Wedgewood Village v. United States ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
9-1-2005
Wedgewood Village v. USA
Precedential or Non-Precedential: Precedential
Docket No. 04-1175
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-1175
WEDGEWOOD VILLAGE PHARMACY, INC.,
IN THE MATTER OF ESTABLISHMENT
INSPECTION OF:
d/b/a WEDGEWOOD PHARMACY,
Appellant
v.
UNITED STATES OF AMERICA
On Appeal from the United States District Court
for the District of New Jersey
(District Court No. 03-cv- 03438)
District Judge: Honorable Jerome B. Simandle
Argued: November 16, 2004
Before: McKEE and CHERTOFF,* Circuit Judges, and
BUCKWALTER,** District Judge.
(Filed: September 1, 2005)
HOWARD M. HOFFMAN (Argued)
RACHAEL G. PONTIKES
Duane Morris LLP
227 West Monroe Street
Suite 3400
Chicago, IL 60606
FRANK A. LUCHAK
Duane Morris LLP
51 Haddonfield Road
Suite 340
Cherry Hill, NJ 08002
Attorneys for Appellant
*
Judge Chertoff heard oral argument in this case but resigned
before this opinion was filed. The decision is filed by a quorum
of the panel. 28 U.S.C. § 46(d).
**
Honorable Ronald L. Buckwalter, United States District
Judge for the Eastern District of Pennsylvania, sitting by
designation.
2
DOUGLAS N. LETTER
CHRISTINE N. KOHL (Argued)
United States Department of Justice
Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
PAUL A. BLAINE
Office of United States Attorney
Camden Federal Building & Courthouse
401 Market Street
Camden, NJ 08101
Attorneys for Appellee
OPINION
McKee, Circuit Judge
Wedgewood Village Pharmacy appeals the District
Court’s order affirming the Magistrate Judge’s denial of
Wedgewood’s motion to quash an administrative warrant issued
to agents of the Food and Drug Administration. Wedgewood
argues that it is exempt from FDA inspection under provisions
of the Food, Drug, and Cosmetic Act (the “FDCA”), 21 U.S.C.
§ 301 et seq. Wedgewood also contends that it was denied
procedural due process. For the reasons that follow, we hold
that Wedgewood was not exempt from FDA inspection under
the FDCA, and that issuance of the warrant did not deny
3
Wedgewood procedural due process. Accordingly, we will
affirm the decision of the District Court.
I. Background
Wedgewood is a pharmacy specializing in compounding
drugs used for treating humans and animals. “Compounding”
refers to the process of modifying prescription drugs to meet the
specific needs of individual patients.
Drug compounding is a process by which a
pharmacist or doctor combines, mixes, or alters
ingredients to create a medication tailored to the
needs of an individual patient. Compounding is
typically used to prepare medications that are not
commercially available, such as medication for a
patient who is allergic to an ingredient in a mass-
produced product. It is a traditional component
of the practice of pharmacy, and is taught as part
of the standard curriculum at most pharmacy
schools . . . .
Thompson v. W. States Med. Ctr., 535 U.S. 357, 360-61 (2002)
(internal citation omitted).
Drug compounding is frequently regulated by states “as
part of their regulation of pharmacies,” and the FDA was
content to allow the states to regulate compounding for
“approximately . . . 50 years after the enactment of the FDCA.”
Id. at 361. However, the FDA eventually became concerned
that some pharmacies were “manufacturing and selling drugs
4
under the guise of compounding, thereby avoiding the FDCA’s
[regulation of new drugs].” Id. at 362. Accordingly, in 1992,
the FDA issued a Compliance Policy Guide (the “CPG”),
“which announced that the ‘FDA may, in the exercise of its
enforcement discretion, initiate enforcement actions . . . when
the scope and nature of a pharmacy’s activities raises the kinds
of concerns normally associated with a manufacturer and . . .
results in significant violations of the new drug, adulteration, or
misbranding provisions of the [FDCA].’” Id.Pursuant to the regulatory authority of the FDCA and
concerns that had been raised about the scope and nature of
Wedgewood’s drug compounding and related activities, on
March 10, 2003, FDA Agent Margaret Sands applied for a
warrant to inspect Wedgewood’s facilities. In her warrant
application, Sands stated that the FDA sought to:
have access to production and distribution
records to determine the extent to which
[Wedgewood’s] activities are consistent with
those of a drug manufacturer rather than a retail
pharmacy, and to evaluate the extent of violations
of the [FDCA], including the new drug and new
animal drug approval requirements, and the Act’s
adulteration provisions.”
App. A14.
