Perry County Food & Drug Decision and Order, 70083-70114 [2015-28723]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 80, Number 218 (Thursday, November 12, 2015)]
[Notices]
[Pages 70083-70114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28723]



[[Page 70083]]

Vol. 80

Thursday,

No. 218

November 12, 2015

Part II





Department of Justice





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Drug and Enforcement Administration





Perry County Food & Drug Decision and Order; Notice

Federal Register / Vol. 80 , No. 218 / Thursday, November 12, 2015 / 
Notices

[[Page 70084]]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 15-10]


Perry County Food & Drug Decision and Order

    On May 13, 2015, Chief Administrative Law Judge (CALJ) John J. 
Mulrooney, Jr., issued the attached Recommended Decision (hereinafter, 
cited as R.D.\1\). Thereafter, on June 15, 2015, the CALJ forwarded the 
record to this Office for Final Agency Action noting that neither party 
had filed exceptions to the Recommended Decision. See 21 CFR 1316.66 
(providing a party with the right to file exceptions to an ALJ's 
decision ``[w]ithin twenty days after the date upon which [it] is 
served [with] a copy'').
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    \1\ All citations to the Recommended Decision are to the slip 
opinion as issued by the CALJ.
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    Subsequently, on July 8, 2015, Respondent filed with this Office a 
pleading entitled as its ``Closing Brief.'' In a letter accompanying 
the filing, Respondent's counsel explained that the Recommended 
Decision had been mailed to his former address and that he had recently 
changed his address and had ``only recently received'' the CALJ's 
Recommended Decision. Letter of Respondent's Counsel to Acting Deputy 
Administrator, DEA (July 8, 2015).
    Upon reviewing the letter, I noted that while Respondent's Counsel 
had explained that he had only recently received the Recommended 
Decision because it had been mailed to his former address, his filing 
was nonetheless untimely. Order of the Acting Administrator, at 1 (July 
13, 2015). I therefore directed Respondent's Counsel to explain why 
``this constitute[d] good cause''; I also directed Respondent's Counsel 
to address why he did not notify the Office of Administrative Law 
Judges (OALJ) of his new address, as well set forth the date on which 
he received the decision. Id.
    In response, Respondent's Counsel explained that he was ``not now 
attempting to add exceptions to the record,'' that he had previously 
received the decision on May 13, 2015, and that he ``had not filed any 
exceptions to it due to [his] understanding that exceptions are not 
necessary under the regulations.'' Letter of Respondent's Counsel to 
Acting Administrator, at 1 (July 14, 2015). Respondent's Counsel 
further explained that he had sent his previous letter to the Acting 
Deputy Administrator because he had received a copy of the CALJ's 
letter transmitting the record, and that he sent his letter ``in an 
abundance of caution due to [his] misunderstanding of the purpose of '' 
the CALJ's letter, as he ``did not want the fact that [he] had not 
filed any exceptions . . . to preclude'' this Office from 
``perform[ing] an independent review of the record and Decision.'' Id. 
at 1-2.
    Taking Respondent's Counsel at his word, I do not consider the 
filing submitted on July 8, 2015. However, in reviewing the record, I 
have considered the ``Closing Brief '' Respondent's Counsel submitted 
on April 27, 2015, following the conclusion of the evidentiary phase of 
the proceeding.
    Having considered the entire record in this matter, I have decided 
to adopt the factual findings of the Recommended Decision except as 
discussed below.\2\ I also adopt but modify the CALJ's legal 
conclusions as discussed below.\3\ Because I agree with the CALJ's 
conclusion that Respondent's evidence as to its acceptance of 
responsibility and remedial measures is not persuasive, I further adopt 
the CALJ's Recommendation to the extent that it recommends that I deny 
any pending application to renew its registration.\4\
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    \2\ The United States Supreme Court has explained my obligations 
under the Administrative Procedure Act, as well as the role of the 
ALJ's recommended decision, in reviewing the record and making 
factual findings. See Universal Camera Corp. v. NLRB, 340 U.S. 474, 
496 (1951) (``The `substantial evidence' standard is not modified in 
any way when the Board and its examiner disagree. . . . The findings 
of the examiner are to be considered along with the consistency and 
inherent probability of testimony. The significance of his report, 
of course, depends largely on the importance of credibility in the 
particular case.'') (emphasis added). The standard of review of an 
agency decision is also well settled. Accordingly, I decline to 
publish the ALJ's discussion of the substantial evidence test and 
the standard of review.
    \3\ I do not adopt the ALJ's statement (at R.D. 49) that 
``Regarding Factor 2, in requiring an examination of a registrant's 
experience in dispensing controlled substances, Congress manifested 
an acknowledgement that . . . the quantitative volume in which an 
applicant has engaged in the dispensing of controlled substances may 
be [a] significant factor[ ] to be evaluated'' in the public 
interest determination. See JM Pharmacy Group, Inc., d/b/a Farmacia 
Nueva and Best Pharma Corp., 80 FR 28667, 28667-68 n.2 (2015); see 
also Syed Jawed Akhtar-Zaidi, M.D., 80 FR 42962, 42967-68 (2015).
    \4\ Because I find that Respondent's registration has expired, 
see infra note 16, I do not adopt the ALJ's recommendation that I 
revoke its registration.
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    In this matter Respondent stipulated (and other evidence shows) 
that its Pharmacist-in-Charge, Chris Watson, who is also the son of its 
owner Tom Watson, committed multiple acts resulting in the diversion of 
controlled substances. These include:
    (1) Dispensing controlled substances including hydrocodone (a 
schedule II drug) to A.R. without a prescription. Stipulation 13. 
Additional record evidence shows that on nine occasions between June 
18, 2014 and December 29, 2014, Respondent dispensed controlled 
substances including hydrocodone and oxycodone (also a schedule II 
drug) to A.R. listing a dentist (Dr. Hambuchen) as the prescriber. GX 
4. However, Dr. Hambuchen denied knowing A.R. (GX 3) and testified to 
this in the proceeding. Tr. 23. The parties further stipulated that Dr. 
Hambuchen never issued a prescription for A.R. ALJ Ex. 15, at 4. Each 
of these acts constitutes an outright drug deal in violation of 21 
U.S.C. 841(a)(1), which provides that ``[e]xcept as authorized by this 
subchapter, it shall be unlawful for any person knowingly or 
intentionally . . . to distribute[ ] or dispense . . . a controlled 
substance[.]''). See also id. Sec.  842(a)(1) (``It shall be unlawful 
for any person . . . who is subject to the requirements of part C to 
distribute or dispense a controlled substance in violation of section 
829 of this title[.]''); id. Sec.  829(a).\5\
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    \5\ 21 U.S.C. 829(a) sets forth the prescription requirement 
applicable to the dispensing of a schedule II drug. It provides, in 
relevant part, that: ``[e]xcept when dispensed directly by a 
practitioner, other than a pharmacist, to an ultimate user, no 
controlled substance in schedule II, which is a prescription drug . 
. . may be dispensed without the written prescription of a 
practitioner, except [for] in emergency situations, as prescribed . 
. . by regulation,'' allowing for an oral prescription. See also 21 
CFR 1306.11(a).
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    (2) A. Dispensing hydrocodone and alprazolam to Ms. Samantha 
Pemberton, who the evidence shows was Chris Watson's girlfriend, on 
November 19, 2014, without a prescription for either drug. Stipulation 
19. For the same reasons as described above, these dispensings also 
constitute violations of 21 U.S.C. 841(a)(1). See also 21 U.S.C. 
842(a)(1); id. Sec.  829(b).\6\
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    \6\ 21 U.S.C. 829 (b) sets forth the prescription requirement 
applicable to the dispensing of a schedule III or IV drug. It 
provides that ``[e]xcept for when dispensed directly by a 
practitioner, other than a pharmacist, to an ultimate user, no 
controlled substances in schedule III or IV, which is a prescription 
drug . . . may be dispensed without a written or oral 
prescription.'' See also 21 CFR 1306.21(a).
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    B. The evidence also shows that on November 19, 2014, Ms. Pemberton 
was stopped for driving a vehicle without a license plate. ALJ Ex. 20, 
at 9. During a consensual search of Ms. Pemberton's purse, a police 
officer found both Xanax (in an unmarked vial) and hydrocodone, and 
took Ms. Pemberton into custody. Id. at 10. During several interviews, 
Ms. Pemberton claimed that she had a prescription for both drugs. Id. 
She also stated that she had just filled prescriptions for the drugs at

[[Page 70085]]

Respondent and had received them in unmarked bottles; however, she 
could not name the prescriber. Id.
    C. The evidence further shows that during the course of the police 
investigation of how Ms. Pemberton had obtained the controlled 
substances, Chris Watson admitted to a Detective that Pemberton had 
been in Respondent that morning and that he provided the drugs without 
prescriptions. Id. at 11. Watson then stated that he had `` `loaned' 
her some pills . . . `because she was out,' '' but then asserted that 
``we are just waiting on [the doctor's office] to call back because 
that office is notoriously slow.' '' Id. However, according to the 
credited testimony of the Detective who interviewed Watson, Watson gave 
him ``conflicting information about the identity of Ms. Pemberton's 
prescribing physician,'' initially stating that it was a Dr. Humbard. 
Id. at 12. While Watson agreed to provide the Detective with a copy of 
the prescriptions, the next day, he faxed over copies of the dispensing 
labels (but not the actual prescriptions), which indicated that the 
prescriptions had been filled on October 9, 2014 (and not November 19, 
2014), and the labels indicated that the prescriber was a different 
doctor (Dr. Arnold) than reported by Watson. Id. Moreover, the labels 
for both drugs showed that no refills were authorized. Id.
    D. The next day, the Detective again called Respondent and spoke 
with Chris Watson seeking the prescriptions. Id. After Watson stated 
that he had faxed over the labels, the Detective told Watson that he 
needed the prescriptions. Id. Watson stated that he would have one of 
the pharmacy technicians look up the prescriptions and send it to the 
Detective; later that day, the Detective received a fax which appeared 
to list called-in prescriptions. Id. at 13. While the document listed a 
prescription for Ms. Pemberton, the date appeared to be either October 
4 or October 9, 2014 and not November 19, 2014. Id.
    E. Subsequently, Ms. Pemberton provided the Detective with copies 
of two prescriptions; the prescriptions listed the date of issuance as 
October 9, 2014 and Dr. Arnold as the prescriber. Id. However, 
according to the stipulated testimony of a DEA Task Force Officer who 
interviewed Dr. Arnold, Arnold ``stated that he had never prescribed 
any controlled substances for Ms. Pemberton.'' ALJ Ex. 20, at 19. Thus, 
even the October prescriptions were fraudulent.\7\
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    \7\ I decline, however, to adopt the CALJ's further finding that 
Chris Watson's actions in ``generating false documents and supplying 
them to law enforcement to cover his tracks in supplying Samantha 
Pemberton with drugs . . . stand[s] out as worthy of separate 
consideration under Factor 5.'' R.D. at 58. At no point did the 
Government argue that Watson's actions with respect to the creation 
and provision of these documents to the local police constitute 
actionable misconduct under factor five, and while Respondent 
stipulated to the testimony, I conclude that the issue was 
``incidental'' to the principal issues in the case. See, e.g., 
Yellow Freight System, Inc. v. Martin, 954 F.2d 353, 358 (6th Cir. 
1992) (An ``agency may not base its decision upon an issue the 
parties tried inadvertently. Implied consent is not established 
merely because one party introduced evidence relevant to an 
unpleaded issue and the opposing party failed to object to its 
introduction. It must appear that the parties understood the 
evidence to be aimed at the unpleaded issue. Also, evidence 
introduced at a hearing that is relevant to a pleaded issue as well 
as an unpleaded issue cannot serve to give the opposing party fair 
notice that the new, unpleaded issue is entering the case.'') 
(citations omitted); see also NLRB v. Majestic Weaving Co., 355 F.2d 
854, 861-62 (2d Cir. 1966) (where Government's case focuses on other 
issues and evidence of uncharged violations is ``at most 
incidental,'' the incidental issue cannot support a sanction); 5 
U.S.C. 554(b) (``Persons entitled to notice of an agency hearing 
shall be timely informed of . . . the matters of fact and law 
asserted.'') (emphasis added).
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    (3)A. Distributing controlled substances, including one 1,000-count 
bottle of hydrocodone 10/325 mg and two bottles of 100-count methadone 
10 mg methadone, to one Eric Horton, on or about January 20, 2015, who 
was arrested following a traffic stop. Respondent stipulated that each 
of the bottles had Respondent's pharmacy stock stickers on it. 
Stipulation 21.
    B. The evidence also includes snapshots from Respondent's 
surveillance video camera which show that on January 20, 2015, both 
Chris Watson and Eric Horton were inside the pharmacy, in the area 
where it stored its drugs. GX 36. The evidence shows Watson taking a 
stock bottle, which appears to be of 1,000-count size from the shelves 
and handing it to Horton, who then went to a counter and proceeded to 
fill an amber prescription bottle with some of the contents of the 
1,000-count bottle. Id. The evidence further shows Horton then placing 
items in a blue tote, after which he proceeded to the pharmacy's 
shelves, took a stock bottle off a shelf, and showed it to Chris Watson 
before placing it in a pharmacy bag. Id. Thereafter, the evidence shows 
Horton going into a back room with the pharmacy bag, before returning 
and then placing the pharmacy bag in the tote. Id.
    C. Horton then went back to another shelf, and returned with 
another stock bottle which he showed to Chris Watson. Id. Horton then 
took out an amber prescription bottle before disappearing from the 
camera frame; however, upon reappearing, Horton did not have the stock 
bottle but appeared to place something in his jacket pocket. Id. Horton 
then took the tote and left the pharmacy. Id.
    D. About ten minutes later, Horton returned to the pharmacy without 
the blue tote. Id. A short while later, Chris Watson pulled a stock 
bottle from a shelf and placed it on the counter, after which Horton 
walked to the counter, counted pills, removed several amber pill 
bottles from under the counter and proceeded to fill them. Id. After 
handing a bottle to Watson, Horton placed one of the bottles in his 
pocket. Id. Horton then obtained a pharmacy bag and placed multiple 
amber bottles into the bag before leaving the pharmacy. Id. The video 
then shows Horton carrying a blue tote and leaving the store, followed 
by his placing the tote in the bed of his pick-up truck, before driving 
away.
    E. Later that evening, Horton was arrested by an Arkansas State 
Trooper on an outstanding warrant following a traffic stop. During an 
inventory search of Horton's vehicle, the officer found the blue tote 
along with one 1,000-count bottle of hydrocodone 10/325 mg, two 100-
count bottles of methadone 10 mg, and one 100-count bottle of oxycodone 
30. Tr. 83; Stipulation 21; GX 36, at 12. Notably, the oxycodone 30 
bottle also had Respondent's stock sticker on it. GX 36, at 12.
    F. In addition to the above, Respondent stipulated to Ms. 
Pemberton's testimony that on two occasions she ``witnessed [Chris 
Watson] providing stock bottles of controlled substances to Eric 
Horton'' while attending parties at Watson's home. ALJ Ex. 20, at 9.
    I therefore conclude that the evidence shows that on multiple 
occasions, Chris Watson (and Respondent) unlawfully distributed 
controlled substances to include hydrocodone, methadone, and oxycodone 
to Eric Horton.\8\ See 21 U.S.C. 841(a)(1).
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    \8\ The State Trooper further testified that he found pills in 
bottles that were mislabeled, as well as pills that were mixed in 
bottles. Tr. 83. He also found a coke bottle with a lid that could 
be unscrewed to access a container; inside the container was ``a 
bunch of mixed pills.'' Id. He also found other coke cans with lids 
that could be unscrewed and used to hide drugs. Id. at 84.
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    (4) The evidence also shows that on or about September 14, 2014, 
the Arkansas State Police arrested one Joseph Jackson who had been 
involved in a motor vehicle accident. Tr. 68-70. According to the 
unrefuted testimony, local police officers observed a bottle of 
prescription liquid codeine (with the label scratched off) in the front 
seat of Jackson's vehicle and the State Trooper testified that Jackson 
smelled of marijuana. Tr. 70-71. During a search of

[[Page 70086]]

the vehicle, the Officer found a black bag which contained ``a baggie 
of marijuana, prescription bottles of drugs, and two handguns,'' as 
well as a 500-count bottle of alprazolam 2 mg which bore Respondent's 
stock sticker. Tr. 71; Stipulation 22; ALJ Ex. 15, at 16. Because the 
evidence further shows that Respondent had not filed a controlled 
substance theft or loss report with DEA ``since at least 2012,'' I 
conclude that Respondent unlawfully distributed the 500-count bottle of 
alprazolam 2 mg. Stipulation 23; see 21 U.S.C. 841(a)(1).
    (5) Other evidence establishes that Chris Watson removed stock 
bottles of controlled substances from Respondent. Specifically, one of 
Respondent's employees provided stipulated testimony that she had seen 
Chris Watson remove stock bottles of hydrocodone and Xanax (alprazolam) 
from Respondent. ALJ Ex. 20, at 20-21. Still another employee testified 
that on two occasions he witnessed Chris Watson take 1,000 count 
bottles of hydrocodone off the shelf and place them in his backpack. 
Tr. 278-79.
    (6) The evidence further shows that on four occasions beginning on 
November 7, 2014 and ending on December 4, 2014, a DEA Special Agent 
(S/A) made undercover visits to Respondent during which he presented 
fictitious controlled substance prescriptions to Chris Watson. ALJ Ex. 
15, at 5.
    A. On the first occasion, the S/A presented prescriptions for 120 
Norco (hydrocodone/acetaminophen) 10/325 mg and 60 Xanax (alprazolam) 2 
mg.\9\Id. at 5-6. According to the S/A, he asked Chris Watson if he 
``create[d] the script right?''; Watson then told the S/A to add a 
certain letter to the DEA number he had created and to change the last 
number of the prescription ``to create a more realistic-looking 
prescription.'' Id. at 6. Notwithstanding that Watson knew the two 
prescriptions were fraudulent, he filled them. Id.; see also GXs 6, 7, 
8.
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    \9\ Both prescriptions were written on a single form. GX 6.
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    B. On November 13, 2014, the S/A returned to Respondent and 
presented prescriptions for both hydrocodone and alprazolam to Chris 
Watson. ALJ Ex. 15, at 6. However, Watson told the S/A that he was out 
of both drugs but would have more the next week. Id. The S/A then asked 
Watson if the letters he had used on the prescriptions for the 
prescriber's DEA registration number (RF) ``were correct?'' Id. Watson 
told him to use ``RA'' instead and wrote the letters down on a piece of 
paper. Id. After the S/A looked at the paper, Watson ``scratched out 
the letters with a pen.'' Id.
    C. On November 19, 2014, the S/A returned to Respondent with 
prescriptions for 240 Norco 10/325 mg (hydrocodone/apap) and 60 Xanax 2 
mg which he presented to Watson. Id.; see also GX 15, at 1. However, 
Watson stated that he could not fill the Norco prescription because he 
had run out ``two days earlier'' and ``would not get any more tablets 
until the first of the month.'' Id. The S/A then asked Watson if the 
DEA number on the prescription ``was correct.'' Id. at 7. Watson told 
him to change the last digit on the number and then ``described how to 
formulate a DEA number.'' Id. Watson then told the S/A that ``the 
prescription . . . looked better than most he sees at the pharmacy.'' 
Id.
    The S/A then asked Watson how much it would cost to buy a 1,000-
count bottle of hydrocodone; Watson stated: ``I don't usually do 
that.'' Id. After the S/A told Watson that he was trying to make some 
extra money, Watson replied that what the S/A did with the pills after 
the prescriptions had been filled [was] ``none of his business.'' Id. 
Watson then told the S/A to return to Respondent on the first of the 
month when the pharmacy would be resupplied with hydrocodone. Id. 
However, there is no evidence that Watson filled the Xanax prescription 
on this date.
    D. On December 4, 2014, the S/A presented fictitious prescriptions 
for 240 tablets of hydrocodone 10/325 mg and 60 tablets of alprazolam 2 
mg to Chris Watson. ALJ EX. 15, at 7. Watson dispensed the 
prescriptions to the S/A. Id.; see also GX 29-30.
    E. The evidence thus shows that Watson knowingly distributed both 
hydrocodone/acetaminophen (a schedule II narcotic) and alprazolam (a 
schedule IV benzodiazepine) on two occasions, based on fraudulent 
prescriptions, for a total of four separate acts of unlawful 
distribution. See 21 U.S.C. 841(a)(1); see also id. Sec.  843(a)(2) 
(``It shall be unlawful for any person knowingly or intentionally . . . 
to use in the course of the . . . distribution[ ] or dispensing of a 
controlled substance . . . a registration number which is 
fictitious[.])''; Cf. 21 CFR 1306.04(a) (``An order purporting to be a 
prescription issued not in the usual course of professional treatment . 
. . is not a prescription within the meaning and intent of section 309 
(21 U.S.C. 829) and the person knowingly filling such a purported 
prescription, as well as the person issuing it, shall be subject to the 
penalties provided for violations of the provisions of law relating to 
controlled substances.'').
    Moreover, I agree with the Government and CALJ that Watson's 
actions in instructing the S/A, who, in his undercover capacity 
presented as a drug-seeking patient, as to how to create fraudulent 
prescriptions which were ``more realistic,'' constitutes conduct 
``inconsistent with the public interest,'' regardless of whether it is 
considered under factor two (experience in dispensing controlled 
substances) or factor five (``[s]uch other conduct which may threaten 
the public health and safety''). 21 U.S.C. 823(f).\10\
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    \10\ As found above, Chris Watson clearly knew that the S/A was 
presenting fraudulent prescriptions when he filled them. In other 
circumstances, a pharmacist's counseling of a person who he knows to 
be presenting a fraudulent prescription as to how to create ``more 
realistic'' prescriptions (i.e., one which would avoid detection by 
another pharmacist to whom it was presented) could constitute 
criminal conduct actionable under factor four even without a 
conviction. See 21 U.S.C. 843(a)(3) (``It shall be unlawful for any 
person knowingly or intentionally . . . to acquire or obtain 
possession of a controlled substance by misrepresentation, fraud, 
forgery, deception, or subterfuge[.]''); 18 U.S.C. 2(a) (``Whoever 
commits an offense against the United States or aids, abets, 
counsels, commands, induces or procures its commission, is 
punishable as a principal.''). So too, in other circumstances (i.e., 
where the person creating the prescriptions is not an agent for the 
Government), Watson's conduct in filling a prescription, which he 
knew bore a fictitious registration number, could support a charge 
of conspiracy to use a fictitious registration number in the course 
of the distribution or dispensing of a controlled substance. See 21 
U.S.C. 846; id. Sec.  843(a)(2).
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    (7)A. Other evidence shows that during a search of Chris Watson's 
home, paper controlled substance prescriptions for both schedule II 
drugs OxyContin (oxycodone) and combination hydrocodone (with 
acetaminophen), and schedule IV drugs, including alprazolam, 
clonazepam, and Soma (carisoprodol), were found in violation of DEA 
regulations. ALJ EX. 15, at 2. More specifically, DEA regulations 
require that paper prescriptions be maintained at the registered 
location. See 21 CFR 1304.04(h)(2) (``Paper prescriptions for Schedule 
II controlled substances shall be maintained at the registered location 
in a separate prescription file.''); id. Sec.  1304.04(h)(4) (``Paper 
prescriptions for Schedules III, IV, and V controlled substances shall 
be maintained at the registered location either in a separate 
prescription file for Schedules III, IV, and V controlled substances 
only or in such form that they are readily retrievable from the other 
prescription records of the pharmacy.'').
    B. Still other evidence shows that during the execution of a search 
warrant at Respondent, the pharmacy only had

[[Page 70087]]

``partial invoices'' for the controlled substances it purchased in 
December 2014 and January 2015 because Eric Horton ``had removed all of 
the other invoices at PIC Watson's request in early December 2014.'' 
ALJ Ex. 20, at 22. However, under 21 U.S.C. 827(a)(3), ``every 
registrant . . . distributing[ ] or dispensing a controlled substance 
or substances shall maintain, on a current basis, a complete and 
accurate record of each such substance received . . . by him.'' 
Moreover, under DEA regulations, these records ``must be kept by the 
registrant and be available, for at least 2 years from the date of such 
inventory or records, for inspection and copying by authorized 
employees of'' DEA and must be kept at the registered location unless 
``the registrant has notified the Administration of his intention to 
keep'' the records ``at a central location, rather than at the 
registered location.'' 21 CFR 1304.04(a). Likewise, Respondent could 
not produce its most recent inventory, which apparently had been 
removed by its PIC notwithstanding that a DEA regulation requires that 
the inventory be maintained at the registered location. ALJ Ex. 20, at 
23; see also 21 CFR 1304.04(b)(1) (requiring that inventories ``be 
maintained at each registered location'').
    (8) Finally, the evidence shows that Respondent would receive 
shipments of controlled substances such as oxycodone and that the drugs 
would ``frequently disappear overnight.'' ALJ Ex. 20, at 20-21. The 
evidence also shows that ``in either August or October 2013, two 1,000-
count bottles of carisoprodol were stolen'' from Respondent. Id. at 22. 
Yet the evidence also shows that as of January 22, 2015, Respondent had 
not filed any theft or loss reports (DEA Form 106) with DEA since 
January 1, 2012.\11\ ALJ Ex. 20, at 17; Tr. 175-76; GX 63.
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    \11\ While Respondent reported a theft incident in August 2013 
which involved oxycodone, hydrocodone, alprazolam, clonazepam, and 
phenergan with codeine to the Arkansas Board of Pharmacy on a DEA 
Form 106, the report was never filed with DEA as required by 21 CFR 
1301.74(c). Tr. 120.
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    While Respondent stipulated to most of these acts, this is not the 
only evidence of misconduct on the part of Respondent's principals. 
More specifically, the evidence shows that on various occasions, Tom 
Watson, Respondent's owner and the father of Chris Watson, was provided 
information by employees and a business partner that Chris Watson was 
likely diverting controlled substances and failed to take appropriate 
action.
    Mr. Tracy Swaim testified that he had worked at Respondent for 26 
years and had served as its PIC from June 1997 until January 2012, when 
he resigned. Tr. 233, 251. Mr. Swaim further testified that after Chris 
Watson began working at Respondent as a staff pharmacist (in July 
2011), he noticed that Chris Watson ``was not being completely legal on 
some refills'' and that he saw this over the course of a month. Id. at 
251, 253, 263. Mr. Swaim decided that he was not going to remain as the 
PIC and told Tom Watson that he was not going to remain as the PIC 
because Chris was ``bending the rules'' and he (Mr. Swaim) did not 
``want to go to jail.'' Id. at 253. Thereafter, Swaim then completed 
the drug inventory and Chris Watson became Respondent's PIC. Id. at 
254.
    Mr. Swaim, who stayed on as a staff pharmacist with the same hours, 
further testified that in September 2014, a pharmacy technician (who 
had worked at Respondent for 31 years, see ALJ Ex. 20, at 21), ``was 
having a conversation with Tom [Watson]'' during which she told Watson 
that Chris Watson was ``giving stuff away.'' Tr. 256-57. Mr. Swaim 
joined the conversation and told Tom Watson, ``Tom, he's handing pills 
out the window,'' and that he was going to give his notice if Watson 
did not stop Chris's misconduct. Id. at 257. Tom Watson replied that he 
would ``put a stop to it'' and to ``trust me.'' Id. However, when Mr. 
Swaim returned to Respondent after several days off, he ``asked the 
girls [the pharmacy techs] if Chris had changed'' his behavior and was 
told ``no.'' Id. Mr. Swaim then gave notice and retired. Id.
    Grant Goode, who was Tom Watson's nephew, worked as a staff 
pharmacist at Respondent from December 12, 2014 through February 18, 
2015.\12\ Tr. 271; 273. Mr. Goode testified that he worked 
approximately 25 hours a week during December 2014, and that in 
January, he gradually increased his hours until after the middle of 
January, he was working most of the hours that the pharmacy was open. 
Id. at 271. Mr. Goode testified that when he was not working at 
Respondent, Chris Watson was the pharmacist. Id. at 273.
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    \12\ Grant Goode testified that he also worked at Respondent on 
November 24, 2014. Tr. 271.
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    Mr. Goode testified that while working at Respondent, he received 
phone calls from a couple of doctors inquiring about whether their 
patients had picked up prescriptions written by them, and that after he 
would inform the doctors that the patients had picked up the 
prescriptions, the doctors would ask if their patients had filled any 
other prescriptions. Tr. 275. Goode testified that when he would tell 
the doctors about the other prescriptions listed in the patients' 
profiles, the doctors stated that they had not written ``any 
prescriptions for those days.'' Id. Goode further testified that there 
were ``dozens'' of instances in which he looked for the hard copies of 
controlled substance prescriptions which were listed on the patient 
profiles but was unable to find them. Id. at 274-75.
    Mr. Goode testified that he told Tom Watson that he had ``talked to 
a couple of doctors, and that [he] couldn't find any hard copies for 
those prescriptions.'' Id. at 276. According to Goode, Watson's 
reaction was that the prescriptions may have been placed in the wrong 
file by the pharmacy technicians. Id. at 276-78. Mr. Goode further 
testified that he discovered that Respondent was missing prescriptions 
and reported this to Tom Watson during the first week of his employment 
(following December 12, 2014). Id. Goode testified that after the 
conversation he asked the pharmacy technicians about the prescriptions 
and was told that they ``should be in the file.'' Id.at 278.
    Mr. Goode testified to another incident, during which Tom Watson 
was present at Respondent and ``sitting at the desk'' when Chris Watson 
took a 1,000-count bottle of hydrocodone off the pharmacy's shelves and 
placed it in his backpack. Id. at 278-80. Mr. Goode testified that 
``[i]t appeared to'' him that Tom Watson saw what Chris was doing. Id. 
at 280.
    Mr. Goode testified to a further incident, which occurred on 
January 2, 2015. Id. at 282. According to Mr. Goode, one of 
Respondent's pharmacy technicians brought to his attention ``several'' 
prescriptions for schedule II drugs that were ``just made up'' and 
which listed Goode as the dispensing pharmacist on the label. Id. at 
282-83. Mr. Goode testified that Tom Watson was at Respondent that 
morning and so Mr. Goode laid out six or eight prescriptions and told 
Watson that while his initials were on the prescriptions he had not 
filled any of them. Id. Tom Watson responded that one of the pharmacy 
technicians (one who had worked for him for 31 years) ``must be doing 
that.'' Id. at 283. Goode then told Tom Watson that Chris ``was logging 
in and printing prescriptions from his laptop.'' Id. Goode further 
testified that Tom Watson did not take any action in response to the 
allegation.\13\ Id. at 284.
---------------------------------------------------------------------------

    \13\ In its closing brief, Respondent argues that in a 
proceeding brought to revoke Chis Watson's bond, based on the 
unsuitability of his third-party custodian, a federal magistrate 
judge found that ``Mr. [Grant] Goode lacks credibility when 
testifying in court under oath.'' Resp. Post-Hrng. Br. 8.; see also 
RX 14 (denying motion, reasoning that ``[t]he evidence revealed a 
number of conflicting family dynamics casting considerable doubt 
upon the reliability of the witness describing the alleged behavior 
that the Government presented to disqualify the current third-party 
custodian''). Apparently, this was in response to Mr. Goode's 
testimony in the criminal proceeding against Chris Watson that Tom 
Watson said ``he would like to kill a couple of DEA agents,'' a 
statement which he reported to DEA and which prompted the U.S. 
Attorney to file the motion. Tr. 302; see also RX 14.
     The CALJ nonetheless found Grant Goode's testimony to be 
``sufficiently detailed, plausible, and internally consistent to be 
fully credited in this decision.'' R.D. 25. The CALJ further 
explained that ``[b]ecause the Government did not offer the 
purported threat in its case-in-chief, a disposition of this case 
does not require that a credibility issue on this statement be 
rendered, and it forms no basis of this recommended decision.'' Id. 
at n.69.
     Respondent, however, offered the magistrate judge's findings to 
attack Grant Goode's credibility with respect to his testimony that 
he had brought his concerns about Chris Watson to Tom Watson's 
attention and sought to have the CALJ give Goode's testimony ``no 
weight.'' Resp. Post-Hrng. Br. 8 (``It is not known if the attention 
the DEA gave to Mr. Goode made him have delusions of grandeur that 
motivated his testimony, but he did take a keen interest in this 
case when he, unlike other lay witnesses, was at the hearing every 
day, even after his testimony had been given. On the other hand, 
unlike his reaction to Mr. Swaim's testimony, Tom Watson flatly 
denied that Mr. Goode ever brought any concerns about Chris to his 
attention.'' (citations omitted)).
     However, while Respondent offered the magistrate judge's 
finding to impeach Mr. Goode's testimony, I nonetheless adopt the 
CALJ's credibility finding because in assessing the credibility of 
Mr. Goode's testimony, I am entitled to consider ``the consistency 
and inherent probability of [his] testimony.'' Universal Camera 
Corp. v. NLRB, 340 U.S. 474, 496 (1951). Here, consistent with Mr. 
Goode's testimony, other witnesses testified that they brought their 
concerns with Chris Watson to Tom Watson's attention but that the 
latter ignored them. Accordingly, I find Goode's testimony credible 
notwithstanding the magistrate judge's finding.

