Perry County Food & Drug Decision and Order

Federal RegisterNov 12, 2015

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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 15-10]

Perry County Food & Drug Decision and Order

On May 13, 2015, Chief Administrative Law Judge (CALJ) John J. Mulrooney, Jr., issued the attached Recommended Decision (hereinafter, cited as R.D.

). Thereafter, on June 15, 2015, the CALJ forwarded the record to this Office for Final Agency Action noting that neither party had filed exceptions to the Recommended Decision.

See

21 CFR 1316.66 (providing a party with the right to file exceptions to an ALJ's decision “[w]ithin twenty days after the date upon which [it] is served [with] a copy”).

All citations to the Recommended Decision are to the slip opinion as issued by the CALJ.

Subsequently, on July 8, 2015, Respondent filed with this Office a pleading entitled as its “Closing Brief.” In a letter accompanying the filing, Respondent's counsel explained that the Recommended Decision had been mailed to his former address and that he had recently changed his address and had “only recently received” the CALJ's Recommended Decision. Letter of Respondent's Counsel to Acting Deputy Administrator, DEA (July 8, 2015).

Upon reviewing the letter, I noted that while Respondent's Counsel had explained that he had only recently received the Recommended Decision because it had been mailed to his former address, his filing was nonetheless untimely. Order of the Acting Administrator, at 1 (July 13, 2015). I therefore directed Respondent's Counsel to explain why “this constitute[d] good cause”; I also directed Respondent's Counsel to address why he did not notify the Office of Administrative Law Judges (OALJ) of his new address, as well set forth the date on which he received the decision.

Id.

In response, Respondent's Counsel explained that he was “not now attempting to add exceptions to the record,” that he had previously received the decision on May 13, 2015, and that he “had not filed any exceptions to it due to [his] understanding that exceptions are not necessary under the regulations.” Letter of Respondent's Counsel to Acting Administrator, at 1 (July 14, 2015). Respondent's Counsel further explained that he had sent his previous letter to the Acting Deputy Administrator because he had received a copy of the CALJ's letter transmitting the record, and that he sent his letter “in an abundance of caution due to [his] misunderstanding of the purpose of ” the CALJ's letter, as he “did not want the fact that [he] had not filed any exceptions . . . to preclude” this Office from “perform[ing] an independent review of the record and Decision.”

Id.

at 1-2.

Taking Respondent's Counsel at his word, I do not consider the filing submitted on July 8, 2015. However, in reviewing the record, I have considered the “Closing Brief ” Respondent's Counsel submitted on April 27, 2015, following the conclusion of the evidentiary phase of the proceeding.

Having considered the entire record in this matter, I have decided to adopt the factual findings of the Recommended Decision except as discussed below.

I also adopt but modify the CALJ's legal conclusions as discussed below.

Because I agree with the CALJ's conclusion that Respondent's evidence as to its acceptance of responsibility and remedial measures is not persuasive, I further adopt the CALJ's Recommendation to the extent that it recommends that I deny any pending application to renew its registration.

The United States Supreme Court has explained my obligations under the Administrative Procedure Act, as well as the role of the ALJ's recommended decision, in reviewing the record and making factual findings.

See Universal Camera Corp.

NLRB,

340 U.S. 474, 496 (1951) (“The `substantial evidence' standard is not modified in any way when the Board and its examiner disagree. . . . The findings of the examiner are to be considered along

with the consistency and inherent probability of testimony.

The significance of his report, of course, depends largely on the importance of credibility in the particular case.”) (emphasis added). The standard of review of an agency decision is also well settled. Accordingly, I decline to publish the ALJ's discussion of the substantial evidence test and the standard of review.

I do not adopt the ALJ's statement (at R.D. 49) that “Regarding Factor 2, in requiring an examination of a registrant's experience in dispensing controlled substances, Congress manifested an acknowledgement that . . . the quantitative volume in which an applicant has engaged in the dispensing of controlled substances may be [a] significant factor[ ] to be evaluated” in the public interest determination.

See JM Pharmacy Group, Inc., d/b/a Farmacia Nueva and Best Pharma Corp.,

80 FR 28667, 28667-68 n.2 (2015);

see also

21 CFR 1304.04(b)(1) (requiring that inventories “be maintained at each registered location”).

(8) Finally, the evidence shows that Respondent would receive shipments of controlled substances such as oxycodone and that the drugs would “frequently disappear overnight.” ALJ Ex. 20, at 20-21. The evidence also shows that “in either August or October 2013, two 1,000-count bottles of carisoprodol were stolen” from Respondent.

Id.

at 22. Yet the evidence also shows that as of January 22, 2015, Respondent had not filed any theft or loss reports (DEA Form 106) with DEA since January 1, 2012.

ALJ Ex. 20, at 17; Tr. 175-76; GX 63.

While Respondent reported a theft incident in August 2013 which involved oxycodone, hydrocodone, alprazolam, clonazepam, and phenergan with codeine to the Arkansas Board of Pharmacy on a DEA Form 106, the report was never filed with DEA as required by 21 CFR 1301.74(c). Tr. 120.

While Respondent stipulated to most of these acts, this is not the only evidence of misconduct on the part of Respondent's principals. More specifically, the evidence shows that on various occasions, Tom Watson, Respondent's owner and the father of Chris Watson, was provided information by employees and a business partner that Chris Watson was likely diverting controlled substances and failed to take appropriate action.

Mr. Tracy Swaim testified that he had worked at Respondent for 26 years and had served as its PIC from June 1997 until January 2012, when he resigned. Tr. 233, 251. Mr. Swaim further testified that after Chris Watson began working at Respondent as a staff pharmacist (in July 2011), he noticed that Chris Watson “was not being completely legal on some refills” and that he saw this over the course of a month.

Id.

at 251, 253, 263. Mr. Swaim decided that he was not going to remain as the PIC and told Tom Watson that he was not going to remain as the PIC because Chris was “bending the rules” and he (Mr. Swaim) did not “want to go to jail.”

Id.

at 253. Thereafter, Swaim then completed the drug inventory and Chris Watson became Respondent's PIC.

Id.

at 254.

Mr. Swaim, who stayed on as a staff pharmacist with the same hours, further testified that in September 2014, a pharmacy technician (who had worked at Respondent for 31 years,

see

ALJ Ex. 20, at 21), “was having a conversation with Tom [Watson]” during which she told Watson that Chris Watson was “giving stuff away.” Tr. 256-57. Mr. Swaim joined the conversation and told Tom Watson, “Tom, he's handing pills out the window,” and that he was going to give his notice if Watson did not stop Chris's misconduct.

Id.

at 257. Tom Watson replied that he would “put a stop to it” and to “trust me.”

Id.

However, when Mr. Swaim returned to Respondent after several days off, he “asked the girls [the pharmacy techs] if Chris had changed” his behavior and was told “no.”

Id.

Mr. Swaim then gave notice and retired.

Id.

Grant Goode, who was Tom Watson's nephew, worked as a staff pharmacist at Respondent from December 12, 2014 through February 18, 2015.

Tr. 271; 273. Mr. Goode testified that he worked approximately 25 hours a week during December 2014, and that in January, he gradually increased his hours until after the middle of January, he was working most of the hours that the pharmacy was open.

Id.

at 271. Mr. Goode testified that when he was not working at Respondent, Chris Watson was the pharmacist.

Id.

at 273.

Grant Goode testified that he also worked at Respondent on November 24, 2014. Tr. 271.

Mr. Goode testified that while working at Respondent, he received phone calls from a couple of doctors inquiring about whether their patients had picked up prescriptions written by them, and that after he would inform the doctors that the patients had picked up the prescriptions, the doctors would ask if their patients had filled any other prescriptions. Tr. 275. Goode testified that when he would tell the doctors about the other prescriptions listed in the patients' profiles, the doctors stated that they had not written “any prescriptions for those days.”

Id.

Goode further testified that there were “dozens” of instances in which he looked for the hard copies of controlled substance prescriptions which were listed on the patient profiles but was unable to find them.

Id.

at 274-75.

Mr. Goode testified that he told Tom Watson that he had “talked to a couple of doctors, and that [he] couldn't find any hard copies for those prescriptions.”

Id.

at 276. According to Goode, Watson's reaction was that the prescriptions may have been placed in the wrong file by the pharmacy technicians.

Id.

at 276-78. Mr. Goode further testified that he discovered that Respondent was missing prescriptions and reported this to Tom Watson during the first week of his employment (following December 12, 2014).

Id.

Goode testified that after the conversation he asked the pharmacy technicians about the prescriptions and was told that they “should be in the file.”

Id.

at 278.

Mr. Goode testified to another incident, during which Tom Watson was present at Respondent and “sitting at the desk” when Chris Watson took a 1,000-count bottle of hydrocodone off the pharmacy's shelves and placed it in his backpack.

Id.

at 278-80. Mr. Goode testified that “[i]t appeared to” him that Tom Watson saw what Chris was doing.

Id.

at 280.

Mr. Goode testified to a further incident, which occurred on January 2, 2015.

Id.

at 282. According to Mr. Goode, one of Respondent's pharmacy technicians brought to his attention “several” prescriptions for schedule II drugs that were “just made up” and which listed Goode as the dispensing pharmacist on the label.

Id.

at 282-83. Mr. Goode testified that Tom Watson was at Respondent that morning and so Mr. Goode laid out six or eight prescriptions and told Watson that while his initials were on the prescriptions he had not filled any of them.

Id.

Tom Watson responded that one of the pharmacy technicians (one who had worked for him for 31 years) “must be doing that.”

Id.

at 283. Goode then told Tom Watson that Chris “was logging in and printing prescriptions from his laptop.”

Id.

Goode further testified that Tom Watson did not take any action in response to the allegation.

Id.

at 284.

In its closing brief, Respondent argues that in a proceeding brought to revoke Chis Watson's bond, based on the unsuitability of his third-party custodian, a federal magistrate judge found that “Mr. [Grant] Goode lacks credibility when testifying

in court under oath.” Resp. Post-Hrng. Br. 8.;

see also

RX 14 (denying motion, reasoning that “[t]he evidence revealed a number of conflicting family dynamics casting considerable doubt upon the reliability of the witness describing the alleged behavior that the Government presented to disqualify the current third-party custodian”). Apparently, this was in response to Mr. Goode's testimony in the criminal proceeding against Chris Watson that Tom Watson said “he would like to kill a couple of DEA agents,” a statement which he reported to DEA and which prompted the U.S. Attorney to file the motion. Tr. 302;

see also

RX 14.

The CALJ nonetheless found Grant Goode's testimony to be “sufficiently detailed, plausible, and internally consistent to be fully credited in this decision.” R.D. 25. The CALJ further explained that “[b]ecause the Government did not offer the purported threat in its case-in-chief, a disposition of this case does not require that a credibility issue on this statement be rendered, and it forms no basis of this recommended decision.”

Id.

at n.69.

