Professionals and Patients for Customized Care v. Shalala

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 94-20402

PROFESSIONALS and PATIENTS FOR CUSTOMIZED CARE,

Plaintiff-Appellant,

v.

DONNA SHALALA, ET AL.,

Defendants-Appellees.

Appeal from the United States District Court

For the Southern District of Texas

(June 15, 1995)

Before WISDOM, WIENER and PARKER, Circuit Judges.

WIENER, Circuit Judge:

In this challenge brought pursuant to the Administrative

Procedure Act (APA),1 Plaintiff-Appellant Professionals and

Patients for Customized Care (P2C2) contends that the district

court erred in concluding that Food & Drug Administration (FDA)

Compliance Policy Guide 7132.16 (CPG 7132.16) is not a substantive

rule and thus is not subject to the APA's notice-and-comment

requirement. Finding no reversible error, we affirm.

I

FACTS AND PROCEEDINGS

In 1992, the FDA promulgated CPG 7132.16 to address what the

agency perceived to be a burgeoning problem in the pharmaceutical

1

5 U.S.C. §§ 500-576 (1988).

industry))the manufacture of drugs by establishments with retail

pharmacy licenses. Pharmacies have long engaged in the practice of

traditional compounding, the process whereby a pharmacist combines

ingredients pursuant to a physician's prescription to create a

medication for an individual patient. This type of compounding is

commonly used to prepare medications that are not commercially

available, such as diluted doses for children and altered forms of

medications for easier consumption.

Pharmacies that practice traditional compounding are regulated

primarily by state law,2 and the drugs that they blend are exempt

from many federal misbranding provisions.3 Drug manufacturers and

their products, however, are subject to rigorous federal oversight.

By the 1990s, the FDA had become aware that many

establishments with retail pharmacy licenses were purchasing large

quantities of bulk drug substances; combining those substances into

specific drug products before ever receiving any valid

prescriptions; and then marketing those drug products to

practitioners and patients. The FDA suspected that establishments

2

"[P]harmacies" that dispense drugs "upon prescriptions of

practitioners" for their patients, "and which do not manufacture

. . . [or] compound . . . drugs . . . for sale other than in the

regular course of their business of dispensing or selling drugs"

are exempt from particular FDA registration requirements and

inspections. See 21 U.S.C. § 360(g)(1) (requiring drug

manufacturers to register with the FDA); id. § 374 (granting FDA

agents right to inspect certain facilities).

3

Id. § 353(b)(2). Although the Act does not expressly

exempt "pharmacies" or "compounded drugs" from the new drug,

adulteration, or misbranding provisions, the FDA as a matter of

policy has not historically brought enforcement actions against

pharmacies engaged in traditional compounding.

2

engaged in this large-scale speculative "compounding" were doing so

to circumvent those new drug, adulteration, and misbranding

provisions of the Food, Drug, and Cosmetic Act (Act)4 that regulate

the manufacture of drugs.

To combat this perceived problem, the FDA issued CPG 7132.16,

in an effort to establish the following "policy":

POLICY

FDA recognizes that a licensed pharmacist may compound

drugs extemporaneously after receipt of a valid

prescription for an individual patient . . . .

Pharmacies that do not otherwise engage in practices that

extend beyond the limits set forth in this CPG may

prepare drugs in very limited quantities before receiving

a valid prescription, provided they can document a

history of receiving valid prescriptions that have been

generated solely within an established professional

practitioner-patient-pharmacy relationship and provided

further that they maintain the prescription on file for

all such products dispensed at the pharmacy as required

by state law.

If a pharmacy compounds finished drugs from bulk active

ingredient materials considered to be unapproved new drug

substances, as defined in 21 CFR 310.3(g), such activity

must be covered by an FDA-sanctioned investigational new

drug application (IND) that is in effect in accordance

with 21 U.S.C. Section 355(i) and 21 CFR 312.

. . .

Pharmacies may not, without losing their status as retail

entities, compound, provide, and dispense drugs to third

parties for resale to individual patients.

FDA will generally continue to defer to state and local

officials (sic) regulation of the day-to-day practice of

retail pharmacy and related activities. . . .

FDA may, in the exercise of its enforcement discretion,

initiate federal enforcement actions against entities and

responsible persons when the scope and nature of a

4

21 U.S.C. §§ 301-392.

3

pharmacy's activity raises the kind of concerns normally

associated with a manufacturer and that results in

significant violations of the new drug, adulteration, or

misbranding provisions of the Act.

This CPG goes on to identify nine factors that the FDA "will

consider" in determining whether to initiate an enforcement action,

but explains that the "list of factors is not intended to be

exhaustive and other factors may be appropriate for consideration

in a particular case."

