Premier Holdings, Inc.; Denial of Application, 59834-59837 [E6-16756]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 196 (Wednesday, October 11, 2006)]
[Notices]
[Pages 59834-59837]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-16756]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Premier Holdings, Inc.; Denial of Application

    On October 20, 2005, the Acting Deputy Assistant Administrator, 
Office of Diversion Control, Drug Enforcement Administration, issued an 
Order to Show Cause to Premier Holdings, Inc. (Respondent), d/b/a/ 
Filmart, of Brooklyn, New York. The Show Cause Order proposed to deny 
Respondent's application for a DEA Certificate of Registration as a 
distributor of List I chemicals, on the ground that issuance of a 
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 was 
proposing to distribute List I chemical products containing 
pseudoephedrine to various firms including convenience stores. See Show 
Cause Order at 3. The Show Cause Order alleged that DEA has determined 
that convenience stores constitute a non-traditional or ``gray market'' 
for products containing pseudoephedrine and that there is ``a high 
incidence of diversion'' of these products from these retailers into 
the illicit manufacture of methamphetamine, a Schedule II controlled 
substance. Id. at 2. The Show Cause Order also alleged that even 
traditional cold and cough products have been diverted into the illicit 
manufacture of methamphetamine. Id. at 2.
    The Show Cause Order further alleged that Respondent's owner, Mr. 
Eugene Lefkowitz, told DEA investigators that

[[Page 59835]]

his firm, which sells film, phone cards, batteries, and health and 
beauty products, was seeking registration because it was ``losing 
business.'' Id. at 3. The Show Cause Order alleged that Mr. Lefkowitz 
estimated that his sales of List I chemicals products would amount to 
approximately 10 percent of his firm's total annual sales of $25 
million. See id.
    The Show Cause Order also alleged that Mr. Lefkowitz provided 
investigators with a list of potential suppliers and a list of products 
which Respondent intended to distribute. See id. The Show Cause Order 
alleged that while the product list included ``predominately 
traditional pseudoephedrine products * * *. these products were not 
consistent with the known product lines of several suppliers.'' See id.
    The Show Cause Order alleged that Respondent provided the 
investigators with a list of 25 prospective customers for List I 
chemicals of which only 2 were located in New York State. Id. at 3. The 
Show Cause Order alleged that investigators conducted verifications 
with 17 of the prospective customers, and that while all of the 
customers acknowledged having bought film from Respondent, 15 of them 
informed the investigators ``that they had never discussed purchasing 
listed chemical products from'' Respondent. Id.
    The Show Cause Order further alleged that many of these customers 
were large distributors who were ``capable of purchasing products 
directly from the manufacturers.'' Id. The Show Cause Order also 
alleged that Mr. Lefkowitz subsequently claimed to investigators that 
he was ``losing money'' because his customers were requesting that he 
sell them List I chemical products and lacked a registration to do so. 
Id. Finally, the Show Cause Order alleged that Respondent ``and its 
principals * * * failed to provide truthful and accurate information 
about the nature of their business * * * and cannot be expected to 
properly discharge the duties of a registrant.'' Id.
    The Show Cause Order was sent by certified mail to Respondent's 
business address as listed on its application. According to United 
States Postal Service records, Respondent received the Show Cause Order 
on October 31, 2005.
    Since the effectuation of service, neither Respondent, nor anyone 
purporting to represent it, has responded. Because (1) more than 30 
days have passed since Respondent received the Show Cause Order, and 
(2) no request for a hearing has been received, I conclude that 
Respondent has waived its right to a hearing. See 21 CFR 1309.53(c). I 
therefore enter this final order without a hearing based on relevant 
material contained in the investigative file and make the following 
findings.

