Cardinal Health, Inc. v. Holder, Civil Action No. 12-185 (RBW)

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtREGGIE B. WALTON
PartiesCARDINAL HEALTH, INC., Plaintiff, v. ERIC H. HOLDER, JR., et al., Defendants.
Docket NumberCivil Action No. 12-185 (RBW)
Decision Date07 March 2012

ERIC H. HOLDER, JR., et al., Defendants.

Civil Action No. 12-185 (RBW)


Dated: March 7, 2012


Plaintiff Cardinal Health, Inc. ("Cardinal") brings this action under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551-706 (2006), challenging an Order to Show Cause and Immediate Suspension of Registration issued by the Drug Enforcement Administration ("DEA") on February 2, 2012, with respect to Cardinal's drug distribution facility in Lakeland, Florida. Complaint and Prayer for Declaratory and Injunctive Relief ("Compl.") ¶ 1. The case came before the Court on February 29, 2012, on Cardinal's motion for a preliminary injunction ("Cardinal's Mot."). Upon careful consideration of the parties' submissions and the arguments made by counsel at the first hearing on Cardinal's preliminary injunction motion on February 13, 2012, and the second hearing on February 29, 2012,1 the Court, in accordance with the oral rulings issued at those hearings and for the reasons set forth below, concludes that Cardinal's motion for a preliminary injunction must be denied.

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A. The Controlled Substances Act

The Controlled Substances Act ("CSA" or the "Act") and its implementing regulations create restrictions on the distribution of controlled substances. See 21 U.S.C. §§ 801-971 (2006); 21 C.F.R. §§ 1300-1321 (2009). The Act authorizes the DEA to establish a registration program for manufacturers, distributors, and dispensers of controlled substances designed to prevent the diversion of legally produced controlled substances into the illicit market. See 21 U.S.C. §§ 821, 822. Any entity that seeks to become involved in the production or chain of distribution of controlled substances must first register with the DEA. 21 U.S.C. § 822; 21 C.F.R. § 1301.11.

Distributors of Schedule I or Schedule II drugs—controlled substances with a "high potential for abuse," 21 U.S.C. §§ 812(b), 812(2)(A)-(C)—must maintain "effective control against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels," id. § 823(b)(1). In addition, distributors that supply controlled substances to pharmacies must "design and operate a system to disclose to the [distributor] suspicious orders of controlled substances" and, in turn, disclose those suspicious orders to the DEA. 21 C.F.R. § 1301.74(b). "Suspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency." Id.

The DEA has authority to revoke or suspend a party's registration for a variety of reasons, including that a registrant "has committed such acts as would render his registration . . . inconsistent with the public interest." 21 U.S.C. § 824(a)(4). Generally, before suspending or revoking a registration, the DEA must issue an order to show cause containing its basis for the proceedings and provide an administrative hearing within 30 days. See id. § 824(c). DEA regulations direct that an "order to show cause shall . . . contain a statement of the legal basis for

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such hearing and for the denial, revocation, or suspension of registration and a summary of the matters of fact and law asserted." 21 C.F.R. § 1301.37(c).

However, in cases where the DEA has reason to believe that a registrant's continued operation would pose "an imminent danger to the public health or safety," it can suspend that party's registration immediately, prior to an administrative hearing, by issuing an immediate suspension order ("ISO"). See 21 U.S.C. § 824(d) ("The Attorney General [and the DEA Administrator by designation] may, in his [or her] discretion, suspend any registration simultaneously with the institution of proceedings under this section, in cases where he [or she] finds that there is an imminent danger to the public health or safety."). DEA regulations direct that "an order of immediate suspension . . . shall contain a statement of [the Administrator's] findings regarding the danger to public health or safety." 21 C.F.R. § 1301.36(e). An immediate suspension order under § 824(d) remains "in effect until the conclusion of such proceedings, including judicial review thereof, unless sooner withdrawn by the Attorney General or dissolved by a court of competent jurisdiction." 21 U.S.C. § 824(d).

B. Factual and Procedural Background 2

Cardinal is one of the nation's largest wholesale pharmaceutical drug distributors. Cardinal's Mot., Amended Declaration of Jon Giacomin ("Giacomin Decl.") ¶ 5. It was founded in 1971 and has been distributing pharmaceuticals since 1979. Id. At issue in this case is its distribution facility in Lakeland, Florida ("Cardinal Lakeland" or "Lakeland Facility"), which distributes Schedule II-V controlled substances. Id.

