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5See 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting 

that the ‘‘Tunney Act expressly allows the court to 

make its public interest determination on the basis 

of the competitive impact statement and response 

to comments alone’’); United States v. Mid-Am. 

Dairymen, Inc., 1977–1 Trade Cas. (CCH) ¶ 61,508, 

at 71,980 (W.D. Mo. 1977) (‘‘Absent a showing of 

corrupt failure of the government to discharge its 

duty, the Court, in making its public interest 

finding, should * * * carefully consider the 

explanations of the government in the competitive 

impact statement and its responses to comments in 

order to determine whether those explanations are 

reasonable under the circumstances.’’); S. Rep. No. 

93–298, 93d Cong., 1st Sess., at 6 (1973) (‘‘Where 

the public interest can be meaningfully evaluated 

simply on the basis of briefs and oral arguments, 

that is the approach that should be utilized.’’). 

1The Show Cause Order also alleged that ‘‘[i]n 

November 2002, 22 bottles of ephedrine products 

distributed by Novelty were found at an illicit 

methamphetamine laboratory in Connecticut.’’

Show Cause Order at 2. 

the decree itself,’’ and not to ‘‘effectively 

redraft the complaint’’ to inquire into 

other matters that the United States did 

not pursue. id. at 1459–60. As this Court 

recently confirmed in SBC 

Communications, courts ‘‘cannot look 

beyond the complaint in making the 

public interest determination unless the 

complaint is drafted so narrowly as to 

make a mockery of judicial power.’’ SBC 

Commc’ns, 489 F. Supp. 2d at 15. 

In its 2004 amendments, Congress 

made clear its intent to preserve the 

practical benefits of utilizing consent 

decrees in antitrust enforcement, adding 

the unambiguous instruction that 

‘‘[n]othing in this section shall be 

construed to require the court to 

conduct an evidentiary hearing or to 

require the court to permit anyone to 

intervene.’’ 15 U.S.C. 16(e)(2). The 

language wrote into the statute what 

Congress intended when it enacted the 

Tunney Act in 1974, as Senator Tunney 

explained: ‘‘[t]he court is nowhere 

compelled to go to trial or to engage in 

extended proceedings which might have 

the effect of vitiating the benefits of 

prompt and less costly settlement 

through the consent decree process.’’

119 Cong. Rec. 24,598 (1973) (statement 

of Senator Tunney). Rather, the 

procedure for the public interest 

determination is left to the discretion of 

the court, with the recognition that the 

court’s ‘‘scope of review remains 

sharply proscribed by precedent and the 

nature of Tunney Act proceedings.’’

SBC Commc’ns, 489 F. Supp. 2d at 11.5

VIII. Determinative Documents 

There are no determinative materials 

or documents within the meaning of the 

APPA that were considered by the 

United States in formulating the 

proposed Final Judgment. 

Dated: August 28, 2008. 

Respectfully submitted, 

Ann Marie Blaylock (D.C. Bar No. 967825), 

Trial Attorney, United States Department of 

Justice, Antitrust Division, Liberty Square 

Building, 450 Fifth Street, NW., Suite 4000, 

Washington, DC 20530, (202) 616–5932, 

Facsimile: (202) 514–7308, 

ann.blaylock@usdoj.gov. 

Certificate of Service 

I hereby certify that on August 28, 

2008, I caused a copy of the foregoing 

Competitive Impact Statement to be 

served on the defendant in this matter 

in the manner set forth below: 

By facsimile and U.S. mail: 

Counsel for Defendant Raycom Media, Inc. 

Everett J. Bowman, Esq., 

Robinson Bradshaw & Hinson, 101 North 

Tryon St., Suite 1900, Charlotte, NC 28246, 

Telephone: (704) 377–8329, Facsimile: 

(704) 373–3929, E-mail: 

ebowman@rbh.com. 

Ann Marie Blaylock (D.C. Bar. No. 967825), 

Litigation III Section, Antitrust Division, 

United States Department of Justice, 450 

Fifth Street, NW., Suite 4000, Washington, 

DC 20530, (202) 616–5932, Facsimile: (202) 

514–7308, ann.blaylock@usdoj.gov. 

[FR Doc. E8–20878 Filed 9–9–08; 8:45 am] 

BILLING CODE 4410–11–M 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

[Docket No. 08–33] 

Novelty Distributors, Inc.; Revocation 

of Registration 

On January 17, 2008, I, the Deputy 

Administrator of the Drug Enforcement 

Administration, issued an Order to 

Show Cause and Immediate Suspension 

of Registration to Novelty Distributors, 

Inc. (Respondent), of Greenfield, 

Indiana. The Order immediately 

suspended and proposed the revocation 

of Respondent’s DEA Certificate of 

Registration, 003563NSY, as a 

distributor of the list I chemicals 

ephedrine and pseudoephedrine, on the 

grounds that its ‘‘continued registration 

is inconsistent with the public interest,’’

and ‘‘constitute[d] an imminent danger 

to public health and safety.’’ Show 

Cause Order at 1 (ALJ EX. 1) (citing 21 

U.S.C. 823(h), 824(a)(4), and 824(d)). 

More specifically, the Show Cause 

Order alleged that Respondent was 

storing listed chemical products at, and 

distributing them from, over 100 

unregistered locations throughout the 

United States, in violation of Federal 

law and regulations. Id. (citing 21 U.S.C. 

822(e), 21 CFR 1309.21 and 1309.23(a)). 

Next, the Show Cause Order alleged 

that Respondent was distributing 

quantities of listed chemical products 

‘‘to small retail outlets such as 

convenience stores’’ in amounts ‘‘far 

exceed[ing] what those retail outlets 

could be expected to sell for legitimate, 

therapeutic purposes.’’ Id. at 2. The 

Order thus alleged that the ‘‘listed 

chemical products distributed by 

[Respondent] in large quantities have 

been, and are likely to continue being, 

diverted to the clandestine manufacture 

of methamphetamine.’’ Id. (citing cases). 

Relatedly, the Show Cause Order 

alleged that some ‘‘[s]mall retail outlets 

that receive large quantities of * * * 

listed chemical products from 

[Respondent] sell such products to 

individuals in amounts that cannot be 

attributed to legitimate individual 

needs,’’ that ‘‘some of the retail outlets 

allow customers to make multiple 

purchases of scheduled listed chemical 

products within a single week, and in 

some cases, within a single day,’’ and 

that ‘‘[s]ome customers of these retail 

outlets purchased more than 9 grams of 

ephedrine or pseudoephedrine base 

within 30 days in violation of 21 U.S.C. 

844(a).’’ Id.1

The Show Cause Order further alleged 

that between January 1, 2007, and July 

9, 2007, Respondent distributed listed 

chemical products ‘‘on at least 284 

occasions to 35 retail outlets,’’ which 

had not self-certified as required under 

Federal law. Id. (citing 21 U.S.C. 

830(e)(1)(A)(vii)). Id. Moreover, on three 

occasions subsequent to February 1, 

2007, Respondent allegedly distributed 

24-count bottles of listed chemical 

products to retailers in violation of 

Federal law, which effective April 9, 

2006, required that non-liquid form 

products be sold only in blister packs. 

Id. at 2–3 (citing 21 U.S.C. 830(d)(2)). 

Relatedly, the Show Cause Order 

alleged that Respondent had distributed 

tablet-form products to retailers in 

Kentucky and North Carolina in 

violation of the laws of these States 

which ‘‘prohibit the sale of non-liquid 

ephedrine and pseudoephedrine except 

in a gel-cap product.’’ Id. at 3. 

Finally, the Show Cause Order alleged 

that in July 2007, DEA had audited 

twenty listed chemical products which 

Respondent distributed. Id. at 2. The 

Show Cause Order alleged that 

Respondent ‘‘could not account for 

more than 60,000 dosage units of two 

ephedrine products’’ and that it also had 

‘‘overages for 16 different * * * listed 

chemical products.’’ Id. The Order thus 

alleged that Respondent ‘‘failed to 

maintain accurate records of its 

distributions and receipts of * * * 

listed chemical products in violation of 

21 U.S.C. 830(a) and 21 CFR 1310.04.’’

Id. 


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2The grounds included that Respondent had not 

established that the Government’s lawyer was a 

necessary and indispensable witness, and that 

Respondent had not cited a single case to support 

its contention that the conduct of the Government 

lawyer—even if true—was a violation of its 

constitutional rights. Denial of Interlocutory 

Appeal, at 2–3 (ALJ Ex. 13.) I also noted that the 

Agency had previously held that the exclusionary 

rule does not apply to proceedings under 21 U.S.C. 

824, and that the Supreme Court had ‘‘repeatedly 

declined to extend the exclusionary rule to 

proceedings other than criminal trials.’’ Id. (quoting 

Pennsylvania Bd. of Probation v. Scott, 524 U.S.C. 

357, 363 (1998)). 

3The decision was 165 pages in length. 

4On August 7, 2008, the District Court granted 

the Government’s motion for summary judgment 

and denied Respondent’s cross-motion for summary 

judgment. See Entry on Cross Motions for Summary 

Judgment, Novelty, Inc., v. Tandy, No. 1:04–cv–

1502–DFH–TAB (S.D. Ind., Aug. 7, 2008). Notably, 

the District Court held that the instructions in the 

Group Supervisor’s letter were interpretive and not 

legislative rules, and were thus not subject to notice 

and comment rulemaking under 5 U.S.C. 553. Id. 

at 2. Pursuant to 5 U.S.C. 556(e), I take official 

notice of the District Court’s decision. I also take 

official notice of the August 13, 2008 letter 

submitted by Respondent’s President. In his letter, 

Respondent’s President stated that he has ordered 

a change to Respondent’s distribution practices and 

‘‘reiterates its previously stated commitment to 

cooperate with [this Agency] and adhere to all 

conditions specified by [me] for [its] continued 

registration.’’ Letter of Todd Green (Aug. 13, 2008). 

In his letter, Respondent’s CEO does not state that 

Respondent’s will waive its right to appeal the 

District Court’s decision. Moreover, I conclude that 

in light of the extensive resources that have been 

devoted to litigating the issue of the lawfulness of 

Respondent’s use of unregistered locations to store 

and distribute SLCs, as well as the importance of 

the issue to the regulated industry, the issue should 

be decided. 

Based on the above allegations, I 

made the preliminary finding that the 

listed chemical products Respondent 

was distributing had been, and were 

‘‘likely to continue to be, diverted into 

the illicit manufacture of 

methamphetamine.’’ Id. at 3. I also 

found that Respondent’s ‘‘failure to 

maintain effective controls against 

diversion, including its distribution of 

large amounts of * * * listed chemical 

products that far exceed legitimate 

demand, contribute to the illicit 

manufacture of methamphetamine.’’ Id. 

I thus came to the ‘‘preliminary 

conclusion that [Respondent’s] 

continued registration during the 

pendency of these proceedings would 

constitute an imminent danger to the 

public health and safety,’’ and 

immediately suspended its registration. 

Id. 

On February 26, 2008, Respondent 

requested a hearing on the allegations. 

ALJ Ex. 2. The matter was assigned to 

Administrative Law Judge (ALJ) Gail 

Randall, who proceeded to conduct prehearing procedures. A hearing was held 

on March 24 through March 28, and 

March 31 through April 2, 2008, at 

which both parties put on extensive 

testimony and introduced numerous 

documents into evidence. 

Moreover, on March 24, 2008, 

Respondent filed an interlocutory 

appeal in which it challenged the ALJ’s 

denial of its motion to remove one of the 

Government’s lawyers from 

participating in the hearing, on the 

ground that he was a necessary and 

indispensable witness to the events 

surrounding the execution of an 

administrative search warrant which 

was the subject of its motion to 

suppress. See ALJ Exs. 12 and 13. On 

March 25, 2008, I denied Respondent’s 

appeal on multiple grounds.2 ALJ Ex. 

13. 

Following the hearing, both parties 

submitted briefs containing their 

proposed findings, conclusions of law, 

and argument. On May 21, 2008, the 

ALJ issued her recommended decision 

(hereinafter, ALJ).3

In her decision, the ALJ found that the 

Government’s evidence regarding the 

monthly expected sales of combination 

ephedrine products at convenience 

stores ($14.39) to meet legitimate 

demand was ‘‘flawed and not credible.’’

ALJ at 97. Relatedly, while 

acknowledging that ‘‘Respondent sells 

an approximate monthly average of 

$640.00 in SLC products to its 

convenience store customers,’’ the ALJ 

observed that ‘‘there is no legitimate 

sales figure in the record’’ by which the 

excessiveness of its sales (and the 

likelihood that the products were being 

diverted) could be judged. Id. 

Regarding the allegation that 

Respondent failed to maintain accurate 

records of its receipts and distributions, 

the ALJ concluded that the evidence 

pertaining to the audit did not establish 

‘‘preponderating evidence either way to 

assist in analyzing the accuracy of 

* * * Respondent’s handling’’ of listed 

chemical products. Id. at 88. The ALJ 

concluded, however, that ‘‘Respondent’s 

recordkeeping is not adequate to 

conduct an effective audit of its SLC 

products.’’ Id. 

The ALJ also rejected the allegation 

that Respondent had made numerous 

distributions to uncertified retailers 

based on testimony and documentary 

evidence that one of Respondent’s 

officials had confirmed that these 

‘‘customers were, in fact, self-certified.’’

Id. at 91. The ALJ further found 

unproven the allegation that 

Respondent had thrice distributed listed 

chemical products in bottles in violation 

of Federal law, noting that Respondent 

had provided ‘‘documentary proof that 

the * * * product * * * had not been 

illegally distributed.’’ Id. at 86. The ALJ 

also found unproven the Government’s 

allegation that Respondent had 

distributed tablet-form products to 

retailers in Kentucky and North 

Carolina, noting that ‘‘Respondent 

produced credible testimonial evidence 

to support a finding that these illegal 

sales in fact did not happen.’’ Id. 

With respect to the allegation that 

Respondent was violating Federal law 

because it was distributing from over 

100 drop-off points which were not 

registered, the ALJ noted that 

Respondent had challenged the 

Agency’s interpretation in Federal 

District Court. Id. at 90–91. The ALJ 

found, however, that Respondent had 

been advised by a DEA Group 

Supervisor (GS) that its practice of 

shipping SLCs to numerous storage 

units which were not registered was 

illegal, that it had continued do so 

without even seeking clarification from 

the Agency, and that this conduct was 

‘‘not consistent with the requirements 

for a participant in a regulated 

industry.’’ Id. at 91. However, because 

Respondent’s declaratory judgment 

action was still ‘‘pending in federal 

court,’’ the ALJ ‘‘conclude[d] that [the 

district court was] the proper venue for 

this issue’’ and declined to address the 

statutory question.4 Id. at 91 n.38. 

Finally, the ALJ also found that 

following the suspension order, 

Respondent had attempted to enter into 

an agreement with one of its suppliers 

(BDI), under which its salespersons 

would still take orders for SLCs which 

would be shipped by BDI. ALJ at 92. 

Here again, the ALJ noted that there was 

no evidence that Respondent had asked 

the Agency if the arrangement was 

lawful. Id. 

