D & S Sales, Revocation of Registration; Introduction and Procedural History, 37607-37612 [E6-9705]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 126 (Friday, June 30, 2006)]
[Notices]
[Pages 37607-37612]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9705]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 03-39]


D & S Sales, Revocation of Registration; Introduction and 
Procedural History

    On June 30, 2003, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause proposing to revoke Respondent D & S Sales' DEA 
Certification of Registration, 003884DSY, as a distributor of List I 
chemicals, and to deny any pending applications for renewal or 
modification of that registration under 21 U.S.C. 824(a) (4) and 
823(h). The Show Cause Order alleged that the continuation of 
Respondent's registration would be inconsistent with the public 
interest as that term is defined in 21 U.S.C. 823(h). Specifically, the 
Show Cause Order alleged that Respondent's ``product mix and sales of 
combination ephedrine products are inconsistent with the known 
legitimate market and known end user demand for products of this 
type,'' that D & S's owner, Mr. Dean Call, knew ``that his ephedrine 
sales are not for legitimate uses,'' ALJ Exh. 1, at 6, and that the 
ephedrine products he distributed were being purchased for use in the 
illicit manufacture of methamphetamine.
    Respondent requested a hearing. The matter was assigned to 
Administrative Law Judge Gail Randall, who conducted a hearing in Fort 
Wayne, Indiana, on June 15, 2004. Following the hearing, the Government 
filed Proposed Findings of Fact, Conclusions of Law and Argument, and 
Respondent filed its Proposed Findings of Fact and Conclusions of Law.
    On February 11, 2005, the ALJ submitted her decision. The ALJ 
concluded that the Government had proved that the continuation of 
Respondent's registration would be inconsistent with the public 
interest. See ALJ at 35. The ALJ further recommended that Respondent's 
registration be revoked and that its pending application for renewal of 
its registration be denied. See id. at 36. Thereafter, the Government 
filed exceptions on the ground that the ALJ had erred in holding that 
the statistical evidence it introduced through its expert witness did 
not provide ``conclusive evidence of diversion or fault on the part of 
Respondent.'' Government's Exceptions to the Recommended Findings of 
Fact, Conclusions of Law, and Decision of the ALJ, at 2 (quoting ALJ 
Dec. at 33).
    Having considered the record as a whole, I hereby issue this 
decision and final order adopting the ALJ's findings of fact and 
conclusions of law except as expressly rejected herein. I further grant 
the Government's exception and hold that the Government has established 
by a preponderance of the evidence that diversion occurred. For the 
reasons set forth below, I concur with the ALJ's

[[Page 37608]]

conclusion that Respondent's continued registration would be 
inconsistent with the public interest and concur with the ALJ's 
recommendation that Respondent's registration be revoked and that its 
pending application for renewal be denied.

