text:
On July 15, 2014, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration, issued an Order to Show Cause to Arthur H. Bell, D.O. (Respondent), of Covington, Kentucky. GX 1, at 1. The Show Cause Order proposed the denial of Respondent's application for a DEA Certificate of Registration as a practitioner on multiple grounds, including that he had materially falsified his application for a registration, as well as that he had committed acts which render his registration inconsistent with the public interest. Id. at 1-2 (citing 21 U.S.C. 823(f) and 824(a)(1)).
As for the material falsification allegation, the Show Cause Order alleged that on November 9, 2011, Respondent had voluntarily surrendered his previous DEA Registration. Id. The Order then alleged that on March 14, 2013, Respondent applied for a new DEA registration, but materially falsified the application when he "answered 'no' to question which asked, '[h]as the Respondent ever surrendered (for cause) or had a federal controlled substance registration revoked, suspended, restricted or denied, or is any such action pending?"' Id.
As for the allegations that Respondent had committed acts which render his registration inconsistent with the public interest, the Show Cause Order alleged that Respondent violated federal law by issuing controlled substance prescriptions when he "no longer possessed a DEA registration." Id. at 2 (citing 21 CFR 1306.03(a)). More specifically, the Order alleged that on May 5, 2012, Respondent had issued a prescription for 60 tablets of Lyrica 75 mg, a schedule V controlled substance, and on September 12, 2012, Respondent had issued a prescription for Zutripro 120 ml, a schedule III controlled substance. Id.
The Show Cause Order also alleged that from July 11, 2011 through November 4, 2011, Respondent "dispensed controlled substances on behalf of Care Plus Medical Group (CPMG), a purported pain management clinic formerly located in Creve Coeur, Missouri, [which] was owned by Scott Whitney." Id. The Order alleged that prior to beginning his employment with CPMG, Respondent arranged with Whitney to order schedule II controlled substances under his previous registration and that "[t]o that end, . . . Whitney sent 20 DEA 222 forms to [Respondent's] residence, and asked that [he] pre-sign them so that controlled substances could be ordered on behalf of CPMG." Id. The Order then alleged that Respondent "pre-signed the forms, dated them . . . and mailed them to . . . Whitney . . . [who] then used one . . . to place orders for oxycodone 30 mg and oxycodone 10/325 mg." Id. The Order alleged that this violated federal law because it "authoriz[ed] . . . Whitney to place an order for controlled substances under [Respondent's] previous . . . registration without executing a power of attorney for . . . Whitney." Id. (citing 21 CFR 1303.05(a)).
Next, the Show Cause Order alleged that on October 28, 2013, Respondent falsified his application for his Ohio medical license, when he failed to disclose that he had previously surrendered his DEA registration. Id. at 1-2. The Order further alleged that this "conduct evidences a lack of candor to Ohio licensing authorities." Id. (citing 21 U.S.C. 823(f)(5)).
Finally, the Show Cause Order notified Respondent of his right to request a hearing on the allegations or to submit a written statement in lieu of a hearing, the procedure for electing either option, and the consequence of failing to elect either option. Id. at 2-3 (citing 21 CFR 1301.43). The Government also included with the Order a sample Request for Hearing form. Id. at 4.
The Government represents that on July 21, 2014, the Show Cause Order was served on Respondent by certified mail, and there is no dispute that service occurred, as on August 8, 2014, the Hearing Clerk, Office of Administrative Law Judges, received a letter from Respondent. Request for Final Agency Action, at 3; see also GX 10. In the letter, Respondent responded to each of the Government's allegations. GX 10, at 1-2. Respondent did not, however, request a hearing.
Based on Respondent's letter, I find that he had waived his right to a hearing on the allegations. 21 CFR 1301.43(c). However, pursuant to 21 CFR 1301.43(c), I deem Respondent's letter to be his "written statement [of] position on the matters of fact and law involved" in the proceeding.
Thereafter, on December 12, 2014, the Government submitted its Request for Final Agency Action along with the Investigative Record. Having reviewed the Government's evidence as well as Respondent's Statement of Position, I make the following findings of fact.
Respondent previously held DEA Certificate of Registration BB6473538, pursuant to which he was authorized to dispense controlled substances in schedules II-V as a practitioner, at Care Plus Medical Group (CPMG) in Creve Coeur, Missouri. GX 3. According to a DEA Diversion Investigator (DI), following an investigation into CPMG by DEA, Respondent voluntarily surrendered his registration on November 9, 2011, and on the form manifesting the surrender, Respondent acknowledged that he was surrendering his registration "[i]n view of my alleged failure to comply with the Federal requirements pertaining to controlled substances." GX 5, at 1; GX 11, at 3. The next day, Respondent's registration was retired by the Agency. GX 2, at 2.
On January 12, 2012, Respondent applied for a new registration. GX 12, at 2. However, on March 5, 2012, following an interview with DEA Investigators regarding his activities at CPMG, Respondent withdrew this application. Id. at 2-3.
On March 14, 2013, Respondent submitted a new application, seeking authority to dispense controlled substances in schedules II through V, at the registered location of Hometown Urgent Care, 4387 Winston Ave, Covington, KY. GX 7, at 1. It is this application which is at issue in this proceeding.
On the application, Respondent was required to answer four questions, including number two, which asked: "Has the Respondent ever surrendered (for cause) or had a federal controlled substance registration revoked, suspended, restricted or denied, or is any such action pending?" Id. at 2. Respondent answered "N" for no. Id.
\1\ The Government provided copies of online license searches which show that Respondent is licensed as an osteopathic physician in Ohio and Kentucky.
According to a DI, Respondent was previously employed at CPMG from July 11, 2011 through November 4, 2011. GX 11, at 3 (Declaration of Diversion Investigator). CPMG was owned by Scott Whitney, and Respondent was the clinic's sole physician. Id. at 2.
In August 2011, another DI received an anonymous tip alleging that CPMG was diverting controlled substances. Id. The tipster alleged that individuals could walk into the clinic without an appointment, could consult with a doctor in exchange for $250 in cash, that CPMG did not accept insurance, and that CPMG "had an in-house pharmacy." Id. Subsequently, the DI determined that Mr. Whitney "had prior ownership interests in other pain clinics in the State of Florida" that had "dispensed oxycodone" but had "since closed." Id.
On November 9, 2011, the DI interviewed Respondent. Id. at 3. Respondent told the DI that at some point prior to starting at CPMG, Whitney had requested that Respondent pre-sign DEA-222 Forms, which are required to order schedule II drugs such as oxycodone, see 21 U.S.C. 828(a), "as a way to start the business." Id. Whitney mailed approximately twenty DEA-222 forms to Respondent, who signed them and mailed them back to Whitney. Id.
According to the DI, Whitney used at least one of the pre-signed order forms to place orders for 2,000 du of oxycodone 30 mg and 1,000 oxycodone 10/325 mg from State Pharmaceuticals, Inc. on June 29, 2011. Id., see also GX 4. The DI also found that Respondent "authorized  Whitney to place an order for controlled substances under his DEA . . . registration without executing a power of attorney for him," a violation of 21 CFR 1305.05(a). Id.
After the conclusion of the interview, the DI asked Respondent if he would voluntarily surrender his DEA registration. Id. at 3. Respondent agreed to do so, and executed a Voluntary Surrender Form. Id.; see also GX 5.
On January 11, 2013, Respondent submitted an application for renewal of his Ohio medical license. GX 6, at 1. The application included a question which asked: "Have you surrendered, consented to limitation of, or to suspension, reprimand or probation concerning, a license to practice any healthcare profession or state or federal privileges to prescribe controlled substances in any jurisdiction other than Ohio?" Id. at 3. Respondent answered "NO." Id.
As noted above, on March 14, 2013, Respondent applied for a new registration. Thereafter, on May 22, 2013, a DI queried the Ohio Automated Rx Reporting System (OARRS), using Respondent's previously surrendered DEA registration (BB6473538). GX 12, at 3. The OARRS report showed that Respondent had issued two controlled substance prescriptions after he surrendered his registration: 1) on May 5, 2012, for 60 tablets of Lyrica 75 mg (a schedule V controlled substance) on May 5, 2012; and 2) on September 12, 2012, for Zutripro 120 ml (a schedule III cough syrup containing hydrocodone). Id. at 3-4.
The DI then obtained copies of both prescriptions. Id. at 4. The first prescription, which is dated May 5, 2012, was for 60 capsules of Lyrica 75 mg, and was printed on a prescription form for Urgent Care of Fairfield, including its street address. GX 8. The prescription includes a handwritten signature of "Art Bell DO" above "Art Bell DO," which is printed below the signature line. Id. However, no DEA number appears on the prescription. Id.
Urgent Care of Fairfield in Hamilton, Ohio. GX 12, at 4.
\2\ GX 8 and GX 9 also include copies of the dispensing labels for each prescription.
In his response to the Order to Show Cause, Respondent stated that he re-applied for a DEA registration on March 14, 2013, "not as a physician seeking authorization to handle controlled substances in Schedules II through V at a proposed registered address of 4387 Winston Avenue, Covington, Kentucky  but to satisfy insurance company requirements." GX 10, at 1 (emphasis in original). He asserted that "many medical facilities require that their physicians have a DEA registration, and that "I hardly ever wrote for any controlled substances prior to my employment with Care Plus Medical Group." Id.
\3\ As for the false answer he provided on the application for his Ohio license, Applicant stated that "the renewal of my application for an Ohio license was an oversight" and that he had re-applied for renewal of his Kentucky and Missouri licenses and stated on both "that I had voluntarily surrendered my DEA registration." GX 10, at 2. He wrote that "I mistakenly thought I had checked the box that said I had voluntarily surrendered my DEA registration. . . . Therefore, I checked the box asking 'if anything had changed since my last renewal?' 'no'. [sic] I did not intend to deceive anyone. It was an honest mistake for which I apologize." Id.
