T. Young Associates, Inc.; Revocation of Registration; Introduction and Procedural History, 60567-60573 [06-8193]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 198 (Friday, October 13, 2006)]
[Notices]
[Pages 60567-60573]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8193]



[[Page 60567]]

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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 04-16]


T. Young Associates, Inc.; Revocation of Registration; 
Introduction and Procedural History

    On December 17, 2003, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to T. Young Associates of Hermitage, Tennessee (Respondent). 
The Show Cause Order proposed to revoke Respondent's DEA Certificate of 
Registration, 004395TSY, as a distributor of List I chemicals, and to 
deny any pending applications for renewal or modification of the 
registration, on the ground that Respondent's registration is 
inconsistent with the public interest as that term is defined in 21 
U.S.C. Sec.  823(h). See 21 U.S.C. Sec.  824(a)(4).
    The Show Cause Order alleged in substance that on July 31, 2001, 
Respondent applied for a modification of its registration as a List I 
chemical distributor requesting registration to handle and distribute 
phenylpropanolamine, ephedrine and pseudoephedrine at a new location. 
See Show Cause Order at 2. The Show Cause Order further alleged that 
Respondent sells primarily ``gray market products'' to convenience 
stores and gas stations, that Respondent's owner had informed DEA 
Diversion Investigators (DIs) that List I chemical products amounted to 
approximately nine percent of his total sales, and that some of the 
manufacturers of the products sold by Respondent have received warning 
letters from DEA because the products were found during law enforcement 
seizures of clandestine laboratories. See id. The Show Cause Order 
further alleged that Tennessee led DEA's southeast region in the number 
of illicit methamphetamine laboratory seizures, that most illegal 
methamphetamine is produced locally, and that methamphetamine 
production continues unabated. See id. at 2-3.
    The Show Cause Order further alleged that DEA had engaged an expert 
in the field of retail marketing and statistics who had studied the 
purchases of List I chemical products by hundreds of Tennessee 
retailers and concluded that these stores were purchasing these 
products in amounts that were far in excess of legitimate demand. See 
id. at 4. The Show Cause Order alleged that small illicit laboratories 
procure the precursor chemicals required to manufacture methamphetamine 
from non-traditional retailers such as gas stations and small retail 
markets and that some of these retailers use multiple distributors to 
mask their acquisition of large amounts of listed chemicals. See id.
    Respondent, through its counsel, requested a hearing. The matter 
was assigned to Administrative Law Judge (ALJ) Mary Ellen Bittner, who 
conducted a hearing in Nashville, Tennessee, on September 28 and 29, 
2004. At the hearing, both parties called witnesses to testify and 
introduced documentary evidence. Following the hearing, but before the 
record was closed, the Government introduced into evidence the 
affidavit of its expert witness, Mr. Jonathan Robbin. Respondent then 
submitted into evidence his own affidavit addressing the issues raised 
in the Robbin affidavit, as well as several other exhibits. Following 
the closing of the record, both parties submitted post-hearing briefs.
    On October 28, 2005, the ALJ submitted her decision recommending 
that Respondent's registration be revoked. Neither party filed 
exceptions. The record was then transmitted to me for final agency 
action.
    Having considered the record as a whole, I hereby issue this 
decision and final order. I adopt the ALJ's findings of fact and 
conclusions of law except as expressly noted herein. For the reasons 
set forth below, I concur with the ALJ's recommendation that 
Respondent's registration be revoked. I further order that any pending 
applications for renewal or modification of Respondent's registration 
be denied.

Findings

    Respondent is a corporation whose shares are owned entirely by Mr. 
Roy T. Young. Respondent is the holder of DEA Certificate of 
Registration, 004395TSY, which authorizes it to distribute the List I 
chemicals phenylpropanolamine, ephedrine and pseudoephedrine.\1\ 
Respondent, which is located in Hermitage, Tennessee, sells a variety 
of general merchandise and nonfood items such as ball caps, sunglasses, 
cigarette lighters, novelty items and licensed athletic wear to 
predominately gas stations and convenience stores in eastern and middle 
Tennessee. Mr. Young testified that Respondent ``did a couple of 
million dollars a year by the early 2000s.'' Tr. 233. Mr. Young further 
testified that ephedrine was ``about nine or ten percent of my sales in 
the chain stores.'' Id. at 290. Mr. Young also testified that he had 
decided not to carry pseudoephedrine although he did sell it ``from 
time to time'' to certain customers. Id. at 240.
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    \1\ There is no evidence in the record that Respondent had 
distributed phenylpropanolamine.
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Methamphetamine and the Market for List I Chemicals