In the warrant application, the FDA cited several reasons
for the inspection, and noted that the DEA had requested FDA
assistance for an inter-agency investigation of Wedgewood
because of the pharmacy’s failure to report the theft of certain
5
controlled substances that were believed to have been
consumed in several overdoses by high school students in
October, 2001. App. A03. 1
Although the FDCA provides pharmacies with a limited
exemption from intrusive inspection subject to certain
conditions, the FDA asserted in its application that Wedgewood
did not qualify for the exemption because Wedgewood was not
operating strictly as a retail business as is required for the
statutory exemption. The application asserted that: in early
1998, Wedgewood had shipped over 1,000 vials of Poison Ivy
Extract without receiving the requisite prescriptions for specific
patients; in May 2002, Wedgewood had acquired an
encapsulation machine which could be used for large-scale drug
manufacturing; in 2001 and 2002, it had purchased bulk
quantities of substances in excess of the amounts normally
associated with a retail pharmacy, including enough diazepam
(the active ingredient in Valium) to manufacture over one
million 10 mg doses during a six-month period, an amount
“typical of a commercial drug manufacturer”; and it routinely
produced veterinary drugs in bulk, without receiving specific
veterinary prescriptions. App. 06-09.
Each of these acts suggested to the FDA that
Wedgewood’s operations exceeded those of a retail pharmacy.
Accordingly, the FDA believed that Wedgewood did not
1
The DEA obtained a separate warrant to search
Wedgewood’s facilities. The legality of that warrant is not at
issue in this appeal.
6
qualify for the limited statutory exemption afforded retail
pharmacies under the FDCA. App. A06-11. Although the
FDCA does not require the FDA to obtain a warrant for an
administrative inspection, the FDA chose to request a warrant
because, “based on past agency experience with Wedgewood
Pharmacy,” the FDA expected that Wedgewood would attempt
to refuse the inspection. App. A03. The Agency also
recognized that its current information regarding Wedgewood’s
business practices was not entirely conclusive, and that it
needed the full inspection in order “to determine the extent to
which this firm’s activities are consistent with those of a drug
manufacturer rather than a retail pharmacy.” That would, in
turn, determine whether Wedgewood was exempt from full
inspection under the FDCA. App. A14. The FDA even referred
to the warrant it sought as “a preemptive inspection warrant.”
Id.2
A Magistrate Judge granted the application on March 10,
2003, and the warrant was served on Wedgewood two days
later. Wedgewood’s owner, George Malmberg, initially refused
to cooperate with the inspection. However, when informed that
he would be arrested pursuant to 21 U.S.C. § 331(e) if he
continued to deny access, Malmberg acquiesced. In
acquiescing, he attached a statement to the records he turned
over to the FDA stating that he was complying because of the
2
For a detailed recitation of the averments in the warrant
application, see In the Matter of Establishment Inspection of:
Wedgewood Village Pharmacy, Inc. (“In Re Wedgewood”), 270
F. Supp. 2d 525, 530-33 (D.N.J. 2003).
7
“actually stated threat” that he would “be immediately taken
into custody and all the pharmacy’s computers, records and
more will be immediately seized and removed from the
pharmacy.” App. A23.
On March 17, 2003, Wedgewood filed a motion to quash
the warrant. In its motion, Wedgewood claimed that 21 U.S.C.
§ 374(a)(2)(A) grants state-licensed pharmacies a total
exemption from inspection by the FDA. Wedgewood also
argued that the FDA had acted in bad faith in obtaining the
warrant and that the FDA had not shown probable cause to
search the pharmacy. App. A32. After the motion was filed,
the FDA agreed to suspend its search pending resolution of the
dispute. Thereafter, the Magistrate Judge ordered Wedgewood
to preserve documents and other items within the scope of the
warrant, but he denied Wedgewood’s motion to quash the
warrant. In a well reasoned and comprehensive opinion,
Magistrate Judge Rosen concluded that Wedgewood was not
exempt from inspection, and that the warrant did not abridge
Wedgewood’s right to procedural due process of law. In Re
Wedgewood, 270 F. Supp. 2d at 530-33. That ruling was
subsequently affirmed by the District Court, and this appeal
followed.
II. Jurisdiction.
Before addressing the merits of this appeal, we must first
decide if we have jurisdiction. Our jurisdiction is limited to
“final decisions of the district courts,” and the decision before
us is arguably interlocutory. See 28 U.S.C. § 1291. The
District Court relied upon In re Consolidated Rail Corp. 631
8
F.2d 1122 (3d Cir. 1980), and Babcock & Wilcox Co. v.
Marshall, 610 F.2d 1128 (3d Cir. 1979), in treating
Wedgewood’s motion to quash as a “non-dispositive” motion.
