U.S. v. Endotec, Inc.

• Citation: 563 F.3d 1187
• Decision Date: 30 March 2009
• Docket Number: No. 08-13693.,08-13693.
• Parties: UNITED STATES of America, Plaintiff-Counter Defendant-Appellant-Cross-Appellee, v. ENDOTEC, INC., a corporation, Michael J. Pappas, Frederick F. Buechel, an individual, Defendants-Counter Claimants-Appellees Cross-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

563 F.3d 1187

UNITED STATES of America, Plaintiff-Counter Defendant-Appellant-Cross-Appellee, v. ENDOTEC, INC., a corporation, Michael J. Pappas, Frederick F. Buechel, an individual, Defendants-Counter Claimants-Appellees Cross-Appellants.

No. 08-13693.

United States Court of Appeals, Eleventh Circuit.

March 30, 2009.

Irene M. Solet, Michael S. Raab, U.S. Dept. of Justice, Civ. Div., App. Staff, Washington, DC, for U.S.

Vello Veski, Palm City, FL, for Endotec, Inc.

Appeals from the United States District Court for the Middle District of Florida.

Before HULL, WILSON and HILL, Circuit Judges.

WILSON, Circuit Judge:

Pursuant to the Medical Device Amendments ("MDA"), 21 U.S.C. § 360c, et seq., to the Food, Drug and Cosmetic Act ("FDCA"), 21 U.S.C. § 301, et seq., the Food & Drug Administration ("FDA") regulates the introduction of medical devices into interstate commerce by requiring that a device meets certain rigorous standards. The United States of America ("Government") filed a civil action seeking a permanent injunction against Endotec, Inc. and its two owners, Michael Pappas and Frederick F. Buechel¹ (collectively, "Appellees"), alleging that they (1) manufactured and distributed adulterated ankle, knee, and jaw devices and (2) exceeded the scope of an approved clinical study of an ankle device, all in violation of the FDCA. In response, the Appellees assert that the ankle, knee, and jaw devices fall under the custom device exemption to the FDCA requirements and that they took certain remedial measures to cure any violations of the clinical study. After a three-day bench trial, the district court enjoined the Appellees from manufacturing and distributing the knee devices but rejected the Government's requests to enjoin the manufacture and distribution of the ankle and jaw devices. See Endotec, Inc., 2008 WL 1909164, at *14-15. The district court also found that the Appellees had not violated the investigational study of the ankle device. See id. The Government appealed as to the ankle and jaw devices and the Appellees cross-appealed as to the knee device.

For the reasons that follow, we affirm the district court's order as to the knee and jaw devices but reverse as to the ankle device and remand with instructions to the district court to enter a permanent injunction in favor of the Government.

I.

A. Statutory scheme

In 1976, Congress passed the MDA, which amended the FDCA and imposed a regime of detailed federal oversight for medical devices. The MDA divided medical devices into three classes "based on the risk that they pose to the public." Medtronic, Inc. v. Lohr, 518 U.S. 470, 476, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996). Class I devices, such as tongue depressors and examination gloves, are subject to "general controls" including labeling requirements. 21 U.S.C. § 360c(a)(1)(A). Class II devices, such as oxygen masks and powered wheelchairs, are subject to "special controls" including performance standards and postmarket surveillance measures. Id. § 360c(a)(1)(B). Class III devices, such as pacemakers and replacement heart valves, are subject to "premarket approval to provide reasonable assurance of its safety and effectiveness." Id. § 360c(a)(1)(C).

Medical devices in interstate commerce at the time of the passage of the MDA were grandfathered and allowed to remain on the market unless and until the FDA promulgated a regulation requiring premarket approval. See id. § 360e(b)(1)(A). Generally, any medical device introduced into interstate commerce for commercial distribution after the passage of the MDA is classified in Class III unless (1) the FDA promulgates a regulation classifying the device in Class I or Class II, or (2) the device is "substantially equivalent" to another pre-existing device on the market.² Id. § 360c(f)(1). Because all the medical devices at issue here were introduced into interstate commerce for commercial distribution after May 28, 1976, and because neither party asserts that the medical devices at issue have been reclassified or deemed substantially equivalent to a Class I or II device, they constitute Class III devices. See Tr. of R., Volume 6, at 10:23-24 (Testimony of Robert Gatling, Jr., Director of the Program Operations Staff, Office of Device Evaluation, Center for Devices and Radiological Health) (testifying that the medical devices "at issue in this case are all Class III devices").