Respondent, however, offered the magistrate judge's findings to attack Grant Goode's credibility with respect to his testimony that he had brought his concerns about Chris Watson to Tom Watson's attention and sought to have the CALJ give Goode's testimony “no weight.” Resp. Post-Hrng. Br. 8 (“It is not known if the attention the DEA gave to Mr. Goode made him have delusions of grandeur that motivated his testimony, but he did take a keen interest in this case when he, unlike other lay witnesses, was at the hearing every day, even after his testimony had been given. On the other hand, unlike his reaction to Mr. Swaim's testimony, Tom Watson flatly denied that Mr. Goode ever brought any concerns about Chris to his attention.” (citations omitted)).

However, while Respondent offered the magistrate judge's finding to impeach Mr. Goode's testimony, I nonetheless adopt the CALJ's credibility finding because in assessing the credibility of Mr. Goode's testimony, I am entitled to consider “the consistency and inherent probability of [his] testimony.”

Universal Camera Corp.

NLRB,

340 U.S. 474, 496 (1951). Here, consistent with Mr. Goode's testimony, other witnesses testified that they brought their concerns with Chris Watson to Tom Watson's attention but that the latter ignored them. Accordingly, I find Goode's testimony credible notwithstanding the magistrate judge's finding.

The Government also elicited testimony from Steve Goode, who, between 2001 and 2012, was a business partner of Tom Watson in four supermarkets (including Respondent), three of which had pharmacies.

Id.

at 485-86. While Steve Goode testified that his responsibilities involved managing the grocery side of the stores and that Tom and Chris Watson oversaw the pharmacies, he would see the daily and weekly sales reports for the stores.

Id.

at 487. Steve Goode further testified that its grocery wholesaler (AWG) allowed McKesson (the drug distributor used by the stores' pharmacies) to invoice through it, and thus, even though Steve Goode's responsibilities were limited to the grocery side of the stores, he could see the pharmacies' purchases on the “weekly AWG statement.”

Id.

at 487-88. According to Steve Goode, the daily sales report showed the sales of both the grocery side and the pharmacies.

Id.

Steve Goode further testified that in the summer of 2010, he noticed that one of the stores (Mayflower Food and Drug) “didn't have any money in [its] accounts.”

Id.

at 490. Goode looked into the situation and determined that while the pharmacy's purchases of medications “were up,” it “sales were flat.”

Id.; see also id.

at 491. Of note, Chris Watson was the Pharmacist in Charge at the Mayflower store.

Id.

at 490.

Steve Goode told Tom Watson about the issue; Watson's response was that “we would get together and . . . have a talk with Chris.”

Id.

at 491. However, when the conversation did occur, Goode was told that he “needed just to take care of the grocery department [and] that Chris would take care of the pharmacy department.”

Id.

at 492-93.

At some point, Chris Watson started working at Respondent.

Id.

at 495. According to Steve Goode, in the “late spring of 2012” he was on vacation when he received a phone call from another employee who told him that Chris Watson had allowed a former employee from the Mayflower pharmacy to go into Respondent on a Sunday afternoon when the pharmacy was closed and fill prescriptions “for her family members and friends.”

Id.

at 496, 498. When Goode returned from vacation, he spoke with Tom Watson about the incident and told him that he needed to “get a handle on Chris.”

Id.

at 496. While Tom Watson said that he would “take care of it,” Goode testified that “[n]othing happened.”

Id.

However, Goode did not know whether the prescriptions were for controlled substances.

Id.

at 500.

Regarding Mr. Swaim's testimony as to the reason he resigned as Respondent's PIC, Tom Watson testified that “I remember some of what he talked about but I don't remember all of what he talked about.” Tr. 326. Watson then added that he had talked to his son “about some things, too, so I was hoping . . . everything was in good shape.”

Id.

Mr. Watson also denied having had a conversation with his long-standing pharmacy technician (as Mr. Swaim testified) that Chris was diverting drugs.

Id.

at 347.

However, Tom Watson later acknowledged that Mr. Swaim is “a good guy,” who had been with him for “a long time,” before attributing the disparity between Mr. Swaim's testimony and his recollection as being the result of “some health problems.”

Id.

at 333. Watson then maintained that “some of the stuff he said I just didn't remember like the conversations that he said we had. That don't mean we didn't have them. It just means that I just don't remember them.”

Id.

at 333-34. As between the testimony of Mr. Swaim and Mr. Watson, the CALJ found Mr. Swaim's testimony more credible than Mr. Watson's.

See

R.D. 23, 41. I agree with the CALJ.

As for Grant Goode's testimony that he told Tom Watson about the issues he found (the missing hard copy prescriptions, the doctors denying having written various prescriptions, the dispensings which were attributed to him which he did not fill), Watson asserted that “I haven't talked to Grant about any concerns,” that Grant “didn't mention a word about anything he talks about here,” and “didn't mention misconduct . . . about anybody.”

Id.

at 348-49.

Watson also faulted Grant Goode for having called the State Board and the DEA, testifying that: “Well, he seems like he's talked to everybody else. He's called the state board. He's called the DEA, and all this stuff, but he hasn't talked to me about it.”

Id.

at 348.

Still later, Watson reiterated that Grant Goode had “never come directly to” him about the issues he encountered.

Id.

at 351. While Watson maintained that Grant Goode also had the same medical issue which affected Watson's memory, Tr. 349, the CALJ found that “Watson's assertion that . . . Grant Goode never brought concerns about his son's actions to his attention is simply not credible.” R.D. at 41. I agree with the CALJ.

Later, Watson testified that:

[F]amily is family. You know, if you've got a problem go see them about it, and talk about the problem. You don't know you got a problem until you at least talk about it. And you know, don't start with the state board, don't start with the DEA and all that. Start by calling your uncle or whatever or tell your mom and have her talk to your uncle if that—you know.

Tr. 350.

As for the incidents related by Steve Goode, Tom Watson also denied that Steve Goode had ever complained about the performance of the Mayflower pharmacy when Chris Watson was working there. Tr. 374-75. Notwithstanding that there is an ongoing dispute over the proceeds from dissolution of their partnership,

id.

at 505, the CALJ found that Steve Goode's testimony was fully credible as do I. R.D. 44.

Mr. Watson further testified that he trusted his son, and that this “really” shocked him. Tr. 326. When then asked whether he had any idea that his son “had a substance abuse issue or was diverting,” Watson maintained that he “had no idea [Chris] had any kind of drug problem.”

Id.

When further asked what he would have done if he “had known that [his] son had a substance abuse problem or was diverting controlled substances,” Watson asserted that he would have “[g]ot it stopped,” that he would have gone “to the state board,” and that he

“would have halted that immediately.”

Id.

at 328. However, shortly thereafter, Watson admitted that he did not “know exactly how [he] would have handled it,” but that “at some point” the state board would have had to “become involved” because he had scheduled an inventory for early February and “would have found out” that drugs were missing.

Id.

at 330. The CALJ did not find Mr. Watson's testimony on these issues credible. R.D. at 41. Nor do I.

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

Thus, even putting aside the 2010 incident in which his business partner complained about the cash shortage at the Mayflower store, the evidence shows that on multiple occasions, Tom Watson, Respondent's owner, was provided with information that Chris Watson was likely engaged in the diversion of controlled substances. Notably, in his testimony, Tom Watson claimed only that he talked to his son (although it is unclear which incident prompted this) and offered no testimony that he took any other measures (other than to schedule an inventory long after he had received credible reports of a problem) to investigate the allegations. This is especially remarkable in light of the complaints raised by Mr. Swaim and the pharmacy technician, both of whom had worked for Mr. Watson for decades. I therefore hold that Mr. Watson's failure to investigate the allegations that his son and PIC was diverting controlled substances constitutes “other conduct which may threaten public health and safety.” 21 U.S.C. 823(f)(5);

see also

5 U.S.C. 558(c) (“When [a] licensee has made timely and sufficient application for a renewal or a new license in accordance with agency rules, a license with reference to an activity of a continuing nature does not expire until the application has been finally determined by the agency.”). This regulation provides that:

[i]n the event that an applicant for reregistration (who is doing business under a registration previously granted and not revoked or suspended) has applied for reregistration at least 45 days before the date on which the existing registration is due to expire, and the Administrator has issued no order on the application on the date on which the existing registration is due to expire, the existing registration of the applicant shall automatically be extended and continue in effect until the date on which the Administrator so issues his/her order. The Administrator may extend any other existing registration under the circumstances contemplated in this section even though the Applicant failed to apply for reregistration at least 45 days before expiration of the existing registration, with or without request by the Applicant, if the Administrator finds that such extension is not inconsistent with the public health and safety.

Id.

Thus, where a Registrant, which has been served with an Order to Show Cause, fails to file its renewal application at least 45 days before the expiration of its registration, the registration expires absent a showing that the extension of its registration is not inconsistent with the public health and safety.

See Ralph J. Chambers,

79 FR 4962, 4962 (2014). The Agency has also applied the 45 day rule in cases where a registrant has been issued an Immediate Suspension Order, recognizing that while a timely renewal application may result in the extension of a registration, the Immediate Suspension Order precludes the registration from remaining in effect.

See Paul H. Volkman,

73 FR 30630, 30641 (2008). However, the Agency has further held that where an untimely renewal application has been filed and the Registrant's Registration has expired, the application remains pending before the Agency.

Id.

In this matter, I am not bound by the Government's agreement not to contest the timeliness of Respondent's renewal application. Accordingly, I find that Respondent did not file its renewal application until 28 days before its registration expired and was thus untimely. Moreover, I further find that because Respondent's registration was immediately suspended based on the prior Administrator's finding, which is amply supported by the record, that its “continued registration during the pendency of these proceedings would constitute an imminent danger to the public health or safety,” ALJ Ex. 1, at 5; and there is no evidence that the prior Administrator found that the extension of its registration would not be “inconsistent with the public health and safety,” 21 CFR 1301.36(i), its registration has expired. However, I also find that Respondent's application is before the Agency.

See Volkman,

73 FR at 30641.

Notwithstanding its egregious and extensive misconduct, Respondent nonetheless argues that the denial of its renewal application “on this ground is a matter of discretion.” Resp. Post-Hearing Br. 2 (citing

Dinorah Drug Store, Inc.,

61 FR 15972, 15973 (1996)). As a statement of the law, that is true. However, as set forth in numerous decisions, where, as here, “the Government has proved that a registrant [or applicant] has committed acts inconsistent with the public interest, a registrant [or applicant] must ‘present sufficient mitigating evidence to assure the Administrator that it can be entrusted with the responsibility carried by such a registration.’ ”

Medicine Shoppe-Jonesborough,

73 FR 364, 387 (2008) (quoting

Samuel S. Jackson,

72 FR 23848, 23853 (2007) (quoting

Leo R. Miller,

53 FR 21931, 21932 (1988))). “Moreover, because ‘past performance is the best predictor of future performance,’

ALRA Labs, Inc.

DEA,

54 F.3d 450, 452 (7th Cir. 1995), [DEA] has repeatedly held that where a registrant has committed acts inconsistent with the public interest, the registrant must accept responsibility for its actions and demonstrate that it will not engage in future misconduct.”