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

[[Page 70088]]

    The Government also elicited testimony from Steve Goode, who, 
between 2001 and 2012, was a business partner of Tom Watson in four 
supermarkets (including Respondent), three of which had pharmacies. Id. 
at 485-86. While Steve Goode testified that his responsibilities 
involved managing the grocery side of the stores and that Tom and Chris 
Watson oversaw the pharmacies, he would see the daily and weekly sales 
reports for the stores. Id. at 487. Steve Goode further testified that 
its grocery wholesaler (AWG) allowed McKesson (the drug distributor 
used by the stores' pharmacies) to invoice through it, and thus, even 
though Steve Goode's responsibilities were limited to the grocery side 
of the stores, he could see the pharmacies' purchases on the ``weekly 
AWG statement.'' Id. at 487-88. According to Steve Goode, the daily 
sales report showed the sales of both the grocery side and the 
pharmacies. Id.
    Steve Goode further testified that in the summer of 2010, he 
noticed that one of the stores (Mayflower Food and Drug) ``didn't have 
any money in [its] accounts.'' Id. at 490. Goode looked into the 
situation and determined that while the pharmacy's purchases of 
medications ``were up,'' it ``sales were flat.'' Id.; see also id. at 
491. Of note, Chris Watson was the Pharmacist in Charge at the 
Mayflower store. Id. at 490.
    Steve Goode told Tom Watson about the issue; Watson's response was 
that ``we would get together and . . . have a talk with Chris.'' Id. at 
491. However, when the conversation did occur, Goode was told that he 
``needed just to take care of the grocery department [and] that Chris 
would take care of the pharmacy department.'' Id. at 492-93.
    At some point, Chris Watson started working at Respondent. Id. at 
495. According to Steve Goode, in the ``late spring of 2012'' he was on 
vacation when he received a phone call from another employee who told 
him that Chris Watson had allowed a former employee from the Mayflower 
pharmacy to go into Respondent on a Sunday afternoon when the pharmacy 
was closed and fill prescriptions ``for her family members and 
friends.'' Id. at 496, 498. When Goode returned from vacation, he spoke 
with Tom Watson about the incident and told him that he needed to ``get 
a handle on Chris.'' Id. at 496. While Tom Watson said that he would 
``take care of it,'' Goode testified that ``[n]othing happened.'' Id. 
However, Goode did not know whether the prescriptions were for 
controlled substances. Id. at 500.
    Regarding Mr. Swaim's testimony as to the reason he resigned as 
Respondent's PIC, Tom Watson testified that ``I remember some of what 
he talked about but I don't remember all of what he talked about.'' Tr. 
326. Watson then added that he had talked to his son ``about some 
things, too, so I was hoping . . . everything was in good shape.'' Id. 
Mr. Watson also denied having had a conversation with his long-standing 
pharmacy technician (as Mr. Swaim testified) that Chris was diverting 
drugs. Id. at 347.
    However, Tom Watson later acknowledged that Mr. Swaim is ``a good 
guy,'' who had been with him for ``a long time,'' before attributing 
the disparity between Mr. Swaim's testimony and his recollection as 
being the result of ``some health problems.'' Id. at 333. Watson then 
maintained that ``some of the stuff he said I just didn't remember like 
the conversations that he said we had. That don't mean we didn't have 
them. It just means that I just don't remember them.'' Id. at 333-34. 
As between the testimony of Mr. Swaim and Mr. Watson, the CALJ found 
Mr. Swaim's testimony more credible than Mr. Watson's. See R.D. 23, 41. 
I agree with the CALJ.
    As for Grant Goode's testimony that he told Tom Watson about the 
issues he found (the missing hard copy prescriptions, the doctors 
denying having written various prescriptions, the dispensings which 
were attributed to him which he did not fill), Watson asserted that ``I 
haven't talked to Grant about any concerns,'' that Grant ``didn't 
mention a word about anything he talks about here,'' and ``didn't 
mention misconduct . . . about anybody.'' Id. at 348-49.
    Watson also faulted Grant Goode for having called the State Board 
and the DEA, testifying that: ``Well, he seems like he's talked to 
everybody else. He's called the state board. He's called the DEA, and 
all this stuff, but he hasn't talked to me about it.'' Id. at 348.\14\ 
Still later, Watson reiterated that Grant Goode had ``never come 
directly to'' him about the issues he encountered. Id. at 351. While 
Watson maintained that Grant Goode also had the same medical issue 
which affected Watson's memory, Tr. 349, the CALJ found that ``Watson's 
assertion that . . . Grant Goode never brought concerns about his son's 
actions to his attention is simply not credible.'' R.D. at 41. I agree 
with the CALJ.\15\
---------------------------------------------------------------------------

    \14\ Later, Watson testified that:
    [F]amily is family. You know, if you've got a problem go see 
them about it, and talk about the problem. You don't know you got a 
problem until you at least talk about it. And you know, don't start 
with the state board, don't start with the DEA and all that. Start 
by calling your uncle or whatever or tell your mom and have her talk 
to your uncle if that--you know.
    Tr. 350.
    \15\ As for the incidents related by Steve Goode, Tom Watson 
also denied that Steve Goode had ever complained about the 
performance of the Mayflower pharmacy when Chris Watson was working 
there. Tr. 374-75. Notwithstanding that there is an ongoing dispute 
over the proceeds from dissolution of their partnership, id. at 505, 
the CALJ found that Steve Goode's testimony was fully credible as do 
I. R.D. 44.
---------------------------------------------------------------------------

    Mr. Watson further testified that he trusted his son, and that this 
``really'' shocked him. Tr. 326. When then asked whether he had any 
idea that his son ``had a substance abuse issue or was diverting,'' 
Watson maintained that he ``had no idea [Chris] had any kind of drug 
problem.'' Id.
    When further asked what he would have done if he ``had known that 
[his] son had a substance abuse problem or was diverting controlled 
substances,'' Watson asserted that he would have ``[g]ot it stopped,'' 
that he would have gone ``to the state board,'' and that he

[[Page 70089]]

``would have halted that immediately.'' Id. at 328. However, shortly 
thereafter, Watson admitted that he did not ``know exactly how [he] 
would have handled it,'' but that ``at some point'' the state board 
would have had to ``become involved'' because he had scheduled an 
inventory for early February and ``would have found out'' that drugs 
were missing.\16\ Id. at 330. The CALJ did not find Mr. Watson's 
testimony on these issues credible. R.D. at 41. Nor do I.
---------------------------------------------------------------------------

    \16\ While Mr. Watson testified that an inventory would have 
determined that Respondent was missing drugs, short of doing an 
audit in which Respondent's receipts of controlled drugs were added 
to the results of a previous inventory and its dispensings (as well 
as disposals, thefts or losses) were subtracted, it is not likely 
that this would have uncovered the problem. In any event, given the 
evidence that Mr. Swaim and Ms. Gilbert, his longstanding pharmacy 
technician, (not to mention his former business partner), had told 
Mr. Watson about his son's activities, I am left to wonder why the 
inventory was not scheduled months earlier.
---------------------------------------------------------------------------

    Thus, even putting aside the 2010 incident in which his business 
partner complained about the cash shortage at the Mayflower store, the 
evidence shows that on multiple occasions, Tom Watson, Respondent's 
owner, was provided with information that Chris Watson was likely 
engaged in the diversion of controlled substances. Notably, in his 
testimony, Tom Watson claimed only that he talked to his son (although 
it is unclear which incident prompted this) and offered no testimony 
that he took any other measures (other than to schedule an inventory 
long after he had received credible reports of a problem) to 
investigate the allegations. This is especially remarkable in light of 
the complaints raised by Mr. Swaim and the pharmacy technician, both of 
whom had worked for Mr. Watson for decades. I therefore hold that Mr. 
Watson's failure to investigate the allegations that his son and PIC 
was diverting controlled substances constitutes ``other conduct which 
may threaten public health and safety.'' 21 U.S.C. 823(f)(5); see also 
Rose Mary Jacinta Lewis, 72 FR 4035, 4042 (2007) (holding physician 
liable under factor five for failing to investigate the misuse of her 
registration; ``every registrant has a duty to conduct a reasonable 
investigation upon receiving credible information to suspect a theft or 
diversion has occurred'' as an investigation ``is essential to 
preventing the continuation of criminal activity'').
    The record in this matter thus establishes that Chris Watson, 
Respondent's PIC, committed egregious and extensive misconduct which 
ranged from regulatory violations to criminal acts. In short, Chris 
Watson used Respondent's DEA registration as a license to engage in 
drug dealing. Notably, in its post-hearing brief, Respondent does not 
dispute the evidence of its PIC's misconduct. Resp. Post-Hrng. Br. 2.
    Thus, Respondent acknowledges that ``the Government has met its 
burden of proving its Section 824(a) claim, placing the burden on 
[Respondent] to show that despite Chris Watson's conduct, granting [it] 
a [Registration] would not be contrary to the public interest.'' Id. at 
3. I agree and hold that the evidence conclusively establishes that 
Respondent, through both its PIC and owner, has committed numerous acts 
``inconsistent with the public interest,'' which support both the prior 
Administrator's issuance of the Immediate Suspension Order, as well as 
the denial of Respondent's pending application.\17\ See U.S.C. 823(f); 
824(a)(4); 824(d).
---------------------------------------------------------------------------

    \17\ The CALJ found that ``[t]he most recent renewal of the 
Respondent's registration occurred on February 7, 2012, with a 
scheduled expiration date of March 31, 2015.'' R.D. at 2 n.2. The 
CALJ then explained that ``[d]uring a March 19, 2015 status 
conference, the Respondent, through counsel, represented that a 
renewal application had been timely filed, and the Government 
represented that it will not contest the timeliness of the renewal 
application. Thus, the Respondent's [Registration] remains in full 
force and effect.'' Id. (citing 21 CFR 1301.36(i)).
     Here, however, the prior Administrator ordered that 
Respondent's registration be immediately suspended, thus prohibiting 
Respondent from exercising the authority granted by its 
registration. Thus, Respondent's registration did not ``remain[ ] in 
full force and effect.''
     Moreover, according to the Agency's registration records, of 
which I take official notice, Respondent did not file its renewal 
application until March 3, 2015. See 5 U.S.C. 556(e); 21 CFR 
1316.59(e). Significantly, at the time Respondent filed its renewal 
application, it had previously been served with the Order to Show 
Cause and Immediate Suspension of Registration. By regulation, DEA 
has set forth the conditions for the continuation of a registration 
past its expiration date where a registrant has been served with an 
Order Show Cause. See 21 CFR 1301.36(i); see also 5 U.S.C. 558(c) 
(``When [a] licensee has made timely and sufficient application for 
a renewal or a new license in accordance with agency rules, a 
license with reference to an activity of a continuing nature does 
not expire until the application has been finally determined by the 
agency.''). This regulation provides that:
    [i]n the event that an applicant for reregistration (who is 
doing business under a registration previously granted and not 
revoked or suspended) has applied for reregistration at least 45 
days before the date on which the existing registration is due to 
expire, and the Administrator has issued no order on the application 
on the date on which the existing registration is due to expire, the 
existing registration of the applicant shall automatically be 
extended and continue in effect until the date on which the 
Administrator so issues his/her order. The Administrator may extend 
any other existing registration under the circumstances contemplated 
in this section even though the Applicant failed to apply for 
reregistration at least 45 days before expiration of the existing 
registration, with or without request by the Applicant, if the 
Administrator finds that such extension is not inconsistent with the 
public health and safety.
    Id.
     Thus, where a Registrant, which has been served with an Order 
to Show Cause, fails to file its renewal application at least 45 
days before the expiration of its registration, the registration 
expires absent a showing that the extension of its registration is 
not inconsistent with the public health and safety. See Ralph J. 
Chambers, 79 FR 4962, 4962 (2014). The Agency has also applied the 
45 day rule in cases where a registrant has been issued an Immediate 
Suspension Order, recognizing that while a timely renewal 
application may result in the extension of a registration, the 
Immediate Suspension Order precludes the registration from remaining 
in effect. See Paul H. Volkman, 73 FR 30630, 30641 (2008). However, 
the Agency has further held that where an untimely renewal 
application has been filed and the Registrant's Registration has 
expired, the application remains pending before the Agency. Id.
     In this matter, I am not bound by the Government's agreement 
not to contest the timeliness of Respondent's renewal application. 
Accordingly, I find that Respondent did not file its renewal 
application until 28 days before its registration expired and was 
thus untimely. Moreover, I further find that because Respondent's 
registration was immediately suspended based on the prior 
Administrator's finding, which is amply supported by the record, 
that its ``continued registration during the pendency of these 
proceedings would constitute an imminent danger to the public health 
or safety,'' ALJ Ex. 1, at 5; and there is no evidence that the 
prior Administrator found that the extension of its registration 
would not be ``inconsistent with the public health and safety,'' 21 
CFR 1301.36(i), its registration has expired. However, I also find 
that Respondent's application is before the Agency. See Volkman, 73 
FR at 30641.
---------------------------------------------------------------------------

    Notwithstanding its egregious and extensive misconduct, Respondent 
nonetheless argues that the denial of its renewal application ``on this 
ground is a matter of discretion.'' Resp. Post-Hearing Br. 2 (citing 
Dinorah Drug Store, Inc., 61 FR 15972, 15973 (1996)). As a statement of 
the law, that is true. However, as set forth in numerous decisions, 
where, as here, ``the Government has proved that a registrant [or 
applicant] has committed acts inconsistent with the public interest, a 
registrant [or applicant] must `present sufficient mitigating evidence 
to assure the Administrator that it can be entrusted with the 
responsibility carried by such a registration.' '' Medicine Shoppe-
Jonesborough, 73 FR 364, 387 (2008) (quoting Samuel S. Jackson, 72 FR 
23848, 23853 (2007) (quoting Leo R. Miller, 53 FR 21931, 21932 
(1988))). ``Moreover, because `past performance is the best predictor 
of future performance,' ALRA Labs, Inc. v. DEA, 54 F.3d 450, 452 (7th 
Cir. 1995), [DEA] has repeatedly held that where a registrant has 
committed acts inconsistent with the public interest, the registrant 
must accept responsibility for its actions and demonstrate that it will 
not engage in future misconduct.'' Medicine Shoppe, 73 FR at 387; see 
also Jackson, 72 FR at 23853; John H. Kennedy, 71 FR 35705, 35709 
(2006);

[[Page 70090]]

Prince George Daniels, 60 FR 62884, 62887 (1995). See also Hoxie v. 
DEA, 419 F.3d at 483 (``admitting fault'' is ``properly consider[ed]'' 
by DEA to be an ``important factor[ ]'' in the public interest 
determination). So too, an applicant's candor during the proceeding is 
an important consideration in the public interest determination. See 
Hoxie, 419 F.3d at 483.
    While a registrant must accept responsibility and demonstrate that 
it will not engage in future misconduct in order to establish that its 
registration is consistent with the public interest, DEA has repeatedly 
held that these are not the only factors that are relevant in 
determining the appropriate sanction. See, e.g., Joseph Gaudio, 74 FR 
10083, 10094 (2009); Southwood Pharmaceuticals, Inc., 72 FR 36487, 
36504 (2007). Obviously, the egregiousness and extent of a registrant's 
misconduct are significant factors in determining the appropriate 
sanction. See Jacobo Dreszer, 76 FR 19386, 19387-88 (2011) (explaining 
that a respondent can ``argue that even though the Government has made 
out a prima facie case, his conduct was not so egregious as to warrant 
revocation''); Volkman, 73 FR at 30644; see also Paul Weir Battershell, 
76 FR 44359, 44369 (2010) (imposing six-month suspension, noting that 
the evidence was not limited to security and recordkeeping violations 
found at first inspection and ``manifested a disturbing pattern of 
indifference on the part of [r]espondent to his obligations as a 
registrant''); Gregory D. Owens, 74 FR 36751, 36757 n.22 (2009). So 
too, the Agency can consider the need to deter similar acts, both with 
respect to the respondent in a particular case and the community of 
registrants. See Gaudio, 74 FR at 10095 (quoting Southwood, 72 FR at 
36504). Cf. McCarthy v. SEC, 406 F.3d 179, 188-89 (2d Cir. 2005) 
(upholding SEC's express adoptions of ``deterrence, both specific and 
general, as a component in analyzing the remedial efficacy of 
sanctions'').
    Having considered the relevant factors, I conclude that Respondent 
has not produced sufficient evidence to show why it can be entrusted 
with a new registration. As for whether Respondent accepted 
responsibility for its misconduct, based on the record as a whole, I 
agree with the CALJ's finding that it ``has not accepted 
responsibility.'' R.D. at 60.
    I acknowledge that Respondent stipulated to many of the 
allegations. However, on the whole, Tom Watson's testimony on the issue 
was equivocal and unpersuasive as he repeatedly denied that he and 
Respondent were responsible for his son's misconduct.
    For example, Tom Watson initially testified that ``I didn't do 
enough. That was the problem.'' Tr. 335. However, Watson then amended 
his testimony, stating: ``Well, not that I didn't do enough, I didn't 
do it fast enough. I would have found out in a week what was--you know, 
where we stood on everything, so within a week I would have had to have 
made a decision on where I went from there because I would have known . 
. . exactly what we were missing.'' Id. However, even crediting 
Watson's testimony that he had scheduled an inventory to be conducted 
in early February (one week after the ISO was served), the evidence 
shows that Watson was told of his son's misconduct on multiple 
occasions by three different persons (Mr. Swaim, Ms. Gilbert, his 
longstanding pharmacy tech, and his former business partner), well 
before his nephew Grant Goode also complained. Watson offered no 
explanation for why he failed to do anything more that talk to his son 
in response to the earlier reports he received.\18\
---------------------------------------------------------------------------

    \18\ Even then, short of conducting an audit (of which an 
inventory is only a part), it is unlikely that Tom Watson would have 
discovered the full scope of Respondent's diversion.
---------------------------------------------------------------------------

    The record contains other examples of Tom Watson providing 
equivocal testimony or outright denying responsibility for Respondent's 
various violations of federal law. For example, when asked whether he 
accepted responsibility for the violations Respondent committed when 
Chris Watson removed the controlled substance prescriptions from the 
pharmacy to his house, Tom Watson testified that Chris ``failed to 
provided [sic] with the law,'' before adding that while ``[t]he owner 
have [sic] to take some responsibility . . . this is not--that's not my 
fault, I don't think. I think the pharmacist-in-charge should be 
responsible for that.'' Tr. 354.
    When then asked whether he was admitting that Respondent failed to 
comply with federal law when Chris Watson distributed controlled 
substance without a prescription, Tom Watson replied: ``I don't think 
[Respondent] did. I think my son did.'' Id. at 355. Upon further 
questioning as to whether he was accepting responsibility for these 
violations, Watson explained: ``I accept some responsibility because I 
probably should have replaced Chris with somebody else, but . . . it's 
past tense so now so I can't, so I'll have to take responsibility for 
that, yes.'' Id.
    Turning to the multiple instances in which the undercover Agent 
presented clearly fraudulent prescriptions which Chris Watson filled, 
Tom Watson testified that he did not accept responsibility. Id. at 356. 
Watson then explained that ``[w]hoever filled is responsible for those 
prescriptions. I didn't fill them.'' Id.
    Tom Watson acknowledged that his son violated federal law when he 
distributed the stock bottles of controlled substances that were found 
on Eric Horton and Joseph Jackson when they were arrested. Tr. 357. 
However, when asked whether he bore any responsibility for these acts, 
Watson testified: ``I don't think so.'' Id. at 358. Continuing, Watson 
added: ``Whoever filled the prescriptions and whoever give [sic] the 
medication away, that's who is responsible, I think. They will have to 
take responsibility for that they do, I mean it's part of life.'' Id.
    Also, as found above, Mr. Watson's nephew testified that Tom Watson 
was present on one occasion during which Chris Watson placed a 1,000-
count bottle of hydrocodone in his back pack and that Tom Watson 
observed this. Tom Watson did not address this incident either to deny 
that it had occurred or to acknowledge that it had occurred and accept 
responsibility for his misconducting in failing to intervene to prevent 
his son from diverting the drugs.
    Still later, when asked whether under Respondent's new Policies and 
Procedures, Tom Watson could even be affiliated with Respondent, Watson 
testified that ``[i]t would right now, yes. The only problem is I have 
done nothing wrong.'' Tr. 368. Continuing, Watson explained that 
``[w]hen they come and took my DEA license, yes, that's a possibility, 
but I have--I mean, I have done nothing wrong. I mean, I can't help 
what other people have done, but me personally I have done nothing 
wrong . . . I might be a little slow to act on some things that's all 
I'm guilty of.'' Tr. 368.
    Accordingly, I agree with the CALJ's findings that Respondent has 
failed to accept responsibility for its misconduct. This alone is 
sufficient to conclude that Respondent has not rebutted the 
Government's prima facie showing that granting Respondent's application 
``would be inconsistent with the public interest.'' 21 U.S.C. 823(f); 
see also Liddy's Pharmacy, L.L.C., 76 FR 48887, 48897 (2011). Given the 
egregiousness and extent of its misconduct, I need not consider whether 
Respondent has put forward sufficient evidence of remedial

[[Page 70091]]

measures to support its burden of production on this issue.\19\
---------------------------------------------------------------------------

    \19\ On the issue of its remedial measures, Respondent argued 
that Tom Watson testified that if its application is granted, ``he 
will be more actively involved in its operations'' to ``ensure its 
proper operations, accountability, and viability.'' Resp. Post-Hrng. 
Br. 16. However, given the multiple instances in which Mr. Watson 
was made aware of his son's misconduct and did nothing more than 
talk to his son, his promise to do better in the future rings 
hollow.
     On this issue, Respondent also presented the testimony of Glenn 
Wood, its prospective new Pharmacist in Charge. R.D. at 60. Finding 
Wood's testimony unpersuasive, the CALJ explained that:
    Wood's testimony concerning all the extra security measure [sic] 
he intends to take suffers from the same fundamental defect that 
[Tom] Watson's representations regarding his anticipated increased 
pharmacy involvement and implementation of his Proposed Policy do: 
both men were present and did nothing when the Respondent's PIC 
Chris [Watson], ran wild. These men are a major part of the problem, 
not the champions of a solution that can be afforded any genuine 
credence.
    Id.
     I do not find adequate support in the record for the CALJ's 
assertion that Glenn Wood was ``present and did nothing when'' Chris 
Watson ``ran wild.'' While Glenn Wood testified that he had done a 
one-month internship under Chris Watson while he was in pharmacy 
school, Tr. 477, 479; and that during the period 2006 through 2007, 
when he was working at both the Mayflower and Perryville stores, he 
worked alongside of Chris Watson one day a week, id. 454, 479; there 
is no evidence that Chris Watson was diverting controlled substances 
during this time period, let alone evidence that Glenn Wood observed 
this.
     Thereafter, Wood went to Utah for a brief period before 
returning to Arkansas and becoming the PIC at Morrilton Food and 
Drug for approximately three years up until the sale of the pharmacy 
in 2013. Tr. 395-96. Here again, there is no evidence that Chris 
Watson was diverting drugs in this period, let alone evidence that 
Glenn Wood observed this.
     After the sale of Morrilton Food and Drug, Wood worked for a 
pharmacy that is not affiliated with the Watsons, before agreeing in 
December 2014 with Chris Watson to work several days a week at 
Respondent. Id. at 396. Wood, however, did not start work at 
Respondent until January 28, 2015, the day after the search warrant 
and Immediate Suspension Order were served. Id. at 398.
     To be sure, Wood acknowledged that he had met Eric Horton at a 
birthday party for Chris Watson's daughter and there were occasions 
on which Chris Watson and Horton would show up at the pharmacy. Id. 
at 464-68. This, however, is too thin a reed to support the 
conclusion that Wood was ``present and did nothing when [Chris 
Watson] ran wild,'' R.D. at 60, especially given that there is no 
evidence that Watson was diverting drugs during this period. 
Ultimately, because Wood testified primarily on the issue of whether 
Respondent has instituted adequate remedial measures, an issue which 
I need not resolve given Respondent's failure to accept 
responsibility, I deem it unnecessary to consider the issues 
surrounding the February 25, 2015 phone call (nearly one month after 
the ISO was served and the search warrant executed) between Wood and 
Grant Goode regarding the latter's employment status, or Wood's 
involvement in the Redneck Remedy business venture, and decline to 
adopt that portion of the Recommended Decision which discusses these 
issues. R.D. 29-36.
---------------------------------------------------------------------------

