Wedgewood Village v. United States

Opinions of the United

2005 Decisions States Court of Appeals

for the Third Circuit

9-1-2005

Wedgewood Village v. USA

Precedential or Non-Precedential: Precedential

Docket No. 04-1175

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 04-1175

WEDGEWOOD VILLAGE PHARMACY, INC.,

IN THE MATTER OF ESTABLISHMENT

INSPECTION OF:

d/b/a WEDGEWOOD PHARMACY,

Appellant

v.

UNITED STATES OF AMERICA

On Appeal from the United States District Court

for the District of New Jersey

(District Court No. 03-cv- 03438)

District Judge: Honorable Jerome B. Simandle

Argued: November 16, 2004

Before: McKEE and CHERTOFF,* Circuit Judges, and

BUCKWALTER,** District Judge.

(Filed: September 1, 2005)

HOWARD M. HOFFMAN (Argued)

RACHAEL G. PONTIKES

Duane Morris LLP

227 West Monroe Street

Suite 3400

Chicago, IL 60606

FRANK A. LUCHAK

Duane Morris LLP

51 Haddonfield Road

Suite 340

Cherry Hill, NJ 08002

Attorneys for Appellant

*

Judge Chertoff heard oral argument in this case but resigned

before this opinion was filed. The decision is filed by a quorum

of the panel. 28 U.S.C. § 46(d).

**

Honorable Ronald L. Buckwalter, United States District

Judge for the Eastern District of Pennsylvania, sitting by

designation.

2

DOUGLAS N. LETTER

CHRISTINE N. KOHL (Argued)

United States Department of Justice

Civil Division

950 Pennsylvania Avenue, N.W.

Washington, DC 20530

PAUL A. BLAINE

Office of United States Attorney

Camden Federal Building & Courthouse

401 Market Street

Camden, NJ 08101

Attorneys for Appellee

OPINION

McKee, Circuit Judge

Wedgewood Village Pharmacy appeals the District

Court’s order affirming the Magistrate Judge’s denial of

Wedgewood’s motion to quash an administrative warrant issued

to agents of the Food and Drug Administration. Wedgewood

argues that it is exempt from FDA inspection under provisions

of the Food, Drug, and Cosmetic Act (the “FDCA”), 21 U.S.C.

§ 301 et seq. Wedgewood also contends that it was denied

procedural due process. For the reasons that follow, we hold

that Wedgewood was not exempt from FDA inspection under

the FDCA, and that issuance of the warrant did not deny

3

Wedgewood procedural due process. Accordingly, we will

affirm the decision of the District Court.

I. Background

Wedgewood is a pharmacy specializing in compounding

drugs used for treating humans and animals. “Compounding”

refers to the process of modifying prescription drugs to meet the

specific needs of individual patients.

Drug compounding is a process by which a

pharmacist or doctor combines, mixes, or alters

ingredients to create a medication tailored to the

needs of an individual patient. Compounding is

typically used to prepare medications that are not

commercially available, such as medication for a

patient who is allergic to an ingredient in a mass-

produced product. It is a traditional component

of the practice of pharmacy, and is taught as part

of the standard curriculum at most pharmacy

schools . . . .

Thompson v. W. States Med. Ctr., 535 U.S. 357, 360-61 (2002)

(internal citation omitted).

Drug compounding is frequently regulated by states “as

part of their regulation of pharmacies,” and the FDA was

content to allow the states to regulate compounding for

“approximately . . . 50 years after the enactment of the FDCA.”

Id. at 361. However, the FDA eventually became concerned

that some pharmacies were “manufacturing and selling drugs

4

under the guise of compounding, thereby avoiding the FDCA’s

[regulation of new drugs].” Id. at 362. Accordingly, in 1992,

the FDA issued a Compliance Policy Guide (the “CPG”),

“which announced that the ‘FDA may, in the exercise of its

enforcement discretion, initiate enforcement actions . . . when

the scope and nature of a pharmacy’s activities raises the kinds

of concerns normally associated with a manufacturer and . . .

results in significant violations of the new drug, adulteration, or

misbranding provisions of the [FDCA].’” Id.

Pursuant to the regulatory authority of the FDCA and

concerns that had been raised about the scope and nature of

Wedgewood’s drug compounding and related activities, on

March 10, 2003, FDA Agent Margaret Sands applied for a

warrant to inspect Wedgewood’s facilities. In her warrant

application, Sands stated that the FDA sought to:

have access to production and distribution

records to determine the extent to which

[Wedgewood’s] activities are consistent with

those of a drug manufacturer rather than a retail

pharmacy, and to evaluate the extent of violations

of the [FDCA], including the new drug and new

animal drug approval requirements, and the Act’s

adulteration provisions.”