Medicine Shoppe,

73 FR at 387;

see also MacKay

DEA,

664 F.3d 808, 820 (10th Cir. 2011) (“The DEA may properly consider whether a physician admits fault in determining if the physician's registration should be revoked.”) (citation omitted);

Chein

DEA,

533 F.3d 828, 837 (D.C. Cir. 2008) (upholding revocation order, noting in part that physician had not “accepted responsibility for his misconduct”);

Hoxie

DEA,

419 F.3d 477, 483 (6th Cir. 2005) (DEA properly considers a registrant's admission of fault in determining whether registration should be revoked).

Since

Pettigrew Rexall Drugs,

the Agency has also made clear that it “places great weight on a registrant's/applicant's candor, both during an investigation and in any subsequent proceeding.”

Robert F. Hunt,

75 FR 49995, 50004 (2010);

see also The Lawsons, Inc., t/a The Medicine Shoppe Pharmacy,

72 FR 74334, 74338 (2007) (quoting

Hoxie,

419 F.3d at 483) (“Candor during DEA investigations properly is considered by the DEA to be an important factor when assessing whether a . . . registration is consistent with the public interest.”);

Rose Mary Jacinta Lewis,

72 FR at 4042 (holding that lying under oath in proceeding to downplay responsibility supports conclusion that physician “cannot be entrusted with a registration”).

Thus, were a case to come before me with similar facts to those of

Pettigrew Rexall Drugs,

I would deny its application and/or revoke its registration.

Thus, I conclude that Respondent's evidentiary showing on community impact is insufficient to rebut the Government's

prima facie

showing that granting its application “would be inconsistent with the public interest.” 21 U.S.C. 823(f). Nor do I consider its evidence sufficient to support a lesser sanction than what is warranted on the facts of this case.

In short, I agree with the CALJ that the misconduct engaged in by both Chris Watson (Respondent's PIC) and Tom Watson (its owner) was egregious.

See

R.D. at 61. And I further agree with the CALJ's conclusion that “a sanction that falls short of [denial] would undermine the Agency's legitimate interests in both specific and general deterrence.”

Id.

Accordingly, I will affirm the Order of Immediate Suspension, as well as order the denial of Respondent's pending application to renew its registration.

Order

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

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

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

See

21 CFR 1316.67.

Dated: October 29, 2015.

Chuck Rosenberg,

Acting Administrator.

Paul A. Dean, Esq.,

for the Government.

M. Darren O'Quinn, Esq.,

for the Respondent.

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

John J. Mulrooney, II, Chief Administrative Law Judge. On January 26, 2015, the Administrator of the Drug Enforcement Administration (DEA) issued an Order to Show Cause and Immediate Suspension of Registration (OSC/ISO)

suspending the DEA Certificate of Registration (COR), number AP2331851,

of Perry County Food & Drug (Respondent), pursuant to 21 U.S.C. 824(d), on the grounds that the Respondent's continued registration constitutes an immediate danger to the public health and safety. The OSC/ISO also proposes to revoke the Respondent's COR pursuant to 21 U.S.C. 824(a)(4), deny any pending applications for renewal or modification of such registration, or deny any applications for additional DEA registration, on the grounds that the Respondent's continued registration is inconsistent with the public interest as that term is defined in 21 U.S.C. 823(f). On February 6, 2015, the Respondent, through counsel, filed a timely request for a hearing.

A hearing was conducted in this matter on March 31-April 1, 2015, in Little Rock, Arkansas.

ALJ Ex. 1.

Gov't Ex. 1. The Respondent was issued DEA COR AP2331851 prior to April 2, 1986.

Id.

at 1. The most recent renewal of the Respondent's registration occurred on February 7, 2012, with a scheduled expiration date of March 31, 2015.

Id.

During a March 19, 2015 status conference, the Respondent, through counsel, represented that a renewal application had been timely filed, and the Government represented that it will not contest the timeliness of the renewal application. Thus, the Respondent's COR remains in full force and effect. 21 CFR 1301.36(i) (2015).

ALJ Ex. 3.

The issue ultimately to be adjudicated by the Administrator, with the assistance of this recommended decision, is whether the record as a whole establishes by substantial evidence that the Respondent's registration with the DEA should be revoked pursuant to 21 U.S.C. 824(a).

After carefully considering the testimony elicited at the hearing, the admitted exhibits, the arguments of counsel, and the record as a whole, I have set forth my recommended findings of fact and conclusions of law below.

The Allegations

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

ALJ Ex. 1 at 1-3.

In support of its allegations, the Government asserts that on several occasions, the Respondent's pharmacist-in-charge (PIC) Chris Watson (Chris W) (1) dispensed controlled substances (hydrocodone and alprazolam) without a prescription and (2) dispensed controlled substances (hydrocodone and alprazolam) pursuant to prescriptions that Chris W knew were fictitious or fraudulent.

Additionally, the Government alleges that Chris W advised an undercover DEA agent on how to modify a scrip by hand to “create a more realistic looking prescription” and deliberately ignored the agent's reference to intentional diversion of controlled substances filled at the Respondent.

The Government also asserts that state law enforcement discovered the Respondent's stock bottles of controlled substances in vehicles of non-pharmacy personnel, and that the Respondent failed to inform DEA of the loss or theft of controlled substances as required by 21 CFR 1301.74(c).

Id.

at 1-2.

Id.

at 2-3.

Id.

at 4.

The Stipulations of Fact

The Government and the Respondent, through counsel, have entered into stipulations

regarding the following matters:

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

(1) The Respondent pharmacy is registered with the DEA as a retail pharmacy in Schedules II-V under DEA COR AP2331851 at 112 Houston Avenue, P.O. Box 327, Perryville, Arkansas 72126.

(2) The scheduled expiration date of DEA COR AP2331851, which has been issued to the Respondent, and is the subject of these proceedings, is March 31, 2015.

(3) During the time period of August 15, 2014 through January 28, 2015, Chris W was the Vice-President and Controller of the Respondent pharmacy.

(4) During the time period of August 15, 2014 through January 28, 2015, Chris W was the pharmacist-in-charge (PIC) of the Respondent pharmacy.

(5) The only registered address for the Respondent pharmacy under DEA COR AP2331851 is: 112 Houston Avenue, P.O. Box 327, Perryville, Arkansas 72126.

(6) Patient D.J.

had a prescription for Xanax, a controlled substance,

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

Consistent with the terms of the Protective Order issued in this matter (ALJ Ex. 15), initials have been substituted for patient name identifiers. Copies of each of the prescriptions found at Chris W's house were received into evidence. Gov't Exs. 41, 54-63; Tr. 204.

Xanax (alprazolam) is a Schedule IV controlled substance. 21 CFR 1308.14 (2015); Office of Diversion Control,

Benzodiazepines,

Drug Enforcement Admin. (Jan. 2013),

available at http://www.deadiversion.usdoj.gov/drug_chem_info/benzo.pdf.

(7) Patient J.I. had a prescription for Clonazepam, a controlled substance,

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

Clonazepam is a Schedule IV controlled substance. 21 CFR 1308.14.

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

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

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

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

(10) Patient M.B. had a prescription for Oxycontin, a controlled substance,

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

Oxycontin (oxycodone) is a Schedule II controlled substance.

Id.;

Office of Diversion Control,

Oxycodone,

Drug Enforcement Admin. (Mar. 2014),

available at http://www.deadiversion.usdoj.gov/drug_chem_info/oxycodone/oxycodone.pdf.

(11) Patient DC had a prescription for Soma, a controlled substance,

filled at the Respondent pharmacy on September 16, 2013. The hard copy of this prescription was discovered at Chris W's residence during the execution of a federal search warrant on January 27, 2015.

Soma (carisoprodol) is a Schedule IV controlled substance. 21 CFR 1308.14; Office of Diversion Control,

Carisoprodol,

Drug Enforcement Admin. (March 2014),

available at http://www.deadiversion.usdoj.gov/drug_chem_info/carisoprodol/carisoprodol.pdf.

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

(13) On or about August 15, 2014, Chris W dispensed 42 tablets of hydrocodone 10/325 mg to one A.R. without a prescription.

(14) On November 7, 2014, Chris W dispensed 120 tablets of hydrocodone 10/325 mg and 60 tablets of alprazolam 2 mg to an undercover DEA Special Agent pursuant to a prescription that Chris W knew or should have known was fraudulent.

(15) On November 7, 2014, Chris W instructed an undercover DEA Special Agent to add the letter “R” to the DEA registration number on a prescription, and to change the last digit of the number to seven to create a more realistic-looking prescription.

(16) On November 13, 2014, Chris W instructed an undercover DEA Special Agent to use the letters “RA” instead of “RF” on the DEA registration number of a prescription that was presented to Chris W.

(17) On November 19, 2014, Chris W instructed an undercover DEA Special Agent to change the last digit of a DEA registration number to six on a prescription that was presented to Chris W.

(18) On November 19, 2014, Chris W instructed an undercover DEA Special Agent on how to create a fictitious DEA registration number.

(19) On or about November 19, 2014, Chris W distributed 30 tablets of hydrocodone and 30 tablets of Xanax to Samantha Pemberton without a prescription.

(20) On December 4, 2014, Chris W distributed 240 tablets of hydrocodone 10/325 mg and 60 tablets of alprazolam 2 mg to an undercover DEA Special Agent pursuant to a prescription that Chris W knew or should have known was fraudulent.

(21) The stock bottle of 1,000-count hydrocodone 10/325 mg and two stock bottles of 100-count methadone

10 mg that were in Eric Horton's possession at the time of Horton's arrest on or about January 20, 2015 all had the Respondent pharmacy's stock stickers on them.

Methadone is a Schedule II controlled substance. 21 CFR 1308.12.

(22) The stock bottle of 500-count alprazolam 2 mg that was in Joe Jackson's possession at the time of Joe Jackson's arrest on or about September 14, 2014 had the Respondent pharmacy's stock sticker on it.

(23) The Respondent pharmacy has not filed a theft or loss report with DEA since at least 2012.

The Evidence

In addition to its reliance on the factual stipulations reached by the parties,

supra,

the Government presented its case through the live and/or stipulated testimony

of twenty-six witnesses.

The parties stipulated to the credibility of the stipulated testimony. ALJ Ex. 20. Where applicable, individual credibility determinations regarding live testimony are set forth in the body of this recommended decision.

Two of the Government's witnesses were presented in rebuttal.

Arkansas State Trooper Corporal (Cpl.) Richard Whitley testified that he was on patrol on September 14, 2014 when he was dispatched to a one-vehicle accident where an individual named Joseph Jackson was being detained for leaving the scene. Stipulation of Testimony (SOT) 13(b); Tr. 67-68. Upon his arrival, Cpl. Whitley was advised that another police officer had noticed a bottle of liquid codeine

in the front seat of the vehicle. SOT 13(b); Tr. 69-71. Cpl. Whitley started a conversation with Jackson and although Jackson denied any drug use, Cpl. Whitley noticed that his speech was slurred and detected the odor of marijuana. SOT 13(b); Tr. 71. Cpl. Whitley then secured Jackson in handcuffs in a police vehicle, and he and the other officers searched Jackson's car.

SOT 13(b). The troopers smelled marijuana in Jackson's car and observed a bottle of codeine on the seat. SOT 13(c). Also discovered during the car search was a black bag containing a baggie of marijuana,

prescription bottles of drugs, and two handguns.