The FDA issued CPG 7132.16 without complying with APA notice-

and-comment procedures,5 as the agency considered CPG 7132.16 to be

for internal guidance. The FDA explains that CPG 7132.16 was

intended to be used within the agency, primarily by FDA district

offices, as an aid in identifying those pharmacies that manufacture

drugs under the guise of traditional compounding.6

P2C2, an organization comprising individuals and entities

engaged in the practice of pharmacy, interprets CPG 7132.16

differently. Soon after CPG 7132.16 issued, the FDA notified some

of the organization's members that their activities were more

consistent with drug manufacturing than with traditional

compounding, and that they and their products were thus subject to

the regulations applicable to drug manufacturers. On behalf of

those and other members, P2C2 filed suit in federal district court,

claiming that CPG 7132.16 is invalid because it is a substantive

rule issued in violation of the APA's notice-and-comment

5

See 5 U.S.C. § 553.

6

See Notice, 57 Fed. Reg. 10906 (1992).

4

requirement. The FDA responded that P2C2 lacked standing and that

its claim was not ripe, but the district court disagreed. Both

parties then filed cross motions for summary judgment, which the

trial court denied, finding that there remained genuine issues of

material fact. Following a two-day bench trial, the district court

made extensive findings of fact and conclusions of law, and ruled

that CPG 7132.16 is either an "interpretative rule" or "policy

statement," but it is not a "substantive rule." Consequently, held

the district court, the FDA was exempt from complying with the

APA's notice-and-comment requirements, and CPG 7132.16 was validly

promulgated.

P2C2 timely appealed, contending that the district court erred

in concluding that CPG 7132.16 was not a substantive rule. The FDA

responded that the district court had correctly held that CPG

7132.16 was not a substantive rule, and reurged its ripeness and

standing arguments.7

II

ANALYSIS

A. STANDARD OF REVIEW

We review for clear error the district court's findings of

fact. We consider de novo the court's conclusions of law,8 which

include the court's ruling that CPG 7132.16 is not a "substantive

7

P2C2 argues that the government "waived" its jurisdictional

arguments by failing to file a cross-appeal of that judgment.

We, of course, have an independent obligation to determine our

jurisdiction, with which in this case, we find we are vested.

8

FED. R. CIV. P. 52(a).

5

rule."9

B. THE PROPER CHARACTERIZATION OF CPG 7132.16

All parties agree that under the APA, CPG 7132.16 is a "rule,"

and its promulgation constituted "rulemaking."10 But the APA

exempts from notice-and-comment procedures "interpretative rules,

general statements of policy, [and] rules of agency organization,

procedure, or practice."11 In contrast, if a rule is

"substantive,"12 the exemption is inapplicable, and the full panoply

of notice-and-comment requirements must be adhered to scrupulously.

The "APA's notice and comment exemptions must be narrowly

construed."13

If CPG 7132.16 were a substantive rule it would be unlawful,

for it was promulgated without the requisite notice and comment.

The pivotal issue in this case, therefore, is whether CPG 7132.16

is a substantive rule. Although the APA itself does not define

"substantive rules," "interpretive rules," or "statements of

policy," courts over the years have developed a body of

jurisprudence that is helpful in drawing the necessary))but often

9

Phillips Petroleum Co. v. Johnson, 22 F.3d 616, 619 (5th

Cir.), modified on other grounds, No. 93-1377, 1994 WL 484506

(June 10, 1994), cert. denied, 115 S. Ct. 1816 and 115 S. Ct.

1817 (1995).

10

See 5 U.S.C. § 551(4); see Phillips Petroleum Co., 22 F.3d

at 619 n.2.

11

See 5 U.S.C. § 553(b)(3)(A), (d)(2).

12

Substantive rules are also referred to as "legislative

rules" or "regulations."

13

United States v. Picciotto, 875 F.2d 345, 347 (D.C. Cir.

1989).

6

illusory14))distinctions among the three types of rules. It is that

body of law, much of which comes from our colleagues of the

District of Columbia Circuit, to which we now turn.

In Community Nutrition Institute v. Young,15 the D.C. Circuit

reiterated two "criteria" to which courts have looked to

distinguish substantive rules from nonsubstantive rules:

First, courts have said that, unless a pronouncement acts

prospectively, it is a binding norm. Thus . . . a

statement of policy may not have a present effect: "a

`general statement of policy' is one that does not impose

any rights and obligations" . . . .

The second criterion is whether a purported policy

statement genuinely leaves the agency and its

decisionmakers free to exercise discretion.16

The court further explained that "binding effect, not the timing,

. . . is the essence of criterion one."17 In analyzing these

criteria, we are to give some deference, "albeit `not

overwhelming,'" to the agency's characterization of its own rule.18

While mindful but suspicious of the agency's own characterization,

14

See Community Nutrition Inst. v. Young, 818 F.2d 943, 946

(D.C. Cir. 1987) (recalling that courts and commentators have

described the distinction between substantive and interpretative

rules or policy statements as, inter alia, "tenuous," "fuzzy,"

"blurred," "baffling," and "enshrouded in considerable smog").