It could therefore be ruled upon by a Magistrate Judge.3
Ordinarily, in order for us to have jurisdiction over the
District Court’s refusal to quash a subpoena, the subpoenaed
party must refuse to comply with the subpoena and suffer the
sanction of a contempt citation. Cobbledick v. United States,
309 U.S. 323, 326-28 (1940) (holding that a denial of a motion
to quash a grand jury subpoena is not final and therefore not
appealable). The subpoenaed party may then challenge the
warrant’s validity in defending against the imposition of
sanctions. The ruling on that defense is a final order that we
can review on appeal. However, in Cobbledick, the Court
acknowledged that it has recognized exceptions to this general
rule. For instance, in Ellis v. Interstate Commerce Commission,
237 U.S. 434 (1915), the Court exercised jurisdiction over an
appeal from an order granting a motion to compel testimony
before the Interstate Commerce Commission. The Court
distinguished that situation from a denial of a motion to quash
a grand jury subpoena, noting that the former “may be deemed
self-contained, so far as the judiciary is concerned.” 309 U.S. at
3
Had the District Court found the motion to be dispositive,
the role of the Magistrate Judge would have been limited to the
issuance of a Report and Recommendation which the District
Court would review de novo. United States v. Raddatz, 447 U.S.
667, 673-74 (1980).
9
330. In such cases, the Court found, it is proper for an appellate
court to exercise jurisdiction, even if the complaining party has
not yet faced a contempt citation.
Several Circuit Courts of Appeals have relied upon
Cobbledick when holding that orders enforcing warrants and
subpoenas are final and appealable orders. See Doe v. United
States (In re Admin. Subpoena), 253 F.3d 256, 261 (6th Cir.
2001) (“In the case of administrative subpoenas, parties may
immediately appeal District Court orders enforcing these
subpoenas, as the Supreme Court has deemed them to be
‘self-contained, so far as the judiciary is concerned[.]’” (quoting
Cobbledick, 309 U.S. at 330)); United States v. Bailey (In re
Subpoena Duces Tecum), 228 F.3d 341, 345-46 (4th Cir. 2000)
(“The appealability of District Court orders enforcing
subpoenas issued by government agencies in connection with
administrative investigations has been regarded differently
[from orders enforcing grand jury subpoenas], however. . . .
These orders are considered ‘final’ for purposes of 28 U.S.C. §
1291 because there is no ongoing judicial proceeding that
would be delayed by an appeal.”); United States v. Construction
Prods. Research, 73 F.3d 464, 469 (2d Cir. 1996) (“There is a
different rule, however, in administrative proceedings. A
District Court order enforcing a subpoena issued by a
government agency in connection with an administrative
investigation may be appealed immediately without first
performing the ritual of obtaining a contempt order.”)
In International Brotherhood of Electrical Workers v.
United States EEOC, 398 F.2d 248, 251 (3d Cir. 1968), we
observed that Cobbledick drew a “distinction between judicial
10
and administrative proceedings.” However, we thereafter
concluded that this exception was somewhat limited. Thus, in
Babcock & Wilcox, we held that “[a] denial of a motion to
quash an inspection warrant should be no more appealable than
. . . a denial of a motion to quash a grand jury subpoena.” 610
F.2d at 1133. We reiterated that principle in Conrail, finding
again that an order denying a motion to quash a warrant is
ordinarily not appealable. See 631 F.2d at 1123-24.
Yet, in Shea v. Office of Thrift Supervision, 934 F.2d 41(3d Cir. 1991), we limited the scope of Babcock and Conrail.
There, we concluded that an order granting a motion to enforce
an administrative subpoena, unlike a denial of a motion to
quash, was final and hence appealable. See 934 F.2d at 46 &
n.9.4 Thus, while we may ordinarily exercise jurisdiction over
appeals of orders granting motions to enforce administrative
subpoenas, we generally cannot exercise appellate jurisdiction
over decisions denying motions to quash. Since Wedgewood
is appealing the denial of a motion to quash an administrative
warrant, it can be argued that we have no jurisdiction.
However, our analysis cannot end there because the
jurisprudence in this area rests upon a party being able to
challenge the validity of the warrant in the subsequent contempt
proceeding. If the party cannot do so, we may exercise
4
Although at least one Court of Appeals has questioned the
logic of this distinction, see Reich v. National Eng'g &
Contracting Co., 13 F.3d 93, 96 n.2 (4th Cir. 1993), it remains
the law of this circuit.