App. A14.

In the warrant application, the FDA cited several reasons

for the inspection, and noted that the DEA had requested FDA

assistance for an inter-agency investigation of Wedgewood

because of the pharmacy’s failure to report the theft of certain

5

controlled substances that were believed to have been

consumed in several overdoses by high school students in

October, 2001. App. A03. 1

Although the FDCA provides pharmacies with a limited

exemption from intrusive inspection subject to certain

conditions, the FDA asserted in its application that Wedgewood

did not qualify for the exemption because Wedgewood was not

operating strictly as a retail business as is required for the

statutory exemption. The application asserted that: in early

1998, Wedgewood had shipped over 1,000 vials of Poison Ivy

Extract without receiving the requisite prescriptions for specific

patients; in May 2002, Wedgewood had acquired an

encapsulation machine which could be used for large-scale drug

manufacturing; in 2001 and 2002, it had purchased bulk

quantities of substances in excess of the amounts normally

associated with a retail pharmacy, including enough diazepam

(the active ingredient in Valium) to manufacture over one

million 10 mg doses during a six-month period, an amount

“typical of a commercial drug manufacturer”; and it routinely

produced veterinary drugs in bulk, without receiving specific

veterinary prescriptions. App. 06-09.

Each of these acts suggested to the FDA that

Wedgewood’s operations exceeded those of a retail pharmacy.

Accordingly, the FDA believed that Wedgewood did not

1

The DEA obtained a separate warrant to search

Wedgewood’s facilities. The legality of that warrant is not at

issue in this appeal.

6

qualify for the limited statutory exemption afforded retail

pharmacies under the FDCA. App. A06-11. Although the

FDCA does not require the FDA to obtain a warrant for an

administrative inspection, the FDA chose to request a warrant

because, “based on past agency experience with Wedgewood

Pharmacy,” the FDA expected that Wedgewood would attempt

to refuse the inspection. App. A03. The Agency also

recognized that its current information regarding Wedgewood’s

business practices was not entirely conclusive, and that it

needed the full inspection in order “to determine the extent to

which this firm’s activities are consistent with those of a drug

manufacturer rather than a retail pharmacy.” That would, in

turn, determine whether Wedgewood was exempt from full

inspection under the FDCA. App. A14. The FDA even referred

to the warrant it sought as “a preemptive inspection warrant.”

Id.2

A Magistrate Judge granted the application on March 10,

2003, and the warrant was served on Wedgewood two days

later. Wedgewood’s owner, George Malmberg, initially refused

to cooperate with the inspection. However, when informed that

he would be arrested pursuant to 21 U.S.C. § 331(e) if he

continued to deny access, Malmberg acquiesced. In

acquiescing, he attached a statement to the records he turned

over to the FDA stating that he was complying because of the

2

For a detailed recitation of the averments in the warrant

application, see In the Matter of Establishment Inspection of:

Wedgewood Village Pharmacy, Inc. (“In Re Wedgewood”), 270

F. Supp. 2d 525, 530-33 (D.N.J. 2003).

7

“actually stated threat” that he would “be immediately taken

into custody and all the pharmacy’s computers, records and

more will be immediately seized and removed from the

pharmacy.” App. A23.

On March 17, 2003, Wedgewood filed a motion to quash

the warrant. In its motion, Wedgewood claimed that 21 U.S.C.

§ 374(a)(2)(A) grants state-licensed pharmacies a total

exemption from inspection by the FDA. Wedgewood also

argued that the FDA had acted in bad faith in obtaining the

warrant and that the FDA had not shown probable cause to

search the pharmacy. App. A32. After the motion was filed,

the FDA agreed to suspend its search pending resolution of the

dispute. Thereafter, the Magistrate Judge ordered Wedgewood

to preserve documents and other items within the scope of the

warrant, but he denied Wedgewood’s motion to quash the

warrant. In a well reasoned and comprehensive opinion,

Magistrate Judge Rosen concluded that Wedgewood was not

exempt from inspection, and that the warrant did not abridge

Wedgewood’s right to procedural due process of law. In Re

Wedgewood, 270 F. Supp. 2d at 530-33. That ruling was

subsequently affirmed by the District Court, and this appeal

followed.

II. Jurisdiction.

Before addressing the merits of this appeal, we must first

decide if we have jurisdiction. Our jurisdiction is limited to

“final decisions of the district courts,” and the decision before

us is arguably interlocutory. See 28 U.S.C. § 1291. The

District Court relied upon In re Consolidated Rail Corp. 631

8

F.2d 1122 (3d Cir. 1980), and Babcock & Wilcox Co. v.