As for the two prescriptions, Respondent denied having issued them. More specifically, he stated: "As for the two prescriptions that I allegedly wrote for Lyrica 75 mg and Zutripro 120ml. I know nothing about this." Id. He then questioned whether there "was a possibility that a substitute was given by the nurse without my approval because insurance would not cover the non-narcotic prescription that I had originally written?" Id. He then added that "I suppose anything is possible in this circumstance, but rest assured, that I have not written any prescriptions for controlled substances since the surrendering of my DEA registration on November 9, 2011." Id.
Respondent did admit that he pre-signed 20 DEA-222 forms and that he sent the forms to Whitney and failed to execute a power of attorney authorizing Whitney to order the drugs. However, he then contended that the allegation \4\ that he "arranged with Mr. Whitney to order Schedule II controlled substances under [his] previous DEA registration" was not a correct statement, because "Mr. Whitney arranged this with me--I did not know how to order controlled substances." Id. Continuing, Respondent wrote: "[a]gain, that action was pure naivet[eacute] and ignorance of the law on my part" and "saying I'm sorry does not even begin to express my remorse . . . [n]or does it alleviate the feelings of stupidity for my actions because of the poor judgment that I used on that day." Id.
\4\ This statement appears as an allegation in the Order to Show Cause. See GX 1, at 2.
Respondent concluded his letter by stating that he "did not knowingly tell lies, nor . . . intentionally try to deceive anyone." Id. He expressed the hope that his letter "conveys [his] remorse" and stated that he "would also like to be able to retire in a few years with my good name intact and above reproach." Id.
"These factors are . . . considered in the disjunctive." Robert A. Leslie, M.D., 68 FR 15227, 15230 (2003). I "may rely on any one or a combination of factors, and may give each factor the weight [I] deem appropriate in determining whether . . . an application for registration [should be] denied." Id. Moreover, while I am required to consider each of the factors, I "need not make explicit findings as to each one." MacKay v. DEA, 664 F.3d 808, 816 (10th Cir. 2011) (quoting Volkman, 567 F.3d 215, 222 (6th Cir. 2009) (quoting Hoxie, 419 F.3d 477, 482 (6th Cir. 2005))).
"In short, this is not a contest in which score is kept; the Agency is not required to mechanically count up the factors and determine how many favor the Government and how many favor the registrant. Rather, it is an inquiry which focuses on protecting the public interest; what matters is the seriousness of the registrant's misconduct." Jayam Krishna-Iyer, 74 FR 459, 462 (2009).
Also, pursuant to section 304(a)(1), the Attorney General is authorized to suspend or revoke a registration "upon a finding that the registrant . . . has materially falsified any application filed pursuant to or required by this subchapter." 21 U.S.C. 824(a)(1). It is well established that the various grounds for revocation or suspension of an existing registration that Congress enumerated in section 304(a), 21 U.S.C. 824(a), are also properly considered in deciding whether to grant or deny an application under section 303. See The Lawsons, Inc., 72 FR 74334, 74337 (2007); Anthony D. Funches, 64 FR 14267, 14268 (1999); Alan R. Schankman, 63 FR 45260 (1998); Kuen H. Chen, 58 FR 65401, 65402 (1993).
Thus, the allegation that Respondent materially falsified his application is properly considered in this proceeding. See Samuel S. Jackson, 72 FR 23848, 23852 (2007). Moreover, just as materially falsifying an application provides a basis for revoking an existing registration without proof of any other misconduct, see 21 U.S.C. 824(a)(1), it also provides an independent and adequate ground for denying an application. The Lawsons, 72 FR at 74338; cf. Bobby Watts, M.D., 58 FR 46995 (1993).
Statement of Position, I do not find his expressions of remorse persuasive and hold that he has not produced sufficient evidence to refute the Government's prima facie case. Accordingly, I will order that his application be denied.
As found above, on March 4, 2013, Respondent applied for a new registration and answered "N" or no to the question: "[h]as the applicant ever surrendered (for cause) or had a federal controlled substance registration revoked, suspended, restricted or denied, or is any such action pending?" Respondent's answer was false because on November 9, 2011, he voluntarily surrendered his DEA registration following an interview with a DEA Investigator regarding his activities at CPMG, during which he admitted to signing schedule II order forms while failing to execute a power of attorney as required under DEA's regulation. He then provided those forms to CPMG's owner, thereby by allowing the latter to order 2,000 du of oxycodone 30 and 1,000 du of oxycodone 10/325.
This was a violation of DEA regulations and federal law. See 21 U.S.C. 842(a)(5) ("It shall be unlawful for any person . . . to refuse or negligently fail to make, keep, or furnish any record, report, notification, declaration, order or order form, statement, invoice, or information required under this subchapter."); 21 CFR 1305.04(a) ("Only persons who are registered with DEA under section 303 of the Act . . . to handle Schedule I or II controlled substances . . . may obtain and use DEA From 222 . . . for these substances."); id. Sec. 1305.05(a) ("A registrant may authorize one or more individuals . . . to issue orders for Schedule I and II controlled substances on the registrant's behalf by executing a power of attorney for each such individual. . . .").
Respondent nonetheless asserts that he misunderstood the question. He claims that because he "voluntarily surrendered" his registration" and "no one mentioned (for cause)," he did not believe that he had surrendered his registration "for cause." However, the circumstances surrounding the interview during which he surrendered his registration, coupled with the language of the voluntary surrender form on which Respondent acknowledged that he was surrendering his registration "[i]n view of my alleged failure to comply with the Federal requirements pertaining to controlled substances" GX 5, at 1, are sufficient to support the conclusion that Respondent surrendered his registration "for cause."
I also conclude that Respondent's answer was materially false. As the Supreme Court has explained, "[t]he most common formulation" of the concept of materiality "is that a concealment or misrepresentation is material if it 'has a natural tendency to influence, or was capable of influencing, the decision of' the decisionmaking body to which it was addressed." Kungys v. United States, 485 U.S. 759, 770 (1988) (quoting Weinstock v. United States, 231 F.2d 699, 701 (D.C. Cir. 1956)) (other citation omitted); see also United States v. Wells, 519 U.S. 482, 489 (1997) (quoting Kungys, 485 U.S. at 770).
"[I]t has never been the test of materiality that the misrepresentation or concealment would more likely than not have produced an erroneous decision, or even that it would more likely than not have triggered an investigation, but rather, whether the misrepresentation or concealment was predictably capable of affecting, i.e., had a natural tendency to affect, the official decision." Kungys, 485 U.S. at 771. While the evidence must be "clear, unequivocal, and convincing," the "ultimate finding of materiality turns on an interpretation of the substantive law." Id. at 772 (int. quotations and citations omitted).
Notwithstanding that the Agency did not grant his application, Respondent's false answer to question two was clearly "capable of affecting" the decision of whether to grant his application because he surrendered his registration in response to allegations that he violated DEA regulations, and under the public interest standard, the Agency is required to consider the Applicant's "[c]ompliance with applicable State, Federal, or local laws relating to controlled substances." 21 U.S.C. 823(f)(4). Accordingly, I conclude that Respondent materially falsified his March 2013 application for registration.
In his statement, Respondent contends that "semantics may have played a part in the confusion of this situation. Please know that the thought never crossed my mind to commit a fraudulent act. I apologize for the confusion." GX 10, at 1.
Respondent's explanation is not persuasive. Here, the evidence also shows that when Respondent applied for his Ohio medical license, the State's application contained the following question: "Have you surrendered, consented to limitation of, or to suspension, reprimand or probation concerning . . . state or federal privileges to prescribe controlled substances in any jurisdiction other than Ohio?" GX 6, at 3. Respondent, however, answered "NO." Id. Notably, in contrast to the question on the DEA application, the Ohio question did not ask whether he surrendered "for cause" and thus presented no issue of--in Respondent's view--semantics. Further, Respondent does not claim that he was confused by the question.\5\ Id. Yet Respondent still provided a false answer to the Ohio question. Thus, I reject his claim of confusion and conclude that his false answer on the Ohio application is probative of his intent in answering the DEA question and that his intent was fraudulent. Cf. Fed. R. Evid. R. 404(b)(2).
\5\ Rather, Respondent asserts that his answer on the Ohio medical license application "was an oversight," that he "mistakenly thought I had checked the box that said I had voluntarily surrendered my DEA registration," and that "I checked the box asking 'if anything had changed since my last renewal?' 'no.' " GX 10, at 2. However, Respondent filed his Ohio medical license application on January 11, 2013, and according to the Web site of the State Medical Board, "Doctors of Osteopathic Medicine [DOs] are required to renew their licenses biennially in order to maintain an active certificate to practice." See http://www.med.ohio.gov/RenewalCME/DoctorofOstepathicMedicine(DO).aspx.
As found above, Respondent surrendered his DEA registration on November 9, 2011, and given that his Ohio license was good for two years, I conclude that his previous Ohio application was filed before he surrendered his DEA registration. Thus, at the time he filed his Ohio medical license application, something "had changed since [his] last renewal." GX 10, at 2. Moreover, the Ohio application clearly instructed: "Please review all information you have provided. Click on the 'Review' button to change any information given. . . ." GX 6, at 2. The form also included the following statements: "I understand that submitting a false, fraudulent, or forged statement or document or omitting a material fact in obtaining licensure may be grounds for disciplinary action against my license" and "Under penalty of law, I hereby swear or affirm that the information I have provided in the application is complete and correct, and that I have complied with all criteria for applying on line." Id. at 6.
Respondent consulted with his attorney and decided to withdraw his application. Id. at 3. Given that the March 5, 2012 interview involved the same matters as had been discussed at the time Respondent surrendered his registration and that he had been threatened with criminal prosecution, Respondent cannot credibly argue that, at the time he submitted the March 2013 application, he remained confused as to whether he had previously surrendered the registration "for cause."
\6\ Agency records, of which I take official notice, see 21 CFR 1316.59(e), show that Applicant also answered "No" to Liability Question Two on his January 2012 application. There is, however, no evidence that his response was specifically addressed by the investigating DI at the time.
I therefore conclude that substantial evidence supports findings that Respondent materially falsified his application for March 2013 application for registration when he failed to disclose that he had surrendered his DEA registration "for cause," and that he did so intentionally. See GX 10, GX 12 at 2-3. I further conclude that these findings support the denial of Respondent's application.