    Respondent nonetheless argues that it should be granted a new 
registration because ``[t]he community impact'' of not granting its 
application ``is significant.'' Resp. Post-Hrng. Br. 12. As support for 
its contention, it relies on Pettigrew Rexall Drugs, 64 FR 8855, 8860 
(1999), a case in which the Agency found that revocation of a 
pharmacy's registration was justified by the proven misconduct (i.e., 
dispensing controlled substances without a physician's authorization 
but for which the patients appeared to have medical needs), but then 
``recognize[d] that [it was] one of two pharmacies in a relatively 
poor, medically underserved community, and . . . would most likely 
close if its DEA registration [was] revoked.'' However, the Agency also 
noted that in addition to having changed its procedures, there was ``no 
evidence of any wrongdoing since the events at issue'' which had 
occurred five or more years before the proceeding was even initiated 
(and eight years before the issuance of the decision). Id.
    Based on Pettigrew Rexall Drugs, Respondent argues that the 
community impact would be substantial because Respondent ``is located 
in ``a rural and underserved area,'' and that ``[a] large percentage of 
[its] patients are indigent.'' Resp. Post-Hrng. Br. 13-14. Respondent 
further argues that without a registration, Respondent would not be 
viable concern because patients will not go to two different pharmacies 
to fill their prescriptions and that the only ``other pharmacy in the 
area'' ``would have a monopoly.'' Id. at 14-15.
    While the Agency has now in multiple cases rejected the contention 
that community impact is a relevant consideration in assessing whether 
a prescribing practitioner's registration ``would be consistent with 
the public interest,'' and the reasoning of these decisions calls into 
question the continuing vitality of Pettigrew Rexall Drugs even as 
applied to a pharmacy, contrary to the discussion in the Recommended 
Decision, R.D. at 60, the Agency has not formally overruled the 
case.\20\ However, the Agency's reasons for rejecting consideration of 
community impact evidence in cases involving prescribing practitioners 
apply with equal force to pharmacies.
---------------------------------------------------------------------------

    \20\ Each of the cases cited by the ALJ involved prescribers. 
The closest the Agency has come to overruling Pettigrew Rexall Drugs 
is Physicians Pharmacy, L.L.C., 77 FR 47096 (2012). Therein, the 
Agency agreed ``with the ALJ's rejection of the Government's 
contention that `in assessing the public interest, the nature and 
amount of diversion of controlled substances in a geographical area 
is a legitimate area of inquiry and concern when determining whether 
an applicant should be granted a DEA registration.' '' Id. at 47096 
n.2. As the Agency explained, ``[n]othing in the texts of any of the 
five [public interest] factors set forth in section 823(f) remotely 
suggests that Congress granted the Agency authority to deny an 
application based on its assessment of `the nature and amount of 
diversion of controlled substances in a geographical area.' '' Id. 
(quoting Gov. Br. 4).
     In dicta, the Agency also noted that the Government's argument 
is ``simply the other side of the community impact coin'' and ``that 
a rule which takes into account the impact on the community caused 
by not registering (or de-registering through a revocation 
proceeding) a particular practitioner is completely unworkable.'' 
Id. (citations omitted). Moreover, the Agency cited only cases 
involving prescribing practitioners and did not discuss Pettigrew 
Rexall Drugs. Accordingly, Physicians Pharmacy cannot be read as 
overruling Pettigrew Rexall Drugs. See, e.g., Drug Plastics & Glass 
Co., Inc., v. NLRB, 44 F.3d 1017, 1022 (D.C. Cir. 1995) (``In order 
to diverge from agency precedent, the Board must `suppl[y] a 
reasoned analysis indicating that prior policies and standards are 
being deliberately changed, not casually ignored.' '') (citations 
omitted); Shaw's Supermarkets, Inc., v. NLRB, 884 F.2d 34, 37 (1st 
Cir. 1989) (quoting Atchison, Topeka & Santa Fe Ry. Co. v. Wichita 
Bd. of Trade, 412 U.S. 800, 808-09 (1973) (plurality op.) (``It is, 
of course, true that the Board is free to adopt new rules of 
decision and that the new rules of law can be given retroactive 
application. Nevertheless the Board may not depart sub silentio, 
from its usual rules of decision to reach a different, unexplained 
result in a single case.'')).
---------------------------------------------------------------------------

    In Gregory Owens, 74 FR 36751, 36757 (2009), the Agency explained 
that ``whether a practitioner treats patients who come from a medically 
underserved community or who have limited incomes has no bearing on 
whether he has accepted responsibility and undertaken adequate 
corrective measures.'' The Agency further explained that ``[t]he 
diversion of prescription drugs has become an increasingly serious 
societal problem, which is particularly significant in poorer 
communities whether they are located in rural or urban areas,'' and 
that ``[t]he residents of this Nation's poorer areas are as deserving 
of protection from diverters as are the citizens of its wealthier 
communities.'' Id.
    The Agency also noted that there are no workable standards for 
determining when a practitioner should be entitled to a reduced 
sanction based on community impact evidence. Id. Thus, in Owens, the 
Agency rejected the ALJ's recommendation that the Agency should decline 
to impose either a suspension or revocation of the practitioner's 
registration because 10 percent of his patients came from underserved 
counties and a majority of his patients had limited finances.
    As the Agency explained:

    The ALJ's reasoning begs the question of how many patients from 
underserved areas would a practitioner have to treat to claim the 
benefit of the rule. As for her reliance on the fact that a majority 
of Respondent's patients have limited incomes, determining what 
constitutes a patient with a limited income or finances (or what 
percentage of patients) a practitioner must have [who meet the 
criteria] to claim entitlement to this rule,

[[Page 70092]]

would inject a new level of complexity into already complex 
proceedings and take the Agency far afield of the purpose of the 
CSA's registration provisions, which is to prevent diversion.

Id.
    Notwithstanding that Respondent provided notice that it intended to 
argue that the Agency should consider the community impact of denying 
its application, the Government does not address whether Pettigrew 
Rexall Drugs remains viable as precedent. See generally Gov. Post-Hrng. 
Br. Accordingly, I address whether Respondent has produced sufficient 
evidence to support such a claim.
    Respondent's evidence on the issue was limited to the testimony of 
Mr. Wood that Perry County is ``an extremely rural area'' and that 
``[a] large percent of our customers are what I would describe as being 
indigent probably somewhat.'' Tr. 404. Mr. Wood further testified that 
without Respondent, there would only be one pharmacy in the county 
which would have a monopoly. Id. at 405. Finally, Mr. Wood testified 
that in Arkansas, a pharmacist can provide disease state management and 
give immunizations. Id. at 404-05.
    Mr. Wood's testimony is too insubstantial to support the conclusion 
that a sanction less than denial of its application is warranted 
because of the adverse community impact resulting from its inability to 
dispense controlled substances. Notably, Mr. Wood did not specify the 
percentage of Respondent's customers that is indigent, nor the income 
level he used to support his conclusion.
    As for the contention that without a DEA registration, Respondent 
will lose many of its customers because they will not want to go to two 
pharmacies to fill their prescriptions, controlled substances 
constitute only 11 percent of all prescriptions issued nationally. See 
Electronic Prescriptions for Controlled Substances, 75 FR 16236, 16237 
(2010) (Interim Final Rule). This suggests that the majority of 
pharmacy patients do not even fill controlled substance prescriptions.
    Moreover, even if the lack of a registration will eventually render 
Respondent financially unviable, I do not find persuasive its 
contention that this will have an adverse community impact. While 
Respondent maintains that this will result in the creation of a 
monopoly because there is only one other pharmacy in Perryville, Mr. 
Watson and his partner formerly owned a pharmacy in Morrilton, 
Arkansas, which is only fourteen miles from Perryville, and the results 
of a Mapquest search for pharmacies in the Perryville area (of which I 
take official notice) show that there are six pharmacies located in 
Morrilton.\21\ Tr. 395. Moreover, since Pettigrew Rexall Drugs, there 
has been an increase in the availability of legitimate mail order 
pharmacies. Thus, I reject Respondent's suggestion that denying its 
application will allow the remaining pharmacy to engage in monopolistic 
pricing.
---------------------------------------------------------------------------

    \21\ Pursuant to 5 U.S.C. 556(e), Respondent may show to the 
contrary, by filing a properly supported motion, no later than 15 
days from the date of service of this order, which shall commence on 
the date of mailing.
---------------------------------------------------------------------------

    Of further note with respect to Mr. Wood's testimony that a large 
percentage of Respondent's customers are indigent (and presumably less 
able to travel to Morrilton), Respondent produced no evidence as to the 
number of patients it deems to be indigent who are not enrolled in the 
Arkansas Medicaid program. However, the Arkansas Medicaid program 
covers the cost of most prescription drugs. See Arkansas Dept. of Human 
Services, Arkansas Medicaid, ARKids First & You--Arkansas Medical 
Beneficiary Handbook 56 (Rev. 2010). And Respondent produced no 
evidence that the other Perryville pharmacy does not accept Medicaid 
patients.\22\ Finally, as for Respondent's contention that pharmacists 
in Arkansas can provide disease state management and immunizations, it 
has offered no evidence that there is a shortage of medical 
professionals in the Perryville area who can provide these 
services.\23\
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    \22\ Because Respondent seeks to rebut the Government's prima 
facie showing, it has the burden of production on this issue.
    \23\ While I decline to overrule Pettigrew Rexall Drugs, I find 
its reasoning to be problematic as it appears to have given more 
weight to community impact than was warranted by the minimal 
evidence discussed in the decision and set forth no principle for 
when such evidence could overcome other relevant factors.
     For example, the decision noted the Agency's agreement with the 
ALJ's finding that the pharmacy owner ``did not appear candid or 
forthright and his testimony appeared to be tailored to Respondent's 
defense in this proceeding.'' 64 FR at 8858. The decision also noted 
the ``[r]espondent's failure to acknowledge or accept responsibility 
for any wrongdoing.'' Id. at 8860.
     Notably, since Pettigrew Rexall Drugs, the Agency has made 
clear that where the Government has proved that a registrant/
applicant has engaged in intentional or knowing diversion, the 
registrant/applicant must acknowledge its misconduct to rebut the 
conclusion that its registration is inconsistent with the public 
interest. See Holiday CVS, L.L.C., d/b/a CVS/Pharmacy Nos. 219 and 
5195, 77 FR 62315, 62323 (2012) (revoking pharmacy registration 
notwithstanding that company had replaced each pharmacy PIC because 
company failed to acknowledge its misconduct); Jayam Krishna-Iyer, 
74 FR 459, 463 (2009) (holding on remand that had physician not 
``acknowledged wrongdoing with respect to both her prescribing to 
the undercover operatives, as well as'' other misconduct, the Agency 
``would [have] again revoke[d] her registration''); see also MacKay 
v. DEA, 664 F.3d 808, 820 (10th Cir. 2011) (``The DEA may properly 
consider whether a physician admits fault in determining if the 
physician's registration should be revoked.'') (citation omitted); 
Chein v. DEA, 533 F.3d 828, 837 (D.C. Cir. 2008) (upholding 
revocation order, noting in part that physician had not ``accepted 
responsibility for his misconduct''); Hoxie v. DEA, 419 F.3d 477, 
483 (6th Cir. 2005) (DEA properly considers a registrant's admission 
of fault in determining whether registration should be revoked).
     Since Pettigrew Rexall Drugs, the Agency has also made clear 
that it ``places great weight on a registrant's/applicant's candor, 
both during an investigation and in any subsequent proceeding.'' 
Robert F. Hunt, 75 FR 49995, 50004 (2010); see also The Lawsons, 
Inc., t/a The Medicine Shoppe Pharmacy, 72 FR 74334, 74338 (2007) 
(quoting Hoxie, 419 F.3d at 483) (``Candor during DEA investigations 
properly is considered by the DEA to be an important factor when 
assessing whether a . . . registration is consistent with the public 
interest.''); Rose Mary Jacinta Lewis, 72 FR at 4042 (holding that 
lying under oath in proceeding to downplay responsibility supports 
conclusion that physician ``cannot be entrusted with a 
registration'').
     Thus, were a case to come before me with similar facts to those 
of Pettigrew Rexall Drugs, I would deny its application and/or 
revoke its registration.
---------------------------------------------------------------------------

    Thus, I conclude that Respondent's evidentiary showing on community 
impact is insufficient to rebut the Government's prima facie showing 
that granting its application ``would be inconsistent with the public 
interest.'' 21 U.S.C. 823(f). Nor do I consider its evidence sufficient 
to support a lesser sanction than what is warranted on the facts of 
this case.
    In short, I agree with the CALJ that the misconduct engaged in by 
both Chris Watson (Respondent's PIC) and Tom Watson (its owner) was 
egregious. See R.D. at 61. And I further agree with the CALJ's 
conclusion that ``a sanction that falls short of [denial] would 
undermine the Agency's legitimate interests in both specific and 
general deterrence.'' Id. Accordingly, I will affirm the Order of 
Immediate Suspension, as well as order the denial of Respondent's 
pending application to renew its registration.

Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(f) as well 
as 28 CFR 0.100(b), I order that the application of Perry County Food & 
Drug for a DEA Certificate of Registration as a retail pharmacy be, and 
it hereby is, denied. Pursuant to the authority vested in me by 21 
U.S.C. 824(a)(4) & (d), as well as 28 CFR 0.100(b), I affirm the Order 
of Immediate Suspension of DEA Certificate of Registration AP2331851 
issued to Perry County Food & Drug. Pursuant to the authority vested in 
me by 21 U.S.C. 824(f), I further order that all right, title, and 
interest in any controlled substances seized by the Government during 
the execution of the

[[Page 70093]]

Order of Immediate Suspension issued to Perry County Food & Drug be, 
and it hereby is, vested in the United States. This Order is effective 
immediately.\24\
---------------------------------------------------------------------------

    \24\ For the same reasons that led the former Administrator to 
conclude that an Immediate Suspension was warranted, I conclude that 
the public interest necessitates that this Order be effective 
immediately. See 21 CFR 1316.67.

    Dated: October 29, 2015.
Chuck Rosenberg,
 Acting Administrator.
    Paul A. Dean, Esq., for the Government.
    M. Darren O'Quinn, Esq., for the Respondent.

RECOMMENDED RULINGS, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND DECISION 
OF THE ADMINISTRATIVE LAW JUDGE

    John J. Mulrooney, II, Chief Administrative Law Judge. On January 
26, 2015, the Administrator of the Drug Enforcement Administration 
(DEA) issued an Order to Show Cause and Immediate Suspension of 
Registration (OSC/ISO) \25\ suspending the DEA Certificate of 
Registration (COR), number AP2331851,\26\ of Perry County Food & Drug 
(Respondent), pursuant to 21 U.S.C. 824(d), on the grounds that the 
Respondent's continued registration constitutes an immediate danger to 
the public health and safety. The OSC/ISO also proposes to revoke the 
Respondent's COR pursuant to 21 U.S.C. 824(a)(4), deny any pending 
applications for renewal or modification of such registration, or deny 
any applications for additional DEA registration, on the grounds that 
the Respondent's continued registration is inconsistent with the public 
interest as that term is defined in 21 U.S.C. 823(f). On February 6, 
2015, the Respondent, through counsel, filed a timely request for a 
hearing.\27\ A hearing was conducted in this matter on March 31-April 
1, 2015, in Little Rock, Arkansas.
---------------------------------------------------------------------------

    \25\ ALJ Ex. 1.
    \26\ Gov't Ex. 1. The Respondent was issued DEA COR AP2331851 
prior to April 2, 1986. Id. at 1. The most recent renewal of the 
Respondent's registration occurred on February 7, 2012, with a 
scheduled expiration date of March 31, 2015. Id. During a March 19, 
2015 status conference, the Respondent, through counsel, represented 
that a renewal application had been timely filed, and the Government 
represented that it will not contest the timeliness of the renewal 
application. Thus, the Respondent's COR remains in full force and 
effect. 21 CFR 1301.36(i) (2015).
    \27\ ALJ Ex. 3.
---------------------------------------------------------------------------

    The issue ultimately to be adjudicated by the Administrator, with 
the assistance of this recommended decision, is whether the record as a 
whole establishes by substantial evidence that the Respondent's 
registration with the DEA should be revoked pursuant to 21 U.S.C. 
824(a).
    After carefully considering the testimony elicited at the hearing, 
the admitted exhibits, the arguments of counsel, and the record as a 
whole, I have set forth my recommended findings of fact and conclusions 
of law below.

The Allegations

    In the OSC/ISO, the Government contends that several bases exist 
upon which the Agency should revoke the Respondent's COR. The 
Government alleges that revocation of the Respondent's COR is 
appropriate because the Respondent unlawfully distributed controlled 
substances in violation of 21 U.S.C. 841(a) and 21 U.S.C. 842(a). 
Specifically, the Government contends that from August 2014 through 
January 2015, the Respondent (1) ``on several occasions . . . 
distributed and dispensed controlled substances to individuals either 
without a prescription, as required by 21 U.S.C. 829(a), (b) and 21 CFR 
1306.11(a) and 1306.21(a), or pursuant to prescriptions that [the 
Respondent's] pharmacist knew or should have known had not been issued 
for a legitimate medical purpose in the usual course of the 
practitioner's professional practice'' and (2) failed to ``provide 
effective controls against theft and diversion of controlled 
substances.'' \28\
---------------------------------------------------------------------------

    \28\ ALJ Ex. 1 at 1-3.
---------------------------------------------------------------------------

    In support of its allegations, the Government asserts that on 
several occasions, the Respondent's pharmacist-in-charge (PIC) Chris 
Watson (Chris W) (1) dispensed controlled substances (hydrocodone and 
alprazolam) without a prescription and (2) dispensed controlled 
substances (hydrocodone and alprazolam) pursuant to prescriptions that 
Chris W knew were fictitious or fraudulent.\29\ Additionally, the 
Government alleges that Chris W advised an undercover DEA agent on how 
to modify a scrip by hand to ``create a more realistic looking 
prescription'' and deliberately ignored the agent's reference to 
intentional diversion of controlled substances filled at the 
Respondent.\30\ The Government also asserts that state law enforcement 
discovered the Respondent's stock bottles of controlled substances in 
vehicles of non-pharmacy personnel, and that the Respondent failed to 
inform DEA of the loss or theft of controlled substances as required by 
21 CFR 1301.74(c).\31\
---------------------------------------------------------------------------

    \29\ Id. at 1-2.
    \30\ Id. at 2-3.
    \31\ Id. at 4.
---------------------------------------------------------------------------

The Stipulations of Fact

    The Government and the Respondent, through counsel, have entered 
into stipulations \32\ regarding the following matters:
---------------------------------------------------------------------------

    \32\ The parties have also entered into stipulations of credible 
testimony regarding twenty-three witnesses. All stipulations of fact 
and testimony are set forth in ALJ Ex. 20.
---------------------------------------------------------------------------

    (1) The Respondent pharmacy is registered with the DEA as a retail 
pharmacy in Schedules II-V under DEA COR AP2331851 at 112 Houston 
Avenue, P.O. Box 327, Perryville, Arkansas 72126.
    (2) The scheduled expiration date of DEA COR AP2331851, which has 
been issued to the Respondent, and is the subject of these proceedings, 
is March 31, 2015.
    (3) During the time period of August 15, 2014 through January 28, 
2015, Chris W was the Vice-President and Controller of the Respondent 
pharmacy.
    (4) During the time period of August 15, 2014 through January 28, 
2015, Chris W was the pharmacist-in-charge (PIC) of the Respondent 
pharmacy.
    (5) The only registered address for the Respondent pharmacy under 
DEA COR AP2331851 is: 112 Houston Avenue, P.O. Box 327, Perryville, 
Arkansas 72126.
    (6) Patient D.J.\33\ had a prescription for Xanax, a controlled 
substance,\34\ filled at the Respondent pharmacy on September 17, 2013. 
The hard copy of this prescription was discovered at Chris W's 
residence during the execution of a federal search warrant on January 
27, 2015.
---------------------------------------------------------------------------

    \33\ Consistent with the terms of the Protective Order issued in 
this matter (ALJ Ex. 15), initials have been substituted for patient 
name identifiers. Copies of each of the prescriptions found at Chris 
W's house were received into evidence. Gov't Exs. 41, 54-63; Tr. 
204.
    \34\ Xanax (alprazolam) is a Schedule IV controlled substance. 
21 CFR 1308.14 (2015); Office of Diversion Control, Benzodiazepines, 
Drug Enforcement Admin. (Jan. 2013), available at https://www.deadiversion.usdoj.gov/drug_chem_info/benzo.pdf.
---------------------------------------------------------------------------

    (7) Patient J.I. had a prescription for Clonazepam, a controlled 
substance,\35\ filled at the Respondent pharmacy on September 17, 2013. 
The hard copy of this prescription was discovered at Chris W's 
residence during the execution of a federal search warrant on January 
27, 2015.
---------------------------------------------------------------------------

    \35\ Clonazepam is a Schedule IV controlled substance. 21 CFR 
1308.14.
---------------------------------------------------------------------------

    (8) Patient A.Q. had a prescription for Hydrocodone, a controlled 
substance,\36\

[[Page 70094]]

filled at the Respondent pharmacy on September 17, 2013. The hard copy 
of this prescription was discovered at Chris W's residence during the 
execution of a federal search warrant on January 27, 2015.
---------------------------------------------------------------------------

    \36\ Hydrocodone is a Schedule II controlled substance. 21 CFR 
1308.12 (2015).
---------------------------------------------------------------------------

    (9) Patient N.R. had a prescription for Hydrocodone, a controlled 
substance, filled at the Respondent pharmacy on May 25, 2011. The hard 
copy of this prescription was discovered at Chris W's residence during 
the execution of a federal search warrant on January 27, 2015.
    (10) Patient M.B. had a prescription for Oxycontin, a controlled 
substance,\37\ filled at the Respondent pharmacy on September 17, 2013. 
The hard copy of this prescription was discovered at Chris W's 
residence during the execution of a federal search warrant on January 
27, 2015.
---------------------------------------------------------------------------

    \37\ Oxycontin (oxycodone) is a Schedule II controlled 
substance. Id.; Office of Diversion Control, Oxycodone, Drug 
Enforcement Admin. (Mar. 2014), available at https://www.deadiversion.usdoj.gov/drug_chem_info/oxycodone/oxycodone.pdf.
---------------------------------------------------------------------------

    (11) Patient DC had a prescription for Soma, a controlled 
substance,\38\ filled at the Respondent pharmacy on September 16, 2013. 
The hard copy of this prescription was discovered at Chris W's 
residence during the execution of a federal search warrant on January 
27, 2015.
---------------------------------------------------------------------------

    \38\ Soma (carisoprodol) is a Schedule IV controlled substance. 
21 CFR 1308.14; Office of Diversion Control, Carisoprodol, Drug 
Enforcement Admin. (March 2014), available at https://www.deadiversion.usdoj.gov/drug_chem_info/carisoprodol/carisoprodol.pdf.
---------------------------------------------------------------------------

    (12) Patient D.C. had a prescription for Hydrocodone, a controlled 
substance, filled at the Respondent pharmacy on September 16, 2013. The 
hard copy of this prescription was discovered at Chris W's residence 
during the execution of a federal search warrant on January 27, 2015.
    (13) On or about August 15, 2014, Chris W dispensed 42 tablets of 
hydrocodone 10/325 mg to one A.R. without a prescription.
    (14) On November 7, 2014, Chris W dispensed 120 tablets of 
hydrocodone 10/325 mg and 60 tablets of alprazolam 2 mg to an 
undercover DEA Special Agent pursuant to a prescription that Chris W 
knew or should have known was fraudulent.
    (15) On November 7, 2014, Chris W instructed an undercover DEA 
Special Agent to add the letter ``R'' to the DEA registration number on 
a prescription, and to change the last digit of the number to seven to 
create a more realistic-looking prescription.
    (16) On November 13, 2014, Chris W instructed an undercover DEA 
Special Agent to use the letters ``RA'' instead of ``RF'' on the DEA 
registration number of a prescription that was presented to Chris W.
    (17) On November 19, 2014, Chris W instructed an undercover DEA 
Special Agent to change the last digit of a DEA registration number to 
six on a prescription that was presented to Chris W.
    (18) On November 19, 2014, Chris W instructed an undercover DEA 
Special Agent on how to create a fictitious DEA registration number.
    (19) On or about November 19, 2014, Chris W distributed 30 tablets 
of hydrocodone and 30 tablets of Xanax to Samantha Pemberton without a 
prescription.
    (20) On December 4, 2014, Chris W distributed 240 tablets of 
hydrocodone 10/325 mg and 60 tablets of alprazolam 2 mg to an 
undercover DEA Special Agent pursuant to a prescription that Chris W 
knew or should have known was fraudulent.
    (21) The stock bottle of 1,000-count hydrocodone 10/325 mg and two 
stock bottles of 100-count methadone \39\ 10 mg that were in Eric 
Horton's possession at the time of Horton's arrest on or about January 
20, 2015 all had the Respondent pharmacy's stock stickers on them.
---------------------------------------------------------------------------

    \39\ Methadone is a Schedule II controlled substance. 21 CFR 
1308.12.
---------------------------------------------------------------------------

    (22) The stock bottle of 500-count alprazolam 2 mg that was in Joe 
Jackson's possession at the time of Joe Jackson's arrest on or about 
September 14, 2014 had the Respondent pharmacy's stock sticker on it.
    (23) The Respondent pharmacy has not filed a theft or loss report 
with DEA since at least 2012.