Findings

    Pseudoephedrine is a List I chemical that, while having therapeutic 
uses, can be extracted from lawful non-prescription products and used 
to manufacture 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.'' Sujak Distributors, 71 FR 50102, 50103 (2006); A-1 
Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine abuse has 
destroyed lives and families, ravaged communities, and caused serious 
environmental harms. Sujak, 71 FR at 50103.
    Respondent is a corporation which is located at 4111 Glenwood Road, 
Brooklyn, New York. On June 8, 2004, Respondent submitted an 
application for a Certificate of Registration to distribute 
pseudoephedrine.
    On October 19, 2004, two DEA Diversion Investigators (DIs) visited 
Respondent at its proposed registered location to conduct a pre-
registration investigation. The DIs met with Mr. Eugene Lefkowitz, 
Respondent's President, and Mr. Aron Kohn, its General Manager. The DIs 
presented their credentials, discussed the nature of their visit, 
inspected the facility and interviewed Mssrs. Lefkowitz and Kohn 
regarding the firm's business.
    Respondent is located in an industrial area of Brooklyn and 
occupies a warehouse built of brick and cinderblock. According to the 
investigative file, the warehouse has motion detectors, cameras, and an 
alarm system. All visitors are screened and warehouse access is limited 
to certain employees. The List I chemicals would be stored on shelves 
located near the warehouse manager's desk. The investigative file 
indicates that only four employees would have access to List I 
chemicals. Moreover, the investigation did not uncover any adverse 
information as to any of these employees or the firm's officers. 
Finally, Respondent's recordkeeping practices apparently would comply 
with DEA regulations.
    During the interview, the DIs were informed that Respondent had 
total annual sales of approximately $25 million and that the firm had 
been in business for approximately 10 years. Respondent sells film, 
batteries, and health and beauty products to drug stores, supermarkets, 
wholesalers, and convenience stores throughout the United States.
    Most significantly, Respondent had no experience in distributing 
List I chemicals. Mssrs. Kohn and Lefkowitz told the DIs that the firm 
intended to distribute name brand, over-the-counter, cold and flu 
medications containing pseudoephedrine. Mssrs. Kohn and Lefkowitz also 
stated to the DIs that their customers frequently requested name brand 
cold and flu remedies.
    Mr. Kohn provided the DIs with a list of the products Respondent 
intended to distribute. The List contained only traditional name brand 
products. Mr. Kohn also provided the DIs with a list of suppliers. 
Several of the firms were, however, under investigation for supplying 
products that have been diverted into the illicit manufacture of 
methamphetamine.
    Mr. Kohn also provided the DIs with a list of twenty-five potential 
customers. All but two of these customers were located outside of New 
York State. The customer list included large grocery and drug store 
chains, as well as large wholesalers who supply grocery and drug store 
chains and convenience stores.\1\ Most of the firms already had DEA 
registrations authorizing them to distribute List I chemicals.
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    \1\ The customer list included Winn Dixie Stores, Inc., which 
owns approximately 920 grocery and drug stores in the southeastern 
U.S.; Wakefern Food Corp., a cooperative of independent grocers who 
operate more than 200 Shop Rite Supermarkets (more than half of 
which have pharmacies) throughout the northeastern U.S.; and 
Brookshire Grocery, which operates more than 150 stores in Texas and 
adjacent states. The list also included USA Drugs, which distributes 
health and beauty products to more than 1,000 grocery, drug, and 
discount stores, and which operates more than 170 drug stores in 
Arkansas and adjacent states; and Discount Drug Mart, Inc., which 
operates more than 60 stores in Ohio. The list further included Eby-
Brown Co., the largest privately owned wholesale distributor of 
various products to convenience stores in the U.S. with more than 
25,000 customers in the midwestern and southeastern U.S.; Spartan 
Stores, which owns and operates 68 supermarkets and 19 drugstores in 
Michigan and Ohio, and which also distributes products to more than 
350 independent grocery stores in the midwestern U.S.; and Grocery 
Supply Co., which supplies more than 15,000 independently-owned 
supermarkets, convenience stores, wholesale houses, discount stores 
and other retailers.
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    Thereafter, a DI contacted five of the firms. Three of the firms 
told the DI that they were no longer buying products from Respondent.
    On March 23, 2005, Mr. Lefkowitz called Ms. Margaret Brophy, the 
Diversion Program Manager for the New York Field Division to inquire 
about the status of his application. During the conversation, Mr. 
Lefkowitz related that