The ALJ nonetheless concluded that 

Respondent had ‘‘demonstrated a 

willingness to comply with the laws and 

regulations governing the distribution of 

SLC products,’’ specifically noting that 

it had developed a training program for 

its customers, had provided them with 

the logbooks required by the CMEA, and 

lockable display cases for its products, 

and had upgraded its computer system. 

Id. at 98–99. The ALJ also noted that 

following the implementation of the 

CMEA, Respondent had ‘‘acted to 

remove * * * non-complying SLC 

products from its customers’ shelves 

and [to] properly dispose of’’ them. Id. 

at 99. 

With respect to the audits, the ALJ 

observed that while they ‘‘appeare[d] to 

reveal significant overages and 

shortages,’’ Respondent had ‘‘credibly 

and adequately minimized those figures 

to a more acceptable margin of 

inventory error after analyzing its 

records and making its own audit 


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5The FDA has, however, issued a notice of 

proposed rulemaking which would remove 

combination ephedrine-guaifenesin products from 

the OTC monograph on the grounds that they are 

not ‘‘safe and effective for continued OTC 

availability.’’ 70 FR 40232 (2005). 

The parties also extensively litigated the medical 

appropriateness of using combination ephedrine 

products to treat asthma. See ALJ 43–48. I find it 

unnecessary to make any findings on this issue as 

until the FDA issues a final rule, combination 

ephedrine-guaifenesin products can be lawfully 

marketed for this purpose. 

6Based on the testimony of a witness whose 

experience was limited to the Shenandoah, Virginia 

valley, the ALJ found that the street price of a gram 

of methamphetamine is ‘‘between $20.00 and 

$50.00 per gram.’’ ALJ at 48–49. Based on this, as 

well as evidence regarding the yield and conversion 

rate, the ALJ found that ‘‘it would cost a 

methamphetamine cook between $50.00 and 

$144.00 to produce 1 gram of methamphetamine.’’

ALJ at 50. The ALJ thus concluded that ‘‘using the 

Respondent’s product to manufacture 

methamphetamine makes little monetary sense.’’ Id. 

at 96. 

I reject the ALJ’s finding regarding the street price 

of methamphetamine and her conclusion that using 

Respondent’s product ‘‘makes little monetary 

sense.’’ Id. As for her findings regarding the street 

price of methamphetamine, I note that it is based 

on anecdotal evidence and limited to a small region 

of the State of Virginia. Respondent does not, 

however, limit its distribution of SLCs to this region 

of the country. I further note that it runs counter 

to the data which this Agency obtains on a periodic 

basis, and which show that in most of the country, 

methamphetamine prices are substantially higher 

than they are in the Shenandoah Valley. See U.S. 

Dep’t of Justice, National Illicit Drug Prices—

December 2007, 32–37 (Mar. 2008). In accordance 

with 5 U.S.C. 556(e), and 21 CFR 1316.59(e), I take 

official notice of the methamphetamine street price 

data contained in this publication. Moreover, the 

ALJ’s conclusion assumes that methamphetamine 

addicts engage in economically rational behavior. 

There is, however, no evidence in the record to 

support this assumption. I therefore reject the ALJ’s 

conclusion. 

Continued 

findings.’’ Id. Finally, while the ALJ 

noted that Respondent’s continued 

distributions to the drop-off points 

‘‘cause[s] concern,’’ she further reasoned 

that except for the Group Supervisor’s 

letter, it ‘‘had no notice from the 

[Agency] of any violations until the 

* * * Suspension Order was served’’ on 

it, and that it ‘‘ha[d] not been given an 

opportunity to remedy the flaws 

identified by the Agency [in] this 

action.’’ Id. at 100. Based on what she 

characterized as its ‘‘history of,’’ and 

‘‘financial commitment to,’’ compliance, 

the ALJ reasoned that revocation would 

not be an appropriate sanction. Id. at 

100–01. Instead, the ALJ recommended 

that I impose compliance requirements 

on Respondent to ensure that it operated 

in the public interest. Id. at 101. 

Thereafter, the Government filed 

exceptions to the ALJ’s decision. 

Respondent likewise filed a 140 page 

brief which supported the ALJ’s 

decision while also excepting to certain 

findings and conclusions. 

Having considered the entire record 

in this matter and all of the issues raised 

in the parties’ exceptions, I hereby issue 

this Decision and Final Order. More 

specifically, I reject the allegations that 

Respondent distributed SLC products in 

violation of the CMEA and the laws of 

Kentucky and North Carolina as 

unsupported by substantial evidence. 

With respect to the allegations that 

Respondent engaged in 284 

distributions to uncertified retailers, I 

conclude that the evidence establishes 

only a single instance of distributing to 

an uncertified retailer and several 

instances of inaccurate recordkeeping in 

that Respondent’s records of the 

addresses for several stores did not 

match the actual addresses of the stores, 

and that the Government has not proved 

by substantial evidence that the stores 

were uncertified on the date of the 

distributions. 

With respect to the audit, I conclude 

that because the ALJ found credible the 

testimony of one of Respondent’s 

executives that the Agency’s 

investigators had excluded certain 

transactions and inventory adjustments 

which it had provided to them, and the 

Government offered no rebuttal 

evidence, the allegation that Respondent 

had shortages and overages of various 

products is not proved. I find, however, 

that the evidence shows that 

Respondent’s recordkeeping did not 

comply with federal law because it 

failed to maintain proper records of 

regulated transactions as required by 

Federal law and DEA regulations. See 

21 U.S.C. 830(a); 21 CFR 1310.03, id. 

1310.04, id. 1310.06. Because of this, as 

well as evidence showing that 

Respondent’s list of shipments included 

three shipments of a product with a date 

of July 16, 2007, even though it was 

then only July 9, 2007, I find that 

Respondent does not have adequate 

systems for monitoring the receipt and 

distribution of SLCs. 21 CFR 1309.71(b). 

With respect to the allegation that 

Respondent’s sales of SLC were 

excessive and consistent with diversion, 

I agree with the ALJ that the 

Government’s figure as to the expected 

monthly sales range is not supported by 

substantial evidence. I nonetheless 

conclude that Respondent does not 

maintain effective controls against 

diversion because its own evidence 

shows that it distributed SLCs to 

numerous stores in quantities that 

dwarfed what its average customer 

purchases, and that it did so even when 

it had previously developed concerns 

that a store was purchasing excessive 

quantities, and that it does not even 

enforce its own sales limit policies. 

Next, in contrast to the ALJ, I 

conclude that this proceeding is the 

appropriate forum to address the 

meaning of 21 U.S.C. 822(e) and the 

allegation that Respondent has 

repeatedly violated Federal law by 

distributing from unregistered locations. 

Consistent with the statutory text and 

purpose, I conclude that Respondent’s 

practice of using unregistered selfstorage units to store and distribute SLC 

products violated the Controlled 

Substances Act and DEA’s regulation. 

Finally, for reasons set forth below, I 

reject the ALJ’s recommended sanction 

that Respondent’s registration be 

continued with conditions. As 

explained below, because Respondent 

repeatedly violated Federal law 

notwithstanding that it was advised that 

its use of the unregistered self-storage 

facilities was unlawful, does not even 

enforce its own policies with respect to 

limiting sales, and attempted to 

circumvent the suspension order, I 

conclude that revocation is necessary to 

protect the public interest. I make the 

following findings of fact. 

Findings 

Respondent is a corporation which is 

solely owned by its President, Mr. Todd 

Green. Respondent is a wholesale 

distributor of various sundry items to 

between 10,000 and 12,000 convenience 

stores throughout the United States. 

Since 1998, Respondent has held DEA 

Certificate of Registration, #003563NSY, 

which authorizes it to distribute 

pseudoephedrine and ephedrine from 

its registered location of 351 W. 

Muskegon Drive, Greenfield, Indiana. 

GX 1. Respondent’s registration expires 

on October 31, 2008. Id. 

Both ephedrine and pseudoephedrine 

have FDA approved therapeutic uses. 

GX 19, at 3. Ephedrine is lawfully 

marketed under the Food, Drug, and 

Cosmetic Act for OTC use as a 

bronchodilator to treat asthma,5 and 

pseudoephedrine is lawfully marketed 

for OTC use as a decongestant. Id. at 3–

4. Both substances are, however, 

regulated as schedule listed chemicals 

under the Controlled Substances Act 

because they are precursor chemicals 

which are frequently diverted into the 

illicit manufacture of 

methamphetamine, a schedule II 

controlled substance, a potent and 

highly addictive central nervous system 

stimulant. See 21 U.S.C. 802(34); id. 

812(c); 21 CFR 1308.12(d). Moreover, in 

the course of investigating 

methamphetamine trafficking, DEA has 

frequently found that the listed 

chemicals which are used by smaller 

illicit labs have been sold by 

convenience stores, gas stations, and 

other small retailers. GX 51, at 56, 59, 

62, 66; GX 54, at 29–30.6 See also TNT 


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I also find that this witness’s testimony that 

convenience stores are not the source of precursors 

in the Shenandoah Valley (ALJ at 49), to be 

anecdotal and contrary to the Agency’s experience 

throughout the country. I thus give it no weight. 

7Approximately 90% of the stores are on this 

schedule; the remaining stores are visited either 

weekly or monthly. Tr. 1290. 

8 It is undisputed that the SLCs are not shipped 

back to Respondent’s registered location prior to 

their being distributed. 

At the hearing, an executive of Respondent 

insisted that ‘‘we are not storing product in * * * 

unregistered locations,’’ and added: ‘‘Now your 

coming back into the definition of what is storage. 

We’re not storing the product in that location,’’

referring to the drop-off points. Tr. 666–67. See also 

id. at 668 (‘‘We’re not storing or keeping or 

whatever words you want to try and use, product 

in these warehouses, against the law. We’re not 

doing it.’’). The executive acknowledged, however, 

that products may stay in the storage units for ‘‘a 

few days.’’ Id. at 667. I therefore find that 

Respondent is storing products in the self-storage 

units. 

Respondent further asserted that its distribution 

system provided more security than shipping the 

products via such common carriers as UPS or Fed 

Ex. See Tr. 644–45. Yet an executive of Respondent 

acknowledged that it uses temporary drivers on a 

contract basis. Id. at 693, 697. Relatedly, 

Respondent’s CEO offered testimony as to perceived 

security inadequacies at UPS, asserting that 

‘‘[p]roduct delivered by UPS could easily be stolen 

anywhere in the system.’’ Id. at 157. 

On cross-examination, however, Respondent’s 

CEO admitted that he had not taken a tour of a UPS 

facility. Id. at 161. When asked when he had last 

‘‘checked into the training that UPS personnel have 

with regard to handling [SLCs]?,’’ he answered: ‘‘I 

assume they don’t have any training, since they’re 

not DEA regulated facilities.’’ Id. at 162. The ALJ 

did not address the credibility of the CEO’s 

testimony. As ultimate factfinder, I reject it as 

lacking foundation. 

9There is no dispute that the security at 

Respondent’s Greenfield warehouse is adequate. It 

is also undisputed that following the enactment of 

the CMEA, Respondent prepared a training video 

for its customers and supplied them with logbooks 

and cases for storing SLC products. Tr. 1390 & 1422; 

RXs 34, 47, & 48. 

10On its list of shipments, Respondent used code 

numbers to indicate where products were being 

shipped to. Tr. 1196. Moreover, Respondent 

initially refused to turn over information 

identifying the addresses of the drop-off points for 

the sales routes, claiming that it was outside the 

scope of the warrant. Id. at 1197. 

11The letter also reviewed three scenarios ‘‘in 

case [Respondent was] storing List I chemical 

products * * * and distributing them from satellite 

locations, such as commercial storage units, 

personal residences and or delivery vehicles.’’ GX 

100, at 1. The first two scenarios involved sales 

representatives who picked up listed chemicals 

from a registered location either to fill a pre-placed 

order or a ‘‘general order,’’ and could not return the 

products ‘‘to the registered location at the end of the 

day.’’ Id. 

The third scenario was ‘‘a company [that] ships 

orders containing List I chemicals to sales 

representatives at remote locations.’’ Id. at 2. The 

letter further explained that ‘‘DEA considers this to 

be freight forwarding and at this time * * * has no 

provisions that would permit freight forwarding for 

List I chemical products.’’ Id. 

12With respect to the 24-tablet products, the 

record establishes that there were 144 packages in 

a case. Tr. 621. The record does not, however, 

establish how many packages there were in a case 

of the smaller size packages. Id. at 624. 

Distributors, 70 FR 12729, 12730 (2005) 

(noting testimony of Special Agent that 

‘‘80 to 90 percent of ephedrine and 

pseudoephedrine being used [in 

Tennessee] to manufacture 

methamphetamine was being obtained 

from convenience stores’’). 

Prior to the suspension of its 

registration, Respondent sold 

combination ephedrine and 

pseudoephedrine products under the 

brand names of Double Action, Mini, 

and Ephedrine Plus in package sizes of 

two, six, twelve and twenty-four count. 

Tr. 561, 692–93. Respondent sold these 

products to approximately 3,500 to 

4,000 convenience stores in 

approximately thirty different States. Id. 

at 80–82, 558–60. Respondent does not 

carry any other OTC drug products. Id. 

at 552. 

Respondent employs approximately 

150 sales persons, who typically visit 

each store every other week.7 Tr. 2046, 

1290. Using its own tractor-trailers, 

Respondent ships products including 

SLCs from its Greenfield warehouse to 

each sales person’s ‘‘drop-off point,’’

which is a unit in a commercial selfstorage facility. Id. at 73–75. According 

to the testimony of Respondent’s owner 

and CEO, Respondent was using 

approximately 150 to 180 drop-off 

points at the time the immediate 

suspension was served on it. Id. at 76. 

Both the driver who delivers the 

product to the drop-off point and the 

route sales person have keys to the 

storage unit. Id. While the sales persons 

are notified of each arriving shipment, 

SLCs can sit in the storage units for 

several days before the sales person 

retrieves them for delivery to the 

stores.8 Id. at 534, 668. Moreover, 

according to one of Respondent’s 

executives, the SLCs can remain on the 

salesperson’s truck for up to nine days 

depending upon the demand for the 

product. Id. at 1282, 1421. 

None of the drop-off points is 

registered with the Agency. Tr. 1284. 

Moreover, the units do not have 

separate cages for storing SLCs, id. at 

132, and the facilities have varying 

degrees of external security with some 

having cameras and requiring access 

codes while others have no additional 

security. Compare id. at 131, with id. at 

538 (former salesperson testifying that 

anyone could come off the road and 

access the door and padlock to his route 

storage unit).9 Moreover, DEA 

Investigators could not determine the 

addresses of thirty-four of the drop-off 

points. Tr. 1196–98.10

In a letter dated May 5, 2004, the 

Diversion Group Supervisor of the 

Indianapolis, Indiana DEA District 

Office, advised Respondent that ‘‘any 

storage at, and distribution from, a 

location other than the registered 

location (including the use of delivery 

vehicles for overnight storage) is a 

violation of federal law.’’ 11 GX 100. 

Upon review of the letter, Respondent 

sought a declaratory judgment in 

Federal District Court challenging the 

interpretation set forth in the letter. Tr. 