    While both ephedrine and pseudoephedrine have therapeutic uses,\2\ 
they are also precursor chemicals that are regulated by the Controlled 
Substances Act. See 21 U.S.C. 802(34). Moreover, these chemicals are 
easily extracted from legal and what typically were over-the-counter 
products \3\ and used in the illicit manufacture of methamphetamine, a 
schedule II controlled substance. See 21 CFR 1308.12(d).
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    \2\ According to the affidavit of Mr. Douglas A. Snyder, a Drug 
Science Officer within the Drug and Chemical Evaluation Section in 
the Office of Diversion Control, under the Food, Drug and Cosmetic 
Act's provisions pertaining to over-the-counter (OTC) products, 
ephedrine is lawfully marketed as a bronchodilator used to treat 
asthma. Govt. Exh. 27, at 3-4. Pseudoephedrine is lawfully marketed 
under the Food, Drug and Cosmetic Act's OTC provisions as a 
decongestant. See id. at 4.
    \3\ In response to the methamphetamine epidemic, many States 
have enacted legislation making pseudoephedrine a Schedule V drug 
under State controlled substances acts.
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    Methamphetamine ``is a powerful and addictive central nervous 
system stimulant.'' D & S Sales, 71 FR 37607, 37608 (2006). The illegal 
manufacture and abuse of methamphetamine pose a grave threat to this 
country. Methamphetamine abuse has destroyed numerous lives and 
families and has ravaged communities. Moreover, because of the toxic 
nature of the chemicals used in producing the drug, illicit 
methamphetamine laboratories cause serious environmental harms. 
According to the testimony of DEA Special Agent Guy Hargreaves, Staff 
Coordinator for the DEA Methamphetamine Program at DEA Headquarters, in 
1999 there were 101 explosions and at least 64 fires at clandestine 
labs throughout the United States. See Gov. Exh. 26, at 9. Moreover, 
the annual cost to government agencies to clean up methamphetamine labs 
is ``millions of dollars.'' Id. at 10.\4\
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    \4\ According to the Suspicious Order Task Force, as of 1998 the 
cost to clean up a small boxed lab site was $30,000. See Gov. Exh. 
28, at 18.
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    The problem of methamphetamine abuse is especially serious in 
Tennessee. According to the record, the number of law enforcement 
seizures of clandestine laboratories in Tennessee rose from 106 in 1999 
to ``over 700 labs'' in 2003. See ALJ at 8, Tr. at 14. Moreover, 
according to a DEA Special Agent, as of September 28, 2004 (the date of 
the hearing), there

[[Page 60568]]

had been close to 700 seizures in Tennessee already that year.\5\ Tr. 
at 14.
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    \5\ As noted in Gregg Brothers Wholesale Co., Inc., 71 FR 59830 
(2006), in 2004, law enforcement agencies seized 939 clandestine 
labs in Tennessee.
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    A DEA Special Agent who serves in the Nashville office as a 
clandestine lab enforcement agent testified that, based on his 
observations of products found at clandestine lab sites, as well as 
interviews he had conducted with various defendants, there was a trend 
of methamphetamine cooks obtaining List I chemicals from ``smaller gas 
stations and convenience stores.'' Id. at 12. According to the Special 
Agent, he had been told in the interviews that meth. cooks were ``able 
to buy cases, half cases, and such out the back door of'' convenience 
stores and gas stations. Id. The Special Agent further testified that 
some meth. cooks drive around to different stores with four or five 
different addicts who go into several stores in different cities and 
purchase sub-threshold quantities of List I chemicals.
    The Government submitted into evidence the affidavit of Mark J. 
Rubbins, a Diversion Investigator who was then assigned as Chief of the 
Domestic Chemical Control Unit, Office of Diversion Control, DEA 
Headquarters. According to DI Rubbins, DEA has determined that there is 
both a traditional and non-traditional market for List I chemical 
products. See Gov. Exh. 44, at 5. The traditional market is 
characterized by a short chain of distribution. In this market, 
manufacturers either sell directly to large chains of grocery stores 
(such as Giant and Safeway), pharmacies (such as Rite Aid and CVS), and 
other larger retailers (such as Wal-Mart), or they sell to large 
wholesalers (such as Bergen Brunswig and AmeriSource). See id. at 5-6. 
Furthermore, List I chemical products sold in this market are typically 
of lower strength and lower count sizes such as 30 mg. pseudoephedrine 
tablets in small, blister pack sizes of six, twelve, twenty-four and 
sometimes forty-eight count. See id. at 5.
