Sato Pharmaceutical, Inc.; Denial of Application, 52165-52166 [E6-14522]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 170 (Friday, September 1, 2006)]
[Notices]
[Pages 52165-52166]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14522]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Sato Pharmaceutical, Inc.; Denial of Application

    On August 5, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Sato Pharmaceutical, Inc., (Respondent) of Torrance, 
California. The Show Cause Order proposed to deny Respondent's pending 
application for registration as a non-retail distributor of List I 
chemicals on the ground that Respondent's registration would be 
inconsistent with the public interest. See 21 U.S.C. 823(h); Show Cause 
Order at 1.
    The Show Cause Order specifically alleged that Respondent sells 
dietary supplements and Asian healthcare products to convenience stores 
and small markets. See Show Cause Order at 2. The Show Cause Order 
alleged that Respondent had been illegally importing from Taiwan and 
Japan pseudoephedrine 60 mg. products that were sold under the 
``Stona'' brand. See id. The Show Cause Order further alleged that 
Respondent had been engaged in this activity for over ten years. See 
id. Finally, the Show Cause order alleged that Respondent had sold 
these products to distributors who also lacked a DEA registration. See 
id. The Show Cause Order further advised Respondent of its right to a 
hearing. Id.
    The Show Cause Order was served by certified mail. Respondent, 
through its counsel, initially requested a hearing; the matter was 
assigned to Administrative Law Judge (ALJ) Mary Ellen Bittner. Several 
days later, however, Respondent withdrew its request for a hearing and 
the ALJ terminated the proceeding. Thereafter, the investigative file 
was forwarded to me for final agency action. Because Respondent has 
expressly waived its right to a hearing, I hereby enter this final 
order based on relevant material in the investigative file and make the 
following findings.

Findings

    Pseudoephedrine is a List I chemical that has a lawful therapeutic 
use. It is, however, easily extracted from over-the-counter products 
and used in the illicit manufacture of methamphetamine, a schedule II 
controlled substance. See 21 U.S.C. 802(34); 21 CFR 1308.12(d). As 
noted in numerous prior DEA orders, ``methamphetamine is an extremely 
potent central nervous system stimulant.'' David M. Starr, 71 FR 39637 
(2006). Methamphetamine abuse has destroyed lives and families, ravaged 
communities, and created serious environmental harms.
    Respondent is a United States subsidiary of a Japanese 
pharmaceutical company. Respondent, which is located in Torrance, 
California, sells a variety of products including over-the-counter 
medicines and dietary supplements. Among these products were ``Stona'' 
brand pseudoephedrine pills and liquid cold remedies that were made in 
Japan and Taiwan.
    In March 2004, DEA was advised by a regulatory consultant to 
Respondent's U.S. subsidiary that the company had been importing and 
distributing several Stona brand pseudoephedrine products without the 
registrations required under the Controlled Substances Act. See 21 
U.S.C. 823(h); id. 957(a) & 958(c)(2). At a meeting, the consultant 
further told several DEA Diversion Investigators (DIs) that Respondent 
had been importing and distributing products containing pseudoephedrine 
and phenylpropanolamine (PPA) for at least 10 years but that Respondent 
had stopped importing PPA products. According to the consultant, 
Respondent was never registered to either import or distribute List I 
chemicals because neither he (the consultant) nor the company knew that 
registration was required.
    The investigation also determined that Respondent had sold 
pseudoephedrine products to other distributors who were not registered. 
Moreover, the investigative file states that Respondent failed to file 
form DEA-486, Import/Export Declaration, for its importations of the 
pseudoephedrine. See 21 CFR 1313.12(a).
    Respondent also advised DEA that it had a sizeable inventory of 
pseudoephedrine products at its Torrance, California facility.\1\ 
Respondent informed DEA that it had ``quarantined'' the inventory; it 
also requested authorization to export the products back to its 
facilities in Japan and Taiwan.
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    \1\The inventory included approximately 6992 bottles (120 ml.) 
of Stona cough syrup, 3915 packages of 24 Stona tablets, 2943 
packages of 24 Stona caplets, and 720 packages of 24 Stona S 
caplets.
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    On August 9, 2004, DEA approved a one time distribution by 
Respondent to Leiner Health Products, a DEA registered exporter, for 
the purpose of returning the products. On or about August 27, 2004, the 
shipment occurred.
    Thereafter, on September 29, 2004, Respondent applied for a DEA 
registration to distribute pseudoephedrine. On February 23, 2005, DEA 
conducted a pre-registration investigation at Respondent's Torrance 
facility. Respondent's officials told the DIs that it was seeking 
registration to distribute the remaining portion of the product that it 
had previously returned to Taiwan and which it had not been able to 
sell. In particular, Respondent sought authorization to import a one-
time shipment of 7,000 bottles containing 24 tablets of 30 mg. 
pseudoephedrine from its Taiwan facility. Respondent's officials 
further told the DIs that it was no longer manufacturing 
pseudoephedrine products.
    The DIs determined that Respondent had in place adequate procedures 
for identifying and verifying customers, recordkeeping and reporting, 
and for the handling and delivery of the products. The DIs also 
determined that Respondent would provide adequate security for the 
products.
    The DIs also conducted verifications of Respondent's customers. 
Respondent's customers are a combination of small groceries, 
pharmacies, and medical providers that primarily serve Asian-American 
communities. Eighty percent of Respondent's customers are located in 
Southern California. The DIs also ran criminal background checks on 
Respondent's officers and found no derogatory information. The DIs 
further determined that with the exception of the conduct described 
above, Respondent was in compliance with applicable laws and had 
obtained a California permit for chemical precursors.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless the registration would be 
``inconsistent with the public interest.'' In making this 
determination, Congress directed that I consider the following factors:

    (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;

[[Page 52166]]

    (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. ``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 an application for registration should be denied. 
See, e.g., David M. Starr, 71 FR 39367 (2006); Energy Outlet, 64 FR 
14269 (1999).

