Mr. Checkout North Texas; Admonition of Registrant, 4418-4422 [2010-1634]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 75, Number 17 (Wednesday, January 27, 2010)]
[Notices]
[Pages 4418-4422]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-1634]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 07-47]


Mr. Checkout North Texas; Admonition of Registrant

    On August 14, 2007, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA or ``the 
Government''), issued an Order to Show Cause to Mr. Checkout North 
Texas (Respondent), of Grand Prairie, Texas. The Order to Show Cause 
proposed the revocation of Respondent's DEA Certificate of Registration 
as a distributor of list I chemicals on the ground that its continued 
registration was ``inconsistent with the public interest, as that term 
is used in 21 U.S.C. 823(h).'' Show Cause Order at 1.
    The Show Cause Order specifically alleged that Respondent was 
distributing certain list I chemical products containing 
pseudoephedrine and ephedrine, which are precursor chemicals used in 
the illicit manufacture of methamphetamine, a schedule II controlled 
substance, to convenience stores and truck stops, and that these stores 
traditionally sell only very small quantities of non-prescriptions 
drugs. Id. at 2. The Order further alleged that the specific list I 
chemical products Respondent distributes ``are rarely found in any 
retail store serving the traditional therapeutic market,'' and have ``a 
history of being diverted into the illicit production of 
methamphetamine.'' Id. The Order thus alleged that Respondent 
``continues to be primarily involved in the list I chemical business 
and is continuing to sell these products with high diversion potential 
to retailers who have minimal expectation of sales of products of these 
kinds.'' Id. at 3. Finally, the Order alleged that Respondent ``has 
been involved in the distribution of listed chemical products out of an 
unregistered location in violation of the registration requirements of 
21 U.S.C. 822.'' Id. at 2.
    On September 17, 2007, Respondent timely requested a hearing on the 
allegations and the matter was placed

[[Page 4419]]