Marshall, 610 F.2d 1128 (3d Cir. 1979), in treating

Wedgewood’s motion to quash as a “non-dispositive” motion.

It could therefore be ruled upon by a Magistrate Judge.3

Ordinarily, in order for us to have jurisdiction over the

District Court’s refusal to quash a subpoena, the subpoenaed

party must refuse to comply with the subpoena and suffer the

sanction of a contempt citation. Cobbledick v. United States,

309 U.S. 323, 326-28 (1940) (holding that a denial of a motion

to quash a grand jury subpoena is not final and therefore not

appealable). The subpoenaed party may then challenge the

warrant’s validity in defending against the imposition of

sanctions. The ruling on that defense is a final order that we

can review on appeal. However, in Cobbledick, the Court

acknowledged that it has recognized exceptions to this general

rule. For instance, in Ellis v. Interstate Commerce Commission,

237 U.S. 434 (1915), the Court exercised jurisdiction over an

appeal from an order granting a motion to compel testimony

before the Interstate Commerce Commission. The Court

distinguished that situation from a denial of a motion to quash

a grand jury subpoena, noting that the former “may be deemed

self-contained, so far as the judiciary is concerned.” 309 U.S. at

3

Had the District Court found the motion to be dispositive,

the role of the Magistrate Judge would have been limited to the

issuance of a Report and Recommendation which the District

Court would review de novo. United States v. Raddatz, 447 U.S.

667, 673-74 (1980).

9

330. In such cases, the Court found, it is proper for an appellate

court to exercise jurisdiction, even if the complaining party has

not yet faced a contempt citation.

Several Circuit Courts of Appeals have relied upon

Cobbledick when holding that orders enforcing warrants and

subpoenas are final and appealable orders. See Doe v. United

States (In re Admin. Subpoena), 253 F.3d 256, 261 (6th Cir.

2001) (“In the case of administrative subpoenas, parties may

immediately appeal District Court orders enforcing these

subpoenas, as the Supreme Court has deemed them to be

‘self-contained, so far as the judiciary is concerned[.]’” (quoting

Cobbledick, 309 U.S. at 330)); United States v. Bailey (In re

Subpoena Duces Tecum), 228 F.3d 341, 345-46 (4th Cir. 2000)

(“The appealability of District Court orders enforcing

subpoenas issued by government agencies in connection with

administrative investigations has been regarded differently

[from orders enforcing grand jury subpoenas], however. . . .

These orders are considered ‘final’ for purposes of 28 U.S.C. §

1291 because there is no ongoing judicial proceeding that

would be delayed by an appeal.”); United States v. Construction

Prods. Research, 73 F.3d 464, 469 (2d Cir. 1996) (“There is a

different rule, however, in administrative proceedings. A

District Court order enforcing a subpoena issued by a

government agency in connection with an administrative

investigation may be appealed immediately without first

performing the ritual of obtaining a contempt order.”)

In International Brotherhood of Electrical Workers v.

United States EEOC, 398 F.2d 248, 251 (3d Cir. 1968), we

observed that Cobbledick drew a “distinction between judicial

10

and administrative proceedings.” However, we thereafter

concluded that this exception was somewhat limited. Thus, in

Babcock & Wilcox, we held that “[a] denial of a motion to

quash an inspection warrant should be no more appealable than

. . . a denial of a motion to quash a grand jury subpoena.” 610

F.2d at 1133. We reiterated that principle in Conrail, finding

again that an order denying a motion to quash a warrant is

ordinarily not appealable. See 631 F.2d at 1123-24.

Yet, in Shea v. Office of Thrift Supervision, 934 F.2d 41

(3d Cir. 1991), we limited the scope of Babcock and Conrail.

There, we concluded that an order granting a motion to enforce

an administrative subpoena, unlike a denial of a motion to

quash, was final and hence appealable. See 934 F.2d at 46 &

n.9.4 Thus, while we may ordinarily exercise jurisdiction over

appeals of orders granting motions to enforce administrative

subpoenas, we generally cannot exercise appellate jurisdiction

over decisions denying motions to quash. Since Wedgewood

is appealing the denial of a motion to quash an administrative

warrant, it can be argued that we have no jurisdiction.

However, our analysis cannot end there because the

jurisprudence in this area rests upon a party being able to

challenge the validity of the warrant in the subsequent contempt

proceeding. If the party cannot do so, we may exercise

4

Although at least one Court of Appeals has questioned the

logic of this distinction, see Reich v. National Eng'g &

Contracting Co., 13 F.3d 93, 96 n.2 (4th Cir. 1993), it remains

the law of this circuit.