The Evidence

    In addition to its reliance on the factual stipulations reached by 
the parties, supra, the Government presented its case through the live 
and/or stipulated testimony \40\ of twenty-six witnesses.\41\
---------------------------------------------------------------------------

    \40\ The parties stipulated to the credibility of the stipulated 
testimony. ALJ Ex. 20. Where applicable, individual credibility 
determinations regarding live testimony are set forth in the body of 
this recommended decision.
    \41\ Two of the Government's witnesses were presented in 
rebuttal.
---------------------------------------------------------------------------

    Arkansas State Trooper Corporal (Cpl.) Richard Whitley testified 
that he was on patrol on September 14, 2014 when he was dispatched to a 
one-vehicle accident where an individual named Joseph Jackson was being 
detained for leaving the scene. Stipulation of Testimony (SOT) 13(b); 
Tr. 67-68. Upon his arrival, Cpl. Whitley was advised that another 
police officer had noticed a bottle of liquid codeine \42\ in the front 
seat of the vehicle. SOT 13(b); Tr. 69-71. Cpl. Whitley started a 
conversation with Jackson and although Jackson denied any drug use, 
Cpl. Whitley noticed that his speech was slurred and detected the odor 
of marijuana. SOT 13(b); Tr. 71. Cpl. Whitley then secured Jackson in 
handcuffs in a police vehicle, and he and the other officers searched 
Jackson's car.\43\ SOT 13(b). The troopers smelled marijuana in 
Jackson's car and observed a bottle of codeine on the seat. SOT 13(c). 
Also discovered during the car search was a black bag containing a 
baggie of marijuana,\44\ prescription bottles of drugs, and two 
handguns. Id. Jackson denied any knowledge of the drugs and told Cpl. 
Whitley that the weapons were not his. SOT 13(c); Tr. 74. Cpl. Whitley 
searched Jackson for additional weapons, and discovered three large 
bundles of cash in his pockets totaling $2,820. SOT 13(c), (d). Among 
other things, the seized evidence included 74 carisoprodol tablets, 12 
alprazolam bars, one bag of suspected marijuana, one bottle of codeine, 
and two 500-count stock bottles of alprazolam, one of which bore a 
sticker from the Respondent.\45\ SOT 13(d). Interestingly, the 
materials seized from Jackson's vehicle also contained a handwritten 
note bearing the following phrases: ``no standing out''; ``your people 
go in as a group and if you leave plz [sic] leave your number''; 
``please have A-C in your car''; ``what to say''; ``you have lower back 
pain and you take hydrocodone 10.325 four time [sic] a day''; ``xanx 
[sic] 2 mg twice a day''; ``and your last visit to a doctor 2 to 3 
months ago.'' Gov't Ex. 39 at 3. The seized note bore the obvious 
hallmarks of crib notes that were apparently contrived to coach others 
successfully to lie persuasively to obtain controlled substances 
illegally from DEA practitioner registrants.
---------------------------------------------------------------------------

    \42\ Codeine is a Schedule II controlled substance. 21 CFR 
1308.12.
    \43\ A copy of a photograph of Jackson was received into 
evidence. Gov't Ex. 38; Tr. 70-71.
    \44\ Marijuana is a Schedule I controlled substance. 21 CFR 
1308.11.
    \45\ Photographs of the controlled substances, weapons, and note 
found in Jackson's car at the time of his arrest were received into 
evidence. Gov't Ex. 39; Tr. 75-76.
---------------------------------------------------------------------------

    The Government also presented the testimony of Dr. Raymond E. 
Hambuchen, D.D.S., a dentist practicing in Conway, Arkansas, and an 
acquaintance of the Respondent's (then) PIC, Chris W. Dr. Hambuchen 
testified that he has known Chris W for years and that they 
occasionally exchanged text

[[Page 70095]]

messages. SOT 1(a).\46\ On September 29, 2014, Dr. Hambuchen exchanged 
a series of text messages with Chris W wherein Chris W stated that he 
had dispensed controlled substances to one A.R. using Dr. Hambuchen's 
name as the prescriber and without a prescription. SOT 1(b); Gov't Ex. 
2; Tr. 20-21. Dr. Hambuchen testified that he did not know A.R.,\47\ 
has never issued a prescription for her, and that he wrote a letter to 
the DEA (Hambuchen Letter), at the request of DEA personnel, on 
November 12, 2014 memorializing that fact. SOT 1(c); Gov't Ex. 3; Tr. 
22-24. The Government acquired and introduced a patient profile on file 
at the Respondent regarding A.R. that lists Dr. Hambuchen as having 
authorized eleven prescriptions in her name. Gov't Ex. 4; SOT 20(d), 
(e); Tr. 185-86. These eleven prescriptions were dispensed at the 
Respondent between June and December 2014 \48\ and included the 
controlled substances Hydroco/APAP and oxycodone. Gov't Ex. 4.
---------------------------------------------------------------------------

    \46\ Dr. Hambuchen testified that although he and Chris W had 
``in the past'' texted each other a lot because they were friends, 
it was unusual in the last few years for him to receive a text 
message from Chris W. Tr. 24-25.
    \47\ The record reflects some confusion regarding A.R.'s first 
name; however, it is undisputed that Dr. Hambuchen does not know 
A.R. and did not prescribe any controlled substances to her. Tr. 23; 
SOT 1(b), (c); 10(d).
    \48\ The patient profile report for A.R. submitted by the 
Government spans the time period of January 2012 through January 
2015. Gov't Ex. 4.
---------------------------------------------------------------------------

    DEA Task Force Officer (TFO) Chad Wilson testified that he is 
currently stationed at the DEA Little Rock District Office (Little Rock 
DO) and that he received and reviewed the Hambuchen Letter. SOT 15(b). 
After reading the letter, TFO Wilson interviewed Dr. Hambuchen, who 
confirmed its contents,\49\ forwarded him a copy, and reiterated that 
he did not know an A.R. Id. TFO Wilson generated a report from the 
Arkansas prescription monitoring program (PMP) on A.R. Id.
---------------------------------------------------------------------------

    \49\ DEA SA Thomas Fisher, another agent stationed at the Little 
Rock DO, testified that he was also present with TFO Wilson during 
his interview of Dr. Hambuchen, and corroborated TFO Wilson's 
account of the interview. SOT 10(c), (d).
---------------------------------------------------------------------------

    DEA Special Agent (SA) Mark Mitchell testified that he is also an 
agent assigned to the Little Rock DO. SOT 3(a). He testified that on 
four occasions (specifically, November 7, 2014; November 13, 2014; 
November 19, 2014; and December 4, 2014), he made undercover visits to 
the Respondent. SOT 3(b). On each occasion, he presented fictitious 
controlled substance prescriptions to the pharmacist on duty, Chris 
W.\50\ Id. On November 7, 2014 (Undercover Visit 1), SA Mitchell met 
with Chris W and presented him with a fraudulent prescription for 
hydrocodone and alprazolam. SOT 3(c). According to SA Mitchell, during 
this visit, Chris W instructed him to add the letter ``R'' to the DEA 
registration number on the scrip and to change the last number to a 
``7'' to make the false document appear more realistic. Id. In SA 
Mitchell's estimation, Chris W's tutelage on the subject of making 
better fraudulent scrips demonstrated that Chris W well knew the 
presented scrip was fictitious. Id. The Government introduced a copy of 
the fraudulent scrip that SA Mitchell presented to Chris W at the 
Respondent. Gov't Ex. 6; Tr. 106. The scrip, dated November 7, 2014, is 
made out for ``Brian Jackson'' (the name SA Mitchell used in his 
undercover visits) and specifies 120 tablets of Norco and 60 tablets of 
Xanax. Gov't Ex. 6. During Undercover Visit 1, SA Mitchell was wearing 
audio and video recording equipment, but due to an equipment 
failure,\51\ nothing was recorded. SOT 3(c). Chris W filled the 
fraudulent prescription and dispensed the controlled substances to SA 
Mitchell.\52\ Id.
---------------------------------------------------------------------------

    \50\ SA Mitchell testified that the patient name he used on all 
of his undercover visits was ``Brian Jackson.'' Tr. 154.
    \51\ DEA SA Michael Willett testified that he is assigned to the 
Little Rock DO. SOT 4(a). SA Willett's area of responsibilities 
includes technical surveillance issues, and he is familiar with the 
video equipment that was used in SA Mitchell's undercover visits to 
the Respondent. SOT 4(b). SA Willett explained that the video 
equipment utilized during the four undercover visits has an internal 
battery that needs to be recharged in order for the video recording 
device to work properly. Id. Although none of the audio/video 
recordings or transcripts made regarding the four undercover visits 
were the subject of objection by the Respondent, it is worth noting 
that some of the tapes contained time/date stamp anomalies. The 
anomalies were persuasively explained by the combined testimony of 
SA Willett and TFO Wilson. SOTs 4, 15. Regarding date/time 
discrepancies encountered in the recording of other undercover 
visits in this case, SA Willett testified that when an internal 
battery has been allowed to go completely dead, the device loses 
track of the actual time. SOT 4(b). If the device's battery was not 
checked prior to use, the recording will reflect whatever time value 
is stored in the unit. Id. In SA Willett's opinion, this is what 
happened with some of the video recording devices operated by SA 
Mitchell on some of the undercover visits to the Respondent. Id. 
Additionally, TFO Wilson provided credible corroborating testimony. 
SOT 15(e)-(g).
    \52\ Photographs of the controlled substances and corresponding 
receipts received by SA Mitchell during Undercover Visit 1 were 
received into evidence. Gov't Exs. 7-8; Tr. 129, 131.
---------------------------------------------------------------------------

    On November 13, 2014 (Undercover Visit 2), SA Mitchell attempted to 
fill another fictitious prescription for hydrocodone and alprazolam at 
the Respondent.\53\ SOT 3(d). SA Mitchell stated that he presented the 
prescription to Chris W, who informed him that the pharmacy was out of 
hydrocodone and benzodiazepines, but that he would have more during the 
first of the following week. Id. SA Mitchell recalled that Chris W was 
mumbling, but that when SA Mitchell asked Chris W if he ``did the 
prescription right,'' Chris W recommended that he use the letters 
``RA'' instead of ``RF,'' which once again, in SA Mitchell's view, 
demonstrated that Chris W was well aware that the scrip was a fake. 
Id.; Tr. 145-50. When SA Mitchell asked Chris W again which letters to 
use, Chris W wrote the letters ``RA'' down on a piece of paper. SOT 
3(d). SA Mitchell testified that after he looked at what Chris W wrote, 
Chris W scratched out the letters with a pen. Id.
---------------------------------------------------------------------------

    \53\ Audio and video recordings contemporaneously made by SA 
Mitchell and a corresponding transcript of Undercover Visit 2 were 
received into evidence. Gov't Exs. 11-14; Tr. 139-40, 145.
---------------------------------------------------------------------------

    On November 19, 2014 (Undercover Visit 3), SA Mitchell returned to 
the Respondent and attempted to fill another fictitious prescription 
for hydrocodone and alprazolam.\54\ SOT 3(e). Once again, SA Mitchell 
encountered Chris W and handed him another fictitious scrip. Id. Chris 
W told Mitchell that he ran out of hydrocodone tablets two days 
earlier, and that more were not expected until the first of the month, 
because his supplier had placed limits on how much he could order. Id.; 
Gov't Ex. 18 at 1-2. When SA Mitchell asked Chris W if the fictitious 
DEA number on the prescription SA Mitchell presented was correct, Chris 
W instructed him to change the last digit of the DEA number of the 
prescription to a ``6.'' SOT 3(e). Chris W started counting, described 
the methodology in creating a DEA COR number to the undercover agent, 
and volunteered that the prescription that SA Mitchell just handed him 
looked better than most he sees as the pharmacy.\55\ Id.; Gov't Ex. 18 
at 4. Chris W also volunteered that he believed that multiple law 
enforcement agencies were scrutinizing his pharmacy, but the record 
contains no objective indication that he felt particularly inhibited by 
this revelation. Gov't Ex. 18 at 2. This crash course in the finer 
points of creating phony scrips reinforced SA Mitchell's view that 
Chris W was well aware that the scrip he

[[Page 70096]]

presented was fraudulent. SOT 3(e). When SA Mitchell asked Chris W for 
his cell phone number so that he could ``call you directly [so that] me 
and you [could] do business,'' Chris W took the undercover agent's cell 
phone number instead. Gov't Ex. 18 at 3.
---------------------------------------------------------------------------

    \54\ Audio and video recordings contemporaneously made by SA 
Mitchell and a corresponding transcript of Undercover Visit 3 were 
received into evidence. Gov't Exs. 16-18, Tr. 141.
    \55\ Chris W told SA Mitchell that his fraudulent scrip ``looks 
a lot better than any of the other damn things [he's] seen.'' Gov't 
Ex. 18 at 3.
---------------------------------------------------------------------------

    A copy of the fraudulent scrip that SA Mitchell presented to Chris 
W during Undercover Visit 3 was received into evidence.\56\ Gov't Ex. 
6, 15; Tr. 110. This scrip, dated November 19, 2014, specified a 
prescription for 240 tablets of Norco and 60 tablets of Xanax. Gov't 
Ex. 6. During the course of Undercover Visit 3, SA Mitchell asked Chris 
W how much it would cost to buy a 1,000-count bottle of hydrocodone. 
SOT 3(e). Chris W replied, ``I don't usually do that.'' Id. When the 
undercover agent told Chris W that he was trying to make some extra 
money, Chris W responded that what the agent does with the pills after 
the prescription is filled is none of his business. Id.
---------------------------------------------------------------------------

    \56\ DI Shelli Chupik, the creator of the fictitious scrip, 
explained that she deliberately included an authorization for an 
amount of medication that was inconsistent with the dosage 
instructions. Tr. 111-13. The discrepancy is highlighted by a text 
note added by DI Chupik on the copy of the exhibit received (without 
objection) into evidence. Id.; Gov't Ex. 16.
---------------------------------------------------------------------------

    On December 4, 2014 (Undercover Visit 4), SA Mitchell returned to 
the Respondent, presented another phony scrip to Chris W, and was 
dispensed 240 tablets of hydrocodone 10/325 mg and 60 tablets of 
alprazolam 2 mg.\57\ SOT 3(f). During Chris W's interaction with SA 
Mitchell during this visit the two men discussed a possible handgun 
sale. Over the course of discussion, the undercover agent volunteered 
to Chris W that he was a ``convicted felon.'' Gov't Ex. 33 at 8. Chris 
W told the agent, ``I can't sell [a gun] to you because I know you're a 
convicted felon.'' Id. Chris W's reservations concerning the undercover 
agent's felony conviction revelation did not apparently awaken in him 
any sense of heightened scrutiny regarding the wisdom of dispensing 
powerful controlled substances to him.
---------------------------------------------------------------------------

    \57\ Audio and video recordings contemporaneously made by SA 
Mitchell and a corresponding transcript of Undercover Visit 4 were 
received into evidence. Gov't Exs. 31-33; Tr. 142-43, 158-59.
---------------------------------------------------------------------------

    Diversion Investigator (DI) Shelli Chupik testified that she is 
stationed at the Little Rock DO. SOT 2(a); Tr. 107. According to DI 
Chupik, it was she who created the four fake controlled substances 
scrips that SA Mitchell used during his undercover visits to the 
Respondent. Chupik explained that each fake prescription contained the 
following fictitious information: a doctor's name, the name and phone 
number of a clinic, and a DEA COR number. SOT 2(b).
    On January 12, 2015, the Arkansas Board of Pharmacy (Arkansas 
Pharmacy Board or APB) supplied DI Chupik with a compact disc (APB CD) 
that contained reports that APB personnel prepared in connection with 
the pharmacy. SOT 2(e); Tr. 117-19. Included in the materials provided 
in the APB CD was a completed DEA Report of Theft or Loss of Controlled 
Substances (DEA-106), signed by Chris W, as the ``Owner/Pharmacist-in-
Charge.'' \58\ SOT 2(e); Gov't Ex. 53. The DEA-106 that was filed with 
the Arkansas Pharmacy Board on January 9, 2014 reflects (and purports 
to report to DEA) that on August 5, 2013, the Respondent was 
burglarized and that there was a theft of controlled substances. Gov't 
Ex. 53. DI Chupik testified that a DEA-106 is a form that, once 
prepared, must be filed with DEA.\59\ Tr. 120. On January 22, 2015, 
based on the information contained in the DEA-106, DI Chupik queried 
the DEA electronic DEA-106 Theft or Loss database and discovered that 
no DEA-106 forms had been submitted to the DEA by the Respondent in 
either 2013 or 2014. SOT 2(f); Tr. 120-22. Thus, although the DEA-106 
filed by the Respondent with the Arkansas Pharmacy Board ordinarily 
would/should/does indicate that the document had been filed with DEA to 
supply DEA with notice of the loss,\60\ this was not the case with this 
purported burglary.
---------------------------------------------------------------------------

    \58\ A copy of this DEA-106 was received into evidence. Gov't 
Ex. 53; Tr. 119.
    \59\ Former Respondent PIC Terry Swaim testified that the 
Respondent had a burglary in August of 2013 that resulted in the 
theft of approximately two thousand Soma (carisoprodol) pills and 
some Xanax (alprazolam), and that both Tom Watson and Chris W were 
aware of the incident. Tr. 259-60.
    \60\ DI Chupik clarified that the duty to file a DEA-106 occurs 
``pretty much immediately'' after discovery of a theft or loss of 
controlled substances and is not related to the dates when a 
pharmacy registrant is required to conduct a biennial inventory. Tr. 
122-24. Although DI Chupik testified that she believed that the DEA-
106 must be filed within seven days (Tr. 124), the DEA regulations 
actually provide that a ``registrant shall notify [the local DEA 
Field Division Office], in writing, of [a] theft or significant loss 
of any controlled substances within one business day of discovery of 
such loss or theft [and] shall also complete, and submit to the 
Field Division Office in his area, [a DEA-106] regarding the loss or 
theft.'' 21 CFR 1301.76(b) (2015).
---------------------------------------------------------------------------

    Conway Police Officer Matthew Edgmon testified that on November 19, 
2014, he initiated a traffic stop with a white Tahoe that had no 
license plate. SOT 8(b); Tr. 29. After some conversation with the 
driver, Samantha Pemberton, he ascertained that she had a suspended 
driver's license and that the (plateless) vehicle she was driving was 
owned by Chris W, whom she described to Officer Edgmon as the 
pharmacist/owner of the Respondent as well as her boyfriend.\61\ SOT 
8(b). Pemberton consented to a search of Chris W's car. A search of her 
purse yielded numerous pill bottles, many of which were unlabeled.\62\ 
SOT 8(c), (d); Tr. 29-32; Govt. Ex. 19. One of these unlabeled bottles 
had pills that Officer Edgmon recognized as likely being alprazolam. 
SOT 8(d). Pemberton's purse also contained bottles with labels bearing 
her name, as well as other labeled bottles containing non-controlled 
pills. Id. Officer Edgmon subsequently took Pemberton into custody for 
possession of a controlled substance, advised her of her Miranda rights 
(which Pemberton acknowledged she understood) and then questioned her 
about the pills he found in her purse. SOT 8(e). Pemberton told Officer 
Edgmon that she had Xanax and ``hydros'' (hydrocodone) and claimed that 
she had prescriptions for these. Id. Pemberton was transported to the 
Conway Police Department (CPD) for processing, and Officer Edgmon 
secured the contraband. Id.
---------------------------------------------------------------------------

    \61\ The Government introduced a copy of an insurance claim 
letter issued to ``Jennifer Watson and Christopher Watson'' on 
November 4, 2014, stating that on October 28, 2014, Pemberton was 
involved in a loss with a vehicle (a ``2013 Infinity'') on their 
policy. Gov't Ex. 27; Tr. 214-18. Additionally, Pemberton told 
Investigator Kennedy in the course of the interview at CPD that 
Chris W was her boyfriend and her pharmacist. Tr. 38.
    \62\ Photographs of the controlled substances found in 
Pemberton's car at the time of her November 19, 2014 arrest were 
received into evidence. Gov't Ex. 19; Tr. 31-32.
---------------------------------------------------------------------------

    In addition to corroborating many of the details of her arrest, 
Samantha Pemberton testified that she was Chris W's girlfriend, and 
that it is her understanding that he is an owner of the Respondent 
pharmacy. SOT 7(a). According to Pemberton, prior to the traffic stop, 
Chris W had given her controlled substances (specifically, 30 
hydrocodone 10/325 mg and 30 Xanax 2 mg) in unmarked bottles and 
without a prescription, and at the time of her arrest, those 
medications were still in her possession. SOT 7(b).
    CPD narcotics investigator Thomas Kennedy testified that he 
interviewed Pemberton at CPD after her arrest on November 19 and that 
this interview was recorded.\63\ SOT 9(b); Tr. 33. During the 
interview, Pemberton stated that: (1) she received at least some of the 
controlled substances that were in her purse from Chris W; (2) she had 
prescriptions for the controlled

[[Page 70097]]

substances in unmarked bottles, and that she had received those 
controlled substances from the Respondent where her boyfriend, Chris W, 
was the pharmacist; (3) she had just filled prescriptions for 
hydrocodone and Xanax at the Respondent, and that she received the 
controlled substances from Chris W in unmarked bottles; and (4) she was 
prescribed 30 hydrocodone 10/325 mg and 30 Xanax 2 mg, but was not able 
to name the doctor who prescribed the pills. SOT 9(c); Gov't Ex. 26 at 
6-7.
---------------------------------------------------------------------------

    \63\ A recording and corresponding transcript of the interview 
of Pemberton conducted by Investigator Kennedy on November 19, 2014 
were received into evidence. Gov't Exs. 25-26; Tr. 36, 38.
---------------------------------------------------------------------------

    Investigator Kennedy telephoned Chris W during the afternoon of the 
day Pemberton was apprehended and recorded that conversation.\64\ SOT 
9(d). When Investigator Kennedy informed Chris W that Pemberton had 
been arrested, Chris W replied that he only vaguely knew her. 
Specifically, Chris W said ``I think I know who she is,'' and 
amorphously described her as ``blonde'' and ``kinda cute.'' SOT 9(e). 
Chris W told Investigator Kennedy that he thought he recalled that 
Pemberton may have come into the Respondent that morning, and he 
admitted that on or about November 19 he allowed her to ``borrow'' some 
hydrocodone and Xanax without a prescription, and that the pharmacy had 
``loaned'' her some pills. Id. During the call, Chris W allowed that 
``we let her borrow a few because she was out,'' and ``I know we loaned 
her some hydrocodone and seemed like Xanax, maybe 2 mg.'' Id. When 
Investigator Kennedy asked Chris W how much he had dispensed to 
Pemberton, he responded, ``I want to say like 30 of each'' ``just 
because she gets like 90 at a time.'' Id. Chris W assured Investigator 
Kennedy that the pharmacy was ``just waiting on [the doctor's office] 
to call back because that office is notoriously slow.'' Id.
---------------------------------------------------------------------------

    \64\ A recording and corresponding transcript of Investigator 
Kennedy's November 19, 2014 phone call with Chris W were received 
into evidence. Gov't Exs. 20-21; Tr. 41, 43.
---------------------------------------------------------------------------

    Investigator Kennedy made repeated requests to Chris W and 
Pemberton to provide scrips for the 30 hydrocodone pills and 30 Xanax 
pills that Chris W admitted he had dispensed to Pemberton on or about 
November 19, but neither supplied any documentation. SOT 9(f). Chris W 
also provided Investigator Kennedy with conflicting information about 
the identity of Pemberton's prescribing physician. SOT 9(g). Initially, 
Chris W told him that the prescribing physician was a Dr. Humbard and 
agreed to fax a copy of the prescription. Id.
    On November 20, the day following the arrest and phone call, 
Investigator Kennedy did receive a fax (Fax 1) from the Respondent, but 
contrary to Chris W's representations on the phone, Fax 1 contained no 
scrips, but only a copy of two prescription labels (i.e., pharmacy fill 
stickers) from the Respondent.\65\ Id.; Tr. 52-53. Further, not only 
did Fax 1 contain labels instead of scrips, but in Investigator 
Kennedy's review of those prescription labels, he determined that the 
labels did not even correspond to the information Chris W had provided 
him during their phone conversation about the controlled substances he 
said he had dispensed to Pemberton the previous day. SOT 9(g). Instead, 
the labels with Fax 1 reflected prescriptions that had been filled on 
October 9, 2014 (not November 19, 2014), and had been issued for 75 
alprazolam 2 mg tablets and 75 Hydroco/APAP tablets 10/325 mg (not 30 
tablets of each drug as Chris W had stated during the previous day's 
phone call). Id. Moreover, the labels stated that the prescriptions had 
been issued by a ``Dr. Arnold'', not a ``Dr. Humbard.'' Id. 
Furthermore, an examination of the labels that were provided indicated 
that both directed that no refills remained on the prescriptions. Id. 
Thus, even on their face, the prescriptions supplied by Chris W in Fax 
1 that were purportedly used for the October 9, 2014 dispensing to 
Pemberton were no longer valid for refilling anything on November 19, 
2014 and could not have been properly used for that purpose. Id.
---------------------------------------------------------------------------

    \65\ A copy of Fax 1 was received into evidence. Gov't Ex. 48; 
Tr. 54.
---------------------------------------------------------------------------

    On November 21, three days following Pemberton's arrest, 
Investigator Kennedy contacted Pemberton and notified her that he had 
not received scrips for the drugs she received on November 19 from the 
Respondent.\66\ SOT 9(h). In response, Pemberton told Kennedy that she 
believed that Chris W had sent them. Id. When Investigator Kennedy 
explained that he had not received the scrips, Pemberton assured him 
that she would take care of it. Id. Pemberton called Investigator 
Kennedy back later in the day and told him that Chris W would fax the 
scrips. Id. Sometime later in the day, following his phone call with 
Pemberton, Investigator Kennedy telephoned Chris W at the Respondent 
and recorded the call.\67\ SOT 9(i). Chris W insisted that he had faxed 
over the labels the other day, but Investigator Kennedy again explained 
that he still needed to see the scrip. Id.; Tr. 55-56. Chris W then 
clarified that he did not give the scrip to Pemberton because she did 
not want her to try to take it somewhere else, but that he would have 
one of his technicians look up the scrip and send it over. SOT 9(i).
---------------------------------------------------------------------------

    \66\ A recording and corresponding transcript of Investigator 
Kennedy's phone call with Pemberton were received into evidence. 
Gov't Exs. 66-67; Tr. 47-50.
    \67\ A recording and corresponding transcript of Investigator 
Kennedy's phone call with Chris W were received into evidence. Gov't 
Exs. 22-23; Tr. 44-46.
---------------------------------------------------------------------------

    Later in the day, Investigator Kennedy did receive another fax (Fax 
2) from the Respondent but once again, the fax had was not a scrip, but 
merely a page of lined paper covered in scribbles, which, based on the 
investigator's experience, appeared to him to be a page from a notepad 
customarily used for call-in type prescriptions.\68\ SOT 9(j); Tr. 55, 
58-59. The Fax 2 notepad page did not contain any reference to a 
prescription issued to dispense medication to Pemberton on November 19. 
SOT 9(j). Instead, the only reference to Pemberton on the notepad page 
appeared in the upper right-hand corner of the fax, which included a 
handwritten date that appeared to be either ``10-4-14'' or ``10-9-14''; 
beneath that date appeared to be the name ``Samantha Pemberton,'' the 
text ``Xanax 2mg, TID, #75'', ``Narco 10/325'', some additional writing 
that Investigator Kennedy was unable to decipher, and then ``#75''. Id. 
The name ``James Arnold'' is written at the bottom of the notation. 
Gov't Ex. 49. Investigator Kennedy was quite clear that he had plainly 
articulated that he needed to see the scrips. Tr. 57-58.
---------------------------------------------------------------------------

    \68\ A copy of Fax 2 was received into evidence. Gov't Ex. 49; 
Tr. 59-60.
---------------------------------------------------------------------------

    Investigator Kennedy testified that on January 2, 2015, he called 
Pemberton again to remind her that he had still not received a scrip. 
SOT 9(k). In response, she stated that she would try to get the 
prescription and deliver it to him. Id. Four days later, on January 6, 
2015, Pemberton brought Investigator Kennedy two scrips, both of which 
bore the date October 9, 2014, and a signature from a Dr. James 
Arnold.\69\Id.; Tr. 61-63. The Government also introduced a copy of 
Pemberton's patient profile from the Respondent, which indicates that 
two prescriptions (alprazolam and hydroco/APAP) were dispensed to 
Pemberton on October 9, 2014. Gov't Ex. 24. According to the patient 
profile, James Arnold, M.D. is listed as the prescriber for both 
prescriptions. Id.
---------------------------------------------------------------------------

    \69\ Copies of these scrips were received into evidence. Gov't 
Exs. 51, 52; Tr. 64-66.
---------------------------------------------------------------------------

    In her testimony, Pemberton indicates that on January 6, 2015, 
approximately two months after her arrest, she did give Investigator 
Kennedy scrips that corresponded to the controlled

[[Page 70098]]

substances in her possession on the day she was arrested. SOT 7(d). The 
scrips Pemberton gave Investigator Kennedy were dated October 9, 2014 
and were issued for 75 tablets of hydrocodone 10/325 mg and 75 tablets 
of alprazolam 2 mg, and bore the purported signature of Dr. James 
Arnold of the Baptist Emergency Medicine Clinic. Id.
    Dr. James Arnold, M.D., testified that he is a doctor practicing at 
the Baptist Springhill Clinic in North Little Rock, Arkansas. SOT 
22(a). He stated that by virtue of the fact that he practices in an 
emergency room, he does not prescribe more than twenty hydrocodone 
tablets at one time. SOT 22(b). Dr. Arnold also indicated that he has 
checked his records and determined that he has not treated and does not 
know a person named Samantha Pemberton.\70\ SOT 22(c). On January 7, 
2015, Investigator Kennedy turned over to TFO Wilson the two scrips 
bearing Dr. Arnold's name that Samantha Pemberton had given him. SOT 
15(c). Both prescriptions had stickers on them indicating that they 
were filled on October 9, 2014, and both were marked ``no refills.'' 
Id.
---------------------------------------------------------------------------

    \70\ TFO Wilson ascertained from Dr. Arnold that he is not 
Pemberton's doctor and did not issue the scrips. SOT 15(d).
---------------------------------------------------------------------------

    DEA Task Force Officer (TFO) Robert Puckett testified that he is a 
member of the Beebe, Arkansas Police Department, is cross-designated as 
a DEA TFO, and is currently stationed at the Little Rock DO. SOT 5(a); 
Tr. 91. TFO Puckett reviewed surveillance videos of the interior and 
exterior of the Respondent that were recorded on January 20, 2015, and 
testified that he isolated screen captures from the video. SOT 5(c); 
Gov't Ex. 36. Chris W and his friend, Eric Horton, are depicted in the 
video footage. The Government introduced the screen captures of the 
surveillance videos created by TFO Puckett, as well as TFO Puckett's 
written narrative describing the actions of Horton and Chris W. Tr. 98; 
Gov't Ex. 36.\71\
---------------------------------------------------------------------------

    \71\ A clearer version of this exhibit was subsequently 
substituted in the record with the assent of the Respondent. Tr. 
387-88.
---------------------------------------------------------------------------

    According to TFO Puckett's (unchallenged) account, the surveillance 
tapes show Chris W handing Horton a bottle of medication, some of the 
contents of which Horton pours into an amber prescription bottle. Gov't 
Ex. 36 at 1-2. Horton can then be seen placing items into a blue tote 
bag on the floor. Horton then pulls a stock bottle of medication from 
the shelf, shows the bottle to Chris W, puts it into a pharmacy bag, 
and drops the pharmacy bag with some other items into a blue tote bag. 
Id. at 2. Horton takes another stock medication bottle from a pharmacy 
shelf, the bottle disappears from view, and Horton can be seen shoving 
something into his jacket pocket and walking out of the pharmacy. Id. 
at 2-6. A camera outside the pharmacy picks up Horton throwing 
something into a dumpster and placing the aforementioned blue tote \72\ 
into a white pickup truck. Id. at 10.
---------------------------------------------------------------------------

    \72\ A blue tote filled with controlled medications was seized 
from the white pickup truck Horton was driving at the time of his 
arrest later that evening. Tr. 83.
---------------------------------------------------------------------------

    Upon Horton's return to the pharmacy, Chris W can be seen placing a 
stock medication bottle on the counter for Horton to count out into 
multiple amber prescription bottles, one of which he hands to Chris W, 
and one of which he places in his own pocket. Id. at 7-13. Horton then 
fills a pharmacy bag with the amber prescription bottles and again 
leaves the pharmacy. Id. at 13. A camera outside the pharmacy captures 
Horton pulling away from the pharmacy in the white pickup truck. Id. at 
11. Other photographs depict controlled substances that were in the 
blue tote upon its subsequent seizure and inventory. Id. at 11-13.
    Shortly after Horton departed the Respondent, he was pulled over by 
Arkansas State Trooper First Class (Trooper) Kevin Growns. Trooper 
Growns testified that when he observed Horton's white truck change 
lanes twice without the benefit of a turn signal,\73\ he initiated a 
traffic stop. SOT 11(b); Tr. 77-78. At the time of the stop, Horton 
handed the trooper Chris W's driver's license, eventually explaining 
that he had the license so he could use Chris W's credit card. SOT 
11(b); Tr. 78-79. Horton ultimately did present his own driver's 
license,\74\ a run of which through the Arkansas Crime Information 
Center (ACIC) database \75\ revealed two outstanding warrants, one of 
which was active. SOT 11(c). In response to a question from Trooper 
Growns, Horton indicated that he was not armed, but that there were two 
pistols in the truck he was driving. Id.; Tr. 81. Horton was searched 
for weapons, handcuffed, and placed into the trooper's vehicle.\76\ SOT 
11(c). Trooper Growns found two handguns sitting on the rear floorboard 
(one of which had a chambered round). Tr. 83. When asked if there was 
anything else illegal in his vehicle, Horton gave no response, but an 
inventory search of the truck revealed a blue tote bag that contained a 
stock bottle of hydrocodone \77\ and two 100-count methadone 10 mg 
stock bottles.\78\ SOT 11(d); Tr. 83-84. Horton also had $1,529 in cash 
on his person, and the methadone stock bottles seized had the 
Respondent's pharmacy stickers on them. SOT 11(d), (e). Additionally, 
Trooper Growns testified:

    \73\ Trooper Growns testified that a traffic citation was issued 
regarding the failure to signal violation as well as driving without 
insurance. Tr. 85.
    \74\ Tr. 79-80.
    \75\ In his live testimony, Trooper Growns stated that the 
license check was initiated through the Federal Bureau of 
Investigation's National Crime Information Center (NCIC) database. 
Tr. 79. The variance is not material.
    \76\ A copy of Horton's arrest photograph was received into 
evidence. Gov't Ex. 34; Tr. 86-87.
    \77\ In Trooper Growns's estimation, it was a ``like [a] 
thousand count bottle of hydrocodone[ ] . . .'' Tr. 83.
    \78\ Photographs of the controlled substances found in Horton's 
vehicle were received into evidence. Gov't Ex. 35; Tr. 87-89.