652–53. At no time, however, did 

Respondent change its practice of 

distributing to the drop-off points. Id. at 

664–65. Nor did Respondent seek a 

review of the letter by officials at the 

Agency’s headquarters. ALJ at 18. 

The record further establishes that at 

the time the listed chemical products 

are shipped from its Greenfield, Indiana 

warehouse (which is its only registered 

location) to the drop-off points, the 

products have not been sold to a 

particular store. Tr. 2079. Indeed, the 

amount of SLCs to be sold to a customer 

is not known until the route sales 

person visits the store and determines 

how much product the store needs. Id. 

at 1282. The sales person counts the 

product on hand, discusses the order 

with the store manager, and restocks the 

store. Id. at 631; 1422. 

Moreover, at the time an SLC order is 

placed, only the salesperson—and no 

one at Respondent’s headquarters—

knows how much the store has 

purchased. Id. at 633. The salesperson is 

required to enter the order information 

into a handheld computer which 

generates an invoice; this information is 

later transmitted back to Respondent’s 

headquarters. Id. at 634. The 

salesperson is also required to return a 

paper copy of the invoice, as well as a 

shipping document which accompanies 

the delivery of the SLCs from the 

warehouse, to headquarters. Id. at 688. 

Under its system, while Respondent’s 

headquarters can determine which 

salesperson has received product with a 

particular lot number, it cannot identify 

the specific store that obtained a 

particular lot number of a product. Id. 

at 1517. 

Respondent’s CEO testified that a 

store could purchase up to a case of an 

SLC product in each ‘‘service 

cycle.’’ 12 Id. at 101. Accordingly, most 

stores could purchase two cases per 

month of each product. Moreover, 

Respondent sold more than ten different 

SLC products. Id. at 623. 

According to one of its executives, the 

company monitors the sales of each SLC 

product at each store throughout the 

week to determine whether a store ‘‘is 

increasing [its] inventory more than 

[Respondent] expects [it] to,’’ and if it is, 

the company contacts the salesperson to 


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13While the ALJ credited the CEO’s testimony, 

the e-mails discussed in note 14 below, show 

otherwise. See, e.g., RX 56, at 3. Moreover, 

Respondent did not identify a single store which it 

had refused to sell SLCs to. 

14The record contains several e-mails indicating 

that Respondent directed its employees to not sell 

100 count ephedrine to several stores. See RX 56. 

While the e-mails expressed concerns about the 

excessiveness of these stores’ sales of ephedrine 

products, notably, Respondent did not cut off all 

sales of the products to any of the stores. See id. 

Moreover, while it restricted its sales ‘‘to a 

maximum of [one case] every 2 weeks’’ and 

prohibited the sale of 100 count ephedrine to store 

number BPM55, this store was its leading SLC 

customer in the three months prior to the issuance 

of the suspension order, during which it purchased 

products with an average of retail value of $7317.77 

per month. Compare RX 56, at 1, with RX 27A, at 

1. 

15The HBC line includes analgesics, stomach 

remedies, vitamins, other OTC drugs, grooming 

aids, feminine hygiene, family planning, baby care, 

skin care, cosmetics, and some other unspecified 

products. 

16Respondent’s expert also pointed out that some 

convenience stores that carry non-prescription drug 

products may not sell any ephedrine. RX 59, at 10. 

17As part of its case, the Government entered into 

evidence a declaration prepared by its expert in 

another matter. See GX 25. In this document, the 

expert stated that he had also looked at data which 

included ‘‘cumulated observed transactions,’’ such 

as scanner data obtained by Information Resources, 

Inc. Id. at 7. The Government’s expert also testified 

that in preparing GX 25, he had reviewed scanner 

data to determine ‘‘the proportion of the 

nonprescription drug category that included 

preparations for the treatment of asthma containing 

ephedrine.’’ Tr. 313 & 500. However, in his rebuttal 

declaration, the Government’s expert made no 

mention of having used scanner data. See GX 99. 

inquire further. Id. at 2061–62. This 

executive also asserted that in this 

event, it would send in one of the 

salesperson’s supervisors to visit with 

the sales person and determine the true 

inventory at a store. Id. Moreover, 

another executive claimed that he 

‘‘receive[s] a computer-generated report 

indicating any time that more than one 

case has been sold to a single retail 

location of a single’’ product and issues 

a warning letter to its salespersons. Id. 

at 1431. Respondent’s CEO and Owner 

further testified that if a customer 

obtained more than a case of a product, 

he ‘‘would cut them off, [and] stop the 

sale of product to them.’’ 13 Tr. 159. See 

also RX 10, at 1 (asserting that stores 

purchasing ‘‘unusual quantities’’ would 

be ‘‘monitored over the following 4 

week period,’’ and that ‘‘[i]f further 

unusual activity is noted,’’ Respondent 

‘‘will discontinue sales of all or part of 

the List I products sold to the store’’). 

According to one of Respondent’s 

executives, between January 17, 2007 

and January 17, 2008, that there had 

been ‘‘approximately 35 to 45’’

violations of the one case limit, and 

most of the violations had occurred 

before July 2007, when the Agency 

executed the administrative warrant. Id. 

at 1433. The ALJ, however, credited the 

testimony of a DEA DI who reviewed 

Respondent’s sales records for the 

period between January and July 2007, 

and found that its salespersons 

exceeded the one case limit 85 times. 

Tr. 1496–1506; GX 68. 

The same executive stated that 

Respondent had only started issuing 

written warnings to its salespersons 

after August 2007 because of a computer 

‘‘glitch’’ which had resulted in the 

reports not being issued as scheduled. 

Id. at 1435. Moreover, while Respondent 

introduced into evidence a few e-mails 

indicating that the company had cut off 

supplying 100-count bottles to several 

stores, Respondent did not identify a 

single store to which it had refused to 

sell ephedrine.14 Indeed, according to 

its own evidence, one of the stores 

(BPM55), which it had previously 

stopped selling 100-count products to 

because of its excessive purchases, was 

allowed to purchase products with a 

retail value of more than $7300 a month, 

in the three months prior to the issuance 

of the suspension order. Compare RX 

56, at 1, with RX 27a, at 1. 

According to one of its executives, 

Respondent’s SLC customers purchased 

SLCs with an average retail sales value 

of $640 per month, with the majority of 

the products containing ephedrine. Id. 

at 563–64. Moreover, according to one 

of Respondent’s exhibits, in the three 

months prior to the issuance of the 

suspension order, it distributed listed 

chemicals products with an average 

monthly retail sales value greater than 

$2000 to approximately 120 of its 

customers. RX 27A. Respondent also 

distributed listed chemical products 

with an average monthly retail sales 

value in excess of $3000 to thirty-four 

customers, and product with average 

monthly retail sale value greater than 

$4000 to nine customers. Id. Finally, 

Respondent distributed to its two largest 

customers, products with an average 

monthly retail sales value of $5056 and 

$7314 respectively. Id. 

At the hearing, the Government put 

forward expert testimony to the effect 

that the expected sales range of 

ephedrine products at convenience 

stores to meet legitimate demand was 

$14.39 per month. GX 25, at 8. In his 

declaration, the Government’s expert 

stated that U.S. Economic Census data 

show that only about 31.5% of all 

convenience stores (45,077 stores) carry 

non-prescription drug products. GX 99, 

at 7. According to his declaration, the 

Government’s expert then applied 

‘‘these statistics’’ to the National 

Association of Convenience Stores 2007 

Survey revenue data which show that 

convenience stores sold a total of 

$292,000,000 of cough and cold 

remedies during 2006, to calculate the 

annual and monthly average sale of 

cough and cold products at a 

convenience store. Id. According to the 

Government’s expert, stores carrying the 

HBC line had average annual sales of all 

cough and cold products of $4,080.18, 

and average monthly sales of $340.01. 

Id.; see also id. at Table 2. 

The Government’s expert did not 

explain, however, why he used the total 

number of stores carrying the HBC 

line 15 (71,565 stores) rather than the 

smaller number of stores that he had 

determined carried non-prescription 

drug products ( 45,077 stores). See id. at 

Table 2. Moreover, the Government did 

not rebut the testimony of Respondent’s 

expert that because of legislation in 

twelve States, convenience stores can no 

longer sell ephedrine products and that 

the stores in these States comprise 23% 

of the nation’s convenience stores. RX 

59, at 10. This suggests that at most, 

34,709 convenience stores nationwide 

carry ephedrine products. Id.16

Next, the Government’s expert 

determined the percentage of cough and 

cold remedies comprised of ephedrine 

products. GX 99, at 8. According to the 

Government’s expert, ‘‘[t]his factor was 

derived from a tabulation of MRI data 

showing asthma remedy usage by retail 

channel (in this case, convenience 

stores).’’ Id. Based on this data, which 

was included at Table 1, the 

Government’s expert concluded that 

ephedrine products constitute 8.36% of 

cough and cold remedies sold at 

convenience stores. Id. Multiplying this 

figure times the average monthly total 

sales of cough and cold products, the 

Government’s expert concluded that the 

average monthly sale of all ephedrine 

products at convenience stores selling 

the products was $28.43.17 Id. 

Respondent’s expert stated, however, 

that the MRI Survey (which is a survey 

of 50,000 consumers) does not provide 

sufficient information to support the 

Government’s expert’s figure that 

ephedrine products constitute 8.36% of 

cough and cold remedies sold at 

convenience stores. RX 59, at 11. 

Respondent’s expert noted that the MRI 

Survey (which was included as an 

attachment to RX 59) ‘‘reports 

absolutely no information about any 

ephedrine products,’’ and ‘‘reports 

absolutely no information on whether 

consumers bought either an asthma 

remedy or a cough and cold remedy 

from convenience stores.’’ Id. (emphasis 

deleted). 


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18Respondent’s expert noted that she was 

informed by its executives that ephedrine products 

constituted 60% of its customers’ SLC sales. RX 59, 

at 12. Even if this is an accurate figure with respect 

to its customers, Respondent does not allow them 

to purchase SLCs from other suppliers, Tr. 626–27, 

and it does not sell any nationally-branded OTC 

pseudoephedrine remedies such as Sudafed or 

Claritin D. The figure is thus based on a biased 

sample. 

19Because the average retail price for a box of the 

two leading brands of ephedrine was $7.19, the 

Government’s expert then further reduced the 

average monthly sales figure from $14.78 to $14.39 

‘‘to reflect the purchase of exactly two boxes of 24 

count ephedrine tablets.’’ Id. at 9. 

20The Government offered evidence regarding 

visits or telephone contacts made by various 

Diversion Investigators (DIs) to eighteen pharmacies 

which were apparently located near some of 

Respondent’s customers. See ALJ Dec. at 23–33. At 

least half the pharmacies did not carry any 

ephedrine products. See id. As for the remaining 

pharmacies, the Government produced evidence as 

to their sales levels of ephedrine products with 

respect to only four of the pharmacies. This 

evidence showed that the pharmacies were selling 

minimal quantities of tablet-form ephedrine 

products, with the most that any store sold being 

71 boxes in a four-and-a-half month period. See, 

e.g., GXs 26, 27, 28 & 29. 

The Government did not establish that it used a 

statistically valid sampling technique in choosing 

the pharmacies the DIs interviewed. The evidence 

thus amounts to nothing more than a collection of 

anecdotes. To the extent the evidence is offered to 

show that there is little demand at pharmacies for 

these products, it is of limited probative value. 

21According to the testimony of a DI, DEA issued 

DMD a warning letter. Tr. 1078. Upon receipt of the 

letter, DMD’s compliance manager told the DI that 

he would look into to whom the product was 

shipped. Id. Subsequently, the DI received a phone 

call from DMD’s compliance manager and owner 

informing her that ‘‘that entire lot had been sold to’’

Respondent in September 2002. Id. at 1079. The 

ALJ credited this testimony, see ALJ at 13, as do I. 

22 It is noted that the time period which was 

reviewed exceeded thirty days. Even assuming that 

these persons did not violate Federal law in 

purchasing these products, given the dosing 

instruction for these products (one tablet every four 

hours and no more than six tablets every twentyfour hours), their purchases are not consistent with 

the use of the products to treat asthma. See, e.g., 

RX 9, at 1. Moreover, the ‘‘Drug Facts’’ warning 

label for Respondent’s Double Action Ephedrine 

(25/200 mg.) product further advises to ‘‘Stop use 

and ask a doctor if * * * cough persists for more 

than 1 week.’’ Id. 

Respondent’s expert further opined 

that the MRI Survey asks three 

questions which ‘‘are inadequate to 

form an estimate’’ of the percentage of 

cough and cold remedies constituting 

ephedrine. RX 59, at 11. The first 

question is: ‘‘How many times in’’

various time periods has the person 

used one of numerous products? See 

Survey of the American Consumer 2–

106. While the survey includes a list of 

non-prescription cold, sinus, and allergy 

remedies, none of the products listed 

contain ephedrine. Survey at 12. Nor 

does it appear that an ephedrine 

product is listed anywhere in the 

survey. 

As for the remaining two questions, 

the survey asks whether a person has 

had asthma in the last twelve months, 

and whether they have used a 

prescription drug, a non-prescription 

drug, an herbal remedy, or have not 

treated the condition at all. Id. at 15. 

The survey does not ask any further 

questions regarding the use of nonprescription drugs to treat asthma. 

Finally, with respect to the use of 

convenience stores, the survey asks only 

whether the consumer has purchased a 

non-prescription/OTC drug at a 

convenience store in the last 30 days. Id. 

at 43. Again, the survey does not inquire 

further as to what type of drug the 

consumer may have purchased at a 

convenience store. The Government’s 

expert did not explain how the data 

obtained in the answers to these 

questions supported his conclusion that 

ephedrine products constitute 8.36% of 

the cough and cold remedies purchased 

at convenience stores.18

The Government’s expert further 

stated that he used ‘‘[a]nother MRI 

tabulation showing the route of the drug 

(powder, tablet, liquid, mist, skin patch, 

etc., etc.), [which] enabled the estimate 

to be further adjusted to reflect tablets 

only * * * resulting in the final 

estimate of $14.78.’’ Id. The 

Government’s expert thus concluded 

that 52% of ephedrine users use tablets 

rather than inhalers, id. at Table 2; 

multiplying this figure times the average 

monthly sales of $28.43, the expert 

concluded that the average monthly sale 

of tablet-form ephedrine products at 

convenience stores was $14.78. Id. at 

8.19

The MRI survey asks, however, only 

about the mode of administration with 

respect to cold, sinus and allergy 

remedies and not asthma remedies. 

Survey, at 12. Here again, it is unclear 

why this data provides a reliable basis 

for estimating the percentage of asthma 

sufferers who use tablets versus 

inhalers. 

I thus agree with the ALJ that the 

Government has not proved by 

substantial evidence that the monthly 

expected retail sales value of ephedrine 

products at convenience stores to meet 

legitimate demand is $14.39.20 On the 

other hand, it is undisputed that no 

ephedrine product ranks in the top 200 

of over-the-counter and health-andbeauty care products which are sold in 

drug stores, supermarkets, and mass 

merchandisers. See GX 99, at 4. It is also 

undisputed that approximately 97% of 

the sales of non-prescription drugs 

occurs at pharmacies, supermarkets, 

warehouse clubs, department stores, 

electronic shopping/mail order houses, 

and other general merchandise stores. 