11

jurisdiction over an appeal directly from the denial of the initial

motion without requiring that the subpoenaed party endure a

contempt citation. As the Court observed in Cobbledick, “[d]ue

regard for efficiency in litigation must not be carried so far as

to deny all opportunity for the appeal contemplated by the

statutes.” 309 U.S. at 329. Thus, we had appellate jurisdiction

in Babcock & Wilcox, because the warrant had already been

executed and there was no meaningful way for the aggrieved

party to challenge it in a contempt proceeding. Although

Wedgewood’s posture is somewhat different, we believe that

analogous considerations control our jurisdictional analysis

here.

Under 21 U.S.C. §§ 331(e), (f) and 333(a)(1), refusing

to permit an inspection authorized by the FDCA is a criminal

offense punishable by up to one year of imprisonment and a fine

of up to $1000. Although one who refuses to permit such an

administrative inspection could conceivably challenge the

validity of the warrant in a subsequent criminal prosecution, we

see no reason to require Wedgewood to risk criminal

prosecution merely to obtain appellate review of an

administrative warrant. Moreover, penalties for civil contempt

are limited to measures that may be appropriate to compel

compliance with the underlying order and to compensate the

opposing party for losses sustained as a result of the

noncompliance. See United States v. United Mine Workers, 330

U.S. 258, 303-04 (1947). Those penalties are therefore

proportional to the noncomplying party’s resistance to the

warrant. Here, however, the penalties Wedgewood could face

for noncompliance could potentially far exceed the harm

resulting from its noncompliance. Accordingly, we conclude

12

that the District Court’s order refusing to quash the

administrative warrant is tantamount to a final order.

III. Discussion.5

A. Wedgewood Is Not Exempt From Inspection Under the

FDCA.

Wedgewood argues that it is exempt from all FDA

inspections under 21 U.S.C. § 374(a). That section provides

that employees and agents designated by the Secretary are

permitted to “enter, at reasonable times, any factory, warehouse,

or establishment in which food, drugs, devices, or cosmetics are

manufactured, processed, packed, or held, for introduction into

interstate commerce” and “to inspect, at reasonable times and

within reasonable limits and in a reasonable manner, such

factory, warehouse, establishment . . . and all pertinent

equipment, finished and unfinished materials, containers, and

labeling therein.” Id. § 374(a)(1). In the case of “any factory,

warehouse, establishment, or consulting laboratory in which

5

We review the denial of a motion to quash an administrative

warrant or subpoena for abuse of discretion. Cf. NLRB v.

Frazier, 966 F.2d 812, 815 (3d Cir. 1992). “An abuse of

discretion arises when ‘the District Court’s decision rests upon

a clearly erroneous finding of fact, an errant conclusion of law

or an improper application of law to fact.’” Id. (quoting

International Union v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d

Cir. 1987)). The District Court’s legal conclusions are, of

course, reviewed de novo.

13

prescription drugs, nonprescription drugs intended for human

use, or restricted devices are manufactured, processed, packed,

or held” the section also provides:

[T]he inspection shall extend to all things therein

(including records, files, papers, processes,

controls, and facilities) bearing on whether

prescription drugs, nonprescription drugs

intended for human use, or restricted devices

which are adulterated or misbranded within the

meaning of this chapter, or which may not be

manufactured, introduced into interstate

commerce, or sold, or offered for sale by reason

of any provision of this chapter, have been or are

being manufactured, processed, packed,

transported, or held in any such place, or

otherwise bearing on violation of this chapter.

Id. However, the statute specifically exempts certain types of

pharmacies from this enhanced inspection authority (the

enhanced inspection authority set forth above is hereafter

referred to as the “records provision”).6 The exemption provides

as follows:

6

Wedgewood correctly notes that the provision authorizes the

FDA to search more than a pharmacy’s records. In referring to

the third sentence as the “records” provision, we do not mean to

suggest that the search authority granted by that provision is

limited to records.

14

(2) The provisions of the third sentence of

paragraph (1) [the records provision] shall not

apply to—

(A) pharmacies which maintain establishments in

conformance with any applicable local laws

regulating the practice of pharmacy and medicine

and which are regularly engaged in dispensing

prescription drugs or devices, upon prescriptions

of practitioners licensed to administer such drugs

or devices to patients under the care of such

practitioners in the course of their professional

practice, and which do not, either through a

subsidiary or otherwise, manufacture, prepare,

propagate, compound, or process drugs or

devices for sale other than in the regular course of

their business of dispensing or selling drugs or

devices at retail . . .

Id. § 374(a).

