Termilind Limited; Notice and Order of Revocation of Registrations

SUMMARY: In March of 1996, EPA issued registrations for two end use

napthalenaecetic acid (NAA) products, Alphaspra 200 (EPA Registration

Number 67223-2) and Alphaspra 800 (EPA Registration Number 67223-1) to

Termilind Limited (Termilind). On August 2, 1996, Amvac Chemical

Corporation (Amvac) filed a petition to cancel the Termilind

registrations based upon assertedly false certifications that Termilind

would use Amvac-registered material to formulate its products. Amvac

filed a second petition in October of 1996 asking EPA to deny

Termilind's application for a technical NAA registration based upon an

assertion that Termilind misappropriated data to support the

application. EPA has determined that Termilind submitted misleading

materials in support of its applications for end-use registrations, and

that the registrations would not have been granted absent this

misleading information. On August 6, 1997, EPA issued a Decision

granting Amvac's petition in this regard and revoking the end-use

registrations. In that same Decision, EPA denied Amvac's petition to

deny Termilind's application for technical registration. The revocation

Decision, and a subsequent determination concerning the sale and

distribution of existing stocks of the revoked products, are published

in this Notice.

DATES: The revocation Decision was effective as to Termilind on August

6, 1997. The Decision and existing stocks determination are effective

as to all other persons on November 19, 1997. Any person interested in

requesting an informal hearing should submit such a request by January

20, 1998.

ADDRESSES: Request for a formal hearing should be addressed to: Robert

Perlis, Office of General Counsel (2333), Environmental Protection

Agency, 401 M St., SW., Washington, DC 20460.

FOR FURTHER INFORMATION CONTACT: By mail: James J. Jones, Registration

Division, Office of Pesticide Programs, Environmental Protection

Agency, 401 M St., SW., Washington, DC 20460. Office location,

telephone number, and e-mail address: Rm. 713, 1921 Jefferson Davis

Hwy., Arlington, VA, 703-305-5446, e-mail:[email protected].

SUPPLEMENTARY INFORMATION: Unit I. of this document contains the

Agency's August 6, 1997 decision on the petition to revoke the

registrations, and Unit II. consists of the Agency's existing stocks

determination.

I. Decision on Amvac's Petition to Revoke Termilind Limited's

Registrations

Petitioner Amvac Chemical Corporation (Amvac) seeks immediate

revocation of respondent Termilind Limited's (Termilind)

registrations for two end use naphthaleneacetic acid (NAA)

registrations, Alphaspra 200 (EPA Registration No. 67223-2) and

Alphaspra 800 (EPA Registration No. 67223-1). Amvac also seeks

revocation of Termilind's technical NAA registration, (EPA

Registration No. 67223-22). Amvac claims that the end use

registrations were obtained through willful misrepresentation of the

source of technical NAA, and that the technical registration was

obtained through the submission of data ``stolen'' or

``misappropriated'' from Amvac. Amvac asserts, as well, that the

willful nature of Termilind's acts authorizes summary revocation of

the subject registrations without resort to the procedural

requirements of section 6(b), the cancellation provision of the

Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). We

grant the petition with respect to the two end use registrations,

and deny the petition with respect to the technical registration.

Legal Background

The sale, distribution and use of pesticides in the United

States is regulated by the Federal Insecticide, Fungicide, and

Rodenticide Act. 7 U.S.C. 136-136y. Under FIFRA, with certain

limited exceptions, a pesticide may not be sold or distributed

unless it is registered. Id. 136a(a), 136j(a)(1)(A). In order for a

pesticide to qualify for registration, the Environmental Protection

Agency (EPA) must determine that it will not cause unreasonable

adverse effects on the environment when used in accordance with

widespread and commonly recognized practice. Id. 136a(c)(5)(C)-(D).

To make this finding, EPA reviews data on product chemistry,

toxicology, and environmental fate, among other subjects. See 40 CFR

part 158 (data requirements for registration). The data reviewed

must be supplied by the registrant; it is not generated by the

Agency. Id. Because the volume of data received and reviewed by the

Agency is extremely large, EPA is unable to investigate each

statement, study and item of data received for potential fraud or

misrepresentation. Thus, to a great degree, the Agency must rely on

the good faith and integrity of registrants if it is to fulfill its

mandate of protecting human health and the environment from

unreasonable risk.

A registrant can fulfill its obligation to submit much of the

data required for registration by formulating its product with an

existing registered pesticide purchased from another producer. See 7

U.S.C. 136a(c)(2)(D); 40 CFR 152.85 (Formulators' exemption).1

The premise behind the formulators' exemption is that the purchase

price of the registered material compensates the original registrant

for the cost of data generation. See id.

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1 7 U.S.C. 136a(c)(2)(D) reads as follows:

Exemption--no applicant for registration who proposes to

purchase a registered pesticide from another producer in order to

formulate such purchased pesticide into the pesticide that is

subject of the application shall be required to --

(i) submit or cite data pertaining to such purchased product; or

(ii) offer to pay reasonable compensation otherwise required by

paragraph (l)(D) of this subsection for the use of any such data.

40 CFR 152.85 reads as follows:

(a) FIFRA section 3(c)(2)(D) excuses an applicant from the

requirement to submit or cite data pertaining to the safety of any

ingredient (or mixture of ingredients) contained in his product that

is derived solely from one or more EPA-registered products which the

applicant purchases from another producer.

(b) If the product contains one or more ingredients eligible for

the formulators' exemption, the applicant need not comply with the

requirements of Secs. 152.90 through 152.96 with respect to any data

requirements pertaining to the safety of any such ingredient,

provided that he submits to the Agency a certification statement

containing the following information . . .