GX 25A, at C2. Moreover, convenience 

stores (both those with and without 

gasoline) account for approximately 

1.14% of the total commerce in nonprescription drugs. Id. The Government, 

however, produced no evidence as to 

the annual sales of combination 

ephedrine products such as Primatene 

Tablets and Bronkaid, which are sold at 

pharmacies, supermarkets, and other 

large volume retailers of nonprescription drugs. 

Evidence of Diversion 

In September 2002, DMD 

Pharmaceuticals, a supplier to 

Respondent, shipped it an entire lot of 

sixty-count bottles of a combination 

ephedrine (25 mg.) product.21 Tr. 1079. 

Two months later, twenty-two bottles of 

this lot were found at an illicit 

methamphetamine laboratory in 

Thompson, Connecticut. Id. at 1077. 

DEA subsequently issued a warning 

letter to DMD. Id. at 1077–78. 

Several months later, while 

completing a previously-commenced 

inspection of Respondent, a DI 

discussed the matter with two of its 

executives. Id. at 1082–83. While the 

executives provided the DI with the 

names of two salespersons whose 

territory included or was near the part 

of Connecticut where the lab was found, 

they could not identify which specific 

stores had obtained the ephedrine. Id. at 

1084. 

As part of the investigation that gave 

rise to this proceeding, DIs based in four 

States visited a number of Respondent’s 

customers. At a Roadrunner Market in 

Bristol, Tennessee, a DI testified that 

during the ‘‘time period of July 23rd 

through August 23rd’’ of 2007, three 

customers had purchased quantities that 

far exceeded nine grams.22 Tr. 730–733. 

While 439 gel caps in 25 mg. strength 

is the dosage form equivalent to the nine 

gram limit, M.W. had bought 56 boxes 

totaling 1,344 gel caps or approximately 

27 grams. GX 46. During the same 

period, C.M. purchased 23 boxes 

totaling 552 gel caps (approximately 

11.3 grams), and E.B. purchased 52 

boxes totaling 1,248 gel caps or 

approximately 25.6 grams. Id. The DI 

also found other evidence of repetitive 

purchasing patterns at the stores, but the 

logbooks were missing information such 

as the number of dosage units and/or 

strength of the product. See GX 80. 

A different DI visited the Smoker 

Friendly No. 4 Store in Little Falls, New 

York, and obtained the logbooks. Tr. 

785–86, 791–92. The logbooks showed 

that between July 27, 2007, and August 


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23A person named Chris M. (with the same last 

name and address as M.M.) purchased an additional 

360 tablets. GX 49. 

24All of these calculations assume that these 

persons bought 12.5 mg. tablets; if they bought 25 

mg., then the amount of ephedrine was double. 

Moreover, the DI found that four other persons had 

purchased quantities which would exceed nine 

grams if the strength of the tablets was 25 mg. 

25At two stores, the DI did not find any evidence 

of purchases in excess of the limit and was told by 

the managers that the products were primarily 

purchased by hospital workers and truck drivers 

who used them to stay awake on their jobs. Tr. 872–

73; 886–87. 

26The store’s certification shows that it was 

completed online at DEA’s self-certification Web 

page. RX 57, at 18. 

27Likewise, Respondent’s records list the address 

for store BGP1 as 1699 N. Dixie Hwy, Monroe 

Michigan. GX 39. The store’s DEA certificate gives 

its address as 1488 N. Dixie Hwy., Monroe, 

Michigan. RX 57, at 21. 

28According to Respondent’s sales records, two 

of the distributions (to stores PTR3295 and 

PTR3438) occurred on February 7, 2007; the other 

distribution (to store PTR3973) occurred on April 

23, 2007. GX 66, Tr. 1442–43. 

27, 2007, four persons had purchased 

more than nine grams. K.S. bought 984 

tablets of ephedrine 25 mg. (more than 

20 grams), and A.P. bought 768 tablets 

of ephedrine 25 mg. (approximately 15.7 

grams). GX 45. Moreover, Richard and 

Robert R., who had the same last name 

and used the same address, respectively 

purchased 600 and 696 tablets of 

ephedrine 25 mg. Id. These purchases 

amounted to 12.3 and 14.25 grams. Id. 

Another DI visited the Mason of New 

York convenience store of Jamestown, 

New York, and obtained the logbook. Tr. 

1484. The logbook entries were 

frequently missing information as to the 

strength of the ephedrine tablets that 

had been purchased. Nonetheless, the 

logbook showed that there were five 

individuals who, even if they had 

purchased only 12.5 mg. ephedrine, had 

nonetheless purchased more than nine 

grams during the period between July 21 

and August 21, 2007. More specifically, 

M.M. purchased 1,368 tablets (14 

grams),23 A.J. purchased 1,014 tablets 

(10.4 grams), J.B. purchased 1,548 

tablets (15.9 grams), J.H. purchased 

1,068 tablets (10.9 grams), and R.B. 

purchased 1,002 tablets (10.3 grams).24

GX 49. 

A Pennsylvania-based DI likewise 

found evidence of purchases that, while 

technically not in violation of the 

CMEA, raised a strong suspicion that 

the ephedrine was being diverted. For 

example, at the CoGo of Somerset, 

Pennsylvania, a DI found that S.M. had 

bought 384 dosage units between 

August 16 and 23, 2007. GX 75. At 12.5 

mg. strength, this amounted to 3.9 

grams. This individual had also bought 

three twenty-four count boxes on three 

consecutive days.25 Id. Moreover, 

another DI visited a CoGos in Midland, 

Pennsylvania, and found evidence that 

a person had bought 620 dosage units of 

12.5 mg. between May 1 and May 31, 

2007, and an additional 636 dosage 

units between June 1 and June 15, 2007. 

Tr. 1486; GX 41. 

The Allegation That Respondent 

Distributed Listed Chemicals to 

Uncertified Retailers 

Effective September 30, 2006, the 

CMEA prohibited a retailer from selling 

schedule listed chemical products 

unless the retailer had self-certified to 

the Attorney General that all 

‘‘individuals who are responsible for 

delivering such products into the 

custody of purchasers or who deal 

directly with purchasers by obtaining 

payment for the products * * * have 

* * * undergone training provided by 

the seller to ensure that the individuals 

understand the requirements that 

apply’’ to the sale of the products. 21 

U.S.C. 830(e)(1)(VII). As stated above, 

the Government alleged that between 

January 1, 2007, and July 9, 2007, 

Respondent made 284 distributions of 

listed chemical products to thirty-five 

retailers who were not self-certified. 

As support for the allegation, a DEA 

DI testified that using a document 

supplied by Respondent which listed 

the customers by code number, store 

name and address, she conducted a spot 

check to see if the stores were listed in 

the Agency’s database of stores that had 

become certified. Tr. 1213–19. The DI 

further testified that the results of her 

inquiry were reported in a thirteen page 

document, which listed the 

distributions by Respondent’s store code 

number, the date, Respondent’s product 

code, and quantity. Id. at 1218, see also 

GX 40 (listing stores and transactions). 

At the hearing, Respondent produced 

numerous documents that refuted the 

allegation. For example, the 

Government listed twenty-five 

Speedway stores that were located in 

Indiana and Kentucky which had 

obtained SLCs from Respondent 

between April 10 and July 9, 2007. GX 

40, at 3, 6 & 7. Respondent, however, 

introduced into evidence, a letter dated 

April 3, 2007 from an executive of 

Speedway Super America to DEA’s 

registration unit submitting a CD–Rom 

with the certification data for the 

company’s stores in Indiana and 

Kentucky. RX 57. Respondent also 

submitted copies of each store’s 

certification. See RX 57A. While each of 

the certifications was dated July 5, 2007, 

the Government did not rebut 

Respondent’s evidence that the Agency 

considers a chain retailer who submits 

information on a CD–Rom to be selfcertified on the date the information is 

received by the Agency. Tr. 1335–36. 

At most, the evidence suggests that 

Respondent made a single distribution 

to a single store before it obtained its 

certification. Compare GX 40, at 14, 

with RX 57, at 18. According to these 

exhibits, Respondent distributed a listed 

chemical product on January 18, 2007, 

to an independent convenience store 

located in Centreville, Virginia, prior to 

the store obtaining certification on 

March 8, 2007.26

The evidence did show, however, 

several instances in which Respondent’s 

records contained erroneous 

information. For example, Respondent’s 

records listed the address of store 

XTM7480 as 1451 Dorsey Road, 

Hanover, Maryland. GX 39, at 100. The 

store’s DEA Certificate states, however, 

that its address is 7500 Ridge Road, 

Hanover, MD. RX 57, at 14. 

Respondent’s records likewise listed the 

address of store XTM7520 as 7300 

Washington Blvd., Dorsey, MD. GX 39, 

at 100. According to its DEA certificate, 

the store’s address was 7300 

Washington Blvd, Elkridge, MD. RX 57, 

at 15. Also, Respondent’s record listed 

the address of store MTO102 as 995 Old 

Airport Road, Bristol, TN. GX 39, at 33. 

The store’s DEA certificate, however, 

gives its address as 1001 Airport Road, 

Bristol, Va. RX 57, at 16.27

The Allegations That Respondent 

Distributed Products in Forms That 

Could Not Be Lawfully Sold Under the 

CMEA and State Laws 

Effective April 9, 2006, the CMEA 

prohibited a retailer from selling a listed 

chemical ‘‘product in nonliquid form 

(including gel caps) at retail unless the 

product is packaged in blister packs 

* * * containing not more than 2 

dosage units, or where the use of blister 

packs is technically infeasible, the 

product is packaged in unit dose 

packets or pouches.’’ 21 U.S.C. 

830(d)(2). The Government alleged that 

subsequent to February 1, 2007, 

Respondent distributed 24-count bottles 

of listed chemical product to retailers on 

three occasions. 

In support of this allegation, the 

Government introduced a document 

which lists three distributions of 

Respondent’s product # 17902, Mini 2 

Way 25 mg. gel caps in 24 count bottles, 

to three stores (PTR3295, PTR3438, and 

PTR3973).28 See GX 66 & 37. A DI 

testified that the three transactions were 

found in Respondent’s sales records. Tr. 


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29Respondent’s CEO attributed the data as 

resulting from its salesperson[s] having entered the 

wrong product code in their computer. Tr. 68. 

Another of Respondent’s testified that that it had 

reprogrammed its computer system to prevent a 

salesperson from selling an item that was 

prohibited. Id. at 1404. Yet even after the 

reprogramming, there were several instances in 

which salespersons entered the codes for 

discontinued products. Id. at 1405. The same 

executive acknowledged that he did not know if the 

salespersons still had obsolete products in their 

storage units. Id. 

30Respondent also submitted an e-mail from an 

employee of Circle K., which states that she 

checked the stores’ sales going back to April 30, 

2007, and that the stores had not sold the product. 

RX 46, at 5. The e-mail is thus not probative of 

whether Respondent distributed the products in 

violation of Kentucky law. 

31According to the DI, the investigators ‘‘asked to 

see receipts for the products audited for a time 

period. And we were, instead, given this three-page 

summary.’’ Tr. 1170. Relatedly, the DI testified that 

while Respondent gave them a 157 page list of its 

shipments, the document used product codes and 

the Investigators had to ask several times for a 

document which identified the products. Id. at 

1180–81. 

32This product was a six-count blister pack. See 

GX 32, at 1. 

33While two other products balanced, the 

computation chart indicates that there was no 

beginning or closing inventory of, and no activity 

in, these products. GX 3, at 6. 

1442–45. According to Respondent’s 

customer list, each of the stores was 

owned by The Pantry chain. See GX 39. 

Respondent’s record of shipments 

showed, however, that the product had 

not been shipped after January 2006. RX 

40, at 152. Moreover, Respondent 

presented e-mail correspondence 

between it and an employee of The 

Pantry. More specifically, Respondent 

requested that The Pantry check its 

scanner data to determine whether it 

had sold the bottled product at the three 

stores after February 1, 2007. RX 46, at 

2–3. In an e-mail, a Pantry employee 

reported that she had checked the item 

number for the three stores ‘‘from Feb. 

2007-Feb. 2008 and [that] there was no 

movement at any of the three locations 

for this item.’’ RX 46, at 1.29 Based on 

the totality of the evidence, I find that 

the Government has not proved this 

allegation. 

The Government also alleged that 

Respondent distributed tablet-form 

products to retailers in Kentucky and 

North Carolina, after these States 

prohibited the sale of non-liquid 

products other than in gel-cap form at 

establishments that are not pharmacies. 

In support of the allegation, the 

Government introduced a document 

which listed four distributions of 

Respondent’s product # 017550, 

Ephedrine Plus Blister 24 Count. See GX 

37 & 65. Three of the distributions were 

made to three stores owned by Circle K 

Midwest which were located in 

Kentucky (CKM 3212, CKM 3247, and 

CKM 3248); the other store was owned 

by The Pantry and located in North 

Carolina (PTR3972). See GX 39, at 10, 

11 & 65. According to Respondent’s 

records, the distributions occurred on 

March 27 and 28, and July 9, 2007. 

An executive of Respondent testified 

that its records pertaining to the four 

distributions were erroneous. Tr. 1347–

50. Moreover, Respondent’s records did 

not show any shipments of this product 

after December 26, 2005. RX 40, at 159. 

Finally, in an e-mail, an employee of 

The Pantry reported that ‘‘there was no 

movement’’ of the product at store 

number 3972. RX 46, at 1.30 Because the 

ALJ found credible Respondent’s 

explanation and did not produce 

sufficient evidence to reject this finding, 

I find that Government has proved only 

that Respondent’s records were 

erroneous and that it did not violate 

North Carolina or Kentucky law. 

The DEA Audits 

On July 9, 2007, as part of an 

administrative inspection of its 

registered location, DEA Investigators 

took a physical count of Respondent’s 

listed chemical products then on hand. 

Tr. 1163. The DIs also obtained an 

initial inventory dated December 25, 

2005, from Respondent’s records. Id.; 

see GX 4. Both the beginning and 

ending inventories were certified as 

correct by Ryan Polk, Respondent’s 

Chief Financial Officer. GX 4. Pursuant 

to an agreement with the DIs, products 

which were stored in the returns portion 

of Respondent’s storage cage which 

included out-of-date products, broken 

blister packs, and single loose pills were 

not counted. Tr. 1494–95. The products 

had not, however, been logged back into 

Respondent’s records. Id. 

DEA Investigators audited twenty 

different products by adding 

Respondent’s receipts (including 

returns, Tr. 1182) to the beginning 

inventory (GX 34) 31 and comparing this 

figure with the sum of the closing 

inventory and Respondent’s shipments 

to its salespersons (GX 35) and returns 

to its suppliers. See GX 4, at 3. Of 

further note, Respondent’s list of 

shipments indicated that it had made 

three separate shipments of product # 

17121 (totaling more than 2300 units 32) 

to three of its salespersons on July 16, 

2007, notwithstanding that this date was 

a week into the future. GX 35, at 29. 

