Novelty, Inc. v. D.E.A., No. 08-1296.

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtPer Curiam
PartiesNOVELTY, INC., Petitioner v. DRUG ENFORCEMENT ADMINISTRATION et al., Respondents.
Decision Date22 June 2009
Docket NumberNo. 08-1296.
571 F.3d 1176
NOVELTY, INC., Petitioner
v.
DRUG ENFORCEMENT ADMINISTRATION et al., Respondents.
No. 08-1296.
United States Court of Appeals, District of Columbia Circuit.
Argued January 14, 2009.
Decided June 22, 2009.
Rehearing En Banc Denied July 28, 2009.

On Petition for Review of an Order of the Drug Enforcement Administration.

Jonathan W. Emord argued the cause for the petitioner.

Teresa A. Wallbaum, Acting Deputy Chief for Policy and Appeals, United States Department of Justice, argued the cause for the respondent. Anita Gay, Attorney, entered an appearance.

Before HENDERSON, TATEL and BROWN, Circuit Judges.

Separate statements filed by Circuit Judge KAREN LECRAFT HENDERSON, Circuit Judge DAVID S. TATEL and Circuit Judge JANICE ROGERS BROWN.

ORDER

PER CURIAM.


Novelty, Inc. petitions for review of the order of the United States Drug Enforcement Administration in Novelty Distributors, Inc., 73 Fed.Reg. 52,689 (Sept. 10, 2008).

IT IS ORDERED that the petition for review be denied. Judge Henderson sets forth her reasons for denying the petition in her separate concurring statement, as does Judge Tatel in his separate concurring statement. Judge Brown dissents from the denial for the reasons stated in her dissent.

KAREN LECRAFT HENDERSON, Circuit Judge, concurring:

Novelty, Inc. (Novelty) petitions for review of the order of the United States Drug Enforcement Administration (DEA), Novelty Distributors, Inc., 73 Fed.Reg. 52,689 (Sept. 10, 2008) (Final Order), which revoked its registration to distribute list I chemical products pursuant to the Controlled Substances Act, 21 U.S.C. §§ 801 et seq. (CSA or Act). For the reasons set out below, I conclude that Novelty's petition for review should be denied.

I.

The CSA requires "[e]very person who ... distributes any ... list I chemical [to] obtain annually a registration issued by the Attorney General." 21 U.S.C. § 822(a)(1). Section 823(h) requires the Attorney General to "register an applicant to distribute a list I chemical unless [he] determines that registration of the applicant is inconsistent with the public interest." Id. § 823(h). The Attorney General considers five factors in determining whether registration is inconsistent with the public interest:

(1) maintenance by the applicant of effective controls against diversion of listed chemicals into other than legitimate channels;

(2) compliance by the applicant with applicable Federal, State, and local law;

(3) any prior conviction record of the applicant under Federal or State laws relating to controlled substances or to chemicals controlled under Federal or State law;

(4) any past experience of the applicant in the manufacture and distribution of chemicals; and

571 F.3d 1177

(5) such other factors as are relevant to and consistent with the public health and safety.

Id. § 823(h). The Attorney General may suspend or revoke a registration if the registrant "has committed such acts as would render his registration ... inconsistent with the public interest as determined under [21 U.S.C. § 823]." Id. § 824(a)(4). A list I chemical distributor must obtain a "[s]eparate registration ... at each principal place of business or professional practice where [it] ... distributes ... list I chemicals." Id. § 822(e). The Attorney General has delegated the authority to deny, revoke or suspend registration to the DEA Administrator, 28 C.F.R. § 0.100(b), who has redelegated to the Deputy Administrator (DA). Id. § 0.104.