on the docket of the Agency's Administrative Law Judges (ALJ). 
Thereafter, on February 5, 2008, a hearing was held in Dallas, Texas. 
ALJ Ex. 2; ALJ at 4. At the hearing, both parties called witnesses to 
testify and introduced documentary evidence. After the hearing, both 
parties filed briefs.
    On June 10, 2009, the ALJ issued her recommended decision (ALJ). 
Therein, the ALJ concluded that the Government had failed to show that 
Respondent's continued registration is inconsistent with the public 
interest. ALJ at 36. As to the first factor--the maintenance of 
effective controls against diversion--the ALJ noted that, during an 
inspection in April 2006, Respondent's owner, Mr. Thomas Naulty, told 
an Agency Diversion Investigator (DI) ``that he had stored and 
distributed some listed chemical products from another storage 
facility''; however, when the DI advised Mr. Naulty that such 
distribution constituted a violation of DEA regulations, he ``took 
corrective action by moving the listed chemical products to the 
approved storage facility and inform[ed the DI] of this later that same 
day.'' Id. at 26.
    Because the record contained ``no evidence of inadequate 
recordkeeping'' or ``evidence that the Respondent sold controlled 
substances \1\ over the regulatory threshold amounts,'' the ALJ 
concluded that ``Mr. Naulty's immediate response'' to the DI's 
notification that Respondent was violating the regulations 
``demonstrates the Respondent's commitment to compliance.'' Id. at 27. 
The ALJ thus concluded that this factor supports Respondent's continued 
registration. Id.
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    \1\ The Respondent's registration does not entitle him to 
distribute controlled substances, but rather only listed chemicals. 
I presume that the ALJ meant the latter.
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    As to the second and fourth factors--Respondent's compliance with 
applicable laws and its past experience in the distribution of listed 
chemicals--the ALJ again noted that Mr. Naulty had taken prompt 
corrective action upon being told that Respondent was violating DEA 
regulations by distributing from the unregistered location. Id. The ALJ 
also found significant that ``Respondent's owners personally deliver 
the listed chemical products to its customers'' and ``require their 
listed chemical customers to comply with the sales limits of the 
[Combat Methamphetamine Epidemic Act].'' Id. at 27-28. Based on 
``Respondent's sincere commitment to compliance over a 10 year time 
period,'' the ALJ concluded that the evidence ``heavily weighs in favor 
of continuing Respondent's DEA registration.'' Id. at 28.
    As to factor three--Respondent's record of convictions under 
Federal or State laws relating to controlled substances or listed 
chemicals--the ALJ observed that the record contained no evidence of 
such convictions by either Mr. Naulty or his son, Mr. Anthony Naulty, 
owner of Mr. Checkout & Son, a subsidiary of Respondent. Id. at 5, 28. 
The ALJ also noted that the record contained no evidence that any of 
``Respondent's customers had been convicted of a crime related to the 
handling of listed chemical products or methamphetamine.'' Id. at 28.
    Finally, as to factor five--other factors that are relevant to and 
consistent with the public health and safety--the ALJ noted that ``[i]n 
the past, the DEA has revoked the registrations of listed chemical 
product distributors because it found the listed chemical products had 
been sold in quantities that exceeded the amount that could be expected 
to be sold to customers with legitimate need for such products.'' Id. 
(citations omitted). The ALJ then reasoned that ``[i]mplicit in this 
issue * * * is the necessity for the Government to establish an 
expected monthly sales amount--the quantity consistent with `legitimate 
