MB Wholesale, Inc.; Denial of Application

On August 7, 2006, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration, issued an Order to Show Cause to MB Wholesale, Inc. (Respondent), of Detroit, Michigan. The Show Cause Order proposed the denial of Respondent's pending application to distribute the list I chemicals ephedrine and pseudoephedrine, on the ground that “its registration would be inconsistent with the public interest.” Show Cause Order at 1 (citing 21 U.S.C. 823(h)).

The Show Cause Order specifically alleged that “on or about February 16, 2006, [Respondent], by Mohamed Mehanna, submitted an application for registration as a distributor of the list I chemicals ephedrine and pseudoephedrine,” and that the fees for incorporating Respondent “were paid by a check drawn” on the account of Mehanna Brothers Export Import, Inc. (Mehanna Brothers). Id. at 2. The Show Cause Order alleged that Mehanna Brothers was managed by Abed, Mohammed and Jack Mehanna, and that it held a DEA registration to distribute list I chemicals at the registered location of 14442 Michigan Avenue, Dearborn, Michigan.” Id.

The Show Cause Order alleged that in January 2005, Mehanna Brothers had moved its business to 6711 Greenfield Road, Detroit, Michigan, and distributed list I chemicals from this location without a registration authorizing it to do so. Id. The Show Cause Order further alleged that on July 10, 2006, DEA issued an Order to Show Cause proposing the revocation of Mehanna Brothers' registration based on this activity. Id.

The Show Cause Order next alleged that on April 16, 2006, DEA investigators went to Respondent's proposed registered location to conduct a pre-registration inspection and discovered that the facility was the same one that was used by Mehanna Brothers. Id. The Show Cause Order further alleged that on May 18, 2006, Abed Mehanna told DEA investigators that he was a co-owner of Respondent, that Respondent was operated by himself as well as his brothers Mohammed and Bilal, and that it “had the same convenience store customers as Mehanna Brothers.” Id. at 3.

The Show Cause Order also alleged that a “review of [the] invoices provided by Mehanna Brothers indicated that the bulk of the product sold in dollar terms consisted of various forms of ephedrine products,” and that “[m]any of these records did not properly identify the strength, packaging, and quantity of the listed chemical.” Id. The Show Cause Order thus alleged that “Mehanna Brothers and its management did not properly carry out the recordkeeping responsibilities of a registrant.” Id.

Finally, the Show Cause Order alleged that the “bulk of precursor products destined for illegal methamphetamine laboratories are diverted through non-traditional markets such as convenience stores, gas stations, and other small retail outlets.” Id. The Show Cause Order thus alleged that “[t]he ownership and management of MB intend to parallel Mehanna Brothers” practice of supplying inordinate amounts of listed chemical products to outlets which have no expectation of legitimate sales in the amounts that they are receiving, leading to the diversion of such products.” Id.

On August 14, 2006, the Show Cause Order was served on Respondent by certified mail as evidenced by the signed return-receipt card. Thereafter, on September 7, 2006, Respondent requested a hearing. The matter was assigned to Administrative Law Judge (ALJ) Mary Ellen Bittner, who ordered Respondent to file its pre-hearing statement no later than November 13, 2006. Order Terminating Proceedings at 1.

Respondent did not, however, comply with the ALJ's order. Accordingly, on November 27, 2006, the ALJ found that Respondent had waived its right to a hearing and ordered that the proceeding be terminated. On June 11, 2007, the case file was forwarded to this office for final agency action.

Having considered the entire record in this matter, I adopt the ALJ's finding that Respondent has waived its right to a hearing. See 21 CFR 1309.53(c). I therefore enter this Final Order without a hearing based on relevant material contained in the investigative file, see id. 1309.53(d), and make the following findings of fact.

Findings

Respondent is a Michigan corporation which was formed in July 2004 with offices located at 6711 Greenfield Road, Detroit, Michigan. Respondent is co-owned by Abed Mehanna, who serves as its Vice-President, and his brother, Mohamed Mehanna, who serves as its President. Respondent has a total of three employees which include Abed, Mohamed, and a third brother, Bilal Mehanna. Abed and Mohamed Mehanna are also co-owners with a third brother, Hussein (a.k.a. Jack), of another corporation, Mehanna Brothers Export/Import, Inc. (hereinafter, Mehanna Brothers).

According to the investigative file, Mehanna Brothers holds a DEA registration which authorizes it to distribute list I chemicals. However, in April 2005, Mehanna Brothers submitted a request to change the address of its registered location to a new facility at 6711 Greenfield Road in Detroit. Accordingly, in June 2005, DEA investigators went to the premises to inspect the facility. During the inspection, the investigators found that Mehanna Brothers was distributing list I chemicals from the building.

