Morall v. Drug Enforcement Administration

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 12, 2005 Decided June 24, 2005

No. 04-1367

KATHY A. MORALL, M.D.,

PETITIONER

v.

DRUG ENFORCEMENT ADMINISTRATION,

RESPONDENT

On Petition for Review of an Order of the

United States Drug Enforcement Administration

Joseph M. Hannon, Jr. argued the cause for petitioner.

With him on the briefs was Robert N. Spencer.

Teresa A. Wallbaum, Senior Trial Attorney, U.S.

Department of Justice, argued the cause and filed the brief for

respondent.

Before: EDWARDS, HENDERSON, and TATEL, Circuit

Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

Opinion filed by Circuit Judge HENDERSON, concurring in

the judgment.

EDWARDS, Circuit Judge: Kathy A. Morall, M.D. petitions

this court to review the Drug Enforcement Administration’s

(“DEA”) decision to revoke her certificate of registration. On

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September 28, 2001, DEA issued an Order to Show Cause to Dr.

Morall, proposing to revoke her DEA registration, which

authorizes the dispensing of controlled substances, on the

grounds that, inter alia, she had failed to maintain complete and

accurate records of controlled substances. In June 2002, a

hearing on these charges was held before an Administrative Law

Judge (“ALJ”). After hearing testimony from Dr. Morall, Dr.

Greenfield and Dr. Teich, who testified on behalf of Dr. Morall,

and DEA Investigator Barnhill, the ALJ concluded “that a

preponderance of the evidence [did] not establish that it would

be inconsistent with the public interest to continue [Dr.

Morall’s] DEA registration.” Opinion and Recommended

Ruling, Findings of Fact, Conclusions of Law and Decision of

the ALJ (Apr. 28, 2003) (“ALJ Decision”) at 20, reprinted in

App. tab B.

The ALJ made a number of credibility findings in Dr.

Morall’s favor and also noted that “[t]he Colorado Board of

Medical Examiners [had] reviewed the DEA report of

investigation but determined to take no disciplinary action

against [Dr. Morall], and thus she is fully licensed in Colorado.”

Id. at 18. In sum, the ALJ found that, although Dr. Morall’s

violations of DEA record-keeping regulations were egregious,

the violations “occurred over a fairly short period of time,” Dr.

Morall “appeared to regret” her errors, and “the record does not

establish that [Dr. Morall] diverted any controlled substances.”

Id. at 20. The ALJ thus recommended that no action be taken

against Dr. Morall. DEA filed no exceptions to the ALJ’s

decision.

Over a year later, the Deputy Administrator declined to

adopt the ALJ’s proposed findings of fact and law and revoked

Dr. Morall’s registration. The Deputy Administrator

acknowledged that the record-keeping failures alone might not

warrant revocation in light of compelling, extenuating

circumstances in Dr. Morall’s personal life. Kathy A. Morall,

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M.D., Revocation of Registration, 69 Fed. Reg. 59,956, 59,960

(Oct. 6, 2004). The Deputy Administrator determined, however,

that Dr. Morall’s registration should be revoked because “she

lied to the investigators on numerous occasions.” Id. The

Deputy Administrator thus concluded that “[i]f [Dr. Morall’s]

only failures involved record-keeping, the Deputy Administrator

might find it appropriate to impose a lesser sanction than

revocation . . . . [Dr. Morall’s] false and misleading statements,

however, cannot be excused.” Id.

In reaching this judgment, the Deputy Administrator relied

almost exclusively on the testimony of the DEA Investigator,

almost as if no other testimony or evidence was in the record.

The Deputy Administrator’s decision takes no account

whatsoever of the ALJ’s credibility findings, completely ignores

the testimony of Dr. Greenfield and of Dr. Teich, and

substantially fails to acknowledge the testimony given by Dr.

Morall that explains or disputes the DEA Investigator’s claims.

The agency decision is, in short, stunningly one-sided in its

focus and, thus, utterly arbitrary and capricious.

We hold that DEA’s decision cannot withstand review,

because it fails to consider contradictory record evidence where

such evidence is precisely on point. Such a lapse of reasonable

and fair decisionmaking is particularly acute where, as here, the

decision entirely ignores the ALJ’s credibility findings.

Furthermore, DEA has failed to explain its departure from prior

cases that have consistently declined to revoke a physician’s

registration in comparable circumstances and also in situations

involving much more serious conduct. Therefore, even if

DEA’s decision were adequately supported, the penalty imposed

would be unwarranted by law. Accordingly, we vacate the

revocation of Dr. Morall’s registration.

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I. BACKGROUND

A. Factual Background

Kathy A. Morall, M.D. is a Colorado-licensed physician

who, until the revocation of her DEA registration, was

practicing psychiatry at the Jefferson Center for Mental Health

(“Jefferson Center”). Dr. Morall, a graduate of Howard

University School of Medicine, had practiced general and

forensic psychiatry for over twenty years, and had qualified as

an expert in both state and federal court.

In July 1997, Dr. Morall went to work for Joshua Holland,

M.D. as a physician at the Holland Center for Family Health

(“Holland clinic”), a weight-loss clinic located at 128 Steele

Street, Suite 200, in Denver, Colorado. Dr. Holland resided in

Phoenix, Arizona. Dr. Morall testified that she decided to work

in a weight-loss clinic because obesity, “the number one health

problem in the country,” is “predominantly associated with

psychological issues” and “has a domino effect on so many parts

of one’s life.” Tr. of Proceedings Before the ALJ (“Tr.”) at 292,

reprinted in App. tab F. The Holland clinic focused on the

“phen-fen” treatment, which combined phentermine and

Pondimin, a brand name product containing fenfluramine

hydrochloride.

The circumstances giving rise to this case occurred after the

closure of the Holland clinic. This period was marked by a

series of unfortunate events for Dr. Morall. She testified that

she had begun to experience severe headaches, weight gain, high

blood pressure, fatigue, hair loss, and depression, and that she

was eventually diagnosed with a disorder created by an increase

in hormones from the pituitary gland. During this same time

period, Dr. Morall’s father died of a brain tumor and she thought

that she might have a brain tumor as well; her son had a seizure

and was diagnosed with an illness similar to sickle cell anemia;

and several close friends passed away, including one who

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committed suicide. One of the close friends who passed away

was Mr. Carl Ousley, who Dr. Morall described as akin to a

member of her family. Dr. Morall also explained that she had

no support staff to assist her in her practice during most of the

period after the closure of the Holland clinic.

1. Closure of the Holland Clinic

On September 15, 1997, Pondimin was withdrawn from the

market after it was linked to a heart valve disorder and to a heart

and lung disorder. According to Dr. Morall, in the wake of

Pondimin’s withdrawal, the Holland clinic suffered serious

financial losses, and she and Dr. Holland discussed ways to

maintain the clinic as a viable operation. Dr. Holland ultimately

resolved to provide permanent cosmetics at the clinic, a decision

with which Dr. Morall strongly disagreed. She believed it

would be “[o]ffensive to [the] clients . . . [who] came with

serious weight problems who are now afraid that they may have

a medical problem, problems with their heart, and our response

was going to be but, by the way, do you want permanent

makeup?” Tr. at 306. Dr. Holland nevertheless sent a letter,

which included Dr. Morall’s name, to all clinic patients

informing them that permanent makeup would be offered.

According to Dr. Morall, at this point her relationship with Dr.

Holland began to deteriorate.

On Friday, November 7, 1997, Dr. Morall underwent minor

surgery. She testified that while she was still at the hospital, the

clinic office manager paged her to inform her that Dr. Holland

had closed the clinic that day and instructed the locks to be

changed. Dr. Morall stated that she went directly from the

hospital to the Holland clinic and called the “medical board” to

inquire about directives for closing a practice. She also wanted

to notify the clinic’s patients that, come Monday, they would not

be able to reach anyone at the clinic number or address. That

same day, she moved all of her possessions from the Holland

clinic to Suite 202 in the same building and resolved to open her

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own practice where she could continue to treat patients with

weight issues.

2. Dr. Morall’s Relocation of Her Practice

In November 1998, Dr. Morall was evicted from her own

practice in Suite 202 of the Steele Street building for failure to

pay rent. At this point, Dr. Morall moved her practice to an

office in her home. She testified that she “took care of patients

from [her] home,” but did not see them there, explaining that she

maintained established patients, whom she only needed to see at

three-month intervals, on weight-loss medication, and that she

hoped to move back to another office location within the three-

month time period. See Tr. at 351.