(1) Identification of the applicant, and of the product by EPA

registration number or file symbol;

(2) Identification of each ingredient in the pesticide that is

eligible for the formulators' exemption, and the EPA registration

number of the product that is the source of that ingredient;

(3) A statement that the listed ingredients meet the

requirements for the formulators' exemption;

(4) A statement that the applicant has submitted (either

previously or with the current application) a complete, accurate and

current Statement of Formula; and

(5) The name, title and signature of the applicant or his

authorized representative and the date of signature.

(c) An applicant for amended registration is not required to

submit a new formulators' exemption statement, if the current

statement in Agency files is complete and accurate.

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In the case of certifying eligibility for the formulators'

exemption, good faith on the part of applicants is critical. When an

applicant certifies that it will formulate its product using a

registered pesticide as the active ingredient, it is excused from

the requirement of submitting data pertaining to the safety of that

ingredient. See id. Instead, the Agency bases its risk analysis of

that ingredient on the data received from the registrant of the

original product. If the applicant does not then use the registered

product cited, the risk assessment performed by the Agency, and any

safety finding premised upon it, are unreliable--they may not

reflect the nature or contents of the new product. Thus the Agency's

ability to carry out its mandate of protecting human health and the

environment is undermined.

Regulatory History

Termilind cited Amvac Chemical Corp. of Los Angeles California

as the source of the technical NAA active ingredient in

[[Page 61891]]

applications for two end use NAA registrations submitted to EPA in

September 1995. Termilind also certified to EPA that it was eligible

for the formulators' exemption. On the basis of that information,

EPA granted the two registrations in March of 1996.

In July 1996, EPA Region X issued a Stop Sale, Use, or Removal

Order (SSURO) prohibiting the sale or distribution of Termilind's

two end use NAA products. Records obtained by EPA from an Oregon

Department of Agriculture investigation revealed that technical NAA

product had been shipped from Seoul, South Korea by Inchema Company,

to Oregon California Chemicals Inc. (Or-Cal), a contractor for

Termilind. EPA issued the SSURO on the grounds that the Agency

believed that ``the supplier of [NAA] for the [end use products] is

different than what was listed in [Termilind's] confidential

statement of formula [CSF] for these products'' in violation of

FIFRA section 12(a)(1)(C) (unlawful to distribute or sell pesticide

composition of which differs at time of distribution from

composition described in CSF). 7 U.S.C. 136j(a)(1)(C). The order

remained in effect until September 23rd, when Termilind amended the

CSFs of the two products to reflect the use of its own technical

NAA, which was registered by EPA that same month. This matter was

followed up with a Warning Letter, mailed to Termilind on December

16, 1996, in which Region X confirmed the Agency's conclusion that a

violation of FIFRA section 12(a)(1)(C) had occurred. Id.

On August 2, 1996, Amvac submitted its first petition for

revocation, which concerned the two Termilind end use registrations.

In the petition, Amvac claimed that the registrations were issued

based on ``false certifications to EPA. . . that Termilind's two

products would be formulated from Amvac's EPA-registered technical

naphthalene acetic acid (NAA) and thus qualify for the formulators'

exemption.'' Amvac stated that it was the only source of registered

technical NAA, and that although Termilind cited Amvac as its source

of technical NAA in the registration materials submitted for two end

use products, neither Amvac nor any of its distributors had sold any

technical NAA to Termilind. Amvac claimed, as well, that neither it

nor its distributors had discussed sales of technical NAA with

Termilind.

In early October, shortly after the SSURO was lifted, Amvac

submitted a second petition for revocation, this one concerning the

registration of Termilind's technical NAA product. In that petition

Amvac asserted that ``Termilind willfully misappropriated

confidential business information (CBI) to obtain the Technical

Registration,'' and requested that the registration be revoked on

that basis.

Amvac asserts that in 1994 it entered into an arrangement with

Shin Young C-Tech Co., Ltd. (C-Tech), a South Korean company, and

its U.S. agent, Inchema, Inc., whereby C-Tech/Inchema would

manufacture technical NAA for Amvac. In its second petition, Amvac

stated that it supplied CBI to C-Tech/Inchema for the purposes of

carrying out this business arrangement. The CBI was allegedly the

subject of a confidentiality agreement, pursuant to which C-Tech/

Inchema was forbidden to disclose it to third parties for any

purpose. It is this CBI which Amvac claims Termilind

``misappropriated'' and submitted to EPA in support of a technical

NAA registration.

Amvac failed to serve copies of either petition on Termilind,

arguing in each that the willful nature of Termilind's conduct

warranted summary revocation, without prior notice or an opportunity

to be heard. Amvac cited section 558 of the Administrative

Procedures Act (APA) as authority for this proposition.2

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2 Section 558(c) of the APA reads in pertinent part:

Except in cases of willfulness or those in which public health,

interest or safety requires otherwise, the withdrawal, suspension,

revocation, or annulment of a license is lawful only if, before the

institution of agency proceedings therefor, the licensee has been

given--

(1) notice by the agency in writing of the facts or conduct

which may warrant the action; and

(2) opportunity to demonstrate or achieve compliance with all

lawful requirements.

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EPA forwarded copies of the two petitions to Robert Fisher,

Termilind's regulatory agent. A copy of the first petition was

mailed to Mr. Fisher on September 5, 1996; a copy of the second was

sent on November 25. Termilind did not respond to either petition.

On December 6, EPA formally invited Termilind to respond to the

allegations contained in the two petitions and set a deadline of

December 20 for receipt of a response.

After receiving and reviewing Termilind's response, EPA

determined that further development of both legal and factual issues

was warranted prior to issuing a decision. EPA sent an identical set

of questions to each party and, again, invited them to respond. Via

the same letter EPA established a series of procedures to govern

communications between Agency personnel and representatives of Amvac

or Termilind concerning the merits of the ongoing dispute.

