See also 

Joy’s Ideas, 70 FR at 33199 (finding that 

the risk of diversion was ‘‘real’’ and 

‘‘substantial’’); Jay Enterprises of 

Spartanburg, Inc., 70 FR 24620, 24621 

(2005) (noting ‘‘heightened risk of 

diversion’’ if application to distribute to 

non-traditional retailers was granted). 

For this reason, DEA has closely 

scrutinized the adequacy of the 

diversion controls and the compliance 

records of those entities which 

distribute listed chemicals into this 

market. Moreover, even where a 

distributor’s violations are not extensive 

and/or identified inadequacies in its 

diversion controls might be redressed 

through compliance conditions, DEA 

may still conclude that revocation is 

necessary to protect the public interest 

based on evidence that a registrant and/ 

or its principals do not take seriously 

their responsibility either to prevent 

diversion or to comply with the CSA. 

See, e.g., Novelty Distributors, Inc., 73 

FR 52689, 52703 (2008) (revoking 

registration and rejecting ALJ’s 

recommendation to impose compliance 

conditions based, in part, on registrant’s 

failure to enforce its own policies), pet. 

for review denied, 571 F.3d 1176 (D.C. 

Cir. 2009); Holloway Distributing, 72 FR 

at 42126 (revoking registration and 

noting that while registrant had ‘‘taken 

corrective actions, these measures 

[were] still not adequate to protect 

against the diversion of its products’’).44

As found above, Respondent’s 

diversion controls are inadequate for 

four reasons: (1) Its practice of storing 

products on the trucks overnight, both 

at Respondent’s facility and while the 

salesmen are servicing their routes; 

(2) it could not account for all of each 

product that was audited and did not 

have a contemporaneous record of 

products it destroyed; (3) its employees 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Notices 78745 

45 It is acknowledged that Respondent undertook 

to ensure that its customers obtained the necessary 

certifications required by the CMEA. Tr. 399. Yet 

this is only one of many factors that are properly 

considered in assessing whether Respondent’s 

registration is consistent with the public interest. 

do not ask their customers whether they 

are purchasing from other distributors; 

and (4) Mr. Mitchell acknowledged that 

he continued to sell to stores even when 

he knew they were obtaining ‘‘large 

quantities’’ from other distributors. 

Regarding these four deficiencies, Mr. 

Mitchell addressed only one of them— 

the storage of products on its trucks— 

and did so only with respect to when 

the trucks were at his facility.45

The evidence also showed that 

Respondent failed on six occasions to 

report suspicious monthly sales to a 

store as required by Federal law even 

though Mr. Mitchell acknowledged that 

the transactions were suspicious. Here 

again, Respondent did not offer any 

evidence that it has instituted a program 

to identify and report suspicious orders. 

Relatedly, when asked whether he 

had ‘‘ever pause[d] to think’’ that the 

ephedrine products his firm distributes 

could be resold to traffickers, Mr. 

Mitchell explained: ‘‘I’ve guess I’ve 

taken the attitude that I have no control 

on what the retail public does with the 

product.’’ Tr. 404. As noted above, 

consistent with this attitude, Mr. 

Mitchell admitted that his firm had 

continued to sell to stores even when he 

knew the stores were buying large 

quantities from other distributors. And 

as if further evidence of Mr. Mitchell’s 

and his firm’s indifference to their 

obligations to comply with the law is 

needed, the record further showed that 

Respondent violated the CSA by selling 

a product whose likely use is as drug 

paraphernalia, and did so even after the 

DI told Mr. Mitchell that the product 

was used for this purpose. 

Mr. Mitchell’s and his firm’s clear 

disregard of their responsibility to 

protect against diversion and comply 

with the law ‘‘is fundamentally 

inconsistent with the obligations of a 

DEA registrant.’’ Holloway, 72 FR at 

42124; see also D & S Sales, 71 FR 71 

FR at 37610 (noting that a registrant is 

‘‘required to exercise a high degree of 

care in monitoring its customers’ 

purchases’’) (int. quotations and 

citations omitted). Because it is clear 

that Mr. Mitchell does not understand 

the nature of his firm’s obligations, I 

conclude that Respondent’s continued 

registration ‘‘would be inconsistent with 

the public interest.’’ 21 U.S.C. 823(h). 

Accordingly, Respondent’s registration 

will be revoked and any pending 

application will be denied. 

Order 

Pursuant to the authority vested in me 

by 21 U.S.C. 823(h) and 824(a), as well 

as by 28 CFR 0.100(b) and 0.104, I order 

that DEA Certificate of Registration, 

004413RAY, issued to R & M Sales 

Company, Inc., be, and it hereby is, 

revoked. I further order that any 

pending application of R & M Sales 

Company, Inc., for renewal or 

modification of its registration, be, and 

it hereby is, denied. This order is 

effective January 18, 2011. 