11
jurisdiction over an appeal directly from the denial of the initial
motion without requiring that the subpoenaed party endure a
contempt citation. As the Court observed in Cobbledick, “[d]ue
regard for efficiency in litigation must not be carried so far as
to deny all opportunity for the appeal contemplated by the
statutes.” 309 U.S. at 329. Thus, we had appellate jurisdiction
in Babcock & Wilcox, because the warrant had already been
executed and there was no meaningful way for the aggrieved
party to challenge it in a contempt proceeding. Although
Wedgewood’s posture is somewhat different, we believe that
analogous considerations control our jurisdictional analysis
here.
Under 21 U.S.C. §§ 331(e), (f) and 333(a)(1), refusing
to permit an inspection authorized by the FDCA is a criminal
offense punishable by up to one year of imprisonment and a fine
of up to $1000. Although one who refuses to permit such an
administrative inspection could conceivably challenge the
validity of the warrant in a subsequent criminal prosecution, we
see no reason to require Wedgewood to risk criminal
prosecution merely to obtain appellate review of an
administrative warrant. Moreover, penalties for civil contempt
are limited to measures that may be appropriate to compel
compliance with the underlying order and to compensate the
opposing party for losses sustained as a result of the
noncompliance. See United States v. United Mine Workers, 330
U.S. 258, 303-04 (1947). Those penalties are therefore
proportional to the noncomplying party’s resistance to the
warrant. Here, however, the penalties Wedgewood could face
for noncompliance could potentially far exceed the harm
resulting from its noncompliance. Accordingly, we conclude
12
that the District Court’s order refusing to quash the
administrative warrant is tantamount to a final order.
III. Discussion.5
A. Wedgewood Is Not Exempt From Inspection Under the
FDCA.
Wedgewood argues that it is exempt from all FDA
inspections under 21 U.S.C. § 374(a). That section provides
that employees and agents designated by the Secretary are
permitted to “enter, at reasonable times, any factory, warehouse,
or establishment in which food, drugs, devices, or cosmetics are
manufactured, processed, packed, or held, for introduction into
interstate commerce” and “to inspect, at reasonable times and
within reasonable limits and in a reasonable manner, such
factory, warehouse, establishment . . . and all pertinent
equipment, finished and unfinished materials, containers, and
labeling therein.” Id. § 374(a)(1). In the case of “any factory,
warehouse, establishment, or consulting laboratory in which
5
We review the denial of a motion to quash an administrative
warrant or subpoena for abuse of discretion. Cf. NLRB v.
Frazier, 966 F.2d 812, 815 (3d Cir. 1992). “An abuse of
discretion arises when ‘the District Court’s decision rests upon
a clearly erroneous finding of fact, an errant conclusion of law
or an improper application of law to fact.’” Id. (quoting
International Union v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d
Cir. 1987)). The District Court’s legal conclusions are, of
course, reviewed de novo.
13
prescription drugs, nonprescription drugs intended for human
use, or restricted devices are manufactured, processed, packed,
or held” the section also provides:
[T]he inspection shall extend to all things therein
(including records, files, papers, processes,
controls, and facilities) bearing on whether
prescription drugs, nonprescription drugs
intended for human use, or restricted devices
which are adulterated or misbranded within the
meaning of this chapter, or which may not be
manufactured, introduced into interstate
commerce, or sold, or offered for sale by reason
of any provision of this chapter, have been or are
being manufactured, processed, packed,
transported, or held in any such place, or
otherwise bearing on violation of this chapter.
Id. However, the statute specifically exempts certain types of
pharmacies from this enhanced inspection authority (the
enhanced inspection authority set forth above is hereafter
referred to as the “records provision”).6 The exemption provides
as follows:
6
Wedgewood correctly notes that the provision authorizes the
FDA to search more than a pharmacy’s records. In referring to
the third sentence as the “records” provision, we do not mean to
suggest that the search authority granted by that provision is
limited to records.
14
(2) The provisions of the third sentence of
paragraph (1) [the records provision] shall not
apply to—
(A) pharmacies which maintain establishments in
conformance with any applicable local laws
regulating the practice of pharmacy and medicine
and which are regularly engaged in dispensing
prescription drugs or devices, upon prescriptions
of practitioners licensed to administer such drugs
or devices to patients under the care of such
practitioners in the course of their professional
practice, and which do not, either through a
subsidiary or otherwise, manufacture, prepare,
propagate, compound, or process drugs or
devices for sale other than in the regular course of
their business of dispensing or selling drugs or
devices at retail . . .
Id. § 374(a).