Dr. Morall testified that after she moved her practice to her

home, her drug distributor notified her that controlled substances

could only be delivered to her home if it was her DEA registered

address. Accordingly, Dr. Morall called DEA to request that her

registered location be changed from the Steele Street address to

her home address. Dr. Morall spoke with Ms. Betty Garcia, a

DEA registration technician.

According to a memorandum prepared by Ms. Garcia, Dr.

Morall had informed Ms. Garcia that she saw patients at her

home and that she had a safe there to store controlled

substances. Dr. Morall disputes this account of her November

12, 1998 phone conversation with Ms. Garcia. She testified that

she did not tell Ms. Garcia that she was “seeing” patients at her

home: “I think I said I was taking care of patients in my home.”

Tr. at 354. She also attested to telling Ms. Garcia that she had

a “safe place” to store controlled substances, rather than a safe.

Dr. Morall maintained that “I can’t imagine my calling up and

saying I want the meds transferred, by the way, I have a safe.

There would be no reason . . . [because] there was no

requirement for a safe,” and there was never a safe in the prior

places where she had worked, including her practice at Suite 202

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or at the Holland clinic. Id. On November 12, 1998, Dr.

Morall’s DEA registration was modified to reflect her home

address. The request to have controlled substances delivered to

her home triggered a DEA investigation.

Following the modification of her DEA registration to her

home address, Dr. Morall ordered a shipment of 3,000 dosage

units of phentermine and 200 dosage units of Meridia to that

address.

3. DEA’s Investigation of Dr. Morall

On December 1, 1998, Investigator Lisa Barnhill and Task

Force Officer John Gray went to Dr. Morall’s residence.

Investigator Barnhill testified that Dr. Morall initially denied

having any controlled substances at her home and only

acknowledged their existence when specifically asked about the

recent shipment. When Dr. Morall retrieved the controlled

substances, they were in a box on the floor of a closet. The box,

which also contained open bottles, loose pills, and trash, did not

comport with DEA requirements that drugs be stored in a locked

and substantially constructed cabinet.

Dr. Morall did not recall initially denying the existence of

controlled substances in her home and noted that there was no

reason for her to deny it as she had called DEA to change her

registration address in order to have them there.

Also during the December 1 inspection, the investigators

requested that Dr. Morall provide them with records of her

handling of controlled substances. According to Investigator

Barnhill, Dr. Morall told her that she was in the process of

moving her practice from the Steele Street location and that her

records were still at that location, but agreed to provide them the

next day. On December 3, Dr. Morall left a voice mail message

for Investigator Barnhill saying the records were in the mail. On

December 4, she left a second message saying she wanted to

speak with an attorney before sending them. Dr. Morall testified

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to changing her mind on the way to the post office, because she

was not sure whether providing the records could violate any

privacy obligations she owed her patients.

On December 21, 1998, Dr. Morall sent some copies of

records to Investigator Barnhill. They appeared to have been

reconstructed rather than contemporaneous; they were

incomplete and inaccurate and they did not conform to

Investigator Barnhill’s specifications in a number of ways. Dr.

Morall testified that the documents she sent to Investigator

Barnhill on December 21 were an attempt to reconstruct records

from memory and some contemporaneous notes. She asserted

that she knew the records were incomplete and that the

documents were not contemporaneous with her dispensing of the

drugs, and that she had not intended to represent otherwise.

According to Investigator Barnhill, the investigators

requested the originals of the reconstructed documents but

received no response from Dr. Morall. On January 5, 1999,

having obtained an administrative subpoena to inspect Dr.

Morall’s home, Investigator Barnhill and others executed the

warrant. They found Dr. Morall’s records intermingled with

personal papers, financial data, and other such documents, as

well as a notepad on which Dr. Morall had apparently tried to

reconcile the quantities of drugs given to patients.

Investigators also found a vial of phentermine belonging to

a patient named Carl Ousley that identified Dr. Morall as the

prescribing physician. According to Investigator Barnhill, when

Dr. Morall was asked the identity of Mr. Ousley, she answered

that he was her uncle, while Dr. Morall’s husband said that

Ousley was a friend. Dr. Morall testified that she had referred

to Ousley as “Uncle Carl,” because that is what her family called

him as he had been “like a family member for 20 years” joining

the family on trips and family reunions. Tr. at 374.

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Investigators also found an empty manufacturer’s 100-count

bottle of phentermine, as well as other empty prescription vials

in different locations in Dr. Morall’s home. Dr. Morall told the

investigators that she had dispensed the medications to her

patients, but she was unable to provide the documentation to

support this assertion. Investigators also found the empty bottles

of Meridia and three open bottles of phentermine that Dr. Morall

showed them during the December 1 visit; they were in a file

cabinet in the closet, which had a lock, but the key was in the

key hole. Investigators counted 542 tablets of phetermine 15 mg

on January 5, compared to an earlier count of 735 tablets on

December 1.

According to Investigator Barnhill, Dr. Morall informed her

that she had not dispensed from her home since the

investigators’ December 1 visit. Dr. Morall, however, testified

that she had actually told Investigator Barnhill that she had not

dispensed from the Steele Street address since that time. Indeed,

the records that Dr. Morall supplied to Investigator Barnhill on

December 21 had indicated that she provided phentermine to

patients after December 1. It is undisputed that, as of the

January 5 inspection, Dr. Morall had not informed Investigator

Barnhill that she had been evicted from the Steele Street

location. Dr. Morall testified that she “was embarrassed” by the

situation and “didn’t want to say that if [she] didn’t have to,”

because she thought she “would be able to work something out

to get back in.” Tr. at 363.

In the course of the January 5 inspection, investigators

asked Dr. Morall if she had ever taken phentermine herself. She

testified that when she began working at the Holland clinic, Dr.

Holland had written her a prescription and suggested that she try

it. She never used the prescription and did not try the

medication until she gained weight related to her illness. At that

point, she received a prescription from a physician who was a

friend and tried the medication, but “[i]t didn’t work. . . . [She]

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had too many complicated problems going on at the time . . . .”

Tr. at 343. She asserted that she never tried it “for any reason

other than to address [her] symptom of weight gain,” id., and she

did not take phentermine from the bottles and vials found in her

home.

In the course of their investigation of Dr. Morall, the

investigators also learned of a theft at the Holland clinic, in July

1997, which had not been properly reported to DEA.

Investigator Barnhill initially asserted that the drugs in the

Holland clinic had been ordered under Dr. Morall’s DEA

registration number and that Dr. Morall was therefore

responsible for reporting the theft. Investigator Barnhill

conceded on cross-examination, however, that she had no

evidence that Dr. Morall ordered the medications that were

stolen and that she had no evidence that Dr. Morall ordered

controlled substances prior to November 25, 1997, which was

after the Holland clinic had closed. Investigator Barnhill

admitted that she just “assume[d]” that Dr. Morall had ordered

the drugs, because she had been registered at that location,

though she did not know whether Dr. Holland was also

registered there. Tr. at 191. Moreover, it is undisputed that Dr.

Morall reported the theft to the police.

Dr. Morall maintained that she did not order medications

for the Holland clinic and that Dr. Holland’s assistant in Phoenix

ordered medications for both his Denver and Phoenix clinics.

She also testified that when she learned of the theft, she called

Dr. Holland and the “medical board” and that someone at the

board gave her a toll-free number to call DEA, which she did.

Investigator Barnhill also suggested that Dr. Morall was

responsible for failing to document a return of controlled

substances. She asserted that the investigators learned of an

instance in which Dr. Morall did not document a return, in May

1998, of drugs that had been recalled. Dr. Morall maintained

that Dr. Holland had ordered the particular drugs, which were no

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longer available as of November 1997, and that she had not

heard that they had been returned under her registration number

until the day of the hearing. She noted that when she moved

from Suite 200 to Suite 202 in the Steele Street building, the

remaining medications in the Holland clinic were locked in a

room inside Suite 200, which she could not access.

As to Suite 202, Investigator Barnhill testified that Dr.

Morall agreed to allow investigators to inspect that location, but

that, despite numerous calls and conversations, they were not

able to arrange a specific date. Dr. Morall acknowledged that

investigators called her to arrange a visit to the Steele Street

location, and explained that she discussed the calls with her

attorney at the time, who instructed her that all contacts should

be through him. Investigator Barnhill admitted that Dr. Morall’s

attorney had contacted her to inform her that he was

representing Dr. Morall, but stated that she did not try to contact

him because “[h]e made no statements that he did not want

[investigators] to talk to [Dr. Morall] directly.” Tr. at 217.