    I acknowledge that Respondent maintains effective controls against 
diversion. I also recognize that there is no evidence that Respondent, 
or any of its officers, has been convicted of a criminal offense under 
Federal or State laws related to controlled substances or chemicals. 
Applying factor two, however, I conclude that Respondent's application 
must be denied because of its lengthy non-compliance with the 
registration requirements. See 21 U.S.C. 823(h)(2).
    The investigative file establishes that Respondent imported and 
distributed List I chemical products containing both pseudoephedrine 
and PPA for a period lasting over ten years. In the Methamphetamine 
Control Act of 1996, Pub. L. 104-237, Sec.  401, 110 Stat. 3099, 3106-
07-3113, Congress removed an ``exemption from regulation as List I 
chemicals which had applied to pseudoephedrine'' and PPA. 
Implementation of the Comprehensive Methamphetamine Control Act of 
1996, 67 FR 14853 (2002). ``This action [made] persons who distribute 
the products subject to the registration requirement,'' and also 
rendered ``importations'' of the products ``subject to the existing 
chemical controls relating to regulated transactions'' except for in 
certain limited circumstances. Id.
    In the notice of proposed rulemaking implementing the Act, DEA 
clearly explained that ``importers, exporters, and distributors (other 
than retail distributors) of pseudoephedrine and [PPA] drug products 
(including ordinary over-the-counter pseudoephedrine and [PPA] 
products) became subject to the registration requirement of the [Act] 
on October 3, 1997.'' Implementation of the Comprehensive 
Methamphetamine Control Act of 1996, 62 FR 52294, 52298 (proposed Oct. 
7, 1997). DEA further explained that ``[a]ny person who engages in such 
activities and is not subject to an existing or proposed exemption from 
the registration requirement should submit an application for 
registration at the earliest possible time, to ensure that they may 
continue to distribute these products pending issuance of their 
registration.'' Id. Finally, DEA stated that it was ``providing a 
temporary exemption from the registration requirement for persons who 
submit[ted] their applications on or before December 3, 1997.'' Id.
    In accordance with the Comprehensive Methamphetamine Act, and DEA's 
interpretation of it, Respondent was required to submit an application 
for the necessary registrations no later than December 3, 1997. Thus, 
at the time Respondent finally notified DEA of its non-compliance, it 
had been unlawfully importing and distributing pseudoephedrine (and 
possibly PPA) for more than six years. See 21 U.S.C. 843(a) (9) and 
957(a).\2\
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    \2\ It also appears that Respondent failed to file DEA Form 486s 
to report its imports of pseudoephedrine. See 21 CFR 1313.12. 
However, the investigative file does not contain any documents such 
as bills of lading establishing that Respondent exceeded the one 
kilogram threshold which triggers the reporting obligation with 
respect to any particular importation. See id. 1310.04. Accordingly, 
I base this final order only on Respondent's failure to register.
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    I do not find persuasive Respondent's explanation that it was 
unaware that pseudoephedrine had been regulated as a list I chemical. 
While I appreciate that Respondent voluntarily disclosed its misconduct 
to DEA and ceased all distribution of its pseudoephedrine products, the 
duration and scope of Respondent's misconduct cannot be overlooked. 
Registration is one of the essential features of the CSA; Respondent's 
failure to register to import and distribute List I chemicals simply 
cannot be characterized as a technical violation of the Act.
    It is well settled that ``ignorance of the law or a mistake of law 
is no defense.'' Cheek v. United States, 498 U.S. 192, 199 (1991). 
Moreover, the principle ``applies whether the law be a statute or a 
duly promulgated and published regulation.'' United States v. 
International Minerals & Chemical Corp., 402 U.S. 558, 563 (1971). 
Respondent's ignorance of Federal law and regulations is especially 
troubling because it engages in the highly regulated industry of 
manufacturing, importing and distributing pharmaceuticals. There is 
simply no excuse for Respondent's failure to be on top of changes in 
Federal law and regulations that affect its business.
    I therefore conclude that Respondent's lengthy failure of non-
compliance with the registration requirements demonstrates that 
granting its application would be inconsistent with the public 
interest. Furthermore, because of the seriousness and duration of these 
violations, I deem them dispositive of the ultimate issue and need not 
make findings on the remaining factors. See Hoxie v. DEA, 419 F.3d 477, 
482 (2005); Morall v. DEA, 412 F.3d 165, 173 (2005).

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
Sec.  823(h), and 28 CFR 0.100(b) & 0.104, I hereby order that the 
previously submitted application of Sato Pharmaceutical, Inc., for a 
DEA Certificate of Registration as a distributor of List I chemicals 
be, and it hereby is, denied. This order is effective October 2, 2006.

    Dated: August 22, 2006.
Michele M. Leonhart,
Deputy Administrator. 1
 [FR Doc. E6-14522 Filed 8-31-06; 8:45 am]
BILLING CODE 4410-09-P