15

818 F.2d 943 (D.C. Cir. 1987).

16

Id. at 946 (quoting American Bus Ass'n v. United States,

627 F.2d 525, 529 (D.C. Cir. 1980) (quoting Texaco v. FPC, 412

F.2d 740, 744 (3d Cir. 1969)); see Batterton v. Marshall, 648

F.2d 694, 702 (D.C. Cir. 1980).

17

Community Nutrition Inst., 818 F.2d at 946 n.4.

18

Id. at 946 (quoting Brock v. Cathedral Bluffs Shale Oil

Co., 796 F.2d 533, 537 (D.C. Cir. 1986) (stating that "there is

deference and there is deference))and the degree accorded to the

agency on a point such as this is not overwhelming").

7

we follow the D.C. Circuit's analysis in determining whether CPG

7132.16 is a substantive rule under the APA, focusing primarily on

whether the rule has binding effect on agency discretion19 or

severely restricts it.20 As we noted in Panhandle Producers &

Royalty Owners Ass'n v. Economic Regulatory Administration21:

"A properly adopted substantive rule establishes a standard of

conduct which has the force of law. In subsequent

administrative proceedings involving a substantive rule, the

issues are whether the adjudicated facts conform to the rule

and whether the rule should be waived or applied in that

particular instance. The underlying policy embodied in the

rule is not generally subject to challenge before the agency.

A general statement of policy, on the other hand, does not

establish a `binding norm.' It is not finally determinative

of the issues or rights to which it is addressed. The agency

cannot apply or rely upon a general statement of policy as law

because a general statement of policy only announces what the

agency seeks to establish as policy. A policy statement

announces the agency's tentative intentions for the future.

When the agency applies the policy in a particular situation,

it must be prepared to support the policy just as if the

policy statement had never been issued. An agency cannot

escape its responsibility to present evidence and reasoning

supporting its substantive rules by announcing binding

precedent in the form of a general statement of policy."22

1. Agency Deference: FDA's Characterization

In analyzing whether an agency pronouncement is a statement of

policy or a substantive rule, the starting point is "the agency's

19

See Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d

897, 908 (5th Cir. 1983) (stating that substantive rules, "grant

rights," "impose obligations," "produce other significant effects

on private interests," or "have substantial legal effect").

20

Id. (stating that substantive rules "narrowly constrict

the discretion of agency officials by largely determining the

issue addressed").

21

847 F.2d 1168 (5th Cir. 1988).

22

Id. at 1174-75 (5th Cir. 1988) (quoting Pacific Gas &

Elec. Co. v. FPC, 506 F.2d 33, 38-39 (footnotes omitted)).

8

characterization of the rule."23 It is undisputed that the FDA has

consistently classified the instant rule as a statement of policy.

The rule is self-described as "Policy," and it was promulgated as

a "compliance policy guide." In addition, the FDA has steadfastly

insisted, both before us and before the district court, that CPG

7132.16 was intended to propound policy.

Further, the FDA chose to promulgate the information contained

in this rule in the form of a compliance policy guide, which FDA

regulations classify as an "advisory opinion."24 An advisory

opinion "may be used in administrative or court proceedings to

illustrate acceptable and unacceptable procedures or standards, but

not as a legal requirement."25 Both of these factors))the

description as "policy" in the CPG itself and the fact that

compliance policy guides do not have binding effect))militate in

favor of a holding that CPG 7132.16 is not a substantive rule.

But as we observed in Brown Express, Inc. v. United States,26

"`[t]he label that the particular agency puts upon its given

exercise of administrative power is not, for our purposes,

conclusive; rather, it is what the agency does in fact.'"27 We

23

Metropolitan Sch. Dist. v. Davila, 969 F.2d 485, 489 (7th

Cir. 1992), cert. denied, 113 S. Ct. 1360 (1993).

24

See 21 C.F.R. § 10.85(d)(3) (1994).

25

Id. § 10.85(j).

26

607 F.2d 695 (5th Cir. 1979).

27

Id. at 700 (quoting Lewis-Mota v. Secretary of Labor, 469

F.2d 478, 481 (2d Cir. 1972)); accord Phillips Petroleum Co. v.

Johnson, 22 F.3d 616, 619 (5th Cir. 1994) ("`The label that the

particular agency puts upon its given exercise of administrative

9

therefore turn now to those matters of substance.

