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In re Establishment Inspection of Wedgewood Village Pharmacy

July 7, 2003


The opinion of the court was delivered by: Rosen, Magistrate Judge




Presently before the court is the motion by Wedgewood Village Pharmacy, Inc., d/b/a Wedgewood Pharmacy ("Wedgewood"), to quash a warrant for administrative inspection issued ex parte by this court to the United States Food and Drug Administration ("FDA") on March 10, 2003, pursuant to the Federal Food, Drug, Cosmetic Act ("FDCA") 21 U.S.C. §301, et seq. For the reasons discussed below, Wedgewood's motion to quash shall be denied.


A. The March, 2003 Warrant Application

Wedgewood is a New Jersey licensed pharmacy that has operated in good standing for twenty-two years. (See Wedgewood "Motion to Quash Warrant For Inspection Under the Federal Food, Drug, and Cosmetic Act"(hereinafter "Wedgewood Br.") at 7; Wedgewood Reply at 4). Located in Sewell, New Jersey, Wedgewood is owned and operated by George Malmberg, a pharmacist who holds a current and valid New Jersey license. (Id.). Wedgewood specializes in compounding, selling, and dispensing pharmaceuticals for human and animal application which it dispenses nationwide. (See Wedgewood Br. at 7).

On March 10, 2003, an investigator for the New Jersey District Office of the FDA, duly designated, applied to this court for an administrative inspection warrant for Wedgewood's Sewell, New Jersey, facility. (See Application for Inspection Warrant ("Warrant App."), FDA Opp. Br., Ex. A).

By its terms, the FDA warrant application, comprising eighteen pages, was brought pursuant to 21 U.S.C. §374(a). *fn1 The application detailed the legal and factual basis for the FDA's request. As a factual basis, the warrant application first directed the court to a recent development; the United States Drug Enforcement Agency ("DEA") had requested assistance in conducting an "inter-agency" on-site investigation at Wedgewood. (Warrant App., ¶3). This inter-agency effort related to "matters currently under investigation," most notably Wedgewood's failure to report the theft of controlled drug substances to the DEA, required under 21 C.F.R. 1301.76(b). The theft of the drug substances may have resulted in overdoses by high school students in October 2001. (Id. at ¶2). Relying on the FDCA, the FDA identified several anomalies in Wedgewood's pharmacy practice that the FDA believed supported its position that Wedgewood had violated the Act and, thus, that supported an inspection under Section 374.

The warrant application referenced paragraphs six to eleven as a factual basis for the suspected violations. (See id. at ¶¶12-13). Paragraphs six through eight informed the court of Wedgewood's practice of producing Poison Ivy Extract in large quantity, without prescriptions for specific patients, during the period between January and March 1998. This practice was discovered in the inspection completed by the New Jersey State Department of Law and Public Safety, Division of Consumer Affairs, Enforcement Bureau, conducted by Investigator Wayne Nastase on February 27 through March 4, 1998. (Id. at ¶7). The FDA had attempted an inspection without a warrant on this issue on February 23, 1998, but had been turned away by owner and CEO of Wedgewood, George J. Malmberg. (Id., ¶6). Following Nastase's inspection, and subsequent sharing of information with the FDA, the FDA and Wedgewood representatives entered discussions. The discussions resulted in Wedgewood's acknowledging that it needed to obtain a Biologic License Application for the product, pursuant to 42 U.S.C. 262(a), (c), to recall the product already distributed, and to cooperate with an FDA inspection regarding the Poison Ivy Extract. (Id., ¶8). During the inspection, Mr. Malmberg "verbally promised to cease production and distribution of the Poison Ivy Extract." (Id.).

Paragraphs nine to eleven described information gleaned from a February 3, 2003 DEA Report of Investigation, which informed the FDA, inter alia, of the following events and practices by Wedgewood: (1) the receipt of an encapsulation machine in May 2002; (2) evidence that Wedgewood was compounding drugs that are "copies of FDA-approved, commercially available products such as diazepam tablets, sildenafil tablets, and several veterinary drug products;"(3) the purchase of 11.5 kilograms of diazepam in the six-month period between August 2001 and February 2002; (4) the purchase of 17 kilograms of boldenone undecylenate in the six-month period between January and July 2002; and (5) the purchase of 30 kilograms of stanozolol in the sixteen-month period between July 2001 and November 2002. (Warrant App., FDA Opp. Br., Ex. A, ¶9). The FDA warrant application explained that, for example, the diazepam bulk drug substance purchased by Wedgewood was enough to manufacture over one million 10mg tablets or capsules in the six-month period. (Id., ¶10). The FDA warrant application noted that such production is atypical of pharmacy compounding and rather more akin to a commercial drug manufacturer's production. (Id.).

The warrant application further indicated that on February 20, 2003, the FDA was informed by New Jersey State Investigator Wayne Nastase that "Wedgewood had a commercial scale mixer and receives excipient materials (i.e. ingredients for drug products that are not the active ingredients) in bags exceeding 50 pounds." (Id. at ¶11). Nastase also informed the FDA that "Wedgewood Pharmacy routinely manufactures veterinary drug products in bulk, prior to receipt of specific veterinarian prescribing orders." (Id.). Finally, Nastase reported to the FDA that Wedgewood was manufacturing versions of sildenafil, the active ingredient in Viagra, in the form of a lozenge, and that testing completed on those lozenges in 1999 indicated that they were "sub-potent." (Id.).

