Tim's Wholesale; Denial of Application, 58890-58893 [E7-20443]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 72, Number 200 (Wednesday, October 17, 2007)]
[Notices]
[Pages 58890-58893]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-20443]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Tim's Wholesale; Denial of Application

    On March 20, 2006, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Tim's Wholesale (Respondent) of Baton Rouge, Louisiana. 
The Show Cause Order proposed the denial of Respondent's application 
for a DEA Certificate of Registration as a distributor of list I 
chemicals, on the ground that granting it a registration would be 
``inconsistent with the public interest.'' Show Cause Order at 1.
    More specifically, the Show Cause Order alleged that in December 
2004, Respondent's President (Mr. Tim Tran) had applied for a 
registration to distribute pseudoephedrine, a list I chemical which is 
commonly diverted into the illicit manufacture of methamphetamine, a 
schedule II controlled substance. Id. at 1-2. The Show Cause Order 
alleged that during a pre-registration investigation, Mr. Tran stated 
to DEA Diversion Investigators (DIs) that his business distributes 
candy, snacks, cigarettes and novelties to ``approximately 250 
convenience stores.'' Id. at 2. The Show Cause Order further alleged 
that Mr. Tran stated to

[[Page 58891]]

investigators that ``he was unaware that traditional cough and cold 
products contained pseudoephedrine,''and that they ``could be used to 
make the controlled substance methamphetamine.'' Id.
    Next, the Show Cause Order alleged that after Mr. Tran finally 
provided a list of his proposed pseudoephedrine customers, the DIs 
conducted customer verifications. Id. The Show Cause Order alleged that 
of the seven customers contacted by the DIs, six of them stated that 
they had no intention of doing business with Respondent. The Show Cause 
Order also alleged that while Respondent did not have a DEA 
registration, the other customer informed the DIs that it was 
``currently purchasing listed chemical products from'' Respondent. Id.
    Finally, the Show Cause Order alleged that Respondent's proposed 
customer base of convenience stores account for only a very small 
percentage of the legitimate commerce in over-the-counter drug products 
and that ``convenience stores continue to be the primary source'' of 
pseudoephedrine which is diverted into the illicit manufacture of 
methamphetamine. Id. at 3. The Show Cause Order thus concluded that 
because Respondent's management has ``insufficient experience,'' lacks 
``knowledge of the diversion problems associated with handling listed 
chemicals,'' and had ``distributed listed chemicals without a 
registration, it is unlikely that they would be able to carry out the 
responsibilities of a registrant.'' Id.
    The Show Cause Order was served by certified mail, return receipt 
requested. While the return receipt card was not returned to the 
Agency, on June 22, 2006, a DEA Diversion Investigator contacted 
Respondent's owner and confirmed that he had received the Show Cause 
Order approximately two months earlier. I therefore find that 
Respondent was properly served.
    I further find that because: (1) more than thirty days have passed 
since service of the Show Cause Order, and (2) neither Respondent, nor 
anyone purporting to represent it, has responded, it has waived its 
right to a hearing. See 21 CFR 1309.53(c). I therefore enter this 
Decision and Final Order without a hearing based on relevant material 
contained in the investigative file and make the following findings.