According to the DIs’ calculations, 

only one of the products in which there 

was activity balanced,33 two of the 

products had sizable shortages, and the 

remaining had overages. Id. More 

specifically, the DI identified 

Respondent’s product code #17902 

(Mini 2-Way 25 mg. 24 count gel cap 

bottles) as being short nearly 28,000 

bottles. Tr. 1186. Moreover, the DI 

concluded that Respondent was short 

32,913 units of product code # 17903 

(Mini 2 Way 12.5 mg. gel cap 6 ct. 

blister packs). See GX 4, at 3. 

The DI further testified that ‘‘because 

we got different numbers when 

comparing [Respondent’s] receipts 

versus their warehouse documentation,’’

Tr. 1186, she conducted an additional 

audit of four products by obtaining 

information from Respondent’s 

suppliers in order to verify its receipts. 

Id. at 1187. According to the DI, for 

these four products, there were 

substantial differences between the 

quantities that were reported by the 

suppliers and the information provided 

by Respondent. Id. With respect to 

product # 17121 (Double Action 6 ct. 

ephedrine 25 mg. tablets), Respondent 

had represented that its receipts were 

656,688, but according to the DI, the 

suppliers had claimed to have sold it 

only 429,024 units resulting in an 

overage of more than 275,000 units. Tr. 

1188; GX 4, at 3. The DI also found 

overages in the other three products 

which were subject to the additional 

audit. GX 4, at 3. The DI further testified 

that she prepared an additional 

document which compared the receipt 

information provided on Respondent’s 

printouts, the hard copy invoices of 

Respondent’s receipts, and the 

quantities which the manufacturers of 

Respondent’s products reported to the 

DI. Tr. 1189–90; GX 69. 

According to this document, while 

Respondent’s printout of its receipts for 

product #17103 (525,240 units of 

Double Action 12 ct. Blister 25 mg.) 

matched the quantity of the 

manufacturer’s report, Respondent had 

no hard copy invoices. GX 69. With 

respect to product # 17131 (Double 

Action Pseudo tablets 12 mg.), 

Respondent’s printout indicated it had 

received 404,184 units and the 

manufacturer reported that it had sold 

403,248 units to Respondent. Id. 

Respondent did not, however, have any 

hard copy invoices for the product. Id. 

With respect to product # 17121 (Double 

Action 6 ct. ephedrine 25 mg.), 

Respondent’s receipts (656,688 units) 

matched the number reported by the 

manufacturer. Id. Respondent, however, 

had hard copy invoices for only 429,024 

units. Id. 

With respect to product # 17125, 

Respondent’s printout indicated it had 

received 1,011,901 units, which 

matched the total quantity reported by 

the two suppliers of this product. Id. 

Respondent, however, had invoices only 


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34The DI also testified that there were thirty-four 

sales routes for which Respondent did not provide 

address information indicating where its products 

were being shipped to. Tr. 1197–98, GX 67. 

35The ALJ noted that this document shows a 

return of 57,600. ALJ at 43. That figure appears, 

however, to be the amount of the credit Respondent 

was entitled to. RX 36, at 4. 

36For example, both Respondent and the 

manufacturer agreed that Respondent had obtained 

656,688 packets of product # 17121, but 

Respondent’s invoices only added up to 429,024 

units. GX 69. In the first audit, the Government 

used the 656,688 figure, and in the second audit, 

which was supposedly based on the information it 

obtained from the manufacturer, it used the 429,024 

figure. See GX 4, at 3. It did the same thing with 

respect to product # 17125, using the 1,011,901 

figure (which Respondent and the two 

manufacturers agreed with) in the first audit. Id. 

Again, in the second audit, it used the 851,671 

figure, the figure that was based on the actual 

invoices produced by Respondent. Id.; see also GX 

4, at 3. 

37 I note that there is no evidence that Respondent 

has been convicted of an offense related to 

controlled substances or listed chemicals. 

for 851,671 units. Id. Apparently, 

Respondent was also missing invoices 

for other products.34 Id. 

Respondent’s CFO testified that upon 

being provided with a copy of the 

Government’s audit, he proceeded to 

conduct his own audit. With respect to 

product # 17902, which the Government 

had concluded was short, the CFO 

testified that the DIs had ‘‘excluded a 

transaction for 28,800 units where we 

sent that product back to the original 

manufacturer’’ because in his words, it 

‘‘was an obsolete item.’’ Tr. 2036; RX 36, 

at 4. The ALJ further found credible the 

CFO’s testimony that he had provided 

this information to the DIs as part of 

their document request. Id.; see also ALJ 

at 42.35 Respondent also introduced into 

evidence numerous documents listing 

inventory adjustments and data 

pertaining to items that had been 

removed to the ‘‘obsolete inventory 

area’’ which its CFO asserted had been 

excluded by the DIs in doing the audit. 

Tr. 2037; RX 36. As for Respondent’s 

other product (# 17903), which the 

Government concluded it was short 

nearly 33,000 units, Respondent 

introduced into evidence two 

documents listing various inventory 

adjustments which it contended had not 

been considered by the Government and 

which would have greatly reduced the 

discrepancy. GX 36, at 2. On crossexamination, the CFO maintained that 

he had provided these documents no 

later than July 18, 2007. Tr. 2085. 

Notably, the Government did not rebut 

either the CFO’s testimony that the 

documents had been provided or that it 

had failed to consider them in 

performing the audit. 

Respondent’s CFO also testified that 

the additional audit (performed on the 

four products) was flawed, asserting that 

with respect to two of the items (#s 

17121 and 17125), the Government had 

‘‘exclude[d] a very large receipt that’s on 

the sales record from those suppliers.’’

Tr. 2038–39. With respect to product # 

17121, the CFO testified that the 

Government had excluded ‘‘227,664 

units [that] were listed on the report as 

sold to’’ it. Id. at 2039. As for product 

# 17125, which came from two 

suppliers, the CFO stated that the 

Government had excluded transactions 

totaling 160,000 units. Id. 

While the purpose of the second audit 

was to obtain information from 

Respondent’s suppliers and verify it 

with Respondent’s reported receipts, in 

fact, the audit appeared to have been 

based on Respondent’s actual invoices 

and not the reported figures (which 

appear to have been used in the first 

round of audits). Compare GX 69, with 

GX 4, at 3.36 In his testimony, however, 

Respondent’s CFO did not address the 

Government’s contention that 

Respondent was missing various 

invoices of its receipts and Respondent 

does not cite to any specific evidence of 

record rebutting the allegation. See Tr. 

2042 (CFO testified that ‘‘I think in a 

couple of instances—I did not include 

the pages in this [exhibit RX 36], for 

example, Item 17121 when the 

Government excluded the 227,000 

units.’’). Accordingly, I find that 

Respondent was missing numerous 

invoices documenting its purchases 

from its suppliers. 

Respondent’s Post-Suspension Conduct 

Following the issuance of the 

suspension order, Respondent engaged 

in discussions with BDI, Inc., one of its 

suppliers, under which Respondent 

proposed to have its sales persons take 

orders for SLCs, which would then be 

sent back to its headquarters and 

forwarded on to BDI, which would fill 

the orders by shipping them to its 

customer by UPS. GX 48; Tr. 2401–02. 

According to a February 8, 2008 letter 

which was signed by its CEO, under the 

scheme, Respondent’s sales persons 

would ‘‘still do all reordering and 

stocking of the merchandise as we have 

in the past,’’ and when a shipment 

arrived at a customer, ‘‘the manager 

[would] have the choice of stocking the 

OTC cabinet or holding it for our sales 

person.’’ GX 48. The letter further 

stated: ‘‘This basically keeps the 

business the same. The only difference 

is a UPS box. All invoices are from 

Novelty, Inc.’’ Id. 

Respondent’s Vice President of 

Product justified the scheme, reasoning 

that under his ‘‘definition of sales, we’re 

not involved in the distribution of the 

product. But our sales people are in that 

store functioning as an agent.’’ Tr. 2402. 

Because BDI refused to participate, 

the scheme ‘‘was never implemented.’’

Id. at 2403. However, at the hearing, 

Respondent’s VP testified that the 

scheme was ‘‘[s]omething that we’re still 

continuing to explore.’’ Id. 

Discussion 

Section 304(a) of the Controlled 

Substances Act provides that a 

registration to distribute a list I chemical 

‘‘may be suspended or revoked * * * 

upon a finding that the registrant * * * 

has committed such acts as would 

render [its] registration under section 

823 of this title inconsistent with the 

public interest as determined under 

such section.’’ 21 U.S.C. 824(a)(4). 

Moreover, under section 303(h), ‘‘[t]he 

Attorney General shall register an 

applicant to distribute a list I chemical 

unless the Attorney General determines 

that registration of the applicant is 

inconsistent with the public interest.’’

21 U.S.C. 823(h). In making the public 

interest determination, Congress 

directed that the following factors be 

considered: 

(1) Maintenance by the applicant of 

effective controls against diversion of listed 

chemicals into other than legitimate 

channels; 

(2) Compliance by the applicant with 

applicable Federal, State, and local law; 

(3) Any prior conviction record of the 

applicant under Federal or State laws relating 

to controlled substances or to chemicals 

controlled under Federal or State law; 

(4) Any past experience of the applicant in 

the manufacture and distribution of 

chemicals; and 

(5) Such other factors as are relevant to and 

consistent with the public health and safety. 

Id. 823(h). 

‘‘These factors are considered in the 

disjunctive.’’ Joy’s Ideas, 70 FR 33195, 

33197 (2005). I may rely on any one or 

a combination of factors, and may give 

each factor the weight I deem 

appropriate in determining whether a 

registration should be revoked or an 

application for a registration should be 

denied. See, e.g., David M. Starr, 71 FR 

39367, 39368 (2006); Energy Outlet, 64 

FR 14269 (1999). Moreover, I am ‘‘not 

required to make findings as to all of the 

factors.’’ Hoxie v. DEA, 419 F.3d 477, 

482 (6th Cir. 2005); Morall v. DEA, 412 

F.3d 165, 173–74 (DC Cir. 2005). 

In this matter, I have considered all of 

the statutory factors.37 While I have 

found that several of the Government’s 

allegations have not been proved, I 

nonetheless conclude that Respondent 

does not maintain effective controls 

against diversion and that its 


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38Under DEA regulations, ‘‘[a]ny registrant or 

applicant desiring to determine whether a proposed 

system of security controls and procedures is 

adequate may submit materials and plans regarding 

the proposed security controls and procedures 

either to the Special Agent in Charge in the region 

in which the security controls and procedures will 

be used, or to the Chemical Operations Section 

Office of Diversion Control’’ at DEA Headquarters. 

21 CFR 1309.71(c). 

distribution practices and recordkeeping 

did not comply with Federal law. 

Moreover, while I have carefully 

considered the ALJ’s findings regarding 

Respondent’s willingness to comply 

with Federal law and her 

recommendation that I continue its 

registration with conditions, I conclude 

that on balance, the ALJ did not give 

sufficient weight to several factors 

including Respondent’s failure to 

enforce its own policies, its sustained 

conduct in continuing to distribute out 

of unregistered storage facilities even 

after being advised that its practice was 

illegal, and its attempt to circumvent the 

suspension order. Accordingly, 

Respondent’s registration will be 

revoked. 

Factor One—Maintenance of Effective 

Controls Against Diversion 

Under agency decisions, this factor 

encompasses a variety of considerations. 

Holloway Distributing, Inc., 72 FR 

42118, 42123 (2007). These include the 

adequacy of the registrant’s/applicant’s 

security arrangements, the adequacy of 

its recordkeeping and reporting, its 

distribution practices, and the 

occurrence of diversion. See id.; see also 

Rick’s Picks, L.L.C., 72 FR 18275, 18278 

(2007); John J. Fotinopoulos, 72 FR 

24602, 24605 (2007); D & S Sales, 71 FR 

37607, 37610 (2006); Joy’s Ideas, 70 FR 

33195, 33197–98 (2005). 

In evaluating a registrant’s security 

controls and procedures, DEA 

regulations direct that the Agency 

consider the following eight factors: 

(1) The type, form, and quantity of List I 

chemicals handled; 

(2) The location of the premises and the 

relationship such location bears on the 

security needs; 

(3) The type of building construction 

comprising the facility and the general 

characteristics of the building or buildings; 

(4) The availability of electronic detection 

and alarm systems; 

(5) The extent of unsupervised public 

access to the facility; 

(6) The adequacy of supervision over 

employees having access to List I chemicals; 

(7) The procedures for handling business 

guests, visitors, maintenance personnel, and 

nonemployee service personnel in areas 

where List I chemicals are processed or 

stored; 

(8) The 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 1309.71.38

It is undisputed that Respondent 

maintains adequate physical security of 

the list I chemicals which it stores at its 

registered location. The record further 

establishes, however, that Respondent 

then ships the SLCs to between 150 to 

180 self-storage units throughout the 

country, where the products may be 

kept for up to several days at a time 

before the route sales persons retrieve 

them. Tr. 534 & 667–68. 

As found above, Respondent disputes 

that this practice constitutes storage. See 

Tr. 666 (Executive testifying that: 

‘‘That’s a nonsense question. Now 

you’re coming back into the definition 

of what is storage. We’re not storing the 

product in that location.’’); id. at 672 

(‘‘We are not storing or keeping or 

whatever words you want to try and 

use, product in these warehouses, 

against the law.’’). Likewise, in its brief, 

Respondent engages in the tortured 

argument that it does not store products 

in the self-storage units because ‘‘[t]he 

definition of ‘store’ focuses on future, 

not present use,’’ and it uses the units 

only for what it terms is an ‘‘immediate’’

and not a ‘‘future use.’’ Resp. Br. 99. 

This argument begs the question of 

why Respondent needs to rent storage 

units if not to store products in them. 

Moreover, the record is clear that the 

products are typically not immediately 

transferred from the delivery truck to 

the route salesperson and that products 

may remain in the storage unit for up to 

several days before the route sales 

person retrieves them. Respondent is 

therefore using the self-storage areas for 

storage. 

Moreover, putting aside momentarily 

the issue of whether these storage units 

must be registered, it is unlikely that 

they could meet the security 

requirements of this Agency. Indeed, 

DEA has previously rejected 

applications of entities that sought to 

store SLCs in public storage facilities on 

the ground that they present an 

unacceptable risk of diversion. See 

Stephen J. Heldman, 72 FR 4032, 4034 

(2007); see also Sujak Distributors, 71 

FR 50102, 50104 (2006). 

In these decisions, I have noted a 

variety of security concerns which are 

raised by these facilities including the 

inadequacy of their construction, the 

lack of alarm systems, the lack of 24 

hour on-site monitoring, the ability of 

unauthorized persons to gain access to 

the facility and the storage units, and 

the fact that the tenant does not control 

what other tenants the landlord rents to. 

See, e.g., Sujak, 71 FR at 50104. Here, 

for example, a former salesperson for 

Respondent testified that his storage 

unit was in a facility which lacked a 

secure perimeter and that anyone could 

come off the road and gain access to the 

door of his unit. Tr. 538. It also is 

undisputed that the storage units did 

not have separate cages within them for 

securing the products. Id. at 133. 

Finally, to this day, the Agency does not 

know where thirty-four of the storage 

units are located. Tr. 1196–98. 

