Hilmes Distributing, Inc.; Dismissal of Proceeding, 49951-49955 [2010-20233]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 75, Number 157 (Monday, August 16, 2010)]
[Notices]
[Pages 49951-49955]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-20233]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 08-15]


Hilmes Distributing, Inc.; Dismissal of Proceeding

    On October 31, 2007, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Hilmes Distributing, Inc. (Respondent), of 
Trenton, Illinois. The Order proposed the revocation of Respondent's 
DEA Certificate of Registration, which authorizes it to distribute List 
I chemicals, and the denial of any pending applications for renewal or 
modification of the registration, on the ground that its ``continued 
registration * * * is inconsistent with the public interest, as that 
term is defined in 21 U.S.C. 823(h).'' ALJ Ex. 1, at 1.
    The Show Cause Order specifically alleged that ``[c]onvenience 
stores and gas stations continue to be the primary source for 
precursors that are diverted to illicit methamphetamine laboratory 
operators in many states'' and that Respondent ``distributes large 
amounts of ephedrine-based products almost exclusively to convenience 
stores and gas stations.'' Id. at 1-2. The Order alleged that ``the 
normal expected sales range to meet legitimate demand for combination 
ephedrine products is between $0 and $25 per month, with an average of 
$12.58 per month,'' and that Respondent's ``sales of combination 
ephedrine products greatly surpass the expected sales range to meet any 
legitimate demand for combination ephedrine products.'' Id. at 2. The 
Order further alleged that Respondent's sales to four stores during the 
months of June through August 2006 ``greatly surpass[ed] the expected 
sales range to meet any legitimate demand for combination ephedrine 
products,'' and that while not ``exhaustive,'' these sales are 
``nonetheless representative of [Respondent's] sales pattern of [sic] 
combination ephedrine products'' in amounts which ``are inconsistent 
with the known legitimate market.'' Id. The Order thus concluded by 
alleging that ``these types of businesses do not sell such inordinately 
large volumes of List I chemicals for legitimate uses,'' that 
Respondent's ``continued registration will result in the continued 
diversion of List I chemicals,'' and that it ``is inconsistent with the 
public interest.'' Id.
    On November 21, 2007, Respondent, through its counsel, requested a 
hearing on the allegations. ALJ Ex. 2. The matter was placed on the 
docket of the Agency's Administrative Law Judges (ALJs), and a hearing 
was held on April 15, 2008, in St. Louis, Missouri. At the hearing, 
both parties called witnesses to testify and introduced documentary 
evidence. After the hearing, only Respondent filed a brief.
    On October 7, 2009, the ALJ issued her recommended decision (also 
ALJ) in the matter. Therein, the ALJ examined the five public interest 
factors (see 21 U.S.C. 823(h)) and concluded that the Government had 
not met its burden of proving that Respondent's continued registration 
is inconsistent with the public interest. ALJ at 25.
    With respect to the first factor--the maintenance of effective 
controls against diversion--the ALJ noted that during a November 2006 
inspection of Respondent, there were no deficiencies in its physical 
security and that DEA has never advised Respondent that its ``physical 
security for its listed chemical products was inadequate.'' ALJ at 17. 