The Government also argues that Respondent's application should be denied on the separate ground that his registration is "inconsistent with the public interest." 21 U.S.C. 823(f). More specifically, the Government argues that factors two (experience in dispensing), four (compliance with applicable laws related to controlled substances) and five (other conduct which may threaten public health and safety), support the denial of his application.\7\ Government's Request for Final Agency Action, at 10.
\7\ I acknowledge that Applicant remains licensed in Kentucky, the State in which he seeks registration, and therefore, he meets the CSA's prerequisite for holding a practitioner's registration in that State. See 21 U.S.C. 823(f) ("The Attorney General shall register practitioners . . . to dispense . . . controlled substances . . . if the applicant is authorized to dispense . . . controlled substances under the laws of the State in which he practices."); see also id. Sec. 802(21) ("The term 'practitioner' means a physician . . . or other persons licensed, registered, or otherwise permitted, by the United States or the jurisdiction in which he practices . . . to distribute, dispense, . . . [or] administer . . . a controlled substance.").
However, the possession of state authority "is not dispositive of the public interest inquiry." George Mathew, 75 FR 66138, 66145 (2010), pet. for rev. denied, Mathew v. DEA, 472 Fed. Appx. 453 (9th Cir. 2012); see also Patrick W. Stodola, 74 FR 20727, 20730 n.16 (2009). As the Agency has long held, "the Controlled Substances Act requires that the Administrator . . . make an independent determination [from that made by state officials] as to whether the granting of controlled substance privileges would be in the public interest." Mortimer Levin, 57 FR 8680, 8681 (1992). Accordingly, this factor is not dispositive either for, or against, the granting of Respondent's application. Paul Weir Battershell, 76 FR 44359, 44366 (2011) (citing Edmund Chein, 72 FR 6580, 6590 (2007), pet. for rev. denied, Chein v. DEA, 533 F.3d 828 (D.C. Cir. 2008)).
As for factor three, there is no evidence that Applicant has been convicted of an offense "relating to the manufacture, distribution or dispensing of controlled substances." 21 U.S.C. 823(f)(3). However, there are a number of reasons why even a person who has engaged in misconduct may never have been convicted of an offense under this factor, let alone prosecuted for one. Dewey C. MacKay, 75 FR 49956, 49973 (2010), pet. for rev. denied MacKay v. DEA, 664 F.3d 808 (10th Cir. 2011). The Agency has therefore held that "the absence of such a conviction is of considerably less consequence in the public interest inquiry" and is therefore not dispositive. Id.
With regard to factors two and four, the Government alleges that Respondent issued two controlled-substance prescriptions after he surrendered his registration. In his written statement, Respondent denies any knowledge of both prescriptions, and posits "that a substitute was given by a nurse without [his] approval because insurance would not cover the non-narcotic prescription that [he] had originally written?" GX 10, at 2.
Having reviewed the signatures on the prescriptions with the other documents in the record which indisputably contain Respondent's signature (i.e., his written statement of position, the voluntary surrender form, and the DEA Form 222), I conclude that Respondent signed both prescriptions. See United States v. Clifford, 704 F.2d 86, 90 n.5 (3d Cir. 1983) ("[A] jury can compare a known handwriting sample with another sample to determine if the handwriting in the latter sample is genuine. The jury can make that comparison without the benefit of expert witnesses.") (citations omitted); see also 28 U.S.C. 1731 ("The admitted or proved handwriting of any person shall be admissible, for purposes of comparison, to determine genuineness of other handwriting attributed to such person.").
Notwithstanding that Respondent did not include a DEA number on the prescription, I find that Respondent unlawfully issued the May 5, 2012 prescription for Lyrica. See 21 U.S.C. 841(a)(1) ("Except as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally . . . to . . . dispense . . . a controlled substance."); id. Sec. 822(a)(2) (Every person who dispenses . . . shall obtain from the Attorney General a registration issued in accordance with the rules and regulations promulgated by him."); 21 CFR 1306.03(a)(2) ("A prescription for a controlled substance may be issued only by an individual practitioner who is . . . [e]ither registered or exempted from registration. . . ."); Cf. id. Sec. 843(a)(2) ("It shall be unlawful for any person knowing or intentionally . . . to use in the course of the . . . dispensing of a controlled substance . . . a registration number which is fictitious, revoked, suspended, [or] expired. . . .").
However, I do not find the evidence sufficient to sustain the allegation as to the September 12, 2012 prescription. As the evidence shows, the prescription was originally issued for Bromfed DM (a non-narcotic), but was then changed to Zutripro, a schedule III controlled substance, and bears the handwritten notation "per Katie Allen." The Government offered no further evidence regarding the circumstances surrounding the change in the prescription. It did not explain who Ms. Katie Allen is and where she was working on September 12, 2012. Nor did it offer any evidence that it interviewed the pharmacist who filled the prescription, the patient, or Ms. Allen.
\8\ Of further note, Whitney could not have obtained the order forms without Respondent having provided him with his DEA Registration number, which is pre-printed on the forms when issued by DEA. See GX 4; see also 21 CFR 1305.04(a). However, the Agency has repeatedly held that a registrant is strictly liable for any misconduct engaged in by a person to whom a registrant entrusts his registration. See Satinder Dang, 76 FR 51424, 51429 (2011); Rosemary Jacinta Lewis, 72 FR 4035, 4041 (2007). The evidence offered by the Government as to whether Whitney and Respondent were diverting controlled substances at CPMG does not, however, create more than a suspicion.
Respondent admitted to these violations. GX 10, at 2. However, he then stated that he "did not know how to order controlled substances" and that "that action was pure naivet[eacute] and ignorance of the law on my part." \9\ GX 10, at 2. This is not a particularly persuasive explanation for one who seeks a DEA registration.
\9\ It is well settled that "ignorance of the law or a mistake of law is no defense." Cheek v. United States, 498 U.S. 192, 199 (1991). Moreover, the principle "applies whether the law be a statute or a duly promulgated and published regulation." United States v. International Minerals & Chemical Corp., 402 U.S. 558, 563 (1971).
I therefore conclude that the evidence with respect to factors two and four supports the conclusion that issuing Respondent a new registration "would be inconsistent with the public interest." 21 U.S.C. 823(f).
\10\ The physician was not, however, registered in the State which found that he had submitted a false application for a second medical license.
Undoubtedly, providing a materially false answer to a question on a state medical license application is probative evidence of whether a registrant or applicant demonstrates "questionable candor." However, here, in contrast to Reeves, there has been no adjudication by the State of Ohio and Respondent retains a valid osteopathic license in that State. Thus, the question remains as to whether this Agency should be adjudicating this allegation in the first instance, especially where, as here, Respondent is neither registered in Ohio nor seeks registration in that State.
To be sure, Hoxie went beyond Reeves by holding that the physician's falsifications of his medical license applications were actionable under factor five even in the absence of a state board finding. Hoxie, however, preceded the Supreme Court's decision in Gonzales v. Oregon, 546 U.S. 243 (2006). Therein, the Supreme Court explained that the CSA "manifests no intent to regulate the practice of medicine generally" and that "[t]he structure and operation of the CSA presume and rely upon a functioning medical profession regulated under the States' police powers." Id. at 270.
While the Government contends that Respondent's false statement on his Ohio medical license application can be considered as a separate act of actionable misconduct under factor five, it offers no explanation as to why it is consistent with Gonzales, that DEA, rather than the Ohio Medical Board, should be the first body to adjudicate the issue. Nor does the Government offer any explanation as to why the Ohio Board is incapable of enforcing its own laws. Finally, the Government does not even cite the applicable provision of Ohio law, let alone explain whether there is a materiality requirement under Ohio law, and if so, what the standard is under Ohio law.
\11\ It seems unlikely that a physician would falsify his state medical license application but then truthfully disclose a sanction against his federal registration on his DEA application.
\12\ Notably, Hoxie does not cite Reeves, but rather Musselman, as authority for the proposition. See 69 FR at 51479. While Musselman discusses the factual findings of a state board proceeding which was based, in part, on an allegation that the physician had falsified a state license application, the state board did not find the allegation proved, and in discussing factor five, the Agency's decision discusses only the physician's falsification of his DEA application. See 64 FR at 55967. Thus, Musselman clearly does not support Hoxie.
As found above, Respondent intentionally and materially falsified his March 14, 2013 application for a DEA registration. This finding alone provides an adequate basis to deny his application. 21 U.S.C. 824(a)(1) and 843(a)(4)(A).
The evidence also shows that Respondent violated DEA regulations when he provided schedule II order forms to Mr. Whitney, CPMG's owner, and authorized him to order oxycodone without having executed a power of attorney as required by 21 CFR 1305.05(a). Finally, the evidence also shows that Respondent issued a prescription for Lyrica, a schedule V controlled substance, when he was no longer registered, and thus violated 21 U.S.C. 841(a)(1) and 822(a)(2). I therefore find that the Government's evidence under factors two and four is sufficient to conclude that the Government has met its prima facie burden on the issue of whether the issuance of a registration "would be inconsistent with the public interest." 21 U.S.C. 823(f).
\13\ This rule also applies to other grounds that support the denial of an application, such as where the Government has proven that an applicant materially falsified his application. See Jackson, 72 FR, at 23853.
respondent in a particular case and the community of registrants. See Gaudio, 74 FR at 10095 (quoting Southwood, 71 FR at 36503). Cf. McCarthy v. SEC, 406 F.3d 179, 188-89 (2d Cir. 2005) (upholding SEC's express adoption of "deterrence, both specific and general, as a component in analyzing the remedial efficacy of sanctions").
Having reviewed Respondent's Statement of Position, I conclude that he has failed to produce sufficient evidence to show why he should be entrusted with a new registration. His acceptance of responsibility is equivocal at best, as while he appears to acknowledge his wrongdoing with respect to his having provided the Schedule II order forms to Mr. Whitney, his explanation for why he materially falsified his DEA application is clearly disingenuous. So too, is his assertion that he "did not knowingly tell lies, nor . . . intentionally try to deceive anyone." Because Respondent committed intentional misconduct when he materially falsified his application, I find his misconduct to be egregious.\14\ Accordingly, his failure to accept responsibility for this misconduct is reason alone to conclude that he cannot be entrusted with a new registration.\15\ Moreover, the Agency has a manifest interest in deterring misconduct on the part of others who may contemplate materially falsifying their applications for registration. Accordingly, I conclude that denial of his application is necessary to protect the public interest.
