US v. 9/1 KG CONTAINERS

• Decision Date: 08 December 1987
• Docket Number: No. 86-3201.,86-3201.
• Citation: 674 F. Supp. 1344
• Parties: UNITED STATES of America, Plaintiff, v. 9/1 KG CONTAINERS, More or Less of an ARTICLE OF DRUG FOR VETERINARY USE, et al., Defendants.
• Court: U.S. District Court — Central District of Illinois

674 F. Supp. 1344

UNITED STATES of America, Plaintiff, v. 9/1 KG CONTAINERS, More or Less of an ARTICLE OF DRUG FOR VETERINARY USE, et al., Defendants.

No. 86-3201.

United States District Court, C.D. Illinois, Springfield Division.

December 8, 1987.

James A. Lewis, Asst. U.S. Atty., Springfield, Ill., for U.S.

John Ess, Heyl, Royster, Voelker & Allen, Springfield, Ill., for amicus curiae American Veterinary Medical Assoc.

Philip C. Olsson, David P. Weeda, Arthur Y. Tsien, Olsson, Frank and Weeda, P.C., Washington, D.C., for amicus curiae American Feed Industry Assn.

James R. Phelps, Robert A. Dormer, Hyman, Phelps & McNamara, P.C., Washington, D.C., William F. Trapp, Springfield, Ill., for defendants.

LeFevre, Zeman, Oldfield & Schwarm, Vandalia, Ill., for American Food Animal Veterinary Medical Assn.

OPINION

MILLS, District Judge:

In this cause, the Government seeks the condemnation of bulk animal drugs pursuant to 21 U.S.C. § 334.¹ As this is a case of first impression, we proceed with very little in the way of case law to guide us.

The Government alleges that the drugs do not have adequate directions for use and are, therefore, misbranded. Additionally, the Government claims that five of the lots are subject to condemnation because they have not been approved by the Food & Drug Administration (FDA). The claimant, Schuyler Laboratories (Schuyler), argues that the seized articles of drug are exempt from the labeling requirements of the Food, Drug, and Cosmetic Act (Act).

The parties have filed cross-motions for summary judgment pursuant to Fed.R. Civ.P. 56. Rule 56 authorizes summary judgment where no genuine issue as to any material fact exists, and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

This is such a case.

Summary judgment for claimant.

I. Facts

The facts are undisputed. The complaint, filed July 3, 1986, alleges that the Defendant drugs are misbranded under the provisions of 21 U.S.C. § 352(f)(1),² in that their labels do not bear "adequate directions for use."³ The complaint further alleges that certain of the drugs are unapproved new animal drugs within the meaning of 21 U.S.C. § 321(w)(3),⁴ and, therefore, are adulterated under 21 U.S.C. §§ 360b(a)(1)⁵ and 351(a)(5).⁶

On July 9, 1986, the United States Marshal seized approximately 52 lots of drugs at the Schuyler facility in Rushville, Illinois. Schuyler filed a claim for the drugs on July 18, 1986.

Schuyler purchases bulk drugs (active drug ingredients that require further processing before use) for repacking and sale directly and exclusively to veterinarians. Some of the seized articles were in the original containers in which the drugs were shipped to Schuyler. The labeling of these products bears shipping information, such as the name and place of business of the manufacturer, packer, or distributer, and the identity of the bulk drug substance. The remaining articles seized had been repacked by Schuyler and bear labels that contain the name "Schuyler Laboratories" and state "for manufacturing, processing, or repacking," and contain the name of the drug. The seized articles are not accompanied by labeling that bears directions for use.

II. Analysis

A. Labeling under § 352(f)(1)

Under 21 U.S.C. § 352(f)(1),

a drug or device shall be deemed to be misbranded — ... Unless its labeling bears (1) adequate directions for use; ... Provided, That where any requirement of clause (1) of this subsection, as applied to any drug or device, is not necessary for the protection of the public health, the Secretary shall promulgate regulations exempting such drug or device from such requirement. (emphasis supplied)

In response to the mandatory proviso of the above quoted section, the Secretary promulgated the following exemption for bulk drugs:

A drug in a bulk package, except tablets, capsules, or other dosage unit forms, intended for processing, repacking, or use in the manufacture of another drug shall be exempt from § 502(f)(1) 21 U.S.C. § 352(f)(1) of the Act if its label bears the statement "Caution: For manufacturing, processing, or repacking".... But the exemption shall not apply to a substance intended for a use in manufacture, processing, or repacking which causes the finished article to be a new drug....

