TNT Distributors, Inc., Denial of Application, 12729-12732 [05-5069]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 70, Number 49 (Tuesday, March 15, 2005)]
[Notices]
[Pages 12729-12732]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-5069]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 03-24]


TNT Distributors, Inc., Denial of Application

    On March 31, 2003, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to TNT Distributors, Inc., (Respondent/TNT) 
proposing to deny its

[[Page 12730]]

application for a DEA Certificate of Registration as a distributors of 
list I chemicals. The Order to Show Cause alleged in substance that 
granting Respondent's application to distribute list I chemicals to 
what DEA has identified as the ``gray market,'' would be inconsistent 
with the public interest, as that term is used in 21 U.S.C. 823(h) and 
824(a).
    Respondent, through counsel, requested a hearing on the issues 
raised by the Order to Show Cause and the matter was docketed before 
Administrative Law Judge Mary Ellen Bittner. Following prehearing 
procedures, a hearing was held in Nashville, Tennessee on April 20, 
2004. At the hearing, both parties called witnesses to testify and 
introduced documentary evidence. Subsequently, both parties field 
Proposed Findings of Fact, Conclusions of Law, and Argument.
    On December 3, 2004, Judge Bittner issued her Opinion and 
Recommended Ruling, Findings of Fact, Conclusions of Law, and Decision 
of the Administrative Law Judge (Opinion and Recommended Ruling), 
recommending that Respondent's application for a Certificate of 
Registration as a distributor of listed chemical products be denied. 
Neither party filed exceptions to the Opinion and Recommended Ruling 
and on January 11, 2005, Judge Bittner transmitted the record of these 
proceedings to the Deputy Administrator.
    The Deputy Administrator has considered the record in its entirety 
and pursuant to 21 CFR 1316.67, hereby issues her final order based 
upon findings of fact and conclusions of law hereinafter set forth. The 
Deputy Administrator adopts, in full, the Opinion and Recommended 
Ruling of the Administrative Law Judge. Her adoption is in no manner 
diminished by any recitation of facts, issues and conclusions herein, 
or any failure to mention a matter of fact or law.
    On September 11, 2002, Respondent, a Tennessee corporation solely 
owned by Ms. Mary Blackard, submitted an application for DEA 
Certificate of Registration as a distributor of list I chemicals, 
seeking authority to distribute pseudoephedrine, ephedrine and 
phenylpropanolamine. Later, Respondent withdrew it request to 
distribute phenylpropanolamine.
    List I chemicals are those that may be used in the manufacture of a 
controlled substance in violation of the Controlled Substances Act. 21 
U.S.C. 802(34); 21 CFR 1310.02(a). Pseudoephedrine and ephedrine are 
list I chemicals which are legitimately manufactured and distributed in 
single entity and combination forms as decongestants and 
bronchodilators, respectively. Both are used as precursor chemicals in 
the illicit manufacture of methamphetamine and amphetamine. As 
testified to by government witnesses at the hearing and as addressed in 
previous DEA final orders, methamphetamine is an extremely potent 
central nervous system stimulant and its abuse is a persistent and 
growing problem in the United States. See e.g., Direct Wholesale, 69 FR 
11,654 (2004); Branex, Inc., 69 FR 8,682 (2004); Yemen Wholesale 
Tobacco and Candy Supply, Inc., 67 FR 9,997 (2002); Denver Wholesale, 
67 FR 99,986 (2002).
    A Special Agent from DEA's Chattanooga, Tennessee Resident Office 
testified regarding the rapid proliferation of clandestine 
methamphetamine laboratories in Tennessee and its adjoining states and 
described prevalent methods of local production. He estimated that 80 
to 90 percent of ephedrine and pseudoephedrine being used locally to 
manufacture methamphetamine was being obtained from convenience stores 
and described the multiple health hazards and social costs stemming 
from the production and abuse of methamphetamine. He characterized the 
local methamphetamine addiction problem as ``epidemic.''
    In the Special Agent's opinion, the bulk of pseudoephedrine and 
ephedrine products distributed through local conveniences stores were 
being obtained for illicit purposes. While listed chemicals were also 
available from local chain drug and discount stores, in his opinion, 
when manufacturers obtained precursor products from those 
establishments, it was usually done by shoplifting.
    Ms. Blackard has worked in a North Carolina veterinary practice for 
14 years, where she was responsible for ordering, recordkeeping, 
disposal and inventorying controlled substances commonly used by 
veterinarians. She then moved to Tennessee and filed incorporation 
papers for TNT, which began selling merchandise to independent 
convenience stores. As of the date of the DEA hearing, TNT had 66 
customers, about 20 of which were in the metropolitan Nashville area. 
It primarily sold and distributed tobacco products, some over-the-
counter medications, toys, air fresheners and novelty items.
    Ms. Blackard testified she decided to apply for a DEA registration 
because her customers wanted listed chemicals and she believed her 
company could not compete successfully without offering that product 
line. At the hearing she initially testified that list I chemicals 
would account for about 15 to 20 percent of TNT's total sales. On 
cross-examination she later conceded that ``was just a number I threw 
out here.''
    In November/December 2002, DEA investigators conducted a 
preregistration investigation of Respondent's proposed registered 
location, her residence, which was located in a rural area. The agent 
conducting the investigation testified Ms. Blackard did not know at the 
time that list I chemical products could be used to manufacture 
methamphetamine and she thought Mini-Thins, an ephedrine 25 mg, 
combination product which she desired to distribute, were used for 
``dietary reasons.'' She told the agent that she had no experience with 
listed chemicals but did have experience maintaining controlled 
substance records. Ms. Blackard provided investigators a list of about 
20 proposed customers, most of which were area convenience stores.
    The agent who conducted the preregistration investigation testified 
Ms. Blackard appeared reasonable and receptive to the information he 
provided regarding the dangers of diversion and responsibilities of a 
registrant. He also acknowledged that her proposed storage arrangement 
complied with DEA regulations.
    At the hearing, Ms. Blackard testified she was willing to comply 
with DEA requirements and that her recordkeeping practices would be 
more stringent than required by regulations. She testified TNT would 
maintain a small customer base of around 100 stores, that she would 
closely monitor sales and stop selling to any suspicious customers. She 
would also take action to enhance the security of products stored at 
her residence. While she originally listed Mini Thins among her 
intended products, at the hearing Ms. Blackard indicated that if 
registration was approved, she would not carry that item and limit 
TNT's line to such name brands as Advil Cold and Sinus and Nyquil.
    A Supervisory Diversion Investigator from DEA's Nashville office 
testified that diversion was a major problem in Tennessee and DEA had 
ordered immediate suspensions of several wholesalers who were selling 
gray market products to area convenience stores and gas stations. He 
observed that once a distributor becomes registered to handle list I 
chemicals, it can order whatever chemicals are included in its 
registration, including gray market products. In the supervisory 
investigator's opinion, once registered, Respondent would likely seek 
to