In addition to petitioning EPA to revoke Termilind's

registrations, Amvac has also initiated legal proceedings against

Termilind in the United States District Court for the District of

Oregon, seeking, among other things, a preliminary injunction to

enjoin Termilind from maintaining any registrations for products

containing NAA, and to prohibit Termilind from selling, marketing or

distributing any product containing NAA. By order dated January 17,

1997, Amvac's motion was denied. The issue of whether Termilind

misappropriated CBI owned by Amvac and submitted such in support of

its technical NAA registration is still before the District Court.

Based on the materials submitted by both parties in response to

the questions posed by the Agency, EPA makes the following findings

of fact:

Findings of Fact

(1) Respondent Termilind Ltd. is a person and a registrant as

defined by FIFRA. (7 U.S.C. 136(s), (y))

(2) Petitioner Amvac Chemical Corp. is a person and a registrant

as defined by FIFRA. (7 U.S.C. 136(s), (y))

(3) Jerry Fitzsimmons is the president of Termilind, Ltd.

(Affidavit of Jerry Fitzsimmons, November 6, 1996, at 1)

(4) J. R. Fisher is the principal of Fisher and Associates, a

regulatory agent providing services to companies seeking

registration of products with EPA. (Affidavit of J. R. Fisher,

November 6, 1996, at 1)

(5) J. R. Fisher has been a regulatory agent providing services

to companies seeking registration of products with the EPA since

1981. (Affidavit of J. R. Fisher, December 31, 1996, at 2)

(6) J. R. Fisher prepared and submitted the application

materials for Termilind's end use registrations. (Affidavit of J. R.

Fisher, December 31, 1996, at 4)

(7) Shin Young C-Tech Co., Ltd. (C-Tech) is a South Korean

company. (Affidavit of Eric Wintemute at 4)

(8) Inchema, Inc. is the United States Agent for C-Tech.

(Affidavit of Eric Wintemute at 5)

(9) In or about July 1995, J. R. Fisher and Jerry Fitzsimmons

met with Hans Wessel and Steve Shim of Inchema regarding the

purchase of technical NAA. (Affidavit of J. R. Fisher, December 31,

1996, at 2)

(10) Inchema had manufactured technical NAA for Amvac.

(Affidavit of Eric Wintemute at 5)

(11) Amvac rejected the last batch of NAA produced by Inchema/C

Tech. (Affidavit of J. R. Fisher, November 6, 1996, at 2)

(12) Termilind was aware that the technical NAA it purchased

from Inchema/C-Tech had been rejected by Amvac. (Affidavit of J. R.

Fisher, November 6, 1996, at 2)

(13) Termilind cited Amvac Chemical Corp. of Los Angeles

California as the source of the technical NAA active ingredient in

its applications for two end use NAA registrations, submitted to EPA

in September 1995. (Affidavit of J. R. Fisher, November 6, 1996, at

2; Warning Letter issued to Termilind Ltd. by EPA Region 10,

December 16, 1996) These registrations were granted in March of

1996. (Alphaspra 800, EPA Registration No. 67223-1 granted March 15,

1996; Alphaspra 200, EPA Registration No. 67223-2 granted March 26,

1996)

(14) Termilind certified that it was eligible for the

formulators' exemption, 7 U.S.C. 136a(c)(2)(D); 40 CFR 152.85.

(Formulators' exemption statement submitted by Termilind)

(15) Termilind cited Amvac's product labels and material safety

data sheet in applications for end use NAA registrations submitted

to EPA in September 1995. (Affidavit of J. R. Fisher, December 31,

1996, at 3)

(16) Termilind had Inchema/C-Tech formulate unregistered

technical NAA into end use product for import into the United

States. These products bore Termilind's EPA registration number for

the end use NAA product Alphaspra 800. (Affidavit of J. R. Fisher,

November 6, 1996, at 2; affidavit of J. R. Fisher, December 31,

1996, at 4)

(17) Termilind did not obtain samples of, or perform any tests

upon, the technical NAA product used to formulate the Alphaspra 800.

(Affidavit of J. R. Fisher, December 31, 1996, at 3).

(18) Under 19 CFR 12.112, ``an importer desiring to import

pesticide or devices into

[[Page 61892]]

the United States shall submit to the Administrator a Notice of

Arrival of Pesticides and Devices . . . prior to the arrival of the

shipment in the United States.'' (emphasis added). Termilind did not

submit the required Notice of Arrival of Pesticides and Devices

until 3 months after the shipment of NAA product had arrived in the

United States from Korea. The Notice was filed only after EPA Region

X discovered NAA product shipped from Korea in the possession of Or-

Cal, a Termilind licensee. (Notice of Arrival submitted July 13,

1996)

(19) Termilind sold pesticide products formulated with

unregistered Inchema/C-Tech NAA in the United States. (Stop Sale,

Use, Or Removal Order issued to Termilind Ltd. by EPA Region 10,

July 3, 1996; Warning Letter issued to Termilind Ltd. By EPA Region

10, December 16, 1996)

(20) Termilind never purchased or attempted to purchase Amvac's

registered technical NAA from Amvac or any of its distributors.

(Petition for revocation submitted to EPA by Amvac October 9, 1996

at 4)

Decision

I.

In its second petition, dated October 9, 1996, Amvac claims that

Termilind's technical registration was obtained through the

submission of data ``stolen'' or ``misappropriated'' from Amvac. On

that basis, Amvac asserts that the Agency must revoke the technical

registration. We deny this petition on jurisdictional grounds.

EPA does not have the powers of a court of general jurisdiction.

Beyond the limited realm of data compensation, see 7 U.S.C.

136a(c)(1)(F); 40 CFR 152.99, the Agency has neither the expertise

nor the authority to adjudicate conflicts regarding ownership of

intellectual property. As noted above, this very matter is currently

before the Federal District Court for the District of Oregon. A

court of general jurisdiction is a more appropriate forum for the

resolution of disputes of this nature. Accordingly, Amvac's second

petition, seeking revocation of Termilind's technical registration,

is denied.

II.