Novelty is an Indiana-based wholesale distributor of retail products to approximately 10,000 convenience stores in the United States, including over-the-counter pharmaceutical products containing ephedrine and pseudoephedrine. The CSA defines ephedrine and pseudoephedrine as "list I chemicals." 21 U.S.C. § 802(34)(C) & (K). Ephedrine and pseudoephedrine have legitimate uses1 but they can also be diverted for use in the manufacture of methamphetamine, a schedule II controlled substance. Id. § 812(c); 21 C.F.R. § 1308.12(d). In 1998, the DEA granted Novelty a certificate of registration authorizing it to distribute list I chemical products from its Greenfield, Indiana facility. The DEA renewed Novelty's registration annually until 2008.

According to Novelty's president,2 Novelty stores its list I chemical products in a secure area in its registered Greenfield, Indiana warehouse. Administrative Hearing Transcript at 131-32, Novelty Distributors, Docket No. 08-33 (DEA Mar. 24-Apr. 1, 2008) (Hearing Tr.). Only employees who pass a background check and receive training are authorized to enter the secure area. Each Novelty sales representative services approximately 80 convenience store customers and makes deliveries to each customer approximately every two weeks. According to Novelty's vice president of product, the customer tells the sales representative how many list I chemical products it needs and the sales representative orders them from Novelty's Greenfield facility. Novelty drivers transport the list I chemical products weekly in company trucks to approximately 150 self-storage units that Novelty rents from independent self-storage facilities throughout the country. Novelty informs its sales representative of the time of delivery to the self-storage unit. The list I chemical products typically remain in the self-storage unit anywhere from a few hours to two days until the sales representative transfers them to his vehicle for delivery to the customer. Each self-storage unit is locked and has varying degrees of additional security as provided by the individual storage facilities. According to Novelty's president, "there are cameras around ... a lot of [the storage facilities]," "[t]hey have access points" and "[t]hey have codes to get into places." Id. at 131. One Novelty sales representative testified that the self-storage unit he

571 F.3d 1178

used had only a padlocked door for security. Id. at 538. None of Novelty's approximately 150 self-storage units is registered with the DEA.

Novelty sells combination ephedrine and pseudoephedrine products of different strengths and in varying quantities per package and it carries more than ten product lines containing list I chemicals. Novelty's vice president of product testified that Novelty limits each convenience store customer to one case of each product type per the sales representative's bi-weekly delivery to reduce the risk of diversion. According to Novelty's director of category management, Novelty enforces its one case per product type limit by issuing a warning to a noncompliant sales representative for a first infraction and terminating him for a second infraction. In addition, Novelty ceases selling list I chemical products to any customer purchasing in excess of one case per product type. Novelty's director of category management testified that between January 2007 and January 2008, there were approximately 35 to 45 violations of the one case limit of an estimated 100,000 to 120,000 total transactions. According to one of the DEA investigators who testified, however, Novelty violated its one case limit 85 times between January and July 2007. According to another DEA investigator, during a November 2002 raid on an illegal methamphetamine lab in Connecticut, the DEA discovered ephedrine product manufactured by DMD Pharmaceuticals (DMD). DMD informed the DEA that in September 2002 it had shipped the product to Novelty for distribution. When the DEA contacted Novelty, Novelty was unable to identify the convenience stores that had purchased the ephedrine product later diverted.

On May 5, 2004, Dan Raber, Diversion Group Supervisor in the DEA's Indianapolis District Office, sent Novelty and other Indiana registrants a letter regarding the transportation and delivery of list I chemical products to retailers. Letter from Dan E. Raber, Diversion Group Supervisor, to Novelty Distributors, Novelty Distributors, Docket No. 08-33 (May 5, 2004) (Raber Letter). The Raber Letter specifically addressed the practice of "storing List I chemical products (including over-the-counter ephedrine and pseudoephedrine items) and distributing them from satellite locations, such as commercial storage units, personal residences and or delivery vehicles." Id. at 1. It "remind[ed] all registrants that `any ... distribution from[] a location other than the registered location (including the use of delivery vehicles for overnight storage) is a violation of federal law.'" Id. According to Novelty's vice president of product, Novelty concluded that it had to register all 150 self-storage units or stop using the units for list I chemical products, which it declined to do. In September 2004, it filed suit in the Southern District of Indiana seeking a declaratory judgment that the Raber Letter constituted a rule making conducted without the requisite notice and comment. Novelty, Inc. v. Tandy, No. 04-cv-1502, 2006 WL 2375485, at * 1 (S.D.Ind. Aug.15, 2006). Almost four years later, on August 7, 2008, the district court granted the DEA's motion for summary judgment, concluding that the Raber Letter was an interpretive rule that did not require notice and comment.3 Novelty, Inc. v. Tandy, No. 05-cv-1502, 2008 WL 3835655, at *16 (S.D.Ind. Aug.7, 2008).