    We found a pair of tennis shoes that also had another bottle of 
pills that were mixed in. We also found a meth pipe and a baggie of 
stuff that appeared to be meth as well, and there was a couple of 
other [C]oke cans as well that you could unscrew the lid and had 
---------------------------------------------------------------------------
false compartments in them.

    Tr. 84.
    DI Inez Davis testified that she is currently assigned to the 
Little Rock DO. SOT 12(a); Tr. 213. The certified copy of the 
Respondent's incorporation from the State of Arkansas that DI Davis 
procured reflects that Chris W is listed among the Respondent 
pharmacy's officers, and specifically is listed as vice-president, 
controller, and board member of the Respondent. Gov't Ex. 50; SOT 
12(b); Tr. 218-19.
    On January 27, 2015, a federal search warrant was executed on the 
Respondent simultaneously with the service of the OSC/ISO that 
initiated these proceedings (pharmacy search warrant execution). Little 
Rock DO Group Supervisor (GS) Lisa Barnhill testified that during the 
pharmacy search warrant execution, it was she who coordinated and 
supervised the search of the pharmacy's records. SOT 14(c). DEA and 
other law enforcement personnel associated with the search were able to 
locate patient profiles for Eric Horton, Brian Jackson (the undercover 
identity used by SA Mitchell), Samantha Pemberton, and A.R. However, 
although the vehicle he was driving on the night of his arrest 
contained stock bottles of controlled substances adorned with labels 
from the Respondent pharmacy, there was no patient profile for Joseph 
Jackson at the pharmacy.\79\ Id. GS Barnhill also related that she 
conducted an audit of Respondent pharmacy records obtained during the 
pharmacy search warrant

[[Page 70099]]

execution, focusing on varying strengths of ``oxycodone, hydrocodone, 
alprazolam and generic Dilaudid.'' \80\ Tr. 181. According to GS 
Barnhill, her audit of just those medications yielded a ``shortage of 
close to a quarter million pills.'' Id. Barnhill also testified that 
the search she conducted of all of relevant paper and electronic 
records at the Little Rock DO reflects no report of theft or loss of 
controlled substances filed with DEA by the Respondent between January 
1, 2012 and January 22, 2014. SOT 14(a), (b); Gov't Ex. 63; Tr. 161, 
175-76.
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    \79\ This testimony is consistent with the recollection of DI 
Pamela Lee and DI Davis, who were also present. SOTs 20, 12(c), (d). 
The patient profiles seized that day were received into evidence. 
Gov't Exs. 4, 24, 37; Tr. 187, 188-89, 191-92; see also SOT 18.
    \80\ Dilaudid (hydromorphone) is a Schedule II controlled 
substance. 21 CFR 1308.12; Office of Diversion Control, 
Hydromorphone, Drug Enforcement Admin. (July 2013), available at 
https://www.deadiversion.usdoj.gov/drug_chem_info/hydromorphone.pdf.
---------------------------------------------------------------------------

    DI Carolina Vazquez-Lopez testified that she is assigned to the 
Little Rock DO, that she was present at the pharmacy search warrant 
execution, and that, as she was directed to do, she gathered all 
pertinent required DEA records from the Respondent, including DEA Order 
Form 222s, Controlled Substance Ordering System (CSOS) records, 
purchase invoices, DEA Form 41/Registrants Inventory of Drugs 
Surrendered, DEA Form 106/Theft or Loss of Controlled Substances, Power 
of Attorney, and Inventory Records. SOT 19(a)-(c). DI Vazquez-Lopez 
testified that during the pharmacy search warrant execution she was 
assisted in gathering records by Bettie Wood, a pharmacy technician 
(Pharm. Tech.) employed at the Respondent. SOT 19(d). DI Vazquez-Lopez 
testified that Pharm. Tech. Wood told her that the Respondent only had 
partial invoices for December 2014 and January 2015 because Chris W's 
friend, Eric Horton (a non-employee), had removed all of the other 
invoices at Chris W's request in early December 2014. SOT 19(e).
    DI Vazquez-Lopez asked Pharm. Tech. Wood whether the Respondent had 
any reported thefts or losses in the last two years. SOT 19(f). Pharm. 
Tech. Wood stated that there had been an incident in either August or 
October 2013 when two 1,000-count bottles of carisoprodol were stolen. 
Id. When DI Vazquez-Lopez asked Pharm. Tech. Wood for a copy of the DEA 
Form 106/Theft or Loss Form, she stated that Chris W would have it. Id. 
When DI Vazquez-Lopez asked Pharm. Tech. Wood where the controlled 
substance prescriptions were stored, she explained that the 
prescriptions were stored in the back office, but only as far back as 
April 2014 because prescriptions prior to 2012 were lost in a fire, and 
the balance had been taken away by another friend of Chris W's, Eric 
Horton, who was also not employed at the pharmacy. SOT 19(f). When DI 
Vazquez-Lopez asked Pharm. Tech. Wood for the Respondent's most recent 
physical inventory records, Pharm. Tech. Wood stated that Chris W had 
taken the Respondent's last inventory records after a state inspection 
the previous year, and that there were no other copies in the 
Respondent pharmacy. SOT 19(i).
    Pharm. Tech. June Gilbert testified that she has been a pharmacy 
technician at the Respondent for approximately thirty-one years, and 
that it has been her experience that controlled substances frequently 
disappear from the Respondent overnight. SOT 17(a), (c). Pharm. Tech. 
Gilbert also related that she has seen Chris W repeatedly give out 
pills without a prescription, and that Eric Horton and Joseph Jackson 
are not employees of the Respondent. SOT 17(b), (c).
    Pharm. Tech. Alyssa Burns testified that she has been a pharmacy 
technician at the Respondent for approximately one year. SOT 16(a). 
Similar to Pharm. Tech. Gilbert's experience, Pharm. Tech. Burns 
testified to her observation that items delivered in medication 
shipments to the Respondent--mostly oxycodone--regularly turn up 
missing the morning after delivery. SOT 16(b). It is Pharm. Tech. 
Burns's opinion that orders for controlled substances placed by the 
Respondent are excessive in light of the number of prescriptions that 
are actually filled there. Id. According to Pharm. Tech. Burns, the 
Respondent usually reaches its controlled substance limit with 
McKesson--one of its pharmaceutical suppliers--on the ninth day of each 
month.\81\ Id.
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    \81\ The Government introduced into evidence copies of lists 
generated by the Respondent's distributors indicating the products 
sold to the Respondent between 2013 and 2015. Gov't Exs. 42-43, 68 
(McKesson); 44-45 (Harvard); 46-47 (Top Rx); Tr. 167, 169, 172-73.
---------------------------------------------------------------------------

    Pharm. Tech. Burns also stated that Chris W has ordered her to fill 
prescriptions for hydrocodone, Xanax, Soma, and promethazine cough 
syrup without a hard copy of a prescription, and that he once directed 
her to fill four identical prescriptions for Xanax, hydrocodone, and 
Soma for a customer (B.E.) in a single week.\82\ SOT 16(e). Pharm. 
Tech. Burns has seen Chris W leave the pharmacy with drugs in his 
backpack, and has actually seen a stock bottle of hydrocodone with 
tablets in Chris W's open backpack. SOT 16(f). Like Pharm. Tech. 
Gilbert, Pharm. Tech. Burns affirmed that neither Eric Horton nor 
Joseph Jackson is an employee of the Respondent.\83\ SOT 16(c). She 
believes that Horton is a friend \84\ of Chris W's, and she has seen 
Horton take bottles of controlled substances off of shelves at the 
Respondent and place them in his pockets. Id. Pharm. Tech. Burns 
further testified that several weeks before the pharmacy search warrant 
execution, Chris W and Horton removed a large number of invoices and 
hard copies of prescriptions that were previously filled from the 
pharmacy, but she does not know what became of the documents they took. 
SOT 16(g).
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    \82\ A copy of B.E.'s patient profile at the Respondent, as well 
as copies of prescriptions issued to B.E., were introduced into 
evidence. Gov't Ex. 65; Tr. 194. B.E.'s patient profile does 
indicate that this was the case from January 2-8, 2014. Gov't Ex. 65 
at 9.
    \83\ Long-time Respondent PIC Tracy Swaim also testified that 
Jackson was never an employee at the Respondent. Tr. 235; Gov't Ex. 
38.
    \84\ Samantha Pemberton testified that has seen Chris W supply 
Horton with controlled substances at parties at Chris W's residence. 
SOT 7(c).
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    TFO Eli Fowlkes testified that he is a detective with the Benton, 
Arkansas Police Department and is cross-designated as a DEA Task Force 
Officer stationed at the Little Rock DO. SOT 21(a); Tr. 197-98. TFO 
Fowlkes testified that on January 27, 2015, he participated in the 
execution of a search warrant at Chris W's residence (Chris W residence 
search warrant execution). SOT 21(b); Tr. 199-200. During the search of 
Chris W's house, TFO Fowlkes discovered numerous controlled substance 
scrips, which he photographed and inventoried into DEA custody. SOT 
21(c), (d); Gov't Exs. 41, 54-62; Tr. 200-07.
    The Government also presented the testimony of pharmacist Tracy 
Swaim. Swaim testified that he is currently employed as a part-time 
\85\ pharmacist at the Respondent, but up until October 10, 2014, he 
had worked there as a full-time pharmacist for twenty-six years, and 
was the Respondent's pharmacist-in-charge (PIC) until January of 2012. 
Tr. 232-33.
---------------------------------------------------------------------------

    \85\ Tr. 266.
---------------------------------------------------------------------------

    Swaim explained that controlled drug purchases at the Respondent 
are conducted through the DEA Controlled Substance Ordering System 
(CSOS) program, and that a single password, issued in Swaim's name, is 
and has been used by all Respondent employees who order controlled 
medications. Tr. 245-48; see also Tr. 365-66. According to Swaim, the 
Respondent purchased controlled substances from the McKesson Drug 
Company (McKesson), Top Rx, and The Harvard Drug Group. Tr. 248; see 
also Gov't Exs. 42-47, 68. Swaim explained that prior to the 
commencement of Chris W's involvement with the Respondent, McKesson was 
able to provide an adequate supply to keep up with

[[Page 70100]]

demand, but that resort was had to the other two suppliers when the 
amount of controlled drugs ordered by the Respondent increased by one-
third \86\ and rose to a level exceeding McKesson's quantity limits. 
Tr. 248-51.
---------------------------------------------------------------------------

    \86\ Tr. 262-63.
---------------------------------------------------------------------------

    In the course of the hearing, Swaim was shown photographs of Joseph 
Jackson and Eric Horton and affirmed that neither man had ever been an 
employee of the Respondent. Tr. 235-36; Gov't Ex. 38, 34. Swaim 
testified that although he did not know Jackson at all, he did 
recognize Horton as a man that periodically came to the store to pick 
up cream that the pharmacy regularly ordered to manufacture Redneck 
Remedy, a cream produced by a company called Matlon, Incorporated 
(Matlon).\87\ Tr. 236-40; see also Gov't Ex. 69. According to Swaim, 
although Horton was not an employee and not a pharmacist, he was 
routinely permitted into the restricted pharmacy area, and he regularly 
made deliveries of prescriptions (including controlled substances) to 
customers in the Mayflower area for the Respondent. Tr. 237-39. Swaim 
testified that to his knowledge, Horton worked with Chris W in 
connection with Chris W's Matlon business. Tr. 236.
---------------------------------------------------------------------------

    \87\ As discussed in greater detail infra, Matlon is a company 
that is jointly owned and managed by Chris W and Glenn Wood, a 
pharmacist who now works at the Respondent and previously worked at 
a another pharmacy owned by Tom Watson in Mayflower, Arkansas. Gov't 
Exs. 69, 70.
---------------------------------------------------------------------------

    Swaim also related that the Respondent was burglarized in August of 
2013, resulting in the theft of approximately two thousand carisoprodol 
pills and some Xanax. Tr. 259-60. The police were notified, and both 
Chris W and the Respondent's owner, Tom Watson, were aware of the 
incident. Tr. 260.
    Swaim explained that since his retirement approximately ten to 
twelve years ago, the Respondent's owner, Tom Watson, would visit the 
business (which included the Big Star grocery store in which the 
pharmacy was located) approximately once a week. Tr. 240-41. According 
to Swaim, prior to his retirement, Watson worked two days per week 
part-time as a relief pharmacist while Swaim served as the full-time 
PIC. Tr. 241-44.
    Swaim testified that in January of 2012, he informed Watson that 
his observation of improper controlled substance refills approved by 
Watson's son, Chris W, sufficiently troubled him that he was resigning 
as the PIC. Tr. 251-56. Swaim recounted the conversation in this 
manner:

    I just told him I was not going to be pharmacist-in-charge. . . 
. I said that I can't sleep at night, and I'm not--I don't want to 
go to jail over something. And Tom [Watson] said don't worry, 
nobody's going to jail. If anybody does, I will.

Tr. 253. Swaim testified that he completed the paperwork and inventory 
required to hand over PIC control and accountability of the pharmacy to 
Chris W, and that notwithstanding this diminution in his 
responsibilities, neither his compensation nor his hours were reduced. 
Tr. 254-55, 266-67.
    Swaim also recounted a conversation he overheard between long-term 
Respondent Pharm. Tech. June Gilbert \88\ and Watson that occurred in 
September of 2014,\89\ approximately two years and nine months after 
surrendering his PIC responsibilities. Swaim testified that he heard 
Pharm. Tech. Gilbert tell Watson that his son, Chris W, was ``giving 
away'' medication. Tr. 256-57. In response to what he heard, Swaim told 
Watson that he (Swaim) ``just can't take this anymore [and that he was] 
going to give notice . . . if you don't stop [Chris W].'' Tr. 257. In 
reply, Tom Watson asked Swaim not to leave and assured him that he 
would ``put a stop to it.'' Id. According to Swaim, ``he looked me in 
the eye and said `trust me,' and I said `okay, I will.' '' Id.; see 
also Tr. 265. Swaim testified that four days later, upon ascertaining 
from the pharmacy staff that, notwithstanding Watson's assurances to 
the contrary, nothing had changed about the improper manner in which 
(now PIC) Chris W was executing his responsibilities as a pharmacist, 
he called Watson and gave two weeks' notice.\90\ Tr. 257.
---------------------------------------------------------------------------

    \88\ See SOT 17.
    \89\ Tr. 265. Although Swaim initially indicated that the date 
was in September of 2015 (a date in the future), he subsequently 
corrected the date to 2014.
    \90\ The record does not reflect any other area of contention 
between Swaim and Watson and in fact, Watson hired Swaim back to 
work part-time at the Respondent after the pharmacy search warrant 
execution. Tr. 266.
---------------------------------------------------------------------------

    Swaim's testimony (which was not the subject of a stipulation 
regarding content or credibility) was detailed, internally consistent, 
plausible, and presented no objective factual basis upon which to 
challenge it for bias. Simply put, Swaim has nothing to gain or lose 
based on the outcome of this case. The fact that he served the 
Respondent for twenty-six years as its PIC and was even hired back 
after the pharmacy search warrant execution, is powerful evidence that 
even Watson knows that Swaim is a man who can be trusted. The witness's 
testimony presented as thoughtful, coherent, and unbiased, and is fully 
credited in this recommended decision.
    The Government also presented the testimony of Grant Goode, Tom 
Watson's nephew \91\ and a former staff pharmacist at the Respondent. 
Tr. 270-71. Goode testified that he started at the Respondent working 
one day in November 2014 and then for approximately two months, 
starting in mid-December 2014, working on a schedule that increased 
from about twenty-five hours per week to ninety-six hours per two 
weeks. Tr. 271. Goode recalled that during this time, his cousin Chris 
W would enter the pharmacy for varying amounts of time, generally less 
than twenty-five hours per week, and do non-pharmacist work. Tr. 273-
74.
---------------------------------------------------------------------------

    \91\ Tr. 274.
---------------------------------------------------------------------------

    Goode testified that while working at the Respondent, he fielded 
several telephonic inquiries from prescribing physicians that led him 
to discover that pharmacy patient profiles described numerous Schedule 
II controlled substance dispensing events where no hard copy of the 
scrip was present in the file and where the purported prescribing 
doctor had no recollection of authorizing the medication. Tr. 274-75. 
According to Goode, when he examined the pharmacy files, he discovered 
other occasions where controlled substances had been dispensed but no 
scrip hard copy was retained. Tr. 275-76. Based on what he discovered, 
Goode began contacting prescribing doctors on his own and discovered 
``dozens'' of cases were controlled substances were dispensed and no 
hard copy scrip was present. Tr. 276. Goode testified that when he 
brought this issue to the attention of Watson, his response was that 
the scrips ``must have been put in the wrong place in the files. Maybe 
the girls, maybe the technicians misplaced the prescriptions.'' Tr. 
277. Goode kept checking pharmacy files and made inquiry of the 
technicians. Tr. 278.
    Goode also related that on two occasions he observed Chris W take 
thousand-count stock bottles \92\ of hydrocodone and place them into 
his backpack. Tr. 278. Further, Goode stated that on one occasion, Tom 
Watson was present and observed Chris W pack the stock bottle into his 
backpack. Tr. 280.
---------------------------------------------------------------------------

    \92\ Goode testified that this size bottle of medication was 
used to contain stock and fill prescriptions, but would never be a 
quantity that would be dispensed to an individual patient. Tr. 279-
80.
---------------------------------------------------------------------------

    Goode testified that he called the Pharmacy Board on December 17, 
2014 and related his suspicions regarding diversion as well as some 
concerns he had about whether Chris W had an

[[Page 70101]]

addiction problem. Tr. 281. According to Goode, personnel at the 
Pharmacy Board advised him that they would be dispatching someone to 
investigate the pharmacy, and that in the meantime, he should ``just 
stay put.'' Tr. 282. Goode explained that on January 2, 2015, in the 
midst of ``staying put,'' one of the Respondent's pharmacy technicians 
brought to his attention forged Schedule II scrips that had been 
dispensed with Goode's initials on the label. Tr. 282-83. When Goode 
showed the forged scrips to Watson, the latter suggested that (long-
time pharmacy technician) ``June [Gilbert] must be doing that.'' Tr. 
283. Goode pressed him on the issue and reminded him that his son, 
Chris W, had access to a laptop that allowed him to log in and print 
out pharmacy paperwork. Tr. 283. That day, Goode faxed copies of the 
fraudulent scrips to the Pharmacy Board, and followed up with a phone 
call to both the Pharmacy Board and DEA. Tr. 284-85.
    On February 5, 2015, several days after the (January 27) pharmacy 
search warrant execution, Goode confronted his cousin, Chris W, with 
his suspicions. Tr. 286. By Chris W's demeanor, Goode got the sense 
that his cousin had identified him as DEA's source, and shortly 
thereafter, Chris W informed him that he would be substituting Goode 
with a pharmacist named Glenn Wood. Tr. 287. Goode also recalled being 
approached by Tom Watson near the end of January 2015 and told that 
customers had registered complaints about his unwillingness to dispense 
scrips they had presented, and that one customer was even concerned 
that Goode would ``turn [him] into DEA.'' Tr. 288. Goode got the sense 
that Watson was disappointed in him for declining to fill the scrips as 
presented. Tr. 289.
    Pharmacist Glenn Wood and Goode communicated by text and phone a 
few days later. Tr. 291-92. When Goode asked Wood about his hours for 
the week, Wood related his understanding that Watson had planned to let 
Goode know that his services would no longer be required at the 
pharmacy. Id. The conversation turned somewhat heated, and Goode 
essentially accused Wood of looking the other way in the face of 
misconduct being committed by Chris W at the Respondent as well as the 
Mayflower pharmacy, where Wood and Chris W previously worked 
together.\93\ Tr. 291-92. Watson did eventually let Goode know that 
Glenn Wood would be taking his hours. Tr. 290. Watson subsequently 
telephoned Goode and told him he was ``upset'' about statements Goode 
had made to DEA, and that he felt Goode ``had hung him out to dry.'' 
Tr. 291.
---------------------------------------------------------------------------

    \93\ Goode also testified that Tom Watson told him that ``he 
would like to kill a couple of DEA agents.'' Tr. 302. Even assuming 
that Watson could have been speaking during a time of some 
agitation, such a statement demonstrates a deplorable and dangerous 
lack of judgment on his part. The Government did not offer this not-
too-veiled threat against law enforcement officers on its case-in-
chief, and in an exercise of commendable candor, notified the 
tribunal at the outset of the case that in proceedings unrelated to 
this case, a United States Magistrate Judge had declined to credit 
this testimony from Goode. Tr. 11; ALJ Ex. 21. The parties 
acquiesced in official notice (see 5 U.S.C. 556(e) (2012)) that this 
testimony had previously been found unsupported by a United States 
Magistrate Judge in an unrelated proceeding (Tr. 304), and the order 
issued by the Magistrate Judge, which denied the Government's motion 
to revoke Chris W's bond based on these comments purportedly uttered 
by his sponsor (and father) Watson, was received into evidence. 
Resp't Ex. 14; Tr. 306. Because the Government did not offer the 
purported threat in its case-in-chief, a disposition of this case 
does not require that a credibility issue on this statement be 
rendered, and it forms no basis of this recommended decision.
---------------------------------------------------------------------------

    Goode's testimony was not the subject of a stipulation regarding 
content or credibility, but the testimony was sufficiently detailed, 
plausible, and internally consistent to be fully credited in this 
decision. Although there were vague references to some unrelated, 
historical family acrimony that did not specifically involve the 
Watsons, there was no evidence that would support any level of bias 
that impacts on this witness's credibility, and his testimony is fully 
credited in this recommended decision.
    The Respondent called three witnesses in its case-in-chief: Tom 
Watson, the pharmacist-majority-owner \94\ of the Respondent; Glenn 
Wood, the pharmacist Watson selected to succeed his son as the PIC; and 
Brenda McCrady,\95\ an official from the Pharmacy Board, who attested 
to the fact that neither of these professional pharmacists has been 
subject to discipline before that body.
---------------------------------------------------------------------------

    \94\ Tom Watson testified that he owned fifty-eight and one half 
percent of the Respondent. Tr. 314.
    \95\ SOT 23; Gov't Ex. 12; Tr. 320.
---------------------------------------------------------------------------

    Glenn Wood is the pharmacist who supplanted the hours worked by 
Grant Goode at the Respondent after Grant Goode registered concerns 
about diversion there to the Pharmacy Board,\96\ and the individual who 
has been selected by the Respondent to assume the duties of its PIC 
permanently. Tr. 313. Wood testified that he has his Pharm. D. degree, 
has been a licensed pharmacist in Arkansas for approximately nine 
years, and is a member of the Arkansas Pharmacists Association. Tr. 
391, 393. Wood stated that he has never been aware of a diversion issue 
in any pharmacy where he has been employed, and that he has never been 
subject to disciplinary action. Tr. 393, 424-25, 430, 443; see also SOF 
23(b); Gov't Ex. 12.
---------------------------------------------------------------------------

    \96\ Tr. 281, 291-92.
---------------------------------------------------------------------------

    Wood testified to a relatively lengthy history of working on and 
off for the Watsons over the course of his nine years \97\ as a 
pharmacist. When he was in school at the University of Arkansas for 
Medical Sciences, he completed a one-month pharmacy internship working 
for Chris W. Tr. 391, 478. After graduating in 2006, Wood worked as a 
pharmacist in several Watson-owned pharmacies, rotating between his 
Mayflower, Morrilton, and Perryville (the Respondent) pharmacies. Tr. 
392-94, 453, 475.
---------------------------------------------------------------------------

    \97\ Tr. 392.
---------------------------------------------------------------------------

    Wood testified that in 2008 or 2009 he briefly moved to Utah to 
accept a pharmacist position there, but the adventure was short-lived, 
and he returned to Arkansas. Tr. 395. Upon his return, he resumed 
employment for Tom Watson as the PIC of his Morrilton Food and Drug 
pharmacy (Morrilton) for three years. Tr. 394-95. When Watson sold the 
Morrilton pharmacy to a rival chain, Wood spent three years with a 
pharmacy unaffiliated with the Watsons. Tr. 396. Wood explained that in 
December 2014 he made arrangements with Chris W to return to the 
Respondent on a part-time basis,\98\ but that he did not report for 
work until the day after the pharmacy search warrant execution. Tr. 
396, 398. Wood testified that although the final paperwork is still 
pending at the Pharmacy Board,\99\ he is currently acting as the PIC at 
the Respondent. Tr. 398. According to Wood, the appropriate application 
was filed at the Pharmacy Board days prior to the hearing. Tr. 399, 
443.
---------------------------------------------------------------------------

    \98\ Wood testified that he only desired part-time employment at 
the Respondent because he wanted additional time to pursue a career 
in professional bass fishing. Tr. 397-98.
    \99\ Wood had previously been approved by the Arkansas Board as 
a PIC at Morrilton. Tr. 399. He testified that he had taken an 
examination when he was initially designated as a PIC. Tr. 475.
---------------------------------------------------------------------------

    Wood opined that where a pharmacy is operating without an involved 
and active owner, diversion control responsibility ``starts with the 
PIC.'' Tr. 415. Wood testified that he believes that it would be 
difficult to discover a PIC engaging in unethical or illegal behavior 
unless the PIC ``was doing it obviously in front of everyone that 
worked there.'' Id. He stated that because the PIC is in charge of 
diversion control at a pharmacy, he doesn't know a way to ``safeguard'' 
against such behavior except by having another employee (for

[[Page 70102]]

example, a pharmacy technician) also signing off on checking drugs in 
and conducting an inventory (a measure which he stated he would 
implement should the Respondent again dispense controlled substances). 
Tr. 416-18, 448. Wood testified has reviewed a written (unsigned) 
proposed controlled substance policy document (Proposed Policy) 
provided to him by Watson, and represented he would implement its 
provisions if the pharmacy gets its COR back. Tr. 417; Resp't Ex. 1. 
Wood described the Proposed Policy as an outline of policies and 
procedure, a ``working document,'' and stated that he would recommend 
that all future PICs be required to review the policy with Watson and 
sign off that they had done so.\100\ Tr. at 418. Wood proposed the 
implementation of diversion controls beyond the requirement of the 
already mandatory biennial inventory,\101\ such as a requirement that 
the PIC personally insure that all controlled substance inventory is 
checked in properly in the inventory database, and the maintenance of a 
``perpetual inventory'' of controlled substances,\102\ and several 
other measures aimed at increased security and accountability. Tr. 415-
19, 444.
---------------------------------------------------------------------------

    \100\ However, in describing the framework created by the 
Proposed Policy, he also stated, ``Common sense tells you what you 
need to be doing in this regard and what you don't need to be 
doing.'' Tr. 419.
    \101\ Tr. 416-17.
    \102\ Wood explained that the institution of a perpetual 
inventory would require pharmacy personnel to count the contents of 
stock controlled substance bottles whenever the bottle was nearing 
depletion and reconcile the bottle count inventory reflected in the 
system. Tr. 419.
---------------------------------------------------------------------------

    Wood testified that electronic keypad door locks,\103\ lockable 
roll-down windows, and a host of pharmacy security cameras \104\ 
trained on the windows, doors, and cashiers supply additional layers of 
diversion control. Tr. 401, 419.\105\ However, he stated that he does 
not believe anyone watches the tape in real time or reviews the tape 
regularly. Tr. 423-24. He did not know how long the loop of the tape 
was or how long the tape preserved the images before recording over 
itself. Tr. 423. In fact, Wood stated that he never had a circumstance 
in which to review any video monitor tape himself in any pharmacy where 
he has ever worked, and as far as he knows, no one ever reviews the 
footage at the Respondent. Tr. 424.
---------------------------------------------------------------------------

    \103\ Wood conceded that the keypad lock combination remains the 
same and that he did not know whether it was changed after Chris W's 
arrest. Tr. 445.
    \104\ Presumably, this is the same closed-circuit system that 
Watson did not know how to access. Tr. 365-67.
    \105\ Photographs depicting the Respondent were admitted into 
evidence. Tr. 403; Resp't Exs. 2-11.
---------------------------------------------------------------------------

    Wood also explained the role of Arkansas's prescription monitoring 
program (PMP), in which pharmacies are required to submit a weekly 
report to the state to disclose what and how many controlled substances 
have been dispensed at the pharmacy that week.\106\ Tr. 419-20. The 
database into which that information is incorporated then permits 
doctors and pharmacists to search for a particular patient and see that 
patient's prescription history to investigate whether a patient has 
been using multiple pharmacies or doctor-shopping. Tr. 420. Wood 
testified that he does not have a ``magical number'' of how often he 
checks the PMP when filling a prescription but that such a decision 
relies upon whether ``something doesn't feel right'' or if a patient 
shows up multiple times in a short period of time with scrips from 
different practitioners. Tr. 422-23.
---------------------------------------------------------------------------

    \106\ Wood testified that software developed by McKesson and 
used by the Respondent automatically submits these dispensing 
reports to the state. Tr. at 420-21.
---------------------------------------------------------------------------

    Wood stated that he believes that as PIC, he could administer the 
Proposed Policy should the Respondent retain its COR. Tr. 430. He has 
been working at the Respondent since January 2015 and intends to remain 
and assume the duties as the PIC, but indicated that he deferred the 
submission of his Pharmacy Board paperwork until April due to lingering 
uncertainty as to the pharmacy's future. Tr. 470. Wood allowed that 
even at the time he accepted the offer to become the next PIC, he 
harbored concerns about what the future holds for the pharmacy. Tr. 
471.
    Wood testified that his efforts to allay his concerns extended to 
sending emails to the Pharmacy Board.\107\ Tr. 472. However, an 
examination of the email exchange \108\ between Wood and the Pharmacy 
Board reflects a level of urgency that exceeded the impression conveyed 
by Wood on the witness stand. In his initial email to the Board he 
explained:
---------------------------------------------------------------------------

    \107\ As part of the Government's rebuttal case, it presented 
the testimony of John Kirtley, the Executive Director of the 
Pharmacy Board. Tr. at 509. Kirtley testified that he recalled the 
email exchange with Wood, and although he was not surprised that a 
prospective PIC would inquire about becoming a PIC in a recently-
raided pharmacy, he did recall being surprised that Wood, who had 
already served as a PIC, was unfamiliar with the procedural aspects 
of becoming a PIC. Tr. 517-19.
    \108\ Gov't Ex. 71.