The ALJ also found that Respondent had implemented various procedures 
to ensure its customers followed both Federal and state laws applicable 
to the retail distribution of listed chemicals. Id. The ALJ thus 
concluded that this factor weighed ``in favor of renewing the 
Respondent's DEA registration.'' ALJ at 17.
    Examining the second and fourth factors together--the registrant's 
compliance with applicable State, Federal and local law, as well as its 
past experience in the distribution of List I chemicals--the ALJ noted 
that while Respondent has held a registration since 1997, it has never 
been cited by DEA for any regulatory violations. Id. at 18. Moreover, 
the ALJ noted that the Diversion Investigator (DI) who performed the 
inspection had testified that Respondent ``is probably one of the 
better distributors, as far as recordkeeping goes.'' Id.
    With respect to the Government's principal allegation, the ALJ 
found that the Government had not established a baseline figure 
necessary to show that Respondent's sales were so excessive as to 
support a finding that the products were being diverted. Id. at 21. 
While the ALJ noted that the Government had submitted the declarations 
of an expert witness as to the expected sales range of combination 
ephedrine products at convenience stores to meet legitimate demand and 
had previously relied on this evidence in several cases to prove that 
diversion had occurred, the ALJ noted that in a subsequent case, the 
expert's methodology was found to be unreliable. Id. (citing Novelty 
Distributors, Inc., 73 FR 52689, 52693-95 (2008)). Accordingly, the ALJ 
concluded that ``the Government has not established by a preponderance 
of the evidence that these figures accurately represent the average 
dollar amount of expected sales of listed chemical products.'' Id.
    Citing my decision in Novelty, 73 FR at 52703-04, the ALJ 
calculated the customers' average monthly sales (which she found to be 
$ 453.86) and then used this as the baseline for determining whether 
its sales to individual stores were in excess of legitimate demand. Id. 
The ALJ concluded, however, that while its sales to one gas station 
during a three-month period ``seem excessive,'' these sales created 
only a ``suspicion of diversion,'' which under agency precedent was not 
sufficient to prove that its products were being diverted. Id. at 21-22 
(citing John J. Fotinopoulos, 72 FR 24602, 24604 (2005)). The ALJ thus 
found that ``th[es]e factor[s] weigh[] in favor of Respondent being 
allowed to continue handling listed chemical products.'' Id. at 24.
    As for the third factor--Respondent's conviction record under 
Federal or State laws relating to controlled substances or listed 
chemicals--the ALJ found that neither Respondent nor any of its 
employees have been convicted of an offense ``related to their handling 
of listed chemical products under either Federal or State law.'' Id. at 
23. As for the fifth factor--other factors relevant to and consistent 
with public health and safety--the ALJ concluded that ``absent evidence 
of such excessive sales that diversion is a reliable conclusion * * * 
Respondent's continued sale of listed chemical products to its 
customers, in the manner in which [it] conducts its business, does not 
create a risk of diversion of these products to the illicit market.'' 
Id. at 24. The ALJ thus concluded that the Government had not proved 
that Respondent's continued registration would be inconsistent with the 
public interest. Id. at 25.