Findings of Fact

    Respondent D & S Sales, a sole proprietorship owned by Mr. Call, 
holds DEA Certificate of Registration, 003884DSY, which authorizes it 
to distribute the List 1 chemicals of ephedrine and pseudoephedrine. 
While Respondent's registration expired on June 30, 2003, its 
registration has remained effective during the course of these 
proceedings. Mr. Call has also submitted an application to renew 
Respondent's registration.
    While ephedrine and pseudoephedrine have therapeutic uses, they are 
also precursor chemicals that are regulated by the Controlled 
Substances Act. See 21 U.S.C. 802(34). These chemicals are easily 
extracted from legal over-the-counter products and used to make 
methamphetamine. Methamphetamine is ``a powerful and addictive central 
nervous system stimulant,'' Tr. at 28, and is a schedule II controlled 
substance. 21 CFR 1308.12(d). The illegal manufacture and abuse of 
methamphetamine pose a grave threat to this country. Methamphetamine 
abuse has destroyed lives and families, ravaged communities, and 
created serious environmental harms. The State of Indiana, which is 
where Respondent engages in business, has experienced a dramatic 
increase in the number of illegal meth labs, with the number of 
seizures increasing from forty-three in 1998 to 1260 in 2003. Tr. 26.
    In June 2002, Madeline Kuzma, a Diversion Investigator (DI) 
assigned to DEA's Indianapolis, Indiana District Office, initiated a 
periodic investigation of Respondent. DI Kuzma met with Mr. Call at his 
home, which also serves as Respondent's registered location. While 
interviewing Mr. Call, DI Kuzma determined that Respondent distributes 
List 1 chemical products, novelty items, sunglasses, lighters and 
gloves to convenience stores and gas stations in North-Central and 
North-Eastern Indiana. The List 1 chemical products included Two-Way 
Action, a product manufactured by Body Dynamics, Inc. (BDI), which 
contains 25 milligrams of ephedrine and 200 mg of guaifenesin per 
tablet in both 60 count bottles and 6 tablet packets. Respondent also 
sold ProActive Laboratories ephedrine multi-action tablets in both 60 
count bottles and 6 tablet packets. DEA has issued multiple warning 
letters to both BDI and ProActive Labs advising them that their 
products have been found in illegal meth labs.
    During the interview, DI Kuzma also learned that Mr. Call derived 
substantial profits from his business, while working only four full 
days and a few partial days per month. Most of D & S's profits were 
derived, however, from ephedrine products. Mr. Call told DI Kuzma that 
his business sold an average of 17 to 20 cases of ephedrine products 
per month, with each case containing 144 bottles of 60 tablets.
    DI Kuzma then provided Mr. Call with a DEA ``red notice.'' The red 
notice advised of the illegal and illegitimate use of ephedrine and 
pseudoephedrine in the illicit manufucturing of methamphetamine and 
further informed Mr. Call of the potential civil and criminal penalties 
for illegal possession or distribution of these List 1 Chemicals.
    During DI Kuzma's discussion with Mr. Call regarding the illegal 
use of ephedrine, Mr. Call indicated that he knew of meth. labs in the 
area and that ephedrine could be used in the illegal manufacturing of 
the drug. Mr. Call told DI Kuzma that ephedrine ``was stupid and people 
that used it were stupid[,] as well as people that would ingest 
methamphetamine.'' Tr. 128. According to DI Kuzma's testimony, Mr. Call 
``indicated that probably not one bottle of the product he distributed 
was actually ultimately used or purchased for the purpose for which it 