2. Binding Effect of CPG 7132.16

A touchstone of a substantive rule is that it establishes a

binding norm. As the Eleventh Circuit has observed:

The key inquiry . . . is the extent to which the challenged

policy leaves the agency free to exercise its discretion to

follow or not to follow that general policy in an individual

case, or on the other hand, whether the policy so fills out

the statutory scheme that upon application one need only

determine whether a given case is within the rule's criteria.

As long as the agency remains free to consider the individual

facts in the various cases that arise, then the agency action

in question has not established a binding norm.28

P2C2 argues that CPG 7132.16 establishes a binding norm, as it

imposes on compounding pharmacists significant new obligations.

Most of these new obligations are manifested in the nine "factors,"

which, according to P2C2, are tantamount to binding norms. The

district court found that the nine factors merely provide guidance

to help FDA agents distinguish traditional compounding from drug

manufacturing, and that the factors are not finally determinative

of whether a particular pharmacy is violating the Act. According

power is not, for our purposes, conclusive . . . .'"), modified

on other grounds, No. 93-1377, 1994 WL 484506 (June 10, 1994),

cert. denied, 115 S. Ct. 1816 and 115 S. Ct. 1817 (1995). For

the same reason, the fact that we previously found another FDA

compliance policy guide to be a policy statement is not

dispositive whether CPG 7132.16 is a policy statement. See,

e.g., Southeastern Minerals, Inc. v. Harris, 622 F.2d 758, 766

(5th Cir. 1980) ("Because the FDA issued the [CPG] as a general

statement of agency policy, it was not required to comply with

the formal rulemaking requirements of the [APA].").

28

Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369,

1377 (11th Cir. 1983), cert. denied, 466 U.S. 927 (1984); see

also Vietnam Veterans of Am. v. Secretary of Navy, 843 F.2d 528,

537 (D.C. Cir. 1988) (stating that a valid policy statement can

"affect the agency's decisionmaking").

10

to the court, enforcement actions are brought only for violations

of the Act, and CPG 7132.16 merely restates a longstanding FDA

position regarding the traditional practice of pharmacy; it does

not represent a change in FDA policy and does not have a

significant effect on pharmacy practice or traditional compounding.

To ascertain whether CPG 7132.16 creates binding norms, we first

consider its plain language and then address the manner in which it

had been implemented by the FDA.

a. Plain Language of CPG 7132.16

CPG 7132.16 provides, in pertinent part, that:

FDA may, in the exercise of its enforcement discretion,

initiate federal enforcement actions against entities and

responsible persons when the scope and nature of a

pharmacy's activity raises the kind of concerns normally

associated with a manufacturer and that results in

significant violations of the new drug, adulteration, or

misbranding provisions of the Act. In determining

whether to initiate such an action, the agency will

consider whether the pharmacy engages in any of the

following acts:

1. Soliciting business . . . to compound specific drug

products . . . .

2. Compounding, regularly, or in inordinate amounts, drug

products that are commercially available in the marketplace

and that are essentially generic copies of commercially

available, FDA-approved drug products.

3. 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-approved

facility.

4. Receiving, storing, or using drug components not

guaranteed or otherwise determined to meet official compendia

requirements.

5. Using commercial scale manufacturing or testing equipment

for compounding drug products.

6. Compounding inordinate amounts of drugs in anticipation

11

of receiving prescriptions in relation to the amounts of drugs

compounded after receiving valid prescriptions.

7. Offering compounded drug products at wholesale to other

state licensed persons or commercial entities for resale.

8. Distributing inordinate amounts of compounded products

out of state.

9. Failing to operate in conformance with applicable state

law regulating the practice of pharmacy.

The foregoing list of factors is not intended to be exhaustive and

other factors may be appropriate for consideration in a particular

case.

We observe initially the statement in CPG 7132.16 that the FDA

"will consider" the nine factors in determining whether to initiate

an enforcement action against a pharmacy. We also note that, even

though the mandatory tone of the factors is undoubtedly calculated

to encourage compliance, CPG 7132.16 affords an opportunity for

individualized determinations. It expressly provides that "[t]he

foregoing list of factors is not intended to be exhaustive,"

recognizes that "other factors may be appropriate for consideration

in a particular case," and states that, even if the factors are

present, the FDA retains discretion whether to bring an enforcement

action.29 In this regard, CPG 7132.16 is analogous to the rule

reviewed in Guardian Federal Savings & Loan Ass'n v. Federal

Savings & Loan Insurance Corp.,30 which the D.C. Circuit held to be

a statement of policy, exempt from APA notice-and-comment

29

CPG 7132.16 ("FDA, may, in the exercise of its enforcement

discretion, initiate federal enforcement actions . . . "

(emphasis added)).