During the visit, a DEA Investigator informed Hussein (Jack) Mehanna that Mehanna Brothers could not sell list I chemicals out of the Greenfield Road facility because it was not a registered location. The DI then sought the surrender of Mehanna Brothers' registration. However, Hussein Mehanna refused to do so.

Thereafter, on February 16, 2006, Mohamed Mehanna submitted an application for a registration to distribute ephedrine and pseudoephedrine on behalf of MB Wholesale, Inc (Respondent). The application gave as Respondent's proposed registered location the same Greenfield Road facility that Mehanna Brothers used.

On April 13, 2006, two DEA Investigators went to Respondent's Greenfield Road facility to conduct a pre-registration investigation. Upon their arrival, the DIs recognized that the facility was the same one from which Mehanna Brothers had distributed list I chemicals without a registration.

During a subsequent telephone conversation, Abed Mehanna told a DI that Respondent had essentially the same management team as Mehanna Brothers, but that Hussein (Jack) was no longer involved in the business. Abed Mehanna also told the DI that Respondent had the same customers as Mehanna Brothers and had added some additional customers.

The investigative file contains dozens of invoices which were provided by Abed Mehanna to a DEA Investigator. The invoices, which are dated from January 5 through May 20, 2005, document the sale of various list I products (which contained either pseudoephedrine or ephedrine) including Advil Cold & Sinus, Tylenol Cold, Mini Two-Way, Mini-Thins, and Ephedrine. Most significantly, each of the invoices bears the caption “MB Wholesale,” and give as its address, “6711 Greenfield Rd. Detroit, Mi.” The invoices also confirm that Respondent was supplying these products to non-traditional retailers such as gas stations and convenience stores.

Discussion

Section 303(h) of the Controlled Substances Act (CSA) provides that “[t]he Attorney General shall register an applicant to distribute a list I chemical unless the Attorney General determines that registration of the applicant is inconsistent with the public interest.” 21 U.S.C. 823(h). In making this determination, Congress directed that I consider the following factors:

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

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

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

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

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

Id.

“These factors are considered in the disjunctive.” Joy's Ideas, 70 FR 33195, 33197 (2005). I may rely on any one or a combination of factors, and may give each factor the weight I deem appropriate in determining whether an application for a registration should be denied. See, e.g., David M. Starr, 71 FR 39367, 39368 (2006); Energy Outlet, 64 FR 14269 (1999). Moreover, I am “not required to make findings as to all of the factors.” Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005); Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005).

Having considered all of the factors, I conclude that factors two, four, and five establish that granting Respondent's application would be “inconsistent with the public interest.” 21 U.S.C. 823(h). While Respondent is nominally a separate legal entity from Mehanna Brothers, the record establishes that the firms are substantially identical and thus, the illegal conduct of the latter in distributing listed chemicals from an unregistered location is properly considered in evaluating Respondent's application. Moreover, the record contains substantial evidence which establishes that Respondent also violated federal law by distributing listed chemicals from an unregistered location.

Factors Two and Four—The Applicant's Compliance With Applicable Law and Its Experience in Distributing Listed Chemicals

On a date which is not established in the record, Mehanna Brothers moved its business to a facility located at 6711 Greenfield Road, Detroit, Michigan. In April 2005, Mehanna Brothers submitted an application for a modification of its registration to change its registered location to its Greenfield Road facility.

Under DEA regulations, a “request for modification [is] handled in the same manner as an application for registration.” 21 CFR 1309.61. Accordingly, in June 2005, DEA investigators went to Respondent's new facility to conduct an inspection to determine whether to approve its application. During the inspection, the investigators found that Respondent was already distributing listed chemicals from the Greenfield Road facility.

Under the CSA, “[a] separate registration [is] required at each principal place of business * * * where the applicant * * * distributes * * * list I chemicals.” 21 U.S.C. 822(e). Moreover, under DEA regulations, “[n]o person required to be registered shall engage in any activity for which registration is required until the application for registration is approved and a Certificate of Registration is issued by the Administrator to such person.” 21 CFR 1309.31(a). Mehanna Brothers was thus in violation of federal law by distributing listed chemicals from an unregistered location. 21 U.S.C. 843(a)(9).

The question remains, however, as to whether Mehanna Brothers' violations are properly considered in evaluating Respondent's application. Notwithstanding that Mehanna Brothers and Respondent are organized as separate corporations, I conclude the firms are only “nominally separate business entities.” Cf. Roofers Local 149 Security Trust Fund v. Duane Smelser Roofing Co., 285 F. Supp.2d 936, 940 (E.D. Mich. 2003). Because the firms “have substantially identical management, business, purpose, operation, equipment, customers, supervision and ownership,” Mehanna Brothers' misconduct is also chargeable to Respondent. Cf. Wilson v. International Bhd. of Teamsters, 83 F.3d 747, 759 (6th Cir. 1996).