\14\ Having found that Respondent's material falsification of his application is egregious and that he has not accepted responsibility for the violation, I need not decide whether the other proven violations are sufficiently egregious to support the denial of the application.
\15\ As to the violation in authorizing Whitney to order schedule II drugs, Respondent stated that this was the result of "pure naivet[eacute] and ignorance of the law on my part." However, Respondent has offered no evidence of remedial actions he has taken to demonstrate that he is now familiar with the laws and regulations applicable to the lawful dispensing of controlled substances.
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 Arthur H. Bell, D.O., for a DEA Certificate of Registration as a practitioner be, and it hereby is, denied. This Order is effective immediately.

matches: v. v. v. v. v. v. v. v. v. v. v. v.


The “small court” is the home of many technicalities, anfractuosities, circumscribed jurisdiction and characterizations and recharacterizations, that befuddle, bemuse and bewilder even the experienced professional litigator, much less the individual seeking justice for the sixty buck door charge.
Truly, we need a new version of the Twelfth Century “Guide for the Perplexed” for the Tax Court self-represented. The Tax Court website hardly scratches the cliché.
Sometimes the complexities found in the Glasshouse at 400 Second Street, NW, drive even the obvious from minds of the self-represented who enter there.
Thus the title of this little tale, and the case of Peter Wang, 15147-16L, filed 12/30/16, come together.
Ch J L Paige (“Iron Fist”) Marvel has PW’s petition from a NOD, and it bears a USPS 6/25/16 postmark. The NOD was mailed by certified mail on 5/25/16.
“In petitioner’s opposition, he stated: ‘ The Notice of Determination was dated May 25, 2016 and said that “..you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.” Consequently, the 30 day period started on May 26, 2016 and the deadline for filing the petition was June 25, 2016 * * *.” Petitioner correctly understood that the 30-day period started to run on May 26, 2016, but his conclusion that the last date to timely file the petition was June 25 was in error. Because May has 31 days, petitioner’s calculation should have yielded a deadline of June 24, not June 25, 2016. June 25, 2016, yields a result of 31 days, rather than 30 days.” Order, at p. 2.
The official march of the United States Merchant Marine Academy mirrors the career of John Michael Gillespie, Docket No. 729-09L, filed 12/30/16, as IRS signs off for CY 2016 with a designated hitter from The Great Dissenter, f/k/a The Implacable, Indomitable, Indefatigable, Ineluctable, Incomparable, Incontrovertible and Imperturbable Foe of the Partitive Genitive, Old China Hand and Master Silt-Stirrer, Judge Mark V. Holmes.
John Michael is a commercial fisherman. When IRS hit him with a NFTL, John Michael was on the briny deep, so he couldn’t show for the CDP. When he reached dry land he petitioned, and Tax Court remanded his case to Appeals.
John Michael wanted an old overpayment applied to his self-reported but unpaid balance for the year at issue. But the return for the year of the claimed overpayment was filed six (count ‘em, six) years late.
John Michael tries an OIC, but his house and boat have enough equity to pay the tab in full. And the SOL has run, of course, on the year for which he claims the overpayment.
The IRS did send John Michael a letter while John Michael still had a couple months (Happy New Year, Judge Holmes) to file and get the refund before the SOL ran out. The letter said it looked like he had an overpayment, but they couldn’t find his return, and please send it within two weeks. The letter didn’t mention the SOL, but John Michael didn’t file the return until years later.
Section 6511(b)(1) has wrought some tough results, but that’s the law.
Anyway, says Judge Holmes, “Gillespie seems to focus his attention on the fairness aspect by repeatedly noting he overpaid his 1998 taxes. We can’t deny an element of unfairness here -both parties agree the United States Treasury received a little over $7000 more than it was supposed to from Gillespie and he never got it back. But we don’t find such a level of unfairness to find the IRS acted clearly erroneously. See Wai v. Commissioner, 92 T.C.M. (CCH) 181, 2006 WL 2482901, at *6 (upholding the IRS’s refusal of the taxpayer’s offer in compromise, despite acknowledging that the application of the AMT rules to this particular taxpayer may have produced an inequitable result); Murphy v. Commissioner, 469 F.3d 27, 32 (1st Cir. 2006) (noting that the court won’t disturb the IRS’s decision unless the rejection ‘represents a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS’). Nevertheless, we needn’t decide if this fact would “’undermine public confidence that the tax laws are being administered in a fair and equitable manner.’ We don’t because even if the IRS could’ve accepted an offer for less than full amount, Gillespie’s offer was for far less than his liability less the lost credit. In other words, Gillespie’s lost refund can’t fully justify the difference between his offer and his true liability, especially when he doesn’t disagree with the IRS’s position that he has sufficient equity to pay it in full.” Order, at p. 5.
We have a tale of two Sub S Corps today, one from Judge Paris and one from Judge Kerrigan.
Judge Paris leads off with Ryan M. Fleischer, 2016 T. C. Memo. 238, filed 12/29/16. Ryan’s an investment seller, and he creates a sub S called FWP. Ryan “…was the sole shareholder and the president, secretary, and treasurer of FWP.” Ryan also entered into an employment agreement with FWP a couple weeks (Happy New Year, Judge Holmes) after he incorporated FWP.
But before getting thus employed, Ryan enters into a deal with a financial services company to act as IC salesman. Personally. And a couple of weeks after entering the employ of FWP, Ryan makes a deal with Mass Mutual. Again personally, no mention of FWP.
Ryan filed returns for FWP, showing earnings from the financial services outfit and Mass Mutual, gave himself a salary but paid no SE (although he did claim self-employed health insurance).
IRS says the deals were with Ryan, not FWP, and Ryan should have filed a Schedule C for the whole shebang. And he owes SE.
We all know income is taxable to the one who earned it. But with corporations and other such entities, it’s not so simple.
Judge Paris: “Because it is impractical to apply a simplistic ‘who earned the income’ test when the Court’s choices are a corporation and its service-provider employee, the question has evolved to one of ‘who controls the earning of the income.’ For a corporation, not its service-provider employee, to be the controller of the income, two elements must be found: (1) the individual providing the services must be an employee of the corporation whom the corporation can direct and control in a meaningful sense…; and (2) ‘there must exist between the corporation and the person or entity using the services a contract or similar indicium recognizing the corporation’s controlling position’…. These elements can be found in the employment tax regulations. Sec. 31.3121(d)-1(c)(2), Employment Tax Regs. (‘Accordingly, within Regulation § 31.3121(d)-1(c)(2), two necessary elements must be met before the corporation * * * may be considered the true controller of the service-provider.’), Because both elements must be met before the corporation will be considered to control the service-provider employee and because the Court finds that there is no contract or other indicium that FWP exhibited control over petitioner, the Court will discuss only the second element.” 2016 T. C. Memo. 238, at p. 11. (Citations omitted).
But Ryan didn’t. He says FWP wasn’t licensed as he is (and he has a World Series of licenses), and it would cost millions for FWP to get them.
So what, says Judge Paris. Ryan’s deals were all made by him alone, with no mention of FWP. You still can’t assign income that you earned to someone or something that didn’t. And FWP being duly incorporated doesn’t change that FWP didn’t earn income.
Next is Judge Kerrigan, dealing with an alleged $1.88 million in TFRPs owed by Sam T. Jewell, 2016 T. C. Memo. 239, filed 12/2916.
Sam is another Sub S specialist, but this time all the properties and everything else is properly titled to his Sub Ss, scattered all over the OK landscape.
IRS hits Sam with a bunch of NFTLs. Sam wants a CDP, but his only claim is that IRS filed liens against him where he did not own property.
Now we all know the one-CDP-per-liability rule.
“Section 6320(b)(2) imposes a qualification on subsection (b)(1) by providing: ‘A person shall be entitled to only one hearing under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates.’” 2016 T. C. Memo. 239, at p. 9.
The first NFTL was filed in TX. Sam had notice, but didn’t file a 12153 on that, so he has no chance to contest liability on the rest.
But is there abuse of discretion in filing a bunch of liens?
IRS wants record rule: only the administrative record is subject to review. Judge Kerrigan blows that off.
Judge Kerrigan: “The Court has previously held that it is not required to apply a limited standard of review and may accept evidence outside the administrative record in CDP cases. See Robinette v. Commissioner, 123 T.C. 85,101 (2004), rev’d, 439 F.3d 455 (8th Cir. 2006); see also Murphy v. Commissioner, 125 T.C. at 313. The broad scope of review in Robinette is not controlling in the First, Eighth, and Ninth Circuits. See Dalton v. Commissioner, 682 F.3d 149 (1st Cir. 2012), rev’g 135 T.C. 393 (2010); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part as to this issue T.C. Memo. 2006 166; Robinette v. Commissioner, 439 F.3d 455.” 2016 T. C. Memo. 239, at p. 12. I cite the cases so you can put them in your next memo of law.
But Sam’s from OK, OK is in Tenth Circuit, Tenth Circuit hasn’t ruled, the 2015 change in Section 7482(b)(1)(G) came after Sam’s petition and plays no part here, so Judge Kerrigan lets it all hang in.
Once again, arbitrary lines on a map decide issues of national import.
But once it all goes in, it doesn’t matter.
“Pursuant to section 301.6320-1(b)(1) and (2), Proced. & Admin. Regs., petitioner is entitled to a hearing with respect to the first NFTL that is filed regarding the unpaid tax for a particular period. Section 6320 does not address explicitly whether the right to an administrative hearing and judicial review is tied to the first filed NFTL. Where a statute is ambiguous or silent, we look to the legislative history to determine congressional intent.” 2016 T. C. Memo. 239, at p. 15.
The Conf. Report says Appeals can consider only NFTL One. And TX beat the OK barrage by one hour, CST.