Findings

    On December 15, 2004, Respondent, a Louisiana corporation, applied 
for a DEA Certificate of Registration to distribute the list I chemical 
pseudoephedrine. Respondent's application was prepared and submitted by 
its President, Mr. Tim Tran, and proposed as its registered location 
its facility which is located at 8150 South Choctaw Drive, Baton Rouge, 
Louisiana. Respondent is a wholesale distributor of cigarettes, candy, 
snacks, grocery bags, and novelty items, and has approximately 250 
customers which include convenience stores and restaurants in the Baton 
Rouge area. As noted in numerous agency orders, such establishments are 
not part of the traditional market for legitimate consumers of 
pseudoephedrine products. See Holloway Distributing, 72 FR 42118, 42119 
(2007); D & S Sales, 71 FR 37607, 37608-09 (2006).
    Pseudoephedrine is lawfully marketed under the Food, Drug and 
Cosmetic Act as a decongestant. See Holloway Distributing, 72 FR at 
42119. Because pseudoephedrine is, however, easily extracted from non-
prescription drug products and used in the illicit manufacture of 
methamphetamine, a schedule II controlled substance, it is regulated as 
a list I chemical under the Controlled Substances Act (CSA). See 21 
U.S.C. 802(34); 21 CFR 1308.12(d).
    Methamphetamine is a powerful and addictive central nervous system 
stimulant. See Gregg Brothers Wholesale Co., Inc., 71 FR 59830 (2006). 
The illegal manufacture and abuse of methamphetamine pose a grave 
threat to this country. Methamphetamine abuse has destroyed numerous 
lives and families and ravaged communities. Moreover, because of the 
toxic nature of the chemicals used to make the drug, its manufacture 
causes serious environmental harms. Id.
    On February 15, 2005, a DEA Diversion Investigator (DI) telephoned 
Mr. Tran to schedule an on-site inspection of Respondent. During the 
conversation, the DI informed Mr. Tran that he would need to compile a 
list of all the customers who would be purchasing pseudoephedrine 
products from his firm, as well as a list of the pseudoephedrine 
products that he intended to sell. According to the DI, Mr. Tran did 
not understand that pseudoephedrine is an active ingredient in various 
cold products. Moreover, during the conversation, Mr. Tran further 
stated that he was unaware that pseudoephedrine was used to manufacture 
methamphetamine, a statement which he repeated during the on-site 
inspection.
    On February 18, 2005, the above DI (accompanied by another DI) 
visited Respondent at its proposed registered where they met Mr. Tran. 
Mr. Tran had not prepared a list of either his potential customers or a 
list of the pseudoephedrine products he intended to sell. He also 
stated to investigators that he would dispose of out-of-date or damaged 
pseudoephedrine products in the garbage and did not know if his 
suppliers would take back such products. Mr. Tran further told 
investigators that he was unfamiliar with the purchase and sale of 
pseudoephedrine products. He also told investigators that he had been 
in the wholesale business for approximately four and a half months.
    During the on-site inspection, Mr. Tran also told investigators 
that he had high employee turnover. Moreover, he did not know the last 
names of his two employees, one of whom had been on the job for a week, 
the other for two days. Even though both employees would have access to 
pseudoephedrine products, Mr. Tran stated that he had not performed 
background checks on either of them and did not know how to do so.
    Mr. Tran further stated that he sold to walk-in customers. When 
asked how he would verify whether these customers were legitimate, Mr. 
Tran stated that he knew most of them because he had lived in Baton 
Rouge for approximately twenty years and went to church with them.
    Mr. Tran eventually marked on his customer list the names of 
eighteen stores that he expected would purchase pseudoephedrine from 
him. Subsequent to the on-site inspection, the DIs visited seven of the 
establishments. At three of the stores, the managers told the DIs that 
they had never done business with Respondent; at another, the cashier 
told the DIs that the store used a different supplier. At one store, 
the manager told the DIs that while he had used Respondent in the past, 
he no longer did business with it and did not intend to purchase 
pseudoephedrine products from it. At another establishment, the cashier 
stated that the store mostly bought cigarettes from Respondent and 
obtained cold products from other sources. At the final store, the 
manager told the DIs that he was currently purchasing cold products 
from Respondent. The record, however, does not establish what those 
products were and whether they contained a list I chemical.

Discussion

    Section 303(h) of the Controlled Substances Act (CSA) provides that 
``[t]he Attorney General shall register an applicant to distribute a 
list I chemical unless the Attorney General determines that 
registration of the applicant is inconsistent with the public 
interest.''

[[Page 58892]]

21 U.S.C. 823(h). 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 an application for 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). In this case, I 
conclude that Factors One, Four, and Five establish that granting 
Respondent a registration would be ``inconsistent with the public 
interest.'' 21 U.S.C. 823(h). Respondent's application will therefore 
be denied.