    In contrast, products sold in the non-traditional market pass 
through multiple layers of distribution and are sold by such 
establishments as gas stations, small convenience stores, liquor 
stores, headshops, beauty parlors, and video stores. See id. at 6. 
Moreover, the products are typically stronger than those found in the 
traditional market and include 60 mg. pseudoephedrine tablets which are 
sold in larger package sizes such as 60, 100, or 120 count bottle 
sizes. DI Rubbins further stated that non-traditional retailers tend to 
knowingly sell large quantities of List I chemical products to 
``smurfers,'' individuals who work for methamphetamine traffickers and 
attempt to buy out a store's entire stock of List I chemical products 
by going to the store at different times or on different days. See id. 
at 6-7.
    DI Rubbins stated that because of increased DEA enforcement efforts 
involving pseudoephedrine products, methamphetamine traffickers have 
increasingly gone back to using combination ephedrine products. See id. 
at 10. DI Rubbins further stated that in 2002, he contacted the major 
manufacturers of combination ephedrine/guaifenesin products and 
determined that sales for these products amounted to only one-tenth of 
the market for legitimate single-entity pseudoephedrine products. See 
id. According to DI Rubbins, the names of products that are popular 
with methamphetamine traffickers are ``MiniThin'' and ``Mini Twin,'' 
which each contain 60 mg. pseudoephedrine, and ``Max Brand'' and ``Mini 
Two Way,'' which are combination ephedrine products. See id. at 12. Mr. 
Rubbins further stated that these brands ``have been disproportionately 
represented in clandestine lab seizures around the United States 
involving listed chemical products.'' Id. at 13.
    The Government also submitted the affidavit of John Uncapher, who 
was then assigned as a Staff Coordinator with the Domestic Operations 
Division at DEA Headquarters. Mr. Uncapher's staff was responsible for 
the DEA Warning Letter program. See Gov. Exh. 42, at 3. Under this 
program, DEA collects information regarding List I chemicals products 
that have been found at clandestine lab sites and identifies the 
manufacturers of these products. See id. The Government entered into 
evidence a list of 35 warning letters issued to PDK Laboratories, the 
manufacturer of Max Brand, a product which Respondent distributes. See 
Gov. Exh. 19. According to this exhibit, between January 5, 1999, and 
September 26, 2002, approximately 1.67 million pseudoephedrine tablets 
and 107,250 combination ephedrine tables manufactured by this firm were 
found in numerous seizures of clandestine laboratories throughout the 
United States including Tennessee. The Government also introduced into 
evidence a list of 17 warning letters issued to BDI because their 
products, which Respondent also distributed, were found during seizures 
of clandestine laboratories. See Gov. Exh. 20.
    The Government submitted into evidence the declaration of Jonathan 
Robbin, an expert in statistical analysis of demographic, economic, 
geographic and survey data. Based on his study of the latest available 
United States Economic Census of Retail Trade, Mr. Robbin concluded 
that ``over 97% of all sales of non-prescription drug products occur in 
drug stores and pharmacies, supermarkets, large discount merchandisers 
and electronic shopping and mail order houses.'' Gov. Exh. 70, at 4. 
Moreover, sales of non-prescription drugs by convenience stores 
(including both those that sell and do not sell gasoline), ``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.
    Mr. Robbin further testified that based on his study of U.S. 
Government Economic Census Data, information obtained from the National 
Association of Convenience Stores, and commercially available point of 
sale transaction data, he constructed a model of the traditional market 
for retail sales of pseudoephedrine. See id. at 5. According to Mr. 
Robbin, sales of pseudoephedrine account for ``only about 2.6%'' of the 
sales of health and beauty care products in convenience stores and only 
``0.05% of total in-store (non-gasoline) sales.'' Id.
    Mr. Robbin testified that ``the normal expected retail sale of 
pseudoephedrine (Hcl) 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 also testified that ``the expected sale of ephedrine (Hcl) 
tablets in a convenience store ranges between $0 and $25, with an 
average of $12.58.'' Id. at 7-8. Mr. Robbin further testified that a 
monthly retail sale of $40 of ephedrine or $60 of pseudoephedrine would 
``occur less than one in 1,000 times in random sampling.'' Id. 
Moreover, a monthly retail sale of $60 of ephedrine or $100 in 
pseudoephedrine would ``occur about once in a million times in random 
sampling.'' Id.