    We have not applied for a PIC status because of the fact that 
we're not sure what direction the store is going in. There's rumors 
that it's up for sale and the fact that the owner, Tom Watson, will 
probably not get his DEA registration back . . . I really don't feel 
comfortable, right now, putting my name down as PIC of this place . 
---------------------------------------------------------------------------
. . I'm not even sure I'll be here in another month.

Gov't Ex. 71 at 3. A subsequent email sent by Wood reads:

    [D]o I need to put my name down as PIC to make [the Respondent] 
compliant? I really don't want to associate my name with it right 
now, but I seem to be the only pharmacist they can get to work here 
for now. I seriously doubt I will be here much longer, however.

Id. at 2.
    Wood also explained that the Respondent is located in an 
``extremely rural'' area, and that the pharmacy serves a largely 
indigent population. Tr. 404. Wood described the Respondent's customer 
base as ``extremely loyal'', and he explained that customers rely upon 
pharmacists much as they would rely upon doctors. Id. Wood also stated 
that because of the small-town nature of the community, doctors and 
pharmacists have a unique relationship such that doctors ``trust'' and 
``utilize'' pharmacists differently than in other, more cosmopolitan 
communities, and that the Respondent participates in state-authorized 
``disease state management,'' counsels patients, and administers 
immunizations.\109\ Tr. 430. According to Wood, although there is 
another pharmacy in the county, the grocery store owned by Tom Watson 
in which the Respondent is located is the only grocery store located in 
the county. Tr. 404. Wood opined that without the Respondent present, 
the other pharmacy in the county would have a ``monopoly'' on business. 
Tr. 405.
---------------------------------------------------------------------------

    \109\ Wood admitted that these services do not involve the 
dispensing of controlled substances and thus are not dependent on 
the status of the Respondent's COR. Tr. 442.
---------------------------------------------------------------------------

    Wood also testified about his recollections about his interactions 
with pharmacist Grant Goode, which diverge significantly from Goode's 
account. According to Wood, he met Grant Goode for the first time upon 
returning to work at the Respondent, and while the relationship between 
the two men was cordial enough at the outset, it culminated in a rather 
testy telephone exchange regarding Goode's continued employment at the 
pharmacy. Tr. 425. By Wood's account, he and Watson had come to the 
conclusion that there was insufficient business \110\ at the pharmacy 
to merit Goode's continued employment

[[Page 70103]]

there.\111\ Tr. 426. Wood stated that he communicated the substance of 
this discussion to Goode and suggested that the two of them share the 
weekly schedule, with Wood working full-time (three to four days per 
week) and Goode working part-time (two to three days per week).\112\ 
Tr. 427. It was Wood's recollection that upon hearing this disagreeable 
news, Goode became irate, complained that the Watsons had been lying 
for years, and even marveled that Wood himself had not yet been 
indicted based on his experiences with Chris W at the Watsons' 
Mayflower pharmacy.\113\ Tr. 427-29. It is apparent from Wood's 
testimony that he was offended on behalf of the Watsons. Tr. 427, 429. 
In his words, it ``struck me as kind of odd [that t]he guy was asking 
me to work for the Watsons, at the same time bashing them.'' Tr. 427. 
Interestingly, offended as Wood may have been at the implications of 
his own culpability and that of his employer, the conversation 
apparently did not result in any heightened level of suspicion on his 
part that diversion issues could be afoot at the pharmacy where he was 
working. Tr. 431-34.
---------------------------------------------------------------------------

    \110\ Although Tracy Swaim testified that pharmacy business had 
grown by one-third (Tr. 262-63), Wood was apparently was not aware 
of that growth. Tr. 435. He attributed the diminishment in business 
to the impact of the immediate suspension order. Tr. 438.
    \111\ Tr. 262-63.
    \112\ According to Wood, Goode wanted to work six days per week 
at the Respondent. Tr. 436.
    \113\ Goode's statements as reported by Wood were received for 
the limited purpose of demonstrating Goode's state of mind during 
the conversation, not for the truth of the matters asserted. Tr. 
428.
---------------------------------------------------------------------------

    Glenn Wood's testimony was problematic from a credibility 
standpoint. In fact, the Respondent's position regarding the security 
and integrity to future operations that will follow based on the 
appointment of Wood as the PIC were actually undermined by Wood's 
testimony. Although Wood testified that Goode raised issues regarding 
the pharmacy and even implied that Wood could have been indicted based 
on his time working with Chris W, no sense of professional 
responsibility as a pharmacist awakened in him even the slightest 
curiosity as to what Goode (a fellow pharmacist that he said he barely 
knew) was talking about. Tr. 427-29. When pressed on the issue, Wood 
countered that Goode had merely accused the Watsons of lying, not 
diversion,\114\ but in view of the fact that this conversation was 
occurring two-to-three weeks after the pharmacy search warrant 
execution, and revelations of misconduct, which, by Wood's own account, 
made him ``sick,'' ``mad,'' and ``upset,'' this explanation strains 
credulity. Evaluating this conversation in the context of recent 
events, the Respondent had just been searched and served with a DEA 
immediate suspension order and a former pharmacist who worked there 
just told him that the owners were liars and he was fortunate not to be 
laboring under an indictment himself. It is in this backdrop that, Wood 
(an experienced pharmacist) now claims that he never connected Goode's 
statements to any possible pharmacy misconduct. To put it mildly, this 
is implausible and damages this witness's credibility. The fact that he 
did not pursue the matter further with Goode speaks volumes about his 
level of professional vigilance, and the fact that he testified that he 
never realized that Goode was referring to pharmacy misconduct is 
equally telling on the subject of this witness's credibility.
---------------------------------------------------------------------------

    \114\ Tr. 434.
---------------------------------------------------------------------------

    The divergence between Wood's recollection of this phone 
conversation and the recollection of Grant Goode is striking. Goode was 
clear that Wood told him that all of his hours at the pharmacy were 
being taken by Wood, and that it was Wood's understanding that Watson 
would have told him so already. Tr. 291. Wood's version of the 
conversation is internally inconsistent and illogical. In Wood's 
account, when Goode reached out to him to pin down the hours he would 
be working, this is what occurred:

    So, when I returned [Goode's] call that evening, I told him, I 
said, Grant, I hate to be the one to tell you this, you know, I hate 
it because I don't want to put anybody out of work, I was like 
there's not room for both of us, bud, and I need full-time, but what 
I'd like to happen, I don't want to work six days a week. I only 
want to work three to four days a week. And I suggested to Grant 
that evening, I said what I'd like to happen is if you could work at 
[the Respondent] two or three days and then find another pharmacy 
that will let you work a couple days there. You know, that would be 
great.

Tr. 426-47; see also Tr. 435-37. Wood's testimony about this phone 
conversation strengthens Goode's account and weakens his own. If Goode 
was calling to find out which days he was working, it is reasonable to 
assume he knew already that he was not working all days. If Wood was 
really only telling Goode which days he would be working, it is 
illogical that he would ``hate to be the one to tell [him] . . . 
because [he does not] want to put anyone out of work.'' Tr. 426-27. It 
makes even less sense that Wood, even by his own recollection, would 
remember telling Goode that ``there's just not room for both of us, 
bud, and I need full-time . . . .'' Tr. 427. Goode's testimony that he 
was essentially informed of his own termination during this phone call 
is rendered light-years more credible by Wood's self-admitted 
reluctance to tell him about Watson's decision, and his explanation to 
Goode that his need for full-time pharmacist work obviated the need to 
have Goode employed there at all. In short, Wood's account is less 
credible than Goode's, and Wood's version of this interaction 
significantly diminishes his credibility.
    Wood testified that in the approximately ten years that he has 
worked ``on and off'' for pharmacies owned by Tom Watson, including the 
one-month internship under Chris W and the two years he worked with 
Chris W at the Mayflower pharmacy, he never saw Chris W engage in any 
strange, suspicious, or illegal behavior. Tr. 406, 478. He stated that 
when he heard about Chris W's arrest, he assumed that the authorities 
``got [Chris W] for putting refills on blood pressure meds and diabetes 
meds,'' which he describes as ``about the only thing that [he] ever saw 
[Chris W] do'' and which he had seen other pharmacists do as well. Tr. 
406. Wood added that when working as a relief pharmacist at the 
Respondent, none of the pharmacy technicians ever complained to him 
about missing controlled substances or issues with Chris W, nor did he 
ever notice missing inventory himself. Tr. 447. Wood testified that 
upon learning of the allegations against Chris W, he was shocked, 
sickened, in disbelief, sad, and angry with Chris W. Tr. 406. He stated 
that this was not the Chris W that he knew from working with him. Tr. 
407.
    On the issue of Wood and Chris W working together, Wood's testimony 
was also confusing. At one point in his testimony, Wood said he ``can't 
recall a time when [he and Chris W] ever worked side by side'' as 
pharmacists during the same shift. Tr. 451. After some significant 
equivocation, Wood answered the direct question of whether they worked 
together this way:

    Just on occasion. You know, vacation issues or sickness issues 
if me or . . . my other part-time pharmacist, again I can't recall 
an instance, but I'm almost certain that there probably was over the 
course of three years in which Chris had come over to relieve us.

Tr. 452. Wood then described how, because Mondays or the first day of 
each month could be high traffic times, that pharmacists ``would often 
double up,'' but that he could not recall doubling up with Chris W at 
Morrilton. Tr. 453. Since Morrilton was not predicated in the question, 
it was only upon follow-up that Wood finally admitted that he and Chris 
W worked together at the Watson's Mayflower pharmacy once a week for 
two years. Tr. 453-54; see also Tr. 479. This equivocation made even 
less sense in light of the fact that Wood

[[Page 70104]]

had testified earlier to working together regularly with Chris W. Tr. 
392. The relevance of Wood's testimony on the point is less about how 
often the two pharmacists were dispensing in the same room that it is 
about how reluctant Wood was to confirm it. Wood's equivocation 
detracted from the credibility of his testimony.
    In a similar vein, at one point in his testimony, Wood indicated 
that he did not know Eric Horton ``personally.'' Tr. 465. Eventually 
Wood allowed that he ``know[s] who Eric Horton is'' because he would 
encounter him at times with Chris W. Tr. 466. Then Wood indicated that 
he attended ``some birthday parties'' for Chris W's daughter where 
Horton was present, and that he sometimes saw Horton ``riding around in 
the truck.'' Tr. 466-67. When pressed about what ``riding around in the 
truck'' means, Wood clarified that he would see him in the Watsons' 
grocery store (which is not really in any truck), and that it was not 
really that he did not know Horton, but that he did not know him well. 
Tr. 466-69. Equivocation on this point did not enhance Wood's 
credibility.
    Wood also testified about a separate business relationship he has 
maintained with Chris W in a corporation they started together and 
named Matlon, Incorporated (Matlon).\115\ Matlon produced and 
distributed a product known as ``Redneck Remedy.'' Tr. 407. Wood stated 
that shortly after graduating from pharmacy school, he developed a 
formula for sunburn cream and began compounding it for sale. Id. 
According to Wood, Redneck Remedy was initially sold only to frequent 
pharmacy customers, friends, and family, but that the success of the 
product grew so steadily that after two years ``it got so big it went 
from my third bedroom in my home to my garage. . . .'' Tr. 408. Wood 
recounted how he felt that demand for the product had swelled 
sufficiently that he needed a partner, and enlisted Chris W to supply 
the business acumen for the enterprise. Id.
---------------------------------------------------------------------------

    \115\ Wood testified that the name is a combination of the 
letters starting the first names of their respective daughters. Tr. 
409.
---------------------------------------------------------------------------

    Redneck Remedy was bottled, labeled,\116\ and shelved for retail 
sale at the Respondent and another (non-Watson) pharmacy. Tr. 440-41. 
Wood maintained that he had scant contact with Chris W throughout the 
course of their Matlon partnership, and the two mostly communicated by 
text message and phone calls, especially in recent years. Tr. 450. Wood 
testified that the corporation never hired employees, ``had no one on 
the payroll,'' but occasionally utilized the services of independent 
contractors (generally Wood's friends) \117\ to help mix the product 
and market it at trade shows. Tr. 411-12, 464-65. Chris W procured 
supplies for the product from Watson family pharmacies. Tr. 463-64.
---------------------------------------------------------------------------

    \116\ Tr. 414.
    \117\ Wood testified that he was unaware that Chris W's friend, 
Eric Horton, had been enlisted to pick up supplies for the 
enterprise. Tr. 464, 469.
---------------------------------------------------------------------------

    Wood stated that ``the product worked'' and that the business was 
``somewhat successful'' for a few years, but instead of investing time 
and money, he just let the business go. Tr. 408-09. In his words, 
``[i]t was one of those deals that it grew too fast almost and then for 
whatever reason from there it just--I lost interest in it, got burned 
out, and--.'' Tr. 408. Wood testified that in the past two years, the 
business has been ``pretty much defunct,'' for essentially no other 
reason than Wood's interest in professional bass fishing. Tr. 408-10, 
454-55. According to his testimony, he has not actively supplied 
bottles of Redneck Remedy for the past year-and-a-half to two 
years.\118\ Tr. 412. In fact, he testified that he removed the 
remaining bottles off the shelf at the Respondent when he began working 
there again in January 2015. Tr. 440-41, 461-63. Thus, the three 
remaining jars of the product were removed to shelves in the restricted 
pharmacy area where potential customers or anyone else outside 
Respondent's pharmacy staff could not see it. This was done shortly 
after Wood returned to the pharmacy (the day after the pharmacy search 
warrant execution), and just after the diversion allegations 
surrounding Chris W came to light. Tr. 441-42, 461-63. Wood said the 
remaining cream is ``off of the counter at the point of sale in the 
pharmacy, and it's basically just put back out of sight, out of mind.'' 
Tr. 441. Wood insisted that Matlon is currently worth nothing and still 
continues to exist as a hollow legal entity merely because he and Chris 
W never got around to dissolving it. Tr. 454-55.
---------------------------------------------------------------------------

    \118\ Wood likewise testified that he anticipated that the 
company made $600 in sales in 2014, and most of that was from 
friends and family in the early part of the year. Tr. 413. Assuming, 
as Wood testified, that each bottle of Redneck Remedy has a value of 
$8 (Tr. 480), Matlon sold approximately 75 bottles of the cream 
during this period of alleged decline.
---------------------------------------------------------------------------

    Much of Wood's testimony regarding Matlon makes no sense. The 
Redneck Remedy Web site remains active, and charges to maintain it 
continue to accrue. Tr. 455-57; Gov't Ex. 70. Upon learning that Matlon 
was in arrears in its payments for the Web site account, Wood informed 
the hosting company that he should take the matter up with Chris W, 
inasmuch as he is the majority shareholder and the partner charged with 
responsibility for handling bills. Tr. 457. If the business was truly 
bereft of any potential benefit and awaited only its paperwork coup de 
grace, it is difficult to imagine why the two partners would suffer the 
continued expense of a Web site. At one point in his testimony, Wood 
said that the enterprise failed only because he became distracted with 
bass fishing and other interests,\119\ and at another point, when 
pressed about the timing of the venture's demise, Wood declared that 
``the business began dropping off way before last year.'' Tr. 413. 
Similarly, Wood testified that he only wanted to return to pharmacy 
work part-time because of his bass fishing and family responsibilities, 
but testified that he told Grant Goode that there was no room for him 
at the Respondent because ``there's just not room for both of us, bud, 
and I need full time. . . .'' Tr. 427.
---------------------------------------------------------------------------

    \119\ Tr. 408-09, 454-55.
---------------------------------------------------------------------------

    To the extent that Matlon served no purpose beyond a (successful) 
profit venture, it is difficult to reconcile the partners' decision to 
kill it so unceremoniously. Wood was unable to supply an answer that 
made any sense. Tr. 409-10. Wood stated that he was not in a position 
to be able to quit his full-time position as a pharmacist to devote to 
the business and that his priorities shifted from marketing the 
business to starting his professional fishing career and raising his 
family. Tr. 409-11. Despite describing himself as the corporation's 
hands-on, ``go-to guy'' (compared to Chris W, whom he described as the 
``silent partner''), Wood was unable to explain how or why the 
corporation went from successful to floundering. Tr. 408. In addressing 
the question of what how Matlon's outstanding financial issues would be 
handled, Wood was only able to unconvincingly offer that he had 
``stepped away'' from the responsibility of managing the corporation 
last year and had informed Chris W of that fact. Tr. 458-59. 
Inconsistently, Wood conceded that he was the last person to file 
corporate income taxes on the entity in 2013 and anticipates doing so 
for 2014. Tr. 459, 465. Confounding matters further in this regard, 
Wood's email auto signature still imbues him with the moniker 
``President and CEO of Matlon, Inc.'' Tr. 460-61. Wood offered a 
variety of verbal shrug, citing ``[i]gnorance on [his] part.'' Tr. 461. 
Wood indicated that he did not know why he continued to sign all his 
emails as the president and CEO of Matlon, and once again stressed

[[Page 70105]]

his self-described status as a poor businessman (a characterization 
which is belied by the fact that Redneck Remedy made money for Matlon 
until company operations were abruptly abandoned). Tr. 461-63. Matlon's 
Web site still lists Wood at its president and CEO. SOT 12(g); Gov't 
Ex. 70.
    Although it would be na[iuml]ve to conclude that Matlon is the 
simply the failed business enterprise described by Wood, teasing out 
its intricacies is likewise a task unrequired to resolve the principal 
issues in this case. Matlon was a business venture that sold a product 
whose overhead and production costs were amorphous, to say the least. 
The materials were purchased and or otherwise obtained by Chris W and 
compounded by Wood. Likewise, its manpower largely came from non-
employee friends and associates whose compensation was almost certainly 
variable and unclear. The business was not driven out of business by 
lack of success so much as it was suppressed by its owners at about the 
time that law enforcement scrutiny focused on Chris W and the 
Respondent. Inexplicably, by Wood's account, the last three bottles of 
Redneck Remedy were removed from retail shelves where they could be 
sold, and secreted on a shelf within the enclosed pharmacy spaces away 
from potential customers. Tr. 462. While Matlon was almost certainly 
structured (and abandoned) in a manner that belies the simplistic 
explanations tendered by Wood, it is not necessary here to draw any 
conclusions in this regard. The principal relevance of Matlon in these 
proceedings is that Wood's implausible testimony regarding its 
operations detracts considerably from the credibility of his testimony.
    Suffice it to say that Wood's presentation was sufficiently 
punctuated with inconsistencies, equivocations, and implausibility that 
is cannot be fully credited in this recommended decision. Thus, his 
assertions that he had never had any reason to believe that Chris W 
demonstrated addiction signs or suspicious activity,\120\ that no staff 
member ever brought diversion concerns to his attention,\121\ or that 
he had never noticed controlled stock missing,\122\ are of limited 
value here.
---------------------------------------------------------------------------

    \120\ Tr. 414.
    \121\ Tr. 447-48
    \122\ Tr. 447.
---------------------------------------------------------------------------

    Respondent's majority shareholder, Tom Watson, testified that he is 
and has been a licensed pharmacist for about forty years,\123\ that he 
received his pharmacy degree from the University of Oklahoma in 1974, 
and after working as a staff pharmacist in a few establishments, opened 
a grocery store/pharmacy with his brother-in-law, Duane Goode,\124\ in 
West Conway, Arkansas. Tr. 315-16. Watson and his father-in-law 
subsequently built the Respondent in Perryville, operating as part of a 
grocery store (Big Star Perryville), and he later created two 
additional stores in the nearby rural communities of Morrilton and 
Mayflower. Tr. 318. He stated that he has divested himself of all 
pharmacies with the exception of the Respondent in the Big Star 
Perryville grocery store. Tr. 321.
---------------------------------------------------------------------------

    \123\ Tr. 352.
    \124\ Duane Goode is Grant Goode's father. Tr. 316.
---------------------------------------------------------------------------

    Watson testified that he retired four years ago, at age sixty-two, 
and has encountered Lyme disease and some back issues. Tr. 320-21. 
According to Watson, Big Star Perryville was destroyed by a fire about 
three years prior to the hearing and the pharmacy was victimized by a 
burglary while the store was located in a temporary location. Tr. 323.
    Watson explained that after working as a pharmacist at a rival 
pharmacy chain, and then his (now closed) Mayflower store, his son 
Chris W came to work at the Respondent, and ``inherited'' the job of 
pharmacy PIC ``when Tracy [Swaim] quit.'' Tr. 324-25, 375-76. Watson 
also testified that his son Chris W also served as the vice president, 
controller, and part owner \125\ of the business. Tr. 318, 377-78. When 
asked about Tracy Swaim's account of why he stepped down as the PIC, 
the elder Watson had this to say:
---------------------------------------------------------------------------

    \125\ Although this testimony is consonant with a stipulation of 
fact regarding Chris W's ownership that was reached by the parties 
(SOF 24; Tr. 389), a post-hearing motion by the Respondent sought to 
``correct the record'' by the addition of an affidavit by Tom 
Watson's wife (Teresa Watson) that challenges that assertion. ALJ 
Ex. 21. The Government validly opposed the Respondent's post-hearing 
motion to include Mrs. Watson's affidavit. ALJ Ex. 22. Although the 
Respondent's motion to include the affidavit was styled as a 
``Motion to Correct the Record,'' it could do no such thing, and was 
granted only to the extent that Mrs. Watson's affidavit is now 
included in the record, and considered in accordance with 21 CFR 
1316.58(b) (``Affidavits admitted into evidence shall be considered 
in light of the lack of opportunity for cross-examination in 
determining the weight to be attached to statements made 
therein.''). ALJ Ex. 23. Inasmuch as the affidavit is inconsistent 
with the prior stipulation of the parties, and must be considered in 
light of the absence of cross-examination, it has been afforded 
little weight in this recommended decision. Additionally, as 
explained infra, under current Agency precedent, Chris W's status as 
a part owner of the Respondent is of negligible significance to a 
resolution of the present case.

    Yeah. I--I don't--I remember some of what [Swaim] talked about 
but I don't remember all of what he talked about, you know. And I 
talked to Chris [W] about some things, too, so I was hoping 
---------------------------------------------------------------------------
everything was, I was hoping everything was in good shape.

Tr. 326. Watson emphasized that he held Swaim in high regard, stating 
that the two have been together for a long time and still are. Tr. 333.
    Watson was clear that he was ``shocked'' to learn that his son had 
an addiction problem, and opined that the younger Watson's chronically 
bloodshot eyes were the result of a longstanding medical condition. Tr. 
236. He offered that during the 2013-2014 timeframe, notwithstanding 
the fact that he and his son lived ``a little over a quarter of a 
mile'' from each other, they only saw each other once every two weeks 
or so, because their ``paths didn't cross.'' Tr. 327-28.
    Watson's position at the hearing regarding the steps he took based 
on what he was believed and what he was told was less than clear. On 
the one hand, he indicated that had he learned that his son, a 
pharmacist (and later the PIC) at his store, had indications of an 
addiction problem or was engaged in suspicious behavior, he would have 
referred his son for treatment and advised the Pharmacy Board. Tr. 328-
29, 331. But Watson also testified that he would be unwilling to ``fire 
somebody `cause they tell me so and so is doing this or that. . . .'' 
Tr. 332. In Watson's words:

    It's hard. I mean, you know, `cause I've talked to [Chris W], 
well, several times, and he'd usually blame it on something else or, 
you know, this or that, and I didn't know how much was gone.

Tr. 332. Thus, Watson testified that he would involve the Pharmacy 
Board and put his son into treatment if he learned that addiction and/
or diversion were occurring,\126\ but then conceded that he actually 
had been so informed and was dissuaded from any action by conversations 
with his son, who, even by his own account, did no more than ``usually 
blame it on something else,'' or ``this or that.'' Id. Watson even 
acknowledged that he ``didn't do enough [and] didn't do it fast 
enough,'' but asserted that all would have been corrected with a 
scheduled audit that was scheduled to occur a week after the pharmacy 
search warrant execution,\127\ and that an inventory was essentially 
the only real option he had based on what Swaim told him. Tr. 335-36. 
However, in view of the fact that he (even still) holds Tracy Swaim in 
high esteem, and did so at the time Swaim raised the alarm, it is 
difficult to

[[Page 70106]]

understand how the addition of an inventory to confirm the warning 
tendered by a trusted employee would have altered his reluctance to 
act. Stated differently, he trusted Swaim and Swaim warned him; he had 
every reason, based on his decades of experience with Swaim to rely on 
what he related to him; an inventory would have added nothing to the 
equation. To suggest that an inventory that never occurred would have 
been the final, deciding factor in motivating him to act is simply not 
persuasive and undermines his credibility.
---------------------------------------------------------------------------

    \126\ Tr. 328.
    \127\ Tr. 345-46.
---------------------------------------------------------------------------

    To add to the confusion, at another point in his testimony, Watson 
testified that he has actually encountered employees using and 
diverting controlled substances, but has never reported any misconduct 
to the Pharmacy Board in his life. Tr. 344-45. It is difficult to place 
credence in his testimony that he would refer all diversion issues to 
the Pharmacy Board when he also says that he has actually seen 
diversion issues in his career and has never referred anything to the 
Pharmacy Board. The two points seem irreconcilable.
    Watson's testimony regarding security measures that have been in 
place at the pharmacy was also somewhat disquieting. He admitted that 
the entire staff had access to the controlled substance ordering 
password, and acknowledged that although his pharmacy had security 
cameras, he did not know how to access any of the footage to review it. 
Tr. 365-67.
    Watson also offered a document that purportedly sets forth a new 
written set of policies and procedures that he intends to implement at 
the Respondent to address some of the security shortcomings and reduce 
the risk of future diversion (Proposed Policy).\128\ Tr. 336-39, 341; 
Resp't Ex. 1. Regrettably, the document was unsigned,\129\ and although 
he testified that the Proposed Policy had been circulated to two 
pharmacy employees and his prospective PIC,\130\ it was clear from 
Watson's testimony that he did not know who drafted the document and 
was not too familiar with its substantive contents. Tr. 337-38, 368-71. 
All in all, the Proposed Policy did not add much to the discussion of 
the Respondent's future.
---------------------------------------------------------------------------

    \128\ Gov't Ex. 1.
    \129\ Watson offered to sign the document on the witness stand. 
Tr. 341.
    \130\ Tr. 338-39.
---------------------------------------------------------------------------

    In discussing his nephew, Grant Goode, Watson initially was 
unequivocal in his denial that Goode had raised any concerns about the 
pharmacy or Chris W, but subsequently retreated somewhat from that 
position, indicating that he had been ill from Lyme Disease, slipped in 
the bathtub, had to take his granddaughter to the doctor, and 
eventually allowed that if there was such a warning from Goode, that he 
simply did not remember it. Tr. 348-50. In an astonishingly telling 
statement, Watson related the distaste with which he viewed Goode's 
decision to alert the authorities without sufficiently vetting his 
concerns through Watson family first. In Watson's own words:

    You know--family is family. You know, if you've got a problem go 
see them about it, and talk about the problem. You don't know you 
got a problem until you at least talk about it. And you know, don't 
start with the state board, don't start with the DEA and all that. 
Start by calling your uncle or whatever or tell your mom and have 
her talk to your uncle if that--you know. But get it there where you 
can get it in front of you instead of, you know. . . . Be sure you 
know what you're talking about before you start that stuff, I mean.