30

589 F.2d 658 (D.C. Cir. 1978).

12

requirements.31

The substantive content of the limits themselves also favors

a finding that CPG 7132.16 does not create binding norms. The rule

does not contain specifications of precise quantities or limits

that, once exceeded, trigger a mandatory FDA response. The factors

provide, for example, that only the compounding or distributing of

"inordinate amounts" of drugs is impermissible, but nowhere does

the rule further define "inordinate amounts." As such, CPG 7132.16

leaves to the sound discretion of the FDA the determination when a

particular quantity has exceeded the amount considered to be within

the bounds of traditional compounding. The fact that none of the

nine factors listed in CPG 7132.16 establish "fixed criteria to

control the agency's decisions" distinguishes CPG 7132.16 from

other FDA rules that have been held to be substantive.32

P2C2 relies primarily on two cases, Bellarno International

Ltd. v. FDA,33 and Community Nutrition Institute v. Young,34 but both

are easily distinguished.35 In those two cases, and unlike here,

31

Id. at 666-67 (noting that provision providing that FSLIC

examiner "may reject audit" afforded individualized determination

necessary to offset otherwise "mandatory tone of specifications

for audits and auditors").

32

Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d 897,

910 (5th Cir. 1983) (citing cases).

33

678 F. Supp. 410 (E.D.N.Y. 1988).

34

818 F.2d 943 (D.C. Cir. 1987).

35

P2C2 also refers us to Northwest Tissue Center v. Shalala,

1 F.3d 526 (7th Cir. 1993), but that case is completely

inapposite. In Northwest Tissue Center v. Shalala, the court had

previously found that the provision at issue was an

interpretative rule, not a regulation, and the only remaining

13

FDA rules were found to create binding norms, for they removed all

discretion from the agency by creating a statutory scheme that

reduced the agency's role to that of mechanically "determin[ing]

whether a given case is within the rule's criteria."36

At issue in Community Nutrition was an FDA "action level,"

which provided that "[a]ny food that contains aflatoxin in excess

of 20 [parts per billion (ppb)] is . . . considered by FDA to be

adulterated under section 402(a)(1) . . . and therefore may not be

shipped in interstate commerce."37 The action level established a

statutory scheme whereby once a precise level of aflatoxin was

detected, the FDA had no choice but to detain the food. The FDA

conceded at oral argument that it would be "daunting" to try to

convince a court that the agency could prosecute a producer for

shipping corn with less than 20 ppb, and the court noted that "this

type of cabining of an agency's prosecutorial discretion can in

fact rise to the level of a substantive . . . rule."38

The FDA's discretion was similarly restricted in Bellarno

International, which concerned a FDA "import alert" that ordered

the "automatic[]" detention of all pharmaceuticals classified by

issue was whether a particular provision in the Act))not the

APA))imposed notice-and-comment requirements.

36

Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369,

1377 (11th Cir. 1983), cert. denied, 466 U.S. 927 (1984).

37

Community Nutrition Inst., 818 F.2d at 946 n.4. Aflatoxin

is a by-product of certain common molds that grow on various

crops, including corn. Id. at 945 n.1.

38

Id. at 948 (citing Nader v. CAB, 657 F.2d 453 (D.C. Cir.

1981) and Guardian Fed. Sav. & Loan Ass'n v. FSLIC, 589 F.2d 658,

666-67 (D.C. Cir. 1978)).

14

tariff regulations as "American Goods Returned (AGR)," i.e.,

pharmaceuticals initially produced in the United States, exported

for distribution abroad, and subsequently returned for sale in the

United States. As in Community Nutrition, once a precisely defined

criterion was satisfied))in Community Nutrition, 20 ppb of

aflatoxin; in Bellarno International, that the pharmaceutical was

an AGR))then a prescribed FDA action automatically followed.

Consequently, the rule reduced the function of the FDA to that of

rote "determin[ation] whether a given case is within the rule's

criteria."39 When viewed in light of the rules in Community

Nutrition and Bellarno International, it is clear that the nine

factors identified in CPG 7132.16 are not the type of criteria that

courts have traditionally characterized as "binding norms."40

b. FDA's Enforcement of CPG 7132.16

P2C2 urges that, even if the plain language of the rule does

not create a binding norm, the agency has treated CPG 7132.16 as

though it establishes binding norms, and thus we should hold that

it does. P2C2 reminds us that the pertinent inquiry is not only

what CPG 7132.16 states that the agency will do, but also "what the

agency does in fact.'"41

P2C2 relies on numerous informal agency communications as

39

Ryder Truck Lines, Inc., 716 F.2d at 1377.

40

See also Avoyelles Sportsmen's League, Inc. v. Marsh, 715

F.2d 897, 910 (5th Cir. 1983) (listing cases in which "fixed

criteria" created binding norms).

41

Brown Express, Inc. v. United States, 607 F.2d 695, 700

(5th Cir. 1979) (quoting Lewis-Mota v. Secretary of Labor, 469

F.2d 478, 481 (2d Cir. 1972)).