demand'-- that can be compared against the Respondent's actual sales.'' 
Id. at 29 (citation omitted). While noting that in past cases, ``the 
Government attempted to establish this baseline by entering the 
declarations of its expert witness, Jonathan Robbin,'' the ALJ observed 
that ``[m]ore recently * * * the validity of Mr. Robbin's methodology 
and the applicability of the underlying data he uses have been sharply 
called into question,'' and that I ``ha[ve] declined to rely on [his] 
figures in reaching her decisions.'' Id. at 29-30 (citing Novelty 
Distributors, Inc., 73 FR 52589, 52693-95 (2008); Gregg & Son 
Distributors, 74 FR 17517, 17519-20 (2009); Sunny Wholesale, Inc., 73 
FR 57655, 57658-59 (2008)).
    Accordingly, although Respondent did not challenge the statistical 
evidence contained in the affidavit which the Government entered into 
evidence, the ALJ concluded that she could not ``simply close [her] 
eyes to the reduced credibility of Mr. Robbins methods and analysis.'' 
Id. at 30-31. Based on the decisions cited above, as well as because 
``Mr. Robbin's analysis was clearly not tailored to this Respondent,'' 
the ALJ concluded that the Government had not ``established by a 
preponderance of the evidence that these figures accurately 
represent[ed] the average dollar amount of expected sales.'' Id. at 31.
    The ALJ further noted that the Government did not establish 
Respondent's own average monthly sale, per customer, of listed chemical 
products. Id. Because there was no ``baseline average sales figure to 
compare'' Respondent's sales to, the ALJ concluded that the Government 
had failed to prove by a preponderance of the evidence that ``this 
Respondent sold listed chemical products in such excessive quantities'' 
as to support the inference that the products were being diverted into 
the illicit manufacture of methamphetamine. Id. at 33.
    The ALJ also noted that the evidence showed that ``at one time, the 
Respondent distributed a rose in a glass container,'' and that 
``[c]redible evidence establishes that the packaging of this product is 
sometimes used as drug paraphernalia.'' Id. The ALJ further remarked 
that ``the record contains no evidence that the roses sold by the 
Respondent were ever sold at retail in conjunction with other products 
that would lead the seller of the roses to believe this product would 
be used as drug paraphernalia,'' that ``there are no regulations or 
other guidance provided by DEA * * * to indicate that the Respondent 
was on notice of the potential misuse of this product,'' and that 
``there is no evidence that Respondent had any actual knowledge of such 
potential misuse of the product.'' Id. at 33. The ALJ thus found that 
``the evidence relevant to the fifth factor does not lead to the 
conclusion that this Respondent's DEA registration should be revoked.'' 
Id. at 33-34.
    Having found that ``the Government has failed to prove by a 
preponderance of the evidence that the Respondent engaged in excessive 
sales or created a serious risk of diversion,'' the ALJ ultimately 
found that ``the evidence in this case supports a conclusion that the 
continued registration of the Respondent would not be inconsistent with 
the public interest.'' Id. at 36. Accordingly, she recommended that 
``the Respondent's DEA registration should be continued and its renewal 
application should be granted without restrictions.'' Id.
    Neither party filed exceptions to the ALJ's Decision. On July 29, 
2009, the ALJ forwarded the matter to me for final agency action.
    Having reviewed the record in its entirety, I adopt the ALJ's 
conclusion that the Government did not prove by a preponderance of the 
evidence that Respondent engaged in sales in excess of legitimate 
demand or otherwise has failed to maintain effective controls against 
diversion. I also agree with the ALJ's conclusion that Respondent