[[Page 49952]]

    Neither party filed Exceptions to the ALJ's recommended decision. 
Thereafter, the ALJ forwarded the record to me for final agency action.
    Having considered the entire record in this matter, I adopt the ALJ 
decision in its entirety except for her findings and conclusion that 
Respondent has not failed to report suspicious orders. However, because 
the Government made no such allegation, the relevant evidence cannot be 
considered as the basis for imposing a sanction. Accordingly, the Order 
to Show Cause will be dismissed. I make the following findings of fact.

Findings

    Respondent is an Illinois corporation, which is owned and operated 
by Mr. Gary Hilmes, who also serves as its President. ALJ Ex. 4, at 2; 
Tr. 160. Respondent, which has eight employees including Mr. Hilmes, 
Tr. 160, is a wholesale distributor of various items to convenience 
stores, gas stations, and liquor stores. Tr. 15; GXs 22-24. Its 
customers are located in Illinois, Indiana, Missouri, Ohio, Oklahoma, 
Wisconsin and Minnesota. Tr. 165. Its product lines include 
``automotive products, batteries, candies, cigarette papers, meat 
snacks, salty snacks, novelties, seasonal items, toys, maps,'' as well 
as List I chemical products. Id. at 13, 162. As for the latter, at the 
time of the hearing, Respondent distributed ephedrine products under 
the brand names of Mini Ephedrine 2-Way Action and Rapid Action; these 
products combine either 12.5 or 25 mgs. of ephedrine with 200 mgs. of 
guaifenesin. Id. at 176 & 202. According to the DI, Respondent did not 
sell what he called ``traditional brand name ephedrine.'' Id. at 18-19.
    Respondent, which was then organized as a sole proprietorship, 
first obtained a DEA registration in 1997. Id. at 165. Respondent's 
registration was renewed every year until the 2007 issuance of the 
Order to Show Cause. Id. at 165. According to its Certificate, 
Respondent's registration was to expire on October 31, 2007. GX 1. 
However, on October 8, 2007, Respondent filed a renewal application. 
Id. In accordance with the Administrative Procedure Act and DEA 
regulations, because Respondent's application was timely filed, I find 
that Respondent's registration has remained in effect pending the 
issuance of this Decision and Final Order. See 5 U.S.C. 558(c); 21 CFR 
1301.36(i).
    Ephedrine in combination with guaifenesin is lawfully marketed 
under the Food, Drug and Cosmetic Act for over-the-counter use as a 
bronchodilator. GX 15, at 3. However, ephedrine is regulated as a 
listed chemical under the Controlled Substances Act (CSA) because it is 
easily extracted from these products and is a precursor chemical used 
in the illicit manufacture of methamphetamine, a schedule II controlled 
substance. ALJ Ex. 4, at 1-2; 21 U.S.C. 802(34); 21 CFR 1308.12(d); Tr. 
42; GX 4; GX 15, at 8; GX 16, at 7.\1\
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    \1\ An ounce of methamphetamine contains 28 grams, and each gram 
of methamphetamine yields around eight to ten doses. RX 8, at 15, 
19; RX 9, at 17. Around 1,000 ephedrine pills will yield 
approximately one gram of methamphetamine in a clandestine 
methamphetamine laboratory. Tr. 92. An illicit clandestine 
laboratory may manufacture anywhere from a 1-ounce to a 4-ounce 
batch. Id. at 125.
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    Methamphetamine is a highly addictive central nervous system 
stimulant. Tr. 136. Methamphetamine abuse has destroyed numerous lives 
and families and ravaged many communities. Id. at 136. Moreover, the 
illicit manufacture of methamphetamine produces toxic and explosive 
byproducts, including phosphine gas, which is lethal even in low 
concentrations, and causes serious environmental harms. RX 9, at 27. 
Individuals have lost limbs and even their lives due to explosions 
during methamphetamine ``cooks.'' \2\ Tr. 136.
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    \2\ While methamphetamine imported from Mexico has taken an 
increasing share of the domestic market, small toxic and illegal 
laboratories in the United States continue to pose an enforcement 
challenge. RX 12, at 1-2. This is true even following the 
implementation of the Combat Methamphetamine Epidemic Act of 2005 
and other state laws restricting the over-the-counter purchase of 
List I chemical products. Tr. 131.
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    Illicit methamphetamine production is comparatively inexpensive, as 
``with $200,'' a person ``can buy all the chemicals and equipment [she/
he] needs to make * * * $2,000, $2,500 worth of methamphetamine.'' RX 
9, at 30. Typically, methamphetamine is sold in ``quarter gram, half 
gram, [and] gram units.'' Tr. 129. At the hearing in April 2008, a DEA 
Special Agent (SA) testified that a quarter gram might cost $25-$40 
while an ounce would cost anywhere from $850 to $1,200. Id. at 129-130.
    Respondent distributes products to customers in the States of 
Missouri, Illinois, Indiana, Ohio, Oklahoma, Wisconsin, and Minnesota. 
Id. at 165. Several of these States have serious problems with 
methamphetamine abuse as evidenced by the number of clandestine lab 
incidents. See GX 13 (showing that even after the enactment of Federal 
legislation, there were still nearly 1260 lab incidents in Oklahoma). 
Due to the development of state laws limiting the sale of List I 
chemical tablets, at the time of the hearing, Respondent sold 
combination ephedrine tablets only in Indiana and Wisconsin; elsewhere 
he sold gel cap ephedrine combination products. Tr. 201.