The FDCA prohibits the introduction into interstate commerce of any adulterated or misbranded device. See 21 U.S.C. § 331(a), (k). To show a violation of § 331(a) and (k), the Government must prove: (1) Appellees' products are "devices" within the meaning of the FDCA; (2) the devices are adulterated or misbranded; and (3) the devices move in interstate commerce. A device is "adulterated" under the FDCA if it is required to receive premarket approval from the FDA but moves in commerce even though it did not receive premarket approval. See id. § 351(f)(1)(B). In other words, a Class III device moving in interstate commerce that has not received premarket approval constitutes an adulterated device.

The FDCA and MDA contain several exemptions, two of which arise in this case. First, the investigational device exemption ("IDE") allows an adulterated device to be distributed as part of a clinical investigation if certain conditions are met. See id. § 360j(g). Second, the custom device exemption exempts from performance standards and premarket approval requirements a device that meets the definition specified in the statute. See id. § 360j(b).

Lastly, section 332 of the FDCA provides that "[t]he district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 331 of this title, except paragraphs (h), (i), and (j)." Id. § 332(a) (emphasis added).

B. Factual background

Endotec is a Florida corporation engaged in the business of manufacturing and distributing medical devices. Pappas is Endotec's President and co-owner, and Buechel is Endotec's Vice-President, medical director, and co-owner. The devices at issue include (1) ankle replacement implants with mobile bearings; (2) two types of mobile bearings used with knee replacement implants; and (3) a temporomandibular joint ("TMJ") implant, or a jaw device.

1. Ankle device

The Buechel-Pappas Total Ankle Replacement System ("B-P Ankle") is a generic mobile bearing device that consists of three components: (1) a tibial component; (2) a talar component; and (3) a mobile bearing between them.³ Since 1991, Endotec has filed six "510(k)" applications with the FDA, asserting that the B-P Ankle is substantially equivalent to a Class II device. The FDA has rejected each submission. In October of 1997, Endotec received conditional approval for an IDE clinical study of the B-P ankle limited to two hospitals and ten patients. In May of 1999, the FDA granted full approval to Endotec's IDE clinical study of the B-P Ankle, limited to 109 patients. The IDE reached full enrollment in September of 2001.

The ankle devices at issue here include (1) all ankle devices distributed by Endotec for use in patients beyond the scope of the IDE clinical study for the B-P Ankle, and (2) all ankle devices distributed by Endotec as "custom" or "surgeon specials." See Endotec, 2008 WL 1909164, at *3 ("The specific ankle devices at issue are all the ankle devices that are distributed for use in patients beyond the 109 patients enrolled in an approved IDE clinical study and all ankle devices [the Appellees] describe as `customs' or `surgeon specials.'"). In other words, after the IDE clinical study became full in 2001, the Appellees continued to manufacture and distribute modified versions of the B-P Ankle, which, they contend, constitute custom devices exempt from the requirements of the FDCA. See id. at *5 ("Dr. Pappas testified that while the ankle devices at issue were similar to the standardized B-P Ankle that was being studied under the IDE, each had differences because each was designed for an individual patient, according to that patient's physiology and pathology.").

In 2001, Barbara Maulfair, an FDA investigator, inspected Endotec's New Jersey facility to collect information with respect to the IDE clinical study of the B-P Ankle. At trial, she testified that "Endotec's level of accountability was the worst she had ever seen and violated FDA's regulations governing clinical trials." Id. at *3. As a result, the FDA issued a Form 483 to Endotec listing "seventeen observations which were significant deviations from the regulations." Id. Endotec's database identified 4,000 ankle units, but the IDE only included 109 patients. Her inspection revealed that Dr. Feldman (a clinical investigator under the approved IDE clinical study) had implanted 17 ankle devices into 17 new patients but failed to notify Endotec of these patients. In addition, Dr. Feldman had implanted 10 additional ankle devices as "surgeon specials" and Dr. Buechel (not a clinical investigator under the approved IDE clinical study) had implanted 218 ankle devices as "surgeon specials."

The 2001 inspection by Maulfair led the FDA to impose an Application Integrity Policy ("AIP") to Endotec on or about February 14, 2002 as a result of "system-wide failure by Endotec to ensure the integrity of data and that data submitted to FDA regarding this study [was] unreliable." Id. The AIP letter announced to Endotec that the FDA deferred action or review on any pending submissions or further submissions by Endotec "until questions regarding data integrity are resolved." On March 15, 2002, the FDA also issued a warning letter, informing Endotec that its shipment of B-P Ankles to Drs. Feldman and Buechel were not covered under the approved IDE clinical study and did not constitute "custom devices."

Maulfair conducted two additional inspections of Endotec's New Jersey facility in 2002 and 2004. As a result of her...