Amvac also seeks immediate revocation of Termilind's two end use

registrations, claiming that they were obtained through willful

misrepresentation of the source of the technical NAA used as the

active ingredient in the products. But for the misrepresentation,

Amvac contends, the registrations would not have been granted; thus

they are void ab initio. Amvac also asserts that in light of

Termilind's willful behavior, the Agency has inherent power to

revoke these registrations without resort to section 6 of FIFRA. We

agree.

As an initial matter, we must first address whether Termilind's

conduct was willful. Willful misconduct had been defined as ``an

intentional misdeed or such gross neglect of a known duty as to be

the equivalent thereof.'' Hutto Stockyard, Inc. v. USDA, 903 F.2d

299, 304 (4th Cir. 1990 (quoting Capitol Packing Co. v. United

States, 350 F.2d 67, 78-79 (10th Cir. 1965)); see also Capital

Produce Co. v. United States, 930 F.2d 1077, 1079 (4th Cir. 1991).

Termilind has not claimed that the material it purchased bore an

Amvac EPA approved label identifying it as a registered product.

Termilind did not purchase the material from Amvac or an Amvac

distributor. Moreover, Termilind conceded that it was aware that the

material had been rejected by Amvac. Nevertheless, Termilind

identified Amvac's registered technical NAA as its source of active

ingredient. Furthermore, Termilind certified that it was eligible

for the formulators' exemption. This behavior constitutes willful

misrepresentation.

Termilind cannot plausibly claim that its conduct was innocent.

Its regulatory agent, J. R. Fisher, had 15 years experience in

providing services to clients seeking registration of products with

the EPA; he cannot credibly argue ignorance of the law in

Termilind's defense. Moreover, common sense dictates that material

purchased from a party other than the registrant or its

distributors, that is known to have been rejected by the registrant,

is not that registrant's registered material. Termilind does not

claim that the material it purchased bore Amvac's label or EPA

registration number. Under no view of the facts was it reasonable

for Termilind to represent the product purchased from Inchema/C-Tech

as Amvac registered material. Nevertheless, Termilind cited Amvac's

product labels and material safety data sheet in its applications

for end use registrations. This conduct was consistent with an

intent to deceive the Agency about the origin of its technical

material, as was Termilind's failure to submit a timely Notice of

Arrival of Pesticides and Devices when the NAA material arrived from

Korea. If the Notice had been filed in a timely fashion it might

have drawn attention to the fact that Termilind, though citing Amvac

Chemical Corp. of Los Angeles, California as its source of

registered technical material, was receiving shipments of NAA

product from Korea. We conclude that Termilind's misrepresentation

was willful.3

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3As the above definition notes, ``wi1ful'' behavior

encompasses conduct that is grossly negligent as well as conduct

that is intentional. Thus, even if Termilind did not act with intent

to deceive the Agency, but was merely grossly neglectful of its

statutory duties, the outcome would be the same.

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We next address the Agency's authority to revoke a registration

summarily, without resort to section 6 of FIFRA, where the

registration was procured through willful misrepresentation.4

As a general rule, it is well accepted that ``every tribunal,

judicial or administrative, has some power to correct its own errors

or otherwise appropriately to modify its judgement, decree or

error.'' Alberta Gas Chemicals, Ltd. v. Celanese Corp., 650 F.2d 9,

13 (2d Cir. 1981) (quoting K. Davis, Administrative Law Treatise

section 18.09 at 606 (1958); Bookman v. United States, 453 F.2d

1263, 1265 (Ct. Cl. 1972) (same); see also Trujillo v. General

Electric Co., 621 F.2d 1084, 1086 (10th Cir 1980) (Administrative

agencies have inherent authority to reconsider their decisions since

power to decide carries with it power to reconsider) (quoting

Albertson v. Federal Communications Comm'n., 182 F.2d 397, 399 (D.C.

Cir. 1950)). Moreover, the Supreme Court and other courts have

recognized that administrative agencies have implied authority to

reconsider and correct errors, even where the applicable statue and

regulations do not explicitly grant such powers. Gun South Inc. v.

Brady, 877 F.2d 858, 862 (11th Cir. 1989) (listing cases). Courts

have relied on this implied power in holding that agencies have the

authority to revoke licenses improperly granted. See, e.g. Kudla v.

Mode, 537 F.Supp 87, 89-90 (E.D. Mich. 1982) (improperly granted

license revoked where licensee had failed to pass qualifying

examination; procedural protections afforded by statute do not

attach unless requirements for obtaining license have been met).

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4Petitioner claims pursuant to section 558(c) of the

Administrative Procedure Act that in light of Termilind's willful

misrepresentation, the Agency can revoke the registrations summarily

without providing notice or opportunity for comment. As this

decision documents, the Agency has given Termilind an opportunity to

respond to Petitioner's allegations and to submit supplemental

briefing. Thus, the Agency has given Termilind more process than

section 558(c) requires.

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More specifically, courts have recognized that agencies have the

inherent authority to correct errors and reverse judgements induced

by fraud or misrepresentation. Alberta Gas, 650 F.2d at 13 (``It is

a well established principle that an administrative agency may

reconsider its own decisions'. . . . It is hard to imagine a clearer

case for exercising this inherent power than when a fraud has been

perpetrated on the tribunal in its initial proceeding'') (citations

omitted); see also Hand v. Matchett, 957 F.2d 791, 794 (10th Cir.

