In-Possession, Cantrell Drug Co. v. United States (In re Cantrell Drug Co.), Case No. 4:17–bk–16012

• Decision Date: 04 April 2018
• Docket Number: Case No. 4:17–bk–16012,AP No. 4:18–ap–1024
• Parties: IN RE: CANTRELL DRUG COMPANY, Debtor–in–Possession, Cantrell Drug Company, Plaintiff v. United States of America, Food and Drug Administration, 10903 New Hampshire Avenue, Silver Springs, MD 20993, Scott Gottlieb, M.D., in his official capacity as Commissioner of Food and Drugs, Food and Drug Administration, 10903 New Hampshire Avenue, Silver Springs, MD 20993, Thomas E. Price, M.D., Secretary of Health and Human Services, 200 Independence Avenue SW, Washington, DC 20201, Defendants
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Arkansas

585 B.R. 555

IN RE: CANTRELL DRUG COMPANY, Debtor–in–Possession,

Cantrell Drug Company, Plaintiff

v.United States of America, Food and Drug Administration, 10903 New Hampshire Avenue, Silver Springs, MD 20993, Scott Gottlieb, M.D., in his official capacity as Commissioner of Food and Drugs, Food and Drug Administration, 10903 New Hampshire Avenue, Silver Springs, MD 20993, Thomas E. Price, M.D., Secretary of Health and Human Services, 200 Independence Avenue SW, Washington, DC 20201, Defendants

Case No. 4:17–bk–16012

AP No. 4:18–ap–1024

United States Bankruptcy Court, E.D. Arkansas, Little Rock Division.

Signed April 4, 2018

Kevin P. Keech, Keech Law Firm, PA, Little Rock, AR, for Plaintiff.

Jonathan Edward Jacobson, Jeffrey Ira Steger, Raquel Toledo, U.S. Department of Justice, Washington, DC, Stacey E. McCord, Shannon Short Smith, U.S. Attorney's Office, Little Rock, AR, for Defendants.

ORDER GRANTING, IN PART, AND DENYING, IN PART, EMERGENCY MOTION TO EXTEND AUTOMATIC STAY AND FOR PRELIMINARY INJUNCTION

Phyllis M. Jones, United States Bankruptcy Judge

On March 1, 2018, the Cantrell Drug Company ("Cantrell Drug Company" or the "Debtor") commenced the above-referenced adversary proceeding against the United States of America, the Food and Drug Administration (the "FDA"), Scott Gottlieb, M.D., in his capacity as Commissioner of the FDA, and Thomas E. Price, M.D., Secretary of Health and Human Services (collectively the "Defendants" or "United States"). Also on March 1, 2018, the Debtor filed an Emergency Motion to Extend Automatic Stay and For Preliminary Injunction [Doc. # 4] (the "Emergency Motion"), followed by a Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 11] filed on March 5, 2018 (the "First Supplement"), and a Second Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 13] also filed on March 5, 2018 (the "Second Supplement").

The United States, on March 5, 2018, filed its Opposition to Plaintiff's Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 20] and the next day filed its Response to Plaintiff's Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 21]. The Court set the Debtor's Emergency Motion, First Supplement, Second Supplement and the United States' Responses to the Emergency Motion and First Supplement for hearing on an emergency basis and received testimony and documentary evidence March 6 through March 9, 2018.

On March 9, 2018, the parties announced an agreement to stay the proceedings for a short time for reasons that will be discussed below and the hearing was continued to March 26, 2018. Prior to the March 26 setting, the United States, on March 16, 2018, filed its Opposition to Plaintiff's Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 32] and, on March 18, 2018, filed its Response to Plaintiff's Second Supplement to Emergency Motion to Extend Aut omatic Stay and For Preliminary Injunction[Doc. # 33].

The day before the hearing was to resume the Debtor filed its Second [sic] Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 44] (which was actually the third supplement to the Emergency Motion and will be referred to as the "Third Supplement"), and its Reply to United States' Response to Plaintiff's Second Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 46]. The hearing resumed on March 26, 2018, and continued to conclusion on March 28, 2018. On the morning of the last day of the hearing the United States filed its Response to Plaintiff's Third Supplement to Emergency Motion to Extend Automatic Stay and for Preliminary Injunction [Doc. # 52].

Kevin P. Keech appeared at the hearing as counsel for the Debtor. The United States was represented by Stacey E. McCord, Shannon Short Smith, Raquel Toledo, Jeffrey Ira Steger, and Jonathan Edward Jacobson. At the close of the evidence the Court took the matter under advisement.