The Investigation of Respondent

    Respondent's initial registered location was 1319 Central Court, 
Hermitage, Tennessee. On July 19, 2001, Mr. Young wrote a letter to 
DEA's Nashville office informing it that Respondent had relocated its 
warehouse to 1320 Central Court, Hermitage, Tennessee, and requesting 
that DEA issue a registration for the new address. See Gov. Exh. 3. 
According to Mr. Young's testimony, Respondent had leased both the 1319 
and 1320 locations

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for some period. When Respondent's lease for the 1319 location came up 
for renewal, Mr. Young decided to terminate it and vacate the premises 
as he was already leasing the 1320 space and had leased another 
premises (4706 Lebanon Pike) which he was using for an office and 
retail store. See Tr. 242-43. Mr. Young did not notify DEA, however, 
until after Respondent moved out of its then registered location. Id. 
at 244-45.
    Because DEA's regulations provide that a ``request for modification 
shall be handled in the same manner as an application for 
registration,'' 21 CFR 1309.61, on August 7, 2001, two DIs visited 
Respondent's 1320 Central Court facility to conduct an investigation. 
ALJ at 15. The DIs inspected the facility and obtained from Respondent 
lists of both its customers and suppliers. The DIs found that the List 
I chemical products were securely stored in a locked area of the 
warehouse. See id.
    The DIs told Mr. Young that they would conduct an accountability 
audit. The DIs conducted an inventory of all List I chemical products 
on hand and obtained Mr. Young's signature on their inventory report. 
Tr. 39-40. The DIs also told Mr. Young that they needed to know what 
inventory was on Respondent's delivery trucks. Id. at 40. One of the 
DIs could not recall, however, whether Mr. Young had said there were 
List I chemical products on the trucks. Id. at 41. The DI later 
testified that Mr. Young had never gotten back to them regarding List I 
chemicals that may have been on the trucks. Id. at 131. In his 
testimony, Mr. Young confirmed that the DIs had asked him about ``the 
truck inventory'' and whether there were any ``inventories on the 
truck.'' Id. at 254.
    The DIs then requested the invoices necessary to conduct an 
accountability audit. Mr. Young told the DIs that the records were not 
kept at the warehouse but were at his office, which was located at 4706 
Lebanon Pike.\6\ The DIs then went to the office. Id. at 37.
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    \6\ The DIs further informed Mr. Young that under Federal 
regulations, records of purchases over certain amounts must be 
maintained at the registered location. See Tr. 37-38. The record 
contains an invoice documenting a purchase from PDK Laboratories of 
720 bottles containing 60 tablets of 2 way ephedrine, a product that 
contains 25 mg. of ephedrine hydrochloride per tablet. See Gov. Exh. 
6. Respondent's purchase of this product did not, however, exceed 
the one kilogram threshold. See 21 CFR 1310.04(f)(1); Gov. Exh. 23.
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    The DI proceeded to perform a 30 day accountability audit \7\ of 
three of the products--Ephedrine Plus 60 tablet bottles, Max Brand 60 
tablet bottles, and Nyquil two tablet packets. Because there was no 
beginning inventory, the DIs assigned a value of zero for each of the 
products. Id. at 47. The DIs then examined both the hard copy purchase 
invoices from Respondent's suppliers and Respondent's hard copy sales 
records.\8\ Id. at 51, 147. The audit determined that there were 
overages in the amount of 3,131 Ephedrine Plus bottles and 600 NyQuil 
packets. Gov. Exh. 12. The audit also found a shortage of 26 bottles of 
Max Brand Ephedrine. Id.
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    \7\ The audit actually covered the period from July 1, 2001, 
through August 7, 2001. See Gov. Exh. 12.
    \8\ There was a factual dispute as to whether Respondent 
informed the DIs as to the existence of his computerized records. 
The ALJ found that ``whatever computerized records Respondent 
maintained showed only the dollar amount of the sale but not the 
products sold; this latter information was shown only on hard copy 
invoices.'' ALJ at 15; see also Tr. at 252. Because the 
accountability audit was based on the quantity and not dollar amount 
of the products, the dispute is immaterial.
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    The ALJ found that ``[t]he investigators did not contact Mr. Young 
to discuss the audit results'' and noted that ``Mr. Young testified 
that he was not aware of the audit results until three years after the 
August 7, 2001 visit.'' ALJ at 17.\9\ The ALJ further found that Mr. 
Young then had his employees go back through his records and 
recalculate Respondent's sales; the employees found overages. See id.; 
see also Tr. 257-58.
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    \9\ There is, however, conflicting testimony by Mr. Young that 
when the DIs were through with the audit, ``we sat down and had a 
short meeting out front, then a reference was made to a large 
overage in one category'' and I told the DIs ``you can't honestly be 
over.'' Tr. at 253.
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    In October 2001, DEA modified Respondent's registration by changing 
the address of his registered location to 1320 Central Court. The DI 
testified that he had granted the modification because of the financial 
hardship Mr. Young was undergoing in maintaining three separate 
premises. Tr. at 33.
    Approximately a year after the on-site inspection, one of the DIs 
conducted verification visits of three of Respondent's customers. ALJ 
at 18. The manager at each location verified that the store was a 
customer of Respondent; each of the managers also told the DI that they 
used more than one supplier of List I chemicals. See id. At two of the 
stores, the managers told the DI that they were attempting to identify 
customers who they believed were purchasing List I chemical products 
for illicit use and report them to law enforcement authorities. See id.
    On September 19, 2003, Mr. Young requested another modification of 
the registration to change both the name on the registration and the 
address of its registered location to 4706 Lebanon Pike. On December 
17, 2003, however, the instant Show Cause Order was issued. See ALJ at 
17.
    On February 20, 2004, two DIs and a Special Agent visited 
Respondent at its Lebanon Pike location to deliver a letter from Howard 
Davis, the Diversion Program Manager for DEA's Atlanta Field Division. 
The letter instructed Respondent that he could not store listed 
chemicals at his new proposed location until DEA approved the change. 
Gov. Exh. 46. The letter further explained that DEA would not approve 
any modification until the Order to Show Cause was resolved. Id.
    During the visit, Mr. Young told one of the DIs that no List I 
chemicals were being stored at the Lebanon Pike location. However, 
during the visit, one of the DIs found a display rack containing 24 
bottles and 5 packets of ephedrine products on a shelf in the office. 
ALJ at 17. Because the products were at a non-registered location, the 
DI immediately seized them. Id.
    Mr. Young testified that the products were at the Lebanon Pike 
location because his son had taken them there to photograph them for a 
brochure to be used in marketing them to Respondent's customers. Tr. 
277. Mr. Young testified that after the pictures were taken the 
products should have been immediately returned to the truck. Id. at 
278.
    As part of DEA's investigation, one of the DIs obtained from 
Respondent's suppliers copies of invoices documenting its purchases of 
List I chemical products from January 2003 through July 2004. Tr. at 
166-75. According to the invoices from one supplier, CB Distributors, 
Respondent purchased 5,616 bottles of Rapid Action (60 tablet count), 
576 bottles of Rapid Action (48 tablet count), 10,850 packets of Rapid 
Action (12 tablet count), 3,168 bottles of Mini Two Way (60 tablet 
count), 576 bottles of Mini Two Way (48 tablet count), 3,456 packets of 
Mini Two Way (6 tablet count), 15,708 bottles of Max Brand 2-Way (60 
tablet count), 17,280 packets of Max Brand 2-Way (6 tablet count), and 
1,584 bottles of Twin Tabs (60 tablet count). ALJ at 18.
    The Government also introduced two invoices it had received from 
another of Respondent's suppliers, Sasser Distributing. The invoices 
show that on July 27, 2004, Respondent purchased 288 bottles of 
ephedrine products (60 tablet count); the next day, Respondent 
purchased another 144 bottles of Biotek Ephedrine (48 tablet count), as 
well as an additional amount of Ephedrine Plus

[[Page 60570]]