1992) (self evident that university has inherent authority to revoke

improperly awarded degree where fraud shown); Colonial Penn

Insurance Co. v. Coil, 887 F.2d 1236, 1240 (revoking insurance

settlement procured through fraud); In Re Berman, 97 S.E. 2d 232,

235 (N.C. 1957) (board has inherent power, independent of statutory

authority, to revoke license improperly issued due to fraud or

misrepresentation); Schireson v. Shafer, 47 A.2d 665, 667 (Pa 1946)

(where license was procured by fraud licensing authority may revoke

it regardless of fact that fraud is not specified as ground for

revocation in statute); cf Hazel-Atlas Glass Co. V. Hartford-Empire

Co., 322 U.S. 238, 246 (1943) (reversing judgment in patent

infringement suit where both Patent Office and Court of Appeals were

influenced by fraudulent misrepresentations --``Public welfare

demands that the agencies of public justice be not so impotent that

they must always be mute and helpless victims of deception and

fraud.'') (overruled on other grounds). In the instant case, this

rule supports the proposition that EPA has inherent authority to

revoke Termilind's end use registrations. Indeed, courts have

recognized that administrative agencies, as guardians of the public

interest, have a duty to make corrections where they have relied on

erroneous information. Green County Planning Bd. v. Fed. Power

Comm'n, 559 F.2d 1227, 1233 (2d Cir. 1976; Hudson River Fishermen's

Ass'n v Federal Power Comm'n, 498 F.2d 827, 833 (1974); Borlem S.A.

Empreedimentos Indutriais v. U.S, 718 F. Supp 41, 47 (CIT 1989).

[[Page 61893]]

Termilind claims that revocation is the equivalent of

cancellation and can only be accomplished through section 6 of

FIFRA. In essence, Termilind asserts that a registrant that has

submitted false or misleading application materials, and thereby

induced the Agency to grant a registration erroneously, has the same

interest in the wrongly obtained registration, and is entitled to

the same procedural protections, as a registrant that acted in good

faith to meet the requirements for registration. We find it

implausible that Congress intended applicants who obtained

registrations through fraud to receive the procedural protections of

section 6.

Likewise, we find Termilind's argument that the Agency does not

have the authority to revoke registrations obtained through fraud or

misrepresentation, because FIFRA does not specifically describe such

a procedure, equally unpersuasive. As the legal analysis above

establishes, Agencies have inherent authority to redress fraud or

misrepresentation. See also Chevron U.S.A. v. Natural Resources

Defense Council, 467 U.S. 837, 843. 844 (1984) (``Sometimes the

legislative delegation to an agency on a particular question is

implicit rather than explicit. In such a case, a court may not

substitute its own construction of a statutory provision for a

reasonable interpretation made by the administrator of an

agency.''). Moreover, this conclusion is consistent with the

Agency's statutory duty under FIFRA to protect man and the

environment from the unreasonable adverse effects of pesticide use.

As noted above, Congress established a scheme in FIFRA that requires

registrants to supply the data necessary to establish and maintain

FIFRA registrations. The Agency, therefore, must be able to rely on

applicants to act with goodwill and integrity in submitting the

required data. In order to protect the integrity of the FIFRA

process and the safety of pesticide users and the public, the Agency

must have a swift and sure method of responding when the submission

of fraudulent or misleading application materials is discovered. If

unscrupulous applicants receive the same procedural protections as

honest ones, there is little incentive to be honest. Instead, the

dishonest applicants who obtain speedy registration through fraud or

misrepresentation are rewarded for their deception. Such an

interpretation of FIFRA is contrary to the EPA's mandate to protect

public health and the environment.

We wish to emphasize that the quality of the evidence available

to the Agency in this case was critical to the outcome. Sworn

statements of the parties were included in the record, and based on

these, the Agency was able to make the factual findings necessary to

underpin a revocation action with confidence. The Agency is very

unlikely to take similar actions in future cases unless allegations

of misrepresentation are supported by reliable and persuasive

evidence.

III.

As noted above, Amvac's petition to revoke Termilind's technical

registration is denied on the basis that, beyond its role in

resolving data compensation disputes, the Agency has neither the

expertise nor the jurisdictional competence to adjudicate

complicated issues regarding ownership of intellectual property

rights. Nevertheless, the Agency does intend to go forward with a

Notice of Intent to Cancel Termilind's technical registration, but

on alternative grounds.

Although there is no explicit fitness criterion among the

requirements for obtaining or holding a registration under FIFRA, as

a general matter, determining the ``fitness'' of an applicant to

hold a license or registration is recognized as a legitimate end of

licensing schemes. See Payne v. Fontenot, 925 F. Supp. 414, 423 (M.

D. La. 1995) (licensing body may require certain standards of

applicant; qualifications to hold license must have rational

connection to applicant's fitness). Furthermore, prior to granting a

registration, the Agency is required to determine that a pesticide

will not ``generally cause unreasonable adverse effects on the

environment'' when used in accordance with widespread and commonly

recognized practice. 7 U.S.C. 136a(c)(5). As a practical matter, in

making such a determination the Agency must rely on data and

certified statements submitted by the registrant. The Agency's

ability to make an accurate finding is therefore directly related to

the reliability of the material submitted. If the Agency knows that

a registrant has a history of willful misrepresentation, the

reliability of the materials submitted by that applicant is subject

to question. The Agency's ability to make an accurate finding that

the statutory standard for registration has been met is undermined

under such circumstances. A ``fitness'' or ``reliability'' criterion

can therefore properly be implied as a component of the

``unreasonable adverse effects'' standard. Cf. Cooley v. Fed. Energy

Regulatory Comm'n, 843 F.2d 1464, 1471 (D.C. Cir. 1988) (``Nothing

in [Federal Power Act] explicitly requires a finding of fitness.''

Commission is charged with considering all relevant public interest

factors; fitness of licensee-applicant is public interest factor);

see also Delaware River Development Corp., 10 F.P.C. 540, 550 (1951)

(``ethical and moral fitness'' considered in public interest

determination to grant permit); see generally Chevron U.S.A. v.

Natural Resources Defense Council, 467 U.S. 837, 843. 844 (1984)

(``Sometimes the legislative delegation to an agency on a particular

question is implicit rather than explicit. In such a case, a court

may not substitute its own construction of a statutory provision for

a reasonable interpretation made by the administrator of an

agency.'').