So what, says Sam, I didn’t own no property in TX neither.
Judge Paris isn’t impressed: “During the administrative proceeding, in response to the settlement officer’s questions as to what property petitioner owned and where it was, including questions as to possible ‘nominee property, alter ego property or any other co-mingled [sic] property’, petitioner responded that the settlement officer was raising a ‘new issue’. Hence, petitioner relies solely upon his lack of record title to any property, real or personal, in Garvin County, because he owned property in that county through his wholly owned S corporation.
“Petitioner is the sole shareholder of numerous S corporations which operate nursing home facilities throughout Oklahoma, including the nursing home facility business which petitioner and his S corporation…operate in Garvin County. We conclude that it was not an abuse of discretion for respondent to sustain the Garvin County NFTL. That NFTL was filed to protect the Government’s interests because petitioner operates a nursing home facility in that county through his S corporation.” 2016 T. C. Memo. 239, at p. 18.
And Sam’s representative at the hearing dodged whether Sam’s S Corp was a nominee or alter ego, both of which OK State law recognizes.
Sam claims the NFTLs wound up in the local paper and devastated his finances, but has no proof.
One strike and you’re out, Sam.
The United States Tax Court will be closed January 19 and 20, 2017.
eFiling and eAccess will be available. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal (both of which types of documents must be filed in paper) by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.
George Bernard Shaw’s disparaging phrase doesn’t disparage me. I don’t write poetry. What I do is discuss the doings of the “small court,” the sixty-buck ticket-to-justice, the play-before-you-pay arena where all the world goes up, each from their own village, when they’ve been taxed and don’t like it.
I don’t write lengthy exegeses. I wasn’t on law review, so I can’t measure success by how much the number of footnotes exceed the number of words in any piece of mine.
I’m strictly a Habakkuk 2:2 kind of guy.
Every so often someone reads this my blog.
Sometimes they like it. At even rarer whiles they may pass me a brief compliment. Even more rarely, they heave a metaphorical brick at my cyberwindow.
I’m told my pieces are even read within the sacred precincts of Tax Court itself…sometimes.
So you’ll excuse a very small cough when I get this e-mail from Twitter.
See my blogpost “Amen, Judge Posner,” 12/22/16.
Linda Lingo slides under the IRS tag in a designated hitter, with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a Reformed Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes calling the play.
It’s Kristopher L. Lingo, et al., Docket No. 17356-12, filed 12/28/16. Linda’s one of the als. But Kris, Linda and son Matthew all had IRAs.
All three IRAs made loans. We call such people and entities “hard money lenders.” They don’t bother with paper, but love very low loan-to-value ratios and high interest rates. We’re concerned with Linda’s IRA here.
Former husband Kris “…owned a corporation called STDS. STDS found borrowers for would-be lenders, including the Lingos’ IRAs. Loans and interest would then pass through STDS between the Lingos’ IRAs and borrowers. The Commissioner thought all this added up to multiple prohibited transactions under IRC § 4975 and he sent the Lingos notices of deficiency for the tax years 2004-2008. This case is complicated by the Lingos’ divorce in February 2005, which affected whether Ms. Lingo was a disqualified person.” Order, at p. 1. (Contrary to my usual custom, I mention the dates because they’re crucial).
Linda claims she never did a prohibited before the divorce, even if she was a disqualified person for Section 4975 purposes, and couldn’t be afterwards, as she was no longer married to Kris.
She wants partial summary J. IRS has only the Michael Corleone gambit.
First, IRS claims her affidavits are self-serving. OK, so rebut them.
Then IRS claims that Linda had a piece of STDS. “But the Lingos point to Mr. Lingo’s affidavit that says he was the sole shareholder in 2004. There’s also a signed copy of the Lingos’ settlement agreement, where Ms. Lingo waived any interest after the divorce. Even if the affidavit and settlement agreement didn’t exist, this fact isn’t material because STDS already counted as a disqualified person for Ms. Lingo under the family attribution rules of section 4975. The Commissioner rests on his allegations and doesn’t produce evidence to dispute the affidavit or settlement agreement.” Order, at p. 2.
If STDS was a Corp, be it C or S, why didn’t IRS pull the 1120 whatever, and the K-1s if an S, and put all that in evidence? Would that evidence have sunk them?
Next, “The Commissioner also questions whether a trust fund that received payments from STDS and sent them to Ms. Lingo’s IRA existed. But there are documents showing the trust fund existed and the Commissioner doesn’t produce any documents disputing this. In fact, it seems the Commissioner knew about the trust fund since the original audit.” Order, at p. 2.
Two more tries, neither particularly successful.
“The Commissioner says the Lingos admitted STDS retained fees in Mr. Lingo’s affidavits. But that’s only partly true. Mr. Lingo acknowledges STDS retained fees, but not until two years after the Lingos’ divorce. That time line is important because the Commissioner’s argument here centers around 2004. The Commissioner hasn’t produced any conflicting evidence here either. He did produce documents suggesting STDS received compensation for some transactions, but these transactions also didn’t occur until after the divorce.
But the Lingos must still show they are entitled to a partial summary J.
“Section 4975(c)(1)(C) prohibits a disqualified person from furnishing ‘goods, services, or facilities’ to a plan. There’s no dispute that Ms. Lingo’s IRA counts as a plan under section 4975(e)(1)(B). The next question is who counts as a disqualified person? The answer is — at least before the divorce — a number of people. Ms. Lingo, as the IRA’s owner, is a fiduciary and disqualified person of her IRA because she controls it. Sec. 4975(e)(2)-(3); Ellis, 106 T.C.M. (CCH) 468, 2013 WL 5807593 at 5. Mr. Lingo — again, at least before the divorce — was a disqualified person for Ms. Lingo’s IRA since he was Ms. Lingo’s spouse. Sec. 4975(e)(2)(F), (6). And then there’s STDS. It’s a disqualified person because it’s owned by a disqualified person — Mr. Lingo. Sec. 4975(e)(2)(G).
“That brings us back to 4975(c)(1)(C). STDS — a disqualified person -provided services to Ms. Lingo’s IRA, which counts as a plan. STDS received money from borrowers and sent the money on to the IRA, which counts as a service as respondent argues.” Order, at p. 3.
OK, so Linda’s IRA is disqualified?
That’s a thwacking big negatory, good buddy. Even the Supremes agree that unless the service provider is compensated for said services, Section 4975 is off the table.
“The Supreme Court itself has held that a gratuitous transfer from a disqualified person to a plan is not a prohibited transaction. Commissioner v. Keystone Consolidated Indus., Inc., 508 U.S. 152, 161 n.2 (1993). And this is a solid textual basis for this commonsense result: The six types of prohibited transactions in § 4975(c)(1) are colored by the last two, which bar a fiduciary who deals with a plan’s property as his own, or who receives compensation in connection with a transaction involving a plan’s property. The seemingly more general language of§ 4975(c)(1) – (4) in no way shifts the focus of the prohibition away from a misbehaving ‘disqualified person.’ In the case of services, the more general language of ‘furnishing . . . between a plan and a disqualified person’ includes situations where such a person contracts with a plan to provide services or somehow has a plan provide services to him. In either scenario a plan’s property is at risk — is too much being charged to the plan? Is it given too little in exchange? — in a way that it isn’t with gratuitous services of the type STDS provided here.
“This becomes even more clear when one looks at § 4975(d)(2), which exempts from the prohibition services provided by a disqualified party to a plan so long as ‘no more than reasonable compensation is paid.’ The regulations then provide that a ‘disqualified person’ who provides services without consideration isn’t committing a prohibited transaction under § 4975(c)(1)(E) or (F). 26 CFR § 54.4975-6(a)(5)(ii) and (iii). We hold likewise that STDS’s minor services to Mrs. Lingo’s IRA were not prohibited transactions because zero compensation is ‘no more than reasonable compensation.’” Order, at p. 4 (Footnote omitted, but it says Section 4975(f)(4) measures damages for prohibited services transactions based on the amount of “excess compensation.”).
Now guys, says Judge Holmes, y’wanna get on the pretrial order track, or maybe so discuss settling?
And a tip of the battered Stetson to San Diego charger Mitchell Barry Dubick, Esq. A Taishoff “Good Job,” sir.
Back on 3/24/16 I said “I have no doubt STJ Leyden will give the taxpayers a fair shake in Tax Court.” See my blogpost “Straight from the Sidewalks of New York,” 3/24/16.
Well, making an offer of proof in support thereof, I give you Jack Dewain Burke, Docket No. 27301-15S, filed 12/27/16, an off-the-bencher, with IRS represented by a law student (under supervision, of course). Welcome to the real world, kid.
JD is “… a disabled veteran with physical and mental disabilities. These physical disabilities included a recurring hernia in his groin, spinal disease and damage, and full body osteoarthritis, which caused painful joints in his knees and pain in his back.” Order, at p. 6 (transcript).
JD also has ADD for which he is taking medication that contains amphetamines.
His employer Home Depot (remind me not to shop there and to discourage anyone I know from shopping there; I cannot well describe their management in a blog meant for family reading), to whom he had made full disclosure on first being hired, fired him for failing a drug test after reassigning him from a job he could handle well to one he couldn’t, although they did increase his pay even after a bad report.
He told them that the drug was prescribed, but they refused to allow him a defense.
He sued. His lawyer amended the first complaint (how, JD doesn’t know, and he doesn’t have complaint number one).
Home Depot settled. JD’s lawyer told him he didn’t need to pay tax on the settlement, but IRS did.
Judge Di goes through the “what did they really settle, not what did they say they settled” catalogue.
“The payor’s intent can be ‘based on all the facts and circumstances of the case, including the complaint that was filed and the details surrounding the litigation.’ See, e.g., Allum v. Commissioner, T.C Memo. 2005-177, 2005 Tax Ct. Memo LEXIS 178, at *15, aff’d 231 Fed. Appx. 550 (9th Cir. 2007). Under California law, which governs the interpretation of petitioner’s settlement agreement with Home Depot, we must consider all credible evidence to determine whether the language of the agreement is fairly susceptible of more than on [sic] interpretation. If it is, we must consider extrinsic evidence relevant to prove which of these meanings reflects the intent of the contracting parties.” Order, at p. 16. (Transcript; Citation omitted).