On January 17, 2008, the DA suspended Novelty's registration and issued an order

571 F.3d 1179

to show cause why the DEA should not revoke Novelty's registration, setting forth several grounds therefor. Order to Show Cause and Immediate Suspension of Registration, Novelty Distributors, Docket No. 08-33 (DEA Jan. 17, 2008) (Suspension Order). First, Novelty used unregistered self-storage units to distribute list I chemical products, a factor weighing against Novelty's continued registration under 21 U.S.C. §§ 823(h)(2) (noncompliance with applicable laws) and 824(a)(4) (acts inconsistent with public interest). Id. at 1. Second, Novelty distributed list I chemical products to its customers in quantities...

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4 practice notes
  • Decisions And Orders:
    • United States
    • Federal Register October 11, 2011
    • October 11, 2011
    ...even after being put on notice, can enhance the Government's case for revocation. Novelty, Inc., 73 Fed. Reg. 52689, 52703 (2008), aff'd, 571 F.3d 1176 (D.C. Cir. Southwood Pharm., Inc., 72 Fed. Reg. 36487, 36503 (2007); John J. Fotinopoulous, 72 Fed. Reg. 24602, 24606 (2007). In Jayam Kris......
  • Registration Revocations:
    • United States
    • Federal Register December 16, 2010
    • December 16, 2010
    ...with its cargo, and do so in a manner of seconds. See Novelty Distributors, Inc., 73 FR 52689, 52698 (2008), pet. for review denied, 571 F.3d 1176 (D.C. Cir. 2009); Marketing, 71 FR 35710, 35711 (2006). During the inspection, the DIs further found that Respondent had shortages of 109 bottle......
  • Novelty, Inc. v. Drug Enforcement Admin., No. 09–508.
    • United States
    • United States Supreme Court
    • December 14, 2009
    ...INC., petitioner,v.DRUG ENFORCEMENT ADMINISTRATION, et al.No. 09–508.Supreme Court of the United StatesDec. 14, 2009 Case below, 571 F.3d 1176. Petition for writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit...
  • Novelty, Inc. v. Drug Enforcement Admin., No. 09–508.
    • United States
    • United States Supreme Court
    • December 14, 2009
    ...INC., petitioner,v.DRUG ENFORCEMENT ADMINISTRATION, et al.No. 09–508.Supreme Court of the United StatesDec. 14, 2009. Case below, 571 F.3d 1176. Petition for writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit ...
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    • United States Supreme Court
    • December 14, 2009
    ...INC., petitioner,v.DRUG ENFORCEMENT ADMINISTRATION, et al.No. 09–508.Supreme Court of the United StatesDec. 14, 2009 Case below, 571 F.3d 1176. Petition for writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit...
  • Novelty, Inc. v. Drug Enforcement Admin., No. 09–508.
    • United States
    • United States Supreme Court
    • December 14, 2009
    ...INC., petitioner,v.DRUG ENFORCEMENT ADMINISTRATION, et al.No. 09–508.Supreme Court of the United StatesDec. 14, 2009. Case below, 571 F.3d 1176. Petition for writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit ...

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