Wedgewood argues that it is exempt from inspection
under the records provision pursuant to the exemption of §
374(a)(2)(A), and that this applies to the general inspection
authority contained in the first sentence. According to
Wedgewood, since the inspection authority under the records
provision extends “to all things therein,” it follows that the
exemption from that authority necessarily means that the FDA
has no inspection authority over pharmacies such as
Wedgewood. We disagree.
Wedgewood’s reading of the statute is inconsistent with
15
the text of § 374(a). Even assuming arguendo that Wedgewood
is exempt from the records provision, the text of the statute does
not justify extending that provision to the FDA’s general
authority to inspect “any factory, warehouse, or establishment
in which food, drugs, devices, or cosmetics are manufactured,
processed, packed, or held, for introduction into interstate
commerce.” Rather, the exemption granted to pharmacies under
§ 374(a)(2)(A) only applies, by its own terms, to the “third
sentence of paragraph (1),” i.e., the records provision. The
general inspection authority contained in the first sentence is not
circumscribed by that exemption. It is therefore clear that the
text of § 374(a) authorizes the FDA to inspect pharmacies such
as Wedgewood.
Despite the clarity of the statute, Wedgewood argues that
“there is nothing in the legislative history indicating that
Congress intended to create distinct inspection rights. Once
FDA has inspected for ‘all things therein,’ pray tell, for what
else . . . can the FDA inspect, since there is not theoretically,
grammatically, mathematically, or actually more than ‘all.’”
Appellant’s Br. at 17-18. Our statutory construction inquiry
need not include legislative history when, as here, the text of a
statute is unambiguous. See Malloy v. Eichler, 860 F.2d 1179,
1183 (3d Cir. 1988). Nevertheless, we note that Wedgewood’s
reliance on legislative history does not produce the result
Wedgewood claims.
The general inspection authority contained in the first
sentence of § 374(a) was originally enacted by Congress as part
of the Federal Food, Drug, and Cosmetic Act of 1938. See Pub.
16
L. No. 75-717, 52 Stat. 1040.7 Both the enhanced inspection
authority under the third sentence of § 374(a)(1) and the
exemption granted to pharmacies under § 374(a)(2)(A) were
enacted as part of the Drug Amendments of 1962, Pub. L. No.
87-781, 76 Stat. 780. That statute specifically stated that
“[n]othing in the amendments made by subsections (a) and (b)
of this section [including the exemption granted to compliant
pharmacies] shall be construed to negate or derogate from any
authority of the Secretary existing prior to the enactment of this
Act.” See id. § 201(d), 76 Stat. at 793. Thus, Congress clearly
stated by the very terms of the 1962 amendments that those
amendments were not intended to alter the FDA’s preexisting
authority. That authority included the general inspection
authority now contained in the first sentence of § 374(a).8
Wedgewood nonetheless argues that Congress enacted
the 1962 amendments in response to United States v. Herold,
136 F. Supp. 15 (E.D.N.Y. 1955). That decision upheld the
FDA’s authority to search pharmacies under the FDCA.
7
For an in depth discussion of the legislative history of the
FDCA, see In Re Wedgewood, 270 F. Supp. 2d at 538-543.
8
As enacted in 1938, the inspection authority now contained
in the first sentence of § 374(a) provided that a designated
official was authorized to enter a covered facility “after first
making request and obtaining permission of the owner, operator,
or custodian thereof.” This provision was amended in 1953 to
remove the consent requirement. See Pub. L. No. 83-217, 67
Stat. 476 (1953).
17
Therefore, according to Wedgewood, Congress must have
intended the amendments to overrule that decision in its
entirety.
Herold did hold that 21 U.S.C. § 374(a) grants FDA the
authority to inspect pharmacies. However, the analysis did not
stop there. Rather, the court went further and held that the
authority to inspect extended to a pharmacy’s records, provided
that “permission to inspect the records is given by an authorized
person.” Id. at 16.9 In urging its interpretation of Herold, and
of the 1962 amendments to the FDCA, Wedgewood points to
nothing in the text or legislative history of the 1962 act that
supports its conclusion that Congress intended to overrule
Herold in its entirety. Indeed, the more logical interpretation of
the 1962 amendments is simply that Congress sought to
overrule that provision of Herold permitting pharmacy searches
to extend to records. Had Congress sought to overrule
Herold in its entirety, it could have drafted § 374(a)(2)(A) so
that it applied to the first and third sentence of § 374(a)(1).
Since it did not, we see no reason to adopt the tortured reading
of § 374 that Wedgewood suggests. We therefore conclude that
Wedgewood is not exempt from FDA inspection.
