Cody Labs. Inc. v. Sebelius

• Decision Date: 03 November 2011
• Docket Number: No. 11-8001,11-8001
• Parties: CODY LABORATORIES, INC., a Wyoming corporation; LANNETT CO., INC., a Delaware corporation, Plaintiffs-Appellants, v. KATHLEEN SEBELIUS, in her official capacity as United States Department of Health and Human Services Secretary; MARGARET A. HAMBURG, in her official capacity as United States Food and Drug Administration Commissioner, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

CODY LABORATORIES, INC.,a Wyoming corporation; LANNETT CO.,INC., a Delaware corporation, Plaintiffs-Appellants,

v. KATHLEEN SEBELIUS,in her official capacity as United States Department ofHealth and Human Services Secretary;MARGARET A. HAMBURG, in herofficial capacity as United States Foodand Drug Administration Commissioner, Defendants-Appellees.

No. 11-8001

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

Filed: November 3, 2011

(D.C. No. 2:10-CV-00147-ABJ)

(D. Wyo.)

ORDER AND JUDGMENT^*

Before KELLY, LUCERO, and GILMAN,^** Circuit Judges.

Cody Laboratories, Inc. and Lannett Co., Inc. (collectively, "Cody") appeal thedistrict court's dismissal of their action for declaratory judgment against the federal officials responsible for the Food and Drug Administration ("FDA"). We conclude that one of Cody's claims has been mooted by post-judgment events and that Cody failed to exhaust available administrative remedies with respect to the remaining claim. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part and dismiss in part.

I

According to the complaint, Cody has been manufacturing and distributing morphine sulfate, a pain-relieving drug used primarily in palliative care, since 2005. At the time Cody filed its complaint, the company had not received FDA approval for its morphine sulfate product. Cody contends that the product falls under the "grandfather clause" of the Food, Drug, and Cosmetic Act ("FDCA") because morphine sulfate has been used for pain relief in the United States for over a century. See 21 U.S.C. § 321(p)(1) (excepting from the "new drug" definition certain pre-1938 drugs). Based on its alleged grandfathered status, Cody argues the product does not require FDA approval. See 21 U.S.C. § 355(a) (requiring FDA approval for marketing of "new drugs" only).

The FDA claims that the grandfather clause is exceedingly narrow and applies only to drugs that have been marketed in essentially identical form since 1938. As part of an effort to remove unapproved drugs from the market, the FDA sent Cody a warning letter in March 2009 stating that Cody's manufacture and distribution of morphine sulfate was in violation of the FDCA and that "failure to promptly correct these violations may result in legal action." In April of that year, however, the FDA sent another letter toCody stating that, in light of availability concerns, the agency would suspend any enforcement action against morphine sulfate manufacturers until 180 days after the FDA had approved a morphine sulfate product.

Although Cody disputed the agency's view in a series of letters and meetings, the FDA did not alter its stance. It stated in no uncertain terms that it considered Cody's product to be an unapproved new drug and reiterated its threats of enforcement action. According to Cody, the FDA also informed the Drug Enforcement Agency ("DEA") of its position on the legality of Cody's product. The DEA subsequently refused to provide Cody the necessary authorization to purchase the raw materials to make morphine sulfate. Cody further claims the FDA contacted its major customers, threatening enforcement action if they continued to purchase Cody's unapproved product.

Meanwhile, in August 2009, Roxane Laboratories, Inc. ("Roxane"), Cody's main competitor in the morphine sulfate market, submitted a New Drug Application ("NDA") for its own morphine sulfate product. Following its policy of granting expedited review of an NDA if no approved alternative drug exists, the FDA quickly reviewed and approved Roxane's NDA in January 2010. Cody submitted an NDA for its product the following month. The company's requests for expedited review were denied.

In March 2010, the FDA informed Cody that it would end the period of suspended enforcement on July 24, 2010, because Roxane's morphine sulfate product had been approved. In response, Cody filed suit seeking to enjoin the FDA from commencing an enforcement action and for declaratory judgment. Cody contended that the FDA actedarbitrarily, capriciously, and contrary to law in violation of the Administrative Procedure Act ("APA") by: (1) improperly determining that Cody's product is a "new drug" and thus not entitled to grandfathered status under the FDCA; and (2) treating Cody disparately from Roxane in processing the companies' respective NDAs.

Cody moved for a temporary restraining order and a preliminary injunction, which the district court denied. The court subsequently dismissed Cody's complaint for lack of jurisdiction, holding that the FDA had yet to complete "final agency action" under § 704 of the APA. See 5 U.S.C. § 704. Cody timely appealed the dismissal.