Dated: December 3, 2010. 

Michele M. Leonhart, 

Deputy Administrator. 

[FR Doc. 2010–31640 Filed 12–15–10; 8:45 am] 

BILLING CODE 4410–09–P 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

[Docket No. 08–43] 

Ronald Lynch, M.D.; Revocation of 

Registration 

On April 4, 2008, the Deputy 

Assistant Administrator, Office of 

Diversion Control, Drug Enforcement 

Administration (DEA), issued an Order 

to Show Cause to Ronald Lynch, M.D. 

(Respondent), of Sanford, Florida. The 

Show Cause Order proposed the 

revocation of Respondent’s DEA 

Certificate of Registration, BL6686541, 

and the denial of any pending 

applications to renew or modify his 

registration, on the ground that 

Respondent’s ‘‘continued registration is 

inconsistent with the public interest, as 

that term is defined in 21 U.S.C. 

§§ 823(f), 824(a)(4).’’ ALJ Ex. 1, at 1. 

The Show Cause Order alleged that 

Respondent ‘‘authorized controlled 

substance prescriptions for Internet 

customers throughout the United States 

from approximately June 2002, through 

September 2004, on the basis of online 

questionnaires and/or telephone 

consultations.’’ Id. The Order alleged 

that Respondent ‘‘issued these 

prescriptions without a legitimate 

medical purpose and outside the usual 

course of professional practice, in 

violation of 21 CFR 1306.04(a) and 21 

U.S.C. 841(a)(1).’’ Id. The Order further 

alleged that, while Respondent 

authorized controlled substance ‘‘drug 

orders’’ for ‘‘online customers 

throughout the United States,’’ he is 

only licensed to practice medicine in 

the State of Florida and that he ‘‘violated 

state laws that prohibit the 

unauthorized practice of medicine, 

including unlicensed, out-of-state 

physicians issuing controlled substance 

prescriptions to state residents.’’ Id. at 2 

(citations omitted). Finally, the Order 

alleged that Respondent ‘‘violated 

Florida law and regulation prohibiting 

licensed physicians from issuing 

controlled substance prescriptions in 

excessive or inappropriate quantities, 

and from issuing prescriptions via the 

Internet without a documented patient 

evaluation and discussion between the 

physician and patient regarding 

treatment options.’’ Id. (citing Fla. Stat. 

§ 458.331(q) and Fla. Admin. Code Ann. 

r. 64B8–9.014). 

On May 7, 2008, Respondent’s 

counsel requested a hearing on 

allegations, ALJ Ex. 2, and the matter 

was placed on the docket of the 

Agency’s Administrative Law Judges 

(ALJs). On March 24–25, 2009, a hearing 

was held in Arlington, Virginia. 

At the hearing, the Government called 

several witnesses (including the 

Respondent) to testify and introduced 

documentary evidence. Respondent also 

testified on his own behalf. Following 

the hearing, both parties filed briefs 

containing their proposed findings of 

fact, conclusions of law, and argument. 

On September 18, 2009, the ALJ 

issued her recommended decision (also 

ALJ). Therein, the ALJ, after considering 

the five public interest factors, see 21 

U.S.C. 823(f), concluded that 

‘‘Respondent has misused his DEA 

registration [in] the past and has not 

shown any indication that he will not 

do so in the future.’’ ALJ at 46. The ALJ 

thus recommended that Respondent’s 

‘‘registration be revoked and that any 

pending applications be denied.’’ Id. 

As to the first factor—the 

recommendation of the appropriate state 

licensing board—the ALJ found that 

Respondent’s continued licensure by 

the State of Florida ‘‘throughout the 

relevant time period’’ weighed ‘‘in favor 

of a finding that his continued 

registration would not be inconsistent 

with the public interest.’’ Id. at 34. 

However, the ALJ also noted that ‘‘state 

licensure is a necessary but not 

sufficient condition for [holding a] DEA 

registration’’ so that ‘‘this factor is not 

dispositive.’’ Id. 

Examining factors two and four 

together—Respondent’s experience in 

handling controlled substances and his 

compliance with applicable Federal, 

State or local laws—the ALJ determined 

that ‘‘both the Controlled Substances Act 

and the Florida telemedicine standards 

require that the prescribing physician or 

a provider under his supervision 

personally conduct a physical 

examination.’’ Id. at 38–39. The ALJ 

found that because Respondent failed to 

perform such examinations, ‘‘he did not 

establish a proper doctor-patient 


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