packets (6 tablet count). See Gov. Exhs. 52-53.\10\
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    \10\ During the August 2001 on-site inspection, the DIs received 
a supplier list from Mr. Young. Tr. 56. One of the DIs determined 
that at least two of Respondent's suppliers had received warning 
letters from DEA. ALJ at 18.
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    As stated above, the Government entered into evidence the affidavit 
of Jonathan Robbin. According to the affidavit, DEA provided Mr. Robbin 
with a list of 801 wholesale transactions involving combination 
ephedrine and pseudoephedrine products made by Respondent to 97 
Tennessee convenience stores between January 27, 2003, and November 22, 
2004. Gov. Exh. 70, at 12. The affidavit further stated that during 
this period Respondent sold 17,271 bottles, each containing 60 tablets, 
and 24,520 packages, each containing six tablets, of combination 
ephedrine products. See id. The bottles held a total of 1,036,260 
tablets and the packets held a total of 147,120 tablets. Id. Respondent 
also sold to 31 convenience stores, 1,435 bottles, each containing 60 
tablets of Max Brand 30 mg. pseudoephedrine, for a total of 86,100 
tablets of pseudoephedrine products. Id.
    Using this data, Mr. Robbin calculated each store's implied average 
monthly retail sales and compared that to the normal expected retail 
sales discussed above.\11\ See id. at 13. According to Mr. Robbin, only 
one of the 97 stores was selling near the normal expected sales range 
at 2.8 times expectation. Id. at 15. The next lowest store was selling 
over 20 times the expected sales range. Id. Mr. Robbin explained that 
in random sampling, sales over 20 times expectation ``could occur only 
about three times in a billion raised to the fifth power.'' Id. Mr. 
Robbin further explained that ``[t]he probability of an index equal to 
or greater than 20 is so small as to be near impossibility.'' Id. at 
16. Finally, Mr. Robbin found that the top 94 stores had indexes over 
25, the top 54 stores sold ``over 100 times expectation,'' and the top 
sixteen sold ``over 300 times expectation.'' Id. at 16.
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    \11\ Mr. Robbin's affidavit explains in detail his methodology, 
including the figure he used for the products' gross margin, to 
calculate the implied retail sales value of the products.
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    Mr. Robbin explained that ``[s]uch indexes are not possible in the 
normal commerce of these goods at ordinary convenience stores.'' Id. 
According to Mr. Robbin, because the average convenience store serves 
120,000 shoppers per year, if combination ephedrine products were being 
purchased by customers to treat asthma (the purpose for which the FDA 
has approved them), three million persons would have to shop at the 
store in a year to account for sales 25 times the expected amount. Id. 
Mr. Robbin further explained that while it was possible that a single 
customer could purchase a store's entire monthly inventory, this amount 
of product would supply the person with enough of the drug to treat an 
asthmatic condition at recommended doses for two and one-quarter years. 
Id. Mr. Robbin explained that ``[i]t is difficult to imagine * * * what 
such a shopper would do with all of this material every month except to 
resell or use it as a precursor chemical in the illicit manufacture of 
methamphetamine.'' Id. at 16-17. Mr. Robbin thus concluded that 
Respondent ``frequently sells combination ephedrine * * * and single 
ingredient pseudoephedrine * * * products to these stores in 
extraordinary excess of normal or traditional demand by ordinary 
convenience store shoppers.'' Id. at 17.
    Mr. Young submitted an affidavit challenging the factual basis of 
Mr. Robbin's findings. According to Mr. Young, he supplied records 
covering only the 365 day period from September 2003 through August 
2004. Resp. Exh. 19, at 1. Mr. Young further stated that ``the total 
number of stores serviced fluctuate[d] and was not a hard and fast 97 
stores as stated by Mr. Robbin.'' Id.
    Mr. Young also challenged Mr. Robbin's findings as to the monthly 
expected sales range of combination ephedrine and pseudoephedrine 
products in convenience stores. Mr. Young asserted that according to 
the March 28, 2005 edition of Convenience Store News, ``the average c-
store sold $5,462 worth of cold and cough remedies in 2003.'' Id. Mr. 
Young also asserted that according to the National Association of 
Convenience Stores State of the Industry Report for 2003, ``the average 
c-store sold $2,980 of cough & cold remedies in 2003.'' Id. at 2. Mr. 
Young thus contends that ``[t]hese independent studies show average 
monthly sales of $250 to $450 per store per month for the c-store 
industry. This amount is 8 to 14 times greater than what Robin [sic] 
reports.'' Id. Mr. Young further asserted that Respondent's average per 
store sales of combination ephedrine products ``is within the norms for 
the sale of these products to convenience stores that we have 
experienced in the 14 years that we have been in business.'' Id. at 4.
    In support of his affidavit, Mr. Young also submitted into evidence 
a spreadsheet showing its List I chemical sales from September 2003 
through August 2004. See Resp. Exh. 20. According to the spreadsheet, 
Respondent sold a total of $68,568.11 of List I chemical products to an 
average of 54 stores per month. See id. The spreadsheet also indicates 
that Respondent's average sale per store, per month, was $105.81, and 
calculates that the average retail sale per store, per month, was 
$184.00. Id. The spreadsheet also indicates that Respondent's sales of 
traditional branded products (such as Advil, Aleve, Tylenol, Dayquil 
and Nyquil that contain pseudoephedrine) amounted to only $1,507 out of 
the total of $68,568, or approximately two percent of its List I 
chemical product sales. Id.

Discussion

    Section 304(a) of the Controlled Substances Act provides that a 
registration to distribute a List I chemical ``may be suspended or 
revoked * * * upon a finding that the registrant * * * has committed 
such acts as would render his registration under section 823 of this 
title inconsistent with the public interest as determined under such 
section.'' 21 U.S.C. Sec.  824(a)(4). 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. Sec.  823(h).
     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 a registration should be revoked or 
an application for a modification of a 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). My analysis of 
the factors in this case compels the conclusion that Respondent's 
continued registration would be inconsistent with the public interest.