[[Page 12731]]

increase its customer base and, considering the methamphetamine problem 
in Tennessee, ``we don't need any more people handling these 
products.''
    By declaration, the Government introduced evidence regarding 
pseudoephedrine sale and the convenience store market from Mr. Jonathan 
Robbin, a consultant in marketing information systems and databases, 
who is an expert in statistical analysis and quantitative marketing 
research.
    Using the 1997 United States Economic Census of Retail Trade, Mr. 
Robbin tabulated data indicating that over 97% of all sales of non-
prescription drug products, including non-prescription cough, cold and 
nasal congestion remedies, occur in drug stores and pharmacies, 
supermarkets, large discount merchandisers, mail-order houses and 
through electronic shopping. He characterized these five retail 
industries as the traditional marketplace where such goods are 
purchased by ordinary customers.
    Analyzing national sales data specific to over-the-counter, non-
prescription drugs contain pseudoephedrine, Mr. Robbin's research and 
analysis showed that a very small percentage of the sales of such goods 
occur in convenience stores--only about 2.6% of the HABC [Health and 
Beauty Care] category of merchandise or 0.05% of total in-store (non-
gasoline) sales. He determined that the normal expected retail sails of 
pseudoephedrine tablets in a convenience store would range between 
$10.00 and $30.00 per month, with an average monthly sales figure of 
about $20.00 and that sales of more than $100.00 in a month would be 
expected to occur in a random sampling about once in one million to the 
tenth power, a number he characterized as nearly equivalent to the 
number of atoms in the universe. He further stated that the current 
convenience store gross margin in the health and beauty care category 
is about 40 percent, so that such a store would be expected to spend an 
average of $12.00 per month acquiring its inventory of pseudoephedrine 
products from a distributor.
    Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an 
application for a Certificate of Registration if she determines that 
granting the registration would be inconsistent with the public 
interest as determined under that section. Section 823(h) requires the 
following factors be considered in determining the public interest:
    (1) Maintenance of effective controls against diversion of listed 
chemicals into other than legitimate channels;
    (2) Compliance with applicable Federal, State, and local law;
    (3) Any prior conviction record under Federal or State laws 
relating to controlled substances or to chemicals controlled under 
Federal or State law;
    (4) Any past experience in the manufacture and distribution of 
chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety.
    As with the public interest analysis for practitioners and 
pharmacies pursuant to subsection (f) of section 823, these factors are 
to be considered in the disjunctive; the Deputy Administrator may rely 
on any one or combination of factors, and may give each factor the 
weight she deems appropriate in determining whether a registration 
should be revoked or an application for registration denied. See, e.g., 
Direct Whole, 69 FR 11,654; Energy Outlet, 64 FR 14,269 (1999); Henry 
J. Schwartz, Jr., M.D., 54 FR 16,422 (1989).
    As to factor one, maintenance by the applicant of effective 
controls against diversion, the Deputy Administrator agrees with Judge 
Bittner that TNT's proposed physical security arrangements were 
adequate and that Ms. Blackard had the ability and willingness to 
maintain accurate records of the handling of listed chemicals. Judge 
Bittner also found Ms. Blackard to be a credible witness and believed 
her explanation that she sought registration because other distributors 
holding registrations had a competitive advantage over her company and 
that Ms. Blackard knew her customers and would not handle products DEA 
told her to avoid.
    However, Judge Bittner acknowledged existence of a previously 
published DEA final order denying registration to an applicant much 
like Respondent. Judge Bittner concluded that she was restrained by 
that precedent, Xtreme Enterprises, Inc., 67 FR 76,195 (2002). See also 
Shop It for Profit, 69 FR 1,311 (2003); William E. ``Bill'' Smith d/b/a 