Respondent’s use of these storage 

facilities thus does not provide adequate 

controls against diversion and provides 

reason alone to support the finding that 

its continued registration ‘‘is 

inconsistent with the public interest.’’

21 U.S.C. 823(h). 

The record identified a further serious 

deficiency in the security of 

Respondent’s distribution practices. As 

found above, SLCs may remain on a 

salesperson’s truck for up to nine days 

before being delivered to a store. This 

practice presents a serious security 

concern because of the risk that a thief 

can steal the vehicle’s cargo. Indeed, by 

stealing the entire vehicle with its 

cargo—an act which takes but seconds 

to perform—a thief does not have to 

spend time offloading the SLCs. See 

McBride Marketing, 71 FR 35710, 35711 

(2006). Moreover, the risk posed by 

Respondent’s distribution practice is 

exacerbated by the extensive time 

period during which the products 

remain on its trucks. 

Nor are these security concerns the 

only manner in which Respondent fails 

to maintain effective controls against 

diversion. The record also supports the 

conclusion that Respondent has serious 

recordkeeping deficiencies. 

According to the manufacturer’s sales 

journal, AAA Pharmaceuticals made 

three shipments of product # 17121 to 

Respondent: (1) 227,664 dosage units on 

August 11, 2006; (2) 228,264 dosage 

units on September 1, 2006; and (3) 

200,760 dosage units on November 14, 

2006. See GX 32 at 7, 8 & 11. Each of 

these shipments was also a ‘‘regulated 

transaction’’ as each exceeded the 1,000 

gram threshold. 21 CFR 1310.04(f)(1)(ii). 

Respondent was thus required to keep a 

record of the transaction ‘‘for 2 years 

after the date of the transaction.’’ Id. 

1310.04(a). Yet Respondent was missing 

an invoice for the August 11, 2006 

shipment of 227,666 units, GX 69, and 

the computer-generated records which it 

provided to the Agency pursuant to the 

warrant did not comply with Federal 

law and Agency regulations because 

they were missing required information 

such as the form of packaging and the 

method of transfer. Compare GX 34, 


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39On March 29, 2006, AAA shipped Respondent 

15,984 and 114,480 units of product number 17103; 

a dosage unit of this product contained 25 mg. of 

ephedrine hcl. GX 32 at 2–3. This was followed by 

a shipment on April 14, 2006 of 113,856 units; a 

shipment on April 17, 2006 of 113, 472 units; and 

three shipments on April 18, 2006 which totaled 

167,328 units. See id. 

40Here again, there were multiple transactions 

that fell within the definition of a regulated 

transaction. 

41 I acknowledge the testimony of Respondent’s 

executives that the errors were caused by its 

salespersons’ erroneous entry of products codes 

into their computers, and that the software has 

since been reprogrammed. 

42Under the Agency’s policy, this manual was 

provided to all list I chemical distributors at various 

inspections. It is also available through the 

Agency’s Web site. 

43These five customers had purchased between 

1,002 and 1,548 tablets. In contrast, Respondent’s 

recommended dosing for its 12.5 mg product was 

‘‘2 tablets every 4 hours as needed, not to exceed 

12 tablets in 24 hours,’’ and to ‘‘stop use’’ and see 

a doctor if ‘‘cough lasts more than 7 days.’’ RX 9, 

at 3. 

I acknowledge that Respondent cannot review the 

logbooks. A registrant cannot, however, ignore other 

evidence which is indicative of diversion. 

44At the hearing, Respondent’s Expert testified 

that BPM55 is an outlier and that it would not be 

appropriate to draw ‘‘a conclusion about 

[Respondent’s] customers based on relying on the 

. . . highest seller.’’ Tr. 1722. Contrary to the 

understanding of Respondent’s Expert, in 

evaluating the effectiveness of an entity’s diversion 

controls, there are no free passes. Excessive sales to 

a single store are sufficient by themselves to 

support the conclusion that the registrant does not 

maintain effective controls against diversion. 

Moreover, as explained above, BPM55 had a history 

of excessive sales and had previously come to the 

attention of Respondent. Yet Respondent continued 

Continued 

with 21 U.S.C. 830(a)(2) and 21 CFR 

1310.06(a). 

With respect to product number 

17103, Respondent acquired more than 

525,000 units in seven different 

shipments between March 29, 2006, and 

April 19, 2006. See GX 3 at 2–5.39 Here 

again, Respondent engaged in multiple 

regulated transactions and was required 

to keep records of them. See 21 U.S.C. 

802(39); 21 U.S.C. 1310.04(f) (threshold 

for regulations transaction is based on 

‘‘the cumulative amount for multiple 

transactions within a calendar month’’). 

Yet it had no invoices for any of the 

shipments, GX 69, and the computergenerated records it provided to the 

Agency likewise did not comply with 

the regulations.40 Respondent was also 

missing invoices documenting its 

purchases of other products. See id. 

Respondent’s failure to maintain 

adequate records for the regulated 

transactions it engaged in constitutes 

not only a violation of Federal law, it 

also demonstrates that its systems for 

monitoring the receipt of SLCs are 

inadequate. 

Respondent’s systems for monitoring 

the distribution of its products are also 

deficient. First, Respondent’s 

recordkeeping is deficient in various 

ways. According to the shipping records 

which Respondent provided to the DIs 

on July 9, 2007, it shipped more than 

2300 packages of product # 17121 to 

three different salespersons on July 16, 

2007, even though the date listed was a 

week into the future. 

The Government also identified 

several instances in which Respondent’s 

records indicated that it had distributed 

products that could not be lawfully sold 

under either the CMEA or the laws of 

Kentucky and North Carolina. While I 

have credited Respondent’s evidence 

that the distributions did not occur, the 

evidence nonetheless points to further 

inadequacies in Respondent’s 

recordkeeping and systems for 

monitoring the distribution of SLCs.41

Moreover, Respondent’s records 

contained a variety of errors related to 

the addresses of its customers including 

the wrong street address, and in one 

case, the wrong state. 

Second, Respondent’s procedures for 

monitoring the distribution of its 

products are deficient. The record 

establishes that the placement of an 

order and the delivery of the products 

occur simultaneously, and at the time, 

only the salesperson knows how much 

the store has purchased. Tr. 633. While 

Respondent asserted that it monitors its 

sales of SLC and conducts an inquiry if 

a store has acquired more inventory 

than is expected, and that another report 

is prepared which lists instances in 

which more than one case has been sold 

per product during a transaction, these 

procedures are wholly deficient to 

protect against the diversion of SLCs. 

Moreover, as the evidence with respect 

to the 2002 incident in which 

Respondent’s products were found at a 

meth. lab shows, under its distribution 

model, it can not identify which stores 

receive a particular product. Tr. 1517. 

Fundamental to its obligation to 

maintain effective controls against 

diversion, a distributor must review 

every order and identify suspicious 

transactions. Further, it must do so prior 

to shipping the products. Indeed, a 

distributor has an affirmative duty to 

forgo a transaction if, upon 

investigation, it is unable to determine 

that the proposed transaction is for 

legitimate purposes. See DEA, Chemical 

Handler’s Manual 21 (2002).42

Respondent’s procedure of posttransaction review is incompatible with 

its obligation to identify and forgo 

suspicious transactions. 

Respondent further maintains that its 

imposition of its one case, per product, 

per service cycle limit, and its practice 

of issuing warning letters to 

salespersons who sell over the limit, 

demonstrates that it maintains effective 

controls against diversion. However, the 

credited testimony establishes that 

between January and July 2007, 

Respondent’s sales force violated its 

case limit policy some 85 times. ALJ at 

12. Moreover, one of Respondent’s 

senior executives testified that it had 

only started issuing written warnings in 

August 2007, which, of course, was after 

the administrative inspection. 

Furthermore, Respondent’s policy is a 

meaningless measure because it sells ten 

different products and most stores are 

serviced every two weeks. 

The inadequacy of Respondent’s 

control measures is further 

demonstrated by its own exhibit 

showing its sales of SLCs in the three 

months prior to the issuance of the 

suspension order. As found above, 

Respondent’s CEO testified that its 

average customer sold SLCs with a retail 

value of $640 per month. Tr. 563–64. 

Yet Respondent’s evidence shows that 

during this period, it had sold SLCs 

with an average monthly retail value of 

more than $2000 (more than three times 

its average monthly sale) to 

approximately 120 of its customers, and 

SLCs with an average monthly retail 

value of more than $3000 (4.68 times its 

average monthly sales) to thirty-four of 

its customers. RX 27A. Moreover, 

Respondent sold SLCs with an average 

monthly retail sales value greater than 

$4000 to nine customers. Id. One of 

these customers was purchasing SLCs 

with an average monthly retail sales 

value of $5056—approximately eight 

times its average customer’s purchase. 

Id. Finally, its largest customer (Store # 

BPM55) was purchasing SLCs with an 

average monthly retail sale value of 

$7314—more than eleven times its 

average customer’s purchase—in the 

three months prior to the issuance of the 

suspension order. 

Moreover, the record establishes that 

Respondent had previously determined 

that store BPM55 was purchasing 

excessive quantities. RX 56. Yet 

notwithstanding this store’s history, 

Respondent allowed it to purchase 

quantities that dwarfed that of its 

average customer. Furthermore, upon 

reviewing this store’s logbook for the 

period July 21 through August 21, 2007, 

at least five individuals had purchased 

in excess of nine grams within this 

period. These customers purchased 

quantities which far exceeded the 

recommended dosing for the product’s 

use as an asthma treatment 43 and are 

consistent with diversion.44


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to sell to it, and sold massive quantities to it in the 

three months which preceded the suspension. 

For similar reasons, I find unpersuasive the 

testimony of Respondent’s Expert that it would be 

error to draw conclusions from the six stores 

identified in Government Ex. 38 and 44. See Tr. 

1697–1705. Indeed, with the exceptions of BPM 55 

and NOC 56, it is not even clear that these stores 

were the largest purchasers. 

45As noted above, there was a substantial dispute 

between the parties over the various assumptions 

necessary to determine what an average 

convenience store would sell in legitimate 

commerce. Yet even indulging numerous 

assumptions favorable to Respondent such as: (1) 

That only 31,000 stores sell the products, (2) that 

ephedrine products constitute sixty percent of the 

SLC market at convenience stores, and (3) that the 

NACS survey has an error rate of fifty-five percent 

because some stores erroneously report their sales 

of ephedrine as general merchandise rather than as 

cold and cough products, ALJ Ex. 15; and 

concluding that the average monthly sales figure is 

$941 a month, more than 100 stores were selling at 

levels which were statistically significant according 

to Respondent’s expert. See Tr. 1700 (noting that 

being outside of two standard deviations is 

statistically significant); id. at 1704 (use of two 

standard deviations is ‘‘a very appropriate 

number’’). 

I acknowledge that because two standard 

deviations represents ninety-five percent of a 

population, by definition 2.5 % of the stores will 

fall outside of this point on both sides of the curve. 

In concluding that Respondent does not maintain 

effective controls against diversion, I do not rely 

solely on the Z scores calculated by Respondent’s 

expert. See RX 27A. I also consider the disparity 

between the size of the purchases of Respondent’s 

largest customers and its average customer. 

46The ALJ did note, however, that Respondent 

ignored the letter of a DEA Group Supervisor which 

had informed it that its conduct was illegal. ALJ at 

91. 

47Ordinarily, courts defer to agencies when 

presented with a legal issue that lies within the 

agency’s primary jurisdiction. II Richard J. Pierce, 

Jr., Administrative Law Treatise 917 (4th ed. 2002). 

The scope of the CSA’s registration requirements is 

such an issue. 

48The regulation also exempts from registration 

‘‘[a]n office used by agents of a registrant where 

sales of List I chemicals are solicited, made, or 

supervised but which neither contains such 

chemicals (other than chemicals for display 

purposes) nor serves as a distribution point for 

filling such sales orders.’’ 21 CFR 1309.23(b)(2). 

This provision is not applicable to Respondent’s 

use of the self-storage units. 

Contrary to Respondent’s 

understanding, while proof that a 

distributor is selling quantities in excess 

of the national monthly average for sales 

of SLCs by convenience stores would be 

highly probative of the distributor’s lack 

of effective controls against diversion, it 

is not the sole measure for evaluating 

the effectiveness of those controls. More 

specifically, a registrant cannot ignore 

evidence that some of its customers are 

purchasing quantities that greatly 

exceed what its typical customer buys 

from it. Significantly, Respondent 

introduced this evidence into the 

record. Although in some instances 

there may be a plausible explanation for 

the disparity that does not involve 

diversion, Respondent offered no 

explanation that was specific to any 

store for why it was selling in such 

quantities.45

Moreover, while Respondent’s CEO 

testified that he would cut off a 

customer who purchased more than a 

case of a product, Respondent offered 

no evidence that it has ever refused to 

sell to a customer because the customer 

was purchasing excessive amounts of 

products. Indeed, Respondent’s 

continued sales to BPM55, at a rate that 

was more than eleven times what its 

average customer was buying, amply 

demonstrates that its purported written 

policy of monitoring those stores which 

purchased ‘‘unusual quantities,’’ and 

‘‘[i]f further unusual activity is noted 

* * *discontinu[ing] sales,’’ RX 10, at 

1; is a sham. 

I therefore conclude that Respondent 

does not maintain effective controls 

against diversion. Given the variety of 

ways in which Respondent’s controls 

are deficient, this factor strongly 

supports the conclusion that 

Respondent’s continued registration ‘‘is 

inconsistent with the public interest.’’

21 U.S.C. 823(h). 

Factor Two—Respondent’s Compliance 

With Applicable Laws 

The Government further argues that 

Respondent failed to comply with 

Federal law and DEA regulations by 

distributing SLCs from the self-storage 

units because none of the units were 

registered. See Gov. Exceptions 1–6. The 

ALJ, while noting that the facts 

surrounding Respondent’s use of the 

self-storage units were not in dispute, 

declined to address the statutory issue, 

reasoning that because there was then 

litigation pending in the U.S. District 

Court, the Court, and not this 

proceeding, is the proper forum for 

resolving the dispute. ALJ at 91 n.38.46

I conclude, however, that there is no 

reason for the Agency to not address 

this issue which involves a fundamental 

question as to the scope of the CSA’s 

registration requirements.47

Under Federal law, ‘‘[e]very person 

who * * * distributes any * * * list I 

chemical * * * shall obtain annually a 

registration issued by the Attorney 

General.’’ 21 U.S.C. 822(a)(1). ‘‘Persons 

registered by the Attorney General 

* * * to distribute * * * list I 

chemicals are authorized to possess 

[and] distribute * * * such * * * 

chemicals * * * to the extent 

authorized by their registration and in 

conformity with the other provisions of’’

the CSA. Id. § 822(b). The Act further 

provides that ‘‘[a] separate registration 

shall be required at each principal place 

of business * * * where the applicant 

* * * distributes list I chemicals.’’ Id. 

§ 822(e); see also 21 CFR 1309.23(a) (‘‘A 

separate registration is required for each 

principal place of business at one 

general physical location where List I 

chemicals are distributed, imported, or 

exported by a person.’’). 