was medically approved by FDA.'' Tr. 129.
    DI Kuzma then asked Mr. Call to voluntarily surrender respondent's 
DEA registration. Mr. Call refused, indicating ``that as long as 
[ephedrine] was legal and there were going to be firms registered to 
handle the product, * * * he was not going to be shut out from selling 
the product because someone else would step in and take over his 
accounts, and he'd lose money.'' Tr. 130.
    Before concluding her visit with Mr. Call, DI Kuzma obtained a copy 
of Respondent's customer list. All of Respondent's customers were non-
traditional retailers of over-the-counter medications such as 
convenience stores, gas stations, or liquor stores. DI Kuzma also 
obtained a sampling of Respondent's sales records for the period 
between early January 2002, and June 12, 2002, the date of the 
investigation.
    Thereafter, DI Kuzma visited six of Respondent's customers to 
conduct verification visits. For these visits, DI Kuzma selected stores 
that were purchasing at least one case of ephedrine per month. The 
purpose of the visits was to verify the customers' purchases of 
ephedrine from Respondent and to determine the identity of the store's 
retail customers. The stores were typically located in rural areas.
    At one store, DI Kuzma was informed that two customers purchased 
bottle quantities of ephedrine on a daily basis. At another store, DI 
Kuzma was informed by the cashier that some customers were purchasing 
ten to twelve 60-count bottles at a time, and another customer was 
purchasing a dozen bottles approximately every two weeks. At another 
store, DI Kuzma was told of a person who bought two bottles every 
afternoon and fit the description of a methamphetamine addict. At other 
stores supplied by Respondent, ephedrine was being purchased by factory 
workers who used it to stay awake. At one of these stores, DI Kuzma was 
informed that most of its ephedrine customers drove vehicles with Ohio 
license plates. The State of Ohio, however, prohibits ephedrine sales.
    At the hearing, the DI testified that based on the quantity of 
ephedrine sold by Respondent and the nature of its customers, she 
believed that many of Respondent's ephedrine sales were suspicious and 
subject to reporting to DEA. It is DEA policy to send a suspicious 
order list to a registrant at the time of its initial registration by 
certified mail and to retain the certified mail receipt in the 
registrant's file. There was, however, no evidence in the record 
establishing that Respondent had received a suspicious order list at 
the time of its initial registration.
    Respondent has not reported any suspicious transactions to DEA. 
Indeed, when DI Kuzma testified as to the information she had received 
at one store regarding the physical appearance of a purchaser who had 
the appearance of a methamphetamine addict, Mr. Call objected to the 
testimony stating, ``I could care less about who buys them or who, you 
know, I have no control over the retail end of those sales. I drop them 
off to the store and I'm done.'' Tr. 137.
    At the hearing, the Government introduced the expert testimony of 
Mr. Jonathan Robbin, Founder and President of Ricecar, Inc., of 
Bethesda, MD. Mr. Robbin's firm ``specializes in the statistical 
analysis of demographic, economic, geographic, survey and sales data 
for the purpose of locating, sizing and segmenting markets for a wide 
variety of consumer goods sold at retail.'' ALJ at 19. Based on data 
from the latest available United States Economic Census of retail 
trade, Mr. Robbin has determined that ``over 97% of all sales of non-
prescription drug

