Integrity Wholesale, Inc.; Denial of Application, 59832-59834 [E6-16757]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 196 (Wednesday, October 11, 2006)]
[Notices]
[Pages 59832-59834]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-16757]


-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Integrity Wholesale, Inc.; Denial of Application

    On July 12, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Integrity Wholesale, Inc., (Respondent) of Fairview, 
Tennessee. The Show Cause Order proposed to deny Respondent's 
application for a DEA Certificate of Registration as a distributor of 
the List I chemical pseudoephedrine, 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 is a 
wholesale distributor of various products including batteries, 
disposable cameras, film, household goods and health and beauty aids, 
and that in September 2003, Respondent had applied for a registration 
to distribute pseudoephedrine products from its Tennessee location. 
Show Cause Order at 1-2. The Show Cause Order alleged that Respondent's 
owner, Mr. Andrew Splendorio, had informed DEA investigators that 
Respondent distributes products to all fifty states and that 
approximately eighty percent of the orders it receives are made by 
telephone or the Internet. Id. at 2.
    The Show Cause Order alleged that Respondent provided DEA 
investigators with a list that included several hundred proposed 
customers. See id. at 2. The Show Cause Order alleged that the list 
included numerous non-traditional retailers of over-the-counter drug 
products including dive shops, paintball shops, gun shops, rafting and 
kayak shops, photo shops, audio stores, wildlife centers and zoos, 
publishing companies, and a theatre. See id. The Show Cause Order 
further alleged that the list included numerous individuals who were 
not listed as being affiliated with any particular business. Id.
    The Show Cause Order alleged that the proposed customers ``have 
zero expectation of sales of over the counter drug products.'' Id. The 
Show Cause Order also alleged that only ``[a]n extremely small amount 
of face-to-face purchases'' of pseudoephedrine products occur in non-
traditional retailers, and that DEA has found that these establishments 
``purchase inordinate amounts of these products and become conduits for 
the diversion'' of these products into the illicit manufacture of 
methamphetamine. Id.
    Finally, the Show Cause Order alleged that the illicit manufacture 
of methamphetamine continues unabated in Tennessee. See id. at 2. The 
Show Cause Order further alleged that DEA had noted a trend towards 
smaller capacity laboratories and that these laboratories often obtain 
precursor chemicals from non-traditional retailers. See id. at 2-3. The 
Show Cause Order also alleged that some non-traditional retailers 
obtain List I chemicals from multiple distributors and that these 
products are then diverted into the illicit manufacture of 
methamphetamine. See id.
    The Show Cause Order was served on Respondent by certified mail, 
return receipt requested. On July 22, 2005, Respondent received the 
Show Cause Order as evidenced by the signed return receipt card. 
Notwithstanding that the Show Cause Order clearly stated that 
Respondent's failure to request a hearing within 30 days after the date 
of receipt of the Order would be deemed a waiver of its right to a 
hearing, Respondent did not request a hearing until September 27, 2005. 
In response, on October 5, 2005, the Government moved for summary 
disposition

[[Page 59833]]