Id.

Jackson denied any knowledge of the drugs and told Cpl. Whitley that the weapons were not his. SOT 13(c); Tr. 74. Cpl. Whitley searched Jackson for additional weapons, and discovered three large bundles of cash in his pockets totaling $2,820. SOT 13(c), (d). Among other things, the seized evidence included 74 carisoprodol tablets, 12 alprazolam bars, one bag of suspected marijuana, one bottle of codeine, and two 500-count stock bottles of alprazolam, one of which bore a sticker from the Respondent.

SOT 13(d). Interestingly, the materials seized from Jackson's vehicle also contained a handwritten note bearing the following phrases: “no standing out”; “your people go in as a group and if you leave plz [sic] leave your number”; “please have A-C in your car”; “what to say”; “you have lower back pain and you take hydrocodone 10.325 four time [sic] a day”; “xanx [sic] 2 mg twice a day”; “and your last visit to a doctor 2 to 3 months ago.” Gov't Ex. 39 at 3. The seized note bore the obvious hallmarks of crib notes that were apparently contrived to coach others successfully to lie persuasively to obtain controlled substances illegally from DEA practitioner registrants.

Codeine is a Schedule II controlled substance. 21 CFR 1308.12.

A copy of a photograph of Jackson was received into evidence. Gov't Ex. 38; Tr. 70-71.

Marijuana is a Schedule I controlled substance. 21 CFR 1308.11.

Photographs of the controlled substances, weapons, and note found in Jackson's car at the time of his arrest were received into evidence. Gov't Ex. 39; Tr. 75-76.

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

messages. SOT 1(a).

On September 29, 2014, Dr. Hambuchen exchanged a series of text messages with Chris W wherein Chris W stated that he had dispensed controlled substances to one A.R. using Dr. Hambuchen's name as the prescriber and without a prescription. SOT 1(b); Gov't Ex. 2; Tr. 20-21. Dr. Hambuchen testified that he did not know A.R.,

has never issued a prescription for her, and that he wrote a letter to the DEA (Hambuchen Letter), at the request of DEA personnel, on November 12, 2014 memorializing that fact. SOT 1(c); Gov't Ex. 3; Tr. 22-24. The Government acquired and introduced a patient profile on file at the Respondent regarding A.R. that lists Dr. Hambuchen as having authorized eleven prescriptions in her name. Gov't Ex. 4; SOT 20(d), (e); Tr. 185-86. These eleven prescriptions were dispensed at the Respondent between June and December 2014

and included the controlled substances Hydroco/APAP and oxycodone. Gov't Ex. 4.

Dr. Hambuchen testified that although he and Chris W had “in the past” texted each other a lot because they were friends, it was unusual in the last few years for him to receive a text message from Chris W. Tr. 24-25.

The record reflects some confusion regarding A.R.'s first name; however, it is undisputed that Dr. Hambuchen does not know A.R. and did not prescribe any controlled substances to her. Tr. 23; SOT 1(b), (c); 10(d).

The patient profile report for A.R. submitted by the Government spans the time period of January 2012 through January 2015. Gov't Ex. 4.

DEA Task Force Officer (TFO) Chad Wilson testified that he is currently stationed at the DEA Little Rock District Office (Little Rock DO) and that he received and reviewed the Hambuchen Letter. SOT 15(b). After reading the letter, TFO Wilson interviewed Dr. Hambuchen, who confirmed its contents,

forwarded him a copy, and reiterated that he did not know an A.R.

Id.

TFO Wilson generated a report from the Arkansas prescription monitoring program (PMP) on A.R.

Id.

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

DEA Special Agent (SA) Mark Mitchell testified that he is also an agent assigned to the Little Rock DO. SOT 3(a). He testified that on four occasions (specifically, November 7, 2014; November 13, 2014; November 19, 2014; and December 4, 2014), he made undercover visits to the Respondent. SOT 3(b). On each occasion, he presented fictitious controlled substance prescriptions to the pharmacist on duty, Chris W.

Id.

On November 7, 2014 (Undercover Visit 1), SA Mitchell met with Chris W and presented him with a fraudulent prescription for hydrocodone and alprazolam. SOT 3(c). According to SA Mitchell, during this visit, Chris W instructed him to add the letter “R” to the DEA registration number on the scrip and to change the last number to a “7” to make the false document appear more realistic.

Id.

In SA Mitchell's estimation, Chris W's tutelage on the subject of making better fraudulent scrips demonstrated that Chris W well knew the presented scrip was fictitious.

Id.

The Government introduced a copy of the fraudulent scrip that SA Mitchell presented to Chris W at the Respondent. Gov't Ex. 6; Tr. 106. The scrip, dated November 7, 2014, is made out for “Brian Jackson” (the name SA Mitchell used in his undercover visits) and specifies 120 tablets of Norco and 60 tablets of Xanax. Gov't Ex. 6. During Undercover Visit 1, SA Mitchell was wearing audio and video recording equipment, but due to an equipment failure,

nothing was recorded. SOT 3(c). Chris W filled the fraudulent prescription and dispensed the controlled substances to SA Mitchell.

Id.

SA Mitchell testified that the patient name he used on all of his undercover visits was “Brian Jackson.” Tr. 154.

DEA SA Michael Willett testified that he is assigned to the Little Rock DO. SOT 4(a). SA Willett's area of responsibilities includes technical surveillance issues, and he is familiar with the video equipment that was used in SA Mitchell's undercover visits to the Respondent. SOT 4(b). SA Willett explained that the video equipment utilized during the four undercover visits has an internal battery that needs to be recharged in order for the video recording device to work properly.

Id.

Although none of the audio/video recordings or transcripts made regarding the four undercover visits were the subject of objection by the Respondent, it is worth noting that some of the tapes contained time/date stamp anomalies. The anomalies were persuasively explained by the combined testimony of SA Willett and TFO Wilson. SOTs 4, 15. Regarding date/time discrepancies encountered in the recording of other undercover visits in this case, SA Willett testified that when an internal battery has been allowed to go completely dead, the device loses track of the actual time. SOT 4(b). If the device's battery was not checked prior to use, the recording will reflect whatever time value is stored in the unit.

Id.

In SA Willett's opinion, this is what happened with some of the video recording devices operated by SA Mitchell on some of the undercover visits to the Respondent.

Id.

Additionally, TFO Wilson provided credible corroborating testimony. SOT 15(e)-(g).

Photographs of the controlled substances and corresponding receipts received by SA Mitchell during Undercover Visit 1 were received into evidence. Gov't Exs. 7-8; Tr. 129, 131.

On November 13, 2014 (Undercover Visit 2), SA Mitchell attempted to fill another fictitious prescription for hydrocodone and alprazolam at the Respondent.

SOT 3(d). SA Mitchell stated that he presented the prescription to Chris W, who informed him that the pharmacy was out of hydrocodone and benzodiazepines, but that he would have more during the first of the following week.

Id.

SA Mitchell recalled that Chris W was mumbling, but that when SA Mitchell asked Chris W if he “did the prescription right,” Chris W recommended that he use the letters “RA” instead of “RF,” which once again, in SA Mitchell's view, demonstrated that Chris W was well aware that the scrip was a fake.

Id.;

Tr. 145-50. When SA Mitchell asked Chris W again which letters to use, Chris W wrote the letters “RA” down on a piece of paper. SOT 3(d). SA Mitchell testified that after he looked at what Chris W wrote, Chris W scratched out the letters with a pen.

Id.

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

On November 19, 2014 (Undercover Visit 3), SA Mitchell returned to the Respondent and attempted to fill another fictitious prescription for hydrocodone and alprazolam.

SOT 3(e). Once again, SA Mitchell encountered Chris W and handed him another fictitious scrip.

Id.

Chris W told Mitchell that he ran out of hydrocodone tablets two days earlier, and that more were not expected until the first of the month, because his supplier had placed limits on how much he could order.

Id.;

Gov't Ex. 18 at 1-2. When SA Mitchell asked Chris W if the fictitious DEA number on the prescription SA Mitchell presented was correct, Chris W instructed him to change the last digit of the DEA number of the prescription to a “6.” SOT 3(e). Chris W started counting, described the methodology in creating a DEA COR number to the undercover agent, and volunteered that the prescription that SA Mitchell just handed him looked better than most he sees as the pharmacy.

Id.;

Gov't Ex. 18 at 4. Chris W also volunteered that he believed that multiple law enforcement agencies were scrutinizing his pharmacy, but the record contains no objective indication that he felt particularly inhibited by this revelation. Gov't Ex. 18 at 2. This crash course in the finer points of creating phony scrips reinforced SA Mitchell's view that Chris W was well aware that the scrip he

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

Audio and video recordings contemporaneously made by SA Mitchell and a corresponding transcript of Undercover Visit 3 were received into evidence. Gov't Exs. 16-18, Tr. 141.

Chris W told SA Mitchell that his fraudulent scrip “looks a lot better than any of the other damn things [he's] seen.” Gov't Ex. 18 at 3.

A copy of the fraudulent scrip that SA Mitchell presented to Chris W during Undercover Visit 3 was received into evidence.

Gov't Ex. 6, 15; Tr. 110. This scrip, dated November 19, 2014, specified a prescription for 240 tablets of Norco and 60 tablets of Xanax. Gov't Ex. 6. During the course of Undercover Visit 3, SA Mitchell asked Chris W how much it would cost to buy a 1,000-count bottle of hydrocodone. SOT 3(e). Chris W replied, “I don't usually do that.”

Id.

When the undercover agent told Chris W that he was trying to make some extra money, Chris W responded that what the agent does with the pills after the prescription is filled is none of his business.

Id.

DI Shelli Chupik, the creator of the fictitious scrip, explained that she deliberately included an authorization for an amount of medication that was inconsistent with the dosage instructions. Tr. 111-13. The discrepancy is highlighted by a text note added by DI Chupik on the copy of the exhibit received (without objection) into evidence.

Id.;

Gov't Ex. 16.

On December 4, 2014 (Undercover Visit 4), SA Mitchell returned to the Respondent, presented another phony scrip to Chris W, and was dispensed 240 tablets of hydrocodone 10/325 mg and 60 tablets of alprazolam 2 mg.

SOT 3(f). During Chris W's interaction with SA Mitchell during this visit the two men discussed a possible handgun sale. Over the course of discussion, the undercover agent volunteered to Chris W that he was a “convicted felon.” Gov't Ex. 33 at 8. Chris W told the agent, “I can't sell [a gun] to you because I know you're a convicted felon.”

Id.

Chris W's reservations concerning the undercover agent's felony conviction revelation did not apparently awaken in him any sense of heightened scrutiny regarding the wisdom of dispensing powerful controlled substances to him.

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

Diversion Investigator (DI) Shelli Chupik testified that she is stationed at the Little Rock DO. SOT 2(a); Tr. 107. According to DI Chupik, it was she who created the four fake controlled substances scrips that SA Mitchell used during his undercover visits to the Respondent. Chupik explained that each fake prescription contained the following fictitious information: a doctor's name, the name and phone number of a clinic, and a DEA COR number. SOT 2(b).