B & B Wholesale, 69 FR 22,559 (2004); Shani Distributors, 68 FR 62,324 
(2003) and Branex Incorporated, 69 FR 8,682 (2004). Specifically, Judge 
Bittner found Xtreme Enterprises ``virtually indistinguishable'' from 
the instant case.
    In Xtreme Enterprises, the Deputy Administrator found many 
considerations weighed heavily against registering a distributor of 
list I chemicals because, ``[v]irtually all of the Respondent's 
customers, consisting of gas station and convenience stores, are 
considered part of the gray market, in which large amounts of listed 
chemicals are diverted to the illicit manufacture of amphetamine and 
methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at 76,197. 
Based on that case, Judge Bittner concluded that factors one 
(maintenance of controls against diversion) and five (other factors 
relevant to and consistent with public health and safety), weighed 
against granting Respondent's application.
    Judge Bittner also concluded Respondent had complied with 
applicable Federal, State and local law and had never been convicted of 
a crime relating to controlled substances or listed chemicals, thus 
finding that factors two and three weighed in favor of registration. 
With regard to factor four, the applicant's past experience in 
distributing listed chemicals, Judge Bittner found Ms. Blackard had no 
previous experience distributing list I chemicals. However, her prior 
experience in handling and maintaining records of controlled substances 
rendered that factor essentially neutral. The Deputy Administrator 
agrees with these conclusions.
    Judge Bittner summarized that, ``in light of the decision in Xtreme 
Enterprises, Inc., supra, which I regard as controlling, I conclude 
that I have no choice but to recommend against granting Respondent's 
application.'' However, she went on to state that if the Deputy 
Administrator were to decide Xtreme Enterprises was not controlling, 
she would recommend that Respondent's application be granted, with 
restrictions as to the quantities of ephedrine and pseudoephedrine it 
could purchase and sell. The Deputy Administrator declines this 
invitation to deviate from sound agency precedent.
    Unlawful methamphetamine production and use is a growing public 
health and safety concern throughout the United States and specifically 
in the State of Tennessee. Pseudoephedrine and ephedrine are the 
precursor products used to manufacture methamphetamine and operators of 
illicit laboratories in Tennessee predominantly acquire their precursor 
chemicals from Respondent's intended customer base. While Ms. Blackard 
demonstrated sincerity and intent to avoid contributing to this 
scourge, the risks of diversion once listed chemicals leave her control 
and enter the gray market are real, substantial and compelling.
    The Deputy Administrator therefore concludes Judge Bittner 
correctly applied DEA precedent. As in Xtreme Enterprises, Inc., Ms. 
Blackard's lack of a criminal record, her previous

[[Page 12732]]

compliance with the law and expressed willingness to comply with 
regulations and attempt to guard against diversion are far outweighed 
by her intent to sell ephedrine and pseudoephedrine almost exclusively, 
in the gray market.
    This reasoning has been consistently applied by the Deputy 
Administrator in a series of recently published final orders denying 
registration to potential gray market distributors. See, Volusia 
Wholesale, 69 FR 69,409 (2004); CWK Enterprises, Inc., 69 FR 69,400 
(2004); J & S Distributors, 69 FR 62,089 (2004); Express Wholesale, 
supra, 69 FR 62,086; Absolute Distributing, Inc., 69 FR 62,078 (2004); 
Value Wholesale, 69 FR 58,548 (2004); John E. McRae d/b/a J & H 
Wholesale, 69 FR 51,480 (2004).
    Based on the foregoing, the Deputy Administrator concludes that 
granting Respondent's pending application would be inconsistent with 
the public interest.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in her by 21 U.S.C. 
823 and 28 CFR 0.100(b) and 0.104, hereby orders that the pending 
application for a DEA Certificate of Registration, previously submitted 
by TNT Distributors, Inc., be, and it hereby is, denied. This order is 
effective April 14, 2005.

    Dated: February 14, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-5069 Filed 3-14-05; 8:45 am]
BILLING CODE 4410-09-M