The DEA Inspection of Respondent

    On November 28, 2006, a DEA Diversion Investigator conducted an 
inspection of Respondent which included reviewing its physical 
security, recordkeeping and operating procedures. The Investigator met 
Mr. Hilmes, who told him that that his firm had 430 customers, which 
include convenience stores, gas stations and liquor stores; of these, 
131 purchased combination ephedrine products. Id. at 12-13, 15, 202; GX 
36, at 8. See also GXs 22-24 (Respondent's sales records for June 
through August 2006) and 26-28 (copies of Respondent's sales receipts 
for months of June through August 2006).\3\
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    \3\ At the hearing Mr. Hilmes testified that since the passage 
of the Combat Methamphetamine Epidemic Act of 2005 (CMEA), those of 
his customers who were ``independents'' ``opted out'' of selling 
List I chemical products ``for fear of getting caught in some sort 
of trouble for not properly'' complying with the CMEA's provisions. 
Tr. 164. Consequently, his current List I customer base consists of 
only 105 to 110 businesses. Id. Respondent's total customer list, 
however, has grown to around 480 to 500 businesses. Id.
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    Respondent stores the listed chemical products in ``the drug 
room,'' a room with locked doors that is continually lit and is 
outfitted with an infra-red camera to guard against theft. Tr. 169. As 
an additional security precaution, within the room, the List I 
chemicals are stored in a steel cage. Id. The room is also protected by 
an alarm system with a motion detector; in the event the alarm is 
triggered, both the County Sheriff and a monitoring service are 
notified; the latter first calls Respondent's business line, then Mr. 
Hilmes's cell phone, and, if there is no answer at either, Mr. Hilmes's 
father. Id. at 170. Regarding Respondent's security, the DI (who had 
also participated in two other inspections of it) testified that DEA 
``never had any problems with [Respondent's] security.'' Id. at 96; see 
also id. at 178 (testimony of Mr. Hilmes that although DEA has 
inspected Respondent four or five times, it has never found its 
security inadequate).
    With respect to Respondent's recordkeeping, the DI testified that 
it is ``one of the better distributors as far as record keeping goes.'' 
Id. at 62-63. The DI further stated that ``there was nothing wrong with 
* * * [Respondent's] recordkeeping and as a matter of fact, 
[Respondent] is one of the few chemical distributors that we work with 
that had most of their records on a database, which made it easily 
accessible.'' Id. at

[[Page 49953]]