Investigator Barnhill admitted that she was told, in writing,

by Dr. Morall, to contact her attorney prior to contacting any of

her patients, but Investigator Barnhill conceded that she did not

do so when she attempted to call a few patients in the course of

her investigation.

Investigators ultimately obtained a search warrant for Suite

202 of the Steele Street building and executed that warrant on

May 6, 1999. Investigator Barnhill testified that the premises

were in disarray. There were records that were not current and

did not meet DEA requirements. The investigators also found

a wheeled plastic cart with no locking device that contained

controlled substances.

Dr. Morall explained that she had kept controlled

substances in a locked filing cabinet in Suite 202 and, each day,

placed medications that she intended to provide to patients that

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day on the plastic cart. She further asserted that the day she was

evicted from the Steele Street office, she was in the process of

moving her possessions out of the office when the building

manager saw her and locked her out. Consequently, she had no

opportunity to secure the medications that she had previously

placed on the cart.

One item seized from Suite 202 was a price list of certain

controlled substances for weight loss. Based solely on this price

list, Investigator Barnhill testified that “it looked to [her] like

[Dr. Morall] was just pretty much pushing drugs.” Tr. at 111.

On cross-examination, however, Investigator Barnhill admitted

that the name of the clinic at the top of the price list was actually

Dr. Holland’s clinic, not “Total Health Care Systems,” the name

that Dr. Morall gave her own practice in Suite 202. She also

admitted that she did not know of any patient who was ever

given the price list, at least by Dr. Morall.

DEA performed a number of accountability audits of Dr.

Morall, which reflected various shortages and/or overages of the

drugs. One particular audit covering the time period from

November 25, 1997 to January 5, 1999 and incorporating the

records seized at the Steele Street location revealed shortages of

thousands of dosage units of controlled substances. Dr. Morall

maintained that she had dispensed the drugs to her patients, but

she lacked the documentation to support this assertion.

Investigator Barnhill admitted on cross-examination,

however, that, if Dr. Morall was correct in her testimony that she

was treating seventeen patients during that time and prescribing

a regiment of about two pills per day, the number of

unaccounted-for medications could easily be accounted for by

such legitimate dispensing. Investigator Barnhill also admitted

that she did not attempt to check if Dr. Morall’s patients had

received the medications. She and her partner tried to contact

“just very few” of the patients and only actually spoke to one

patient, who did not deny that he and his wife were both patients

13

of Dr. Morall or that they had received medication from her. Tr.

at 181-82.

Following completion of the investigation of Dr. Morall,

Investigator Barnhill provided a copy of her report to the

Colorado Board of Medical Examiners (“Medical Board”). It is

undisputed that the Medical Board elected to take no action

against Dr. Morall.

At the hearing before the ALJ, Dr. Morall fully

acknowledged that her record keeping was “abysmal” after the

closure of the Holland clinic. Tr. at 330-31. In light of the

stressful events transpiring in her life at the time – her father’s

death, her son’s illness, her own health problems, including

depression, and the deaths of several close friends – Dr. Morall

described her personal state during the relevant time period: “I

would spend hours sitting in my office, and I wasn’t doing

anything, I was just sitting, and I took notes always with the

intention of transferring information to the charts, but I never

did. I had boxes from my office in between the living room and

the dining room that I needed to sort through. I couldn’t do it.

I really was not able to do much of anything, and it wasn’t like

me.” Tr. at 347-48.

Stephen Teich, M.D. testified at the hearing that he is a

psychiatrist who has known Dr. Morall since the late 1980s and

that he considered himself her friend as well as her colleague.

He amplified the consuming events in Dr. Morall’s life during

the time period in question. Dr. Teich also asserted that he

considered Dr. Morall an “excellent psychiatrist” who handled

medications “at least as well as most everybody I’ve seen, if not

better.” Tr. at 260. Dr. Teich thought “it would be a great

limitation on her ability to work and a loss to the patient

population she deals with if she were not able to prescribe . . . .”

Id. When asked about Dr. Morall’s risk to abuse or divert

controlled substances, he underscored that he could not imagine

such a possibility. Indeed, there is absolutely no evidence in the

14

record of substance abuse by Dr. Morall or her family.

Investigator Barnhill explicitly admitted on cross-examination

that she had received no reports of diversion or abuse pertaining

to Dr. Morall, there was no evidence that Dr. Morall ever abused

phentermine, and there was no indication that any patient of Dr.

Morall ever received phentermine for other than a legitimate

medical purpose.

According to Dr. Morall, as of the date of her hearing, she

had been working as a staff psychiatrist for the Jefferson Center,

a mental health center providing care for low-income and

indigent clients, for two and a half years. She also submitted

into evidence an affidavit by Holly Greenfield, M.D., a

psychiatrist and, between 1995 and 2001, Medical Director of

the Jefferson Center. Dr. Greenfield stated that she had hired

Dr. Morall at the Jefferson Center and served as her immediate

supervisor. According to Dr. Greenfield, Dr. Morall was “an

exceptionally competent and compassionate psychiatrist” and a

“tremendous asset to the [Jefferson] Center.” Aff. of Holly

Greenfield, M.D. at 2-3, reprinted in App. tab H. Dr. Greenfield

also stated that she “never had any reason to suspect that Dr.

Morall in any way abused or diverted any controlled substance,”

and she “found no problems with her documentation of [their]

use.” Id. at 3. According to Dr. Greenfield, Dr. Morall was “too

good of a psychiatrist and too much of an asset to Jefferson

Center and its patients” to lose her registration. Id. at 4.

Dr. Morall stated unequivocally that she would take a

course in record keeping for controlled substances in order to

maintain her DEA registration; indeed, she “[thought] it would

be appropriate.” Tr. at 453.

B. Statutory and Regulatory Background

The Controlled Substances Act (“Act”), as amended,

requires persons who dispense controlled substances to obtain

proper registration from the Attorney General. See 21 U.S.C. §

15

822(a)(2) (2000). The authority to deny, revoke, or suspend

registrations has been delegated to the Administrator of DEA,

see 21 U.S.C. § 824 (2000), 28 C.F.R. § 0.100(b) (2004), and

redelegated to the Deputy Administrator, see 28 C.F.R. § 0.104

& App. § 12 (2004).

The Act authorizes suspension or revocation of a certificate

of registration where the registrant “has committed such acts as

would render his registration under section 823 of this title

inconsistent with the public interest . . . .” 21 U.S.C. §

824(a)(4). Section 823(f) provides the factors to be considered

“[i]n determining the public interest”:

(1) The recommendation of the appropriate State licensing

board or professional disciplinary authority.

(2) The applicant’s experience in dispensing, or conducting

research with respect to controlled substances.

(3) The applicant’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) (2000). The Administrator is not required to

“make findings as to all of the factors enumerated . . . . Rather,

he may give each factor the weight he deems appropriate.”

Henry J. Schwarz, Jr., M.D., Denial of Application, 54 Fed. Reg.

16,422, 16,424 (Apr. 24, 1989). DEA bears the initial burden of

proving that registration is not in the public interest; the burden

of production then shifts to the would-be registrant to rebut the

evidence. See Humphreys v. DEA, 96 F.3d 658, 661 (3d Cir.

1996) (citing Shatz v. United States Dep’t of Justice, 873 F.2d

1089, 1091 (8th Cir. 1989)).

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Registrants dispensing controlled substances must comply

with a number of statutory and regulatory requirements. As

relevant here, they must maintain inventories and other records

pursuant to 21 U.S.C. § 827(a)(1) (2000). They are also

required to hold a DEA registration at any location where they

dispense controlled substances, see 21 C.F.R. § 1301.12 (2004),

and to store controlled substances “in a securely locked,

substantially constructed cabinet,” id. § 1301.75. Finally,

physicians who provide controlled substances directly to

patients must maintain written records of such dispensing

covering a minimum of two years; take an initial inventory of all

controlled substances on hand and biennial inventories

thereafter; and maintain records of receipts, dispensings, and

transfers of controlled substances. See id. §§ 1304.03(b),

1304.04, 1304.11, 1304.21.

C. DEA’s Decision

On September 28, 2001, the Deputy Assistant

Administrator, Office of Diversion Control, DEA, issued an

Order to Show Cause to Dr. Morall, proposing to revoke her

DEA certificate of registration and deny any pending

applications for renewal on the ground that such registration

would be inconsistent with the public interest pursuant to 21

U.S.C. §§ 823(f), 824(a)(4). Dr. Morall requested a hearing,

which took place before the ALJ in June 2002. At the hearing,

Dr. Morall and Dr. Teich testified on Dr. Morall’s behalf; Dr.