contending that Respondent had failed to timely file its request for a 
hearing.
    On October 7, 2005, the Administrative Law Judge (ALJ) issued a 
memorandum directing that Respondent file a response to the 
Government's motion. Thereafter, on October 13, 2005, Respondent filed 
a response stating that it had failed to timely file a request for a 
hearing because it was ``extremely busy and a little under staffed.'' 
Mr. Splendorio further admitted that he had failed to give the matter 
``my immediate attention.''
    On October 25, 2005, the ALJ issued an Order terminating the 
proceeding and directing that the investigative file be forwarded to me 
for final agency action. The ALJ specifically noted that Respondent had 
neither filed a timely request for a hearing nor a timely request for 
an extension of time to file a request for a hearing. The ALJ further 
found that Respondent had not presented sufficient grounds for failing 
to file a timely request and that Respondent had waived its right to a 
hearing.
    Having reviewed the record as a whole, I concur with the ALJ's 
findings that Respondent has not presented a sufficient reason to 
excuse its failure to timely request a hearing and that Respondent has 
waived its right to a hearing. 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, which is registered as a Colorado Corporation, is 
located at 7905 Pinecrest Lane, Fairview, Tennessee. On September 24, 
2003, Respondent's president, Mr. Andrew Splendorio, submitted an 
application on behalf of Respondent for a registration as a distributor 
of the List I chemical pseudoephedrine.
    On March 10, 2004, a DEA Diversion Investigator (DI) conducted an 
on-site inspection at Respondent's proposed registered location and met 
with Mr. Splendorio. The firm is located in the basement and garage 
area of a two-story brick home. Access to the area is gained through a 
wooden door which has a dead-bolt lock. The building also has an 
electronic alarm system.
    Mr. Splendorio informed the DI that Respondent is a wholesale 
distributor of assorted products including cameras, film, batteries, 
household items, health and beauty aids, and other items. The DI 
determined that Respondent's sales territory includes all fifty states, 
as well as Puerto Rico, the U.S. Virgin Islands, and American Samoa. 
Mr. Splendorio further told the DI that eighty percent of the orders 
Respondent receives are are placed by telephone, five percent are 
placed over the internet, and the remaining fifteen percent are placed 
with the firm's three salespersons who are located in Florida, Nevada, 
and Alaska.\1\ Respondent's salespersons do not, however, handle 
products. Rather, Respondent uses the United Parcel Service (UPS) to 
ship its products.
---------------------------------------------------------------------------

    \1\ Respondent also employs an administrative assistant and a 
warehouse manager.
---------------------------------------------------------------------------

    According to the investigative file, Respondent proposed to 
distribute such products as Tylenol Sinus, Tylenol Allergy Sinus, 
Tylenol Cold, Advil Cold and Sinus, Sudafed, Claritin and Benadryl. 
According to a letter provided by Mr. Splendorio, Respondent would 
initially carry products that are packaged in single dose pouches of 1-
2 tablets with 12 pouches in a sleeve. The letter further stated, 
however, that Respondent intended to eventually also sell ``the 2 
smallest multiple dose [packages] offered by each brand.'' Respondent's 
intended supplier was Lil' Drug Stores Products, Inc.
    The DI inspected Respondent's recordkeeping system and found it to 
be adequate. The DI also obtained a list of proposed List I chemical 
customers from Mr. Splendorio. The list included dive shops, paintball 
facilities, camera shops, photo labs, canoe and kayak businesses, pools 
and waterparks, several museums and zoos, several markets, and numerous 
individuals who were not listed as owning any particular business. 
Moreover, the customers were located throughout the United States.
    The DI contacted several of the potential customers; the DI 
verified that Respondent was a supplier of each firm and uncovered no 
other adverse information. The DI also conducted background checks on 
Respondent's officers and employees; the checks found no derogatory 
information on any individual.

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;
    (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 (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 (D.C. Cir. 2005). In this case, I 
conclude that factors one and five are dispositive and establish that 
Respondent's application should be denied.

Factor One--Maintenance of Effective Controls Against Diversion

    I acknowledge that Respondent would provide adequate physical 
security to protect List I chemical products in its possession from 
theft. I further acknowledge that Respondent's recordkeeping system 
appears adequate.
    Respondent's proposed method of distributing pseudoephedrine does 
not, however, provide adequate controls to protect against diversion. 
As found above, most of Respondent's business is derived from telephone 
and internet orders and Respondent sells its goods to all fifty states, 
as well as Puerto Rico, the U.S. Virgin Islands, and American Samoa. 
Moreover, the orders are then shipped by UPS, a commercial carrier.
    Under Federal law and DEA regulations, a distributor who uses a

[[Page 59834]]

commercial carrier to distribute to a non-regulated person nine grams 
or more of pseudoephedrine in the course of a calendar month engages in 
a regulated transaction. See 21 U.S.C. 802(39)(A)(iv), id. section 
830(b)(3); 21 CFR 1310.03(c), id. 1310.04(f). Federal law further 
provides that ``[i]t is the duty of each regulated person who engages 
in a regulated transaction to identify each other party to the 
transaction.'' 21 U.S.C. 830(a)(3); see also 21 CFR 1310.07. Under 
DEA's regulations, ``[f]or sales to individuals * * * the type of 
documents and other evidence of proof must consist of at least a 
signature of the purchaser, a driver's license and one other form of 
identification.'' 21 CFR 1310.07(d).\2\
---------------------------------------------------------------------------