With respect to SLC distributors, DEA 

has created by regulation two limited 

exceptions to the requirement that each 

principal place of business be 

registered. The first is for ‘‘[a] 

warehouse where List I chemicals are 

stored by or on behalf of a registered 

person, unless such chemicals are 

distributed directly from such 

warehouse to locations other than the 

registered location from which the 

chemicals were originally delivered[.]’’

21 CFR 1309.23(b)(1).48 This regulation 

is directly applicable to Respondent’s 

use of the storage units. 

Notably, at the time this regulation 

was promulgated, several commenters 

‘‘objected to the requirement * * * that 

a separate registration be obtained for 

each location at which List I chemical 

activities are carried out[,]’’ and 

‘‘suggested that DEA allow companies to 

obtain a single registration * * * for 

multiple locations.’’ Implementation of 

the Domestic Chemical Diversion 

Control Act of 1993, 60 FR 32447, 32448 

(1995). As DEA then explained, ‘‘[t]he 

law is specific on this point. The 

[Domestic Chemical Diversion Control 

Act] requires that a separate registration 

be obtained at each location at which 

List I chemicals are distributed.’’ Id. 

(emphasis added). 

Relatedly, several commenters asked 

‘‘how the requirement for separate 

registrations for separate locations 

would apply to [independently owned] 

warehouses?’’ Id. DEA explained that 

‘‘[t]he person who distributes List I 

chemicals from independently owned 

warehouses must register at each 

location and ensure that the other 

chemical control requirements, 

including security, record keeping, 

reporting, etc., for their products are 

met.’’ Id. (emphasis added). 

The record here clearly establishes 

that the SLCs which Respondent stores 

in the self-storage units are not shipped 

back to Respondent’s registered location 

before being distributed. Rather, the 

SLCs are distributed directly from the 

self-storage units to Respondent’s 

customers. As DEA’s regulation makes 

plain, Respondent’s self-storage units 

are therefore subject to the registration 

requirement. See 21 CFR 1309.23(b)(1). 

As explained above, Respondent’s 

contention that it was not storing 

products at the self-storage units is 


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49Respondent’s argument that ‘‘the principal 

place of business for a corporation is usually its 

headquarters,’’ Resp. Br. 98, suggests that its view 

is that only one registration is required for an entity 

no matter the geographic scope of its distribution 

activities. 

absurd. The units are warehouses as that 

term is understood in common usage. 

See Webster’s Third New International 

Dictionary 2576 (1976) (defining 

warehouse as ‘‘a structure or room for 

the storage of merchandise or 

commodities’’). 

Respondent nonetheless argues that 

the drop-off points are not required to 

be registered because they are not its 

‘‘principal place of business.’’ Resp. Br. 

at 97–98. Respondent acknowledges that 

the term ‘‘principal place of business 

[is] not defined in the definition section 

[ ] of the CSA.’’ Resp. Br. at 97. 

Respondent thus contends that the term 

should be given its ‘‘ordinary meaning.’’

Id. Relying on several cases interpreting 

the term ‘‘principal place of business’’

for the purpose of determining a 

corporation’s citizenship for the 

diversity jurisdiction of the federal 

courts, see 28 U.S.C. 1332(c)(1), 

Respondent contends that ‘‘[t]he 

principal place of business for a 

corporation is usually its headquarters, 

where day-to-day business is 

conducted.’’ Id. (citing Heritage Educ. 

Trust v. Katz, 287 F.Supp.2d 34 (D.D.C. 

2003) and Masterson-Cook v. Criss Bros. 

Iron Works, Inc., 722 F. Supp. 810, 812 

(D.D.C. 1989)). 

According to Respondent, the Federal 

courts apply a ‘‘ ‘nerve center of 

operation’ test to establish the principal 

place of business of corporations doing 

business in multiple states[,]’’ and that 

‘‘ [w]hen no one state is clearly the 

center of corporate activity or accounts 

for a majority of the company income, 

the headquarters logically assumes 

greater importance in determination of 

the principal place of business.’’ Id. at 

97–98 (quoting Masterson-Cook, 722 F. 

Supp. 812) (other citations omitted). In 

Respondent’s view, its Greenfield, 

Indiana headquarters ‘‘is clearly the 

center of corporate activity,’’ because 

‘‘[a]ll transactions with vendors and 

customers are handled through the 

Greenfield offices.’’ Id. at 98. Relatedly, 

Respondent argues that ‘‘[t]he drop off 

units are not the ‘center of corporate 

activity’ nor do they ‘account for a 

majority of the company income.’ ’’ Id. 

Respondent’s arguments are not 

persuasive. 

It is fundamental that statutory terms 

take their meaning from the context in 

which they are used and the statutory 

purpose. See Mid-Con Freight Systems, 

Inc., v. Michigan Pub. Serv. Comm’n, 

545 U.S. 440, 447 (2005); Tyler v. Cain, 

533 U.S. 656, 662 (2001); see also 

Pharmaceutical Res. & Mfr’s of America 

v. Thompson, 251 F.3d 219, 224 (D.C. 

Cir. 2001). Respondent’s reliance on 

cases interpreting the diversity statute 

ignores the context in which the term 

‘‘each principal place of business’’ is 

used in the CSA, as well as the CSA’s 

fundamentally different purpose. 

Under Respondent’s interpretation, an 

entity would be required to obtain a 

registration only for a single location—

its headquarters. The text of section 822 

demonstrates, however, that Congress 

did not limit a registrant’s obligation to 

obtain a registration to a single place of 

business such as its corporate 

headquarters. Rather, Congress imposed 

on a registrant the obligation to obtain 

a separate registration at ‘‘each principal 

place of business * * * where the 

applicant * * * distributes * * * List I 

chemicals.’’ 21 U.S.C. 822(e) (emphasis 

added). 

Consistent with the underlying 

purposes of the CSA, the statutory text 

manifests Congress’s understanding that 

an entity can have multiple principal 

places of business. A location where 

List I chemicals are stored and 

distributed from, is a principal place of 

business because it plays a 

‘‘consequential’’ part in the registrant’s 

activity of distributing. See Webster’s 

Third New Int’l Dictionary 1802 (1976) 

(defining ‘‘principal’’ in part as 

‘‘consequential’’). In determining 

whether a facility is a principal place of 

business within the meaning of the 

CSA, the Act looks to the nature of the 

activity that occurs at the particular 

location and not at the dollar volume of 

business that is transacted out of the 

facility. See 21 CFR 1309.23(b)(2) 

(exempting from registration ‘‘[a]n office 

used by agents of a registrant where 

sales of List I chemicals are solicited, 

made, or supervised but which neither 

contains such chemicals * * * nor 

serves as a distribution point for filling 

sales orders’’). 

Respondent’s interpretation would 

clearly frustrate the Congressional 

purpose. In enacting the CSA’s 

registration provisions, Congress’

purpose was to protect against diversion 

by requiring that those persons who 

propose to engage in the legitimate 

distribution of controlled substances 

and listed chemicals apply for a 

registration, notify this Agency of the 

proposed location of their activity, and 

submit the facility for inspection by the 

Agency to ensure that it has adequate 

security controls and procedures. See, 

e.g., 21 U.S.C. 822(f) (authorizing the 

Attorney General ‘‘to inspect the 

establishment of a registrant or 

applicant for registration’’). Indeed, 

inspection by the Agency of a proposed 

facility is fundamental to the CSA’s 

mandate to protect the public interest. 

Id. 823(h); see also 21 CFR 1309.41. 

As the record here establishes, 

Respondent has never applied for 

registration for any of its storage units 

and has never submitted any of its 

storage units for inspection. Indeed, 

according to the record, Respondent has 

yet to provide information regarding the 

location of some 34 of its storage units. 

As this case demonstrates, adopting 

Respondent’s interpretation would 

frustrate Congress’s purpose and render 

the Act a nullity. 

Respondent’s interpretation would 

also create a perverse incentive. While 

it is unclear whether under its view an 

entity which has only a few warehouses 

would have to obtain a registration for 

each of them, see Resp. Br. at 97–98,49

what is clear is that an interpretation 

which determines whether a facility 

must be registered by looking to the 

amount of business activity that occurs 

out of a facility rather than the nature 

of the activity that occurs therein, 

would encourage an entity to keep 

adding warehouses or storage facilities 

so that it could eventually claim that its 

warehouses were no longer principal 

places of business and were thus not 

subject to the registration requirement. 

Adopting Respondent’s interpretation 

would thus lead to absurd results and 

seriously undermine the security of the 

Nation’s controlled substances and 

listed chemical supplies. I therefore 

reject it. 

As stated above, the ALJ did not 

address this statutory question. She did, 

however, conclude that Respondent’s 

conduct in continuing to store SLCs at, 

and distributing them from, the selfstorage units, even after receiving the 

Group Supervisor’s letter, was ‘‘not 

consistent with the requirements for a 

participant in a regulated industry,’’ and 

supported the revocation of its 

registration. ALJ at 91. Respondent 

excepts to the ALJ’s conclusion, 

contending that it was placed in the 

‘‘dilemma’’ that if it complied with the 

letter, it would have to use common 

carriers and that this ‘‘would increase 

the risk of diversion.’’ Resp. Exceptions 

at 99. Respondent further argues that 

because it ‘‘questioned the legal validity 

of the letter, and feared adherence to it 

would cause [it] to contribute to the risk 

of diversion to the illicit 

methamphetamine trade, it filed suit’’ in 

federal court. Id. at 100. 

Respondent’s argument is patently 

self-serving and unsupported by the 

record. As found above, Respondent’s 

evidence as to the perceived security 

inadequacies of, and increased risk of 


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50Respondent also argues that ‘‘the Raber letter 

would allow reliance on a system of distribution 

(FedEx and UPS unregistered locations) that present 

risks of diversion that exceed those of [its] system.’’

Resp. Exceptions at 101. Congress however, has 

specifically exempted common carriers from 

registration, see 21 U.S.C. 822(c)(2), and has 

concluded that their use for shipping controlled 

substances and listed chemicals poses an acceptable 

risk of diversion. I further note that Respondent 

acknowledged in testimony that it has used 

common carriers in the past. 

51Nor did Respondent seek review of the Group 

Supervisor’s letter within the Agency. 

52As noted under factor one, Respondent also 

failed to comply with Federal law because it did not 

maintain proper records of regulated transactions. 

53The ALJ’s further reliance on the Agency’s 

renewal of Respondent’s registration was in error. 

Under Federal Regulations, in the event the Agency 

proposes the denial of a renewal application, it 

must issue an Order to Show Cause. 21 CFR 

1309.42(a). There are a variety of reasons why the 

Agency may not be prepared to go forward with a 

Show Cause Proceeding at a particular time 

including, inter alia, a lack of resources, the 

complexity of the matters under investigation, and 

the need to pursue other enforcement priorities. 

Moreover, field personnel may approve the renewal 

of a registration based on an erroneous 

understanding of the law and regulations. The 

decision to renew a registration is thus not 

probative of a registrant’s record of compliance with 

Federal law and Agency regulations. 

diversion when shipping via common 

carriers, lacked foundation. It presented 

no evidence of any diversion of SLCs 

when being shipped by common 

carriers.50 The argument further ignores 

the significant risk of diversion posed 

by its own distribution model, both 

through its use of the storage units 

which do not provide an acceptable 

level of security, and its further practice 

under which SLCs may be stored on a 

salesperson’s truck for up to nine days 

at a time. 

Finally, Respondent contends that 

because it was not sure what the legal 

effect of the letter was, it felt obliged to 

challenge the letter by filing suit. 

Contrary to Respondent’s view, its right 

to seek declaratory relief in federal court 

is not at issue. Cf. id. at 100. (arguing 

that ALJ’s decision ‘‘[c]ondemns the 

exercise of’’ its right to seek relief in a 

federal court). Rather, what is at issue is 

Respondent’s decision to continue to 

distribute SLCs—for some forty-four 

months—in a manner that violates 

Federal law, and its doing so even after 

being told that it was violating Federal 

law. 

Furthermore, even if there was a 

legitimate question as to the legal effect 

of the letter, the Agency’s regulation 

made clear that a warehouse was not 

exempt from registration if the SLCs 

being stored therein ‘‘are distributed 

directly from such warehouse to 

locations other than the registered 

location from which the chemicals were 

originally delivered.’’ 21 CFR 

1309.23(a)(1). I thus conclude that the 

Agency’s regulation and the letter 

provided Respondent with ample notice 

that its conduct was illegal.51

Notwithstanding Respondent’s assertion 

that it is now willing to comply with 

Federal law, its deliberate disregard of 

the warning it received and lengthy 

failure to comply, strongly support the 

revocation of its registration.52

Factor Four—Past Experience in the 

Distribution of Chemicals 

In discussing this factor, the ALJ 

noted that Respondent has been 

registered since 1998 and thus had 

extensive experience in distributing 

SLCs. ALJ at 92–93. She further 

explained that prior to the service of the 

Suspension Order, ‘‘Respondent had not 

been informed by the [agency] of any 

incidents of diversion of its SLC 

product,’’ and that with the exception of 

the 2004 letter regarding its distribution 

practices, it was ‘‘never informed * * * 

of any statutory or regulatory 

violations.’’ Id. at 93. Finally, the ALJ 

noted that the Agency had renewed 

‘‘Respondent’s registration annually 

between 1998 and 2007.’’ Id. Based on 

what she characterized as Respondent’s 

‘‘nine year history of compliance,’’ the 

ALJ concluded that the evidence on this 

factor ‘‘support[ed] a remedy less severe 

than revocation.’’ Id. 

The ALJ’s conclusion is mistaken for 

several reasons. First, the ALJ’s 

conclusion that Respondent had not 

been informed by the Agency of any 

incident of diversion is contrary to the 

evidence, which establishes that twentytwo sixty-count bottles of products it 

distributed were found at an illicit 

laboratory in Connecticut and that a DI 

discussed the matter with its executives. 

Tr. 1082–84. Whether the subject was 

first broached by the DI or Respondent 

is beside the point, as is whether the 

information was put in a formal warning 

letter. The fact remains that products 

which it distributed were diverted. 

Moreover, while Respondent provided 

the investigator with information as to 

which of its salespersons had received 

the products, it could not identify the 

stores to which the products were 

distributed. Tr. 1517. 

Second, the ALJ gave insufficient 

weight to Respondent’s continuation of 

its illegal practice of distributing out of 

unregistered storage units for more than 

three and a half years after having been 

advised of the practice’s illegality. Most 

significantly, at no point did 

Respondent voluntarily cease the 

practice. 

Moreover, as explained above under 

factor two, the registration requirement 

is one of the essential features of the 

CSA. Respondent’s violations are not 

technical violations of the Act. 

Respondent’s conduct thus precludes a 

finding that Respondent’s experience 

establishes a ‘‘history of compliance.’’

ALJ at 93. Respondent’s experience thus 

also supports the conclusion that its 

registration would be ‘‘inconsistent with 

the public interest.’’ 21 U.S.C. 823(h).53

Factor Five—Other Factors Relevant to 

and Consistent With Public Health and 

Safety 

As found above, following the service 

of the Immediate Suspension, 

Respondent contacted one of its 

suppliers and attempted to enter into a 

scheme under which its sales force 

would continue to take orders for SLCs, 

which would be sent to its headquarters 

and then on to the supplier, which 

would ship the products. Under the 

scheme, Respondent’s salespersons 

would ‘‘still do all reordering and 

stocking of the merchandise as [they] 

have in the past.’’ GX 48. 