Now any lawyer who can’t find an ambiguity should find another job, and Judge Di is on the case.
So let’s look at the settlement. There was a modest amount of lost wages, and JD paid tax on that. There were attorneys’ fees, and those get a Section 62(a)(20) above-the-line writeoff, as JD’s attorney pleaded the right kind of discrimination. Those aren’t excludable, but are deductible without phaseout or AMIT.
But in a neat piece of judicial cherrypicking, Judge Di gives JD a well-deserved break.
“Of the 11 causes of action, the last one was for punitive damages. Awards for punitive damages are not excludable from gross income under Section 104(a)(2). Of the remaining ten causes of action, six of them expressly refer to petitioner’s physical injuries or sickness and indicate that petitioner would be seeking damages for medical care by physicians, surgeons, and other health care advisors. Accordingly, the Court concludes that six-tenths of the $31,500 of the settlement payment, or $18,900, is excludable from petitioner’s gross income for 2013 under Section 104(a)(2).” Order, at pp. 18-19. (Transcript).
Plaintiffs’ attorneys, go and do thou likewise. Only you really shouldn’t give tax advice. Just send the client to Judge Di, the veterans’ friend.
OK, the halls were decked, the wassail has sailed away, and I’m back at the same old stand on Lower Broadway here on this US Minor Outlying Island.
I wish I had something novel, but Ch J L Paige (“Iron Fist”) Marvel insists upon admitting CPAs to practice in Tax Court (with or without POAs, which are of course worthless in Tax Court), notwithstanding the explcit provisions of Rule 24(a)(4).
We all know that fiduciaries of various kinds (personal representatives, trustees, ex’rs and administrators), next friends, corporate officers, partners and LLC managers (tax matterers until next week, and tax representatives after that) may appear, if either named in the document conferring jurisdiction on Tax Court or obtaining Tax Court approval if not so named.
But Ch J Iron Fist keeps letting ‘em all in, even none of the above, with special preference for CPAs.
Here’s another one welcoming me back, Marta Torre De Morimoto & Masayoshi Morimoto, Docket No. 25494-16S, filed 12/27/16.
Mart & Masa got a “no change” from IRS after they dropped their pro se petition back on December 1. And Ch J Iron Fist quite properly told them to sign same or get “…a representative with proper authorization and capacity pursuant to the Tax Court Rules of Practice and Procedure” to do it.
So now, instead of doing what Ch J Iron Fist told them to do, but apparently at their direction, into the mail slot at 400 Second Street, NW falls “…a Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners. That letter states that: (1) petitioners have received a ‘no change’ letter from the IRS with respect to their 2013 tax year and (2) petitioners wish to withdraw their petition. A copy of the ‘no change’ letter was attached to that document.” Order, at p. 1.
Of course you can’t withdraw a petition from a SNOD, small-claimer or no small-claimer, once Tax Court has jurisdiction, without decision for IRS for the full boat of the SNOD.
Now who, saving his reverence, might Richard E. Evans be? According to Tax Court’s docket inquiry link, Mart & Masa are still pro se, so perchance Richard E. Evans is a Tax Court admittee who’s a wee bit slow filing Form 7, or maybe one awaiting prompt admission.
But my inquiring mind found that a certain Richard E. Evans is a partner in one of the seventy (count ‘em, seventy) largest firms of Certified Public Accountants in our country, with offices in San Diego, CA, where Mart & Masa want to try their case.
Now it may be that there’s more than one Richard E. Evans in SD CA, so I apologize in advance if I’ve named the wrong person.
And the true Richard E. Evans may not be a CPA. But I’m prepared to wager a couple ales at Jake’s Saloon on 23rd Street (hi Judge Holmes, sorry I can’t buy you a drink; no Judges can take this bet) that Richard E. Evans is neither an admittee nor leading the field down to the wire.
So Ch J Iron Fist one again crushes the Rules of Practice and Procedure.
“…the Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners is recharacterized as a Motion for Entry of Decision by Richard E. Evans on Behalf of Petitioners.” Order, at p. 1.
And Mart & Masa have five weeks to get with IRS’ counsel, put in decision documents, or file a status report.
I know this is a small-claimer, and we don’t play strict rules of golf, but there are some vestigial rules. I also know Judges want to clear the docket like a goalie down 5 to 3 on a powerplay wants to clear pucks, and like said goalie is willing to risk taking a delay-of-the-game by throwing the puck into the stands.
But if the Rules need changing, change them. Don’t tiptoe around them.
Tax Court is shuttered today. According to a fictional colleague of my youth, everyone has been born again on a Monday, so neither opinion nor order issues forth to give me an excuse to blog.
So I go back to a troubling pair of blogposts that interrupted my somnolent holiday and drove me to the keyboard electric. Compare and contrast “Robosigner?” 12/23/16, with “Money-Back Guarantee meets The Boss Hoss,” 11/30/16.
If it turns out that Judge Gustafson has discovered that the famous Section 6751(b)(1) sign-off by “immediate supervisor” is actually done by some “Reviewer,” who may or may not be the “immediate supervisor” of the initial determinator, and moreover may be “personally approving” such determination by a robosignature, like papers in a phony subprime mortgage foreclosure, what price ex-Ch J Michael B. (“Iron Mike”) Thornton’s psycholinguistic hopscotch in the second of my blogposts aforementioned?
The answer isn’t in the dictionary, nor in The Oxford English Grammar.
Either Congress meant that someone, who has oversight responsibility for the IRS employee who chooses to impose a penalty, exercises, and documents the exercise of, that responsibility before the taxpayer first gets hit with the chop, or they meant something unintelligible from the plain words (without philological gloss) that appear on the page.
As best I, a mere old-time, beaten-up, beaten-down, single-shingle dirt lawyer “of limited experience and mediocre qualifications” can discern, Congress proposed that IRS stop using penalties to bully taxpayers.
And the way to do it, said Congress, is to require a second look before dropping the bomb. And that’s a documented second look by a specific individual senior to the would-be bomber.
If the second look needn’t be given or documented until after a Tax Court litigation, wherein the taxpayer may have paid or incurred monumental legal fees, costs and disbursements, finally to be justified; or worse, where the taxpayer is unjustly mulcted but cannot afford even the “reasonable rates” of Eric William Johnson, Esq., what exactly is the point of the statute?
Moreover, if the famous “second look” can be accomplished by a robosigner with an illegible signature many years after said initial determination, the statute becomes positively farcical.
If ever an opinion needed reargument, it’s 147 T. C. 16.
Blogging is like eating Crackerjacks©. I defy anyone to stop after the first one.
So notwithstanding the holiday signoff on the immediately preceding blogpost, I’m back, with a tip of the battered Stetson to the late Alvin Toffler, whose 1970 opus thus entitled delineated the social confusion and breakdown of former normality when change comes too fast in too many ways.
Ring any bells? Sorry about that; this is a nonpolitical blog. I’m talking about the latest IRS coruscation, the “Future State” Plan. See IR-2016-174, 12/21/16.
I’m all for agility, efficiency and effectiveness. Especially if it doesn’t cost money. But it always does.
Howbeit, after having called the Tax Professional helpline a couple days ago (Merry Christmas, Judge Holmes) and being told that yuge call volume prevents me from getting through or even leaving a message, the following leaves me more Scrooge than Tiny Tim.
Well, if IRS is going to leave current methods of service in place, I expect a lot of future shock.
Especially when IRS gets its info from attendees at the Nationwide Tax Fora, which cost at least a grand to attend and three days out of a work-week if you don’t live next door.


Pursuant to the Board's Standard Operating Procedure No. 94-02, this opinion has been approved for publication. The opinion is binding precedent of the Board. This appeal was decided November 16, 1994.
This appeal is from the examiner's decision refusing to allow claims 1 through 6, which are all of the claims remaining in the application.
[w]hat appellants have given the art is a set of clones that are useful because they have been mapped to unique and specific locations on the tomato chromosome map. [Emphasis added].
See the main Brief before the Board, page 1, last paragraph.
Further by way of background, appellants point out that a set of unique cDNA probes, each identifying particular loci on the tomato genome, has been previously derived. These cDNA probes are listed in Table 1 of the specification and are named according to their original designation during the cloning process and according to their loci. A first library comprising 60 cDNA probes in plasmids was placed on deposit according to Budapest Treaty requirements at the In Vitro International Depository of 7885 Jackson Road, Ann Arbor, Michigan 48103, deposited March 19, 1986, entitled "Tomato Nuclear cDNA Clones," under Accession No. IVI-10107. See the specification, pages 11 and 12. A further set of unique cDNA probes, the subject of this patent application, was derived to expand the tomato chromosome map. The library of new probes, comprising 18 cDNA probes in plasmids, was placed on deposit according to Budapest Treaty requirements at In Vitro International Inc., 611P Hammonds Ferry Road, Linthicum, Maryland 21090, deposited March 16, 1987, entitled "Tomato Nuclear cDNA Clones," under Accession No. IVI-10131. See the specification, page 13. Figure 2 of this application illustrates the expanded tomato linkage map of appellants' invention, and a copy of Figure 2 is attached to this opinion as an appendix.
1. A cDNA library corresponding to tomato DNA comprising at least two clones selected from the group consisting of CD10, CD76, CD66, CD71, CD69, CD68, CD70, CD78, CD74, CD26, CD72, CD18, CD17, CD19, CD39, CD32 and CD2.
2. The cDNA library of claim 1 wherein said two clones are selected from the same chromosome.
3. The cDNA library of claim 1 containing all the clones listed in claim 1.
4. a cDNA clone selected from the group consisting of CD10, CD76, CD71, CD69, CD68, CD36, CD70, CD78, CD74, CD26, CD66, CD72, CD18, CD17, CD19, CD39 and CD2.
5. A plasmid containing a cDNA clone of claim 4.
6. The plasmid of claim 5 comprising pBR322 or pUC8.
Martin, Dictionary Of Life Sciences, Pica Press, 1984, page 154.