Wedgewood argues that it is exempt from inspection

under the records provision pursuant to the exemption of §

374(a)(2)(A), and that this applies to the general inspection

authority contained in the first sentence. According to

Wedgewood, since the inspection authority under the records

provision extends “to all things therein,” it follows that the

exemption from that authority necessarily means that the FDA

has no inspection authority over pharmacies such as

Wedgewood. We disagree.

Wedgewood’s reading of the statute is inconsistent with

15

the text of § 374(a). Even assuming arguendo that Wedgewood

is exempt from the records provision, the text of the statute does

not justify extending that provision to the FDA’s general

authority to inspect “any factory, warehouse, or establishment

in which food, drugs, devices, or cosmetics are manufactured,

processed, packed, or held, for introduction into interstate

commerce.” Rather, the exemption granted to pharmacies under

§ 374(a)(2)(A) only applies, by its own terms, to the “third

sentence of paragraph (1),” i.e., the records provision. The

general inspection authority contained in the first sentence is not

circumscribed by that exemption. It is therefore clear that the

text of § 374(a) authorizes the FDA to inspect pharmacies such

as Wedgewood.

Despite the clarity of the statute, Wedgewood argues that

“there is nothing in the legislative history indicating that

Congress intended to create distinct inspection rights. Once

FDA has inspected for ‘all things therein,’ pray tell, for what

else . . . can the FDA inspect, since there is not theoretically,

grammatically, mathematically, or actually more than ‘all.’”

Appellant’s Br. at 17-18. Our statutory construction inquiry

need not include legislative history when, as here, the text of a

statute is unambiguous. See Malloy v. Eichler, 860 F.2d 1179,

1183 (3d Cir. 1988). Nevertheless, we note that Wedgewood’s

reliance on legislative history does not produce the result

Wedgewood claims.

The general inspection authority contained in the first

sentence of § 374(a) was originally enacted by Congress as part

of the Federal Food, Drug, and Cosmetic Act of 1938. See Pub.

16

L. No. 75-717, 52 Stat. 1040.7 Both the enhanced inspection

authority under the third sentence of § 374(a)(1) and the

exemption granted to pharmacies under § 374(a)(2)(A) were

enacted as part of the Drug Amendments of 1962, Pub. L. No.

87-781, 76 Stat. 780. That statute specifically stated that

“[n]othing in the amendments made by subsections (a) and (b)

of this section [including the exemption granted to compliant

pharmacies] shall be construed to negate or derogate from any

authority of the Secretary existing prior to the enactment of this

Act.” See id. § 201(d), 76 Stat. at 793. Thus, Congress clearly

stated by the very terms of the 1962 amendments that those

amendments were not intended to alter the FDA’s preexisting

authority. That authority included the general inspection

authority now contained in the first sentence of § 374(a).8

Wedgewood nonetheless argues that Congress enacted

the 1962 amendments in response to United States v. Herold,

136 F. Supp. 15 (E.D.N.Y. 1955). That decision upheld the

FDA’s authority to search pharmacies under the FDCA.

7

For an in depth discussion of the legislative history of the

FDCA, see In Re Wedgewood, 270 F. Supp. 2d at 538-543.

8

As enacted in 1938, the inspection authority now contained

in the first sentence of § 374(a) provided that a designated

official was authorized to enter a covered facility “after first

making request and obtaining permission of the owner, operator,

or custodian thereof.” This provision was amended in 1953 to

remove the consent requirement. See Pub. L. No. 83-217, 67

Stat. 476 (1953).

17

Therefore, according to Wedgewood, Congress must have

intended the amendments to overrule that decision in its

entirety.

Herold did hold that 21 U.S.C. § 374(a) grants FDA the

authority to inspect pharmacies. However, the analysis did not

stop there. Rather, the court went further and held that the

authority to inspect extended to a pharmacy’s records, provided

that “permission to inspect the records is given by an authorized

person.” Id. at 16.9 In urging its interpretation of Herold, and

of the 1962 amendments to the FDCA, Wedgewood points to

nothing in the text or legislative history of the 1962 act that

supports its conclusion that Congress intended to overrule

Herold in its entirety. Indeed, the more logical interpretation of

the 1962 amendments is simply that Congress sought to

overrule that provision of Herold permitting pharmacy searches

to extend to records. Had Congress sought to overrule

Herold in its entirety, it could have drafted § 374(a)(2)(A) so

that it applied to the first and third sentence of § 374(a)(1).

Since it did not, we see no reason to adopt the tortured reading

of § 374 that Wedgewood suggests. We therefore conclude that

Wedgewood is not exempt from FDA inspection.