Greenfield’s testimony was also submitted by way of affidavit.

Investigator Barnhill was DEA’s sole witness.

On April 28, 2003, the ALJ issued proposed findings of fact

and conclusions of law. She considered each of the factors

provided at 21 U.S.C. § 823(f). The ALJ found that factor one

– recommendation of state licensing board – weighed in Dr.

Morall’s favor, because the Colorado Board of Medical

Examiners reviewed the DEA report of the investigation but

decided to take no disciplinary action against Dr. Morall.

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Similarly, factor three – convictions related to controlled

substances – weighed in Dr. Morall’s favor as the record did not

indicate that Dr. Morall had ever been convicted of a state or

federal violation pertaining to controlled substances.

Under factor two – experience in handling controlled

substances – the ALJ considered DEA’s arguments that Dr.

Morall neglected an obligation to report the theft of controlled

substances from the Holland clinic; that she failed to report the

return of controlled substances to the supplier; that she

dispensed controlled substances from her home prior to being

registered there; that she did not properly store controlled

substances at either her Steele Street or home location; and that

she failed to take an initial inventory and maintain appropriate

records.

The ALJ specifically credited Dr. Morall’s testimony that

she was not responsible for ordering controlled substances when

she worked at the Holland clinic; that she reported the theft to

the police, the Medical Board, and DEA; that she had not

ordered the drugs that were returned under her DEA registration

number and did not know that they were returned under her

number; that she did not have the opportunity to secure the

drugs she intended to dispense on the day that she was evicted

from her Steele Street office; and that she had told Ms. Garcia

that she was taking care of patients from her home, but did not

say she saw them there. The ALJ therefore concluded that DEA

did not establish by a preponderance of the evidence that Dr.

Morall failed to secure controlled substances at the Steele Street

location, failed to report a theft, dispensed controlled substances

from her home without being registered there, or failed to keep

records of a return.

Because it was undisputed, however, that Dr. Morall did not

take inventories, maintain proper records, or properly store

drugs at her home, the ALJ determined that factor two weighed

18

against Dr. Morall. For the same reason, the ALJ concluded that

factor four also weighed against Dr. Morall.

Under factor five, the ALJ found that Dr. Morall had not

engaged in any other conduct that could threaten the public

health or safety.

The ALJ concluded that, although Dr. Morall’s record-

keeping violations were egregious, “they occurred over a fairly

short period of time and the record does not establish that [Dr.

Morall] diverted any controlled substances. In addition, [Dr.

Morall] appeared to regret her past conduct and I find that she

is unlikely to repeat it.” ALJ Decision at 20. Thus, the ALJ

recommended that Dr. Morall’s registration not be revoked,

because “a preponderance of the evidence does not establish that

it would be inconsistent with the public interest to continue [Dr.

Morall’s] DEA registration.” Id.

Although counsel for DEA was granted an extension of

time to file exceptions to the ALJ’s decision, no exceptions were

filed. The ALJ transmitted the record of proceedings to the

Deputy Administrator on July 14, 2003.

Over a year later, on September 16, 2004, counsel for Dr.

Morall sent a letter complaint to the Office of the Inspector

General, stating that while the ALJ’s decision “was very

favorable to [Dr. Morall], the DEA’s delay in confirming that

decision has imposed de facto punishment upon her,” because

no new registration could issue. Letter from Robert N. Spencer

to Civil Rights & Civil Liberties Complaints, Office of the

Inspector General of 9/16/04 at 1, reprinted in App. tab D.

Counsel for Dr. Morall explained that “[n]eedless to say, this is

creating havoc for my client with her employer and her health

care insurance panels, which require proof of current DEA

registration. At this point, I can only believe the DEA’s

inexcusable delay in acting upon Dr. Morall’s case is intentional

. . . .” Id.

19

Less than two weeks after the letter was sent to her, the

Deputy Administrator served Dr. Morall with a final order

revoking Dr. Morall’s certificate of registration. The Deputy

Administrator declined to adopt the ALJ’s opinion and

recommended rulings, findings of fact, conclusions of law, and

decision.

After findings of fact that largely traced Investigator

Barnhill’s testimony and entirely ignored Dr. Morall’s on

numerous disputed facts, the Deputy Administrator determined

that only factors two, four, and five were pertinent to the legal

question whether Dr. Morall’s registration was inconsistent with

the public interest. With regard to factors two and four, the

Deputy Administrator found that Dr. Morall had committed

serious record-keeping violations. The Deputy Administrator

concluded, however, that Dr. Morall’s record-keeping failures

might be partly excused by the extremely stressful

circumstances in her life during this time period. Thus, the

balance of her decision focused on factor five.

Under factor five, the Deputy Administrator was

“particularly disturbed . . . by the numerous occasions that [Dr.

Morall] provided false information to DEA investigators and

repeatedly frustrated their attempts to conduct their

investigation.” 69 Fed. Reg. at 59,960. Although Dr. Morall

had testified that she “never meant to mislead the investigators

and denied making false statements,” the Deputy Administrator

found that Dr. Morall “has no credibility, because it is absolutely

clear that she lied to the investigators on numerous occasions.”

Id.

Specifically, the Deputy Administrator concluded that

[Dr. Morall] lied about possessing controlled substances at

her house. She lied about having a safe in her house in

which to store controlled substances. She lied about

treating patients from her home. She lied about the true

20

identity of a friend for whom she had written prescriptions

for controlled substances. She misled the investigators

about the existence of patient records. She continually

maintained that she had controlled substance records at her

office, when in truth she did not. She later admitted that

she had tried to create the records from memory. . . .

Moreover, [Dr. Morall] agreed to assist DEA

investigators in their inspection of the Steele Street

location, without telling them that she had been evicted

from that location. . . . [She] also made false statements

regarding the transfer of drugs.

Id.

The Deputy Administrator also pointed to Dr. Morall’s

inability to account for many of the controlled substances under

her care, and stressed that while Dr. Morall “asserted that the

controlled substances were legitimately dispensed to patients,

she had no records to support her assertion.” Id. The Deputy

Administrator stated that, although she did “not necessarily find

that [the] controlled substances were diverted,” id.,

circumstantial evidence suggested that Dr. Morall or someone

close to her might be abusing controlled substances in Dr.

Morall’s possession.

The Deputy Administrator ordered Dr. Morall’s DEA

registration revoked, explaining that “[i]f [Dr. Morall’s] only

failures involved record-keeping, the Deputy Administrator

might find it appropriate to impose a lesser sanction than

revocation of [her] DEA registration. [Dr. Morall’s] false and

misleading statements, however, cannot be excused.” Id.

II. ANALYSIS

A. Standard of Review

We review DEA’s factfinding for substantial evidence. See

21 U.S.C. § 877 (2000). Substantial evidence “means evidence

21

which is substantial, that is, affording a substantial basis of fact

from which the fact in issue can be reasonably inferred.

Substantial evidence is more than a scintilla, and must do more

than create a suspicion of the existence of the fact to be

established.” NLRB v. Columbian Enameling & Stamping Co.,

306 U.S. 292, 299-300 (1939) (internal citations omitted).

In applying the substantial evidence test, we have

recognized that an agency decision “may be supported by

substantial evidence even though a plausible alternative

interpretation of the evidence would support a contrary view.”

Robinson v. Nat’l Transp. Safety Bd., 28 F.3d 210, 215 (D.C.

Cir. 1994) (internal quotation marks omitted). Our function is

to determine “whether the agency . . . could fairly and

reasonably find the facts that it did.” Id. (internal quotation

marks omitted). However, the court “may not find substantial

evidence ‘merely on the basis of evidence which in and of itself

justified [the agency’s decision], without taking into account

contradictory evidence or evidence from which conflicting

inferences could be drawn.’” Lakeland Bus Lines, Inc. v. NLRB,

347 F.3d 955, 962 (D.C. Cir. 2003) (quoting Universal Camera

Corp. v. NLRB, 340 U.S. 456, 487 (1951)). And, while the

agency is the ultimate factfinder, the ALJ’s “decision is part of

the record, and the record must be considered as a whole in

order to see whether the result is supported by substantial

evidence. The agency’s departures from the [ALJ’s] findings

are vulnerable if they fail to reflect attentive consideration to the

[ALJ’s] decision.” Greater Boston Television Corp. v. FCC,

444 F.2d 841, 853 (D.C. Cir. 1970) (footnotes omitted).

Although 21 U.S.C. § 877 does not specify a standard for

reviewing the agency’s reasoning as distinguished from its

factfinding, “the APA provides the appropriate default standard:

A court must set aside agency action it finds to be ‘arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law.’” Tourus Records, Inc. v. DEA, 259 F.3d

22

731, 736 (D.C. Cir. 2001) (quoting 5 U.S.C. § 706(2)(A)

(2000)). “[A]n agency [decision is] arbitrary and capricious if

the agency . . . entirely failed to consider an important aspect of

the problem, offered an explanation for its decision that runs

counter to the evidence before the agency, or is so implausible

that it could not be ascribed to a difference in view or the

product of agency expertise.” Motor Vehicle Mfrs. Ass’n of the

United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 43 (1983).