On January 12, 2015, the Arkansas Board of Pharmacy (Arkansas Pharmacy Board or APB) supplied DI Chupik with a compact disc (APB CD) that contained reports that APB personnel prepared in connection with the pharmacy. SOT 2(e); Tr. 117-19. Included in the materials provided in the APB CD was a completed DEA Report of Theft or Loss of Controlled Substances (DEA-106), signed by Chris W, as the “Owner/Pharmacist-in-Charge.”

SOT 2(e); Gov't Ex. 53. The DEA-106 that was filed with the Arkansas Pharmacy Board on January 9, 2014 reflects (and purports to report to DEA) that on August 5, 2013, the Respondent was burglarized and that there was a theft of controlled substances. Gov't Ex. 53. DI Chupik testified that a DEA-106 is a form that, once prepared, must be filed with DEA.

Tr. 120. On January 22, 2015, based on the information contained in the DEA-106, DI Chupik queried the DEA electronic DEA-106 Theft or Loss database and discovered that no DEA-106 forms had been submitted to the DEA by the Respondent in either 2013 or 2014. SOT 2(f); Tr. 120-22. Thus, although the DEA-106 filed by the Respondent with the Arkansas Pharmacy Board ordinarily would/should/does indicate that the document had been filed with DEA to supply DEA with notice of the loss,

this was not the case with this purported burglary.

A copy of this DEA-106 was received into evidence. Gov't Ex. 53; Tr. 119.

Former Respondent PIC Terry Swaim testified that the Respondent had a burglary in August of 2013 that resulted in the theft of approximately two thousand Soma (carisoprodol) pills and some Xanax (alprazolam), and that both Tom Watson and Chris W were aware of the incident. Tr. 259-60.

DI Chupik clarified that the duty to file a DEA-106 occurs “pretty much immediately” after discovery of a theft or loss of controlled substances and is not related to the dates when a pharmacy registrant is required to conduct a biennial inventory. Tr. 122-24. Although DI Chupik testified that she believed that the DEA-106 must be filed within seven days (Tr. 124), the DEA regulations actually provide that a “registrant shall notify [the local DEA Field Division Office], in writing, of [a] theft or significant loss of any controlled substances within one business day of discovery of such loss or theft [and] shall also complete, and submit to the Field Division Office in his area, [a DEA-106] regarding the loss or theft.” 21 CFR 1301.76(b) (2015).

Conway Police Officer Matthew Edgmon testified that on November 19, 2014, he initiated a traffic stop with a white Tahoe that had no license plate. SOT 8(b); Tr. 29. After some conversation with the driver, Samantha Pemberton, he ascertained that she had a suspended driver's license and that the (plateless) vehicle she was driving was owned by Chris W, whom she described to Officer Edgmon as the pharmacist/owner of the Respondent as well as her boyfriend.

SOT 8(b). Pemberton consented to a search of Chris W's car. A search of her purse yielded numerous pill bottles, many of which were unlabeled.

SOT 8(c), (d); Tr. 29-32; Govt. Ex. 19. One of these unlabeled bottles had pills that Officer Edgmon recognized as likely being alprazolam. SOT 8(d). Pemberton's purse also contained bottles with labels bearing her name, as well as other labeled bottles containing non-controlled pills.

Id.

Officer Edgmon subsequently took Pemberton into custody for possession of a controlled substance, advised her of her

Miranda

rights (which Pemberton acknowledged she understood) and then questioned her about the pills he found in her purse. SOT 8(e). Pemberton told Officer Edgmon that she had Xanax and “hydros” (hydrocodone) and claimed that she had prescriptions for these.

Id.

Pemberton was transported to the Conway Police Department (CPD) for processing, and Officer Edgmon secured the contraband.

Id.

The Government introduced a copy of an insurance claim letter issued to “Jennifer Watson and Christopher Watson” on November 4, 2014, stating that on October 28, 2014, Pemberton was involved in a loss with a vehicle (a “2013 Infinity”) on their policy. Gov't Ex. 27; Tr. 214-18. Additionally, Pemberton told Investigator Kennedy in the course of the interview at CPD that Chris W was her boyfriend and her pharmacist. Tr. 38.

Photographs of the controlled substances found in Pemberton's car at the time of her November 19, 2014 arrest were received into evidence. Gov't Ex. 19; Tr. 31-32.

In addition to corroborating many of the details of her arrest, Samantha Pemberton testified that she was Chris W's girlfriend, and that it is her understanding that he is an owner of the Respondent pharmacy. SOT 7(a). According to Pemberton, prior to the traffic stop, Chris W had given her controlled substances (specifically, 30 hydrocodone 10/325 mg and 30 Xanax 2 mg) in unmarked bottles and without a prescription, and at the time of her arrest, those medications were still in her possession. SOT 7(b).

CPD narcotics investigator Thomas Kennedy testified that he interviewed Pemberton at CPD after her arrest on November 19 and that this interview was recorded.

SOT 9(b); Tr. 33. During the interview, Pemberton stated that: (1) she received at least some of the controlled substances that were in her purse from Chris W; (2) she had prescriptions for the controlled

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

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

Investigator Kennedy telephoned Chris W during the afternoon of the day Pemberton was apprehended and recorded that conversation.

SOT 9(d). When Investigator Kennedy informed Chris W that Pemberton had been arrested, Chris W replied that he only vaguely knew her. Specifically, Chris W said “I think I know who she is,” and amorphously described her as “blonde” and “kinda cute.” SOT 9(e). Chris W told Investigator Kennedy that he thought he recalled that Pemberton may have come into the Respondent that morning, and he admitted that on or about November 19 he allowed her to “borrow” some hydrocodone and Xanax without a prescription, and that the pharmacy had “loaned” her some pills.

Id.

During the call, Chris W allowed that “we let her borrow a few because she was out,” and “I know we loaned her some hydrocodone and seemed like Xanax, maybe 2 mg.”

Id.

When Investigator Kennedy asked Chris W how much he had dispensed to Pemberton, he responded, “I want to say like 30 of each” “just because she gets like 90 at a time.”

Id.

Chris W assured Investigator Kennedy that the pharmacy was “just waiting on [the doctor's office] to call back because that office is notoriously slow.”

Id.

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

Investigator Kennedy made repeated requests to Chris W and Pemberton to provide scrips for the 30 hydrocodone pills and 30 Xanax pills that Chris W admitted he had dispensed to Pemberton on or about November 19, but neither supplied any documentation. SOT 9(f). Chris W also provided Investigator Kennedy with conflicting information about the identity of Pemberton's prescribing physician. SOT 9(g). Initially, Chris W told him that the prescribing physician was a Dr. Humbard and agreed to fax a copy of the prescription.

Id.

On November 20, the day following the arrest and phone call, Investigator Kennedy did receive a fax (Fax 1) from the Respondent, but contrary to Chris W's representations on the phone, Fax 1 contained no scrips, but only a copy of two prescription labels (

i.e.,

pharmacy fill stickers) from the Respondent.

Id.;

Tr. 52-53. Further, not only did Fax 1 contain labels instead of scrips, but in Investigator Kennedy's review of those prescription labels, he determined that the labels did not even correspond to the information Chris W had provided him during their phone conversation about the controlled substances he said he had dispensed to Pemberton the previous day. SOT 9(g). Instead, the labels with Fax 1 reflected prescriptions that had been filled on October 9, 2014 (not November 19, 2014), and had been issued for 75 alprazolam 2 mg tablets and 75 Hydroco/APAP tablets 10/325 mg (not 30 tablets of each drug as Chris W had stated during the previous day's phone call).

Id.

Moreover, the labels stated that the prescriptions had been issued by a “Dr. Arnold”, not a “Dr. Humbard.”

Id.

Furthermore, an examination of the labels that were provided indicated that both directed that no refills remained on the prescriptions.

Id.

Thus, even on their face, the prescriptions supplied by Chris W in Fax 1 that were purportedly used for the October 9, 2014 dispensing to Pemberton were no longer valid for refilling anything on November 19, 2014 and could not have been properly used for that purpose.

Id.

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

On November 21, three days following Pemberton's arrest, Investigator Kennedy contacted Pemberton and notified her that he had not received scrips for the drugs she received on November 19 from the Respondent.

SOT 9(h). In response, Pemberton told Kennedy that she believed that Chris W had sent them.

Id.

When Investigator Kennedy explained that he had not received the scrips, Pemberton assured him that she would take care of it.

Id.

Pemberton called Investigator Kennedy back later in the day and told him that Chris W would fax the scrips.

Id.

Sometime later in the day, following his phone call with Pemberton, Investigator Kennedy telephoned Chris W at the Respondent and recorded the call.

SOT 9(i). Chris W insisted that he had faxed over the labels the other day, but Investigator Kennedy again explained that he still needed to see the scrip.

Id.;

Tr. 55-56. Chris W then clarified that he did not give the scrip to Pemberton because she did not want her to try to take it somewhere else, but that he would have one of his technicians look up the scrip and send it over. SOT 9(i).

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

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

Later in the day, Investigator Kennedy did receive another fax (Fax 2) from the Respondent but once again, the fax had was not a scrip, but merely a page of lined paper covered in scribbles, which, based on the investigator's experience, appeared to him to be a page from a notepad customarily used for call-in type prescriptions.

SOT 9(j); Tr. 55, 58-59. The Fax 2 notepad page did not contain any reference to a prescription issued to dispense medication to Pemberton on November 19. SOT 9(j). Instead, the only reference to Pemberton on the notepad page appeared in the upper right-hand corner of the fax, which included a handwritten date that appeared to be either “10-4-14” or “10-9-14”; beneath that date appeared to be the name “Samantha Pemberton,” the text “Xanax 2mg, TID, #75”, “Narco 10/325”, some additional writing that Investigator Kennedy was unable to decipher, and then “#75”.

Id.

The name “James Arnold” is written at the bottom of the notation. Gov't Ex. 49. Investigator Kennedy was quite clear that he had plainly articulated that he needed to see the scrips. Tr. 57-58.

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

Investigator Kennedy testified that on January 2, 2015, he called Pemberton again to remind her that he had still not received a scrip. SOT 9(k). In response, she stated that she would try to get the prescription and deliver it to him.

Id.

Four days later, on January 6, 2015, Pemberton brought Investigator Kennedy two scrips, both of which bore the date October 9, 2014, and a signature from a Dr. James Arnold.

Id.;

Tr. 61-63. The Government also introduced a copy of Pemberton's patient profile from the Respondent, which indicates that two prescriptions (alprazolam and hydroco/APAP) were dispensed to Pemberton on October 9, 2014. Gov't Ex. 24. According to the patient profile, James Arnold, M.D. is listed as the prescriber for both prescriptions.

Id.

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

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

substances in her possession on the day she was arrested. SOT 7(d). The scrips Pemberton gave Investigator Kennedy were dated October 9, 2014 and were issued for 75 tablets of hydrocodone 10/325 mg and 75 tablets of alprazolam 2 mg, and bore the purported signature of Dr. James Arnold of the Baptist Emergency Medicine Clinic.

Id.