[[Page 37609]]

products occur in drug stores and pharmacies, supermarkets, large 
discount merchandisers and electronic shopping and mail order houses.'' 
Govt. Exh. 17, at 4. According to Mr. Robbin, ``[t]hese four retail 
industries * * * are where the vast majority of American consumers 
satisfy their needs for nonprescription remedies for coughs, colds, 
nasal congestion or asthmatic conditions,'' and ``constitute the 
traditional marketplace where such goods are purchased by ordinary 
consumers.'' Id.
    Convenience stores are not classified in any of the categories 
described above. Based on the Census Data, Mr. Robbin determined that 
sales of non-prescription drugs by convenience stores ``account for 
only 2.2% of the overall sales of all convenience stores that handle 
the line and only 0.7% of the total sales of all convenience stores.'' 
Id.
    Using Census Data, commercially available point of sale transaction 
data, and information from surveys conducted by the National 
Association of Convenience Stores, Mr. Robbin created a model of the 
traditional market for pseudoephedrine in the retail sector. According 
to Mr. Robbin, ``a very small percentage of the sales of such goods 
occur in convenience stores--only about 2.6% of the [Health and Beauty 
Care] category of merchandise or 0.05% of total in-store (non-gasoline) 
sales.'' Id. Mr. Robbin thus concluded that convenience stores are a 
non-traditional (or gray) market for over-the-counter pseudoephedrine 
products and that ephedrine containing products ``have about half the 
over the counter sales volumes of pseudoephedrine'' tablets. Id.
    Based on his analysis of both general retail sales data and data 
measuring retail sales from the supply side, including that obtained in 
the U.S. Census Bureau's 1997 Economic Census, Mr. Robbin determined 
``that the normal expected retail sale of pseudoephedrine * * * tablets 
in a convenience store may range between $0 and $40 per month, with an 
average of $20.60 per month.'' Id. at 7. Mr. Robbin further concluded 
that ``the expected sale of ephedrine * * * tablets in a convenience 
store ranges between $0 and $25, with an average of $ 12.58.'' Id. 
Moreover, a monthly retail sale of $40 of ephedrine ``would be expected 
to occur less than one in 1,000 times in random sampling.'' Id.
    DEA provided Mr. Robbin with the sales data it obtained during its 
investigation of Respondent. The data included a list of 413 
transactions between Respondent and the 37 stores it supplied during 
the 178 day period between January 2, 2002, and June 28, 2002. The data 
revealed that Respondent had sold 17,062 sixty-count bottles and 17,868 
six-tablet packs of ephedrine products. The bottles contained 1,023,720 
tablets and sold for a wholesale price of $52,713.70. The six tablet 
packs contained a total of 107,208 tablets and sold for a wholesale 
price of $9,150.60.
    Mr. Robbin prepared a table, which ranked Respondent's 37 customers 
based on their ephedrine purchases. Only one store had made purchases 
of ephedrine products that were within the expected sales range. The 
next two stores had made purchases that were 4.9 and 5.2 times the 
expected sales range.
    The three stores with the greatest sales sold over 100 times the 
expected sales range, and the top twelve stores all sold over 50 times 
expectation. Moreover, the top twenty-seven stores all sold more than 
25 times the expected range. In Mr. Robbin's expert opinion, 
Respondent's sales ``are not possible in the normal commerce of these 
goods at ordinary convenience stores.'' Id. at 13. Mr. Robbin thus 
concluded that Respondent ``frequently sells * * * combination 
ephedrine (Hcl) products in extraordinary excess of normal or 
traditional demand.'' Id.
    Mr. Call testified on behalf of Respondent. The ALJ found that 
``Mr. Call credibly testified that he tries to conduct an honest and 
straight forward business, without knowingly violating any laws.'' ALJ 
at 22. The ALJ further found that Call ``credibly stated that if he had 
violated any laws, if the DEA would have called such violations to his 
attention, `I'd have been more than glad to change directions.' '' Id. 
(quoting Tr. 219). Yet on cross-examination, Mr. Call twice denied 
having stated that he would change directions and then claimed that ``I 
don't remember saying it.'' Id. at 223.
    Later in the cross-examination, Mr. Call was asked whether, after 
the DI's visit, ``you continued to sell Ephedrine as you did before, 
didn't you?'' Mr. Call answered, ``Why wouldn't I?'' and then asserted 
he did so ``with the blessing of the DEA.'' Tr. 224. After once again 
stating that ``I never said I was going to change direction I know 
of,'' the Government asked Mr. Call: ``And you never did, did you?'' 
Mr. Call then stated ``And I haven't yet. I sold it, I sold it 
yesterday morning.'' Id.
    I decline to accept the ALJ's finding crediting Mr. Call's 
testimony that `` `I'd have been more than glad to change directions.' 
'' In doing so, I am mindful of the Supreme Court's holding in 
Universal Camera Corp. v. NLRB, 340 U.S. 474, 496 (1951), ``that 
evidence supporting a conclusion may be less substantial when an 
impartial, experienced [ALJ] who has observed the witness and lived 
with the case has drawn conclusions different from the [ultimate 
factfinder's] than when the [ALJ] has reached the same conclusion.'' 
See also Morall v. DEA, 412 F.3d 165, 179 (D.C. Cir. 2005). ``The 
findings of the [ALJ] are to be considered along with the consistency 
and inherent probability of the testimony.'' Universal Camera, 340 U.S. 
at 496.
    But just as the ultimate factfinder must consider contrary 
evidence, see Morall, 412 F.3d at 179, so too must the ALJ. Here, the 
ALJ's decision does not acknowledge the apparent contradiction between 
Mr. Call's testimony on direct and his testimony on cross-examination, 
let alone explain why she made the finding that Mr. Call would change 
directions. Thus, the finding is not entitled to deference and I do not 
accept it.
    The ALJ also found that Mr. Call ``hates the fact that ephedrine 
can be used to manufacture methamphetamine,'' but because ``ephedrine 
is a legal product for distributors and retailers to sell, * * * he has 
to carry those products.'' ALJ at 23. The ALJ further found that Call 
testified credibly that ``if I sold the ephedrine product and I knew a 
person bought that to manufacture methamphetamine, I would be the first 
one to turn him in or anybody else.'' Id. (quoting Tr. 223). While I 
acknowledge these findings, I conclude that they are immaterial. I do 
accept the ALJ's finding that Mr. Call cooperated with DEA in the 
investigation.