B. Wedgewood Is Not Entitled To The Records
9
The defendant in Herold had argued that the FDA could
only examine a pharmacy’s records under a related provision, 21
U.S.C. § 373, which permits inspection of records on the
condition that the evidence obtained not be used in any
subsequent prosecution. See 136 F. Supp. at 16.
18
Exemption.
Our conclusion that the FDA possesses some authority
to inspect pharmacies such as Wedgewood does not end our
inquiry because the inspection authority contained in the first
sentence of § 374(a)(1) is quite limited and clearly does not
extend to a pharmacy’s books and records. Since the FDA
seeks access to Wedgewood’s records, it must demonstrate that
it has the authority to search Wedgewood under both the first
and third sentences of § 374(a)(1). The exemption contained in
§ 374(a)(2)(A) prohibits the FDA from relying on the records
inspection authority contained in the third sentence in searching
pharmacies that meet the requirements of that section. Thus, if
Wedgewood is a “compliant pharmacy”—meaning that it meets
these requirements—it is exempt from the records provision. In
its warrant application, the FDA claimed that it had probable
cause to believe that Wedgewood does not, in fact, qualify for
the exemption. Wedgewood has insisted throughout this
litigation that not only does it qualify for the exemption but that
the FDA has no authority to determine if Wedgewood is exempt
from the records provision.
A pharmacy qualifies for the exemption under §
374(a)(2)(A) if it (1) complies with “applicable local laws
regulating the practice of pharmacy and medicine”; (2) is
“regularly engaged in dispensing prescription drugs or devices,
upon prescriptions of practitioners licensed to administer such
drugs or devices to patients under the care of such practitioners
in the course of their professional practice”; and (3) does not
“manufacture, prepare, propagate, compound, or process drugs
or devices for sale other than in the regular course of their
19
business of dispensing or selling drugs or devices at retail.”
The FDA contends that it has probable cause to believe
that Wedgewood engages in practices that qualify as “large-
scale” compounding or manufacturing and therefore the third
requirement is not met. Wedgewood admits that it engages in
compounding but asserts that it does so “in the regular course
of [its] business of dispensing or selling drugs or devices at
retail.” Therefore, it argues that it qualifies for the exemption
under § 374(a)(2)(A).
Nowhere in § 374 does Congress define “compounding”
or a pharmacy’s “regular course of business.” In 1997, however,
Congress enacted a statute which both exempted compounded
drugs from the new drug approval requirements of the FDCA
and simultaneously defined the extent to which pharmacies
were permitted to engage in the practice without violating the
FDCA. See Food and Drug Administration Modernization Act
of 1997 (“FDAMA”) § 127, Pub. L. No. 105-115, 111 Stat.
2296, 2328 (1997). Under the language of the FDAMA,
pharmacies were permitted to compound only “for an identified
individual patient based on the unsolicited receipt of a valid
prescription order or a notation . . . or . . . in limited quantities
before the receipt of a valid prescription for such individual
patient.” Id.The provision did not remain law for long. As a result
of two court decisions, Section 127 of the statute, which
contained the compounding language, was invalidated on
unrelated grounds. See Western States, 535 U.S. at 377;
Western States Med. Ctr. v. Shalala, 238 F.3d 1090 (9th Cir.
20
2001).10 In the wake of these decisions, the FDA outlined the
criteria it would use to assess “what types of compounding
might be subject to enforcement under current law.” See CPG
460.200. The CPG lists nine factors that the FDA will consider
in deciding whether a pharmacy may be violating the FDCA by
engaging in manufacturing under the guise of compounding.
The list includes factors such as the volume of drugs that a
pharmacy compounds, whether the pharmacy compounds in
anticipation of prescriptions, except in limited quantities, and
whether the pharmacy compounds copies of drugs that are
otherwise available.11 While the CPG is more specific than the
10
The issue in Western States concerned a provision of the
FDAMA that prohibited pharmacies from advertising
compounded drugs. The Court of Appeals for the Ninth Circuit
had held the provision unconstitutional and, finding it not
severable from the rest of Section 127, struck down the entire
section. See 238 F.3d at 1098. The Supreme Court affirmed
that part of the Court of Appeals’ decision finding the
advertising provision unconstitutional but did not review the
severability question. 535 U.S. at 360.
11
The entire list of factors include:
1. Compounding of drugs in anticipation of
receiving prescriptions, except in very limited
quantities in relation to the amounts of drugs
compounded after receiving valid prescriptions.
2. Compounding drugs that were withdrawn or
21
removed from the market for safety reasons. . . .
3. Compounding finished drugs from bulk active
ingredients that are not components of FDA
approved drugs without an FDA sanctioned
investigational new drug application (IND) in
accordance with 21 U.S.C. § 355(i) and 21 CFR
312.