Dr. James Arnold, M.D., testified that he is a doctor practicing at the Baptist Springhill Clinic in North Little Rock, Arkansas. SOT 22(a). He stated that by virtue of the fact that he practices in an emergency room, he does not prescribe more than twenty hydrocodone tablets at one time. SOT 22(b). Dr. Arnold also indicated that he has checked his records and determined that he has not treated and does not know a person named Samantha Pemberton.

SOT 22(c). On January 7, 2015, Investigator Kennedy turned over to TFO Wilson the two scrips bearing Dr. Arnold's name that Samantha Pemberton had given him. SOT 15(c). Both prescriptions had stickers on them indicating that they were filled on October 9, 2014, and both were marked “no refills.”

Id.

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

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

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

According to TFO Puckett's (unchallenged) account, the surveillance tapes show Chris W handing Horton a bottle of medication, some of the contents of which Horton pours into an amber prescription bottle. Gov't Ex. 36 at 1-2. Horton can then be seen placing items into a blue tote bag on the floor. Horton then pulls a stock bottle of medication from the shelf, shows the bottle to Chris W, puts it into a pharmacy bag, and drops the pharmacy bag with some other items into a blue tote bag.

Id.

at 2. Horton takes another stock medication bottle from a pharmacy shelf, the bottle disappears from view, and Horton can be seen shoving something into his jacket pocket and walking out of the pharmacy.

Id.

at 2-6. A camera outside the pharmacy picks up Horton throwing something into a dumpster and placing the aforementioned blue tote

into a white pickup truck.

Id.

at 10.

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

Upon Horton's return to the pharmacy, Chris W can be seen placing a stock medication bottle on the counter for Horton to count out into multiple amber prescription bottles, one of which he hands to Chris W, and one of which he places in his own pocket.

Id.

at 7-13. Horton then fills a pharmacy bag with the amber prescription bottles and again leaves the pharmacy.

Id.

at 13. A camera outside the pharmacy captures Horton pulling away from the pharmacy in the white pickup truck.

Id.

at 11. Other photographs depict controlled substances that were in the blue tote upon its subsequent seizure and inventory.

Id.

at 11-13.

Shortly after Horton departed the Respondent, he was pulled over by Arkansas State Trooper First Class (Trooper) Kevin Growns. Trooper Growns testified that when he observed Horton's white truck change lanes twice without the benefit of a turn signal,

he initiated a traffic stop. SOT 11(b); Tr. 77-78. At the time of the stop, Horton handed the trooper Chris W's driver's license, eventually explaining that he had the license so he could use Chris W's credit card. SOT 11(b); Tr. 78-79. Horton ultimately did present his own driver's license,

a run of which through the Arkansas Crime Information Center (ACIC) database

revealed two outstanding warrants, one of which was active. SOT 11(c). In response to a question from Trooper Growns, Horton indicated that he was not armed, but that there were two pistols in the truck he was driving.

Id.;

Tr. 81. Horton was searched for weapons, handcuffed, and placed into the trooper's vehicle.

SOT 11(c). Trooper Growns found two handguns sitting on the rear floorboard (one of which had a chambered round). Tr. 83. When asked if there was anything else illegal in his vehicle, Horton gave no response, but an inventory search of the truck revealed a blue tote bag that contained a stock bottle of hydrocodone

and two 100-count methadone 10 mg stock bottles.

SOT 11(d); Tr. 83-84. Horton also had $1,529 in cash on his person, and the methadone stock bottles seized had the Respondent's pharmacy stickers on them. SOT 11(d), (e). Additionally, Trooper Growns testified:

Trooper Growns testified that a traffic citation was issued regarding the failure to signal violation as well as driving without insurance. Tr. 85.

Tr. 79-80.

In his live testimony, Trooper Growns stated that the license check was initiated through the Federal Bureau of Investigation's National Crime Information Center (NCIC) database. Tr. 79. The variance is not material.

A copy of Horton's arrest photograph was received into evidence. Gov't Ex. 34; Tr. 86-87.

In Trooper Growns's estimation, it was a “like [a] thousand count bottle of hydrocodone[ ] . . .” Tr. 83.

Photographs of the controlled substances found in Horton's vehicle were received into evidence. Gov't Ex. 35; Tr. 87-89.

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

Tr. 84.

DI Inez Davis testified that she is currently assigned to the Little Rock DO. SOT 12(a); Tr. 213. The certified copy of the Respondent's incorporation from the State of Arkansas that DI Davis procured reflects that Chris W is listed among the Respondent pharmacy's officers, and specifically is listed as vice-president, controller, and board member of the Respondent. Gov't Ex. 50; SOT 12(b); Tr. 218-19.

On January 27, 2015, a federal search warrant was executed on the Respondent simultaneously with the service of the OSC/ISO that initiated these proceedings (pharmacy search warrant execution). Little Rock DO Group Supervisor (GS) Lisa Barnhill testified that during the pharmacy search warrant execution, it was she who coordinated and supervised the search of the pharmacy's records. SOT 14(c). DEA and other law enforcement personnel associated with the search were able to locate patient profiles for Eric Horton, Brian Jackson (the undercover identity used by SA Mitchell), Samantha Pemberton, and A.R. However, although the vehicle he was driving on the night of his arrest contained stock bottles of controlled substances adorned with labels from the Respondent pharmacy, there was no patient profile for Joseph Jackson at the pharmacy.

Id.

GS Barnhill also related that she conducted an audit of Respondent pharmacy records obtained during the pharmacy search warrant

execution, focusing on varying strengths of “oxycodone, hydrocodone, alprazolam and generic Dilaudid.”

Tr. 181. According to GS Barnhill, her audit of just those medications yielded a “shortage of close to a quarter million pills.”

Id.

Barnhill also testified that the search she conducted of all of relevant paper and electronic records at the Little Rock DO reflects no report of theft or loss of controlled substances filed with DEA by the Respondent between January 1, 2012 and January 22, 2014. SOT 14(a), (b); Gov't Ex. 63; Tr. 161, 175-76.

This testimony is consistent with the recollection of DI Pamela Lee and DI Davis, who were also present. SOTs 20, 12(c), (d). The patient profiles seized that day were received into evidence. Gov't Exs. 4, 24, 37; Tr. 187, 188-89, 191-92;

see also

SOT 18.

Dilaudid (hydromorphone) is a Schedule II controlled substance. 21 CFR 1308.12; Office of Diversion Control,

Hydromorphone,

Drug Enforcement Admin. (July 2013),

available at

http://www.deadiversion.usdoj.gov/drug_chem_info/hydromorphone.pdf.

DI Carolina Vazquez-Lopez testified that she is assigned to the Little Rock DO, that she was present at the pharmacy search warrant execution, and that, as she was directed to do, she gathered all pertinent required DEA records from the Respondent, including DEA Order Form 222s, Controlled Substance Ordering System (CSOS) records, purchase invoices, DEA Form 41/Registrants Inventory of Drugs Surrendered, DEA Form 106/Theft or Loss of Controlled Substances, Power of Attorney, and Inventory Records. SOT 19(a)-(c). DI Vazquez-Lopez testified that during the pharmacy search warrant execution she was assisted in gathering records by Bettie Wood, a pharmacy technician (Pharm. Tech.) employed at the Respondent. SOT 19(d). DI Vazquez-Lopez testified that Pharm. Tech. Wood told her that the Respondent only had partial invoices for December 2014 and January 2015 because Chris W's friend, Eric Horton (a non-employee), had removed all of the other invoices at Chris W's request in early December 2014. SOT 19(e).

DI Vazquez-Lopez asked Pharm. Tech. Wood whether the Respondent had any reported thefts or losses in the last two years. SOT 19(f). Pharm. Tech. Wood stated that there had been an incident in either August or October 2013 when two 1,000-count bottles of carisoprodol were stolen.

Id.

When DI Vazquez-Lopez asked Pharm. Tech. Wood for a copy of the DEA Form 106/Theft or Loss Form, she stated that Chris W would have it.

Id.

When DI Vazquez-Lopez asked Pharm. Tech. Wood where the controlled substance prescriptions were stored, she explained that the prescriptions were stored in the back office, but only as far back as April 2014 because prescriptions prior to 2012 were lost in a fire, and the balance had been taken away by another friend of Chris W's, Eric Horton, who was also not employed at the pharmacy. SOT 19(f). When DI Vazquez-Lopez asked Pharm. Tech. Wood for the Respondent's most recent physical inventory records, Pharm. Tech. Wood stated that Chris W had taken the Respondent's last inventory records after a state inspection the previous year, and that there were no other copies in the Respondent pharmacy. SOT 19(i).

Pharm. Tech. June Gilbert testified that she has been a pharmacy technician at the Respondent for approximately thirty-one years, and that it has been her experience that controlled substances frequently disappear from the Respondent overnight. SOT 17(a), (c). Pharm. Tech. Gilbert also related that she has seen Chris W repeatedly give out pills without a prescription, and that Eric Horton and Joseph Jackson are not employees of the Respondent. SOT 17(b), (c).

Pharm. Tech. Alyssa Burns testified that she has been a pharmacy technician at the Respondent for approximately one year. SOT 16(a). Similar to Pharm. Tech. Gilbert's experience, Pharm. Tech. Burns testified to her observation that items delivered in medication shipments to the Respondent—mostly oxycodone—regularly turn up missing the morning after delivery. SOT 16(b). It is Pharm. Tech. Burns's opinion that orders for controlled substances placed by the Respondent are excessive in light of the number of prescriptions that are actually filled there.

Id.

According to Pharm. Tech. Burns, the Respondent usually reaches its controlled substance limit with McKesson—one of its pharmaceutical suppliers—on the ninth day of each month.

Id.

The Government introduced into evidence copies of lists generated by the Respondent's distributors indicating the products sold to the Respondent between 2013 and 2015. Gov't Exs. 42-43, 68 (McKesson); 44-45 (Harvard); 46-47 (Top Rx); Tr. 167, 169, 172-73.

Pharm. Tech. Burns also stated that Chris W has ordered her to fill prescriptions for hydrocodone, Xanax, Soma, and promethazine cough syrup without a hard copy of a prescription, and that he once directed her to fill four identical prescriptions for Xanax, hydrocodone, and Soma for a customer (B.E.) in a single week.

SOT 16(e). Pharm. Tech. Burns has seen Chris W leave the pharmacy with drugs in his backpack, and has actually seen a stock bottle of hydrocodone with tablets in Chris W's open backpack. SOT 16(f). Like Pharm. Tech. Gilbert, Pharm. Tech. Burns affirmed that neither Eric Horton nor Joseph Jackson is an employee of the Respondent.

SOT 16(c). She believes that Horton is a friend

of Chris W's, and she has seen Horton take bottles of controlled substances off of shelves at the Respondent and place them in his pockets.

Id.

Pharm. Tech. Burns further testified that several weeks before the pharmacy search warrant execution, Chris W and Horton removed a large number of invoices and hard copies of prescriptions that were previously filled from the pharmacy, but she does not know what became of the documents they took. SOT 16(g).

A copy of B.E.'s patient profile at the Respondent, as well as copies of prescriptions issued to B.E., were introduced into evidence. Gov't Ex. 65; Tr. 194. B.E.'s patient profile does indicate that this was the case from January 2-8, 2014. Gov't Ex. 65 at 9.