Tr. 350-51.
    Watson testified that Pharm. Tech. June Gilbert has been his friend 
and employee for over thirty-three years,\131\ and has been with him 
since the first day he opened the Respondent. Tr. 347. Even in the face 
of the (credible) testimony of his trusted employee, Tracy Swaim, that 
Pharm. Tech. Gilbert's direct warning to Watson (in Swaim's presence) 
that Chris W was ``giving away'' medication,\132\ was the tipping point 
that precipitated his resignation, Watson adamantly maintained that 
Pharm. Tech. Gilbert never alerted him to problems at the 
pharmacy,\133\ and that he was not aware of any complaints from those 
who worked with Chris W at his (former) pharmacy in Mayflower. Tr. 373-
74.
---------------------------------------------------------------------------

    \131\ However strong he felt the bonds of his friendship were 
with his long-time employee Pharm. Tech. Gilbert, they apparently 
did not inhibit him from blaming her to Grant Goode for the 
diversion being perpetrated by his son, Chris W. Tr. 283.
    \132\ Tr. 256-57.
    \133\ Tr. 347.
---------------------------------------------------------------------------

    Watson's consistent point of view throughout the proceedings was 
that the PIC is the focal point of diversion control in any pharmacy, 
and that diversion occurring by the hand of the PIC is a difficult 
phenomenon to address. Tr. 332, 336. When pressed on his perception of 
his own responsibility, the elder Watson steadfastly maintained that he 
is not accountable for the actions of his PIC/son, Chris W. Tr. 354-56. 
Watson insisted that the blame was not on the Respondent or its owner, 
but rather exclusively on his son. Tr. 355. The only possible 
responsibility Watson was willing to acknowledge (albeit grudgingly) 
was not replacing his son as the PIC earlier. Id. Specifically, on the 
issue of Chris W's wrongful dispensing, Watson declared that 
``[w]hoever filled is responsible for those prescriptions. I didn't 
fill them.'' \134\ and regarding the failure to file a DEA-106 
regarding medications that were taken from the pharmacy, Watson said 
``[t]hat should have been taken care of by the [PIC] when they [sic] 
found out they were missing.'' Tr. 357.
---------------------------------------------------------------------------

    \134\ Tr. 356.
---------------------------------------------------------------------------

    It was clear from the tenor and text of his testimony that Watson 
is strongly possessed of the view that his authority to delegate 
extends not only to authority, but also to responsibility. Watson 
explained it in this unequivocal manner:

    That's the reason you delegate jobs to people; have somebody 
that [sic] is responsible. If I had been the pharmacist-in-control 
[sic] I would have taken care of that myself. I wish now I had of 
been [sic]. I'll admit that mistake.

Tr. 358. When asked about the scope of his theft reporting 
responsibilities as the pharmacy owner, Watson tellingly put it this 
way:

    Well, in the long run, yeah, that's my responsibility, but it's 
really the responsibility of the store manager, [PIC], and all that. 
I try to delegate authority as much as I can because I can't be 
there every day.

Tr. 362.
    Tom Watson's testimony was certainly not without its believable 
aspects. That said, even apart from the obvious reality that Watson has 
the most at stake at the hearing, there were internal inconsistencies, 
inconsistencies with other credible evidence, and implausible aspects 
that preclude his version of events from being fully credited in this 
recommended decision. The biographical information Watson supplied 
during his testimony as well as his subjective estimation (contrary as 
it is to Agency precedent) that delegation of authority can yield 
immunity from responsibility, are credible. However, his dual 
assertions that he was never warned of pharmacy problems by his nephew, 
Grant Goode, is compromised by his alternate position that he just may 
not remember all of Goode's warnings because he fell in a bathtub and 
has a history of once contracting Lyme disease. Tr. 348-50. The 
veracity of Watson's account is even further diminished by his 
assertion that he could only act upon the concerns expressed by his 
trusted, long-time PIC

[[Page 70107]]

Tracy Swaim once an inventory (that never occurred) had corroborated 
it. Tr. 335-36. Similarly, Watson's assertion that his long-time 
pharmacy technician and friend June Gilbert never raised pharmacy 
concerns with him is belied by credible testimony of Swaim that he quit 
when he overheard Pharm. Tech. Gilbert telling Watson that his son was 
giving away pills. Tr. 256-57.
    Likewise, Watson's position that if he had received information 
regarding addiction and diversion he would have brought in the Pharmacy 
Board and sought treatment for Chris W is belied by his subsequent 
assertions that although he has encountered diversion over the course 
of his career, he has never made such a report to the Pharmacy Board. 
Tr. 328, 344-45.
    Even beyond the bathtub and Lyme disease issues, Watson's assertion 
that his pharmacist/nephew Grant Goode never brought concerns about his 
son's actions to his attention is simply not credible. Tr. 348-50. 
Although Watson expressed exasperation over his nephew's decision to 
alert the authorities before sufficiently exhausting attempts to 
resolve issues through the intercession of family members, he raised no 
issue that impacted on Grant Goode's credibility or that would supply a 
motive to fabricate misconduct.
    After Watson testified, the Government presented (in its rebuttal 
case) the testimony of Steve Goode (Goode.1),\135\ a former employee 
and business partner of Tom Watson. Tr. 485. Goode.1 testified that he 
began working for Tom Watson in 1993 in the capacity of overall store 
manager for Big Star Perryville. Tr. 486. He worked in that position 
for approximately six years, and then also assumed management 
responsibilities over Watson's new Mayflower pharmacy/grocery store for 
the next year and a half. Id. Goode.1 testified that he left Watson's 
employ for a year and a half, but in 2001 rejoined him as a business 
partner. Id. Goode.1 explained that over the course of their ten-year 
partnership, in addition to Big Star Perryville and Mayflower, the two 
men bought several grocery stores, all but one of which included a 
pharmacy. Tr. 486-87.
---------------------------------------------------------------------------

    \135\ Steve Goode has no relation to Grant Goode, and pronounces 
his (identically-spelled) name differently. Tr. 484.
---------------------------------------------------------------------------

    Goode.1 stated that his role in the partnership was to oversee the 
grocery side of the business, and that he was responsible for 
inventory, invoicing, sales, and purchases, and had access to the bank 
accounts in all of the stores. Tr. 487. According to Goode.1, although 
his responsibilities did not include the management of the pharmacy 
aspects of the businesses, a unified ordering, sales, and inventory 
reporting system \136\ linked to all store cash registers gave him 
access to all sales, billing, ordering, and inventory figures, 
including transactions in the pharmacies. Tr. 487-89. In 2009, Goode.1 
had noticed that the Mayflower pharmacy was paying three full-time 
pharmacists, one of whom was Chris W, who had eased his actual hours 
into part-time work (at a full-time salary). Tr. 494. When Goode.1 
raised the issue that this salary output was not sustainable, Chris W 
told him that he would ``make it work'' and that Goode.1 should ``take 
care of grocery.'' Tr. 494.
---------------------------------------------------------------------------

    \136\ Goode.1 testified that the system was provided by the 
grocery wholesaler, Associated Wholesale Grocers (AWG). Tr. 487-88. 
The AWG system accommodated and tracked the ordering of 
pharmaceuticals through McKesson, who at the time was the 
Respondent's pharmacy supplier. Tr. 488. Goode.1 explained that a 
unified system allowed an overview of all Big Star Perryville 
transactions such that he could conduct an examination to determine 
which aspects of the business were doing well or poorly. Tr. 489.
---------------------------------------------------------------------------

    Goode.1 recounted that overall the business partnership enterprise 
had been ``pretty successful'' in the 2000s, but during the summer of 
2010 he became aware that a new store the two men had opened in 
Russellville was struggling financially. During this period, Goode.1 
and Watson would generally see each other about twice a week, but 
Goode.1 was sufficiently concerned about the Russellville operation and 
some other issues that he made arrangements to see Watson at his house. 
Tr. 489-90. Among other things discussed at the meeting, Goode.1 
testified that he told the elder Watson that ``all of a sudden'' there 
was no money in the Mayflower store bank accounts, and that when he 
examined the records, pharmacy purchases were up, but pharmacy sales 
were ``flat.'' Tr. 490. Watson, whose son Chris W was the Mayflower 
PIC, told Goode.1 that he would look at the issue and ``take care of 
it.'' Tr. 490-91. Goode.1 testified that until the summer of 2010, he 
had not really paid a lot of attention to pharmacy numbers at the 
Mayflower store because his primary focus was always the grocery end of 
the business, but that he turned his attention in that direction as 
part of his efforts to ascertain why two stores, Mayflower and 
Russellville, were underperforming. Tr. 494-95. It was his conclusion 
that they had merely underestimated demand at Russellville, but the 
issue at Mayflower was different; pharmacy sales were level, but the 
pharmacy was buying more drugs.\137\
---------------------------------------------------------------------------

    \137\ Goode.1 testified that he had heard rumors of controlled 
substance discrepancies at the Mayflower pharmacy, but as he was not 
a pharmacist, he could not verify them. Tr. at 502-03.
---------------------------------------------------------------------------

    The upshot of Goode.1's meeting with Watson was that the men agreed 
to meet with Chris W, and did so two weeks later. Tr. 491-92. However, 
according to Goode.1, his takeaway from the meeting was that ``it was 
evident that nothing was going to change.'' Id. Goode.1 was told to 
mind the grocery side of the business and that Chris W would take care 
of the pharmacy department. Tr. 493-93. Goode.1 stated that the 
conversation devolved into a discussion focused on the personal 
relationship between Goode.1 and the Watsons, and he was told that 
since because Goode.1 was permitted to use Watson land for hunting and 
a Watson truck for hauling, that he should mind the grocery side of the 
house and let Chris W manage the pharmacy end. Tr. 493. Goode.1 
testified that Chris W (who was doing most of the talking) did not 
supply any business-related reason for the drug-sales versus drug-
ordering anomaly at the Mayflower pharmacy. Tr. 493-95.
    Goode.1 stated that after the Mayflower store was sold to a large 
pharmacy chain,\138\ Chris W began to work at some hours at the 
Respondent at Big Star Perryville. Tr. 495. Goode.1 testified that in 
late 2012, while he and his wife were on vacation, he received a call 
from a mid-level multi-store department manager \139\ (T.G.), who told 
him that Chris W had given a former Mayflower pharmacy technician 
(C.J.D.) access to the Respondent pharmacy at a time when the 
Respondent was closed. Tr. 496-99. T.G. told Goode.1 that while the 
pharmacy was closed, C.J.D., using the keypad access code to enter the 
restricted pharmacy area, prepared and dispensed medications to her 
friends and family. Although Goode.1 believes that entries were made in 
the store computer to reflect the distribution of the drugs, none of 
the transactions were rung up on any store cash registers.\140\ Tr. 
498. Goode.1 testified that he met with Watson about the situation and 
warned him that if he didn't ``get a handle'' on Chris W, the business 
would encounter the same problem as the Mayflower pharmacy did. Tr. 
496. According to Goode.1, Watson said

[[Page 70108]]

``he'd take care of it'' but nothing happened. Id.
---------------------------------------------------------------------------

    \138\ Goode.1 testified that his share of the sale price (from 
his 20 percent ownership interest) totaled approximately $90,000. 
Tr. at 502.
    \139\ Goode.1 testified that the manager, T.G., supervised 
bakery and deli operation. Tr. 500.
    \140\ Goode.1 did not know whether the prescriptions prepared by 
the former employee were controlled substances. Id.
---------------------------------------------------------------------------

    Goode.1 reckoned that Tom Watson ``was the only one that had any 
influence over [Chris W],'' and that by bringing the issues to Watson's 
attention, he expected him to ``get involved in the business'' and 
acknowledge that there was a problem. Tr. 504. His partner's 
aspirations notwithstanding, Watson made no discernible effort to 
intervene. Id. Goode.1 and Watson sold the Mayflower and Morrilton 
stores and dissolved their partnership in 2012 shortly after the C.J.D. 
incident came to light. Tr. 486.
    Goode.1 presented testimony that was sufficiently even, detailed, 
plausible, and internally consistent to be afforded full credibility in 
these proceedings. Goode.1 readily acknowledged that dissolution of 
their partnership was ``not totally amicable'' because the two men 
still harbor some dispute about the financial aspects of the 
dissolution. Tr. 505. Still, there is nothing about the outcome of 
these proceedings that would enhance or detract from Goode.1's status 
in their unrelated monetary dispute, and there was no indication of 
malice or bias in the tenor or his words or demeanor. Watson's former 
business partner provided credible testimony.
    Any additional facts required for a resolution of this case are set 
forth in the Analysis portion of this recommended decision.

The Analysis

    Under 21 U.S.C. 824(a)(4), the Agency may revoke the COR of a 
registrant if the registrant ``has committed such acts as would render 
[its] registration . . . inconsistent with the public interest.'' 21 
U.S.C. 824(a)(4) (2012). The following factors have been provided by 
Congress in determining ``the public interest'':

    (1) The recommendation of the appropriate State licensing board 
or professional disciplinary authority.
    (2) The [registrant's] experience in dispensing, or conducting 
research with respect to controlled substances.
    (3) The [registrant's] conviction record under Federal or State 
laws relating to the manufacture, distribution, or dispensing of 
controlled substances.
    (4) Compliance with applicable State, Federal, or local laws 
relating to controlled substances.
    (5) Such other conduct which may threaten the public health and 
safety.

21 U.S.C. 823(f) (2012).
    ``[T]hese factors are considered in the disjunctive.'' Robert A. 
Leslie, M.D., 68 FR 15227, 15230 (2003). Any one or a combination of 
factors may be relied upon, and when exercising authority as an 
impartial adjudicator, the Agency may properly give each factor 
whatever weight it deems appropriate in determining whether a 
registrant's registration should be revoked. Id.; David H. Gillis, 
M.D., 58 FR 37507, 37508 (1993); see Morall v. DEA, 412 F.3d 165, 173-
74 (D.C. Cir. 2005); Joy's Ideas, 70 FR 33195, 33197 (2005); Henry J. 
Schwarz, Jr., M.D., 54 FR 16422, 16424 (1989). Moreover, the Agency is 
``not required to make findings as to all of the factors,'' Hoxie v. 
DEA, 419 F.3d 477, 482 (6th Cir. 2005); Morall, 412 F.3d at 173, and is 
not required to discuss consideration of each factor in equal detail, 
or even every factor in any given level of detail. Trawick v. DEA, 861 
F.2d 72, 76 (4th Cir. 1988) (holding that the Administrator's 
obligation to explain the decision rationale may be satisfied even if 
only minimal consideration is given to the relevant factors and that 
remand is required only when it is unclear whether the relevant factors 
were considered at all). The balancing of the public interest factors 
``is not a contest in which score is kept; the Agency is not required 
to mechanically count up the factors and determine how many favor the 
Government and how many favor the registrant. Rather, it is an inquiry 
which focuses on protecting the public interest. . . .'' Jayam Krishna-
Iyer, 74 FR 459, 462 (2009).
    In the adjudication of a revocation of a DEA COR, the DEA has the 
burden of proving that the requirements for continued registration are 
not satisfied. 21 CFR 1301.44(d) (2015). Where the Government has met 
this burden by making a prima facie case for revocation of a 
registrant's DEA COR, the burden of production then shifts to the 
registrant to show that, given the totality of the facts and 
circumstances in the record, revoking the registrant's registration 
would not be appropriate. Med. Shoppe-Jonesborough, 73 FR 364, 387 
(2008); Samuel S. Jackson, D.D.S., 72 FR 23848, 23853 (2007). Further, 
``to rebut the Government's prima facie case, [the Respondent] is 
required not only to accept responsibility for [the established] 
misconduct, but also to demonstrate what corrective measures [have 
been] undertaken to prevent the reoccurrence of similar acts.'' Jeri 
Hassman, M.D., 75 FR 8194, 8236 (2010); accord Krishna-Iyer, 74 FR at 
464 & n.8. In determining whether and to what extent a sanction is 
appropriate, consideration must be given to both the egregiousness of 
the offense established by the Government's evidence and the Agency's 
interest in both specific and general deterrence. David A. Ruben, M.D., 
78 FR 38363, 38364, 38385 (2013).
    Normal hardships to the registrant, and even the surrounding 
community, which are attendant upon the revocation of a registration, 
are not a relevant consideration. Linda Sue Cheek, M.D., 76 FR 66972, 
66972-73 (2011); Gregory D. Owens, D.D.S., 74 FR 36751, 36757 (2009). 
The Agency's conclusion that past performance is the best predictor of 
future performance has been sustained on review in the courts, Alra 
Labs., Inc. v. DEA, 54 F.3d 450, 452 (7th Cir. 1995), as has the 
Agency's consistent policy of strongly weighing whether a registrant 
who has committed acts inconsistent with the public interest has 
accepted responsibility and demonstrated that he or she will not engage 
in future misconduct, Hoxie, 419 F.3d at 483; see also Ronald Lynch, 
M.D., 75 FR 78745, 78754 (2010) (holding that the Respondent's attempts 
to minimize misconduct undermined acceptance of responsibility); George 
Mathew, M.D., 75 FR 66138, 66140, 66145, 66148 (2010); George C. 
Aycock, M.D., 74 FR 17529, 17543 (2009); Steven M. Abbadessa, D.O., 74 
FR 10077, 10078 (2009); Krishna-Iyer, 74 FR at 463; Med. Shoppe-
Jonesborough, 73 FR at 387.

[Omitted Material]

Factors 1 and 3: The Recommendation of the Appropriate State Licensing 
Board or Professional Disciplinary Authority Conviction Record Under 
Federal or State Laws Relating to the Manufacture, Distribution, or 
Dispensing of Controlled Substances

    Consideration of the evidence of record under Factors 1 and 3 does 
not support or undermine the sanction sought by the Government in this 
case. Under Factor 1, the recommendation of state medical licensing 
authorities is an important but not dispositive factor in determining 
whether maintaining a DEA COR is consistent with the public interest. 
Patrick W. Stodola, M.D., 74 FR 20727, 20730 (2009); Krishna-Iyer, 74 
FR at 461. It is beyond argument that beyond the absence of any 
evidence that Arkansas state officials have taken any action (or have 
even considered the matter), the present record contains no 
recommendation of any kind from any licensing or disciplinary 
authorities in Arkansas.
    Regarding the third factor (convictions relating to the 
manufacture, distribution, or dispensing of controlled substances), the 
record in this case does not contain evidence that the Respondent, its 
owner(s), or any pharmacist or key employee of the

[[Page 70109]]

pharmacy has been convicted \141\ of a crime related to any of the 
controlled substance activities designated in the CSA. The standard of 
proof in a criminal case is more stringent than the standard required 
at an administrative proceeding, and the elements of both federal and 
state crimes relating to controlled substances are not always 
coextensive with conduct that is relevant to a determination of whether 
maintaining registration is within the public interest. Still, where 
present, evidence that a registrant has been convicted of crimes 
related to controlled substances is a factor to be evaluated in 
reaching a determination as to whether the registrant should continue 
to be entrusted with a DEA certificate. The probative value of an 
absence of any evidence of criminal prosecution is somewhat diminished 
by the myriad of considerations that are factored into a decision to 
initiate, pursue, and dispose of criminal proceedings by federal, 
state, and local prosecution authorities. See Robert L. Dougherty, 
M.D., 76 FR 16823, 16833 n.13 (2011); Dewey C. MacKay, M.D., 75 FR 
49956, 49973 (2010) (``[W]hile a history of criminal convictions for 
offenses involving the distribution or dispensing of controlled 
substances is a highly relevant consideration, there are any number of 
reasons why a registrant may not have been convicted of such an 
offense, and thus, the absence of such a conviction is of considerably 
less consequence in the public interest inquiry.''), aff'd, MacKay v. 
DEA, 664 F.3d 808 (10th Cir. 2011); Ladapo O. Shyngle, M.D., 74 FR 
6056, 6057 n.2 (2009).
---------------------------------------------------------------------------

    \141\ It is undisputed that Chris W has been arrested in 
connection with facts related to this case (Tr. 433, 437-38, 445) 
and equally undisputed that the record contains no evidence that 
anyone associated with the Respondent (including Chris W) has been 
convicted in connection with the misconduct alleged by the 
Government.
---------------------------------------------------------------------------

    Therefore, on the present record, the absence of criminal 
convictions of the Respondent's owner, pharmacists, or key employees 
(Factor 3), like the absence of any state recommendation regarding the 
Respondent's COR (Factor 1), militates neither for nor against the COR 
revocation sought by the Government.

Factors 2 and 4: The Respondent's Experience in Dispensing Controlled 
Substances, and Compliance with Applicable State, Federal, or Local 
Laws Relating to Controlled Substances

    Much of the Government's public-interest-factors case seeking a COR 
revocation for the Respondent is based on conduct most aptly considered 
under Factors 2 and 4. The Government alleges and relies on intentional 
diversion activity conducted primarily by Chris W, the Respondent's 
PIC, and the failure on the part of the Respondent to act or have 
safeguards in place to protect the controlled substances in its care 
against Chris W's malfeasance. Specifically, the Government argues that 
based on what the Respondent (through its owner, Tom Watson) knew or 
should have known, insufficient care was exercised in preventing 
controlled substance diversion. The Government argues that the 
information in the Respondent's possession compelled it to act, and it 
failed to do so. Agency precedent has consistently held that the 
registration of a pharmacy may be revoked as the result of the unlawful 
activity of the pharmacy's owners, majority shareholders, officers, 
managing pharmacist, or other key employee. EZRX, LLC, 69 FR 63178, 
63181 (1988); Plaza Pharmacy, 53 FR 36910 (1988).
    Regarding Factor 2, in requiring an examination of a registrant's 
experience in dispensing controlled substances, Congress manifested an 
acknowledgement that the qualitative manner and the quantitative volume 
in which an applicant has engaged in the dispensing of controlled 
substances may be significant factors to be evaluated in reaching a 
determination as to whether an applicant should be (or continue to be) 
entrusted with a DEA COR. In some (but not all) cases, viewing an 
registrant's actions against a backdrop of how its regulated activities 
have been performed within the scope of its registration can provide a 
contextual lens to assist in a fair adjudication of whether continued 
registration is in the public interest. Agency precedent has placed 
some limitations on the weight to be accorded to evidence considered 
under this factor. For example, the Agency has taken the position that 
this factor can be readily outweighed by acts held to be inconsistent 
with the public interest, and evidence analyzed under this factor will 
be afforded scant weight by the Agency in the face of proven 
allegations of intentional diversion. Krishna-Iyer, 74 FR at 463; see 
also Hassman, 75 FR at 8235 (acknowledging Agency precedential 
rejection of the concept that conduct inconsistent with the public 
interest is rendered less so by comparing it with a respondent's 
legitimate activities that occurred in substantially higher numbers); 
Paul J. Cargine, Jr., 63 FR 51592, 51560 (1998) (``[E]ven though the 
patients at issue are only a small portion of Respondent's patient 
population, his prescribing of controlled substances to these 
individuals raises serious concerns regarding [his] ability to 
responsibly handle controlled substances in the future.''). Similarly, 
in Cynthia M. Cadet, M.D., the Agency determined that existing List I 
precedent \142\ clarifying that experience related to conduct within 
the scope of the COR sheds light on a practitioner's knowledge of 
applicable rules and regulations would not be applied to cases where 
intentional diversion allegations were sustained. 76 FR 19450, 19450 
n.3 (2011). The Agency's approach in this regard has been sustained on 
review. MacKay, 664 F.3d at 819.
---------------------------------------------------------------------------

    \142\ See, e.g., Volusia Wholesale, 69 FR 69409, 69410 (2004).
---------------------------------------------------------------------------

    There is no question that the Respondent has been conducting 
regulated activity under a DEA-issued COR since 1986 without any 
indication on the present record of reported misconduct that predates 
the facts that gave rise to these proceedings. Gov't Ex. 1. That said, 
as discussed in greater detail infra, there is no question that the 
actions of the Respondent's PIC, for which the Respondent is 
accountable, see EZRX, LLC, 69 FR at 63181; Plaza Pharmacy, 53 FR at 
36910, were plainly calculated to facilitate intentional diversion. 
Thus, even if it were assumed, arguendo, that the regulated activity 
conducted by the Respondent over the past three decades was exclusively 
benign, under Agency precedent, the intentional nature of the diversion 
established by the evidence of record would deprive that assumption of 
its ability to mitigate a sanction.
    In addition to Factor 2 (experience in dispensing), Factor 4 
(compliance with laws related to controlled substances) is also germane 
to a correct resolution of the instant case. Regarding Factor 4, to 
effectuate the dual goals of conquering drug abuse and controlling both 
legitimate and illegitimate traffic in controlled substances, 
``Congress devised a closed regulatory system making it unlawful to 
manufacture, distribute, dispense, or possess any controlled substance 
except in a manner authorized by the CSA.'' Gonzales v. Raich, 545 U.S. 
1, 13 (2005). Under the regulations, ``[t]he responsibility for the 
proper prescribing and dispensing of controlled substances is upon the 
prescribing practitioner, but a corresponding responsibility rests with 
the pharmacist who fills the prescription.'' 21 CFR 1306.04(a) (2015). 
Under this language, a pharmacist has a duty ``to fill only those 
prescriptions that conform in all respects with the requirements of the 
[CSA] and DEA regulations. . . .'' Electronic

[[Page 70110]]

