Keysource Med. Inc. v. Holder, Case No. 1:11-cv-393

CourtUnited States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio
Writing for the CourtSusan J. Dlott
PartiesKEYSOURCE MEDICAL, INC., Plaintiff, v. ERIC HOLDER, JR., Attorney General of the United States, et al., Defendants.
Docket NumberCase No. 1:11-cv-393
Decision Date16 August 2011

Attorney General of the United States, et al., Defendants.

Case No. 1:11-cv-393


Dated: August 16, 2011

Chief Judge Susan J. Dlott


This matter comes before the Court on Plaintiff's motion for a temporary restraining order and motion for a preliminary injunction. (See doc. 2.) In filing the instant action, Plaintiff sought to enjoin an immediate suspension order issued by the Drug Enforcement Administration ("DEA") on June 9, 2011. On June 17, 2011, the Court modified that suspension until such time that a hearing could be held on the issuance of a preliminary injunction. (Doc. 6.) The Court held a preliminary injunction hearing on July 5 and 6, 2011 during which the Court heard testimony from seven witnesses. After considering this testimony as well as the exhibits, arguments, and other materials submitted by counsel, the Court denied the Plaintiff's motion in a ruling from the bench for the reasons set forth below.


A. Controlled Substances Act

In 1970, Congress enacted the Comprehensive Drug Abuse Prevention and Control Act, 21 U.S.C. §§ 801-971 (1988) (& Supp. IV 1992) (the Controlled Substances Act or "CSA"), based on a finding that "the illegal importation, manufacture, distribution, and possession and improper use of controlled substances have a substantial and detrimental effect on the health and

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general welfare of the American people." 21 U.S.C. § 801(2). "A 'main objective' of the [CSA] is controlling 'illegitimate traffic in controlled substances,' by placing 'substances in one of five schedules based on their potential for abuse or dependence, their accepted medical use, and their accepted safety for use under medical supervision.'" Volkman v. U.S. Drug Enforcement Admin., 567 F.3d 215, 221 (6th Cir. 2009) (quoting Gonzales v. Oregon, 546 U.S. 243, 250 (2006)).

The CSA authorizes the DEA to regulate the distribution of controlled substances with the goal of creating a closed-system of distribution. (See Decl. of Joseph Rannazzisi (Doc. 9-1) ¶¶ 5-6; Testimony of Kyle Wright (July 6, 2011).) The CSA also authorizes the DEA to establish a registration program for handlers of controlled substances in order to prevent the diversion of legally-produced controlled substances into the illicit market. 21 U.S.C. §§ 821, 822. In turn, the DEA is authorized to "promulgate rules and regulations and to charge reasonable fees relating to the registration and control of the manufacture, distribution, and dispensing of controlled substances." 21 U.S.C. § 821. The CSA imposes criminal, civil, and administrative penalties for the illegal distribution of controlled substances and for failure of DEA registrants to maintain the requisite controls to prevent diversion. See, e.g., 21 U.S.C. §§ 841, 842, 843, 824.

Any entity that wishes to handle controlled substances must first register with the DEA. 21 U.S.C. § 822; 21 C.F.R. § 1301.11. Registrants are subject to a variety of recordkeeping, reporting, and security requirements relating to controlled substances. See 21 U.S.C. § 827 (inventory reporting requirements), § 825 (labeling and packaging requirements), §§828, 829 (order forms, prescriptions); 21 C.F.R. §§ 1302-1307. Specifically, distributors are required to

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"design and operate a system to disclose to the registrant suspicious orders of controlled substances" and, in turn, to disclose those suspicious orders to the DEA. 21 C.F.R. § 1301.74(b) (defining "suspicious orders" to include "orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.").

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). One factor in determining if a distributor has failed to act in the public interest is the "maintenance of effective control[s] against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels." 21 U.S.C. § 823(b)(1), (e)(1). Prior to suspending or revoking a party's registration, the DEA must issue an order to show cause describing the basis for initiating proceedings and also allowing for an administrative hearing. 21 U.S.C. § 824(c).

Federal law also authorizes the DEA to act more quickly when it has reason to believe that a party's continued registration poses "an imminent danger to the public health or safety." 21 U.S.C. § 824(d). In such cases, the DEA has the discretion to suspend that party's registration immediately, after which an administrative hearing will be held. 21 C.F.R. § 1301.42. After receiving an order to show cause, a registrant can request an expedited hearing, which the DEA is required to grant "as early as reasonably possible." 21 C.F.R. § 1301.36(h). A suspension remains in effect until the DEA issues a final order, unless the suspension is withdrawn by the Attorney General or is dissolved by a court of competent jurisdiction. 21 U.S.C. § 824(d).