[[Page 4420]]

violated Federal law by distributing from an unregistered location, but 
that because Respondent immediately discontinued this practice upon 
learning that it was a violation, this conduct does not warrant the 
revocation of its registration. Finally, I agree with the ALJ's 
conclusion that the Government has not established that Respondent 
violated the drug paraphernalia statute (21 U.S.C. 863) when it sold 
glass roses. I therefore also adopt her conclusion that Respondent's 
continued registration is not inconsistent with the public interest. 
However, based on Respondent's conduct in distributing from an 
unregistered location, I conclude that it should be admonished. I make 
the following findings of fact.

Findings

    Respondent, which is owned by Mr. Thomas Naulty as a sole 
proprietorship, is a wholesale distributor of various products 
including non-prescription drug products, as well as sunglasses, ball 
caps, candies, batteries, condoms ``and whatever you can find around 
the checkout area of a convenience store.'' Tr. 105-06. Among the non-
prescription drugs distributed by Respondent are products which contain 
the list I chemicals pseudoephedrine and ephedrine. GX 29. Respondent 
distributes list I chemical products to convenience stores, gas 
stations, and similar establishments in the Dallas, Texas metropolitan 
area. Id. at 63; GX 31.
    Both pseudoephedrine and ephedrine have FDA-approved therapeutic 
uses. Ephedrine is lawfully marketed under the Food, Drug and Cosmetic 
Act for over-the-counter use as a bronchodilator to treat asthma, and 
pseudoephedrine is lawfully marketed for over-the-counter use as a 
decongestant. See GX 15, at 3-4. Both substances are, however, 
regulated as list I chemicals under the Controlled Substances Act 
because they are precursor chemicals which are easily extracted from 
over-the-counter drug products and frequently diverted into the illicit 
manufacture of methamphetamine, a schedule II controlled substance. See 
21 U.S.C. 802(34); id. 812(c); 21 CFR 1308.12(d). See also GX 15, at 8.
    Respondent has held a DEA registration to distribute list I 
chemicals since November 1997. GX 1. While the expiration date of its 
most recent registration certificate is January 31, 2007, on January 5, 
2007, Respondent submitted a renewal application. GX 1; Tr. 65. 
Accordingly, I find that Respondent's registration has remained in 
effect pending the issuance of this Decision and Final Order.\2\ See 5 
U.S.C. 558(c).
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    \2\ Respondent also holds a State of Texas permit as a Wholesale 
Distributor of Drugs. GX 30; RX 11; see also Tr. 105-06.
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    Mr. Anthony Naulty is Thomas Naulty's son. Id. at 4. Anthony Naulty 
is the owner of Mr. Checkout & Sons, which, pursuant to a partnership 
agreement executed in October 2005 and still in effect on the date of 
the hearing, was a subsidiary of Respondent. Id. at 112; RX 12. Under 
the agreement, Thomas Naulty handles the responsibilities of 
maintaining inventory and setting distribution schedules for Respondent 
and Mr. Checkout & Sons; Anthony Naulty manages sales, physical 
distribution, and the accounts receivable for both businesses. RX 12. 
Anthony Naulty planned to take over Respondent upon Thomas Naulty's 
retirement and so applied for his own registration. Tr. 48. Sometime in 
2007, Anthony Naulty was served with an Order to Show Cause which 
proposed the denial of his application; he then withdrew his 
application. Id. at 55. However, the record does not disclose the basis 
of the Agency's decision to deny the application.