15

evidence that the FDA has treated CPG 7132.16 as establishing a

binding norm. P2C2 cites in particular to evidence that, since CPG

7132.16's promulgation: (1) the FDA has used the nine factors

listed in CPG 7132.16 when inspecting pharmacies, and has relied on

those factors to determine whether federal enforcement actions were

warranted; (2) in numerous letters the FDA has warned pharmacists

that they were engaged in drug manufacturing, rather than

traditional compounding, because they were conducting some, or all,

of the activities listed in CPG 7132.16, and (3) the FDA has

furnished copies of CPG 7132.16 to pharmacists who inquired about

the legal restrictions on drug compounding. P2C2's reliance is

misplaced.

The fact that FDA inspectors refer to CPG 7132.16 to help

determine whether a pharmacy is engaged in traditional compounding

or drug manufacturing is not particularly probative whether the

rule is substantive. We would expect agency employees to consider

all sources of pertinent information in performing that task,

whether the information be contained in a substantive rule, an

interpretive rule, or a statement of policy. Indeed, what purpose

would an agency's statement of policy serve if agency employees

could not refer to it for guidance?

More probative of the nature of CPG 7132.16, however, is the

language used by the FDA in warning letters to pharmacies. In one

such letter, the FDA wrote that firms engaged in activities that

"exceed the limits of CPG 7132.16 are considered manufacturers and

are subject to all the provisions of the Act." We would not

16

dispute that if this statement were viewed in a vacuum, one could

be led to conclude that the FDA was in fact treating CPG 7132.16 as

a binding norm. But statements are not to be considered out of

context or in isolation, and in that very same letter the FDA

clearly stated that CPG 7132.16 was only used by the agency as

"internal guidance." Moreover, informal communications often

exhibit a lack of "precision of draftsmanship" and such internal

inconsistencies are not unexpected, which is why such documents are

generally entitled to limited weight.42 We cannot conclude, in

light of all of the other circumstances, that these warning letters

are sufficient to transform CPG 7132.16 into a substantive rule.

As with that use of CPG 7132.16, we do not find particularly

probative the fact that the FDA enclosed copies of CPG 7132.16 in

letters responding to some pharmacists' questions regarding the

legality of compounding activities. In that correspondence, the

agency pointed out that CPG 7132.16 is "policy" and explained

further that "[t]his document includes a list of factors which the

FDA feels differentiates [sic]" traditional compounding from drug

manufacturing. The FDA noted in particular that "[t]his list is

not intended to be exhaustive, and other situations or factors may

be considered in particular cases." By so doing, the letters made

clear that CPG 7132.16 was used for guidance, but that the FDA

retained discretion to conduct an individualized inquiry and to

consider other factors outside the list. CPG 7132.16, for example,

42

See Community Nutrition Inst. v. Young, 818 F.2d 943, 948

(D.C. Cir. 1987).

17

provides that pharmacies engaged in nontraditional compounding are

subject to certain provisions of the Act, and the FDA explains in

warning letters that a pharmacy's compounding may be subject to

regulation under the Act.

We cannot conclude that the FDA has treated the factors in CPG

7132.16 as binding norms. Rather, the agency has used CPG 7132.16

for guidance to help identify those pharmacies that might be

engaged in drug manufacturing activities under the guise of

compounding.

2. Degree of Enforcement Discretion Accorded FDA

Even if CPG 7132.16 does not create binding norms, argues

P2C2, the rule so narrowly constricts FDA enforcement discretion

that the CPG should be deemed to be a substantive rule.43 P2C2

contends that CPG 7132.16 acts essentially to identify those

pharmacies against which the FDA will bring enforcement actions,

thereby denying the agency any semblance of discretion. We

disagree.

True, the FDA had even greater discretion in bringing

enforcement actions before CPG 7132.16 issued; prior to that time

inspectors were apparently provided with no official guidance

whatsoever. In that sense, therefore, CPG 7132.16 has "channeled"

the FDA's enforcement discretion, providing direction))where once

there was none))by helping to determine whether a pharmacy is

engaged in traditional compounding or drug manufacturing. But all

43

The concept of constricted enforcement discretion is

closely related to that of "binding norms," as both reduce the

leeway with which the agency can perform its tasks.

18

statements of policy channel discretion to some degree))indeed,

that is their purpose. The more cogent question therefore is

whether CPG 7132.16 is so restrictive in defining which pharmacies

are engaged in drug manufacturing that it effectively removes most,

if not all, of the FDA's discretion in deciding against which

pharmacies it will bring an enforcement action. We cannot read CPG

7132.16 that restrictively.