Denial of a license on fitness grounds is not uncommon. See,

e.g. RKO General, Inc., v. Fed. Communication Comm'n, 670 F.2d 215,

232 (D.C. Cir. 1981) (F.C.C. did not abuse its discretion in denying

license renewal for lack of candor; ``[T]he Commission must rely

heavily on the completeness and accuracy of the submissions made to

it, and its applicants, in turn have an affirmative duty to inform

the Commission of the facts it needs in order to fulfill its

statutory mandate.''); see also ALRA Laboratories, Inc., v. Drug

Enforcement Agency, 54 F.3d 450, 452 (7th. Cir 1995) (DEA did not

abuse its discretion when it denied application for new license to

manufacturer and distributor of controlled substances where

manufacturer had not complied with recordkeeping requirements, had

shipped contaminated products, had his inventory seized and was

closed for 6 months, and was under indictment); Dep't Transp. Fed.

Highway Admin. v. Interstate Commerce Comm'n, 733 F.2d 105, 113

(D.C. Cir. 1984) (I.C.C.'s order granting certificate vacated where

evidence inadequate to establish applicant's fitness). The licensing

body is in the best position to make determinations regarding

applicant fitness, and its decisions are entitled to deference.

Ramanchar v. Sobol, 838 F. Supp. 100, 108 (S.D.N.Y. 1993) (licensing

authority entitled to deference in assessing risks posed by

licensee). Furthermore, when making licensing decisions ``an Agency

rationally may conclude that past performance is the best predictor

of future performance.'' ALRA, 54 F.3d at 452; Matsun Gyogyo Co., 2

O.R.W. 349 (NOAA 1980) (past violations should be significant factor

in determining whether to issue new permit); see also Dep't Transp.

Fed. Highway Admin., 733 F.2d at 112 (statements of good intentions

in future of limited value in assessing what applicant's future

conduct will be).

FIFRA itself does not limit the criteria that the Agency may

consider in making a safety calculus. Instead, as described above,

the statute dictates that the Agency must affirmatively find that a

product will not cause unreasonable adverse effects before a

registration may be granted. Common sense dictates that the Agency

must be permitted to consider all relevant criteria when performing

its analysis. As the discussion above illustrates, the integrity or

reliability of a registrant is highly germane to the Agency's

ability to make an accurate finding; if the Agency has reason to

suspect that materials submitted by a registrant are untrustworthy,

an affirmative safety finding cannot be made.

In this case the Agency has determined that Termilind has

submitted misleading materials in support of its applications for

registration. The Agency is therefore unable to rely on the veracity

of unsubstantiated materials submitted by Termilind. Under these

circumstances the Agency cannot affirmatively find that Termilind's

technical product will not generally cause unreasonable adverse

effects on the environment. Accordingly, it is the Agency's

intention to undertake a section 6 cancellation of Termilind's

technical NAA product in separate proceedings.

Order

For the reasons discussed above, EPA hereby revokes Termilind's

registrations for Alphaspra 200 (EPA Registration No. 67233-2) and

Alphaspra 800 (EPA Registration No. 67223-1). Existing stocks of

these products must be used in a manner consistent with label

directions.

Dated: August 6, 1997

/s/ Lynn R. Goldman

Assistant Administrator for Prevention, Pesticides and Toxic

Substances

II. Existing Stocks Determination

On August 6, 1997, in response to a petition filed by Amvac

Chemical

[[Page 61894]]

Corporation (``Amvac''), EPA revoked the registrations issued to

Termilind Limited (``Termilind'') for Alphaspra 200 (EPA Registration

No. 67223-2) and Alphaspra 800 (EPA Registration No. 67223-1) after

determining that Termilind had intentionally or willfully misidentified

in its application materials the source material from which it intended

to formulate the two products. In the Order attached to the Revocation

Determination, the Agency allowed use of existing stocks of the revoked

registrations, provided that such use is consistent with existing label

directions. The Order was silent on the question of whether existing

stocks could be sold or distributed.

EPA subsequently issued three clarifications addressing the

existing stocks issue. On August 18, 1997, the Acting Associate General

Counsel for Pesticides and Toxic Substances (Kevin Lee) explained in a

letter to counsel for Amvac that inasmuch as the Order resulted in the

termination of the registration of the products and did not authorize

any sale or distribution of the products, such further sale or use was

unlawful under section 3(a) of FIFRA (which generally prohibits the

sale and distribution of unregistered pesticides). On August 20, 1997,

the Agency issued a clarification to the Order which specifically

provided that ``no person may sell or distribute stocks of Alphaspra

200 and Alphaspra 800.'' This clarification was followed by a second

clarification issued on August 22, 1997, which stated that the

revocations ``shall be effective for dealers and distributors upon

publication in the Federal Register.'' Under the terms of this last

clarification, the Agency would not consider sale or distribution of

existing stocks by dealers and distributors to be unlawful until the

Revocation Determination was published in the Federal Register.

On August 18, 1997, Termilind filed a request for Reconsideration

and Stay of the Revocation Order. As part of that request, Termilind

asserted that EPA should permit sale and distribution of existing

stocks of the revoked products in a manner consistent with EPA's

Statement of Policy related to existing stocks issued in the Federal

Register of June 26, 1991 (56 FR 29362). Amvac filed a brief response

to Termilind's request on August 26, 1997, arguing, without responding

to any of the specific assertions made by Termilind, that

reconsideration would not be appropriate.

On August 29, 1997, EPA indicated in a letter to counsel for Amvac

and Termilind that the Agency intended to carefully consider and

resolve finally the existing stocks issues raised by the Revocation

Order. This Determination reflects the Agency's resolution of these

existing stocks issues.

A. Legal Authority

Under section 6(a)(1) of FIFRA, the Administrator may permit the

continued sale and use of existing stocks of a pesticide whose

registration is suspended or canceled under section 3, 4, or 6 of

FIFRA, to such extent, under such conditions, and for such uses as the

Administrator determines is not inconsistent with the purposes of

FIFRA. As noted above, EPA issued a Policy Statement in 1991 outlining

the policies that would generally be followed in making such existing

stocks determinations. The legal issue presented is whether section

6(a)(1) and the Policy Statement apply to the situation addressed in

the Revocation Determination.