[[Page 59836]]

he was losing business because he could not fully service his customers 
by selling them pseudoephedrine products and that his customers had 
told him that if his firm could not provide them with all the items 
they required, they would take their business to a firm that would. Mr. 
Lefkowitz further claimed that he was being forced to offer deep 
discounts to maintain his customer base.
    Ms. Brophy asked Mr. Lefkowitz why most of Respondent's customers 
were located outside of New York. Mr. Lefkowitz stated that he had lost 
New York customers because his firm could not supply them with all the 
products they required. Mr. Lefkowitz further related that his non-New 
York based customers were less demanding with respect to purchasing all 
of their products from one source.
    Thereafter, in May 2005, a DI conducted additional inquiries of the 
firms listed on Respondent's customer list and contacted seventeen of 
the firms. While all of the firms verified that they had purchased film 
from Respondent, fifteen of the firms informed the DI that they had 
never discussed with Respondent the purchase of List I chemical 
products from it.\2\
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    \2\ Two of the firms had discussed purchasing List I chemicals 
from Respondent.
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Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless I determine that 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;
    (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, 39368 (2006); Energy Outlet, 64 
FR 14269, 14271 (1999). In this case, I conclude that factors four and 
five are dispositive and establish that Respondent's application should 
be denied.

Factor One--Maintenance of Effective Controls Against Diversion

    The investigative file does not establish that Respondent would 
fail to maintain effective controls against the theft and diversion of 
listed chemicals. Respondent's facility appears to meet DEA's 
regulations pertaining to physical security. See 21 CFR 1309.71(b)(1)-
(7). Moreover, it appears that Respondent has an adequate system ``for 
monitoring the receipt, distribution, and disposition of List I 
chemicals.'' Id. Sec.  1309.71(b)(8). I thus conclude that this factor 
supports a finding that Respondent's registration would be consistent 
with the public interest.

Factors Two and Three--Compliance With Applicable Law and the 
Applicant's Prior Record of Relevant Criminal Convictions

    The investigative file does not establish that Respondent has 
failed to comply with applicable Federal, State, and local laws. 
Moreover, there is no evidence establishing that Respondent, any of its 
officers, or any employee with access to List I chemicals has been 
convicted of a criminal offense related to controlled substances or 
chemicals. Both factors thus support a finding that Respondent's 
registration would be consistent with the public interest.

Factor Four--The Applicant's Past Experience In Distributing Chemicals

    The investigative file establishes that Respondent has no 
experience distributing List I chemicals. Moreover, Respondent did not 
provide evidence to the DIs that any of its employees have experience 
in distributing List I chemicals. Because of the high risk of 
diversion, DEA has repeatedly held that an applicant's (and its 
employees') lack of experience in distributing List I chemicals is a 
factor that weighs heavily against granting an application for a 
registration. Sujak Distributors, 71 FR at 50104; Jay Enterprises, 70 
FR 24620, 24621 (2005); ANM Wholesale, 69 FR 11652, 11653 (2004). This 
factor thus supports a finding that Respondent's registration would be 
inconsistent with the public interest.

Factor Five--Other Factors That Are Relevant To and Consistent With 
Public Health and Safety

    Numerous DEA cases recognize that the sale of List I chemical 
products by non-traditional retailers such as convenience stores is an 
area of particular concern in preventing diversion of these products 
into the illicit manufacture of methamphetamine. See, e.g., Joey 
Enterprises, 70 FR 76866, 76867 (2005). As Joey Enterprises explains, 
``[w]hile there are no specific prohibitions under the Controlled 
Substances Act regarding the sale of listed chemical products to 
[convenience stores], DEA has nevertheless found that [these entities] 
constitute sources for the diversion of listed chemical products.'' Id. 
See also TNT Distributors, 70 FR 12729, 12730 (2005) (special agent 
testified that ``80 to 90 percent of ephedrine and pseudoephedrine 
being used [in Tennessee] to manufacture methamphetamine was being 
obtained from convenience stores''); OTC Distribution Co., 68 FR 70538, 
70541 (2003) (noting ``over 20 different seizures of [gray market 
distributor's] pseudoephedrine product at clandestine sites,'' and that 
in an eight month period distributor's product ``was seized at 
clandestine laboratories in eight states, with over 2 million dosage 
units seized in Oklahoma alone.''); MDI Pharmaceuticals, 68 FR 4233, 
4236 (2003) (finding that ``pseudoephedrine products distributed by 
[gray market distributor] have been uncovered at numerous clandestine 
methamphetamine settings throughout the United States and/or discovered 
in the possession of individuals apparently involved in the illicit 
manufacture of methamphetamine'').
    Respondent's list of potential customers included wholesale 
distributors to convenience stores. Moreover, during the on-site 
inspection, the DIs determined that Respondent sells various products 
to convenience stores. DEA final orders recognize that there is a 
substantial risk of diversion of List I chemicals into the illicit 
manufacture of methamphetamine when these products are sold by these 
non-traditional retailers. See, e.g., Joy's Ideas, 70 FR at 33199 
(finding that the risk of diversion was ``real, substantial and 
compelling''); Jay Enterprises, 70 FR at 24621 (noting ``heightened 
risk of diversion'' should application be granted).
    I acknowledge that Respondent's list of potential customers 
included grocery chains, drug store chains, and wholesale distributors 
to these firms. DEA has found that these firms constitute the 
traditional market for pseudoephedrine products. See, e.g., D & S 
Sales, 71 FR 37607, 37608-09 (2006); Joy's Ideas, 70 FR at 33196-97.

