421 F.3d 263 (3rd Cir. 2005), 04-1175, Wedgewood Village Pharmacy, Inc. v. United States

Docket Nº:04-1175.
Citation:421 F.3d 263
Party Name:WEDGEWOOD VILLAGE PHARMACY, INC., in the Matter of Establishment Inspection of: d/b/a Wedgewood Pharmacy, Appellant v. UNITED STATES OF AMERICA.
Case Date:September 01, 2005
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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421 F.3d 263 (3rd Cir. 2005)

WEDGEWOOD VILLAGE PHARMACY, INC., in the Matter of Establishment Inspection of: d/b/a Wedgewood Pharmacy, Appellant



No. 04-1175.

United States Court of Appeals, Third Circuit.

Sept. 1, 2005

Argued Nov. 16, 2004.

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Howard M. Hoffman (Argued), Rachael G. Pontikes, Duane Morris LLP, Chicago, IL, Frank A. Luchak, Duane Morris LLP, Cherry Hill, NJ, for Appellant.

Douglas N. Letter, Christine N. Kohl (Argued), United States Department of Justice, Civil Division, Washington, DC, Paul A. Blaine, Office of United States Attorney, Camden, NJ, for Appellee.

Before McKEE and CHERTOFF,[*] Circuit Judges, and BUCKWALTER,[**] District Judge.

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 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....

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Thompson v. W. States Med. Ctr., 535 U.S. 357, 360-61, 122 S.Ct. 1497, 152 L.Ed.2d 563 (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, 122 S.Ct. 1497. However, the FDA eventually became concerned that some pharmacies were "manufacturing and selling drugs under the guise of compounding, thereby avoiding the FDCA's [regulation of new drugs]." Id. at 362, 122 S.Ct. 1497. 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 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

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those of a retail pharmacy. Accordingly, the FDA believed that Wedgewood did not 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 "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 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

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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, 60 S.Ct. 540, 84 L.Ed. 783 (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, 35 S.Ct. 645, 59 L.Ed. 1036 (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 330, 60 S.Ct. 540. In such cases, the Court found, it is proper for an appellate court to...

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