[[Page 60571]]

Factor One--Maintenance of Effective Controls Against Diversion

    I acknowledge that Respondent provides effective security against 
the theft of listed chemicals. Accurate recordkeeping is, however, 
another important control against diversion. See 21 CFR 1309.71(b)(8). 
As to this system, the record clearly indicates that Respondent does 
not maintain effective controls against diversion.
    The accountability audit found that two of the products sold by 
Respondent had overages; the other product had a shortage. As the ALJ 
noted, the DIs used a zero opening inventory for each product because 
Respondent did not have an inventory. Using a zero opening inventory 
will result in an over-count if, in fact, a registrant had product on 
hand on the beginning date of the audit period. I note, however, that 
Mr. Young testified that he had his employees go back through his 
records and they too came up with overages. Tr. 257-58.
    The DIs also found that there was a shortage of 26 Max Brand 60 
tablet bottles. This is especially significant because the audit 
covered only a short period of time (approximately five weeks). 
Moreover, if, in fact, Respondent had product on hand on the beginning 
date of the audit period, assigning an inventory of zero would result 
in an undercount of the shortage.
    I further note the testimony regarding whether there was inventory 
on the trucks. The ALJ noted that there was ``somewhat inconsistent 
testimony about whether some List I chemicals were on'' the trucks. See 
ALJ at 22. I am satisfied, however, that the DIs asked Respondent 
whether there were any List I chemicals on the trucks, see Tr. 40 and 
254, and the fact remains that Respondent had no readily obtainable 
records showing the amount of inventory, if any, that was on the 
trucks. I therefore conclude that Respondent does not maintain 
effective controls against diversion. This factor thus supports a 
finding that Respondent's continued registration would be inconsistent 
with the public interest.

Factor Two--Compliance with Applicable Federal, State, and Local Laws

    The record here demonstrates that Respondent committed several 
violations of Federal law and regulations. First, in July 2001, 
Respondent moved its List I chemicals from the 1319 Central Court 
building, which was its registered location, to the 1320 Central Court 
building, without obtaining approval from DEA. This action violated 21 
U.S.C. Sec.  822(e) and 21 CFR 1309.23(a).
    The ALJ also found that Respondent violated 21 CFR 1310.04(c), by 
storing List I chemical records at its Lebanon Pike location, which was 
not registered. See ALJ at 23. The record does not, however, support 
this finding. While 21 CFR 1310.04(c) requires that records be 
maintained ``at the regulated person's place of business where the 
transaction occurred,'' id., the provision applies only to records 
which must be maintained under 21 CFR 1310.03. The only provision of 
that section which is pertinent here is the requirement that a 
regulated person keep a record of ``a regulated transaction.'' Id. 
Sec.  1310.03(a). The regulations establish that the threshold for 
transactions in combination ephedrine products between wholesale 
distributors is one kilogram. Id. Sec.  1310.04(f)(1)(ii); see also 
Comprehensive Methamphetamine Control Act of 1996, Pub. L. No. 104-237, 
Sec.  401(f), 110 Stat. 3099, 3110 (1996) (adopting one kilogram 
threshold for regulated transactions in combination ephedrine products 
between wholesale distributors).
    The record contains only a single invoice conceivably documenting a 
regulated transaction between Respondent and one of its suppliers, PDK 
Laboratories, which had occurred at the time of the August 2001 
inspection. This invoice indicates that on July 17, 2001, Respondent 
purchased 720 bottles containing 60 combination ephedrine tablets of 25 
mg. ephedrine hydrochloride for a total of 43,200 tablets. See Gov. 
Exh. 6. This amount of product does not, however, exceed the one 
kilogram threshold because the hydrochloride constitutes approximately 
18 percent of the chemical. As the Government's own exhibit 
demonstrates, the one kilogram threshold was equivalent to 48,826 
combination ephedrine hcl tablets each containing 25 mg. ephedrine hcl. 
See Gov. Exh. 23. Because Respondent's purchase was more than 5,000 
tablets under this amount, and there is no other evidence indicating 
that Respondent engaged in additional purchases during the month, the 
record does not establish that Respondent violated 21 CFR 1310.04(c).
    The record does, however, contain evidence establishing an 
additional violation of DEA regulations. During the February 2004 
visit, the DIs found a display rack containing 24 bottles and 5 packets 
of combination ephedrine products at Respondent's Lebanon Pike store/
office. Because Respondent's Lebanon Pike facility was not a registered 
location, Respondent's storage of the items at this location violated 
21 U.S.C. Sec.  822(e) and 21 CFR 1309.23(a). Most remarkably, 
Respondent committed this second violation after having been served 
with a Show Cause Order.
    Because Respondent committed multiple violations of the CSA's 
provisions, I conclude that Respondent's record of compliance with 
Federal law supports a finding that its continued registration would be 
inconsistent with the public interest.

Factor Three--The Record of Criminal Convictions

    The record contains no evidence that Respondent's owner, or any 
employee, has been convicted of an offense under laws related to either 
controlled substances or listed chemicals. I thus conclude that this 
factor supports a finding that Respondent's continued registration 
would not be inconsistent with the public interest.

Factor Four--Past Experience in Distributing Listed Chemicals

    It is undisputed that Respondent has distributed List I chemical 
products for several years. That experience is, however, characterized 
by several violations of the CSA, as well as the inability of 
Respondent to provide an accurate accounting of its products. Moreover, 
as described under factor five below, there is substantial evidence in 
the record establishing that Respondent's products have been diverted. 
Accordingly, this factor supports a finding that Respondent's continued 
registration would be inconsistent with the public interest.