96. The DI further described Mr. Hilmes as ``very cooperative'' at the 
inspections. Id. at 62-63.
    Respondent also put on extensive testimony as to its procedures for 
handling listed chemical products. Upon receipt of the products, 
Respondent stamps them. Id. at 171. Each Friday, Respondent takes an 
inventory and maintains a record of what products have been taken by 
each salesman. Id. It then compares this figure (prior week's inventory 
minus the product taken by its drivers) with the new inventory. Id. at 
171-72.
    Each Friday, Respondent requires that each driver account for the 
merchandise he has taken; if there is a discrepancy, the driver does 
not leave on his route the next week until it is resolved. Id. at 172-
73. Respondent also retains a copy of its sales invoices and makes a 
copy on which its drivers record the product's lot number at the store, 
``prior to the actual transaction.'' Id. at 174.
    Under company policy, Respondent will not sell to customers who 
seek to buy only List I chemical products. Id. at 177. Since the 
implementation of the Combat Methamphetamine Epidemic Act of 2005, 
Respondent distributes List I chemical products only to those 
businesses that have self-certified in compliance with the Act; 
Respondent also requires its drivers to visually inspect the self-
certification and note the expiration date. Id. at 189. Some thirty to 
ninety days prior to the expiration of a customer's certification, 
Respondent sends a letter notifying it of the upcoming expiration and 
indicating that Respondent will not continue to sell product to it 
after the expiration of its certification unless the store re-
certifies. Id. In addition, since the enactment of the CMEA, 
Respondent's drivers will not service a new customer until they confirm 
visually that the customer has a logbook as required by law. Id. at 
191.
    Since it first became registered, Respondent has provided its 
customers with acrylic cases for storing the combination ephedrine 
products. Id. at 193. The cases which Respondent currently provides 
have keyed locks on the back thus preventing a customer from acquiring 
the product without the assistance of a store clerk. Id.
    Since the enactment of the CMEA's requirement that retailers self-
certify, Respondent has provided a print-out of the training materials 
from the DEA website which follows the online self-certification 
process prior to his first delivery to new customers. Id. at 194; RX 6. 
The training materials include such information as the single-day (3.6 
grams) and thirty-day (9 grams) limits on an individual's purchase of 
combination ephedrine products. Id. at 194; RX 6, at 12. Mr. Hilmes 
testified that while his drivers cannot by law examine a customer's 
logbook, if it were proven that a customer violated those limits, 
Respondent would no longer sell List I chemical products to that 
customer. Tr. 195.
    The DI, who had worked on two prior inspections of Respondent, 
testified that he was not aware of Respondent's ever having been cited 
for regulatory infractions by DEA, including after the inspection of 
November 2006. Id. at 60-61. Similarly, Mr. Hilmes testified that he 
had no knowledge of any regulatory infractions by his firm. Id. at 178.
    Respondent's total sales volume of all products from January 1, 
2004 through the close of business October 13, 2006, was $6,336,943.18. 
GX 21. According to the DI, Mr. Hilmes told him at the 2006 inspection 
that thirty percent of his gross sales were attributable to combination 
ephedrine products. Tr. 15, 83. However, at the hearing, Mr. Hilmes 
contested this, testifying that he ``specifically recall[ed] stating'' 
that the percentage of gross sales attributable to List I chemical 
products ``was 20 percent or less.'' Id. at 197.
    Mr. Hilmes testified that he ran the figures for June through 
August 2006 (the time period referenced in the Show Cause Order) and 
found that the percentage of sales attributable to List I chemical 
products was 19.39 percent. Id. at 198. Mr. Hilmes further testified 