At the hearing, one of Respondent’s 

vice presidents attempted to justify the 

scheme, explaining that under his 

‘‘definition of sales, we’re not involved 

in the distribution of the product. But 

our sales people are in that store 

functioning as an agent.’’ Tr. 2402. 

While the supplier refused to enter into 

the scheme, the VP testified that it was 

‘‘[s]omething that were still continuing 

to explore.’’ Id. at 2403. 

In its Exceptions, Respondent 

contends that ‘‘[u]nder 21 CFR 1309.23, 

sales agents are not required to be 

registered and are lawful.’’ Resp. 

Exceptions at 102. Respondent further 

argues that because it ‘‘only discerned 

select customer’s interest in it serving in 

this role,’’ id. at 103, the ALJ’s 

conclusion that it ‘‘still does not seem 

to understand that it is working in a 

highly regulated industry when it 

actually handles SLC products,’’ ALJ at 

92, condemns it based on ‘‘the mere 

expression of interest in a legal option.’’

Resp. Exceptions at 103. 

Respondent is correct that because it 

never actually entered the scheme, there 

is no basis for concluding that its 

actions related to the scheme 

demonstrate that it failed to comply 

with applicable laws. See 21 U.S.C. 

823(h)(2). The scope of factor five is, 

however, considerably broader than 

factor two, and encompasses ‘‘such 

other factors as are relevant to and 

consistent with the public health and 

safety.’’ Id. 823(h)(5). 

Respondent’s assertion that it merely 

expressed interest in a legal option 

mischaracterizes the record. 

Respondent’s actions were not limited 


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54As explained above at n. 5, the issue of whether 

there is a legitimate medical need for over-thecounter ephedrine products, see ALJ at 94–95, is for 

the FDA to decide. The issue in this proceeding is 

whether Respondent’s registration is consistent 

with the public interest. 

55 It is, however, unclear whether the 

reprogramming has rectified the problems 

identified with the salespersons’ entry of product 

codes. 

56As explained above, the policy’s limit was 

imposed on a per-product and per-service cycle 

basis. Most stores were serviced every two weeks 

and some were serviced weekly. Moreover, 

Respondent sold ten different products. 

Accordingly, a store being serviced weekly could 

buy up to forty cases every four weeks. 

57As found above, the record also shows 

numerous other stores to which Respondent 

repeatedly sold quantities that exceeded its average 

customer’s purchases by a wide margin. 

to merely thinking about a legal option 

or seeking legal advice about the 

scheme. Rather, it affirmatively sought 

out one of its suppliers and attempted 

to induce it to enter the scheme only to 

be rebuffed by the supplier. 

While Respondent maintains that it 

was pursuing a legal option because an 

agent is not required to be registered, it 

ignores that this exception applies only 

if the ‘‘agent * * * is acting in the usual 

course of [its] business.’’ 21 U.S.C. 

822(c)(1); 21 CFR 1309.24(a). The usual 

course of Respondent’s business with 

respect to SLCs did not, however, 

involve acting as a sales agent for 

another registrant. Rather, the usual 

course of its business was distributing 

SLCs for its own account. More 

significantly, I further hold that an 

entity does not act in the usual course 

of business when it engages in 

distribution-related activities that it has 

previously been prohibited from doing 

pursuant to an order suspending or 

revoking its registration. It would 

fundamentally undermine the CSA’s 

purpose of protecting against diversion 

to allow an entity whose registration has 

been suspended or revoked to 

subsequently engage in the same or 

related activities as an agent. 

Respondent’s attempt to circumvent 

the suspension order—and the 

admission of one its executives at the 

hearing that it was still exploring this 

option—reflects adversely on its fitness 

to engage in the distribution of SLCs. I 

thus conclude that this factor also 

supports the conclusion that 

Respondent’s registration would be 

‘‘inconsistent with the public interest.’’

21 U.S.C. 823(h)(5).54

Sanction 

Under DEA precedent, the Agency 

considers all of the facts and 

circumstances in determining the 

appropriate sanction. See Martha 

Hernandez, M.D., 62 FR 61,145 (1997). 

While the ALJ found that factors one 

and two supported revocation, and that 

‘‘Respondent’s actions appeared to 

blatantly disobey a DEA directive,’’ she 

further reasoned that except for this 

letter, ‘‘Respondent has not been given 

an opportunity to remedy the flaws 

identified * * * in this action.’’ ALJ at 

100. Based on what she characterized as 

its ‘‘history of compliance, as evidenced 

by’’ the Agency’s continuing its 

registration, as well as ‘‘its financial 

commitment to compliance, as 

evidenced by its rework of its hand-held 

computer system to better track 

inventory,’’ the ALJ reasoned that 

revocation ‘‘does not seem consistent 

with prior agency action concerning this 

Respondent.’’ ALJ at 100–101. Based on 

this view of the record, the ALJ further 

opined ‘‘that this is a case where 

teamwork between the DEA and this 

major distributor would facilitate the 

public interest.’’ Id. at 101. The ALJ thus 

recommended that I continue 

Respondent’s registration while 

imposing compliance conditions. 

Were the evidence limited to 

Respondent’s recordkeeping problems, 

imposing compliance conditions might 

well protect the public interest. But it is 

not. I acknowledge that the evidence 

points to some measures which 

Respondent voluntarily undertook such 

as reprogramming its computer 

system,55 providing its customers with 

materials on the CMEA and its selfcertification requirement, logbooks, and 

plexiglass cabinets. Its customers could 

not, however, legally sell its products 

without self-certifying and maintaining 

logbooks. Moreover, these measures do 

not address the serious problems with 

its distribution practices that are 

established by the record, and which 

were either ignored, or discounted by 

the ALJ. 

First, for more than three and a half 

years, Respondent disregarded a DEA 

letter specifically warning it that its use 

of the 150–180 self-storage units to store 

and distribute SLCs violated Federal 

law. Moreover, Respondent continued 

to violate Federal law up until its 

registration was suspended. As 

explained above, these are not technical 

violations, but rather transgressions of 

one of the CSA’s fundamental 

provisions. Respondent’s disregard of 

the letter and continuation of its 

practices for some forty-four months 

makes its conduct especially egregious. 

Given the sustained nature of the 

violations and Respondent’s failure to 

voluntarily cease its misconduct, its 

assertion that it is now willing to 

‘‘modify[] its existing system of 

distribution,’’ Resp. Exc. 90, is not 

persuasive. Cf. ALRA Laboratories, Inc., 

v. DEA, 54 F.3d 450, 452 (7th Cir. 1995) 

(‘‘[a]n agency rationally may conclude 

that past performance is the best 

predictor of future performance’’); 

Southwood Pharmaceuticals, Inc., 72 FR 

36487, 36503 (2007) (rejecting 

company’s claims of reform in light of 

the scope and duration of its 

misconduct and failure to heed 

information that its activities were 

contributing to diversion). 

Second, while Respondent asserted 

that it imposed sales limits on how 

much of each product a store could buy 

in a service cycle, and that it monitored 

the purchases of each product at each 

store throughout the week to determine 

whether a store was purchasing 

excessive quantities, investigated if it 

was, and cutoff sales to those store 

which were purchasing excessive 

amounts, it is clear that these policies 

were frequently ignored. Putting aside 

the effectiveness of the one case per 

product, per service cycle policy,56 the 

credited testimony establishes that its 

sales force violated the policy some 85 

times in the six months preceding the 

July 2007 inspection. Moreover, 

Respondent only started issuing 

warning letters to its sales force in 

August 2007—a month after the warrant 

was executed—with one of its 

executives offering the lame excuse that 

he had not received the reports until 

then because of a computer ‘‘glitch.’’

Notably, Respondent’s CEO testified 

that if a customer obtained more than a 

case of a product in a service cycle, he 

‘‘would cut them off, [and] stop the sale 

of product to them.’’ Tr.159. 

Respondent, however, produced no 

evidence that it had ever entirely cut off 

a customer. 

Indeed, Respondent’s own evidence 

with respect to store BPM55—a store at 

which five persons purchased quantities 

that are grossly inconsistent with use of 

the products to treat asthma and are 

consistent with diversion—amply 

demonstrates the disingenuousness of 

its claim that it monitors its customers’

purchases and cuts off sales if a store is 

acquiring excessive amounts. 

Notwithstanding that it had previously 

developed concerns regarding this 

store’s excessive purchases, in the three 

months prior to the suspension order, 

Respondent sold to it products with a 

monthly average retail value of more 

than $7300, an amount more than 

eleven times its average customer’s 

purchase.57 Respondent’s sales to this 

store amply demonstrate that its policy 

of monitoring ‘‘unusual sales activity’’

and cutting off sales if such purchases 


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52704 Federal Register / Vol. 73, No. 176 / Wednesday, September 10, 2008 / Notices 

58For the same reasons, I find unpersuasive the 

August 13, 2008 letter from Respondent’s President. 

59Respondent raises a plethora of claims that the 

Agency or its personnel have violated its rights 

under the First and Fifth Amendments, as well as 

statutory provisions including the Administrative 

Procedure Act, the Data Quality Act, and 21 U.S.C. 

880. See Resp. Br. at 114–39. For example, 

Respondent asserts that the DIs violated its First 

Amendment rights and engaged in a prior restraint 

because they refused to allow its executives to 

videotape them as they reviewed Respondent’s 

records. See id. at 116. It also alleges that a DI 

committed an assault and battery during the 

inspection when he grabbed a video recorder from 

the hands of one of its executives who was 

attempting to set up the camera in order to tape the 

investigators while they reviewed Respondent’s 

records. 

While in my order denying Respondent’s 

interlocutory appeal, I adhered to settled Agency 

precedent that the exclusionary rule does not apply 

in these proceedings, ALJ Ex. 13, at 3; Respondent 

now contends that I should discount the testimony 

of two DIs who participated in the inspection to 

deter future violations. Indeed, Respondent even 

contends that I should discount the testimony of 

these DIs based on the alleged assault and battery 

of the third DI, who did not testify at the hearing. 

Having considered the legal and factual bases for 

each of Respondent’s claims, I conclude that none 

of them presents a substantial question as to the 

fundamental fairness of this proceeding and none 

warrants further discussion. 

continue, RX 10, at 1, is a sham and not 

a legitimate effort to control diversion. 

Respondent’s failure to enforce its 

own policies provides reason alone to 

conclude that it cannot be trusted to 

adhere to compliance conditions. This 

conclusion is further supported by 

Respondent’s sustained and flagrant 

violations of Federal law, as well as its 

attempt to circumvent the suspension 

order. Indeed, as Respondent’s history 

amply demonstrates, its professed 

commitment to ‘‘teamwork’’ and ‘‘to 

become a compliance model for the 

entire industry,’’ Resp. Ex. at 139, 

cannot be taken seriously.58 I therefore 

conclude that imposing compliance 

conditions would not adequately protect 

the public interest, and reject the ALJ’s 

recommendation.59

Order 

Pursuant to the authority vested in me 

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

28 CFR 0.100(b) & 0.104, I order that 

DEA Certificate of Registration, 

003563NSY, issued to Novelty 

Distributors, D/B/A/ Greenfield Labs, 

be, and it hereby is, revoked. I further 

order that any pending application of 

Novelty Distributors, D/B/A Greenfield 

Labs, for renewal of its registration, be, 

and it hereby is, denied. This order is 

effective immediately. 

Dated: September 3, 2008. 

Michele M. Leonhart, 

Deputy Administrator. 

[FR Doc. E8–21035 Filed 9–9–08; 8:45 am] 

BILLING CODE 4410–09–P 

DEPARTMENT OF LABOR 

Office of the Secretary; Submission for 

OMB Review: Comment Request 

September 5, 2008. 

The Department of Labor (DOL) 

hereby announces the submission of the 

following public information collection 

requests (ICR) to the Office of 

Management and Budget (OMB) for 

review and approval in accordance with 

the Paperwork Reduction Act of 1995 

(Pub. L. 104–13, 44 U.S.C. chapter 35). 

A copy of each ICR, with applicable 

supporting documentation; including 

among other things a description of the 

likely respondents, proposed frequency 

of response, and estimated total burden 

may be obtained from the RegInfo.gov 

Web site at http://www.reginfo.gov/ 

public/do/PRAMain or by contacting 

Darrin King on 202–693–4129 (this is 

not a toll-free number)/e-mail: 

DOL_PRA_PUBLIC@dol.gov. 

Interested parties are encouraged to 

send comments to the Office of 

Information and Regulatory Affairs, 

Attn: OMB Desk Officer for the 

Occupational Safety and Health 

Administration (OSHA), Office of 

Management and Budget, Room 10235, 

Washington, DC 20503, Telephone: 

202–395–7316/Fax: 202–395–6974 

(these are not toll-free numbers), E-mail: 

OIRA_submission@omb.eop.gov within 

30 days from the date of this publication 

in the Federal Register. In order to 

ensure the appropriate consideration, 

comments should reference the OMB 

Control Number (see below). 

The OMB is particularly interested in 

comments which: 

• Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the agency, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

proposed collection of information, 

including the validity of the 

methodology and assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Agency: Occupational Safety and 

Health Administration. 

Type of Review: Extension without 

change of a previously approved 

collection. 

Title of Collection: Slings (29 CFR 

1910.184). 

OMB Control Number: 1218–0223. 

Affected Public: Private Sector. 

Estimated Number of Respondents: 

1,000,000. 

Estimated Total Annual Burden 

Hours: 17,760. 

Estimated Total Annual Costs Burden: 

$0. 

Description: The provisions of the 

standard require that the employer make 

a periodic inspection of alloy steel chain 

slings at least once a year and to make 

and maintain a record of the inspection. 

It also requires the employer to ensure 

that each new, repaired or 

reconditioned alloy steel chain sling is 

proof tested and a certification record 

maintained. In addition, the standard 

requires the employer to maintain a 

record of the proof test on wire rope 

slings. For additional information, see 

related 60-day preclearance notice 

published at 73 FR 35412 on June 23, 

2008. PRA documentation prepared in 

association with the preclearance notice 

is available on http:// 

www.regulations.gov under docket 

number OSHA 2008–0020. 

Agency: Occupational Safety and 

Health Administration. 

Type of Review: Extension without 

change of a previously approved 

collection. 

Title of Collection: Forging Machines 

(29 CFR 1910.218). 

OMB Control Number: 1218–0228. 

Affected Public: Private Sector. 

Estimated Number of Respondents: 

27,700. 

Estimated Total Annual Burden 

Hours: 187,264. 

Estimated Total Annual Costs Burden: 

$0. 

Description: The Standard requires 

employers to establish periodic 

inspections of forging machines, guards, 

and point-of-operation protection 

devices and to mark manually 

controlled valves and switches. These 

requirements reduce employees’ risk of 

death or serious injury by ensuring that 

forging machines used by them are in 

safe operating condition, and that they 

are able to identify manually operated 

valves and switches. For additional 

information, see related 60-day 

preclearance notice published at 73 FR 

35414 on June 23, 2008. PRA 

documentation prepared in association 

with the preclearance notice is available 


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