B. Wedgewood Is Not Entitled To The Records

9

The defendant in Herold had argued that the FDA could

only examine a pharmacy’s records under a related provision, 21

U.S.C. § 373, which permits inspection of records on the

condition that the evidence obtained not be used in any

subsequent prosecution. See 136 F. Supp. at 16.

18

Exemption.

Our conclusion that the FDA possesses some authority

to inspect pharmacies such as Wedgewood does not end our

inquiry because the inspection authority contained in the first

sentence of § 374(a)(1) is quite limited and clearly does not

extend to a pharmacy’s books and records. Since the FDA

seeks access to Wedgewood’s records, it must demonstrate that

it has the authority to search Wedgewood under both the first

and third sentences of § 374(a)(1). The exemption contained in

§ 374(a)(2)(A) prohibits the FDA from relying on the records

inspection authority contained in the third sentence in searching

pharmacies that meet the requirements of that section. Thus, if

Wedgewood is a “compliant pharmacy”—meaning that it meets

these requirements—it is exempt from the records provision. In

its warrant application, the FDA claimed that it had probable

cause to believe that Wedgewood does not, in fact, qualify for

the exemption. Wedgewood has insisted throughout this

litigation that not only does it qualify for the exemption but that

the FDA has no authority to determine if Wedgewood is exempt

from the records provision.

A pharmacy qualifies for the exemption under §

374(a)(2)(A) if it (1) complies with “applicable local laws

regulating the practice of pharmacy and medicine”; (2) is

“regularly engaged in dispensing prescription drugs or devices,

upon prescriptions of practitioners licensed to administer such

drugs or devices to patients under the care of such practitioners

in the course of their professional practice”; and (3) does not

“manufacture, prepare, propagate, compound, or process drugs

or devices for sale other than in the regular course of their

19

business of dispensing or selling drugs or devices at retail.”

The FDA contends that it has probable cause to believe

that Wedgewood engages in practices that qualify as “large-

scale” compounding or manufacturing and therefore the third

requirement is not met. Wedgewood admits that it engages in

compounding but asserts that it does so “in the regular course

of [its] business of dispensing or selling drugs or devices at

retail.” Therefore, it argues that it qualifies for the exemption

under § 374(a)(2)(A).

Nowhere in § 374 does Congress define “compounding”

or a pharmacy’s “regular course of business.” In 1997, however,

Congress enacted a statute which both exempted compounded

drugs from the new drug approval requirements of the FDCA

and simultaneously defined the extent to which pharmacies

were permitted to engage in the practice without violating the

FDCA. See Food and Drug Administration Modernization Act

of 1997 (“FDAMA”) § 127, Pub. L. No. 105-115, 111 Stat.

2296, 2328 (1997). Under the language of the FDAMA,

pharmacies were permitted to compound only “for an identified

individual patient based on the unsolicited receipt of a valid

prescription order or a notation . . . or . . . in limited quantities

before the receipt of a valid prescription for such individual

patient.” Id.

The provision did not remain law for long. As a result

of two court decisions, Section 127 of the statute, which

contained the compounding language, was invalidated on

unrelated grounds. See Western States, 535 U.S. at 377;

Western States Med. Ctr. v. Shalala, 238 F.3d 1090 (9th Cir.

20

2001).10 In the wake of these decisions, the FDA outlined the

criteria it would use to assess “what types of compounding

might be subject to enforcement under current law.” See CPG

460.200. The CPG lists nine factors that the FDA will consider

in deciding whether a pharmacy may be violating the FDCA by

engaging in manufacturing under the guise of compounding.

The list includes factors such as the volume of drugs that a

pharmacy compounds, whether the pharmacy compounds in

anticipation of prescriptions, except in limited quantities, and

whether the pharmacy compounds copies of drugs that are

otherwise available.11 While the CPG is more specific than the

10

The issue in Western States concerned a provision of the

FDAMA that prohibited pharmacies from advertising

compounded drugs. The Court of Appeals for the Ninth Circuit

had held the provision unconstitutional and, finding it not

severable from the rest of Section 127, struck down the entire

section. See 238 F.3d at 1098. The Supreme Court affirmed

that part of the Court of Appeals’ decision finding the

advertising provision unconstitutional but did not review the

severability question. 535 U.S. at 360.

11

The entire list of factors include:

1. Compounding of drugs in anticipation of

receiving prescriptions, except in very limited

quantities in relation to the amounts of drugs

compounded after receiving valid prescriptions.

2. Compounding drugs that were withdrawn or

21

removed from the market for safety reasons. . . .

3. Compounding finished drugs from bulk active

ingredients that are not components of FDA

approved drugs without an FDA sanctioned

investigational new drug application (IND) in

accordance with 21 U.S.C. § 355(i) and 21 CFR

312.