On June 23, 2011—while this appeal was pending—the FDA approved Cody's NDA. Appellees filed a motion to dismiss the appeal as moot. Although they initially argued that the NDA approval mooted Cody's action in its entirety, appellees now claim the approval moots only Cody's disparate treatment claim. Cody maintains that neither of its claims has been mooted by the NDA approval.

II

"Mootness is a threshold issue because the existence of a live case or controversy is a constitutional prerequisite to federal court jurisdiction." McClendon v. City of Albuquerque, 100 F.3d 863, 867 (10th Cir. 1996). A case becomes moot "when it is impossible to grant any effectual relief." Chihuahuan Grasslands Alliance v. Kempthorne, 545 F.3d 884, 891 (10th Cir. 2008).

We agree with the parties that the approval of Cody's NDA has not mooted its grandfathering claim. If a court were to declare that Cody's morphine sulfate product isgrandfathered, Cody would face a different and apparently lighter regulatory burden. Cody's product will incur a product fee under its NDA from which the company would be exempt if it product were considered a grandfathered drug. The parties also agree that the labeling requirements for grandfathered drugs are distinct, and perhaps less onerous, than those for new drugs. By prevailing on its grandfathering claim, Cody could still obtain meaningful relief in the form of freedom from these burdens. Accordingly, this claim is not moot.

We reach the opposite conclusion as to Cody's disparate treatment claim. Cody argues the FDA improperly granted expedited review to Roxane and refused to do the same for Cody. Despite the fact that we can no longer grant the relief Cody originally requested—an order requiring the FDA to expedite review of its NDA—the company nonetheless asks this court to enter a declaratory judgment that the FDA should have approved its application more quickly. In other words, Cody asks us to issue a "retrospective opinion that [it] was wrongly harmed." See Jordan v. Sosa, 654 F.3d 1012, 1025 (10th Cir. 2011) (citing cases). Article III does not permit such an opinion. See Cox v. Phelps Dodge Corp., 43 F.3d 1345, 1348 (10th Cir. 1994) (a case is moot if the plaintiff's interest is nothing more than "the satisfaction of a declaration that a person was wronged"), superseded on other grounds as recognized in Walker v. United Parcel Serv., Inc., 240 F.3d 1268, 1278 (10th Cir. 2001).

Nor does Cody's disparate treatment claim fall under the exception to the mootness doctrine for disputes that are capable of repetition, but evading review. To fitwithin that exception, a litigant must show a reasonable expectation that it would be subjected to the same adverse action in the future. See Murphy v. Hunt, 455 U.S. 478, 482 (1982). Thus, for its disparate treatment claim to qualify, Cody would have to establish a "demonstrated probability," Johansen v. City of Bartlesville, 862 F.2d 1423, 1426 (10th Cir. 1988) (quotation omitted), that: (1) Cody would submit an NDA for another unapproved drug and request that the agency expedite its review; (2) one of Cody's competitors would also submit an NDA for the same drug and request expedited review; and (3) the FDA would deny Cody's request for expedited review but grant it to the competitor. Cody asserts that it intends to file NDAs for two other unapproved drug products it currently markets, that it plans to request expedited review of those applications, and that it expects its competitors to do the same. But Cody has not given us reason to expect that the agency will deny Cody's request for expedited review while granting that of its competitors. Thus, we conclude that Cody has not carried its burden of demonstrating its claim is capable of repetition, but evading review. Accordingly, we dismiss Cody's disparate treatment claim as moot.

III

Mootness aside, we cannot reach the merits of Cody's grandfathering claim unless the FDA has engaged in "final agency action" under the APA. See 5 U.S.C. § 704. Final agency action "mark[s] the consummation of the agency's decisionmaking process" and is action "by which rights or obligations have been determined, or from which legal consequences will flow." Bennett v. Spear, 520 U.S. 154, 178 (1997) (quotations andcitations omitted). We apply the concept of finality in a flexible and pragmatic manner. See Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967), overruled on other grounds, Califano v. Sanders, 430 U.S. 99, 105 (1977). Final agency action can come in the form of a "series of agency pronouncements rather than a single edict," Ciba-Geigy Corp. v. EPA, 801 F.2d 430, 435 n.7 (D.C. Cir. 1986), and the "label an agency attaches to its action is not determinative," Continental Air Lines, Inc., v. Civil Aeronautics Bd., 522 F.2d 107, 124 (D.C. Cir. 1975).

Cody urges us to conclude that the FDA took final agency action by issuing warning letters, confirming its position in subsequent correspondence with Cody, and engaging in "de facto enforcement actions" by notifying the DEA and Cody's customers of the agency's views.

It appears that every court to consider the question has held that an FDA warning letter does not constitute "final agency action." See, e.g., Biotics Research Corp. v. Heckler, 710 F.2d 1375, 1378 (9th Cir. 1983); Holistic Candlers & Consumer...