that, at the time of the hearing, the quantity of List I chemical 
product it was selling was down but, due to price increases, its total 
sales remained about the same.\4\ Id. at 196.
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    \4\ Mr. Hilmes testified that Respondent had not purchased gel 
caps since the preceding September ``when the industry ran out 
nationwide, because the company that makes gel caps shut their 
operation down.'' Tr. 175. At the time of the hearing, Respondent no 
longer stocked 6-count, 12-count, and 24-count gel cap packages but 
only 12-tablet and 24-tablet blister packs. Id. at 176. Lacking gel 
caps in its inventory, Respondent had only twelve active List I 
customers, all located in either Indiana or Wisconsin; but Mr. 
Hilmes stated that he intended to supply a total of 108 customers 
once gel caps were again available. Id. at 201.
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    The Government entered into evidence a spreadsheet created by the 
DI which showed Respondent's sales of combination ephedrine products to 
its various customers during the period of June through August 2006. GX 
35; Tr. 21. The DI testified that Respondent's customer's monthly 
retail sales of ephedrine products exceeded $15 a month, an amount 
which the Government maintained represents the normal expected retail 
sales range of these products at convenience stores for legitimate 
uses. Id. at 31; see also ALJ Ex. 1, at 2 (Show Cause Order ] 6).
    As for the stores specifically identified in paragraph 7 of the 
Show Cause Order, the Government produced evidence showing that, 
between June 8 and August 24, 2006, the FISCA Oil Co. of West Alton, 
Mo., had purchased ephedrine products with a total retail value of 
approximately $15,600. GX 35, at 7-8. Mr. Hilmes testified that this 
customer is a gas station, liquor store and smoke shop that benefits 
from being just over the border in Missouri where taxes are lower on 
gasoline and cigarettes than they are in Illinois. Tr. 181. He also 
indicated that during this time period, Illinois law limited purchases 
of ephedrine gel caps to one package of 6-count or 12-count blister 
packs, while under Missouri law, an individual could buy two 36-count 
packages. Id. According to Mr. Hilmes, the store ``sell[s] a lot of 
pills because [it] sell[s] a lot of everything else.'' Id. at 182.
    The Government's evidence showed that between June 7 and August 23, 
2006, the Gas Mart 11 of St. Louis, Mo., had purchased 
ephedrine products with a total retail value of $8,573. GX 35, at 9. 
Mr. Hilmes testified that this customer is a high-volume store located 
so as to draw both local and interstate traffic and also ``sell[s] a 
lot of everything.'' Tr. 182.
    The Government's evidence showed that between June 13 and August 
22, 2006, Blue Goose Liquor of Centralia, Ill., purchased ephedrine 
products with a total retail value of $5,079. GX 35, at 2. Mr. Hilmes 
testified that Blue Goose Liquor is ``the number one Anheuser-Busch 
retailer in that county,'' was his ``largest dollar [customer] 
overall,'' ``that it's like a country WalMart liquor store,'' and is 
even outfitted with a ``drive-up window.'' Tr. 183. Moreover, the store 
is located in an industrial area and there are ``three shifts of people 
coming in there 24 hours a day.'' Id. at 184.
    The Government's evidence showed that between June 9 and August 25, 
2006, the Hit-n-Run 8 of Bethalto, Ill., purchased ephedrine 
products with a total retail value of $4,699. GX 35, at 18. Mr. Hilmes 
testified that ``[i]t's always been an extremely high dollar ephedrine 
account'' because no other store in Bathalto, Illinois, with the 
exception of the pharmacy and Walgreen's, carries ephedrine. Id. He 
added that when Walgreen's opened, his ephedrine sales to this account 
dropped by half. Id.
    The Government's evidence showed that between June 7 and August 23, 
2006, the 7-11 19889 of St. Louis, Mo., purchased ephedrine 
products with a total retail value of $2,916. GX 35, at 1.