Graham et al. (Graham), The Journal of Biological Chemistry, "Wound-induced Proteinase Inhibitors from Tomato Leaves," Vol. 260, No. 11, 1985, pages 6555-6560.
Helentjaris et al. (Helentjaris (I)), Plant Molecular Biology, "Restriction fragment polymorphisms as probes for plant diversity and their development as tools for applied plant breeding," Vol. 5, 1985, pages 109-118.
Helentjaris et al. (Helentjaris (II)), Theoretical and Applied Genetics, "Construction of genetic linkage maps in maize and tomato using restriction fragment length polymorphisms," Vol. 72, 1986, pages 761-769.
Alexander et al. (Alexander), Gene, "A simplified and efficient vector-primer cDNA cloning system," Vol. 31, 1984, pages 79-89.
Molecular Biologicals, Cohen, "Cloning Vectors," 1984, pages 55, 57 and 58.
(5) Claim 6 under 35 U.S.C. § 103 as unpatentable over the combined disclosures of Alexander and the Molecular Biologicals reference.
(7) the previous opinion and decision of the Board in related Application Serial No. 841,594, Ex parte Tanksley, 26 USPQ2d 1384 (BPAI 1991).
As stated in the communication mailed by the examiner March 8, 1993, "[t]he reply brief filed October 2, 1992 has not been entered." Accordingly, in our deliberations, we have not considered appellants' Reply Brief before the Board.
Having carefully considered those materials, except for appellants' Reply Brief, we disagree with the examiner's prior art and non-prior art rejections. For the reasons discussed infra, we shall not sustain those rejections. Nevertheless, we enter a new ground of rejection of claims 1 through 6 under 35 U.S.C. § 112, first and second paragraphs.
1. That on and prior to March 13, 1987, Native Plants, Inc. was the sole owner of the tomato cDNA libraries and clones made by Native Plants, Inc. and described in Helentjaris, T. et al. (1985) Plant Mol. Biol. 5:109-118; and Helentjaris, T. et al. (1986) Theor.Appl.Genet. 72:761-769.
a) A nonexclusive license was being offered for approximately one million dollars. Licensees were not permitted to sublicense or distribute the clones to third parties.
b) Public institutions could obtain clones upon request for research purposes only under a Letter of Confidentiality requiring that they not release the clones to third parties.
According to appellants, the declaration establishes that access to the Helentjaris libraries and clones was restricted to either (1) nonexclusive licensees, at a cost of approximately one million dollars; and (2) public institutions, for research purposes only, under a Letter of Confidentiality requiring that the institutions not release the clones to third parties. See appellants' main Brief before the Board, page 24. In view of that restricted access, appellants assert, the tomato cDNA libraries and clones described in the Helentjaris references were not publicly available on or before the filing date of their parent application. Appellants conclude that both Helentjaris references are non-enabling.
I further submit that the Alexander et al., Graham et al. and Helentjaris et al. references do not contain disclosures which would enable a skilled worker to reproduce their libraries. There is no mention in these references of the clones described being on deposit or publicly available, and it would be impossible to duplicate the clone libraries described following the procedures set forth in the articles. The libraries described in the articles are nowhere near large enough to be statistically representative, i.e., to have a good probability of representing all possible mRNAs. This may be illustrated by considering a simplified case as follows: Assuming that an organism contains only 1000 different messages named 1 through 1000 and all are of equal abundance. mRNA is isolated from the organism and because cDNA cloning is often inefficient, only two partial libraries of only 100 clones are obtained on two successive attempts. The probability that every clone in the first library is also present in the second is less than 10-136 (see Dayhoff, J.E. (1984) Bulletin of Mathematical Biology 46:529-543, attached hereto as Exhibit F). By analogy, the cited libraries cannot now be duplicated to determine whether or not any clones therein are the same as the clones claimed in the present application. [Emphasis added].
According to appellants, the Murray Declaration provides an adequate, evidentiary basis to support the conclusion that the Alexander reference is non-enabling.
In view of our disposition of this appeal, we find it unnecessary to reach or decide the question whether the Helentjaris and Alexander references are enabling. For the purposes of this appeal, we shall assume, arguendo, that each reference is enabling. Even making that assumption, however, we hold that neither of the Helentjaris references nor the Alexander reference constitutes sufficient evidence to support a conclusion of anticipation or obviousness of the subject matter sought to be patented in claims 1 through 6.
In the declaration of Michael G. Murray, executed March 25, 1991, Murray offers his expert opinion that "the likelihood of an identical clone to one of the clones from the Tanksley library having been present in the Alexander ... or Helentjaris libraries is so low as to be unworthy of serious consideration" and "[i]t is therefore virtually impossible for the Alexander et al .... or Helentjaris et al. libraries to contain exact duplicates of the Tanksley clones." See the declaration, page 2, first full paragraph and page 3, second full paragraph. That opinion is based on a detailed statistical analysis involving logic and sound scientific reasoning, replete with references to the literature. See the Murray Declaration, particularly pages 2 through 4. The declaration evidence is entitled to fair weight and, in our judgment, the examiner erred by (1) characterizing Murray's analysis as "merely hypothetical," and (2) summarily dismissing the declaration as containing "unsupported opinions." See the Examiner's Answer, page 19, last paragraph.
*5 Taking into account the analysis presented in the Murray Declaration, we hold that neither of the Helentjaris references nor the Alexander reference anticipates appellants' claims either under the doctrine of inherency or any other recognized legal doctrine. As stated by Murray, "[t]he likelihood of an identical clone to one of the clones from the Tanksley library having been present in the Alexander ... or Helentjaris libraries is so low as to be unworthy of serious consideration" and "[i]t is therefore virtually impossible for the Alexander et al .... or Helentjaris et al. libraries to contain exact duplicates of the Tanksley clones." Accordingly, we reverse each of the § 102 rejections set forth by the examiner.
With respect to the rejections under 35 U.S.C. § 103, we find that the cited prior art provides no suggestion which would have led a person having ordinary skill from "here to there," i.e., from the clones disclosed by Helentjaris or Alexander to the clones recited in appellants' claims. We have no doubt that the prior art could be modified in such manner to arrive at appellants' clones. The mere fact, however, that the prior art could be so modified would not have made the modification obvious unless the prior art suggests the desirability of the modification. In re Gordon, 733 F.2d 900, 221 USPQ 1125 (Fed.Cir.1984) and cases cited therein. That is not the case here. Accordingly, we reverse each of the § 103 rejections set forth by the examiner. In so doing, we note that the Molecular Biologicals reference does not cure the above-noted deficiency of the Alexander reference, and does not, in combination with Alexander, establish the obviousness of claim 6.
Respecting the non-prior art rejection, the examiner rejects claims 1 through 6 under 35 U.S.C. § 112, first paragraph, as based on a specification which fails to provide an adequate, written description of the claimed invention and as based on a non-enabling disclosure. Like the situation presented in Ex parte Tanksley, 26 USPQ2d 1384 (BPAI 1991), however, the reasons set forth by the examiner are more germane to a rejection under 35 U.S.C. § 112, second paragraph, for claim indefiniteness. The examiner emphasizes that appellants' claimed subject matter relates to DNA fragments. According to the examiner, appellants are remiss in not providing sequence data for their DNA fragments or information pertaining to proteins encoded by or partially encoded by the claimed cDNAs. According to the examiner, sequence data "would better characterize the cDNA clones" and "facilitate a complete search of the prior art." See the Examiner's Answer, page 13. The examiner takes the position that appellants' specification and claims do not provide adequate information so that the examiner may readily search and examine the application. We disagree with this line of reasoning.
*6 The § 112 rejection amounts to a requirement, imposed by the examiner, that appellants amend their claims in a specified manner to "facilitate a complete search of the prior art." Again, see the Answer, page 13. We find no language in the statute or case law which would support that requirement. On the contrary, the second paragraph of § 112 states that the specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention, and our reviewing court has interpreted that provision as requiring that the claims do, in fact, set out and circumscribe a particular area with a reasonable degree of precision and particularity. See In re Moore, 439 F.2d 1232, 169 USPQ 236 (CCPA 1971). In our judgment, a patent applicant is entitled to a reasonable degree of latitude in complying with the second paragraph of 35 U.S.C. § 112 and the examiner may not dictate the literal terms of the claims for the stated purpose of facilitating a search of the prior art. Stated another way, a patent applicant must comply with 35 U.S.C. § 112, second paragraph, but just how the applicant does so, within reason, is within applicant's discretion.
We are mindful that the examiner relies on the above-cited Graham and Martin references in rejecting claims 1 through 6 on non-prior art grounds. We have carefully reviewed those references, but find no disclosure therein persuading us that the examiner's rationale supporting the § 112 rejection is correct.
For the reasons discussed infra, in the new ground of rejection, we find that claims 1 through 6 are indefinite within the meaning of 35 U.S.C. § 112, second paragraph, and based on a non-enabling disclosure within the meaning of 35 U.S.C. § 112, first paragraph. We do not, however, agree with the examiner's reasons in rejecting claims 1 through 6 on non-prior art grounds. Accordingly, we reverse the rejection of claims 1 through 6 under 35 U.S.C. § 112, first paragraph.
To the extent that the previous Board's holding in Ex parte Tanksley, 26 USPQ2d 1384 (BPAI 1991), may be considered in conflict with our holding with respect to the non-prior art rejection, we invite attention to Helentjaris (II) published in Theoretical and Applied Genetics, 72:761-769 (1986), entitled "Construction of genetic linkage maps in maize and tomato using restriction fragment length polymorphisms." That reference was not of record in the previous appeal, but it is of record here, and indicates the appropriate terminology, nomenclature, and usage familiar to persons having ordinary skill in this art. Note particularly Figure 3 in Helentjaris (II), i.e., the tomato genetic linkage map illustrated therein. Considering all the evidence in this record, we are of the firm conviction that the examiner's approach in rejecting claims 1 through 6 under 35 U.S.C. § 112, first paragraph, is incorrect.
*7 Under the provisions of 37 CFR § 1.196(b), we enter the following new ground of rejection.