Discussion

    21 U.S.C. 824(a) provides that a registration to distribute List 1 
chemicals may be suspended or revoked ``upon a finding that the 
registrant * * * has committed such as acts as would render [its] 
registration under section 823 of this title inconsistent with the 
public interest as determined under that section.'' Id. section 
824(a)(4). In making the public interest determination, the Controlled 
Substance Act requires the consideration of the following factors:
    (1) Maintenance by the [registrant] * * * of effective controls 
against diversion of listed chemicals into other than legitimate 
channels;
    (2) Compliance by the [registrant] with applicable Federal, State, 
and local law;
    (3) Any prior conviction record of the [registrant] under Federal 
or State laws relating to controlled substances or to

[[Page 37610]]

chemicals controlled under Federal or State law;
    (4) Any past experience of the [registrant] in the manufacture and 
distribution of chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety. Id. section 823(h).
    ``[T]these factors are considered in the disjunctive.'' Joy's 
Ideas, 70 FR 33195, 33197 (2005). I ``may rely on any one or 
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 be denied.'' Id. See also Energy 
Outlet, 64 FR 14,269 (1999); Henry J. Schwartz, Jr., M.D., 54 FR 16,422 
(1989). In this case, I have concluded that factors one, four and five 
are dispositive and support the revocation of Respondent's 
registration.

Factor One--Maintenance of Effective Controls Against Diversion

    It is undisputed that Respondent maintains effective controls 
against diversion while listed chemical products are in its possession. 
But as the ALJ correctly noted, the inquiry into the effectiveness of 
Respondent's controls ``does not end when products leave [their] 
physical location.'' ALJ at 28.
    ``[P]rior agency rulings have applied a more expansive view of 
factor one than mere physical security.'' OTC Distribution Co., 68 FR 
70538, 70542 (2003). In OTC Distribution, I held that a registrant's 
``unwillingness to fully comply with its record keeping and report 
obligations'' under a Memorandum of Agreement was a relevant 
consideration under Factor One. Id. at 70542. This principle applies to 
a registrant's failure to report suspicious transactions as required by 
21 CFR 1310.05. The regulation specifically provides that a registrant 
``shall report * * * [a]ny regulated transaction involving an 
extraordinary quantity of a listed chemical * * * or any other 
circumstance that the regulated person believes may indicate that the 
listed chemical will be used in violation of this part.'' Id. Sec.  
1310.05(a) & (a)(1).
    I agree with the ALJ's finding that Respondent was required ``to 
exercise a high degree of care in monitoring its customers' 
purchases,'' ALJ at 29, and that Respondent failed to do so. Indeed, 
the record demonstrates that Mr. Call was not simply negligent but 
deliberately indifferent to the diversion of Respondent's products. The 
record clearly establishes that Mr. Call was aware that the ephedrine 
products he sold were being used in the illicit manufacturing of 
methamphetamine. The testimony indicates that Mr. Call knew of the 
existence of methamphetamine labs in the area and that ephedrine could 
be used to make the drug. Moreover, Mr. Call acknowledged to DI Kuzma 
``that probably not one bottle of the product he distributed was 
actually ultimately used or purchased for the purpose for which it was 
medically approved.'' Tr. 129. Notwithstanding Mr. Call's evident 
knowledge that Respondent's products were being diverted, he failed to 
report any suspicious transactions to DEA.
    I am especially appalled by Mr. Call's statement during the hearing 
that ``I could care less about who buys [my products] or who, you know, 
I have no control over the retail end of those sales. I drop them off 
to the store and I'm done.'' Id. at 137. This attitude is fundamentally 
inconsistent with the obligations of a registrant. It is highly 
relevant in assessing the adequacy of a registrant's systems for 
monitoring the disposition of List I chemicals. See 21 CFR 
1309.71(b)(8). I thus conclude that Respondent has failed to maintain 
effective controls against diversion. This factor strongly weighs in 
favor of the revocation of Respondent's registration. Indeed, I 
conclude that this factor alone supports the revocation of Respondent's 
registration.