B. KeySource Medical

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KeySource Medical, Inc. ("KMI") is a secondary wholesaler of generic pharmaceutical drugs, including controlled substances that are regulated by the DEA. KMI sells both controlled and non-controlled substances and over-the-counter products to independent retail pharmacies as well as a mix of small chain, long-term care, hospice, and specialty pharmacies in forty-seven states. (Testimony of Dennis J. Engel (July 5, 2011); Decl. of Dennis J. Engel (Doc. 2-3) ¶ 2.) Founded in 1996, KMI has one distribution facility at its Cincinnati, Ohio location. (Id. ¶¶ 2-3.)

Between 2008 and 2011, KMI increased its purchases of hydrocodone and oxycodone, two drugs commonly associated with abuse and diversion. (Wright Testimony; Decl. of Kyle Wright (Doc. 9-3) ¶ 10; DX 1007 at 7-8.) According to a database maintained by the DEA,1 KMI doubled the amount of hydrocodone it purchased in 2008 and doubled it again in 2009, when it purchased and distributed 28.6 million units of the drug. (Wright Decl. ¶ 11; Def. Ex. 1007 at 7.) KMI also increased its purchases of oxycodone, which more than doubled in 2008 (to 2.4 million dosage units), increased fivefold in 2009 (to 16.2 million dosage units), and tripled in 2010 (to 50.9 million dosage units). (Wright Decl. ¶ 12; Def. Ex. 1007 at 8.) In terms of drug strength, most of KMI's controlled substances sales that were reported to the DEA were of two particular drugs - oxycodone 30 mg and hydrocodone 10 mg - that have a high street value and pose a substantial risk of diversion. (Wright Decl. ¶¶ 15-17; Def. Ex. 1007 at 10-11.)

KMI's sales of oxycodone to the state of Florida are particularly significant, for reasons that are explained in the next section. Beginning in or around 2009, KMI began distributing

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pharmaceutical drugs to Florida. (Am. Decl. of David Hoffman, R.Ph (Doc. 5) ¶ 12.) Between January 1, 2009 and May 31, 2011, KMI sold 52,880,400 dosage units of oxycodone, a powerful and addictive narcotic that is regulated as a schedule II controlled substance based on its high potential for abuse and addiction. (Wright Testimony; Wright Decl. ¶ 5; Def. Ex. 1007 at 3.) In 2010 alone, KMI sold 41,502,500 dosage units of oxycodone to pharmacies in Florida. (Wright Decl. ¶ 19; Def. Ex. 1007 at 4.) Among similarly situated distributors - i.e., those with only one distribution facility - KMI was the top supplier of oxycodone to Florida in 2010 and the first three months of 2011. (Wright Decl. ¶¶ 21-23; Def. Ex. 1007 at 30-33.)

C. Prescription Drug Epidemic in Florida

During this same period, an epidemic of prescription drug abuse was already underway in Florida. As explained in the testimony of Susan Langston, a DEA Diversion Group Supervisor located in southern Florida, this epidemic is the result of the actions of numerous individuals: those - including criminal trafficking organizations - who seek drugs for purposes that range from addiction to profit; physicians in "pill mills" who prescribe oxycodone without legitimate medical purposes; pharmacists who willingly fill these illegitimate prescriptions; and distributors who supply pharmacies with the drugs necessary to fill these prescriptions.

The devastation caused by this problem is well-known in the pharmaceutical industry and, in fact, the general public. (Testimony of Susan Langston (July 6, 2011).) The number of overdose deaths associated with oxycodone in Florida has been increasing between 2005 and 2010. (Rannazzisi Decl. ¶ 10 (summarizing data from Florida Medical Examiner's Office).) The impact of diversion also extends beyond Florida into states like Ohio and Kentucky. In these states - and many others - drug trafficking organizations "sponsor" individuals to travel to

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Florida, obtain prescriptions for drugs like oxycodone and hydrocodone, and bring them back into their local communities - creating what many investigators refer to as the "Florida Pipeline" or the "Oxycontin Express." (Langston Testimony; Decl. of Christopher Kresnak (Doc 9-2) ¶¶ 3-4.) The DEA estimates that, nationwide, over...

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