Long-time Respondent PIC Tracy Swaim also testified that Jackson was never an employee at the Respondent. Tr. 235; Gov't Ex. 38.

Samantha Pemberton testified that has seen Chris W supply Horton with controlled substances at parties at Chris W's residence. SOT 7(c).

TFO Eli Fowlkes testified that he is a detective with the Benton, Arkansas Police Department and is cross-designated as a DEA Task Force Officer stationed at the Little Rock DO. SOT 21(a); Tr. 197-98. TFO Fowlkes testified that on January 27, 2015, he participated in the execution of a search warrant at Chris W's residence (Chris W residence search warrant execution). SOT 21(b); Tr. 199-200. During the search of Chris W's house, TFO Fowlkes discovered numerous controlled substance scrips, which he photographed and inventoried into DEA custody. SOT 21(c), (d); Gov't Exs. 41, 54-62; Tr. 200-07.

The Government also presented the testimony of pharmacist Tracy Swaim. Swaim testified that he is currently employed as a part-time

pharmacist at the Respondent, but up until October 10, 2014, he had worked there as a full-time pharmacist for twenty-six years, and was the Respondent's pharmacist-in-charge (PIC) until January of 2012. Tr. 232-33.

Tr. 266.

Swaim explained that controlled drug purchases at the Respondent are conducted through the DEA Controlled Substance Ordering System (CSOS) program, and that a single password, issued in Swaim's name, is and has been used by all Respondent employees who order controlled medications. Tr. 245-48;

see also

Tr. 365-66. According to Swaim, the Respondent purchased controlled substances from the McKesson Drug Company (McKesson), Top Rx, and The Harvard Drug Group. Tr. 248;

see also

Gov't Exs. 42-47, 68. Swaim explained that prior to the commencement of Chris W's involvement with the Respondent, McKesson was able to provide an adequate supply to keep up with

demand, but that resort was had to the other two suppliers when the amount of controlled drugs ordered by the Respondent increased by one-third

and rose to a level exceeding McKesson's quantity limits. Tr. 248-51.

Tr. 262-63.

In the course of the hearing, Swaim was shown photographs of Joseph Jackson and Eric Horton and affirmed that neither man had ever been an employee of the Respondent. Tr. 235-36; Gov't Ex. 38, 34. Swaim testified that although he did not know Jackson at all, he did recognize Horton as a man that periodically came to the store to pick up cream that the pharmacy regularly ordered to manufacture Redneck Remedy, a cream produced by a company called Matlon, Incorporated (Matlon).

Tr. 236-40;

see also

Gov't Ex. 69. According to Swaim, although Horton was not an employee and not a pharmacist, he was routinely permitted into the restricted pharmacy area, and he regularly made deliveries of prescriptions (including controlled substances) to customers in the Mayflower area for the Respondent. Tr. 237-39. Swaim testified that to his knowledge, Horton worked with Chris W in connection with Chris W's Matlon business. Tr. 236.

As discussed in greater detail

infra,

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

Swaim also related that the Respondent was burglarized in August of 2013, resulting in the theft of approximately two thousand carisoprodol pills and some Xanax. Tr. 259-60. The police were notified, and both Chris W and the Respondent's owner, Tom Watson, were aware of the incident. Tr. 260.

Swaim explained that since his retirement approximately ten to twelve years ago, the Respondent's owner, Tom Watson, would visit the business (which included the Big Star grocery store in which the pharmacy was located) approximately once a week. Tr. 240-41. According to Swaim, prior to his retirement, Watson worked two days per week part-time as a relief pharmacist while Swaim served as the full-time PIC. Tr. 241-44.

Swaim testified that in January of 2012, he informed Watson that his observation of improper controlled substance refills approved by Watson's son, Chris W, sufficiently troubled him that he was resigning as the PIC. Tr. 251-56. Swaim recounted the conversation in this manner:

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

Tr. 253. Swaim testified that he completed the paperwork and inventory required to hand over PIC control and accountability of the pharmacy to Chris W, and that notwithstanding this diminution in his responsibilities, neither his compensation nor his hours were reduced. Tr. 254-55, 266-67.

Swaim also recounted a conversation he overheard between long-term Respondent Pharm. Tech. June Gilbert

and Watson that occurred in September of 2014,

approximately two years and nine months after surrendering his PIC responsibilities. Swaim testified that he heard Pharm. Tech. Gilbert tell Watson that his son, Chris W, was “giving away” medication. Tr. 256-57. In response to what he heard, Swaim told Watson that he (Swaim) “just can't take this anymore [and that he was] going to give notice . . . if you don't stop [Chris W].” Tr. 257. In reply, Tom Watson asked Swaim not to leave and assured him that he would “put a stop to it.”

Id.

According to Swaim, “he looked me in the eye and said `trust me,' and I said `okay, I will.' ”

Id.; see also

Tr. 265. Swaim testified that four days later, upon ascertaining from the pharmacy staff that, notwithstanding Watson's assurances to the contrary, nothing had changed about the improper manner in which (now PIC) Chris W was executing his responsibilities as a pharmacist, he called Watson and gave two weeks' notice.

Tr. 257.

See

SOT 17.

Tr. 265. Although Swaim initially indicated that the date was in September of 2015 (a date in the future), he subsequently corrected the date to 2014.

The record does not reflect any other area of contention between Swaim and Watson and in fact, Watson hired Swaim back to work part-time at the Respondent after the pharmacy search warrant execution. Tr. 266.

Swaim's testimony (which was not the subject of a stipulation regarding content or credibility) was detailed, internally consistent, plausible, and presented no objective factual basis upon which to challenge it for bias. Simply put, Swaim has nothing to gain or lose based on the outcome of this case. The fact that he served the Respondent for twenty-six years as its PIC and was even hired back after the pharmacy search warrant execution, is powerful evidence that even Watson knows that Swaim is a man who can be trusted. The witness's testimony presented as thoughtful, coherent, and unbiased, and is fully credited in this recommended decision.

The Government also presented the testimony of Grant Goode, Tom Watson's nephew

and a former staff pharmacist at the Respondent. Tr. 270-71. Goode testified that he started at the Respondent working one day in November 2014 and then for approximately two months, starting in mid-December 2014, working on a schedule that increased from about twenty-five hours per week to ninety-six hours per two weeks. Tr. 271. Goode recalled that during this time, his cousin Chris W would enter the pharmacy for varying amounts of time, generally less than twenty-five hours per week, and do non-pharmacist work. Tr. 273-74.

Tr. 274.

Goode testified that while working at the Respondent, he fielded several telephonic inquiries from prescribing physicians that led him to discover that pharmacy patient profiles described numerous Schedule II controlled substance dispensing events where no hard copy of the scrip was present in the file and where the purported prescribing doctor had no recollection of authorizing the medication. Tr. 274-75. According to Goode, when he examined the pharmacy files, he discovered other occasions where controlled substances had been dispensed but no scrip hard copy was retained. Tr. 275-76. Based on what he discovered, Goode began contacting prescribing doctors on his own and discovered “dozens” of cases were controlled substances were dispensed and no hard copy scrip was present. Tr. 276. Goode testified that when he brought this issue to the attention of Watson, his response was that the scrips “must have been put in the wrong place in the files. Maybe the girls, maybe the technicians misplaced the prescriptions.” Tr. 277. Goode kept checking pharmacy files and made inquiry of the technicians. Tr. 278.

Goode also related that on two occasions he observed Chris W take thousand-count stock bottles

of hydrocodone and place them into his backpack. Tr. 278. Further, Goode stated that on one occasion, Tom Watson was present and observed Chris W pack the stock bottle into his backpack. Tr. 280.

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

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

addiction problem. Tr. 281. According to Goode, personnel at the Pharmacy Board advised him that they would be dispatching someone to investigate the pharmacy, and that in the meantime, he should “just stay put.” Tr. 282. Goode explained that on January 2, 2015, in the midst of “staying put,” one of the Respondent's pharmacy technicians brought to his attention forged Schedule II scrips that had been dispensed with Goode's initials on the label. Tr. 282-83. When Goode showed the forged scrips to Watson, the latter suggested that (long-time pharmacy technician) “June [Gilbert] must be doing that.” Tr. 283. Goode pressed him on the issue and reminded him that his son, Chris W, had access to a laptop that allowed him to log in and print out pharmacy paperwork. Tr. 283. That day, Goode faxed copies of the fraudulent scrips to the Pharmacy Board, and followed up with a phone call to both the Pharmacy Board and DEA. Tr. 284-85.

On February 5, 2015, several days after the (January 27) pharmacy search warrant execution, Goode confronted his cousin, Chris W, with his suspicions. Tr. 286. By Chris W's demeanor, Goode got the sense that his cousin had identified him as DEA's source, and shortly thereafter, Chris W informed him that he would be substituting Goode with a pharmacist named Glenn Wood. Tr. 287. Goode also recalled being approached by Tom Watson near the end of January 2015 and told that customers had registered complaints about his unwillingness to dispense scrips they had presented, and that one customer was even concerned that Goode would “turn [him] into DEA.” Tr. 288. Goode got the sense that Watson was disappointed in him for declining to fill the scrips as presented. Tr. 289.

Pharmacist Glenn Wood and Goode communicated by text and phone a few days later. Tr. 291-92. When Goode asked Wood about his hours for the week, Wood related his understanding that Watson had planned to let Goode know that his services would no longer be required at the pharmacy.

Id.

The conversation turned somewhat heated, and Goode essentially accused Wood of looking the other way in the face of misconduct being committed by Chris W at the Respondent as well as the Mayflower pharmacy, where Wood and Chris W previously worked together.

Tr. 291-92. Watson did eventually let Goode know that Glenn Wood would be taking his hours. Tr. 290. Watson subsequently telephoned Goode and told him he was “upset” about statements Goode had made to DEA, and that he felt Goode “had hung him out to dry.” Tr. 291.

Goode also testified that Tom Watson told him that “he would like to kill a couple of DEA agents.” Tr. 302. Even assuming that Watson could have been speaking during a time of some agitation, such a statement demonstrates a deplorable and dangerous lack of judgment on his part. The Government did not offer this not-too-veiled threat against law enforcement officers on its case-in-chief, and in an exercise of commendable candor, notified the tribunal at the outset of the case that in proceedings unrelated to this case, a United States Magistrate Judge had declined to credit this testimony from Goode. Tr. 11; ALJ Ex. 21. The parties acquiesced in official notice (

see

5 U.S.C. 556(e) (2012)) that this testimony had previously been found unsupported by a United States Magistrate Judge in an unrelated proceeding (Tr. 304), and the order issued by the Magistrate Judge, which denied the Government's motion to revoke Chris W's bond based on these comments purportedly uttered by his sponsor (and father) Watson, was received into evidence. Resp't Ex. 14; Tr. 306. Because the Government did not offer the purported threat in its case-in-chief, a disposition of this case does not require that a credibility issue on this statement be rendered, and it forms no basis of this recommended decision.

