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PDK Labs Inc. v. Ashcroft

August 27, 2004


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


PDK Laboratories Inc. ("PDK") brings these actions against the Attorney General of the United States and the Administrator of the Drug Enforcement Administration, in their official capacities, as well as against the United States Department of Justice and the Drug Enforcement Administration (collectively "defendants" or "DEA"), seeking injunctive and declaratory relief. PDK claims that DEA has violated the Administrative Procedure Act, 5 U.S.C. § 551 et seq., ("APA") and deprived PDK of its property and liberty interests in violation of the Fifth Amendment's Due Process Clause. Presently before the court are the parties' cross-motions for summary judgment. Upon consideration of the motions, the respective oppositions thereto, the oral arguments of counsel and evidence presented at hearings before this court and related administrative proceedings, the court concludes that plaintiff's motion must be granted and defendants' motion must be denied.


PDK Labs Inc. ("PDK"), a New York corporation, manufactures over-the-counter pharmaceutical and vitamin products that contain ephedrine, a chemical made only outside of the United States.*fn1 Illegal controlled substances, notably methamphetamine, can be extracted from such products through a process known as "diversion." Because of this possibility, the government classifies ephedrine as a List I chemical and regulates its importation into the United States under the Chemical Diversion and Trafficking Act ("CDTA"), 21 U.S.C. § 971.

A. Importation Approval Process

Importers of List I chemicals must notify DEA at least 15 days before the scheduled date of arrival of such chemicals. 21 U.S.C. § 971(a). Notification consists of the filing of an Import Declaration Form 486. 21 C.F.R. § 1313.12(b). Following notification, the statute and its implementing regulations permit DEA to issue a notice of suspension of importation based on evidence that the chemical may be diverted to manufacture controlled substances. A suspension order must contain the legal and factual basis for its issuance. 21 U.S.C. § 971(c)(1). After a suspension order has been issued the regulated person may not carry out the transaction. However, the regulated person has 30 days to request a hearing, which, on request, must be held within 45 days. 21 U.S.C. § 971(c)(2); 21 C.F.R. § 1313.52, 1313.54.

Several countries, including India, will not permit the export of listed chemicals until they have received a "letter-of-non-objection" ("LONO") acknowledging that the importer's government does not object to the shipment. The LONO is an outgrowth of a 1994 international initiative among several nations, including the United States, and the International Narcotics Control Board ("INCB"), a United Nations-based entity. Subsequently, in addition to the formal regulations concerning suspension orders, DEA created a process enabling those importers who need a LONO to obtain one. If an importer needs a LONO for a particular transaction it files a Form 486 importation request along with a written request that a LONO issue.

Upon request for a LONO, DEA will either issue one, in which case the transaction proceeds, or decline to do so because it perceives a threat of downstream diversion for illicit purposes. Usually, the key factor in the DEA's decision to grant or deny a LONO for a List I transaction is the identity of the intended purchaser of the chemical for whom the importer is importing the product. When it refuses to issue a LONO, DEA notifies the importer and provides three options. The importer can either (1) withdraw its request for a LONO and cancel its Form 486, or (2) take no action and in 30 days DEA will deem the request withdrawn, or (3) request in writing its desire to pursue the matter further, in which case a suspension order is issued. Only if the importer elects option three, and a suspension order is issued, does DEA provide the importer a hearing as required by § 971(c)(2). DEA maintains that the LONO process is standardized and consistent with law but concedes that it is not explicitly authorized in any statute or regulation.

Companies that manufacture products with List I chemicals sometimes obtain the chemicals from the domestic spot market, a surplus supply of such chemicals that have lawfully entered the United States. A surplus is created when shipments of ephedrine approved by the DEA under the Form 486 and LONO processes arrive in the United States, but the intended recipient, for a number of reasons, no longer needs the chemicals, e.g., the intended recipient went out of business or no longer needs as much raw List I materials as it ordered. In such situations, the importer may resell surplus domestic stocks to other manufacturers. DEA has no authority, comparable to the Form 486 process, to prevent transactions in List I chemicals once they are lawfully inside the United States. Nevertheless, a seller faces legal consequences for providing List I chemicals to a buyer with the knowledge, or reason to know, that the buyer was likely part of a chain of distribution that used the chemicals for illicit purposes. See, e.g., 21 U.S.C. § 842(a)(1), (c)(2)(C); 21 U.S.C. § 841(c), (e), (f); 21 C.F.R. § 1310.05(a), (b).

B. Factual Background

On October 18, 2000, Indace, Inc., submitted a Form 486 and LONO request notifying DEA of its intention to import three metric tons of ephedrine on November 14. Indace's Form 486 specifically identified PDK as the buyer of the ephedrine. On October 25, DEA informed Indace that a LONO would not issue because there were grounds to believe the shipment would be diverted downstream for illegal uses, and notified Indace of the three courses it could pursue.

Indace informed DEA on November 1, that PDK elected option three and would pursue the matter further. On November 10, PDK informed DEA that it awaited the issuance of a formal suspension order. Indace then notified DEA on November 14 that it was not withdrawing its request because it was aware PDK had elected to persist in its effort to obtain the shipment of ephedrine. In a November 17 telephone call with PDK's counsel, and a subsequent November 22 letter, DEA expressed its position that under § 971(c), PDK had no standing to pursue this matter, and that a suspension order could not be issued to PDK.

On December 4, PDK filed this case and requested a preliminary injunction against DEA. In light of DEA's position, Indace notified DEA on December 5 that it regarded this matter as solely between PDK and DEA, and that "Indace has no intent to exercise Option 3." As a result, on December 11 DEA notified Indace that since 30 days had passed after the denial of the LONO with no action by Indace, DEA considered the request for importation to be withdrawn.

On January 16, 2001 this court granted in part PDK's motion for a preliminary injunction, ordering that PDK be deemed a "regulated person to whom an order applies" under § 971(c)(2) and enjoining defendants from blocking future imports without complying with § 971. The court also granted DEA's motion to dismiss in part, dismissing PDK's claim that the LONO process violated its property interests under the Fifth Amendment Due Process Clause and dismissing PDK's request for mandamus relief. Pursuant to this court's injunction, DEA suspended Indace's ephedrine shipment and gave PDK a hearing under § 971.

In May 2001, PDK filed its First Amended Complaint, alleging that DEA again violated the APA and Due Process Clause by interfering with PDK's attempts to purchase ephedrine on the domestic spot market. At the same time, PDK filed another motion for a preliminary injunction. On July 31, 2001, this court orally granted PDK's motion and enjoined DEA from discouraging importers from selling their domestic stock of ephedrine to PDK. In May 2002, the parties filed the cross-motions for summary judgment presently before the court.

As this matter proceeded in this court, administrative proceedings took place in compliance with this court's injunction ordering DEA to give PDK a hearing under § 971. In April 2002, an administrative law judge held that DEA failed to prove its case against PDK and ordered DEA to issue the requested LONOs and allow the shipments to proceed. In November 2002, the DEA Administrator issued an order reversing the ALJ's findings. In March 2004, the D.C. Circuit vacated the DEA Administrators' findings, holding that PDK had standing to challenge suspension orders under § 971. See PDK Labs. v. U.S. Drug Enforcement Admin., 362 F.3d 786, 792-93 (D.C. Cir. 2004) ("PDK Labs"). In April 2004, PDK renewed its summaryjudgment motion.


A. Legal Standards

1. Summary ...

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