The Agency concluded in its Revocation Determination that it has

the inherent authority to correct an erroneous registration decision

induced by fraud or willful misrepresentation, and that such authority

is inherent in the authority to issue registrations in the first place.

The Agency's authority to issue pesticide registrations stems from

section 3 of FIFRA. It thus seems to follow that the inherent authority

to revoke a registration induced by fraud or misconduct also stems from

section 3 of FIFRA. The question then becomes: Is the revocation a

``cancellation under section 3'' for purposes of section 6(a)(1) of

FIFRA?

The Agency has concluded that there is no meaningful distinction

between a revocation and a cancellation, and that the revocation of

Termilind's registration was a cancellation under section 3 giving the

Agency authority over the sale and use of existing stocks. Whether the

action is called a revocation or cancellation, the defining element of

the action is the termination of a license (or in this case, pesticide

registration) previously issued by the Agency. Cancellation is the term

used in FIFRA for the termination of a registration; the word

``revocation'' does not appear in the statute in this context.

Moreover, in this particular case, the license issued by the Agency

does not just confer something of value to the licensee (registrant); a

pesticide registration allows a pesticide product to enter the stream

of commerce where the interests of third parties come into play. When a

pesticide registration terminates, for whatever reason, the termination

can have immediate consequences for all these third parties. Unless the

Agency has determined otherwise under section 6(a)(1) or has issued a

regulation under section 3(a) of FIFRA, existing stocks of an

unregistered pesticide may be used by any person with impunity, without

regard to any conditions that would have applied to the use while the

product was still registered.5 Sale and distribution of an

unregistered pesticide, on the other hand, is unlawful under FIFRA

unless the Agency allows such sale or distribution pursuant to section

6(a)(1). Such a prohibition on sale or distribution would also apply to

commercial ``for-hire'' applications of the unregistered product.6

A determination that a revocation is not a cancellation under section 3

would leave the Agency essentially powerless to effectively condition

the use of existing stocks (even if such conditions were necessary to

prevent unreasonable adverse effects on the environment), and would

also leave the Agency powerless to authorize the sale of existing

stocks, even by third parties who had no involvement in the activities

giving rise to the revocation and even where there are no health,

safety, or environmental reasons to disallow continued sales and where

a revocation may trigger the otherwise unnecessary disposal of existing

stocks of the revoked product. The Agency is declining to interpret

FIFRA in a manner that would suggest that Congress intended to give the

Agency the authority to terminate registrations without giving the

Agency authority to deal with the existing stocks consequences of such

terminations. The Agency concludes that a revocation of a registration

based upon misconduct in the inception of the registration is a

cancellation under FIFRA section 3, and provides the Agency authority

under section 6(a)(1) to regulate the sale, distribution, and use of

existing stocks of a revoked product.

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5 Such use need not be consistent with the terms of the

previously-approved labeling of the product. Section 12(a)(2)(G)

makes it a violation of FIFRA to use any registered pesticide in a

manner inconsistent with its labeling; there is no similar provision

making it unlawful to use an unregistered pesticide in a manner

inconsistent with its labeling.

6 FIFRA section 2(gg) exempts from the definition of sale or

distribution only the commercial application of registered

pesticides.

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B. Provisions for Existing Stocks

For the reasons stated above, the Agency concludes that it has the

authority under FIFRA section 6(a)(1) to issue an order regulating the

sale, distribution, and use of existing stocks of revoked products.

Under that section, such sale or use may be permitted to the extent,

and under such conditions, as

[[Page 61895]]

will make the sale and use consistent with the purposes of FIFRA.

The Agency set forth in its Policy Statement on existing stocks the

general policies it will apply when making decisions under section

6(a)(1). In particular, the Agency concluded that it will focus on two

issues in making existing stocks determinations: whether the sale or

use of existing stocks may pose unreasonable adverse effects on the

environment, and whether the registrant (or conceivably some other

party) has failed to comply with an obligation of registration. As a

general matter, the Agency concluded in the Policy Statement that

existing stocks determinations where the Agency has significant risk

concerns will be made on a case-by-case basis, with sale and use

generally allowed only if supported by a risk/benefit balancing. In

situations where there are no significant risk concerns, the Policy

would generally allow non-registrants to sell, distribute, and use

existing stocks until such stocks are exhausted (provided that all

existing label directions are met). The sale and distribution of

existing stocks by registrants under the Policy generally hinges upon

whether (and when) the registrant failed to comply with an obligation

of registration. The Policy is silent on whether supplemental

distributors (under 40 CFR 152.132) should be treated like registrants

or like other distributors of pesticide products.7

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

7 It should also be noted that the Policy Statement does

not address the issue of what existing stocks provisions are

appropriate for situations such as the one involving Termilind,

where the Agency concludes that a registration would not have been

issued in the first place in the absence of misconduct by the

applicant for registration.

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

The first issue of concern under the Policy Statement is whether

the Agency has risk concerns with the existing stocks of the revoked

products. This is an issue that has been discussed by both parties in

various papers related to Amvac's Petition. The Agency expressed a

concern in its Revocation Order related to Termilind's technical

registration that the Agency has difficulty finding that a product will

not result in unreasonable adverse effects on the environment if a

registrant makes false statements to the Agency. In such circumstances,

the Agency cannot rely on scientific data submitted by a registrant or

on the registrant's compliance with its obligations under section

6(a)(2) to submit additional adverse effects information to the Agency.

Where the Agency is unable to rely on material submitted by a

registrant, the Agency cannot make the affirmative findings necessary

to a determination that a product will not cause unreasonable adverse

effects on the environment.