Goode's testimony was not the subject of a stipulation regarding content or credibility, but the testimony was sufficiently detailed, plausible, and internally consistent to be fully credited in this decision. Although there were vague references to some unrelated, historical family acrimony that did not specifically involve the Watsons, there was no evidence that would support any level of bias that impacts on this witness's credibility, and his testimony is fully credited in this recommended decision.

The Respondent called three witnesses in its case-in-chief: Tom Watson, the pharmacist-majority-owner

of the Respondent; Glenn Wood, the pharmacist Watson selected to succeed his son as the PIC; and Brenda McCrady,

an official from the Pharmacy Board, who attested to the fact that neither of these professional pharmacists has been subject to discipline before that body.

Tom Watson testified that he owned fifty-eight and one half percent of the Respondent. Tr. 314.

SOT 23; Gov't Ex. 12; Tr. 320.

Glenn Wood is the pharmacist who supplanted the hours worked by Grant Goode at the Respondent after Grant Goode registered concerns about diversion there to the Pharmacy Board,

and the individual who has been selected by the Respondent to assume the duties of its PIC permanently. Tr. 313. Wood testified that he has his Pharm. D. degree, has been a licensed pharmacist in Arkansas for approximately nine years, and is a member of the Arkansas Pharmacists Association. Tr. 391, 393. Wood stated that he has never been aware of a diversion issue in any pharmacy where he has been employed, and that he has never been subject to disciplinary action. Tr. 393, 424-25, 430, 443;

see also

SOF 23(b); Gov't Ex. 12.

Tr. 281, 291-92.

Wood testified to a relatively lengthy history of working on and off for the Watsons over the course of his nine years

as a pharmacist. When he was in school at the University of Arkansas for Medical Sciences, he completed a one-month pharmacy internship working for Chris W. Tr. 391, 478. After graduating in 2006, Wood worked as a pharmacist in several Watson-owned pharmacies, rotating between his Mayflower, Morrilton, and Perryville (the Respondent) pharmacies. Tr. 392-94, 453, 475.

Tr. 392.

Wood testified that in 2008 or 2009 he briefly moved to Utah to accept a pharmacist position there, but the adventure was short-lived, and he returned to Arkansas. Tr. 395. Upon his return, he resumed employment for Tom Watson as the PIC of his Morrilton Food and Drug pharmacy (Morrilton) for three years. Tr. 394-95. When Watson sold the Morrilton pharmacy to a rival chain, Wood spent three years with a pharmacy unaffiliated with the Watsons. Tr. 396. Wood explained that in December 2014 he made arrangements with Chris W to return to the Respondent on a part-time basis,

but that he did not report for work until the day after the pharmacy search warrant execution. Tr. 396, 398. Wood testified that although the final paperwork is still pending at the Pharmacy Board,

he is currently acting as the PIC at the Respondent. Tr. 398. According to Wood, the appropriate application was filed at the Pharmacy Board days prior to the hearing. Tr. 399, 443.

Wood testified that he only desired part-time employment at the Respondent because he wanted additional time to pursue a career in professional bass fishing. Tr. 397-98.

Wood had previously been approved by the Arkansas Board as a PIC at Morrilton. Tr. 399. He testified that he had taken an examination when he was initially designated as a PIC. Tr. 475.

Wood opined that where a pharmacy is operating without an involved and active owner, diversion control responsibility “starts with the PIC.” Tr. 415. Wood testified that he believes that it would be difficult to discover a PIC engaging in unethical or illegal behavior unless the PIC “was doing it obviously in front of everyone that worked there.”

Id.

He stated that because the PIC is in charge of diversion control at a pharmacy, he doesn't know a way to “safeguard” against such behavior except by having another employee (for

example, a pharmacy technician) also signing off on checking drugs in and conducting an inventory (a measure which he stated he would implement should the Respondent again dispense controlled substances). Tr. 416-18, 448. Wood testified has reviewed a written (unsigned) proposed controlled substance policy document (Proposed Policy) provided to him by Watson, and represented he would implement its provisions if the pharmacy gets its COR back. Tr. 417; Resp't Ex. 1. Wood described the Proposed Policy as an outline of policies and procedure, a “working document,” and stated that he would recommend that all future PICs be required to review the policy with Watson and sign off that they had done so.

100

Tr. at 418. Wood proposed the implementation of diversion controls beyond the requirement of the already mandatory biennial inventory,

101

such as a requirement that the PIC personally insure that all controlled substance inventory is checked in properly in the inventory database, and the maintenance of a “perpetual inventory” of controlled substances,

102

and several other measures aimed at increased security and accountability. Tr. 415-19, 444.

100

However, in describing the framework created by the Proposed Policy, he also stated, “Common sense tells you what you need to be doing in this regard and what you don't need to be doing.” Tr. 419.

101

Tr. 416-17.

102

Wood explained that the institution of a perpetual inventory would require pharmacy personnel to count the contents of stock controlled substance bottles whenever the bottle was nearing depletion and reconcile the bottle count inventory reflected in the system. Tr. 419.

Wood testified that electronic keypad door locks,

103

lockable roll-down windows, and a host of pharmacy security cameras

104

trained on the windows, doors, and cashiers supply additional layers of diversion control. Tr. 401, 419.

105

However, he stated that he does not believe anyone watches the tape in real time or reviews the tape regularly. Tr. 423-24. He did not know how long the loop of the tape was or how long the tape preserved the images before recording over itself. Tr. 423. In fact, Wood stated that he never had a circumstance in which to review any video monitor tape himself in any pharmacy where he has ever worked, and as far as he knows, no one ever reviews the footage at the Respondent. Tr. 424.

103

Wood conceded that the keypad lock combination remains the same and that he did not know whether it was changed after Chris W's arrest. Tr. 445.

104

Presumably, this is the same closed-circuit system that Watson did not know how to access. Tr. 365-67.

105

Photographs depicting the Respondent were admitted into evidence. Tr. 403; Resp't Exs. 2-11.

Wood also explained the role of Arkansas's prescription monitoring program (PMP), in which pharmacies are required to submit a weekly report to the state to disclose what and how many controlled substances have been dispensed at the pharmacy that week.

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Tr. 419-20. The database into which that information is incorporated then permits doctors and pharmacists to search for a particular patient and see that patient's prescription history to investigate whether a patient has been using multiple pharmacies or doctor-shopping. Tr. 420. Wood testified that he does not have a “magical number” of how often he checks the PMP when filling a prescription but that such a decision relies upon whether “something doesn't feel right” or if a patient shows up multiple times in a short period of time with scrips from different practitioners. Tr. 422-23.

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

Wood stated that he believes that as PIC, he could administer the Proposed Policy should the Respondent retain its COR. Tr. 430. He has been working at the Respondent since January 2015 and intends to remain and assume the duties as the PIC, but indicated that he deferred the submission of his Pharmacy Board paperwork until April due to lingering uncertainty as to the pharmacy's future. Tr. 470. Wood allowed that even at the time he accepted the offer to become the next PIC, he harbored concerns about what the future holds for the pharmacy. Tr. 471.

Wood testified that his efforts to allay his concerns extended to sending emails to the Pharmacy Board.

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Tr. 472. However, an examination of the email exchange

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between Wood and the Pharmacy Board reflects a level of urgency that exceeded the impression conveyed by Wood on the witness stand. In his initial email to the Board he explained:

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

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Gov't Ex. 71.

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

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

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

Id.

at 2.

Wood also explained that the Respondent is located in an “extremely rural” area, and that the pharmacy serves a largely indigent population. Tr. 404. Wood described the Respondent's customer base as “extremely loyal”, and he explained that customers rely upon pharmacists much as they would rely upon doctors.

Id.

Wood also stated that because of the small-town nature of the community, doctors and pharmacists have a unique relationship such that doctors “trust” and “utilize” pharmacists differently than in other, more cosmopolitan communities, and that the Respondent participates in state-authorized “disease state management,” counsels patients, and administers immunizations.

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Tr. 430. According to Wood, although there is another pharmacy in the county, the grocery store owned by Tom Watson in which the Respondent is located is the only grocery store located in the county. Tr. 404. Wood opined that without the Respondent present, the other pharmacy in the county would have a “monopoly” on business. Tr. 405.

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

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

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at the pharmacy to merit Goode's continued employment

there.

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Tr. 426. Wood stated that he communicated the substance of this discussion to Goode and suggested that the two of them share the weekly schedule, with Wood working full-time (three to four days per week) and Goode working part-time (two to three days per week).

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Tr. 427. It was Wood's recollection that upon hearing this disagreeable news, Goode became irate, complained that the Watsons had been lying for years, and even marveled that Wood himself had not yet been indicted based on his experiences with Chris W at the Watsons' Mayflower pharmacy.

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Tr. 427-29. It is apparent from Wood's testimony that he was offended on behalf of the Watsons. Tr. 427, 429. In his words, it “struck me as kind of odd [that t]he guy was asking me to work for the Watsons, at the same time bashing them.” Tr. 427. Interestingly, offended as Wood may have been at the implications of his own culpability and that of his employer, the conversation apparently did not result in any heightened level of suspicion on his part that diversion issues could be afoot at the pharmacy where he was working. Tr. 431-34.

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Although Tracy Swaim testified that pharmacy business had grown by one-third (Tr. 262-63), Wood was apparently was not aware of that growth. Tr. 435. He attributed the diminishment in business to the impact of the immediate suspension order. Tr. 438.

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Tr. 262-63.

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According to Wood, Goode wanted to work six days per week at the Respondent. Tr. 436.

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Goode's statements as reported by Wood were received for the limited purpose of demonstrating Goode's state of mind during the conversation, not for the truth of the matters asserted. Tr. 428.

Glenn Wood's testimony was problematic from a credibility standpoint. In fact, the Respondent's position regarding the security and integrity to future operations that will follow based on the appointment of Wood as the PIC were actually undermined by Wood's testimony. Although Wood testified that Goode raised issues regarding the pharmacy and even implied that Wood could have been indicted based on his time working with Chris W, no sense of professional responsibility as a pharmacist awakened in him even the slightest curiosity as to what Goode (a fellow pharmacist that he said he barely knew) was talking about. Tr. 427-29. When pressed on the issue, Wood countered that Goode had merely accused the Watsons of lying, not diversion,

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but in view of the fact that this conversation was occurring two-to-three weeks after the pharmacy search warrant execution, and revelations of misconduct, which, by Wood's own account, made him “sick,” “mad,” and “upset,” this explanation strains credulity. Evaluating this conversation in the context of recent events, the Respondent had just been searched and served with a DEA immediate suspension order and a former pharmacist who worked there just told him that the owners were liars and he was fortunate not to be laboring under an indictment himself. It is in this backdrop that, Wood (an experienced pharmacist) now claims that he never connected Goode's statements to any possible pharmacy misconduct. To put it mildly, this is implausible and damages this witness's credibility. The fact that he did not pursue the matter further with Goode speaks volumes about his level of professional vigilance, and the fact that he testified that he never realized that Goode was referring to pharmacy misconduct is equally telling on the subject of this witness's credibility.

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Tr. 434.

The divergence between Wood's recollection of this phone conversation and the recollection of Grant Goode is striking. Goode was clear that Wood told him that all of his hours at the p

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