Factor Two--Compliance With Applicable Federal, State and Local Law

    The ALJ concluded that beyond the violations described above, ``the 
record contains no additional evidence of conduct that violated any 
applicable law by the Respondent, or its owner.'' ALJ at 31. I note, 
however, that the Eighth Circuit has upheld a criminal conviction for 
distribution of pseudoephedrine, having reason to believe that the 
chemical would be used to manufacture methamphetamine in violation of 
21 U.S.C. 841(c)(2), based on a ``deliberate ignorance'' instruction. 
United States v. Sdoulam, 398 F.3d 981, 993-94 (8th Cir. 2005). Beyond 
the testimony that Mr. Call was aware ``that not one bottle of the 
product he distributed was actually used or purchased for the purpose 
for which it was medically approved,'' Tr. 129, I also note Mr. Call's 
admission on cross-examination to the effect that he had continued to 
sell ephedrine even after the visit of DI Kuzma, during which he had 
been advised of the illicit use of ephedrine in manufacturing 
methamphetamine. Tr. 224. The Government did not, however, elicit the 
amount of product Mr. Call had sold following the DI's visit. 
Ultimately, it is not necessary to determine whether the evidence in 
this case is sufficient to establish a criminal violation on the part 
of Respondent's owner because the record supports several alternative 
grounds for revoking Respondent's registration. Thus, while I do not 
accept the ALJ's finding, I do not make a finding on Factor Two.

Factor Three--Any Prior Conviction Record Relating to Distribution of 
Controlled Substances or Listed Chemicals

    I agree with the ALJ that there is no record evidence establishing 
that either Respondent or Mr. Call have been convicted of any crime 
relating to the distribution of either a controlled substance or listed 
chemical.

Factor Four--Any Past Experience in the Distribution of Listed 
Chemicals

    I acknowledge that Respondent has several years of experience in 
distributing List 1 chemicals, that Respondent has never received a 
warning letter, and that DI Kuzma testified that Respondent has 
cooperated with DEA. But, as explained above, Mr. Call has conducted 
Respondent's business with deliberate indifference to the diversion of 
its products. I thus conclude that this factor weighs in favor of 
revocation.

Factor Five--Such Other Factors as Are Relevant to and Consistent With 
the Public Health and Safety

    The Government contends that the evidence it produced of 
Respondent's excessive sales of ephedrine into the gray market is 
conclusive evidence of diversion and justifies revocation. The ALJ 
acknowledged that the Government's ``substantial statistical evidence * 
* * establish[ed] that the Respondent's customers sell more list one 
chemicals than most convenience stores.'' ALJ at 33. The ALJ concluded, 
however, that the evidence was not conclusive ``of diversion or fault 
on the part of Respondent.'' Id.
    According to the ALJ,``[i]n any specific case, there may be a 
number of reasons why a distributor's customers have sales in excess of 
the national average.'' Id. Because Respondent's customers are largely 
located in rural areas ``where traditional retailers are not found,'' 
the ALJ reasoned that ``[o]ne could argue that their high volume sales 
of list one chemical products are attributable to the necessity, ease, 
and/or convenience of local shopping, not diversion.'' Id. While 
acknowledging that ``this is only a possible explanation,'' the ALJ 
held ``that evidence of sales in excess of the national average is not, 
without more, enough to justify the revocation of a

[[Page 37611]]