To uphold DEA’s decision, then, we must satisfy ourselves

“that the agency ‘examine[d] the relevant data and articulate[d]

a satisfactory explanation for its action including a rational

connection between the facts found and the choice made.’” El

Rio Santa Cruz Neighborhood Health Ctr. v. United States Dep’t

of Health & Human Servs., 396 F.3d 1265, 1276 (D.C. Cir.

2005) (quoting Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43)

(internal quotation marks omitted) (alterations in original).

Applying these standards, we conclude that DEA’s decision

cannot withstand review.

B. DEA’s Decision To Revoke Dr. Morall’s Registration

The Deputy Administrator’s decision to order the harshest

of possible sanctions – revocation – turned primarily on her

determination that the record revealed evidence of “other

conduct which may threaten the public health and safety.” 21

U.S.C. § 823(f)(5). She determined that if Dr. Morall’s “only

failures involved record-keeping, the Deputy Administrator

might find it appropriate to impose a lesser sanction than

revocation of [Dr. Morall’s] DEA registration.” 69 Fed. Reg. at

59,960. The extenuating circumstances to which the Deputy

Administrator alluded included Dr. Morall’s physical health

problems involving her pituitary gland (which led her to believe

that she might have to undergo brain surgery), her son’s seizure

and ultimate diagnosis of a disease related to sickle cell anemia,

the deaths of several of her friends (including one by suicide),

23

and her own serious depression during the relevant time period.

See id.

The Deputy Administrator’s overarching finding under

factor five was that Dr. Morall is a liar. While Dr. Morall had

testified that she “never meant to mislead the investigators and

denied making false statements,” id., the Deputy Administrator

found that Dr. Morall “has no credibility, because it is absolutely

clear that she lied to the investigators on numerous occasions,”

id. The Deputy Administrator found that these “lies” obliterate

Dr. Morall’s credibility, reflect a failure to cooperate with

investigators, and justify terminating the physician’s capacity to

prescribe and dispense controlled substances. Id.

There is no doubt that Dr. Morall was not as forthcoming as

she might have been. This is very different, however, from

characterizing Dr. Morall as a willful liar, a conclusion that

simply does not emanate from the record before us. That said,

it is not our job to evaluate Dr. Morall’s credibility. Rather, our

job is to determine whether the conclusions drawn by the

Deputy Administrator follow from a fair and reasonable review

of the relevant evidence.

Our lodestar is the question whether the record as a whole

provides substantial evidence to support the agency action. We

conclude that it does not, because the decision of the Deputy

Administrator gives no indication whatsoever that the decision

maker considered any of Dr. Morall’s testimony bearing directly

on each of the purported “lies.” To be clear, DEA’s decision

does not withstand review because the agency decisionmaker

entirely ignored relevant evidence. See El Rio Santa Cruz

Neighborhood Health Ctr., 396 F.3d at 1278 (finding agency

action arbitrary and capricious in failing to address relevant

evidence before it); Robinson, 28 F.3d at 216 (agency may not

ignore testimony bearing on critical fact in case); Lakeland Bus

Lines, 347 F.3d at 962 (court cannot find substantial evidence

24

solely on the basis of evidence that supports the result, without

considering contradictory evidence).

The Deputy Administrator concluded that

[Dr. Morall] lied about possessing controlled substances at

her house. She lied about having a safe in her house in

which to store controlled substances. She lied about

treating patients from her home. She lied about the true

identity of a friend for whom she had written prescriptions

for controlled substances. She misled the investigators

about the existence of patient records. She continually

maintained that she had controlled substance records at her

office, when in truth she did not. She later admitted that

she had tried to create the records from memory. . . .

. . . [She] also made false statements regarding the

transfer of drugs.

69 Fed. Reg. at 59,960.

As indicated above, Dr. Morall presented extensive

testimony pertaining to each of these disputed facts, though one

would not know it from the Deputy Administrator’s analysis.

We will consider here just a few examples of the testimony that

the Deputy Administrator ignored. It is particularly troubling

that the Deputy Administrator does not appear to have

considered testimony by Dr. Morall that the ALJ credited. The

ALJ expressly credited Dr. Morall’s testimony that she told Ms.

Garcia that she was taking care of patients from her home, but

did not say that she saw them there. See ALJ Decision at 18.

The Deputy Administrator gave no indication that she

considered Dr. Morall’s testimony, nor any reason for rejecting

the ALJ’s decision to credit Dr. Morall’s account, when she

made the conclusory finding that Dr. Morall “lied about treating

patients from her home.”

25

The ALJ also credited Dr. Morall’s account “that she did

not order the drugs that were returned using her DEA

registration number and did not know they were returned under

her number.” ALJ Decision at 18. Dr. Morall had testified at

length that at the time that the recalled drugs could have been

ordered – i.e., when they were still on the market – she was an

employee of Dr. Holland’s, and that her understanding was that

Dr. Holland’s assistant ordered drugs for the clinic. See Tr. at

296, 334. She maintained that she had not heard anything about

the returned drugs at issue until the day of the hearing. Id. The

Deputy Administrator ignored both Dr. Morall’s testimony and

the ALJ’s decision to credit it in finding that Dr. Morall “made

false statements regarding the transfer of drugs.”

The Deputy Administrator also ignored the ALJ’s

conclusion that Dr. Morall “appeared to regret her past conduct

and . . . is unlikely to repeat it,” a finding that clearly implicates

credibility. See ALJ Decision at 20.

Although DEA is the ultimate fact finder, the agency’s

decision is vulnerable when it does not take the ALJ’s findings

into consideration. The reviewing court “must take the ALJ’s

findings into account as part of the record[;] . . . the significance

to be ascribed to them ‘depends largely on the importance of

credibility in the particular case.’” Reckitt & Colman, Ltd. v.

Adm’r, DEA, 788 F.2d 22, 26-27 (D.C. Cir. 1986) (quoting

Universal Camera Corp., 340 U.S. at 496-97). Obviously,

credibility is central to the Deputy Administrator’s analysis here.

DEA provides no reason for ignoring the ALJ’s decision to

credit critical portions of Dr. Morall’s testimony or the ALJ’s

conclusion that Dr. Morall regretted her actions and was

unlikely to repeat them. Indeed, it does not so much as

acknowledge evidence that the ALJ found determinative. The

Deputy Administrator’s failure to consider findings of the ALJ,

which get at the heart of Dr. Morall’s credibility, fortifies our

conclusion that DEA’s decision does not survive substantial

26

evidence review. See E. Tenn. Natural Gas Co. v. FERC, 953

F.2d 675, 681 (D.C. Cir. 1992) (per curiam) (“Because the ALJ

relied on substantial evidence in the record, coupled with a

well-reasoned and highly sensible analysis, in reaching [its]

conclusion . . . , we can find no basis upon which to accept the

[agency’s] unsupported and ill-reasoned conclusion to the

contrary.”).

The DEA’s decision is disturbing for another reason.

Although the Deputy Administrator “[did] not necessarily find

that [the unaccounted-for] controlled substances were diverted,”

she “[n]evertheless” concluded that “the lack of proper

documentation to account for the shortage of large quantities of

drugs; [Dr. Morall’s] admission to the use of phentermine; her

demonstrated lack of candor; empty drug vials around her home

of which she was unable to account for their origins or

disposition, all suggest possible drug use on [Dr. Morall’s] part,

or by someone close to her.” 69 Fed. Reg. at 59,960. In other

words, while the Deputy Administrator acknowledged that the

record does not support a finding of diversion, she insinuated

that Dr. Morall or someone close to her was abusing drugs.