    \2\ For sales to a new customer that is ``not an individual * * 
*, the regulated person shall establish the identity of the 
authorized purchasing agent or agents and have on file that person's 
signature, electronic password, or other identification.'' 21 CFR 
1310.07(e). A regulated person must also ``verify the existence and 
apparent validity of a business entity.'' Id. at 1310.07(b).
---------------------------------------------------------------------------

    It seems highly likely that Respondent's sales would frequently 
exceed the threshold. Most significantly, Respondent does not appear to 
have in place any procedures to verify the identity of its customers, 
most of which are located outside of Tennessee and at a great distance 
from Respondent's three salespersons. I thus find that Respondent lacks 
effective controls to prevent diversion. While this factor is reason 
alone to conclude that granting Respondent's application would be 
inconsistent with the public interest, a discussion of factor five is 
also warranted.

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

    The record establishes that Respondent's proposed customers are not 
participants in the traditional retail market for pseudoephedrine 
products. See, e.g. D & S Sales, 71 FR 37607, 37608-09 (2006); Joy's 
Ideas, 70 FR at 33197. Indeed, dive shops and paint ball facilities 
seem to be an even less likely source for legitimate consumer purchases 
of pseudoephedrine than convenience stores and gas stations, 
establishments which DEA has repeatedly found to be ``sources for the 
diversion of listed chemical products.'' Joey Enterprises, 70 FR 76866, 
76867 (2005). Moreover, Respondent's customer list included numerous 
individuals with no listed business affiliation. Why these individuals 
would need to purchase pseudoephedrine from a wholesaler rather than a 
retailer is not clear.
    DEA final orders have repeatedly recognized that ``there is a 
substantial risk of diversion of List I chemicals into the illicit 
manufacture of methamphetamine when these products are sold by non-
traditional retailers.'' Tri-County Bait Distributors, 71 FR 52160, 
52164 (2006). See also 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). Under DEA precedents, an applicant's 
proposal to sell into the non-traditional market weighs heavily against 
the granting of a registration under factor five. So too here.
    I acknowledge that Respondent proposed to sell only name brand 
pseudoephedrine products in lower dosage counts. While these products 
have not been preferred by illicit methamphetamine manufacturers, they 
have nonetheless been subject to diversion. See, e.g., TNT 
Distributors, 70 FR 12729, 12730 (2005). Indeed, in light of recently 
enacted restrictions on the sale of List I chemical products imposed by 
both Congress and numerous state legislatures, it is reasonable to 
expect that methamphetamine traffickers will resort to using increasing 
amounts of name-brand products.
    As I recently explained, ``[b]ecause of the methamphetamine 
epidemic's devastating effects, DEA has repeatedly denied an 
application when an applicant proposed to sell into the non-traditional 
market and analysis of one of the other statutory factors supports the 
conclusion that granting the application would create an unacceptable 
risk of diversion.'' Tri-County Bait, 71 FR at 52164. Thus, even though 
Respondent proposes to distribute only name-brand pseudoephedrine 
products, the fact that its proposed customers are primarily non-
traditional retailers (and also include individuals with no known 
business affiliation) and that it has no effective measures to identify 
its customers and determine whether their purchases would be to meet 
legitimate consumer demand, creates an unacceptable risk that its 
products would be diverted. Therefore, while I acknowledge that none of 
Respondent's officers or employees has a record of criminal convictions 
(factor three) and that the investigative file does not otherwise 
establish that Respondent would fail to comply with applicable laws 
(factor two), I conclude that granting Respondent's application would 
be inconsistent with the public interest. See Joy's Ideas, 70 FR at 
33199 (registrant's ``lack of a criminal record, previous general 
compliance with the law and regulations and willingness to comply with 
regulations and guard against diversion, are far outweighed by 
[registrant's] intent to continue selling * * * pseudoephedrine 
exclusively in the gray market'').

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823(h), and 28 CFR 0.100(b) and 0.104, I hereby order that the 
application of Integrity Wholesale, Inc., 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. E6-16757 Filed 10-10-06; 8:45 am]
BILLING CODE 4410-09-P