[[Page 49954]]

Mr. Hilmes testified that, similar to Gas Mart, the store is located in 
a high population density area of South St. Louis and is open twenty-
four hours per day, seven days per week. Id. at 185. Summarizing his 
sales to all the above-mentioned stores, Mr. Hilmes testified that 
``they bought a whole lot of'' other products besides ephedrine. Id.
    During January and February 2008, a DI went to eight Moto Marts 
(which are chain gas stations and convenience stores) in southern 
Illinois to verify whether they were Respondent's customers and to 
review their logbooks. Id. at 30-31 & 69. The DI found that ``the same 
people were buying similar products at--within the component of eight 
[stores] we worked on, various stores within that component.'' Id. at 
31, 69. Moreover, the same four ``individuals accounted for 42 percent 
of the total monthly sales'' of combination ephedrine products at Moto 
Mart 3111 for the period October 9, 2007 through February 29, 
2008. Id. at 34. Of the logbook review, he commented that the customer 
establishments were running close to CMEA limits but not exceeding 
them. Id. at 70-71.
    The Government also entered into evidence two affidavits prepared 
by an expert witness\5\ for other proceedings regarding the normal 
expected sales range of ephedrine products at convenience stores in 
legitimate commerce. In one of these affidavits, the expert opined that 
in August 2007, he ``analyzed national sales data for over-the-counter 
non-prescription drugs that contain ephedrine (Hcl).'' GX 36, at 4. 
Based on his review of data from various sources, the affidavit asserts 
that during the year 2006, ``about $172 per year or about $14 per month 
of in-store sales [at convenience stores] could be attributed to 
combination ephedrine/guaifenesin tablet products.'' Id. at 5. The 
expert further opined that ``the normal expected retail sale of 
ephedrine (Hcl) tablets in a convenience store ranges between $0 and 
$29, with an average of $14.39 and a standard deviation of $5.76.'' Id. 
at 7-8. In addition, the expert opined that ``[a] monthly retail sale 
of $60 of ephedrine/guaifenesin (Hcl) tablets would be expected to 
occur about once in a million times in random sampling.'' Id. at 8.
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    \5\ The expert did not testify in this proceeding.
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    However, during a proceeding which was litigated simultaneously 
with this matter, the methodology used by the Government's expert to 
determine the expected sales range was found to be unreliable. See 
Novelty Distributors, Inc., 73 FR 52689, 52694 (2008). As I have noted 
in other cases, even though Respondent did not challenge the 
methodology of the Government's expert,\6\ ``the Agency cannot . . . 
ignore the ultimate finding in Novelty which rejected the expert's 
conclusions as to the expected sales range of ephedrine products'' at 
convenience stores. Gregg & Son Distributors, 74 FR 17517, 17520 
(2009). See also Mr. Checkout North Texas, 75 FR 4418, 4421 (2010); CBS 
Wholesale Distributors, 74 FR 36746, 36748 (2009). Accordingly, I again 
conclude that the Government's figures for the monthly expected sales 
by convenience stores of combination ephedrine products for legitimate 
uses, as well as for the statistical probability of various sales 
levels in legitimate commerce, are not supported by substantial 
evidence.
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    \6\ Respondent did, however, challenge the expert's credibility.
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    Finally, the DI testified that he was not aware that Respondent's 
sales exceeded the then-existing threshold of 1,000 grams per thirty-
day period. Tr. 68; see also 21 CFR 1310.04(f)(1)(ii)(2006).\7\ 
Moreover, the record contains no evidence that either Respondent's 
owner or any of its employees have ever been convicted of an offense 
related to related to controlled substances.
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    \7\ To make clear, the 1,000 gram threshold for sales (within a 
thirty-day period) of combination ephedrine products by a 
distributor to a retail store triggered various recordkeeping and 
reporting requirements. The provision neither prohibited sales in 
excess of the threshold nor provided a safe harbor for sales when a 
distributor had reason to know that the products were likely to be 
diverted. See United States v. Kim, 449 F.3d 933, 944 (9th Cir. 
2006); Sunny Wholesale, Inc., 73 FR 57655, 57665 (2008); Rick's 
Picks, 72 FR 18275, 18278 (2007). This remains the case with respect 
to those chemicals for which thresholds remain in place.
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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 the registration 
of the applicant is inconsistent with the public interest.'' Id. Sec.  
823(h). In making the public interest determination, Congress 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, 
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 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. Morall v. DEA, 412 F.3d 165, 
173-74 (D.C. Cir. 2005).
    The Government bears the burden of proof. 21 CFR 1309.54. However, 
where the Government has made out a prima facie case, the burden shifts 
to the Respondent to show why its continued registration is consistent 
with the public interest.
    Having considered the Government's evidence and the relevant 
factors, I conclude that the Government has not satisfied its prima 
facie burden of showing that Respondent's continued registration is 
inconsistent with the public interest. Accordingly, Respondent's 
renewal application will be granted and the Order to Show Cause will be 
dismissed.
    The Government did not challenge the adequacy of Respondent's 
physical security, its recordkeeping, or its procedures for monitoring 
its receipt and distribution of listed chemicals, all of which are 
relevant in assessing the adequacy of its diversion controls. See, 
e.g., Gregg & Son, 74 FR at 17520. Instead, the Government's sole basis 
for seeking the revocation of Respondent's registration was the 
allegation that it sold combination ephedrine products in quantities 
which ``greatly surpass the expected sales range [by convenience 
stores] to meet legitimate demand for combination ephedrine products'' 
and that these stores constitute a gray market which is the ``primary 
source for precursors that are diverted to illicit

[[Page 49955]]