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

    The record here establishes--as do numerous agency precedents--that 
there is a substantial nexus between the sale of certain non-
traditional List I chemical products by non-traditional retailers and 
the diversion of these products into the illicit production of 
methamphetamine. See, e.g., John Vanags, 71 FR 39365, 39366 (2006); 
Joey Enterprises, 710 FR 76866, 76887 (2005); TNT Distributors, 70 FR 
12729, 12730 (2005). Indeed, as noted recently in TNT Distributors, 
which also involved a Tennessee-based distributor of List I chemicals, 
``80 to 90 percent of ephedrine and pseudoephedrine being used [in 
Tennessee] to manufacture methamphetamine was being obtained from 
convenience stores.'' 70 FR at 12730.
    Likewise in this case, there is undisputed testimony by a DEA 
Special

[[Page 60572]]

Agent establishing that Tennessee-based methamphetamine cooks were 
purchasing large quantities of List I chemicals from smaller stores 
such as gas stations and convenience stores. Tr. at 12. Respondent's 
List I chemical sales were principally made to these types of retail 
establishments.
    Moreover, Respondent's Exhibit 20, which was a compilation of its 
sales of List I chemical products for the period September 2003 through 
August 2004, establishes that 98 percent of its sales were of non-
traditional products including those of several manufacturers who have 
received warning letters from this agency because their products have 
frequently been found during seizures of clandestine methamphetamine 
labs. Respondent's Exhibit 20 further establishes that during this 
period, its average sale per store, per month, was $105.81, which would 
result in an average retail sale per store, per month, of $184.
    The ALJ found ``persuasive'' the affidavit of Mr. Robbin, the 
Government's expert witness who testified about the market for List I 
chemical products. ALJ at 23. Based on this evidence, the ALJ further 
concluded that ``Respondent sold quantities of List I chemicals to 
convenience stores that far exceeded what the stores could reasonably 
be expected to sell to legitimate consumers.'' Id. The ALJ also 
rejected Mr. Young's assertion in his post-hearing affidavit 
challenging Mr. Robbin's testimony as to the normal expected sales of 
combination ephedrine and pseudoephedrine products in convenience 
stores. See id. According to Mr. Young, the average convenience store 
sold between $250 and $450 per store, per month, an amount that ``is 8 
to 14 times greater than what Robin [sic] reports.'' Resp. Exh. 19, at 
2.
    As the ALJ observed, combination ephedrine products cannot be 
lawfully marketed over-the-counter as a cold and cough remedy and most 
of Respondent's sales were of this type of product. See ALJ at 23; 21 
CFR 341.76. Moreover, products containing pseudoephedrine are only a 
subset of over-the-counter cold remedies. Respondent has produced no 
evidence establishing the percentage of over-the-counter cold remedies 
that include pseudoephedrine. I therefore credit Mr. Robbin's expert 
testimony as to the normal expected sales ranges of both ephedrine 
combination and pseudoephedrine products in non-traditional retailers.
    Mr. Young also challenged the factual basis for Mr. Robbin's 
findings that were based on data supplied to the latter by DEA. 
According to Mr. Robbin's affidavit, the findings that were specific to 
Respondent were based on ``a list supplied to the DEA by T. Young of 
801 wholesale transactions drawn from invoices to 97 convenience stores 
in Tennessee,'' which covered the period from January 27, 2003, through 
November 22, 2004. Govt. Exh. 70, at 12. Mr. Robbin further stated that 
the ``[d]ata given for each transaction included invoice date, store 
name, a product description and number of units sold.'' Id. at 13. Mr. 
Young asserts, however, that he supplied DEA with ``data from September 
2003 thru August 2004,'' that the data ``was for 365 days, not for 665 
and the total number of stores serviced fluctuate[d] and was not a hard 
and fast 97 stores as stated by Mr. Robbin.'' Resp. Exh. 19, at 1.
    The ALJ did not address this factual dispute. Mr. Robbin's 
declaration makes clear that he did not review the actual invoices but 
rather data provided him by the Government. The Government did not, 
however, submit into evidence the list of transactions referred to by 
Mr. Robbin or the documentary evidence upon which the list was based. 
Moreover, while Mr. Young clearly provided data to DEA regarding 
Respondent's sales, see Resp. Exh. 19, at 1, the Government did not 
elicit any testimonial evidence from a witness with personal knowledge 
of how the list was obtained that establishes the scope of the data 
contained therein and refutes Respondent's contention. Accordingly, 
while I have credited Mr. Robbin's testimony regarding the expected 
sales ranges for combination ephedrine products and pseudoephedrine in 
non-traditional retailers, I do not adopt his findings that were based 
on Respondent's sales.
    Respondent's own evidence nonetheless demonstrates that it sold 
List I chemical products to non-traditional retailers in quantities 
that far exceeded legitimate demand and thus supports a finding that 
its products were diverted. During the period of September 2003 through 
August 2004, Respondent sold at wholesale prices an average of $ 105.81 
to each store, each month. See Resp. Exh. 20, at 1. By Respondent's 
calculation, these List I chemical products produced an average retail 
sale of $184 per store, per month. See id.\12\
---------------------------------------------------------------------------

    \12\ While this figure is an average, it is unlikely that all 
stores bought right at the average. Some stores bought less, some 
bought more.
---------------------------------------------------------------------------