4. Receiving, storing, or using drug substances

without first obtaining written assurance from the

supplier that each lot of the drug substance has

been made in an FDA-registered facility.

5. Receiving, storing, or using drug components

not guaranteed or otherwise determined to meet

official compendia requirements.

6. Using commercial scale manufacturing or

testing equipment for compounding drug

products.

7. Compounding drugs for third parties who resell

to individual patients or offering compounded

drug products at wholesale to other state licensed

persons or commercial entities for resale.

8. Compounding drug products that are

commercially available in the marketplace or that

22

FDAMA, the language of the two provisions is very similar.

Here, Magistrate Judge Rosen afforded the CPG

deference under the standards of Chevron, U.S.A., Inc. v.

NRDC, Inc., 467 U.S. 837 (1984), even though the CPG was

not the product of notice and comment rulemaking. However,

we need not determine the precise level of deference, if any,

owed the CPG because the FDA need only show that the factors

outlined in the CPG for determining compounding are a

reasonable basis upon which to initiate an inspection under the

FDCA. We agree that the factors set forth in the CPG are

reasonable and that they reflect the FDA’s “careful

consideration . . . over a long period of time.” Barnhart v.

are essentially copies of commercially available

FDA-approved drug products. In certain

circumstances, it may be appropriate for a

pharmacist to compound a small quantity of a

drug that is only slightly different than an

FDA-approved drug that is commercially

available. In these circumstances, FDA will

consider whether there is documentation of the

medical need for the particular variation of the

compound for the particular patient.

9. Failing to operate in conformance with

applicable state law regulating the practice of

pharmacy.

23

Walton, 535 U.S. 212, 222 (2002).12 Given the averments of

the warrant application here, it was therefore reasonable for the

FDA to conclude that Wedgewood may be engaged in activity

inconsistent with its status as a retail pharmacy.

C. Wedgewood Was Not Denied Procedural Due Process

of Law.

Determining the extent to which a pharmacy may

compound drugs in its “regular course of business” does not

address the level of process due Wedgewood when the FDA

attempts an inspection under the records provision. Here,

Wedgewood asserts that the ex parte proceeding violated its due

process rights. Before Magistrate Judge Rosen, Wedgewood

apparently argued that it is entitled to a proceeding that is

tantamount to a full declaratory judgment action in order to

have an appropriate opportunity to demonstrate that it is eligible

for the exemption contained in § 374(a)(2)(A). See In Re

Wedgewood, 270 F. Supp. 2d at 538. However, before us,

Wedgewood claims that its own assertion that it is in

compliance with § 374(a)(2)(A) was sufficient to deny the FDA

the right to inspect.13

12

As the opinion by the Magistrate Judge explains, the current

language is a successor to an earlier CPG (CPG 7132.16, which

dates to 1992) issued by the FDA prior to the passage of the

FDAMA.

13

That claim is sufficiently frivolous on its face that its lack

of merit is self evident. It may, in fact, be an example of what

Magistrate Judge Rosen had in mind in referring to

24

We agree that the statute poses a dilemma of sorts in that

it will often be impossible to determine with precision whether

a pharmacy qualifies for the § 374(a)(2)(A) exception without

first conducting an administrative inspection of that facility.

Magistrate Judge Rosen aptly described the situation as “a

statutory paradox” because “the exemption in Section

374(a)(2)(A) divests the FDA of authority to inspect in some

limited fashion, but the FDA cannot establish whether or not the

exemption applies without obtaining information.” In re

Wedgewood, 270 F. Supp. 2d at 551. Nevertheless, we agree

that the procedure the FDA used here did not violate

Wedgewood’s due process rights. As the FDA stresses, there

is no warrant requirement under § 374(a). Indeed, as noted

above, refusing a legitimate inspection request is a criminal

violation of the FDCA, regardless of whether a warrant was

first obtained.

Although Wedgewood correctly notes that it did not have

an opportunity to be heard before the warrant issued and the

inspection began, Wedgewood did have an opportunity to

challenge that inspection before it was concluded, and it did so

before the Magistrate Judge in proceedings on its motion to

quash. Magistrate Judge Rosen correctly concluded that the

FDA had probable cause to obtain the warrant and denied

Wedgewood’s motion, thus allowing the FDA to proceed with

the inspection.

Wedgewood’s statutory argument as “a lesson in obfuscation.”

In Re Wedgewood, 270 F. Supp. 2d at 538.

25

We are therefore hard-pressed to understand how

Wedgewood can now argue that it was denied due process of

law by an ex parte application for an inspection warrant before

a neutral Magistrate Judge when the FDA did not have to obtain

a warrant under the FDCA in the first place. Accordingly, we

hold that Wedgewood’s due process rights were not violated.