Factor One--The Maintenance of Effective Controls Against Diversion

    In several respects, the investigative file establishes that 
Respondent would not maintain effective controls against diversion. 
First, the file establishes that Respondent intends to dispose of out-
of-date or damaged pseudoephedrine products by throwing them in its 
trash. This is not a proper method of disposing of list I chemical 
products, which can still be used to manufacture methamphetamine even 
if they are out-of-date or damaged.
    Second, Respondent told the DIs that he did not conduct background 
checks on his employees and, indeed, he did not even know their last 
names. Under DEA's regulations, a ``registrant shall exercise caution 
in the consideration of employment of persons who will have access to 
listed chemicals, who have been convicted of a felony offense relating 
to controlled substances or listed chemicals, or who have, at any time, 
had an application for registration with DEA denied, had a DEA 
registration revoked, or surrendered a DEA registration for cause.'' 21 
CFR 1309.72(a). Moreover, a ``registrant should be aware of the 
circumstances regarding the action against the potential employee and 
the rehabilitative efforts following the action,'' and a ``registrant 
shall assess the risks involved in employing such persons.'' Id. 
Conducting a background check on a potential employee is therefore 
essential to comply with the regulation and to make an accurate 
assessment of the risk posed by the person's employment.
    Finally, Respondent's proposed method of determining the legitimacy 
of his walk-in customers is obviously inadequate. Mr. Tran stated that 
he knew most of his customers because he had lived in Baton Rouge, a 
city of sizable population, for twenty years, and went to church with 
them. Mr. Tran offered no explanation as to how he would verify the 
legitimacy of those walk-in customers he did not personally know.
    Each of the above reasons provides an independent basis to conclude 
that Respondent would not maintain effective controls against 
diversion. Moreover, this finding provides reason alone to conclude 
that granting Respondent's application would be ``inconsistent with the 
public interest.'' 21 U.S.C. 823(h).

Factor Four and Five--The Applicant's Experience in Distributing List I 
Chemicals and Other Factors Relevant to and Consistent With Public 
Health and Safety

    As I have previously held, ``an applicant's lack of experience in 
distributing list I chemicals creates a greater risk of diversion and 
thus weigh heavily against the granting of an application.'' Planet 
Trading, Inc., 72 FR 11055, 11057 (2007) (quoting Tri-County Bait 
Distributors, 71 FR 52160, 52163 (2006)). Moreover, ``[d]istributors of 
list I chemicals are subject to a comprehensive and complex regulatory 
scheme.'' Id. at 11058 (citing 21 CFR Pts. 1309 & 1310).
    Here, Mr. Tran has no experience in the distribution of list I 
chemicals and the fulfillment of the regulatory obligations imposed by 
the CSA. See id. Moreover, Mr. Tran did not understand that 
pseudoephedrine is the active ingredient in various cold products and 
was unfamiliar with the problem caused by the diversion of the chemical 
into the illicit manufacture of methamphetamine. See id. (rejecting 
application based on applicant's lack of product knowledge). Mr. Tran's 
lack of experience and knowledge does not bode well for his performance 
as a registrant who will prevent diversion.
    Numerous DEA orders establish that the sale of list I chemical 
products by non-traditional retailers 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 [gas stations and convenience stores], DEA 
has nevertheless found that [these entities] constitute sources for the 
diversion of listed chemical products.'' Id. See also Rick's Picks, 72 
FR 18279 (2007) (noting role of non-traditional retailers such as 
convenience stores and gas stations in supplying meth. cooks); 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 [non-traditional market 
distributor's] pseudoephedrine product at clandestine sites,'' and that 
in 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'').
    DEA orders have thus found 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. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the 
risk of diversion was ``real'' and ``substantial''); 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.
    Because of the methamphetamine epidemic's devastating impact on 
communities and families throughout the country, DEA has repeatedly 
denied an application when an applicant proposed to sell into the non-
traditional market and the analysis of one of the

[[Page 58893]]

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 a 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 Planet Trading, 72 FR at 11058; 
Prachi Enterprises, 69 FR 69407, 69409 (2004).
    Here, the investigative file supports additional adverse findings 
beyond those which DEA has repeatedly held are sufficient to warrant 
the denial of an application to distribute list I chemicals. Respondent 
clearly lacks effective controls against diversion, has no experience 
in the licit wholesale distribution of List I chemical products, and 
yet intends to distribute these products to non-traditional retailers, 
a market in which the risk of diversion is substantial. See Planet 
Trading, 72 FR at 11058; Taby Enterprises of Osceola, Inc., 71 FR 
71557, 71559 (2006). Given these findings,\1\ it is indisputable that 
granting Respondent's application would be ``inconsistent with the 
public interest.'' 21 U.S.C. 823(h).
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    \1\ Because these findings establish that granting Respondent's 
application would create an unacceptable risk of diversion, it is 
unnecessary to make any findings on the remaining factors.
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Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h), as well 
as 28 CFR 0.100(b) & 0.104, I order that the application of Tim's 
Wholesale, for a DEA Certificate of Registration as a distributor of 
list I chemicals be, and it hereby is, denied. This order is effective 
November 16, 2007.

    Dated: October 9, 2007.
Michele M. Leonhart,
Deputy Administrator.
 [FR Doc. E7-20443 Filed 10-16-07; 8:45 am]
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