21 C.F.R. § 201.122 (1987).

It is the Government's contention that the limitation on the exemption ("But the exemption shall not apply ...") works to take these bulk drugs out of the exemption because the finished articles form new animal drugs. On the other hand, Schuyler contends that the bulk drugs are exempt and the limitation on the exemption does not come into play because the compounded drugs are not new animal drugs.

1. The Burden of Proof

The burden of proof falls on the Government to show by a preponderance of the evidence that: (1) the seized drugs are intended for use in animals; (2) that they do not bear adequate directions for use; and (3) that the drugs were held for sale after shipment in interstate commerce. See United States v. An Article of Device: "Toftness Radiation Detector," 731 F.2d 1253, 1261 (7th Cir.), cert. denied, 469 U.S. 882, 105 S.Ct. 249, 83 L.Ed.2d 186 (1984). Since these facts have been admitted by claimant, the Government has carried its burden. Thus, the seized drugs are misbranded unless they fall within one of the exemptions from the requirement. Claimants contend that the drugs fall within the bulk drug exemption of 21 C.F.R. § 201.122 (quoted above).

There is a disagreement among the parties as to whose burden it is to show the applicability or nonapplicability of the exemption. To resolve this issue we are guided by Toftness, wherein the Court of Appeals, addressing the misbranding of a prescription device under § 352(f)(1), determined that one claiming an exemption under the misbranding regulations bears the burden of showing its applicability. The Court came to this conclusion after analysis of the statute's structure and application of the general rule that a party claiming entitlement to a statutory exemption bears the burden of proving the entitlement. See United States v. First City Nat'l Bank, 386 U.S. 361, 366, 87 S.Ct. 1088, 1092, 18 L.Ed.2d 151 (1967). The Toftness court stated:

The FDA promulgated the regulations ... and those regulations make prescription devices one of several exemptions to the more general labeling requirements. No purpose justifying this odd structure occurs to us other than the purpose of shifting the burden of proof. By treating the large category of prescription devices under an exemption to the more general requirements, the FDA appears to have wanted to make its task some-what easier by placing on claimants the burden of proving that their device is safe and is actually effective for its intended purposes.

Although this regulatory arrangement may seem strange insofar as it makes prescription devices presumptively misbranded, the regulatory scheme is not contrary to either the letter or intent of the statute.

Toftness, 731 F.2d at 1261.

Thus, according to Toftness, unless the exemption is contrary to either the letter or intent of the statute, Schuyler must bear the burden of showing the applicability of the exemption.

2. Applicability of the Bulk Drug Regulation

It is axiomatic that for regulations to be valid they "must be consistent with the statute under which they are promulgated." United States v. Larionoff, 431 U.S. 864, 873, 97 S.Ct. 2150, 2156, 53 L.Ed. 2d 48 (1977). In Manhattan General Equip. Co. v. Commissioner, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528 (1936), the Court stated: "The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is ... only the power to adopt regulations to carry into effect the will of Congress as expressed by statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity." Id. at 134, 56 S.Ct. at 400, quoted in Larionoff, 431 U.S. at 873 n. 12, 97 S.Ct. at 2156 n. 12.

In the instant case, the regulation states that bulk drugs such as those at issue here are exempt from the § 352(f)(1) labeling requirements unless the bulk drug's use will result in a finished product which is a "new drug." However, under the regulation this "new drug" limitation can be avoided if an approved new drug application or new animal drug application covers the production and delivery of the drug substance to the application holder — in this case, the veterinarian.

Thus, the question for this Court is whether the bulk drug exemption regulation is in harmony with the letter and intent of the statute under which the regulation was enacted. For the reasons given below, the Court finds that the regulation is not in harmony with the legislation.

a. The Legislative Scheme Generally

Generally, Congress has shown a reluctance to interfere with the healing arts, of which veterinary medicine is obviously one. Specifically, the legislative history of the Food, Drug, and Cosmetic Act does not support the authority of FDA to meddle in the field of drug compounding done within the scope of the professional practice of medicine — be it veterinary or otherwise.

When the Act became law in 1938, it was clear to the legislators that it was not the purpose of the Act to involve the agency in the practice of the healing arts. The committee reports made clear that the bill was "not intended as a medical practices act and would not interfere with the practice of the healing arts...." S.Rep. No. 361, 74th Cong., 1st Sess. 3 (1935), quoted in Chaney v. Heckler, 718 F.2d 1174, 1179 n. 13 (D.C.Cir.1983), rev'd on other grounds, 470 U.S. 821, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985). The Chaney court further stated that "the legislative history makes clear that Congress did not want to limit a physician's ability to treat...