DEA registrant's registration.'' Id. at 33-34. Following her canvassing 
of the case law, the ALJ concluded that ``precedent and due process 
considerations obligate me to consider the behavior of each individual 
Respondent, not merely the purchases of its customers.'' Id. at 35.
    I grant the Government's exception and conclude that it has proved 
by a preponderance of the evidence that diversion occurred. The 
preponderance standard requires only that the ultimate factfinder 
``believe the existence of a fact is more probable than its 
nonexistence before * * * find[ing] in favor of the party who has the 
burden to persuade the [factfinder] of the fact's existence.'' 
Metropolitan Stevedore Co. v. Rambo, 521 U.S. 121, 137 n.9 (1997) 
(other citation omitted). In short, the standard only requires proof 
that diversion was more likely than not to have occurred.
    In this case, the Government submitted the expert testimony of 
Jonathan Robbin, who analyzed nearly six months of Respondent's sales 
records. Mr. Robbin testified at length as to the methodology he 
employed, his data sources, and the model he created for the 
traditional market in pseudoephedrine and ephedrine. Mr. Robbin laid an 
adequate foundation for his testimony, which included his findings that 
Respondent's twelve largest customers had bought quantities of 
ephedrine that were more than 50 times the expectation of legitimate 
demand and the three greatest customers had purchased quantities that 
were more than 100 times the expectation. Moreover, twenty-seven stores 
bought more than 20 times the expectation of legitimate demand. Mr. 
Robbin further testified that the probability that the purchases of 
these twenty-seven stores were to meet legitimate demand ``is so small 
as to be near impossibility.'' Govt. Exh. 17, at 13. Given the near 
impossibility that these sales were the result of legitimate demand, I 
conclude the Government has proved that it is more likely than not that 
diversion occurred. Indeed, courts have relied on statistical evidence 
far less compelling than this. See, e.g., United States v. Kandiel, 865 
F.2d 967, 971 (8th Cir. 1989) (prosecution for making false 
representation of citizenship; upholding use of expert testimony that 
genetic tests established ``only a `one in 1,000' chance that defendant 
was the child of a Native American''). Cf. United States v. Veysey, 334 
F.3d 600, 605 (7th Cir. 2003) (``All evidence is probabilistic-
statistical evidence merely explicity so * * * Statistical evidence is 
merely probabilistic evidence coded in numbers rather than words.'') 
(internal quotations and citations omitted).
    I find unpersuasive the ALJ's hypothesis that Respondent's 
excessive sales could be attributable to the fact that its customers 
are located in rural areas where traditional retailers are not found. 
The record simply does not establish ``that most of the Respondent's 
customers are located in rural areas where traditional retailers are 
not found.'' ALJ at 33 (emphasis added). At most, it establishes that 
some of the six stores visited by DI Kuzma in conducting the 
verifications were ``stand-alone facilit[ies].'' Tr. 202. The record 
lacks substantial evidence regarding the density of, or lack of, 
traditional retailers within the area of Respondent's customers.
    DI Kuzma also testified that there was a Target or Walmart in 
Decatur, Indiana, which was also the location of one of Respondent's 
customers, the Fairway Deli. Notwithstanding its proximity to 
traditional retailers, the Fairway Deli's sales were more than 38 times 
the expected amounted. Govt. Exh. 17 Table 2.
    Respondent could have produced evidence of its own establishing an 
expected sales range for non-traditional retailers in rural areas. It 
did not. Respondent could have also challenged the validity of Mr. 
Robbin's methodology. It did not.
    I further note that the Eighth Circuit has rejected a challenge to 
similar testimony of Mr. Robbin in a criminal case involving a Kansas 
based chemical distributor. See Sdoulam, 398 F.3d at 989-91. In 
Sdoulam, Mr. Robbin testified that the defendant's convenience store 
was selling pseudoephedrine in an amount 123 times the expected range. 
Id. at 989. The Eighth Circuit upheld the admission of this testimony, 
observing that ``Robbin laid adequate foundational support for his 