CPG 7132.16 makes clear that it was not intended to foreclose

the agency's exercise of its discretion in bringing an enforcement

action. In fact, the rule expressly refers to the discretionary

nature of bringing such actions:

[T]he agency may, in the exercise of its enforcement

discretion, initiate federal enforcement actions . . .

when the scope and nature of a pharmacy's activity raises

the kinds of concerns normally associated with a

manufacturer and that results in significant violations

of the new drug, adulteration, or misbranding provisions

of the Act.44

The D.C. Circuit has in some cases "given decisive weight to the

agency's choice between the words `may' and `will,'"45 but we need

not go so far today.

We further observe that the language of CPG 7132.16 that

purports to distinguish traditional compounding from drug

manufacturing is imprecise and discretionary))not exact and

certain. The rule, for example, states what action the FDA "may"

44

CPG 7132.16 (emphasis added).

45

Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 538 (D.C.

Cir. 1986); see Community Nutrition Inst., 818 F.2d at 947 & n.6

(stating that use of "mandatory" language "is a powerful, even

potentially dispositive, factor" that rule is substantive).

19

take in its "discretion" to address "significant violations"; it

does not mandate a particular agency response once precisely fixed

thresholds are exceeded.46 CPG 7132.16 also expresses that the list

of nine factors is neither dispositive nor exhaustive. Although

CPG 7132.16 may assist the FDA in identifying pharmacies engaged in

the manufacture of drugs, it clearly leaves to the sound discretion

of the agency in each case the ultimate decision whether to bring

an enforcement action.

Undaunted, P2C2 argues that CPG 7132.16 is analogous to the

parole board rules (the Rules) held to be substantive in Pickus v.

United States Board of Parole.47 But that analogy fails when we

recognize that the Rules considered in Pickus are quite different

from the nine factors of the instant case. The Rules in Pickus,

which purported to provide guidance whether a prisoner was entitled

to parole, were divided into nine general categories and then

further subdivided into thirty-two subcategories, going into

46

Compare CPG 7132.16 ("[T]he agency may, in the exercise of

its enforcement discretion, initiate federal enforcement actions

. . . when . . . a pharmacy's activity . . . results in

significant violations" of the Act (emphasis added)) and Guardian

Fed. Sav. & Loan Ass'n v. FSLIC, 589 F.2d 658, 666 (D.C. Cir.

1978) (holding FSLIC pronouncement regarding audits to be

statement of policy as violations "may" result in rejection of

audit) with Community Nutrition Inst., 818 F.2d at 947 ("[A]n

action level . . . define[s] the level of contamination at which

food will be deemed to be adulterated." (emphasis in original))

and American Bus Ass'n v. United States, 627 F.2d 525, 532 (D.C.

Cir. 1980) (finding ICC rule to be substantive where it "is

unequivocally `couched in terms of command . . . . It repeatedly

says and implies `the Commission will; it nowhere says or implies

`the Commission may.'" (emphasis in original) (citation

omitted)).

47

507 F.2d 1107 (D.C. Cir. 1974).

20

exacting detail as to how the Board was to determine whether an

applicant was entitled to parole. Because the Rules were so

minutely detailed, reasoned the D.C. Circuit, they "narrowed [the

decisionmaker's] field of vision, minimizing the influence of other

factors." As such, the court concluded that the Rules were

substantive and therefore subject to APA notice-and-comment.

Compared to the Rules in Pickus, however, the nine factors listed

in CPG 7132.16 are broad, general, elastic, and far less inclusive.

As a result, they do not have the same restrictive effect on agency

decisionmakers as do the Rules.

In sum, nowhere does CPG 7132.16 draw a "line in the sand"

that, once crossed, removes all discretion from the agency. We

cannot agree with P2C2, therefore, that CPG 7132.16 so

significantly restricts the discretionary role of the FDA in

determining whether to bring an enforcement action against a

pharmacy as to transform it into a substantive rule. In our view,

CPG 7132.16 merely identifies some indicia of drug manufacturing;

it neither compels the conclusion that a pharmacy is engaged in

drug manufacturing nor provokes an automatic or nondiscretionary

response from the agency. Rather, FDA inspectors are free to

consider in toto those nine factors, as well as others, and then,

based on that guidance and their own judgment, decide whether the

pharmacy in question is engaged in drug manufacturing. Such is the

nature of a discretionary rule, not of a substantive one.