In light of the record evidence presented in this case, the

DEA’s suggestion of “possible drug use” by Dr. Morall is both

irresponsible and appalling. The suggestion is dangerously

arbitrary and entirely unsupported. And it unnecessarily damns

Dr. Morall, who was viewed by her colleagues to be “an

exceptionally competent and compassionate psychiatrist,” Aff.

of Holly Greenfield, M.D. at 2-3, and someone with “very high”

ethical standards. Tr. at 251 (testimony of Dr. Teich).

The record contains absolutely no evidence that Dr. Morall,

her family, or anybody else abused drugs. Indeed, the ALJ

found that § 823(f)(5) weighed in Dr. Morall’s favor, because

“[t]he record does not establish that [Dr. Morall] has engaged in

any other conduct that may threaten the public health or safety,”

ALJ Decision at 19, and concluded that “the record does not

27

establish that [Dr. Morall] diverted any controlled substances,”

id. at 20. Dr. Morall testified that she did not abuse or divert

controlled substances, and testimony by Dr. Teich and Dr.

Greenfield corroborated her position. See Tr. at 292, 422-23

(testimony of Dr. Morall); Tr. at 252-53 (testimony of Dr.

Teich); Aff. of Holly Greenfield, M.D. at 3. Even Investigator

Barnhill – the Government’s sole witness – conceded that she

was aware of no reports of diversion or abuse and no evidence

that Dr. Morall ever abused drugs or prescribed them for an

illegitimate purpose. Tr. at 79, 159, 198-99, 223. The Deputy

Administrator failed to consider any of this evidence before

making the unsupported and profoundly stigmatizing insinuation

that Dr. Morall abused drugs or diverted them to someone close

to her.

No one doubts that Dr. Morall kept poor records and that

her work and living environs were a mess during an unusually

stressful time in her life. It is not at all clear, however, that the

unaccounted-for dosage units constitute anything other than a

manifestation of the poor record keeping, i.e., the failure to

document when patients were provided with what dosages.

Indeed, the record contains evidence – evidence entirely omitted

in the Deputy Administrator’s decision – that the missing

dosages could have been accounted for if Dr. Morall’s patients

had been contacted, and Investigator Barnhill admitted that the

investigators spoke with only one patient, who did not deny that

he was a patient of Dr. Morall’s who received medication from

her. See Tr. at 181-82, 207-08. Dr. Morall’s admitted use of

phentermine, meanwhile, related to a prescribed amount of the

medication that she tried as a possible treatment for weight gain

related to a serious medical condition. See Tr. at 343.

In short, the profoundly stigmatizing suggestion that Dr.

Morall or a member of her family abused drugs simply is not

sustainable on the record before us. See Humphreys, 96 F.3d at

665-66 (“The Deputy Administrator’s inferences of a threat of

28

public harm are overly broad and only weakly, if at all,

supported by the present record. Indeed, the Deputy

Administrator admitted that no such diversion in fact occurred.

The conclusion that substantial risk for diversion existed . . . ,

under these circumstances, is so unlikely as to be

unsustainable.”). What is particularly troubling here is that

DEA’s suggestion of possible drug abuse by Dr. Morall is

offered for no apparent reason other than to disparage Dr.

Morall. The conclusion of DEA’s decision makes it clear that

the agency’s action against Dr. Morall rests solely on her

record-keeping failures and her alleged lying to investigators,

and the decision to impose the harshest of possible sanctions

rests on the alleged lies alone. The decision does not purport to

rest on diversion of controlled substances or drug abuse.

Therefore, the Deputy Administrator’s passing comment on

possible drug abuse is gratuitous and condemnable.

In light of the foregoing, we hold that DEA’s decision to

revoke Dr. Morall’s registration cannot withstand substantial

evidence review. The agency’s decision fails to consider

relevant contradictory evidence, including evidence that led the

ALJ to contrary findings of fact and credibility. And it

inappropriately insinuates that Dr. Morall or someone in her

family may have abused drugs when there is not a shred of

evidence to support this suggestion. In sum, DEA’s decision is

arbitrary and capricious and therefore cannot stand.

C. The Revocation Penalty

Even if the agency’s decision were sufficiently supported,

the penalty imposed – which is the harshest of possible sanctions

– would be unwarranted by law. See Bluestone Energy Design,

Inc. v. FERC, 74 F.3d 1288, 1294 (D.C. Cir. 1996) (agency’s

“choice of a sanction” will be upheld “unless the sanction is

either ‘unwarranted in law or . . . without justification in fact.’”

(quoting Butz v. Glover Livestock Comm’n Co., 411 U.S. 182,

29

185-86 (1973) (ellipsis in original and internal quotation marks

omitted))).

DEA offered no explanation for its decision to revoke Dr.

Morall’s registration while declining to revoke the registration

of any other physician in a comparable context, or even under

significantly more troubling circumstances. The decision to

revoke Dr. Morall’s registration, therefore, constitutes such

arbitrary decisionmaking that it cannot withstand the most

deferential of judicial review. See Gulf Power Co. v. FERC, 983

F.2d 1095, 1098-1100 (D.C. Cir. 1993) (holding “that the

sanction the [agency] imposed was not rationally arrived at on

this record and was wholly disproportionate to the error

[petitioner] committed,” where, inter alia, the agency “did not

explain why it had not taken the same position . . . in similar

circumstances in the past”). Indeed, an agency’s need to explain

contrary precedents “is particularly acute,” as here, “when an

agency is applying a multi-factor test through case-by-case

adjudication.” LeMoyne-Owen Coll. v. NLRB, 357 F.3d 55, 61

(D.C. Cir. 2004).

Nowhere in its decision, in its brief to the court, or during

the oral argument, did DEA identify a single case in which a

physician’s registration was revoked under analogous

circumstances. The conduct at issue here does not come close

to the acts in other cases in which DEA consistently declined to

revoke the physician’s DEA registration. For example, in

Theodore Neujahr, D.V.M., Continuation of Registration, 65

Fed. Reg. 5680 (Feb. 4, 2000), DEA declined to revoke the

registration of Dr. Neujahr, a veterinarian, despite findings that

he had used his DEA certificate of registration to obtain

controlled substances for his personal use, which he then

abused; furnished false information to DEA; dispensed

controlled substances for other than legitimate medical

purposes; and failed to maintain adequate physical security of

controlled substances. See id. at 5680-82. DEA decided to

30

continue Dr. Neujahr’s registration even though he had initially

told investigators who found Dexedrine in his care that “he was

going to use the Dexedrine to treat obese dogs, but ultimately

admitted that he had taken the Dexedrine himself.” Id. at 5680.

Investigators in Dr. Neujahr’s case had also discovered that he

had kept controlled substances in an unlocked drawer at both a

registered and an unregistered location. See id. DEA

determined that revocation was unwarranted, however, because

of evidence that Dr. Neujahr had eventually sought help and

been able to remain drug free, and because he was remorseful

for his prior behavior. See id. at 5682.

Similarly, in Karen A. Kruger, M.D., Grant of Restricted

Registration, 69 Fed. Reg. 7016 (Feb. 12, 2004), DEA declined

to revoke the physician’s registration even though she had

unlawfully issued prescriptions over a one-year period resulting

in the aggregate dispensing of approximately 5,500 dosage units

of a particular controlled substance. See id. at 7016. Dr. Kruger

had initially told a DEA investigator that, as an anesthesiologist,

she rarely had occasion to prescribe, but had prescribed Tenuate

to six-to-ten friends. She ultimately admitted to investigators,

however, that she “had not prescribed to friends for about the

last year, and instead, had issued prescriptions in fictitious

names and then picked up the medications from the dispensing

pharmacies” for her own use. Id. Dr. Kruger also admitted that

“she telephoned bogus prescriptions to many . . . pharmacies in

Chicago and its suburbs, using approximately forty different

names, and that she took as many as 40 to 60 tablets per day,”

even though she acknowledged that the recommended dosage of

Tenuate was only one tablet daily. Id. Dr. Kruger’s Illinois

Controlled Substance License was placed on probation for six

months and the record contained only “scant” evidence of her

recovery from a “long duration” of drug abuse. Id. at 7017.