Claims 1 through 6 are rejected under 35 U.S.C. § 112, first and second paragraphs, as based on a non-enabling disclosure and as not particularly pointing out and distinctly claiming the subject matter which appellants regard as their invention. This rejection has three aspects.
On first reading, claims 1 through 6 appear to set out and circumscribe a particular area with a reasonable degree of precision and particularity. This is so because the claims recite a finite number of cDNA clones, analogous to the recitation of a finite number of integers along the number line. We point out, however, that claims which on first reading appear definite may upon a reading of the specification disclosure take on an unreasonable degree of uncertainty. See In re Moore, 439 F.2d 1232, 169 USPQ 236 (CCPA 1971).
As discussed above, the map distances given herein in Figures 1 and 2 are statistically derived. It should be understood that variations of 5 to 10 cM are not statistically significant, and clones within such distance of each other are within the scope of equivalents of this invention.
Apparently, in light of that disclosure, appellants would not restrict or limit coverage to the finite number of cDNA clones recited in claims 1 through 6. Rather, they would extend coverage to a "scope of equivalents" referred to at page 34 of the specification in conjunction with Figures 1 and 2 of this patent application. This would be analogous to extending coverage to other integers along the number line, not recited in the claims. The situation is exacerbated here because only Figure 2 shows the expanded tomato linkage map of this invention. Figure 1 shows a tomato linkage map based on cDNA and isozyme markers as disclosed in U.S.Patent Application No. 841,594, filed March 20, 1986. See appellants' specification, paragraph bridging pages 7 and 8.
In view of that latent ambiguity, we hold that the claims take on an unreasonable degree of uncertainty and are indefinite within the meaning of 35 U.S.C. § 112, second paragraph.
We emphasize, as a matter of claim interpretation, that it is incorrect to read unwritten limitations into pending claims contrary to the plain words of those claims. In re Zletz, 893 F.2d 319, 13 USPQ2d 1320 (Fed.Cir.1989). Even assuming arguendo, however, that we read the unwritten limitations from the specification into claims 1 through 6, the claims would still be indefinite. In our judgment, the full range or "scope of equivalents" referred to in the specification, page 34, first paragraph, is entirely unclear.
*8 Furthermore, to the extent that claims 1 through 6 embrace more than the finite number of cDNA clones expressly recited, the claims are based on a non-enabling disclosure. This is so because appellants have not established that they have placed on deposit, in an appropriate manner, any cDNA clones which are the subject of this patent application other than those referred to in the specification, page 13, first paragraph.
This aspect of the new ground of rejection may be overcome if appellants cancel the passage appearing at page 34, first paragraph, of the specification.
As reflected by the prosecution history of this application, an appropriate deposit of appellants' cDNA library in a recognized depository is required to satisfy the enablement provision of 35 U.S.C. § 112, first paragraph. The examiner determined that appellants' deposit with In Vitro International Inc., referenced at page 13 of the specification, satisfies that requirement. Be that as it may, we note that In Vitro International Inc.'s status as an international depository was terminated effective September 25, 1991. See 1129 OG 51, "Notice of Termination of Status of International Depository Authority under Budapest Treaty," August 27, 1991, copy enclosed with this opinion. That termination of status raises the question whether appellants may continue to rely on the In Vitro International Inc. deposit to satisfy the enablement provision of 35 U.S.C. § 112, first paragraph. Clarification of the status of the deposit is required and, on the facts of this case, appellants carry the burden of supplementing the record with such clarification.
Conspicuous by its absence from claims 1 through 6 is any reference to the appropriate Accession No. of a recognized, international depository authority. Manifestly, the claim language should tie in directly to the relevant Accession No. This follows because the CD numbers referred to in the claims, in and of themselves, are arbitrary and meaningless. Reference to the appropriate Accession No. in the appealed claims is necessary so that the claims set out and circumscribe a particular area with a reasonable degree of precision and particularity, and are based on an enabling disclosure.
This aspect of the new ground of rejection may be overcome if appellants amend the claims, in an appropriate manner, to insert reference to the relevant Accession No. of a recognized, international depository authority.
In conclusion, we do not sustain the examiner's prior art or non-prior art rejections. We enter a new ground of rejection of claims 1 through 6 under 35 U.S.C. § 112, first and second paragraphs. The examiner's decision is reversed.
*9 Any request for reconsideration or modification of this decision by the Board of Patent Appeals and Interferences based upon the same record must be filed within one month from the date of the decision (37 CFR § 1.197). Should appellants elect to have further prosecution before the examiner in response to the new rejection under 37 CFR § 1.196(b) by way of amendment or showing of facts, or both, not previously of record, a shortened statutory period for making such response is hereby set to expire two months from the date of this decision.
Effective August 20, 1989, 37 CFR § 1.196(b) has been amended to provide that a new ground of rejection pursuant to the rule is not considered final for the purpose of judicial review under 35 U.S.C. § 141 or § 145.
FN1. Application for patent filed June 10, 1988. According to appellants, the application is a continuation-in-part of Application 07/025,514, filed March 13, 1987, now abandoned.


§ 328-4 Tobacco product advertisement restriction.
§ 328-5 Noncompliant advertisements to be removed.
§ 328-7 Violations and penalties.
This chapter shall be known as and may be cited as the "Youth Protection Against Tobacco Advertising Code."
Retail dealers of tobacco products are prohibited from selling tobacco products to persons under the age of 18 pursuant to § 1399-c of the Public Health Law of the State of New York. In furtherance of the goals and objectives of such prohibition, the City Council of the City of New Rochelle wishes to decrease the exposure of minors to outdoor stimuli that encourage them to purchase tobacco products, thereby decreasing the number of illegal sales of tobacco products to and discouraging the consumption of tobacco products by minors.
The purpose of this chapter shall be to minimize the impact of advertising on persons under the age 18 by prohibiting the placement and maintenance of outdoor tobacco advertising within 1,000 feet of institutions serving minors. At the same time, advertising to tobacco products shall be permitted in retail premises which possess a certificate of registration to sell tobacco products under § 480-a of the Tax Law of the State of New York, in order that the rights and abilities of tobacco manufacturers to advertise and of adults to purchase tobacco products shall not be unduly impaired.
Any public, private or parochial child care center, school-age child-care program, day nursery school, kindergarten, play school or other similar school or service, and any child day-care center as defined in § 390 of the New York State Social Services Law. The definition of child day-care center applies whether or not care is given for compensation, but does not include child day-care centers located in private residences and multiple dwelling units.
Any public, private or parochial congregate institution, group residence, group home or other place where, for compensation or otherwise, seven or more children under eighteen years of age are received for day and night care apart from their parents or guardians, youth centers or facilities for detention as defined in §§ 527 and 502 of the New York State Executive Law, group homes for children as defined in § 371 of the New York State Social Services Law, private institutions for children as defined in § 371 of the New York State Social Services law and residential treatment facilities for children and youth as defined in § 1.0 of the New York State Mental Hygiene Law. The term children's institution shall not include children's institutions located in private residences and multiple dwelling units.
Any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler or its packaging and labelling, is likely to be offered to, or purchased by, consumers as a cigarette described in Subsection A above.
Any product that consists of loose tobacco and is intended for use by consumers in a cigarette.
Any unit of residential accommodation in a multiple dwelling containing the residence or home of three or more families living independently of each other.
Any outdoor location visible to the public, including but not limited to outdoor billboards, roofs and sides of buildings, water towers and freestanding signboards. The term "publicly visible location" shall not include any location intended to be visible only by those inside a premises, a private residence and any doors or windows of a multiple dwelling unit.
Any natural person, partnership, corporation, government agency, association or other legal entity.
An outdoor premises or grounds under the control of or operated by or on behalf of the City School District, the Department of Parks and Recreation or any public, private or parochial school, or any child day care center, which contains any device, structure or implement, fixed or portable, used or intended to be used by persons under the age of eighteen for recreational or athletic purposes, including but not limited to play equipment such as a sliding board, swing, jungle gym, sandbox, climbing bar, wading pool, obstacle course, swimming pool, see-saw, baseball diamond, athletic field or basketball court.
The buildings, grounds or facilities, or any portion thereof, owned, occupied by or under the custody or control of public, private or parochial institutions for the primary purpose of providing educational instruction to students at or below the twelfth grade level.
Any product that consists of cut, ground, powdered or leaf tobacco that is intended to be placed in the oral cavity.
Cigarettes, smokeless tobacco and cigarette tobacco.
Any words, pictures, posters, placards, signs, photographs, symbols, devices, graphic displays or visual images of any kind, or any combination thereof, the purpose or effect of which is to promote the use or sale of a tobacco product including through the identification of a brand of a tobacco product, a trademark of a tobacco product or a trade name associated exclusively with a tobacco product.
Any designated indoor facility, other than a private residence or a multiple dwelling unit, of a local chapter of a nationally-recognized youth organization such as Boys and Girls Clubs and YMCA's.
It shall be unlawful for any person to place, cause to be placed or to maintain a tobacco product advertisement in any outdoor publicly visible location on or within 1,000 feet of the perimeter of any child day-care center, children's institution, playground, school premises or youth center.
This section shall not apply to any tobacco product advertisement on a motor vehicle.
This section shall not apply to any premises in which a retail dealer sells tobacco products pursuant to certificate of registration under § 480-a of the Tax Law of the State of New York, provided signage complies in all respects with Chapter 270, Signs.
The owner, operator or lessee of any location or premises where a tobacco advertisement is prohibited or restricted pursuant to the requirements of § 328-4 of this chapter shall have 30 days from the effective date of this chapter to remove any noncompliant tobacco advertisements.
The Bureau of Buildings shall enforce the provisions of this chapter.
Any person found to be in violation of this chapter shall be punishable by a fine of not more than $250 for each and every day such violation exists and continues.
Whenever any person has engaged in any acts or practices which constitute a violation of any provisions of this chapter or of any rule promulgated thereunder, the city may make application to a court of competent jurisdiction for an order enjoining such acts or practices and for an order granting a temporary or permanent injunction, restraining order or other order enjoining such acts or practices.