Wedgewood Village Pharmacy, Inc., in the Matter of Establishment Inspection Of: D/B/A Wedgewood Pharmacy v. United States

Citations: 421 F.3d 263; 2005 U.S. App. LEXIS 18982; 2005 WL 2098863Docket: 04-1175

Court: Court of Appeals for the Third Circuit; September 1, 2005; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Wedgewood Village Pharmacy, specializing in drug compounding for humans and animals, appeals a District Court order that upheld a Magistrate Judge's denial of its motion to quash an FDA-issued administrative warrant. Wedgewood claims it is exempt from FDA inspection under the Food, Drug, and Cosmetic Act (FDCA) and alleges procedural due process violations. The Court determines that Wedgewood is not exempt from FDA inspection under the FDCA and that the warrant's issuance did not violate procedural due process. The background highlights that drug compounding, traditionally regulated by states, faced increased FDA scrutiny due to concerns that some pharmacies were misrepresenting manufacturing activities as compounding. The FDA's Compliance Policy Guide (CPG) from 1992 allows for enforcement actions against pharmacies if their activities resemble those of drug manufacturers. The warrant, sought by FDA Agent Margaret Sands, aimed to inspect Wedgewood’s records to assess its compliance with FDCA regulations and involved an inter-agency investigation due to Wedgewood's failure to report the theft of controlled substances linked to overdoses.

Pharmacies are granted a limited exemption from FDA inspections under the FDCA, but the FDA contended that Wedgewood Pharmacy did not qualify for this exemption. The FDA cited several reasons: Wedgewood shipped over 1,000 vials of Poison Ivy Extract without specific prescriptions, acquired large-scale manufacturing equipment, purchased excessive bulk quantities of substances like diazepam, and routinely produced veterinary drugs without specific prescriptions. These actions indicated that Wedgewood's operations went beyond those typical of a retail pharmacy. Consequently, the FDA sought a warrant for a comprehensive inspection, anticipating that Wedgewood would resist. A Magistrate Judge granted the warrant on March 10, 2003, which was then served on Wedgewood. Initially, the owner, George Malmberg, refused to cooperate until informed of the potential for arrest under 21 U.S.C. 331(e). He complied but noted he did so under threat of immediate custody and seizure of records. 

On March 17, 2003, Wedgewood filed a motion to quash the warrant, claiming a total exemption from FDA inspection and asserting that the FDA acted in bad faith and lacked probable cause. The FDA agreed to halt its search pending the outcome of the motion. The Magistrate Judge ordered Wedgewood to preserve relevant documents but denied the motion to quash, concluding that Wedgewood was not exempt from inspection and that the warrant did not violate procedural due process. This ruling was upheld by the District Court, leading to the current appeal. Before reviewing the merits, the court must determine whether it has jurisdiction, as the decision may be considered interlocutory.

The District Court categorized Wedgewood's motion to quash as a "non-dispositive" motion, allowing a Magistrate Judge to rule on it, based on precedents from In re Consolidated Rail Corp. and Babcock, Wilcox Co. Jurisdiction over the District Court's refusal to quash a subpoena typically requires the subpoenaed party to face contempt sanctions following non-compliance, as established in Cobbledick v. United States, which deemed denials of motions to quash grand jury subpoenas non-final and non-appealable. Exceptions to this rule exist, notably in Ellis v. Interstate Commerce Commission, where the Court allowed an appeal from an order compelling testimony, distinguishing it as "self-contained." Several Circuit Courts have since viewed orders enforcing warrants and subpoenas as final and appealable, particularly for administrative subpoenas, which can be immediately appealed since they are not linked to ongoing judicial proceedings. However, a contrasting view exists for grand jury subpoenas, where a contempt order is typically needed before appeal. The distinction between judicial and administrative proceedings was noted in International Brotherhood of Electrical Workers v. United States EEOC, but later cases like Babcock and Conrail upheld that denials to quash warrants are generally not appealable. In Shea v. Office of Thrift Supervision, the Court reversed some of this limitation, asserting that orders enforcing administrative subpoenas are final and appealable, while denials of motions to quash are not.