This particular concern with Termilind's registrations does not

apply with much, if any, force to the existing stocks issue presented

here. While the source used by Termilind to manufacture its end-use

products was not the source originally identified by Termilind in its

applications, the identity of the source is not in dispute. The papers

filed with the Agency by both sides provide the Agency with ample

confidence that the existing stocks were manufactured with NAA source

material supplied by Inchema. The question then becomes whether the

Agency has confidence that the material supplied by Inchema was NAA of

sufficient quality to allow the Agency to conclude that the existing

stocks of revoked material can be used without causing unreasonable

adverse effects on the environment.

The Agency has concluded, based on a number of factors, that there

is reasonable assurance that the Inchema material is of sufficient

quality to resolve any possible concerns associated with the sale,

distribution, or use of existing stocks. Sampling performed of

Termilind material did not reveal any problems with the product. While

Amvac declined to accept the Inchema NAA provided to Termilind, the

Agency is unaware of any allegations by Amvac that Inchema NAA lacks

sufficient quality to support a registration.8 There has

been no material presented by Amvac to challenge Termilind's assertion

that Amvac's refusal to accept the Inchema NAA was based upon anything

other than a dispute over price. The Agency previously accepted the

quality of Inchema NAA as a source for Termilind's products when it

approved amendments to Termilind's registrations to correctly reflect

the source of NAA used in those products. Based on all these factors,

the Agency has no reason to suspect that the NAA products made by

Termilind differ meaningfully in quality from other NAA products on the

market, and does not believe that sale or use of existing stocks of

such products would result in unreasonable adverse effects on the

environment.9

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

8Indeed, Amvac's allegations that Inchema has

misappropriated Amvac proprietary technology, as well as Amvac's

previous use of Inchema as a source of its own NAA and the absence

of any submittals by Amvac under section 6(a)(2) of FIFRA discussing

quality problems associated with Inchema's production of NAA, seem

to suggest that Amvac has no dispute with the quality of material

produced by Inchema.

9Indeed, the only difference between a risk/benefit balancing

for NAA generally and a balancing for the existing stocks is that a

ban on existing stocks would require that the stocks be disposed of.

Legal or illegal disposal of existing stocks could have financial

and/or environmental consequences that tip the risk/benefit balance

even further towards allowance of the use of existing stocks.

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

The only reason to disapprove the sale, distribution, or use of

existing stock is to punish the misconduct that resulted in the

registration of the products in the first place, and to deter future

such misconduct. As noted earlier, this particular situation was not

addressed in the Policy Statement, and the Agency has concluded that

the Policy Statement does not provide significant guidance on how to

deal with misconduct similar to Termilind's. It is clear that

prohibiting sale, distribution, and/or use of existing stocks may

result in hardships on relatively ``innocent'' third parties. On the

other hand, allowing continued sale, distribution, or use of existing

stocks would be ``unfair'' to registrants of competing registered

products (such as Amvac in this case) that presumably are complying

with the provisions of FIFRA, and would tend to minimize the

repercussions to Termilind in this case and serve as less of a

disincentive for others to include incorrect or false information in

their applications for registration.

After considering carefully these issues, the Agency has determined

that it is appropriate to prohibit all further sale or distribution by

any person of the revoked products, except the application of existing

stocks by for-hire applicators so long as the applicator does not

deliver any unapplied pesticide to the person for whom the application

is performed. The Agency reached this determination based primarily on

the nature of the misconduct in this particular case and its conclusion

that the use by pesticide registrants of source material different than

the source material identified in the statement of formula submitted to

the Agency is a very serious matter. In general, where the Agency

revokes a registration because of misconduct involved in its inception,

the Agency believes it inappropriate to allow the company involved in

the misconduct to derive any benefit from its actions. The only way for

the Agency to maximize the likelihood that Termilind will not profit at

all from its actions is to prohibit all sale and distribution of the

revoked products. In addition, the Agency believes it appropriate to

send the strongest possible message to any company that may be

considering the use of unregistered source material in its production

of registered product notwithstanding the fact that the

[[Page 61896]]

registration is predicated on use of a registered source material. Put

simply, the Agency generally does not intend to allow resale by any

person of pesticide products that were not produced in compliance with

FIFRA.

The Agency does intend to allow continued use of the revoked

products, including use by for-hire applicators, provided that such use

is consistent with the labeling of the products. The Agency does not

believe that a prohibition on further use would be realistically

enforceable in the absence of the devotion of significant resources to

such enforcement, and given the conclusion reached on the likelihood of

no unreasonable adverse effects on the environment, the Agency does not

believe this issue merits the expenditure of such significant

resources. The Agency is also concerned that a prohibition on use could

lead to unnecessary and unsupervised disposal of revoked products by

users.

The Agency recognizes that in data suspension cases under section

3(c)(2)(B) of FIFRA, adversely affected persons have a right to a

hearing on existing stocks issue. While no such right is provided for

revocations such as the one involved here, the Agency believes it

appropriate in this particular case, given the novelty of the issues

and the absence of any guidance for revocations in the existing stocks

Policy Statement, to provide any person adversely affected by this

existing stocks determination with an informal hearing opportunity

before the Agency if such person wishes to seek reconsideration of this

determination. If this opportunity for an informal hearing is pursued,

the Agency will consider all issues raised relevant to the existing

stocks determination. Any person interested in requesting an informal

hearing should submit such a request within 60 days, in writing, to

Robert Perlis, Office of General Counsel (2333), Environmental

Protection Agency, 401 M St., SW., Washington, DC 20460. Requests

should include the nature of the person's objection to the

determination, the nature of the proposed changes to the determination,

and the bases for the objections and changes.

List of Subjects

Environmental protection, Pesticides and pests.

Dated: October 31, 1997.

Lynn R. Goldman,

Assistant Administrator for Prevention, Pesticides and Toxic

Substances.

[FR Doc. 97-30140 Filed 11-18-97; 8:45 am]

BILLING CODE 6560-50-F