    Mr. Robbin found as a general matter that the expected retail sales 
range of ephedrine (Hcl) in a convenience store is ``between $0 and 
$25, with an average of $12.58.'' Govt. Exh. 70 at 8. Mr. Robbin 
further found that a monthly retail sale of ``$60 of ephedrine (Hcl) 
tablets would be expected to occur about once in a million times in 
random sampling.'' Id. By Respondent's own calculation, its customers' 
average monthly retail sale of ephedrine products was several times 
this amount. Moreover, this average was based on 54 stores over a 
twelve month period. It is thus even more improbable (than a one in a 
million probability) that these sales were to meet legitimate consumer 
demand for these products. I therefore conclude that a preponderance of 
the evidence establishes that a substantial portion of Respondent's 
products were diverted. See D & S Sales, 71 FR at 37611 (finding 
diversion occurred ``[g]iven the near impossibility that * * * sales 
were the result of legitimate demand''); Joy's Ideas, 70 FR at 33198 
(finding diversion occurred in the absence of ``a plausible explanation 
in the record for this deviation from the expected norm'').
    That Respondent may have lacked any intent to divert or to sell to 
customers who were diverting to the illicit manufacture of 
methamphetamine (See Resp. Br. 8) is irrelevant. ``In determining the 
public interest,'' Congress granted the Attorney General broad 
discretion to consider any other factor that is ``relevant to and 
consistent with the public health and safety.'' 21 U.S.C. Sec.  
823(h)(5). The statutory text imposes no requirement that the 
Government prove that a Registrant has acted with any particular mens 
rea. Indeed, the diversion of List I chemicals into the illicit 
manufacture of methamphetamine poses the same threat to public health 
and safety \13\ whether a registrant sells the products knowing they 
will be diverted, sells them with a reckless disregard for the 
diversion, See D & S Sales, 71 FR at 37610-12, or sells them being 
totally unaware that the products were being diverted. Cf. Joy's Ideas, 
70 FR at 33198 (revoking registration notwithstanding that distributor 
was ``an unknowing and unintentional contributor to [the] 
methamphetamine problem.'').\14\
---------------------------------------------------------------------------

    \13\ In contrast to the provision pertaining to practitioners, 
the public interest determination applicable to List I chemical 
distributors does not limit the Attorney General's discretion to 
considering only those factors that ``threaten public health and 
safety.'' Compare 21 U.S.C. Sec.  823(h)(5) with id. Sec.  823(f)(5) 
(``such other factors as are relevant to and consistent with public 
health and safety''). The discussion in the text to the threat 
caused by the diversion of List I chemicals is used only to 
demonstrate the point that a registrant's mens rea is irrelevant.
    \14\ Mr. Young asserts that ``[t]he average per store sales of 
all ephedrine products to our stores is within the norms for the 
sale of these products to convenience stores that [his firm has] 
experienced in the 14 years that we have been in business,'' and 
that these figures predate the methamphetamine problem. Resp. Ex. 
19. at 4. The ALJ did not, however, credit this testimony. Moreover, 
Respondent did not produce any documentary evidence establishing its 
sales levels prior to the emergence of the methamphetamine epidemic 
in Tennessee. Thus, to the extent this testimony was offered to show 
that Respondent's more recent sales were consistent with the 
traditional and legitimate demand for List I chemical products and 
therefore rebut a finding that diversion occurred, I decline to 
credit it. To the extent the testimony was offered to show that 
Respondent did not intend that it products be diverted, it is 
irrelevant.

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

[[Page 60573]]

    Respondent points to the testimony of the DI who conducted 
verification visits of three of Respondent's customers. According to 
Respondent, this establishes that ``respondent's customers 
conscientiously keep[] track of the materials sold and report[ ] any 
excess sales to local police.'' Resp. Br. at 6. The record establishes, 
however, that the verification visits involved only a small fraction of 
Respondent's customers and thus this testimony does not refute the 
finding that its products were diverted.
    Respondent further asserts that following Tennessee's enactment of 
the Meth-Free Tennessee Act of 2005, as well as new laws in Georgia and 
Kentucky, revoking his registration would be ``an arbitrary 
overreaching act'' because the new laws restrict the products that can 
be sold by non-traditional retailers to those in gel-cap or liquid form 
and he is selling only these products. Resp. Br. 7. DEA is already 
aware, however, of several studies showing that methamphetamine can be 
produced from List I chemicals sold as liquid-filled gel caps and 
liquids. See Drug Enforcement Administration, Microgram Bulletin 96-
97,102 (June 2005) (discussing studies conducted by Washington State 
Patrol Crime Laboratory and McNeil Consumer and Specialty 
Pharmaceuticals). Moreover, experience has taught DEA that in the 
aftermath of every major piece of legislation addressing the illicit 
manufacture of methamphetamine, traffickers have quickly found ways to 
circumvent the restrictions.
    Moreover, even assuming that Respondent will fully comply with the 
Tennessee and Kentucky laws, the Georgia statute would apparently not 
prohibit Respondent from selling combination ephedrine products to non-
traditional retailers. See Georgia Code Sec.  16-13-30.3 (allowing 
convenience stores to sell ephedrine products). Respondent would also 
be able to distribute products to non-traditional retailers in other 
States which have not imposed similar restrictions. Therefore, I 
conclude that factor five supports a finding that Respondent's 
continued registration would be inconsistent with the public interest.
    In sum, Respondent has committed several violations of the CSA. See 
21 U.S.C. Sec.  823(h)(2). Moreover, Respondent has no effective means 
of accounting for List I chemical products. Id. Sec.  823(h)(1). 
Finally, the record establishes that Respondent sold large amounts of 
non-traditional products into the non-traditional or ``gray market,'' a 
market which DEA has repeatedly found to be a substantial source for 
diversion, and the statistical improbability that these sales were to 
meet legitimate consumer demand supports a finding that the products 
were diverted into the illicit manufacture of methamphetamine. Id. 
Sec.  823(h)(5). See also Joy's Ideas, 70 FR at 33199; Branex, Inc., 69 
FR 8682, 8693 (2004); Xtreme Enterprises, Inc., 67 FR 76195, 76197 
(2002). Thus, it is clear that continuing Respondent's registration 
would be inconsistent with the public interest.

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
Sec.  823(h) & Sec.  824(a), as well as 28 CFR 0.100(b) & 0.104, I 
hereby order that DEA Certificate of Registration, 004395TSY, issued to 
T. Young Associates, Inc., 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 
November 13, 2006.

    Dated: September 14, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 06-8193 Filed 10-12-06; 8:45 am]
BILLING CODE 4410-09-P