Furthermore, we agree that the FDA’s reliance on the

apparent volume of compounding is a reasonable means of

determining whether that pharmacy is compounding in the

“regular course of its business of dispensing or selling drugs or

devices at retail.” Indeed, were we to adopt Wedgewood’s view

that the volume of compounding is irrelevant, much of the

FDCA would become a nullity. If a pharmacy could compound

an unlimited quantity of drugs, supposedly in anticipation of

individual prescriptions, then it could essentially act as a

commercial drug manufacturer and totally circumvent the

approval requirements of the FDCA.14

14

Wedgewood argues throughout its brief that the regulation

of pharmacies is a matter that has been traditionally left to the

states. This argument misses the point of the FDA’s efforts.

The FDA, as its brief makes clear, wanted to inspect

Wedgewood because it believes that the pharmacy is engaged in

the large-scale manufacture of drugs. Although regulation of

pharmacies may traditionally have been left to the states,

regulation of the manufacture of prescription drugs is an area

where the federal government has primary authority pursuant to

the FDCA.

26

Moreover, as Magistrate Rosen noted, the standard of

probable cause required for an administrative warrant is less

than required for a criminal warrant. See Camara v. Municipal

Court of San Francisco, 387 U.S. 523, 538 (1967). As the

Supreme Court has explained: “[w]hen a dealer chooses to

engage in [a] pervasively regulated business and to accept a

federal license, he does so with the knowledge that his business

records, [and stock] will be subject to effective

inspection.”United States v. Biswell, 406 U.S. 311, 316, (1972).

Although we have not previously had to determine if the

regulatory scheme of the pharmaceutical industry is sufficiently

pervasive to implicate the Biswell/Camara doctrine, Magistrate

Judge Rosen noted that the Courts of Appeals for the Eighth,

Ninth, and Sixth Circuits have held that the level of regulation

of that industry is sufficient to permit a warrantless search under

the Fourth Amendment. See In Re Wedgewood, 270 F. Supp. 2d

at 535 (citing United States v. Jamieson-McKames Pharms.,

Inc., 651 F.2d 532 (8th Cir. 1981), United States v. Argent

Chem. Labs., Inc., 93 F.3d 572 (9th Cir. 1996), and United

States v. Acklen, 690 F.2d 70, 75 (6th Cir. 1982)). We need not

decide that specific question here. Rather, it is sufficient to note

that the level of regulation is relevant to balancing the

competing interests here and determining the procedural

protection Wedgewood was entitled to.

Agent Sands’ warrant application was detailed and

specific, and (with the possible exception of issues of the

staleness of some of her averments) might easily have satisfied

even the higher standard required to obtain a criminal search

warrant under the Fourth Amendment. Wedgewood’s history,

its failure to report a theft of drugs as required by state law, its

27

acquisition of equipment used in commercial manufacturing of

drugs, and the volume of substances it was purchasing certainly

established grounds to believe that it may be engaged in

commercial compounding in violation of the FDCA.15

Wedgewood does not dispute these facts. Rather, it simply

repeats its argument that volume is irrelevant for purposes of

determining whether a pharmacy is engaging in compounding

or manufacturing outside of the “regular course of [its]

business.” We cannot agree.

III. Conclusion.

For the reasons set forth above, we hold that Magistrate

15

As noted earlier, Wedgewood had recently purchased an

encapsulation machine, which is used in large-scale

manufacturing, as well as a “commercial scale mixture.” In

addition, as also noted above, the warrant alleged that the

pharmacy had purchased enough diazepam to produce over one

million 10 mg tablets. In its brief, Wedgewood explains the

quantities of drugs by stating that a large portion of its

pharmaceutical practice involves “equine medicine, and that

horses, given their weight and size, receive larger Diazepam

doses than humans.” Appellee’s Br. At 22. However, even if

true, that would not negate the concerns the FDA expressed in

its application to inspect Wedgewood to determine if it was

involved in manufacturing or illegal compounding in violation

of the FDCA. Indeed, before the Magistrate Judge, Wedgewood

conceded that 11.5 kilograms of diazepam “is a lot.” See In Re

Wedgewood, 270 F. Supp. 2d at 553.

28

Judge Rosen correctly found that probable cause existed to

conclude that Wedgewood did not satisfy the requirements of

the exemption contained in § 374(a)(2)(A), and he therefore

correctly denied Wedgewood’s motion to quash. Accordingly,

we will affirm the District Court’s decision upholding

Magistrate Judge Rosen’s order.

29