Prescriptions for Controlled Substances, 75 FR 16236, 16266 (2010).
    In short, a pharmacist has a ``corresponding responsibility under 
Federal law'' to dispense only lawful prescriptions. Liddy's Pharmacy, 
L.L.C., 76 FR 48887, 48895 (2011). ``The corresponding responsibility 
to ensure the dispensing of valid prescriptions extends to the pharmacy 
itself.'' Holiday CVS, L.L.C., d/b/a CVS/Pharmacy Nos. 219 & 5195, 77 
FR 62315, 62341 (2012) (citing Med. Shoppe-Jonesborough, 73 FR at 384; 
United Prescription Servs., Inc., 72 FR 50397, 50407-08 (2007); EZRX, 
LLC, 69 FR at 63181; Role of Authorized Agents in Communicating 
Controlled Substance Prescriptions to Pharmacies, 75 FR 61613, 61617 
(Oct. 16, 2010); Issuance of Multiple Prescriptions for Schedule II 
Controlled Substances, 72 FR 64921, 69424 (Nov. 19, 2007)). Settled 
Agency precedent has interpreted this corresponding responsibility as 
prohibiting the filling of a prescription where the pharmacy, through 
its pharmacist, ``knows or has reason to know'' that the prescription 
is invalid. E. Main St. Pharmacy, 75 FR 66149, 66163 (2010); Bob's 
Pharmacy & Diabetic Supplies, 74 FR 19599, 19601 (2009) (citing Med. 
Shoppe-Jonesborough, 73 FR at 381).
    The Agency has interpreted this ``legitimate medical purpose'' 
feature of the corresponding responsibility duty ``as prohibiting a 
pharmacist from filling a prescription for a controlled substance when 
he either knows or has reason to know that the prescription was not 
written for a legitimate medical purpose,'' and has been equally 
consistent in its admonishment that ``[w]hen prescriptions are clearly 
not issued for legitimate medical purposes, a pharmacist may not 
intentionally close his eyes and thereby avoid [actual] knowledge of 
the real purpose of the prescription.'' Sun & Lake Pharmacy, Inc., 76 
FR 24523, 24530 (2011); Liddy's Pharmacy, 76 FR at 48895; E. Main St. 
Pharmacy, 75 FR at 66163; Lincoln Pharmacy, 75 FR 65667, 65668 (2010); 
Bob's Pharmacy, 74 FR at 19601.
    When considering whether a pharmacy has violated its corresponding 
responsibility, the Agency considers whether the entity, not the 
pharmacist, can be charged with the requisite knowledge. See United 
Prescription Servs., 72 FR at 50407 (finding that the Respondent 
pharmacy violated its corresponding responsibility because ``an entity 
which voluntarily engages in commerce [to] other States is properly 
charged with knowledge of the laws regarding the practice of medicine 
in those States'' (emphasis added)); see also Pharmboy Ventures 
Unlimited, Inc., 77 FR 33770, 33771 n.2 (2012) (``DEA has long held 
that it can look behind a pharmacy's ownership structure `to determine 
who makes decisions concerning the controlled substance business of a 
pharmacy.' '' (quoting Carriage Apothecary, 52 FR 27599, 27599 (1987)); 
S & S Pharmacy, Inc., 46 FR 13051, 13052 (1981) (holding that the 
corporate pharmacy acts through the agency of its PIC). Knowledge 
obtained by the pharmacists and other employees acting within the scope 
of their employment may be imputed to the pharmacy itself. See United 
States v. 7326 Highway 45 N., 965 F.2d 311, 316 (7th Cir. 1992) (``Only 
knowledge obtained by corporate employees acting within the scope of 
their employment is imputed to the corporation.''). Agency precedent 
has consistently held that the registration of a pharmacy may be 
revoked as the result of the unlawful activity of the pharmacy's 
owners, majority shareholders, officers, managing pharmacists, or other 
key employees. Holiday CVS, 77 FR at 62340; EZRX, 69 FR at 63181; Plaza 
Pharmacy, 53 FR at 36911.
    The evidence of record preponderantly establishes that while acting 
as the Respondent's PIC, Chris W twice \143\ dispensed controlled 
substances to a DEA undercover agent on scrips that he knew were bogus. 
SOFs 14-18, 20; SOT 3. It was clear that he knew the scrips were fakes 
because he had been actively engaged in schooling the undercover agent 
on how to improve his forging skills for future scrips. SOFs 14-18, 20; 
SOT 3; Tr. 146-50. In a palpable display of arrogance and disregard for 
his responsibilities, Chris W told the undercover agent that the 
agent's fake scrip ``looks a lot better than any of the other damn 
things [he's] seen.'' Gov't Ex. 18 at 3. He also assured the undercover 
agent that what he did with the drugs after the drugs left his pharmacy 
was none of his business. SOT 3(e).
---------------------------------------------------------------------------

    \143\ Controlled substances were dispensed to the undercover 
agent by Chris W on November 7, 2014 (Undercover Visit 1) and 
December 4, 2014 (Undercover Visit 4). SOFs 14, 20.
---------------------------------------------------------------------------

    The evidence of record establishes that Chris W engaged in a wild 
pattern of abusing his authority as a pharmacist while serving as a 
pharmacist and PIC at the Respondent. Staff members at the pharmacy 
have been directed by Chris W to dispense controlled substances in the 
absence of the requisite scrips and in the face of blatant red flags of 
diversion, and were aware that large quantities of controlled substance 
shipments delivered to the pharmacy routinely disappear by the 
following morning. SOTs 16(b), (e), 17(c). Staff members have also seen 
Chris W load his backpack with controlled medications and walk out the 
pharmacy door. SOT 16(f). With the assistance of his friend Eric 
Horton, he has also taken large amounts of pharmacy documentation out 
of the pharmacy and secreted it in his home. SOFs 6-12; SOTs 16(g), 
19(e), (g), 21. This was done with the knowledge of the Respondent's 
staff and in violation of the regulations, which require that the 
records be maintained by the pharmacy. 21 CFR 1306.15(a)(3) (2015).
    Chris W also supplied his girlfriend, Samantha Pemberton, with 
controlled substances in unmarked bottles without a prescription and 
created a paper trail at the pharmacy that fraudulently reflected 
prescriptions from Dr. James Arnold, M.D., an emergency room physician 
who never treated Pemberton. SOTs 7, 22. When, following a traffic 
stop, local police officers attempted to ascertain the facts about how 
Pemberton came into possession of drugs found with her, Chris W misled 
them on numerous phone calls and provided fabricated documentation that 
falsely created the impression that Dr. Arnold was her prescriber and 
that she was legitimately dispensed the drugs. SOT 9; Gov't Exs. 19, 
48, 49; Tr. 52-53.
    The record also establishes that Chris W dispensed controlled 
substances to an individual named A.R. with no prescription whatsoever. 
SOF 13. Not only did Chris W supply A.R. with controlled substances, 
but to cover his tracks, he reached out by text message to a dentist 
acquaintance, Dr. Raymond Hambuchen, who did not know A.R., and asked 
Dr. Hambuchen to vouch for his criminality. SOTs 1, 15(b)-(d), 10(d); 
Tr. 20-21; Gov't Exs. 2, 3. Fortunately, Dr. Hambuchen was not 
complicit. Records seized at the Respondent demonstrate that Chris W 
fraudulently dispensed controlled substances to A.R. eleven times under 
Dr. Hambuchen's name. SOF 13; SOT 20(d), (e); Gov't Ex. 4Tr. 185-86.
    Chris W spent an evening in the restricted area of the Respondent 
identifying and assisting his friend, Eric Horton, in liberating 
copious amounts of controlled substances from the pharmacy. A search 
incident to an arrest based on a traffic stop of Horton's truck shortly 
thereafter yielded a virtual cornucopia of controlled substances from 
the Respondent that Chris W helped him identify, gather, and pack up at 
the pharmacy, none of which had a label with Horton's name on it. SOTs 
5(c), 11(e), 12(c); Gov't Ex. 36; Tr. 98. Chris W also gave controlled 
substances

[[Page 70111]]

to Horton at his (Chris W's) home. SOT 7(c).
    Joe Jackson, another of Chris W's friends, was arrested while in 
possession of a large quantity of controlled substances in Respondent-
labeled stock bottles. SOT 13; Gov't Ex. 39. A search of the 
Respondent's pharmacy records revealed that no patient profile was 
maintained on Jackson at the pharmacy; thus, the controlled medications 
he was transporting at the time of his traffic stop were not legally 
dispensed to him. SOTs 14(c), 20(e).
    A search warrant executed at Chris W's home yielded, inter alia, 
hard copies of scrips for five patients who were dispensed controlled 
substances at the Respondent. SOFs 6-12. Under the regulations, these 
documents were required to be maintained at the pharmacy. 21 CFR 
1306.15(a)(3) (2015).
    There is thus no question that Chris W was a bad actor, and less 
question under Agency precedent that because he was a pharmacist, the 
PIC, the vice president, and the controller of the Respondent, the 
Respondent is accountable for every bit of Chris W's misconduct.\144\ 
Holiday CVS, 77 FR at 62340; EZRX, 69 FR at 63181; Plaza Pharmacy, 53 
FR at 36911. The seminal question here is not whether a sanction is 
authorized (it clearly is), but whether the Respondent should be 
sanctioned. For the reasons that follow, that question must be answered 
in the affirmative.
---------------------------------------------------------------------------

    \144\ Although the Respondent has stipulated that Chris W is and 
was a part-owner of the Respondent (SOF 20), it subsequently sought 
to challenge the basis of that stipulation with an affidavit from 
Chris W's mother offered after the hearing was completed. ALJ Ex. 
21. The motion was granted over the Government's objection. ALJ Exs. 
22, 23. However, inasmuch as Agency precedent does not distinguish 
between the responsibility imputed to a Respondent from an owner and 
the responsibility imputed from a managing pharmacist, officer, or 
other key employee, Holiday CVS, 77 FR at 62340; EZRX, 69 FR at 
63181; Plaza Pharmacy, 53 FR at 36911, the admission of the 
affidavit (Resp't Ex. 15), especially when considered with the 
diminished weight accorded by the regulations, 21 CFR 1316.58(b) 
(2015), adds virtually nothing to the equation.
---------------------------------------------------------------------------

    Notwithstanding the stunning level of controlled substance 
shortages \145\ revealed by the DEA audit,\146\ the awareness by 
pharmacy staff that controlled medications shipped to the pharmacy 
routinely disappear by the next morning,\147\ the burglary with 
controlled substance losses reported to the local police,\148\ and the 
large quantities of controlled substances found in the possession of 
Horton and Jackson (neither of whom were Respondent employees, and 
Jackson was not even a pharmacy customer), the Respondent has not filed 
a report of theft or loss (DEA-106) as required by the 
regulations.\149\ SOT 14(b). That the staff has noticed that the 
pharmacy regularly runs out of controlled medications by the ninth day 
of each month is clearly evidence that the Respondent was well aware 
that controlled medications were routinely going missing. SOT 16(b). 
The repeated failure to report the thefts/losses to DEA constitutes a 
violation of DEA regulations. 21 CFR 1301.76(b).
---------------------------------------------------------------------------

    \145\ Inasmuch as the shortages based on a DEA audit were not 
noticed in the OSC or the prehearing statements, the audit results, 
standing alone, cannot form an independent basis for sanction. CBS 
Wholesale Distribs., 74 FR 36746, 36750 (2009) (citing Darrel 
Risner, D.M.D., 61 FR 728, 730 (1996)); see also Roy E. Berkowitz, 
M.D., 74 FR 36758, 36759-60 (2009). However, the Government did 
sufficiently notice the Respondent's failure to file a report of 
theft or loss of controlled substances. ALJ Ex. 1 at 4.
    \146\ Tr. 181.
    \147\ SOTs 16(b), 17(c).
    \148\ SOTs 2(e), 19(f); Tr. 259-60, 323.
    \149\ 21 CFR 1301.76(b) (2015).
---------------------------------------------------------------------------

    It is likewise beyond argument that the owner of the Respondent, 
Tom Watson, had unequivocal notice from multiple sources over the 
course of several years that his son, Chris W, approached the disregard 
of his obligations as a pharmacist as if it were an art form. Tracy 
Swaim worked for Tom Watson at the Respondent, most of that time as its 
PIC, for over a quarter of a century. Tr. 232-33. In January of 2012, 
Swaim told Watson that he was sufficiently troubled by Chris W's 
illegal hijinks that he intended to resign as the PIC. Tr. 251-56. 
Unconsoled by Watson's assurances, Swaim conducted a close-out 
inventory, completed the necessary paperwork to step down, and did so. 
The fact that Swaim's salary remained unaffected and his hours were not 
reduced is strong evidence that the demotion was in no way punitive, 
and that the long-term PIC was making a powerful statement to his 
employer. Tr. 254-55, 266-67. Tom Watson's reaction was to effect no 
discernible change in the organization--other than having Chris W 
replace Swaim as the Respondent's PIC.
    Two years and nine months later, when Swaim overheard Pharmacy 
Technician June Gilbert (a twenty-five-year veteran of the Respondent) 
tell Watson that Chris W was ``giving away'' medication, it was more 
than Swaim could endure, and he warned Watson that he was considering 
leaving the pharmacy altogether. Tr. 257. Four days later, when Swaim 
learned from the staff that Chris W's misconduct had not abated, 
notwithstanding the fact that Swaim had no job prospects and lived in a 
rural area, he gave his two weeks' notice and quit. Tr. 257. It would 
be difficult to conceive of more sincerely-rendered, credible warnings 
from more trusted employees than those tendered by Tracy Swaim and June 
Gilbert. Still, Watson was unmoved and left Chris W as the Respondent's 
PIC.
    Tom Watson was also warned of Chris W's blatant misconduct by his 
nephew, Grant Goode, who briefly worked at the Respondent as a staff 
pharmacist. When Goode alerted Watson that dozens of dispensing events 
lacked hard-copy scrips, the owner dismissed it as benign filing errors 
made by pharmacy staff members. Tr. 277. In view of the fact that Goode 
was present when Chris W loaded medications in his backpack in plain 
view of his father,\150\ the elder Watson's unwillingness to act likely 
came as no surprise to Goode. When Watson became suspicious that Grant 
Goode had brought his concerns to the Pharmacy Board, he had another 
pharmacist (and business partner of Chris W) dismiss him from the job. 
Tr. 291. The reaction of this pharmacist, Glenn Wood (also a key 
employee and supervisory pharmacist), to Goode's concerns was not to 
elevate the issue or to investigate the allegations; his response was 
merely to take offense on behalf of the Watsons and defend them. Tr. 
427, 429.
---------------------------------------------------------------------------

    \150\ Tr. 280.
---------------------------------------------------------------------------

    Tom Watson also disregarded concerns expressed by his former long-
time store manager and partner, Steve Goode (Goode.1). While co-owning 
the Mayflower store with Watson, Goode.1 had determined that while 
Chris W was the PIC, pharmacy ordering was going through the roof while 
sales were static. Tr. 490-92. When he brought this concern to Watson's 
attention, the two men met with Chris W, and Goode.1 was essentially 
told to keep his nose out of the pharmacy side of the house. Tr. 493.
    Goode.1 also informed Watson that Chris W had granted access to the 
pharmacy to a former employee while the pharmacy was closed and enabled 
her to dispense medications to her friends and relatives free of 
charge. Tr. 496-99. Consistent with his custom in such matters, Watson 
assured Goode.1 that he would take care of the issue and proceeded to 
do nothing. Tr. 496-97. The partnership between the two men was 
subsequently dissolved. Id.
    The Respondent also ran afoul of state controlled substance laws. 
The Arkansas Uniform Controlled Substances Act specifies that no 
controlled substance is to be dispensed without a prescription issued 
in compliance with federal laws and

[[Page 70112]]

regulations. Ark. Code Ann. Sec.  5-64-308 (2013). Thus, Chris W's 
practice of dispensing controlled substances without scrips to his 
girlfriend, friends, and associates, and his facilitation of a former 
employee's weekend drug dispensing event to her friends and family, 
clearly violated state laws related to controlled substances, and was 
passively endured by the Respondent. As discussed supra, the Respondent 
was credibly informed by numerous sources, was well aware of Chris W's 
misconduct, and chose to do nothing.
    When Chris W dispensed controlled substances twice to an undercover 
DEA agent where he knew that the presented scrips were fraudulent, he 
also violated his state ``corresponding responsibility'' to ensure that 
the prescribing and dispensing of a controlled substance is proper. 
Ark. Admin. Code Sec.  007.07.2-II-VIII(B)(1) (2014); see also Ark. 
Admin. Code Sec.  070.00.4-04-00-0009 (2014) (``Any pharmacist . . . 
participating in the preparation of orders or dispensing of 
prescriptions . . . is responsible for the validity and legality of the 
order or prescription.''). Prescriptions can only be issued for 
``legitimate medical purposes'' by ``an individual practitioner who is 
legally authorized to prescribe . . . controlled substances in the 
State of Arkansas and who holds a current [DEA COR].'' Ark. Admin. Code 
Sec.  007.07.2-II-VIII. Chris W knew the scrips were frauds, and even 
sought to improve the caliber of the undercover agent's future 
forgeries. Chris W's actions as pharmacist and later PIC violated 
Arkansas laws and under the circumstances, the Respondent is fully 
responsible with knowledge of his malfeasance.
    Arkansas regulations delineate a number of responsibilities for 
supervisory pharmacists; those persons responsible for supervising 
pharmacy personnel are ``responsible for the validity and legality'' of 
the prescriptions dispensed and also ``responsible for any shortage of 
drugs classified as controlled substances . . . which occurs under 
their supervision.'' Ark. Admin. Code Sec.  070.00.4-04-00-0009 (2014). 
Likewise, state regulations outline the responsibilities unique to 
those individuals designated as pharmacists-in-charge: ``The [PIC] is 
responsible for the security and accountability of all drugs stored in 
a pharmacy and is responsible for the validity and legality of all 
prescriptions and/or orders upon which drugs are dispensed in a 
pharmacy. The [PIC] is responsible for ensuring that pharmacy staff has 
been appropriately trained to follow the pharmacy's policies and 
procedures.'' Ark. Admin. Code Sec.  070.00.4-04-00-0010 (2014).
    Under Arkansas law, ``[t]he permit holder and the [PIC] are jointly 
responsible for the security and accountability of all controlled drugs 
stored in and/or ordered by a pharmacy.'' Ark. Admin. Code Sec.  
070.00.4-04-00-0015 (2014). As such, the permit holder is required to 
``provide diversion prevention and detection tools appropriate for the 
particular pharmacy setting and the pharmacist in charge shall 
implement and monitor the diversion control and detection tools 
provided by the permit holder.'' Id. Such policies and procedures 
developed by the permit holder and the PIC to prevent and detect 
diversion may include ``limiting access to by non-pharmacists to 
controlled drug shipments'', ``confirming pill count before opening a 
new bottle of high risk drugs'', and ``tracking pill count on stock 
bottles.'' Id. As discussed supra, Respondent's lack of any meaningful 
measures of checks and balances to guard against diversion by a 
pharmacist, the sharing of the CSOS password, and its owner's obdurate 
refusal to act on credible warning after warning placed the Respondent 
in violation of the Arkansas security and accountability provisions.
    Chris W served as a staff pharmacist and PIC at the Respondent. He 
is the son of the majority owner of the business, and diverted 
controlled substances with equal measures of wild abandon and complete 
impunity. The Respondent knew its pharmacist was violating federal and 
state laws and diverting copious amounts of controlled substances and 
elected to take no action. Consideration of the record evidence under 
Factors 2 and 4 militate powerfully and conclusively in favor of the 
COR revocation sought by the Government.

Factor 5: Such Other Conduct Which May Threaten the Public Health and 
Safety

    The fifth statutory public interest factor directs consideration of 
``[s]uch other conduct which may threaten the public health and 
safety.'' 21 U.S.C. 823(f)(5) (2012) (emphasis added). To qualify for 
consideration under this factor, the evidence must constitute: (1) 
Conduct \151\ (2) not covered by application of the other four public 
interest factors (3) which has the potential to threaten the public 
health and safety.\152\ Agency precedent has generally embraced the 
principle that any conduct that is properly the subject of Factor 5 
must have a nexus to controlled substances and the underlying purposes 
of the CSA. Terese, Inc., 76 FR 46843, 46848 (2011); Tony T. Bui, M.D., 
75 FR 49979, 49989 (2010) (stating that prescribing practices related 
to a non-controlled substance such as human growth hormone may not 
provide an independent basis for concluding that a registrant has 
engaged in conduct which may threaten public health and safety); cf. 
Paul Weir Battershell, N.P., 76 FR 44359, 44368 n.27 (2011) (noting 
that although a registrant's non-compliance with the Food, Drug, and 
Cosmetic Act is not relevant under Factor 5, consideration of such 
conduct may properly be considered on the narrow issue of assessing a 
respondent's future compliance with the CSA). Only conduct that has ``a 
nexus to controlled substances and the underlying purposes of the CSA'' 
may be considered under this factor. Joe W. Morgan, D.O., 78 FR 61961, 
61977 (2013); accord Holiday CVS, 77 FR at 62345.
---------------------------------------------------------------------------

    \151\ See Holloway Distrib., 72 FR 42118, 42126 n.16 (2007).
    \152\ Jacobo Dreszer, 76 FR 19386, 19386 n.3, 19434 (2011); 
Michael J. Aruta, M.D., 76 FR 19420, 19420 n.3 (2011); Beau Boshers, 
M.D., 76 FR 19401, 19402 n.4 (2011).
---------------------------------------------------------------------------

    Even the Respondent seems to agree that the depth and breadth of 
Chris W's arrogance and imagination in his extended efforts to flout 
the CSA is remarkable by any standard. During his enthusiastic campaign 
of diversion for profit, there were certainly acts he committed that 
were both inside and outside the other public interest factors 
considered here. However, there were two ``other conduct'' undertakings 
\153\ that stood out from the rest as deserving of separate 
consideration: Providing advice to the DEA undercover agent on how to 
improve his scrip forgery efforts \154\ and generating false documents 
and supplying them to law enforcement to cover his tracks in supplying 
Samantha Pemberton with drugs. Both stand out as worthy of separate 
consideration under Factor 5.\155\
---------------------------------------------------------------------------

    \153\ This is certainly not offered as an exhaustive list of all 
Chris W's Factor 5-eligible actions.
    \154\ SOFs 15-18, 20; SOT 3; Tr. 146-50.
    \155\ SOT 9(e)-(g); Gov't Exs. 48, 49.
---------------------------------------------------------------------------

    There is little doubt that on the present record, where the 
Respondent's owner stubbornly ignored every warning sign that Chris W, 
his PIC and his son, was essentially on a campaign to abuse his 
authority and divert drugs on an unprecedented level, that the 
Respondent should be and is wholly accountable Chris W's Factor 5 
conduct.

[[Page 70113]]

Holiday CVS, 77 FR at 62340; EZRX, 69 FR at 63181; Plaza Pharmacy, 53 
FR at 36911. There is equally little question that consideration of the 
record evidence under Factor 5 militates powerfully in favor of the 
revocation of the Respondent's COR.

Recommendation

    Inasmuch as the Government has preponderantly established that the 
Respondent's PIC engaged in behavior that is violative of Federal and 
state law regarding controlled substances dispensing practices and a 
pharmacist's corresponding responsibility, that the Respondent treated 
the misconduct with deliberate indifference, and that the Respondent 
systemically failed to maintain adequate controls to protect against 
theft or loss of controlled substances, the Government has supplied 
sufficient evidence to make out a prima facie case that maintaining the 
Respondent's COR would be contrary to the requirements of 21 U.S.C. 823 
and 824. As the Government has sustained its burden to show that the 
Respondent committed acts inconsistent with the public interest, the 
burden shifts to the Respondent to show that it can be entrusted with a 
DEA registration. ``[T]o rebut the Government's prima facie case, [the 
Respondent is] required not only to accept responsibility for [the 
established] misconduct, but also to demonstrate what corrective 
measures [have been] undertaken to prevent the reoccurrence of similar 
acts.'' Hassman, 75 FR at 8236; Hoxie, 419 F.3d at 483; Lynch, 75 FR at 
78749 (Respondent's attempts to minimize misconduct held to undermine 
acceptance of responsibility); Mathew, 75 FR at 66140, 66145, 66148; 
Aycock, 74 FR at 17543; Abbadessa, 74 FR at 10078; Krishna-Iyer, 74 FR 
at 463; Med. Shoppe-Jonesborough, 73 FR at 387. Both prongs are 
required, and one is irrelevant without the other.
    The Government's prima facie burden having been met,\156\ an 
unequivocal acceptance of responsibility stands as a condition 
precedent for the Respondent to prevail. Mathew, 75 FR at 66148. This 
feature of the Agency's interpretation of its statutory mandate on the 
exercise of its discretionary function under the CSA has been sustained 
on review. MacKay, 664 F.3d at 822. While it is true that the 
Respondent, through counsel, commendably entered into an extensive and 
reasonable array of evidentiary and testimonial stipulations in this 
case, no amount of prudent legal advice could save the Respondent from 
itself. During his testimony, Tom Watson, the majority owner of the 
Respondent, doggedly maintained that the responsibility for every bit 
of horrendous misconduct committed by his son/PIC was his son's 
responsibility to bear. Tr. 354-56, 358, 362. Watson obdurately clung 
to the (false) notion that delegation of his authority equates with 
absolution from his responsibility. Tr. 358. He is mistaken, and his 
position in this regard is made even more unreasonable by the fact that 
he has spent years turning a blind eye to warning after warning. Under 
longstanding Agency precedent, Watson's failure to accept any level of 
responsibility has virtually precluded the Respondent's ability to 
avoid a sanction in this case.
---------------------------------------------------------------------------

    \156\ The Respondent concedes that the Government has met its 
prima facie burden. Resp't Brf. at 2-3.
---------------------------------------------------------------------------

    Inasmuch as the Respondent has not accepted responsibility, 
evidence of remedial steps is irrelevant. Hassman, 75 FR at 8236. 
However, even if the remedial steps offered by the Respondent were 
considered, they would not alter the result. Prospective PIC Glenn 
Wood's testimony concerning all the extra security measure he intends 
to take \157\ suffers from the same fundamental defect that Watson's 
representations regarding his anticipated increased pharmacy 
involvement \158\ and implementation of his Proposed Policy \159\ do: 
both men were present and did nothing when the Respondent's PIC, Chris 
W, ran wild. These men are a major part of the problem, not the 
champions of a solution that can be afforded any genuine credence.
---------------------------------------------------------------------------

    \157\ Tr. 416-19, 444.
    \158\ Resp't Brf. at 16; Tr. 320, 346-47.
    \159\ Gov't Ex. 1.
---------------------------------------------------------------------------

    Although there was no cognizable acceptance of responsibility, the 
Respondent took the position that consideration should be given to the 
fact that its pharmacy serves an underserved, primarily indigent, rural 
community. Resp't Brf. at 114; Tr. 404, 429-30. Even apart from the 
potential irony in concluding that a rural, indigent community would 
garner significant benefit from a COR holder who has consistently 
refused to take even the smallest step to mitigate his son's wholesale 
diversion of dangerous drugs, Agency precedent is clear that normal 
hardships to the practitioner, and even the surrounding community, 
which are attendant upon the denial of a registration, are not a 
relevant consideration. Cheek, 76 FR at 66972-73; Abbadessa, 74 FR at 
10078; Owens, 74 FR at 36757. Suffice it to say that the Respondent's 
community impact argument, even if it were not rendered irrelevant by 
Agency precedent (which it is), is not persuasive on the present 
record.
    That a sanction is authorized does not end the inquiry. In 
determining whether and to what extent imposing a sanction is 
appropriate, consideration must be given to both the egregiousness of 
the offenses established by the Government's evidence and the Agency's 
interest in both specific and general deterrence. Ruben, 78 FR at 
38364, 38385. As discussed supra, the conduct of the Respondent, 
through its PIC, and as ignored by its owner, was stunning. Not only 
were dangerous controlled drugs being doled out to friends, love 
interests, and customers, but the apparatus of the Respondent was 
actively employed by Chris W to accomplish his misconduct. Chris W used 
the Respondent's privileges to order and store controlled substances as 
if he were running a big-box retailer specializing in drug dealing. No 
amount of security measures, cameras, documents, or safety protocols 
could defend the public against his father's deliberate indifference. 
Chris W even once loaned out the store so that a former employee could 
mete out drugs to her friends and family. There is no question that a 
thoughtful consideration of the egregiousness of the established 
misconduct compels the revocation sought by the Government.
    Regarding the issue of deterrence, there is no question that a 
sanction that falls short of revocation would undermine the Agency's 
legitimate interests in both specific and general deterrence. On the 
issue of specific deterrence, there is nothing in the record that lends 
any support to the proposition that Tom Watson's future behavior will 
be any different from his past behavior. Although the Respondent 
represents that (the retired) Watson intends to become more active in 
the business in the future,\160\ his level of activity was never the 
issue. He had his closest associates, managers, business partners, 
employees, pharmacists, and relatives engaged in a consistent chorus 
implicating Chris W as a persistent and criminal diverter, yet Watson 
was unmoved. It strains credulity to think that the exercise of 
successfully defending an ISO at administrative proceedings before the 
DEA will be the catalyst of change. There is no reason to believe that 
Tom Watson intends to manage his pharmacy differently than he has for 
decades, and every reason to believe that escaping consequences here

[[Page 70114]]

will be as destructive as the impunity with which he ignored every 
warning sign that his pharmacy was a mess, and rendered so at the hands 
of his son.
---------------------------------------------------------------------------

    \160\ Resp't Brf. at 16; Tr. 320, 346-47.
---------------------------------------------------------------------------

    Regarding general deterrence, as the regulator in this field, the 
Agency bears the responsibility to deter similar misconduct on the part 
of others for the protection of the public at large. Ruben, 78 FR at 
38385. The ubiquitous nature of the drug diversion taking place within 
plain sight of the COR holder, the Respondent's employees, law 
enforcement, and the public at large would render anything less than a 
revocation as an invitation to others in the regulated community to 
ignore trouble in their own operations. The inescapable lesson to other 
COR holders would be that delegation of authority does equate to 
delegation of responsibility. The Agency's interests in general 
deterrence are served best by revoking the Respondent's COR.
    A balancing of the statutory public interest factors, coupled with 
consideration of the Respondent's failure to accept responsibility and 
the Agency's interests in deterrence, supports the conclusion that the 
Respondent should not continue to be entrusted with a registration.
    Accordingly, the Respondent's DEA COR should be REVOKED, and any 
pending applications for renewal should be DENIED.

Dated: May 13, 2015.

John J. Mulrooney, II,

Chief Administrative Law Judge.

[FR Doc. 2015-28723 Filed 11-10-15; 8:45 am]
 BILLING CODE 4410-09-P