4. Receiving, storing, or using drug substances
without first obtaining written assurance from the
supplier that each lot of the drug substance has
been made in an FDA-registered facility.
5. Receiving, storing, or using drug components
not guaranteed or otherwise determined to meet
official compendia requirements.
6. Using commercial scale manufacturing or
testing equipment for compounding drug
products.
7. Compounding drugs for third parties who resell
to individual patients or offering compounded
drug products at wholesale to other state licensed
persons or commercial entities for resale.
8. Compounding drug products that are
commercially available in the marketplace or that
22
FDAMA, the language of the two provisions is very similar.
Here, Magistrate Judge Rosen afforded the CPG
deference under the standards of Chevron, U.S.A., Inc. v.
NRDC, Inc., 467 U.S. 837 (1984), even though the CPG was
not the product of notice and comment rulemaking. However,
we need not determine the precise level of deference, if any,
owed the CPG because the FDA need only show that the factors
outlined in the CPG for determining compounding are a
reasonable basis upon which to initiate an inspection under the
FDCA. We agree that the factors set forth in the CPG are
reasonable and that they reflect the FDA’s “careful
consideration . . . over a long period of time.” Barnhart v.
are essentially copies of commercially available
FDA-approved drug products. In certain
circumstances, it may be appropriate for a
pharmacist to compound a small quantity of a
drug that is only slightly different than an
FDA-approved drug that is commercially
available. In these circumstances, FDA will
consider whether there is documentation of the
medical need for the particular variation of the
compound for the particular patient.
9. Failing to operate in conformance with
applicable state law regulating the practice of
pharmacy.
23
Walton, 535 U.S. 212, 222 (2002).12 Given the averments of
the warrant application here, it was therefore reasonable for the
FDA to conclude that Wedgewood may be engaged in activity
inconsistent with its status as a retail pharmacy.
C. Wedgewood Was Not Denied Procedural Due Process
of Law.
Determining the extent to which a pharmacy may
compound drugs in its “regular course of business” does not
address the level of process due Wedgewood when the FDA
attempts an inspection under the records provision. Here,
Wedgewood asserts that the ex parte proceeding violated its due
process rights. Before Magistrate Judge Rosen, Wedgewood
apparently argued that it is entitled to a proceeding that is
tantamount to a full declaratory judgment action in order to
have an appropriate opportunity to demonstrate that it is eligible
for the exemption contained in § 374(a)(2)(A). See In Re
Wedgewood, 270 F. Supp. 2d at 538. However, before us,
Wedgewood claims that its own assertion that it is in
compliance with § 374(a)(2)(A) was sufficient to deny the FDA
the right to inspect.13
12
As the opinion by the Magistrate Judge explains, the current
language is a successor to an earlier CPG (CPG 7132.16, which
dates to 1992) issued by the FDA prior to the passage of the
FDAMA.
13
That claim is sufficiently frivolous on its face that its lack
of merit is self evident. It may, in fact, be an example of what
Magistrate Judge Rosen had in mind in referring to
24
We agree that the statute poses a dilemma of sorts in that
it will often be impossible to determine with precision whether
a pharmacy qualifies for the § 374(a)(2)(A) exception without
first conducting an administrative inspection of that facility.
Magistrate Judge Rosen aptly described the situation as “a
statutory paradox” because “the exemption in Section
374(a)(2)(A) divests the FDA of authority to inspect in some
limited fashion, but the FDA cannot establish whether or not the
exemption applies without obtaining information.” In re
Wedgewood, 270 F. Supp. 2d at 551. Nevertheless, we agree
that the procedure the FDA used here did not violate
Wedgewood’s due process rights. As the FDA stresses, there
is no warrant requirement under § 374(a). Indeed, as noted
above, refusing a legitimate inspection request is a criminal
violation of the FDCA, regardless of whether a warrant was
first obtained.
Although Wedgewood correctly notes that it did not have
an opportunity to be heard before the warrant issued and the
inspection began, Wedgewood did have an opportunity to
challenge that inspection before it was concluded, and it did so
before the Magistrate Judge in proceedings on its motion to
quash. Magistrate Judge Rosen correctly concluded that the
FDA had probable cause to obtain the warrant and denied
Wedgewood’s motion, thus allowing the FDA to proceed with
the inspection.
Wedgewood’s statutory argument as “a lesson in obfuscation.”
In Re Wedgewood, 270 F. Supp. 2d at 538.
25
We are therefore hard-pressed to understand how
Wedgewood can now argue that it was denied due process of
law by an ex parte application for an inspection warrant before
a neutral Magistrate Judge when the FDA did not have to obtain
a warrant under the FDCA in the first place. Accordingly, we
hold that Wedgewood’s due process rights were not violated.