As the record establishes, Respondent's co-owners, Abed and Mohammed Mehanna, were also co-owners with their brother Jack, of Mehanna Brothers. Abed Mehanna, Respondent's co-owner and Vice-President, serves as a corporate officer of Mehanna Brothers. Indeed, as Abed Mehanna told a DI, Respondent had the same management team (except for Hussein) as Mehanna Brothers.

Moreover, Respondent and Mehanna Brothers are engaged in the same business of wholesale distribution of general merchandise, and Respondent services the same customers as Mehanna Brothers. Respondent and Mehanna Brothers also use the same Greenfield Road facility. Finally, when in October 2005, DEA investigators asked Mehanna Brothers to provide its sales invoices, the invoices bore Respondent's name and address.

Accordingly, based on all of the above, I find that Respondent and Mehanna Brothers are only nominally separate entities. Mehanna Brothers' violations of federal law in distributing listed chemicals from an unregistered location are thus properly considered in determining whether granting Respondent's application would be “inconsistent with the public interest.” 21 U.S.C. 823(h).

As noted in other cases, distributing listed chemicals out of an unregistered location provides ample reason to deny an application. See Sato Pharmaceutical, Inc., 71 FR 52165, 52166 (2006); Archer's Trading Co., 72 FR 42114, 421116-17 (2007) (revoking registration in part for distributing listed chemicals out of unregistered location); John J. Fotinopolous 72 FR 24602, 24606 (2007) (same). Respondent's misconduct does not inspire confidence that it will faithfully comply with applicable laws and diligently protect against the diversion of listed chemical products. I thus conclude that Respondent's record of non-compliance with federal law and its experience in dispensing listed chemicals supports the conclusion that its registration would be “inconsistent with the public interest.” 21 U.S.C. 823(h).

Factor Five—Other Factors Relevant To and Consistent With Public Health and Safety

The illicit manufacture and abuse of methamphetamine have had pernicious effects on families and communities throughout the nation. Cutting off the supply source of methamphetamine traffickers is of critical importance in protecting the American people from the devastation wreaked by this drug.

While listed chemical products containing pseudoephedrine and ephedrine are currently recognized as having legitimate medical uses, DEA orders establish that convenience stores and gas-stations constitute the non-traditional retail market for legitimate consumers of products containing these chemicals. See, e.g., Tri-County Bait Distributors, 71 FR 52160, 52161-62 (2006); D & S Sales, 71 FR 37607, 37609 (2006); Branex, Inc., 69 FR 8682, 8690-92 (2004). DEA has further found that there is a substantial risk of diversion of list I chemicals into the illicit manufacture of methamphetamine when these products are sold by non-traditional retailers. See, e.g., Joy's Ideas, 70 FR 33195, 33199 (2005) (finding that the risk of diversion was “real” and “substantial”); Jay Enterprises, Inc., 70 FR 24620, 24621 (2005) (noting “heightened risk of diversion” if application to distribute to non-traditional retailers was granted).

Accordingly, “[w]hile there are no specific prohibitions under the Controlled Substances Act regarding the sale of listed chemical products to [gas stations and convenience stores], DEA has nevertheless found that [these entities] constitute sources for the diversion of listed chemical products.” Joey Enterprises, Inc., 70 FR 76866, 76867 (2005). See also TNT Distributors, 70 FR 12729, 12730 (2005) (special agent testified that “80 to 90 percent of ephedrine and pseudoephedrine being used [in Tennessee] to manufacture methamphetamine was being obtained from convenience stores”).

Here, the record establishes that Respondent seeks a registration to distribute listed chemical products to non-traditional retailers of these products such as gas stations and convenience stores. Moreover, Respondent proposes to sell several combination ephedrine products such as Mini Two-Way, a product rarely found in traditional markets, but one which is highly “popular with methamphetamine traffickers,” and which has “been disproportionately represented in clandestine lab seizures around the United States.” T. Young Associates, Inc., 71 FR 60567, 60568 (2006) (int. quotations and citation omitted). See also H & R Corp., 71 FR 30168, 30169 (2006); Joy's Ideas, 70 FR at 33197. Moreover, a substantial number of the invoices suggest that Respondent's customers purchased quantities of these products that far exceeded legitimate demand. This factor thus further supports the conclusion that Respondent's registration would be “inconsistent with the public interest.” 21 U.S.C. 823(h).

Order

Accordingly, pursuant to the authority vested in me by 21 U.S.C. 823(h), as well as 28 CFR 0.100(b) and 0.104, I order that the application of MB Wholesale, Inc., for a DEA Certificate of Registration to distribute list I chemicals, be, and it hereby is, denied. This order is effective January 18, 2008.