The 2006 Inspection

    In April 2006, two DEA Diversion Investigators (DIs) visited 
Respondent to conduct a cyclic investigation.\3\ Id. at 61. The DIs 
went to Respondent's registered location, which is Mr. Naulty's 
residence in Grand Prairie, Texas, and reviewed its recordkeeping, 
security, and business practices. Id. at 61-62. The DIs determined, 
however, that Respondent stores its listed chemical products in a unit 
of a storage facility located at 3150 East Pioneer Parkway, Arlington, 
Texas, some five or six miles from its registered location.\4\ Id. at 
61-62, 102, 111-12.
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    \3\ DEA Investigators had previously inspected Respondent prior 
to granting its initial registration, as well as in 2001. Tr. 37-38, 
89-90, 93.
    \4\ At the hearing, an Agency Diversion Investigator (DI) 
testified that under DEA regulations, the use of such a storage 
facility is permissible and expected for small, independent 
registrants like Respondent. Id. at 90. Apparently, the DI had not 
read any of the Agency decisions which have held that the use of 
public storage units to store listed chemicals does not provide an 
acceptable level of security. See Stephen J. Heldman, 72 FR 4032, 
4034 (2007); Sujak Distributors, 71 FR 50102, 50104 (2006).
    The ALJ credited the DI's testimony ``that, pursuant to DEA 
regulations, the Respondent is required to move the listed chemical 
products to the registered location before distributing them.'' ALJ 
at 10; see also Tr. 62, 83, 90; see also 21 CFR 1309.23(b)(1).
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    The DIs also determined that Respondent was storing listed 
chemicals in a second storage unit located in McKinney, Texas, which is 
an estimated 40 miles from Respondent's registered location. Id. at 62-
64. According to Mr. Naulty, his son was distributing listed chemicals 
from this storage unit. Id. at 116. However, upon being informed by the 
DIs that this was a violation of DEA regulations (because the products 
were not being returned to the registered location prior to being 
distributed), Respondent immediately ceased doing so. Id. at 63 & 116; 
see also 21 CFR 1309.23(b)(1).
    The DIs also determined that Respondent distributed Max Brand, a 
pseudoephedrine product, as well as seven ephedrine products including 
Mini-Thin, Twin Tabs, Mini-Two Way, and Rapid Action. Tr. 74; GX 25. 
The DI testified that none of the eight products were available at 
chain pharmacies or supermarkets, which are considered to be the 
``traditional'' market where consumers purchase over-the-counter drugs 
containing list I chemicals to treat cough, cold, and asthma.\5\ Tr. 
75. Moreover, other evidence in the record shows that at least two of 
the products distributed by Respondent (Max Brand and Mini-Two Way) 
have been found in numerous seizures conducted by law enforcement.\6\ 
See GXs 2 & 3.
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    \5\ According to a Diversion Investigator, DEA considers the 
``traditional'' market for cough, asthma and cold remedies 
containing list I chemicals to include large chain grocery stores, 
nationally recognized pharmacy chains, larger convenience stores 
(e.g., 7-11), and large retail stores (e.g., Wal-Mart). GX 16, at 5. 
It considers the ``non-traditional,'' or ``gray,'' market for these 
products to include smaller-chain and non-chain convenience stores 
and other smaller retail establishments ``where consumers would not 
normally purchase over the counter medications.'' Id. at 6. Such 
``non-traditional'' outlets typically carry listed chemical products 
in higher strengths and packaged in bottles or blister packs in 
larger quantities. Id. Convenience store sales of such products are 
a major source of the ephedrine and pseudoephedrine used in the 
illicit manufacture of methamphetamine. Tr. 19; GX 16, at 8-9.
    According to a DEA Special Agent, methamphetamine traffickers 
use people who engage in a practice known as ``smurfing.'' GX 16, at 
6; Tr. 18. This practice involves going to multiple stores and 
buying the maximum number of packages possible of ephedrine and/or 
pseudoephedrine at each store. Tr. 18. Smurfers typically avoid 
larger retail stores such as ``Target or Wal-Mart,'' because such 
chains have loss-prevention personnel dedicated to detecting 
shoplifting and suspicious buying practices. Id. at 18-19. As a 
result, smurfers target convenience stores and gas stations, which 
generally lack these security practices; these stores have thus 
become a large and consistent source of precursor chemicals for the 
illicit manufacturers of methamphetamine. Id. at 19.
    \6\ At the time of the hearing in February 2008, Respondent 
carried one pseudoephedrine product and two ephedrine products, 
Mini-Thin and BronchEase. Tr. 103-05. The ALJ found that Thomas 
Naulty ``credibly testified the Respondent would cease handling the 
pseudoephedrine product'' in mid-2008. ALJ at 7; see also Tr. 104.
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    During the inspection, Mr. Naulty provided the DIs with 
Respondent's