3. Statement of Policy or Interpretative Rule?

The district court held that CPG 7132.16 is not a substantive

21

rule, finding it to be either a statement of policy or an

interpretative rule. Although our plenary determination that the

rule is not substantive is sufficient to affirm the district

court's judgment, we continue, albeit briefly, to explain how CPG

7132.16 fits into the narrow exemptions from the APA notice-and-

comment requirements.

a. Statement of Policy

As we recently explained, "[a] general statement of policy is

a statement by an administrative agency announcing motivating

factors the agency will consider, or tentative goals toward which

it will aim, in determining the resolution of a substantive

question of regulation."48 This definition fits CPG 7132.16 to a

tee, as in it the FDA announced some of the factors that it will

consider in resolving "a substantive question of regulation," i.e.,

whether a pharmacy is engaged in traditional compounding or drug

manufacturing.

b. Interpretative Rule

CPG 7132.16 could arguably be considered an interpretative

rule as well. As the Supreme Court recently observed,

interpretative rules "do not have the force and effect of law" and

are used to advise the public how an agency will apply its

regulations in certain circumstances.49 In the same vein, we have

48

Phillips Petroleum Co. v. Johnson, 22 F.3d 616, 620 (5th

Cir.), modified on other grounds, No. 93-1377, 1994 WL 484506

(June 10, 1994), cert. denied, 115 S. Ct. 1816 and 115 S. Ct.

1817 (1995).

49

Shalala v. Guernsey Memorial Hosp., 115 S. Ct. 1232, 1236-

37 (1995).

22

noted that:

Generally speaking, it seems to be established that

`regulations,' `substantive rules,' or `legislative rules' are

those which create law, usually implementary to an existing

law; whereas interpretative rules are statements as to what

the administrative officer thinks the statute or regulation

means.50

Interpretative rules thus "remind[] parties of existing statutory

duties, or `merely track[]' the statutory requirements and thus

`simply explain[] something the statute already require[s].'"51 We

are convinced that CPG 7132.16 could aptly be characterized as an

interpretative rule. It reminds parties of the existing

regulations that pertain to drug manufacturing and explains the

FDA's view of what distinguishes drug manufacturing from

traditional compounding. It clarifies, rather than creates, law.52

c. Substantive Change in Regulations

If an agency pronouncement is to be an interpretative rule or

a statement of policy, though, it cannot "effect[] a substantive

50

Brown Express, Inc. v. United States, 607 F.2d 695, 700

(5th Cir. 1979) (quoting Gibson Wine Co. v. Snyder, 194 F.2d 329,

331 (D.C. Cir. 1952)); Sekula v. FDIC, 39 F.3d 448, 457 (3d Cir.

1994) ("Interpretative rules are not intended to alter legal

rights, but to state the agency's view of what existing law

requires.").

51

National Family Planning v. Sullivan, 979 F.2d 227, 236-37

(5th Cir. 1992) (quotations omitted); see Chrysler Corp. v.

Brown, 441 U.S. 281, 302 n.31 (1979 (An "interpretative rule is

one "issued by an agency to advise the public of the agency's

construction of a statute and rules which it administers.").

52

Chrysler Corp., 441 U.S. at 303 ("The central question is

essentially whether an agency is exercising its rule-making power

to clarify an existing statute or regulation, or to create new

law, rights, or duties in what amounts to a legislative act.");

see id. at 302 n.31 (stating that an interpretative rules is one

"issued by an agency to advise the public of the agency's

construction of the statute and rules which it administers").

23

change in the regulations."53 P2C2 posits that CPG 7132.16 effects

such a substantive change, arguing that never before did the FDA

regulate compounding activities. But there is nothing new or

changed about the law that CPG 7132.16 clarifies.

The district court found that CPG 7132.16 does not plow new

legal ground, as the rule expressly states that "traditional

compounding activity is not the subject of this CPG 7132.16."

Moreover, the FDA introduced into evidence warning letters proving

that long before CPG 7132.16 issued the agency had instituted

enforcement actions against pharmacies engaged in drug

manufacturing under the guise of compounding.

In conclusion, we are satisfied that the district court did

not clearly err in finding that the rule announced in CPG 7132.16

does not effect a substantive change to already applicable

regulations, but that it merely provides guidance on an old

problem))unregulated drug manufacturing. As we agree, then, that

CPG 7132.16 is not a substantive rule, and thus is not subject to

APA notice-and-comment requirements, the district court's judgment

is, in all respects,

AFFIRMED.

53

Guernsey Memorial Hosp., 115 S. Ct. at 1236; National

Family Planning, 979 F.2d at 237 (stating that purported

interpretative rule or statement of policy may be deemed

substantive rule if it "`effects a change in existing law or

policy" (quoting Powderly v. Schweiker, 704 F.2d 1092, 1098 (9th

Cir. 1983)); see, e.g., Phillips Petroleum Co. v. Johnson, 22

F.3d 616, 620 (5th Cir. 1994) ("An announcement stating a change

in the method by which an agency will value [natural gas liquid

products] is not a `general statement of policy.'"), modified on

other grounds, 1994 WL 484506, cert. denied, 115 S. Ct. 1816 and

115 S. Ct. 1817 (1995).

24