Despite her initial assertion that she had prescribed Tenuate

to friends rather than to herself, DEA found Dr. Kruger’s “ready

31

willingness to cooperate with law enforcement authorities when

questioned about allegations of her improperly prescribing” a

significant consideration in her favor. Id. at 7017-18. DEA

declined to revoke Dr. Kruger’s registration, and merely

restricted the registration to the authority to administer and

prescribe controlled substances used in the practice of

anesthesiology, removed Dr. Kruger’s ability to prescribe for

herself, and required that she submit to random drug testing for

two years. See id. at 7018; see also, e.g., Jeffrey Martin Ford,

D.D.S., Grant of Restricted Registration, 68 Fed. Reg. 10,750,

10,753 (Mar. 6, 2003) (granting limited registration despite

“fairly extensive history of substance abuse” and “inconsistent

and evasive testimony during the administrative hearing,”

because the Deputy Administrator concluded that the dentist was

“now prepared to comply with laws regulating the use of

controlled substances”); Wesley G. Harline, M.D., Continuation

of Registration with Restrictions, 65 Fed. Reg. 5665, 5668 (Feb.

4, 2000) (continuing physician’s registration despite, inter alia,

Government’s expert testimony that physician’s record keeping

was “grossly deficient”); Paul W. Saxton, Continuation of

Registration, 64 Fed. Reg. 25,073, 25,078-79 (May 10, 1999)

(declining to revoke physician’s registration where, inter alia,

physician prescribed anabolic steroids when it was illegal to do

so and failed to maintain complete and accurate records of his

controlled substance handling, which rendered him “unable to

account for large quantities of drugs”).

In support of its revocation of Dr. Morall’s registration,

DEA primarily relies on two cases, both of which arose in the

context of sanctions for pharmacies (not physicians) and

involved circumstances that differ from this case in critical

respects. RX Returns, Inc., Revocation of Registration, 61 Fed.

Reg. 37,081 (July 16, 1996), traced almost four years of ongoing

discussions between a disposal company dealing with controlled

substances and DEA. In 1992, a DEA inspection of RX Returns

uncovered 17 violations that, among other things, prevented

32

DEA from completing an accountability audit and left controlled

substances in unsecured and improperly stored conditions. See

id. at 37,082. The result of this inspection, and subsequent

meetings between DEA and the disposal company, was a

memorandum of understanding between DEA and RX Returns

in which the company agreed to correct all 17 cited violations

and comply with applicable laws and regulations. The

memorandum of understanding also memorialized the precise

corrective actions that needed to be taken. See id. at 37,083.

DEA provided RX Returns with over a year to follow this

corrective course and, in 1994, conducted a second inspection.

Again, DEA uncovered numerous problems in processing,

record keeping, and security systems. A third inspection, in

1995, once again revealed such violations. On the heels of three

years of corrective instruction by DEA, investigators found

Schedule II controlled substances in the company’s premises,

where the company lacked the authorization to handle such

substances and had not even realized that such substances where

in its possession. In addition, the continued failure to account

for controlled substances rendered DEA unable to effectuate an

accountability audit for a period of four years. See id. at 37,083-

87. Even in light of this long history of second chances, DEA

resolved to stay the revocation of RX Returns’ registration and

impose a one-year probationary period, finding that “it is in the

public interest for [the company] to be given yet another

opportunity to demonstrate” compliance with DEA’s regulatory

requirements. Id. at 37,090.

Alexander Drug Company, Inc., Revocation of Registration,

66 Fed. Reg. 18,299 (April 6, 2001), the other case on which

DEA relies, also pertained to continued noncompliance over a

period of years and despite repeated inspections and

interventions by DEA and the South Carolina Department of

Health and Environmental Control. Moreover, the pharmacy

had been convicted of a felony count of maintaining false

33

records regarding the dispensing of controlled substances. See

id. at 18,299-304. In deciding to revoke the pharmacy’s

registration, the Administrator expressed particular concern with

“the absence of evidence of remedial actions and the

Respondent’s demonstrated continued unwillingness or inability

to comply with state and federal regulations.” Id. at 18,304.

In contrast, Dr. Morall’s record-keeping failures occurred

during a relatively brief time period when, as the Deputy

Administrator found, Dr. Morall was coping with her own health

problems, her son’s seizure and subsequent diagnosis, and the

death of her father and of several friends. This was also the first

time that Dr. Morall, who had almost no administrative

assistance, was responsible for her own record keeping. Dr.

Morall has always acknowledged that her record keeping

suffered during this time, and she readily agreed to take classes

to improve her record keeping in order to retain her registration.

See Tr. at 331, 453-54.

In sum, on this record, the decision to revoke Dr. Morall’s

registration is a flagrant departure from DEA policy and

practice. And, as the foregoing cases indicate, this policy and

practice has been endorsed in a number of decisions rendered in

recent years. Because the departure is not only unexplained, but

entirely unrecognized in the Deputy Administrator’s decision,

the agency’s sanction could not withstand abuse of discretion

review even if the decision had been supported by substantial

evidence. Although “mere unevenness in the application of [a]

sanction does not render its application in a particular case

‘unwarranted in law,’” Butz, 411 U.S. at 188, the agency’s

decision to revoke the registration in this case constitutes an

unprecedented and unexplained departure from its consistent

policy of declining to revoke a physician’s DEA registration in

a wide range of cases in which the record is comparable or

significantly more troubling. See Gulf Power Co., 983 F.2d at

1098-1100; Wonsover v. SEC, 205 F.3d 408, 413 (D.C. Cir.

34

2000) (“‘The main point is that a court should not second-guess

the judgment of the [agency] in connection with the imposition

of sanctions, unless the [agency] has acted contrary to law,

without basis in fact or in abuse of discretion.’” (quoting

Svalberg v. SEC, 876 F.2d 181, 185 (D.C. Cir.1989))). We do

not mean to suggest that no restrictions on Dr. Morall’s

registration might not have been appropriate, but only that

revocation on this record and in light of DEA policy and

practice is unwarranted.

III. CONCLUSION

The agency’s findings in this case do not survive substantial

evidence review and the decision is arbitrary and capricious.

Accordingly, we hereby grant the petition for review and vacate

the revocation of Dr. Morall’s registration. The case is

remanded to the agency for a prompt disposition of this matter

consistent with this opinion.

So ordered.

KAREN LECRAFT HENDERSON, Circuit Judge, concurring in

the judgment:

I agree with the majority’s decision to remand to the Drug

Enforcement Administration (DEA) but do so on the

narrow ground that the DEA’s review sequence in this case

appears arbitrary and perhaps even retaliatory. Although

the DEA elected not to challenge the ALJ’s decision against

revocation, Morall’s license sat in limbo for over one year

after the ALJ transmitted the record to the Deputy

Administrator (DA) for review on July 14, 2003. It was

only after Morall’s counsel wrote a letter of complaint to

the Department Of Justice Inspector General that the

DA—in a matter of days—issued the final decision

reversing the ALJ and revoking Morall’s registration.

While the timing may have been mere coincidence, the

unexplained and lengthy delay and the rush to judgment

following counsel’s letter suggest the review process may

have been irregular and therefore arbitrary in violation the

Administrative Procedure Act. For this reason I believe

remand to the DEA is necessary. That said, I believe the

DA’s substantive decision to revoke Morall’s registration

is supported by both precedent and substantial evidence and

therefore could be sustained in a different procedural

posture.

The notion that poor recordkeeping may of itself warrant

revoking a controlled substance registration, noted by the

DA and rejected by the majority, is neither new nor peculiar

to this case. As the DEA observed in Alexander Drug Co.,

66 Fed. Reg. 18,299 (DEA 2001), “[p]ast DEA cases

consistently have held that the failure to comply with record

keeping requirements is a basis for revoking a registration.”

66 Fed. Reg. at 18,303 (citing Singers-Andreini Pharm.,

Inc., 63 Fed. Reg. 4,668 (DEA 1998); Arthur Sklar, d/b/a

2

King Pharm., 54 Fed. Reg. 34623 (DEA 1989); Summer

Grove Pharm., 54 Fed. Reg. 28,522 (DEA 1989); Boro

Pharm. and Bell Apothecary, 53 Fed. Reg. 15151 (DEA

1988)); see also id. at 18,304 (“[P]ast DEA cases have

found record keeping violations to be a basis for the

revocation of a registration based on the public interest.”