In summary, this case involves a dispute between Cantrell Drug Company and the FDA concerning the sterility of certain injectable drugs compounded by Cantrell Drug Company. As will be further explained below, the United States filed an action in federal district court alleging violations of 21 U.S.C. § 331(a) and (k) and seeking, among other things, an injunction to stop Cantrell Drug Company from "manufacturing" or "distributing" any drugs until its operations are in compliance with the Federal Food, Drug, and Cosmetic Act (the "FDCA") to the satisfaction of the FDA. Debtor's Ex. 2. The day after the lawsuit was filed the FDA issued a press release alerting health care professionals and patients not to use compounded drugs from Cantrell Drug Company and stating that deficiencies in the Debtor's operations could result in contaminated products adding that the use of contaminated products could cause serious injury or death to the patient. Debtor's Ex. 3.

Cantrell Drug Company adamantly disputes the United States' allegations. It also asserts that its drug orders have plummeted since the press release was disseminated and without relief from the bankruptcy court its business will have to shut down, its drug users will suffer due to the unavailability of drugs it produces that are on the FDA's drug shortage list, employees will lose their jobs, the Debtor's reorganization proceeding will become a bankruptcy liquidation, and both creditors and equity security holders will suffer. Cantrell Drug Company also asserts that although the FDA filed an action seeking a preliminary injunction in District Court that the effect of FDA's press release was to grant FDA an injunction prior to a judicial determination on the merits of the action in violation of Cantrell Drug Company's due process rights.

Jurisdiction

The Court has jurisdiction pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and (G). The following constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

Relief Sought

As reflected in the first paragraph of this order the parties have filed a total of ten pleadings since March 1, 2018, the date the Debtor initially filed its Emergency Motion. Five of the pleadings were filed after the court proceedings began as events continued to unfold. After review of the Emergency Motion, its three supplements, and the Debtor's closing arguments, the Court understands the Debtor seeks the following relief:¹

(1) For this Court, pursuant to Section 105(a) of the Bankruptcy Code, to extend the automatic stay to the injunction action filed by the United States in the District Court for a period of forty-five days; and

(2) For this Court to "un-ring the bell" of the press release disseminated by the FDA and restore the status quo of the parties to a time before the press release was issued.

Background Facts

Cantrell Drug Company was purchased by Dr. James Liddell McCarley, Jr. and his wife from her father in 1992. Dr. McCarley became interested in compounding drugs during the next several years and expanded the business into the compounding business.

In 2013 President Obama signed into law the Drug Quality and Security Act ("DQSA") that, among other things, created 503B outsourcing facilities. Cantrell Drug Company was one of the first facilities to register with the FDA as a 503B outsourcing facility registering in December 2013. Cantrell Drug Company supplies medications that are on the FDA's drug shortage list. Many of its customers, including hospitals, have been purchasing products from Cantrell Drug Company for many years.

Prior to registering as a 503B outsourcing facility, the FDA conducted an inspection of Cantrell Drug Company's facilities (the "2013 Inspection"). At the conclusion of the 2013 Inspection the FDA issued a Form 483 inspection report (the "2013 Form 483"). There were twelve observations regarding various aspects of Cantrell Drug Company's operations generally including deficiencies in procedures designed to prevent microbiological contamination, to handle complaints, and to monitor environmental conditions. Additional deficiencies were noted regarding clothing worn by personnel, processes for cleaning and disinfecting equipment, written testing programs, and training procedures.

The next month after the 2013 Inspection, Cantrell Drug Company sent its response to the 2013 Form 483 to the FDA discussing the FDA's inspection and proposing certain corrective actions to address the FDA's concerns (the "November 2013 Response"). After reviewing the November 2013 Response, the FDA sent Cantrell Drug Company a "Warning Letter" dated January 21, 2015. The Warning Letter acknowledged that since the 2013 Inspection Cantrell Drug Company had registered as a 503B outsourcing facility and stated because of that the FDA would focus on the current good manufacturing practices ("CGMP") violations noted in the 2013 Form 483. The violations stated in the Warning Letter included, in general: (1) the failure to establish and follow written procedures designed to prevent microbiological contamination of drug products; (2) the failure to insure that manufacturing personnel wear clothing appropriate to protect the drug product from contamination; (3) the failure to establish an adequate system for monitoring environmental conditions in the aseptic processing areas; and (4) the failure to establish an adequate system for cleaning and disinfecting the room and equipment to produce aseptic conditions. Gov't Ex. 1. The Warning Letter discussed the November 2013 Response received from Cantrell Drug Company. The FDA acknowledged that several of Cantrell Drug Company's proposed corrective actions appeared to be adequate but noted that other proposed corrective actions were deficient. Gov't Ex. 1.

The...