Furthermore, we agree that the FDA’s reliance on the
apparent volume of compounding is a reasonable means of
determining whether that pharmacy is compounding in the
“regular course of its business of dispensing or selling drugs or
devices at retail.” Indeed, were we to adopt Wedgewood’s view
that the volume of compounding is irrelevant, much of the
FDCA would become a nullity. If a pharmacy could compound
an unlimited quantity of drugs, supposedly in anticipation of
individual prescriptions, then it could essentially act as a
commercial drug manufacturer and totally circumvent the
approval requirements of the FDCA.14
14
Wedgewood argues throughout its brief that the regulation
of pharmacies is a matter that has been traditionally left to the
states. This argument misses the point of the FDA’s efforts.
The FDA, as its brief makes clear, wanted to inspect
Wedgewood because it believes that the pharmacy is engaged in
the large-scale manufacture of drugs. Although regulation of
pharmacies may traditionally have been left to the states,
regulation of the manufacture of prescription drugs is an area
where the federal government has primary authority pursuant to
the FDCA.
26
Moreover, as Magistrate Rosen noted, the standard of
probable cause required for an administrative warrant is less
than required for a criminal warrant. See Camara v. Municipal
Court of San Francisco, 387 U.S. 523, 538 (1967). As the
Supreme Court has explained: “[w]hen a dealer chooses to
engage in [a] pervasively regulated business and to accept a
federal license, he does so with the knowledge that his business
records, [and stock] will be subject to effective
inspection.”United States v. Biswell, 406 U.S. 311, 316, (1972).
Although we have not previously had to determine if the
regulatory scheme of the pharmaceutical industry is sufficiently
pervasive to implicate the Biswell/Camara doctrine, Magistrate
Judge Rosen noted that the Courts of Appeals for the Eighth,
Ninth, and Sixth Circuits have held that the level of regulation
of that industry is sufficient to permit a warrantless search under
the Fourth Amendment. See In Re Wedgewood, 270 F. Supp. 2d
at 535 (citing United States v. Jamieson-McKames Pharms.,
Inc., 651 F.2d 532 (8th Cir. 1981), United States v. Argent
Chem. Labs., Inc., 93 F.3d 572 (9th Cir. 1996), and United
States v. Acklen, 690 F.2d 70, 75 (6th Cir. 1982)). We need not
decide that specific question here. Rather, it is sufficient to note
that the level of regulation is relevant to balancing the
competing interests here and determining the procedural
protection Wedgewood was entitled to.
Agent Sands’ warrant application was detailed and
specific, and (with the possible exception of issues of the
staleness of some of her averments) might easily have satisfied
even the higher standard required to obtain a criminal search
warrant under the Fourth Amendment. Wedgewood’s history,
its failure to report a theft of drugs as required by state law, its
27
acquisition of equipment used in commercial manufacturing of
drugs, and the volume of substances it was purchasing certainly
established grounds to believe that it may be engaged in
commercial compounding in violation of the FDCA.15
Wedgewood does not dispute these facts. Rather, it simply
repeats its argument that volume is irrelevant for purposes of
determining whether a pharmacy is engaging in compounding
or manufacturing outside of the “regular course of [its]
business.” We cannot agree.
III. Conclusion.
For the reasons set forth above, we hold that Magistrate
15
As noted earlier, Wedgewood had recently purchased an
encapsulation machine, which is used in large-scale
manufacturing, as well as a “commercial scale mixture.” In
addition, as also noted above, the warrant alleged that the
pharmacy had purchased enough diazepam to produce over one
million 10 mg tablets. In its brief, Wedgewood explains the
quantities of drugs by stating that a large portion of its
pharmaceutical practice involves “equine medicine, and that
horses, given their weight and size, receive larger Diazepam
doses than humans.” Appellee’s Br. At 22. However, even if
true, that would not negate the concerns the FDA expressed in
its application to inspect Wedgewood to determine if it was
involved in manufacturing or illegal compounding in violation
of the FDCA. Indeed, before the Magistrate Judge, Wedgewood
conceded that 11.5 kilograms of diazepam “is a lot.” See In Re
Wedgewood, 270 F. Supp. 2d at 553.
28
Judge Rosen correctly found that probable cause existed to
conclude that Wedgewood did not satisfy the requirements of
the exemption contained in § 374(a)(2)(A), and he therefore
correctly denied Wedgewood’s motion to quash. Accordingly,
we will affirm the District Court’s decision upholding
Magistrate Judge Rosen’s order.
29