Wedgewood's appeal concerning the denial of its motion to quash an administrative warrant raises jurisdictional questions. The court's ability to review the warrant's validity in a contempt proceeding is critical; if a party cannot challenge the warrant post-denial, then direct appeal from the denial may be permissible. The precedent set in Cobbledick emphasizes the importance of allowing appeals to prevent inefficiencies in litigation. In a previous case, Babcock, Wilcox, jurisdiction was established because the warrant was executed, precluding meaningful challenge during contempt proceedings. 

Wedgewood faces potential criminal penalties under 21 U.S.C. 331(e), (f), and 333(a)(1) for refusing inspection authorized by the FDCA, including up to a year in prison and fines. The court argues that it should not require Wedgewood to risk criminal prosecution to gain appellate review of the warrant. Furthermore, civil contempt penalties typically aim to ensure compliance and compensate for losses, which may not reflect the severity of penalties Wedgewood could incur for noncompliance. Therefore, the court concludes that the District Court's order denying Wedgewood’s motion to quash the warrant is effectively a final order.

Wedgewood also contends it is exempt from FDA inspections under 21 U.S.C. 374(a), which allows designated agents to inspect establishments involved in the manufacturing of food, drugs, and cosmetics during reasonable times. The statute mandates that inspections include all relevant records and equipment related to the compliance of prescription drugs and devices, facilitating enforcement of the FDCA.

Certain pharmacies are exempt from enhanced inspection authority under the records provision of 374(a). This exemption applies to pharmacies that comply with local laws, regularly dispense prescription drugs, and do not manufacture or process drugs outside of retail dispensing. Wedgewood claims it qualifies for this exemption, suggesting it precludes any FDA inspection authority over them. However, the text of 374(a) clearly indicates that the exemption applies only to the records provision and does not limit the FDA's broader general inspection authority, which allows inspections of any factory or establishment involved in the handling of drugs for interstate commerce.

Wedgewood's argument that legislative history supports its interpretation is dismissed, as the statute's text is unambiguous. The general inspection authority was established by the Federal Food, Drug, and Cosmetic Act of 1938, while the enhanced inspection authority and the pharmacy exemption were part of the Drug Amendments of 1962. Importantly, Congress explicitly stated that these amendments were not intended to negate the FDA's preexisting authority, which includes the general inspection rights. Wedgewood also suggests that the 1962 amendments were a response to a previous court decision affirming FDA's authority to inspect pharmacies, but this does not alter the interpretation of the statutory language.

Congress intended the amendments to the FDCA to overrule the Herold decision partially, specifically regarding the authority of the FDA to inspect pharmacy records. While Herold confirmed that 21 U.S.C. 374(a) allows FDA inspections of pharmacies, it stipulated that inspections of records require permission from an authorized individual. Wedgewood argues that Congress intended to completely reverse Herold, but the text and legislative history of the 1962 amendments do not support this claim. Instead, it appears Congress aimed to limit the extent of pharmacy record inspections. Consequently, Wedgewood is not exempt from FDA inspections.

Furthermore, Wedgewood does not qualify for the records exemption under 374(a)(2)(A). The FDA's authority to inspect is limited under the first sentence of 374(a)(1), and to access Wedgewood's records, the FDA must justify its authority under both the first and third sentences. The exemption applies only if Wedgewood meets specific criteria, including compliance with local laws and not engaging in manufacturing or large-scale compounding. The FDA asserts it has probable cause to believe Wedgewood's practices exceed "regular course" compounding, which Wedgewood disputes, claiming it qualifies for the exemption.

Congress did not define "compounding" or "regular course of business" in 374, but the 1997 FDAMA clarified that pharmacies may compound only for individual patients based on valid prescriptions or in limited quantities prior to receiving such prescriptions.

Section 127 of the relevant statute was invalidated following two court decisions, leading the FDA to establish criteria for assessing compounding practices that might violate the FDCA. The FDA's guidance, outlined in CPG 460.200, includes nine factors, such as the volume of compounded drugs and whether they are made in anticipation of prescriptions. Although the CPG is not the result of formal rulemaking, it received deference under Chevron standards, as the FDA only needs to demonstrate that its criteria are reasonable for initiating inspections. The court found the factors in the CPG to be reasonable based on the FDA's extensive consideration.