(citing Summer Grove Pharm., supra). In fact, the

government has pointed to two cases in which registration

has been revoked on this basis. In Alexander Drug, the

DEA revoked a pharmacy’s registration because a

“persistent pattern of non-compliance [with applicable

record keeping regulations], taken together with [the

owner’s] failure to testify as to corrective actions taken to

prevent future record keeping violations, create an

unacceptable risk for the public interest.” 66 Fed. Reg. at

18,304. In RX Returns, 61 Fed. Reg. 37,081 (DEA 1996),

the DEA concluded that revoking the registration of a

controlled substance disposal company was in the public

interest because the company failed to maintain “effective

controls against diversion,” noting that its first biennial

inventory failed to account for 500 controlled substances,

the DEA investigator was unable during an inspection to

reconcile records with drugs on hand and the company had

unsecured schedule II substances on the premises.1 The

facts here do not of course mirror those in previous

revocation cases but the flagrant recordkeeping violations

the DEA found in this case (including failure to secure

controlled substances) are likewise serious enough to justify

1

The DEA nonetheless stayed the revocation because the disposal

company was engaged in a new industry to which no DEA regulations

specifically applied and it had worked with the DEA to address the

absence of such regulations.

3

revocation. And, in any event, the DA reasonably found

significant misconduct on Morall’s part beyond her

recordkeeping errors, as will be discussed below.

The DA applied the six-factor test set out in 21 U.S.C.

823(f), see maj. op. at _[15], and concluded that

continuation of Morall’s controlled substance registration

was inconsistent with the public interest under factors two,

four and five.2 The DA first determined that factors two

and five (experience in dispensing controlled substances

and compliance with applicable state and federal law)

weighed strongly in favor of revocation because Morall had

committed “numerous violations of the Controlled

Substances Act by failing to adhere to proper

record-keeping,” most notably in failing to keep accurate

records of, or to secure, her drug inventories. These

findings are unassailable and largely undisputed. See Tr. at

231 (Morall characterizing her recordkeeping as

“[a]bysmal” and “horrible”); ALJ Op at 20 (Morall’s

violations were “egregious”); ALJ Op. at 7-8 (noting during

December 1, 1998 inspection of Morall’s residence DEA

investigators found “open bottles of Meridia and

phentermine as well as loose pills, candy wrappers, and

other trash” in box on closet floor); id. at 9-10 (noting

during January 5, 1999 inspection investigators found same

2

As the DEA has repeatedly stated, the statutory factors “are

considered in the disjunctive; the Deputy Administrator may rely on

any one or a combination of factors and may give each factor the

weight she deems appropriate in determining whether a registration

should be revoked or an application for registration denied.” Robert

A. Smith, M.D., 70 Fed. Reg. 33,207, 33,208 (citing Henry J.

Schwartz, Jr., M.D., 54 Fed. Reg. 16,422 (DEA 1989)); see also maj.

op. at __[15]

4

drugs stored in unlocked cabinet in closet). As a

consequence of Morall’s utter disregard for tracking her

controlled substances, the DEA’s final audit revealed that

of the substances she handled from November 25, 1997 to

January 5, 1999, at least 7,154 dosage units remained

unaccounted for.

The DA also found that the fourth statutory factor

(conduct which may threaten the public health and safety)

supported revocation because of “the numerous occasions

that [Morall] provided false information to DEA

investigators and repeatedly frustrated their attempts to

conduct their investigation.” DEA Dec. at 19. The DA

found that such “false and misleading statements . . . cannot

be excused” because the DEA “cannot maintain the

integrity of its regulatory system if its registrants, when

asked to provide information required by law, provide false

information.” Id. Noting that at the hearing Morall denied

intending to mislead the investigators or making false

statements, the DA concluded that Morall “ha[d] no

credibility, because it is absolutely clear that she lied to the

investigators on numerous occasions.” DEA Dec. at 17.

Specifically, the DA found that Morall “lied about

possessing controlled substances at her house,” “having a

safe in her house in which to store controlled substances,”

“treating patients from her home,” and “the true identity of

a friend for whom she had written prescriptions for

controlled substances.” DEA Dec. at 17. The DA further

found that Morall “misled the investigators about the

existence of patient records” because she “continually

maintained that she had controlled substance records at her

office, when in truth she did not,” “later admitted that she

had tried to create the records from memory” and “made

5

false statements regarding the transfer of drugs.” Id.

Finally, the DA found Morall “refus[ed] to cooperate with

the DEA investigators,” forcing them to obtain

administrative inspection warrants for both her residence

and her Steele Street office, and “agreed to assist DEA

investigators in their inspection of the Steele Street

location, without telling them that she had been evicted

from that location.” Id.

While acknowledging that Morall was not “forthcoming,”

the majority rejects the DA’s findings that she was not

credible and that she intentionally misled the investigators

because, it contends, the DA “ entirely ignored relevant

evidence.” maj. op. at 23 (emphasis in original), namely

Morall’s “extensive testimony pertaining to each of these

disputed facts,” maj. op. at __ [24]. First, it is clear from

the DA’s decision that she did not ignore Morall’s contrary

testimony—she simply did not believe it. See DA Dec. at

17 (noting at hearing Morall “claimed that she had never

meant to mislead the investigators and denied making false

statements” but finding Morall “has no credibility”). In any

event, the cited testimony is not compellingly “relevant” to

the DA’s findings . The majority points to two specific

portions of Morall’s hearing testimony. On the one hand,

it cites Morall’s testimony that Dr. Holland, not Morall, had

ordered the drugs that were returned to the supplier and that

she was unaware of the return until the hearing—this

notwithstanding the supplier’s computer printout showed

the pharmaceuticals had been purchased by Morall while

employed at the Holland’s clinic and returned by her (under

her registration number) on May 1, 1998, months after

Holland’s clinic closed. See Tr. 333-34. The majority also

points to Morall’s hairsplitting statement “I took care of

6

patients from my home but I didn’t actually see patients at

my home,” Tr. 351 (emphasis added) (which the majority

apparently, and curiously, interprets as contradicting the

DA’s statement that Morall had lied about not “treating

patients from her home”). Examples of such elaborate

parsing are peppered throughout Morall’s hearing

testimony. She also testified, for example, that she had not

told DEA registration technician Garcia she had a “safe” in

her home but rather a “safe place” to store drugs, Tr. 354

(by which she apparently meant a cluttered box on her

closet floor, see ALJ Op. at 8); that when she told DEA

Investigator Barnhill she had not dispensed drugs since

December 1, 1998, she had actually said “I did not dispense

from Steele Street,” Tr. 372; and that when she le f t a

voicemail for Barnhill saying the drug records were “in the

mail,” she was “on [her] way to the post office” but then

changed her mind about mailing them before reaching her

destination, 3 Tr. 369-70. The DA’s failure to specifically

cite these snippets is unremarkable given that she expressly

discredited Morall’s testimony. Nor is it surprising the DA

did not directly assail the ALJ’s bare finding that Morall

was credible, see maj. op. at __[24-25], which finding was

apparently based on the same equivocations in her

testimony. See ALJ Op. at 18.4

3

In the end, of course, it turned out there were few if any such

“records” to mail (only evolving reconstructions), notw ithstanding

Morall’s initial statement to the DEA that they were located at her

Steele Street office. See ALJ Op. at 8, 9.

4

I do not understand how the ALJ’s determination that Morall

“appeared to regret her past conduct” “implicates credibility” as the

majority posits. Maj. op. at __[25].

7

In sum, the DA’s decision is supported by the record.

The majority acknowledges that the DEA (represented here

by the DA) “is the ultimate fact-finder.” Maj. op. at __[25].

As such, the DEA “is not required to adopt the credibility

determinations of an administrative law judge” and is not

bound by the ALJ’s findings even if they “rested on his

evaluation of the credibility of the witnesses.” Kay v. FCC,.

396 F.3d 1184, 1189 (D.C. Cir. 2005) (citing FCC v.

Allentown Broad. Corp., 349 U.S. 358, 363-64 (1955)).

Accordingly, “the question for the reviewing court remains

the same whether the agency agrees or disagrees with the

ALJ—is the agency's decision supported by substantial

evidence.” Id. In this case the DEA’s final findings

regarding Morall’s credibility both during the DEA

investigation and subsequently at the DEA hearing are

supported by ample evidence, notwithstanding Morall

herself may have challenged such evidence in her own

testimony.

Finally, I would note that the majority’s lengthy

discussion of the DA’s remarks regarding the possibility of

diversion or abuse is a red herring. As the majority

acknowledges, the DEA’s revocation decision “rests solely

on her record-keeping failures and her alleged lying to

investigators” and “does not purport to rest on diversion of

controlled substances or drug abuse.” Maj. op. at _ [28].

Thus, I do not see how the DA’s remarks can make the

unrelated decision to revoke Morall’s registration arbitrary

and capricious.

For the foregoing reasons I concur only in the majority’s

disposition—remanding to the DEA to reconsider its

sanction. I do not agree with the majority’s suggestion that

8

as a matter of law and fact revocation cannot be re-imposed

on remand.