[[Page 59837]]

    There is, however, substantial reason to question the validity of 
the customer information Respondent provided to DEA. In DEA's 
experience, many of the firms listed as potential customers are of 
large enough size that they are able to purchase List I chemical 
products either directly from manufacturers or from large wholesalers. 
See John Vanags, 71 FR 39365, 39366 (2006). Indeed, it seems unlikely 
that Respondent could offer prices that are competitive with those 
offered by the manufacturers of List I products or large wholesalers.
    Most significantly, the investigative file establishes that Mr. 
Lefkowitz represented to DEA investigators that Respondent's customers 
had requested List I chemical products from his firm and that he had 
lost business and was forced to offer deep discounts to keep other 
customers. Yet all but two of the firms contacted by the DI told her 
that they had never discussed the purchase of List I products with 
Respondent. Moreover, several of the firms told the DI that they were 
no longer purchasing products from Respondent.
    That the overwhelming majority of the customers told the DI that 
they had never discussed purchasing List I products from Respondent 
(and that some of the firms no longer bought any products from it) 
raises a serious question as to the validity of Mr. Lefkowitz's 
statements to DEA personnel. Indeed, the information uncovered by the 
customer verifications suggests that Respondent may have provided the 
customer list (which contains legitimate businesses) to induce DEA to 
grant it a registration, which it would then use to distribute List I 
products into the non-traditional market, the principle supply source 
of mom-and-pop methamphetamine labs. Whether this was the intent of 
Respondent's officers I need not decide because DEA will not grant any 
application when there is reason to question the validity of the 
information an applicant has provided.
    As it is, it is indisputable that Respondent's customers include 
convenience stores. Under DEA precedents, an applicant's proposal to 
sell List I products into the non-traditional market weighs heavily 
against the granting of a registration under factor five. So too here.
    DEA has repeatedly denied an application when an applicant proposed 
to sell into the non-traditional market and the analysis of one of the 
other statutory factors supports the conclusion that granting the 
application would create an unacceptable risk of diversion. Thus, in 
Xtreme Enterprises, 67 FR 76195, 76197 (2002), my predecessor denied an 
application, observing that the respondent's ``lack of criminal record, 
compliance with the law and willingness to upgrade her security system 
are far outweighed by her lack of experience with selling List I 
chemicals and the fact that she intends to sell ephedrine almost 
exclusively in the gray market.''
    More recently, I denied an application, observing that the 
respondent's ``lack of a criminal record and any intent to comply with 
the law and regulations are far outweighed by his lack of experience 
and the company's intent to sell ephedrine and pseudoephedrine 
exclusively to the gray market.'' Jay Enterprises, 70 FR at 24621. 
Accord Prachi Enterprises, 69 FR 69407, 69409 (2004). Consistent with 
these precedents, and considering the serious concern raised by the 
investigation as to Respondent's intended customers, I conclude that 
granting Respondent's application for a registration would be 
inconsistent with the public interest.

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823(h), as well as 28 CFR 0.100(b) and 0.104, I hereby order that the 
application of Premier Holdings, Inc., d/b/a/ Filmart, for a DEA 
Certificate of Registration as a distributor of List I chemicals be, 
and it hereby is, denied. This order is effective November 13, 2006.

    Dated: September 29, 2006.
Michele M. Leonhart,
Deputy Administrator.
 [FR Doc. E6-16756 Filed 10-10-06; 8:45 am]
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