[[Page 4421]]

customer list for list I chemical products; the list contained contact 
information for 49 businesses and was comprised of convenience stores, 
small markets, and gas stations. Tr. 93-94; GX 31. Thomas Naulty 
indicated that Respondent made deliveries to customers approximately 
once every two weeks. Tr. 84, 122. According to Thomas Naulty's 
testimony, his customers generally buy three to four dozen packages of 
list I chemical products at a time. Id. at 122. Mr. Naulty further 
indicated that, of those stores that sell both ephedrine and 
pseudoephedrine products, ``one [product] outsells the other, so they 
buy minimally and averagely'' such that if a customer purchased four 
dozen of one type of product, it would purchase only one dozen of the 
other type. Id. at 122-23.
    During the inspection, Thomas Naulty told the DI that list I 
chemical product sales constituted approximately 20 percent of his 
overall dollar sales. Id. at 88. Moreover, at the hearing, Thomas 
Naulty testified that list I chemical products constituted 
approximately 23 percent of his total dollar sales and thus represented 
the inventory item which generated the largest sales volume. Id. at 
104, 118-20.
    During the inspection, the DI reviewed Respondent's purchase and 
sales invoices for the seven months prior to April 10, 2006. Id. at 84. 
To show some of Respondent's purchases and sales of list I chemical 
products, the Government entered into evidence two purchase invoices 
from December 2005, one sales invoice from March 2006, and one sales 
invoice from April 2006. See GXs 32 & 33. However, the DI only made 
copies of the two sales invoices which were entered into evidence. Tr. 
84-85.
    One of the sales invoices shows that a customer purchased 120 
bottles of 36-count Max Brand pseudoephedrine (60-mg. strength) for 
$288 as well as twelve 48-count blister packs of Mini Thin ephedrine 
for $36. GX 33, at 2; see also Tr. 74-76, 78-80. In testimony, the DI 
asserted that, from the invoices he had reviewed, while some stores 
might receive a delivery of half a case (72 bottles); no store received 
a full case (144 bottles). Id. at 85.
    The DIs did not, however, prepare a compilation of the sales 
invoices they reviewed. Nor did the Government produce any other 
evidence to show what Respondent's average monthly sale of list I 
products was to its various customers.\7\
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    \7\ The Government also introduced into evidence a declaration 
prepared by an expert in statistical analysis of ``demographic, 
economic, geographic, survey and sales data.'' GX 25 (affidavit of 
Jonathan Robbin, President of Ricercar, Inc). Therein, the 
Government's Expert opined that ``the expected sale of ephedrine 
(Hcl) tablets in a convenience store ranges between $0 and $25, with 
an average of $12.58,'' and 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. at 7-8.
    In her discussion of this evidence, the ALJ noted that in 
several cases, the Expert's ``methodology and the applicability of 
the underlying data he uses have been sharply called into 
question,'' and that more recently, I had ``declined to rely on 
[Robbin's] figures in reaching her decisions.'' ALJ at 30 (citing 
Novelty Distributors, Inc., 73 FR 52689, 52693-95 (2008)). For this 
reason, as well as because the Expert ``analysis was clearly not 
tailored to this Respondent,'' the ALJ declined ``to rely on his 
figures.'' Id. at 31.
    As the Expert's affidavit indicates that he used the same 
methodology which I found wanting in Novelty, I am again compelled 
to reject this evidence as not probative of either the average 
expected sales levels of these products to meet legitimate demand at 
convenience stores, or of the probability of various sales levels 
occurring in normal commerce. I therefore do not make any findings 
regarding these issues.
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    Moreover, the Government apparently did not conduct an audit of 
Respondent's handling of list I products and produced no evidence 
showing that Respondent had violated any provisions of the CSA or 
Agency regulations or that its recordkeeping was inadequate. At the 
conclusion of the inspection, the DIs informed Thomas Naulty that they 
had found no violations of DEA regulations.\8\ Id. at 98-99.
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    \8\ Of course, the DIs had found a violation because Respondent 
had distributed products through the McKinney, Texas storage unit.
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    After the inspection, one of the DIs conducted customer 
verifications at the two stores whose sales invoices he had copied. Id. 
at 87. The customers verified that they had purchased and received the 
quantities listed in the invoices. Id.
    At the time of the hearing, Respondent distributed list I chemical 
products to twenty-four customers, all of whom had self-certified as 
required by the Combat Methamphetamine Epidemic Act (``CMEA''). Id. at 
127-28; RX 7. Respondent also required that its customers enter into a 
written stipulation that they cannot purchase only list I chemical 
products. Tr. 129.
    At its own expense, Respondent provided its list I chemical product 
customers with logbooks outlining the sales restrictions of the CMEA. 
Id. at 105. Thomas Naulty further indicated his belief that 
Respondent's customers were satisfying the statutory requirements for 
the logbook. Id. at 129-30. As the ALJ further found, there is ``no 
evidence that any of the stores that purchase listed chemical products 
from the Respondent have failed to abide by the self-certification 
requirements, the behind-the-counter placement requirements, the 
regulated transaction limits, or any other provisions of the CMEA or 
the Texas methamphetamine precursor legislation.'' ALJ at 7.
    At the hearing, the Government also pointed to a sales invoice, 
which showed that on April 3, 2006, Respondent sold 72 glass roses to a 
store in Arlington, Texas. GX 33, at 2. Government Counsel then asked 
the DI if he knew ``what a glass rose is?'' Tr. 79. The DI replied: 
``Not particularly. I've heard it's also used in clan[destine 
methamphetamine] labs.'' Id. However, the DI did not know what this 
item is specifically used for. Id. Moreover, on cross-examination, the 
Government did not ask Mr. Naulty any questions regarding his sales of 
glass roses.
    The record contains no evidence that Respondent or Thomas or 
Anthony Naulty has been convicted of a State or Federal crime related 
to the use or distribution of controlled substances or listed chemical 
products. See also ALJ at 9. Similarly, the record contains no evidence 
that any of Respondent's customers or individuals related to those 
businesses has been convicted of a crime involving the manufacture, 
distribution or use of methamphetamine. See also id. Finally, the 
record contains no evidence that any of the listed chemical products 
actually distributed by Respondent has been discovered in a 
methamphetamine laboratory. See also id.
    Finally, the ALJ found that Thomas Naulty ``credibly testified that 
he is committed to handling listed chemical products in a manner that 
would prevent them from being diverted into illegitimate channels.'' 
ALJ at 19 (citing Tr. 106). She also found that he ``credibly testified 
that his company `will continue to follow the DEA rules and regulations 
as we have in the past. Whatever compliance is necessary, we will 
do.''' Id. (citing Tr. 107-08).