conclusions by explaining their bases'' in national census population 
and marketing data and business records. Id. at 990. So too here. I 
thus conclude that the Government has proved that a substantial portion 
of Respondent's products were diverted.
    Nonetheless, I decline to announce a rule that renders diversion by 
itself adequate grounds to revoke a registration. I acknowledge the 
ALJ's concern that each case cited by the Government required not only 
excessive sales into the gray market but also a showing that the 
Respondent ``committed or proposed to commit other acts inconsistent 
with the public interest.'' ALJ at 34. Most of the cited cases, 
however, involved denials of applications. The cases did not go so far 
as to establish a requirement that the Government must show fault on 
the part of a Respondent to sustain a public interest revocation. 
Indeed, fault is typically a concept that is associated with past 
conduct and not proposed future activity. Thus, while these cases 
suggest that more than excessive sales are required to deny an 
application, they are not controlling in a revocation action.
    I further note that dicta in Mediplas Innovations, 67 FR 41256, 
41261 (2002), a suspension of shipments case, observed that a 
revocation of a registration ``require[s] a finding of culpability.'' 
The Mediplas decision further declared that ``[o]nly upon a finding of 
culpability can a DEA registrant permanently be deprived of controlled 
substances or List I chemicals.'' Id. at 41261.
    In support of these assertions, Mediplas cited sections 823 and 
824. The case did not, however, analyze the statutory text of either 
provision and neither section 824(a)(4) nor section 823(h) appears to 
impose on the Government the burden of proving culpability in order to 
sustain a public interest revocation. The statute is silent on the 
question, see Chevron, U.S.A. Inc., v. NRDC, 467 U.S. 837, 843 (1984), 
and a reconsideration of the issue might be warranted in light of the 
unique difficulties posed in combating the use of OTC products in the 
illicit manufacture of methamphetamine. Cf. Rust v. Sullivan, 500 U.S. 
173, 186-87 (1991) (an agency ``must be given ample latitude to adapt 
[its] rules and policies to the demands of changing circumstances'') 
(internal quotations and citations omitted).
    Holding registrants strictly liable for excessive sales of listed 
chemicals might well be the appropriate approach for effectuating 
Congress' intent to protect the public interest. See 21 U.S.C. 824(f). 
Given that the Supreme Court has endorsed the propriety of strict 
liability for regulatory criminal offenses, see Morisette v. United 
States, 342 U.S. 246, 255-60 (1952), the imposition of strict liability 
in a purely regulatory scheme should not raise any serious 
constitutional objection.
    I need not decide this question, however, because the Government 
alleged that Mr. Call knew that Respondent's ``ephedrine sales [were] 
not for legitimate uses,'' see ALJ Exh.1, at 6, and there is ample 
evidence of Respondent's fault. As explained above, Mr. Call's 
admissions to DI Kuzma and his statements and testimony during the 
hearing establish that he was--as Respondent's owner--deliberately 
indifferent to the diversion of its

[[Page 37612]]

products for use in the illicit manufacture of methamphetamine. Burying 
one's head in the sand while his firm's products are being diverted may 
allow one to maximize profits. But it is manifestly inconsistent with 
public health safety and justifies the revocation of Respondent's 
registration.
    In sum, factors one, four and five each independently support 
revocation. I have considered the mitigating evidence offered by 
Respondent including his cooperation with the investigation. I 
nonetheless conclude that revocation is necessary to adequately protect 
the public interest.

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823 & 824, and 28 CFR 0.100(b) & 0.104, I hereby order that DEA 
Certificate of Registration, 003884DSY, issued to D & S Sales, be, and 
it hereby is, revoked. I further order that any pending applications 
for renewal or modification of such registration be, and they hereby 
are, denied. This order is effective July 31, 2006.

    Dated: June 12, 2006.
Michele M. Leonhart,
Deputy Administrator.
 [FR Doc. E6-9705 Filed 6-29-06; 8:45 am]
BILLING CODE 4410-09-P