Regarding Wedgewood, the court concluded that it was not denied procedural due process during the FDA's inspection efforts. Wedgewood argued for a full declaratory judgment action to prove its compliance with a specific exemption under 374(a)(2)(A). However, the court recognized a "statutory paradox" where the FDA cannot determine compliance without first conducting an inspection. Ultimately, the procedure employed by the FDA did not violate Wedgewood's rights, as there is no warrant requirement under 374(a), and refusing an inspection request constitutes a criminal violation of the FDCA. While Wedgewood did not have the opportunity to be heard prior to the warrant's issuance, it could challenge the inspection before it concluded, which it did through a motion to quash.

Magistrate Judge Rosen's ruling established that the FDA had probable cause for obtaining a warrant to inspect Wedgewood, rejecting Wedgewood's motion and asserting that the FDA was not required to secure a warrant under the Federal Food, Drug, and Cosmetic Act (FDCA). Wedgewood's claims of due process violations were dismissed, as the inspection was deemed lawful without a warrant. The court supported the FDA's reliance on the volume of compounding as a valid indicator of whether Wedgewood was operating within the bounds of its business or engaging in commercial manufacturing, which would contravene the FDCA. The text cites relevant case law, emphasizing that businesses in heavily regulated industries are aware their records and operations are subject to inspection. Agent Sands' warrant application was sufficiently detailed, suggesting that even a higher standard for criminal warrants could have been met. Wedgewood's failure to report a drug theft, its acquisition of commercial manufacturing equipment, and the significant volume of substances purchased provided sufficient grounds for suspicion of illegal compounding activities. Ultimately, the decision upheld Magistrate Judge Rosen's findings on probable cause and denied Wedgewood's motion to quash the warrant.

The DEA secured a warrant to search Wedgewood's facilities, but the legality of this warrant is not contested in the current appeal. For details on the warrant application, reference is made to the case In the Matter of Establishment Inspection of: Wedgewood Village Pharmacy, Inc. The District Court's handling of a dispositive motion would have limited the Magistrate Judge’s role to issuing a Report and Recommendation, subject to de novo review by the District Court. While some Courts of Appeals have questioned this procedural distinction, it remains valid within this circuit. The denial of a motion to quash an administrative warrant or subpoena is reviewed for abuse of discretion, which occurs when the District Court makes clearly erroneous factual findings, incorrect legal conclusions, or misapplies the law.

Wedgewood asserts that the relevant provision allows the FDA to conduct searches beyond just pharmacy records, indicating that the term "records" does not restrict the scope of search authority. Historical context shows that the inspection authority, originally requiring permission from the facility owner, was amended in 1953 to eliminate this consent requirement. In a related case, the defendant contended that the FDA could only inspect pharmacy records under a provision that limits the use of such evidence in prosecutions.

The excerpt also references a case involving the constitutionality of a provision from the FDAMA that restricted pharmacies from advertising compounded drugs. The Ninth Circuit struck down this provision, a decision later affirmed by the Supreme Court, although the severability issue was not reviewed.

Finally, a comprehensive list of factors related to drug compounding is provided, which includes conditions regarding the anticipation of prescriptions, safety-related drug withdrawals, use of non-FDA approved ingredients, and restrictions on compounding practices that may involve commercial-scale equipment or resale activities.

Pharmacists may compound a small quantity of drugs that differ slightly from FDA-approved versions if there is documented medical need for the specific variation. Compliance with state pharmacy regulations is essential. The FDA's current regulations build upon prior guidance (CPG 7132.16) from 1992, preceding the FDAMA. Wedgewood's argument that pharmacy regulation is a state matter overlooks the FDA's primary authority over prescription drug manufacturing under the FDCA. The FDA aimed to inspect Wedgewood due to concerns about large-scale drug manufacturing, particularly after Wedgewood acquired equipment for such purposes and purchased sufficient diazepam to produce over one million tablets. Wedgewood claimed the large quantities were justified for equine medicine, noting horses require higher doses. However, this did not alleviate the FDA's concerns regarding potential violations related to drug manufacturing and illegal compounding, acknowledged by Wedgewood’s own admission of the substantial diazepam quantity.