Discussion

    Section 304(a) of the Controlled Substances Act (CSA) 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 [its] registration under section 823 of this 
title inconsistent with the public interest as determined under such 
section.'' 21 U.S.C. 824(a)(4). Moreover, under section 303(h), ``[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.'' Id. Sec.  
823(h). In making the public interest determination, Congress

[[Page 4422]]

directed that the following factors be considered:

    (1) maintenance by the [registrant] of effective controls 
against diversion of listed chemicals into other than legitimate 
channels;
    (2) compliance by the [registrant] with applicable Federal, 
State, and local law;
    (3) any prior conviction record of the [registrant] under 
Federal or State laws relating to controlled substances or to 
chemicals controlled under Federal or State law;
    (4) any past experience of the [registrant] 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.'' Gregg & Son 
Distributors, 74 FR at 17520; see also Joy's Ideas, 70 FR 33195, 33197 
(2005). I may rely on any one or a combination of factors, and I may 
give each factor the weight I deem appropriate in determining whether 
to revoke an existing registration or to deny an application for 
renewal of a registration. Gregg & Son, 74 FR at 17520; Jacqueline Lee 
Pierson Energy Outlet, 64 FR 14269, 14271 (1999). Moreover, I am not 
required to make findings as to all of the factors. Volkman v. DEA, 567 
F.3d 215, 222 (6th Cir. 2009); Morall v. DEA, 412 F.3d 165, 173-74 
(D.C. Cir. 2005).
    The Government bears the burden of proof. 21 CFR 1309.54. Having 
considered all of the factors, I conclude that while the Government has 
proved a single violation of Federal law, the evidence does not support 
the conclusion that Respondent's continued registration is inconsistent 
with the public interest.
    During the hearing, the Government appeared to raise three 
principal allegations: (1) That Respondent was selling excessive 
quantities of listed chemical products to non-traditional retailers, 
(2) that Respondent sold an item which is used as drug paraphernalia, 
and (3) that Respondent distributed products directly from a storage 
facility which was located forty miles from its registered location 
without first returning them to its registered location. The first two 
allegations require no more than token discussion because they fail for 
lack of substantial evidence. While the third allegation was proved, 
Respondent quickly corrected the violation.
    As for the first allegation, having previously found that the 
Government Expert's methodology is unreliable and it being apparent 
that the expert's affidavit relies on the same methodology, once again 
I conclude that his findings as to both the monthly expected sales 
range and the statistical improbability of certain sales levels of 
listed chemical products in legitimate commerce at convenience stores 
are not supported by substantial evidence. See Novelty Distributors, 73 
FR at 52693-94; see also CBS Wholesale Distributors, 74 FR 36746, 36748 
(2009); Gregg & Son, 74 FR at 17520. While this provides reason alone 
to find the allegation unproven, the deficiency in the Government's 
case is compounded by its failure to show what Respondent's average 
monthly sales were to its various customers. The allegation is 
therefore rejected.
    The Government also failed to prove that Respondent violated 
Federal law by selling drug paraphernalia. See 21 U.S.C. 863. While I 
have now held in several cases that glass roses constitute drug 
paraphernalia, see, e.g., Gregg & Son, 74 FR at 17521, the Supreme 
Court has held that the statute imposes a scienter requirement. See 
Posters `N' Things, Ltd. v. United States, 511 U.S. 513, 524 (1994). 
(``It is sufficient that the defendant be aware that customers in 
general are likely to use the merchandise with drugs. Therefore, the 
Government must establish that the defendant knew that the items at 
issue are likely to be used with illegal drugs.'') (citing United 
States v. United States Gypsum Co., 438 U.S. 422, 444 (1978) 
(``knowledge of `probable consequences' sufficient for conviction'')).
    The Government produced absolutely no evidence that Mr. Naulty was 
aware that the glass roses' likely use is as drug paraphernalia. Nor 
did it even pose this obvious question to Mr. Naulty when it cross-
examined him. The allegation therefore also fails for lack of 
substantial evidence.
    The only allegation that was proved was that Respondent distributed 
list I chemical products directly from a storage facility which was not 
a registered location (and which was located approximately forty miles 
from its registered location). Under Federal law, ``[a] separate 
registration is required for each principal place of business at one 
general physical location where List I chemicals are distributed * * * 
by a person.'' 21 CFR 1309.23(a). However, a registration is not 
required for ``[a] warehouse where List I chemicals are stored by or on 
behalf of a registered person, unless such chemicals are distributed 
directly from such warehouse to locations other than the registered 
location from which the chemicals were originally delivered.'' Id. 
Sec.  1309.23(b)(1).
    Respondent did not dispute that it distributed list I chemicals 
from its McKinney storage unit without first returning them to its 
registered location. In doing so, Respondent violated Federal law. 21 
U.S.C. 843(a)(9) (``It shall be unlawful for any person knowingly or 
intentionally * * * to distribute * * * a list I chemical without 
registration required by this subchapter[.]''). However, the Government 
did not establish the extent of the violations and Mr. Naulty 
immediately ceased doing so upon being told by the DIs that this was a 
violation. The Government's evidence therefore does not establish that 
Respondent's continued registration is inconsistent with the public 
interest. Respondent's violation does, however, warrant an admonition, 
which shall be made a part of Respondent's record.\9\
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    \9\ As found above, Respondent is currently using a rental 
storage unit to store list I products. In several cases, DEA has 
held that the use of such units does not provide adequate security. 
More specifically, I have noted a number of ``security concerns 
which are raised by these facilities including the inadequacy of 
their construction, the lack of alarm systems, the lack of 24 hour 
on-site monitoring, the ability of unauthorized persons to gain 
access to the facility and the storage units, and the fact that the 
tenant does not control what other tenants the landlord rents to.'' 
Novelty Distributors, 73 FR at 52698; see also Heldman, 72 FR at 
4034; Sujak Distributors, 71 FR at 50104.
    While it seems unlikely that Respondent's storage unit provides 
adequate security, the Government did not raise this as an issue at 
any time in this proceeding. Consistent with the Due Process Clause 
and Administrative Procedure Act, because Respondent has had no 
opportunity to contest whether his storage unit provides adequate 
security, I do not consider the issue. See CBS Wholesale, 74 FR at 
36749-50.
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Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h) and 
824(a), as well as 28 CFR 0.100(b) and 0.104, I hereby order that Mr. 
Checkout North Texas, be, and it hereby is, admonished. I further order 
that the application of Mr. Checkout North Texas for renewal of its DEA 
Certificate of Registration be, and it hereby is, granted. This order 
is effective immediately.

    Dated: January 18, 2010.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 2010-1634 Filed 1-26-10; 8:45 am]
BILLING CODE 4410-09-P