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This is not the first time the DEA has taken enforcement action against Cardinal, or even against its Lakeland Facility. See Cardinal's Mot., Amended Declaration of Michael A. Mone ("Mone Decl.") ¶ 27. Between November 28, 2007, and December 7, 2007, DEA Administrator Michele Leonhart issued immediate suspension orders to three Cardinal facilities, one of which was the Lakeland Facility. Gov't's Suppl. Brief, Declaration of Michele M. Leonhart ("Leonhart Decl.") ¶ 13. Administrator Leonhart "concluded that the three facilities posed an imminent danger to public health or safety based on a DEA investigation revealing that Cardinal Lakeland failed to maintain effective controls against diversion." Id. (internal quotation marks and citation omitted). And on January 30, 2008, the DEA issued an order to show cause (but not an ISO) to revoke the registration of another Cardinal facility located in Stafford, Texas, again "based on the failure to maintain effective controls against diversion." Id. As a result of these allegations, Cardinal agreed to pay a civil fine of $34 million. Gov't's Opp'n at 9. Cardinal also entered into a Memorandum of Agreement with the DEA in which it agreed to "maintain a compliance program designed to detect and prevent [the] diversion of controlled substances as required under the CSA and applicable DEA regulations." Cardinal's Mot., Exhibit ("Ex.") 1 (Settlement and Release Agreement and Administrative Memorandum of Agreement ("MOA")) at 3.

As the backdrop of the action taken by the DEA that precipitated this case, the government asserts that the volume of oxycodone (a Schedule II drug) distributed to Cardinal Lakeland's top four retail customers—CVS Store 219, CVS Store 5195, Gulf Coast, and CareMed ("the four pharmacies")—has increased exponentially since the parties entered into the MOA in 2008. Gov't's Opp'n at 9. As a result, the government contends that the DEA repeatedly notified Cardinal of its need to exercise greater diligence at the Lakeland Facility to detect suspicious activity by its customers. Id. at 9-10. Cardinal then terminated distribution of

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controlled substances to Caremed on September 26, 2011, and Gulf Coast on October 5, 2011, but continued to distribute to the two CVS pharmacies. See Cardinal's Mot., Mone Decl. ¶¶ 42, 46.

On October 18, 2011, the DEA executed Administrative Inspection Warrants at the four pharmacies, after which both Gulf Coast and Caremed voluntarily surrendered for cause their DEA registrations. Gov't's Opp'n at 10. A few days later, on October 26, 2011, the DEA executed a warrant at Cardinal's Lakeland Facility to determine whether Cardinal "failed to report suspicious orders to the DEA." Id. On November 8, 2011, the DEA issued an administrative subpoena to Cardinal for information regarding its sales of oxycodone and other drugs as well as its compliance mechanisms. Id. Cardinal thereafter lowered its oxycodone distribution thresholds for CVS Store 219 on November 10, 2011, and CVS Store 5195 on December 16, 2011. Cardinal's Mot., Mone Decl. ¶ 46.

The government contends that "[t]he DEA's investigation of Cardinal and its top four retail customers revealed a staggeringly high and exponentially increasing rate of oxycodone distribution from the Lakeland facility." Gov't's Opp'n at 11. Based on these high volumes and information gleaned from its investigation of Cardinal and the four pharmacies, the DEA determined that "Cardinal failed to conduct meaningful due diligence to ensure that the controlled substances were not diverted into other than legitimate channels, including Cardinal's failure to conduct due diligence of its retail pharmacy chain customers." Id. Finding that this conduct violated Cardinal's obligations under the CSA and the 2008 MOA, and that Cardinal Lakeland's continued registration posed an "imminent danger to the public health and safety," the DEA issued an order to show cause and immediate suspension order to the Lakeland Facility on February 2, 2012. See Cardinal's Mot., Ex. A (Order to Show Cause and Immediate

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Suspension of Registration ("ISO")) ¶¶ 3-5.3 After receiving the ISO on February 3, 2012, Cardinal temporarily suspended all sales (from any of its nationwide distribution centers) to the two CVS pharmacies. Cardinal's Mot., Mone Decl. ¶ 45.

Cardinal maintains that it has implemented a "comprehensive compliance program"...

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