methamphetamine laboratory operators.'' ALJ Ex. 1 (]] 6 & 3).
    As found above, the Government's figures for the expected sales 
range and the statistical probability of certain sales level of 
ephedrine products in legitimate commerce at convenience stores are not 
supported by substantial evidence. Accordingly, there is no basis for 
concluding that Respondent's sales of these products ``greatly surpass 
the expected sales range to meet legitimate demand.'' Id. at 2 (] 6).
    The ALJ also acknowledged that when compared to Respondent's 
average monthly sales to its other customers ($454), Respondent's sales 
to the FISCA Oil Company and some other stores seem excessive. ALJ at 
21-22. While this evidence is disturbing, I agree with the ALJ's 
conclusion that this evidence only creates a suspicion that diversion 
was occurring.\8\ Id. at 22.
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    \8\ The record does not establish the standard deviation for 
Respondent's sales. Nor did the Government rebut Respondent's 
evidence regarding the stores which purchased the largest quantities 
such as their locations and the nature of their businesses.
     Moreover, the Government did not file a brief at any stage of 
this matter. I thus conclude that the Government does not rely on 
the disparity between Respondent's average sale and its sales to 
stores such as FISCA to prove that Respondent's products were being 
diverted.
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    Finally, based on the DI's testimony, the ALJ also found that there 
is no evidence that Respondent failed to report any suspicious 
transactions. ALJ at 6 & 18. Notwithstanding the DI's testimony, this 
finding is erroneous.
    On March 9, 2006, the Combat Methamphetamine Epidemic Act of 2005 
was signed into law. See USA PATRIOT Improvement and Reauthorization 
Act of 2005, Public Law 109-177, Title VII, 120 Stat.192, 256-77. 
Section 712(b) of the Act eliminated the 1,000 gram threshold for 
combination ephedrine products. 102 Stat. 264. While Congress provided 
an effective date for other provisions of the Act, see, e.g., section 
711(b)(2) & (c)(3), 120 Stat. 261, it provided no effective date for 
section 712(b).
    As the Supreme Court has explained, ``absent a clear direction by 
Congress to the contrary, a law takes effect on the date of its 
enactment.'' Gozlon-Peretz v. United States, 498 U.S. 395, 404 (1991) 
(other citations omitted). And ```where Congress includes particular 
language in one section of a statute but omits it in another section of 
the same Act, it is generally presumed that Congress acts intentionally 
and purposely in the disparate inclusion or exclusion.''' Id. at 404-05 
(quoting Russello v. United States, 464 U.S. 16, 23 (1983) (internal 
quotations omitted)).
    It is therefore clear that the provision eliminating the threshold 
for combination ephedrine products became effective with the Act's 
enactment on March 9, 2006. Accordingly, thereafter every transaction 
in a combination ephedrine product by a distributor became a regulated 
transaction under the CSA, and thus, all transactions became subject to 
the recordkeeping and reporting requirements of 21 U.S.C. 830, 
including the requirement to report ``any regulated transaction 
involving an extraordinary quantity of a listed chemical.'' 21 U.S.C. 
830(b).
    Respondent's sales to the FISCA Oil Company, which occurred after 
the threshold was eliminated and which were more than ten times its 
average monthly sale (as well as its sales to several other stores 
which were also multiple times greater than its average sale) involved 
an ``extraordinary quantity'' within the meaning of the statute. While 
the evidence does not establish that the products Respondent sold in 
these transactions were diverted, it cannot be seriously disputed that 
the transactions were suspicious and should have been reported to the 
Agency. See ALJ at 25 (``[T]he Respondent should remain more vigilant 
in determining when a customer is purchasing listed chemical products 
in suspicious amounts.'').
    It is acknowledged that the Government did not allege that 
Respondent violated Federal law by failing to report these 
transactions. Accordingly, consistent with the Due Process Clause, the 
Agency cannot impose a sanction on Respondent for these violations. 
See, e.g., Darrell Risner, D.M.D., 61 FR 728, 730 (1996). However, 
while the Order to Show Cause must be dismissed, Respondent is now on 
notice that its failure to report similar transactions in the future 
may give rise to further proceedings seeking the revocation of its 
registration.

Order

    Pursuant to the authority vested in me by 21 U.S.C. Sec. Sec.  
823(h) and 824(a), as well as by 28 CFR 0.100(b) and 0.104, I hereby 
order that the application of Hilmes Distributing, Inc., for renewal of 
its DEA Certificate of Registration be, and it hereby is, granted. I 
further order that the Order to Show Cause be, and it hereby is, 
dismissed. This order is effective immediately.

    Dated: August 4, 2010
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 2010-20233 Filed 8-13-10; 8:45 am]
BILLING CODE 4410-09-P