Based on this information, the FDA requested that this court sign the "preemptive inspection warrant" to give the FDA "access to production and distribution records to determine the extent to which this firm's activities are consistent with those of a drug manufacturer rather than a retail pharmacy, and to evaluate the extent of violations of the Act, including the new drug and new animal drug approval requirements, and the Act's adulteration provisions." (Warrant App., ¶20). The warrant application further described in detail the purpose for the inspection:

(A) determine whether Wedgewood Pharmacy is compounding human drugs that are copies of commercially available FDA-approved products; (B) identify the original manufacturers of bulk drug substances used by Wedgewood Pharmacy to compound human drug products, and determine whether these ingredients have been manufactured in FDA-registered facilities and meet official compendial requirements; (C) determine whether drugs for veterinary use are being compounded in conformance with the AMDUCA implementing regulations in 21 CFR Part 530; (D) determine the frequency and volumes of human drug production batches, the frequency and volumes of shipments, and the number and types of consignees, e.g., physicians, clinics, hospitals, or other state licensed pharmacies, who are receiving Wedgewood Pharmacy's compounded prescription drugs, in order to determine whether the compounding is being done for other parties for resale; (E) determine, for those products found to be copies of FDA-approved, commercially available products, whether Wedgewood Pharmacy has documentation of individual patients' medical need for particular variations; (F) determine whether the firm has adequate controls in place to assure that its injectable and implantable drug products are sterile; (G) determine whether valid prescriptions for identified individual patients are received prior to dispensing, for each compounded human drug product that is dispensed; (G) determine whether human drug products are being compounded in anticipation of receiving prescriptions, including quantities, and how such amounts compare to the amounts compounded after receiving valid prescriptions; (I) determine whether Wedgewood Pharmacy uses commercial scale manufacturing equipment to compound drug products; and (J) determine whether Wedgewood is compounding any human drug products that have been withdrawn or removed from the market for safety reasons.

(Warrant App., ¶21). The FDA then provided the court with a detailed listing of the information they would target in the inspection: "(1) . . . Wedgewood Pharmacy facilities, and all things therein, including equipment, finished and unfinished materials, containers, labeling, records (including electronic and computer records), files, papers, processes, controls, and facilities, bearing on whether prescription drugs intended for human use and prescription and non-prescription animal drugs which are adulterated or misbranded within the meaning of the Act, or which may not be manufactured, introduced into interstate commerce, sold, or offered for sale by reason of any provision of the Act, have been or are being manufactured, processed, packed, transported, or held in such facilities, or otherwise bearing on violation of the Act; (2) to collect samples as deemed necessary by FDA; and (3) to take photographs as deemed necessary by FDA." (Id. at ¶24).

The warrant itself included the name of the establishment to be inspected and a description of the manner and items subject to inspection. (See Warrant, Wedgewood Br., Ex. 4). The warrant further provided that the inspection begin "as soon as practicable after the issuance of this warrant and will be completed with reasonable promptness." (Id.).

After careful review and consideration, this court signed the warrant on March 10, 2003. *fn2

B. The Inspection

Two FDA investigators, accompanied by a Deputy U.S. Marshal, executed the inspection warrant on March 12, 2003. (FDA Opp. Br. at 3). Wedgewood asserts that the FDA inspectors were accompanied by approximately twelve DEA agents and other U.S. Marshals. (See Wedgewood Br. at 2). Malmberg, on advice of counsel, informed the FDA agents that he would not cooperate in the execution of the warrant. (Id. at 9). A marshal indicated to Malmberg that if he did not comply, he would be taken into custody immediately. (Id.). Malmberg acquiesced under the threat of detainment and permitted the inspection to proceed. However, Malmberg attached a statement of protest to all records and other information collected by the FDA. One of the statements provided that: "I am turning over the records attached to this statement only because of the actually stated threat by the United States Marshall [sic] that if I don't, I will be immediately taken into custody and all the pharmacy's computers, records and more will be immediately seized and removed from the pharmacy by the United States Marshall [sic]." (Id., Ex. 10). Another such statement included reference to "Department of Justice Counsel, Jerry Kell['s]" advice to the same effect. (Id., Ex. 11).

The inspection of Wedgewood under the warrant continued on March 13 and 14, and FDA inspectors indicated to Wedgewood representatives that the FDA planned to continue the inspection on March 18, 2003. (See Wedgewood Br. at 2, n.1). Wedgewood filed the instant motion to quash the FDA warrant on March 17, 2003.

C. Motion to Quash

In support of its motion, Wedgewood asserts as fact the following information about itself, claiming that Wedgewood:

ù specializes in compounding drugs on the order of a licensed practitioner, [either physician or veterinarian];

ù specializes in traditional compounding of drugs for humans and pets (companion animals) and equine animals (e.g., race horses);

ù does not compound for livestock (feed animals) or feed producers, and, therefore, presents no potential that its drug compounds will leach into the food chain;

ù does not compound a drug when a suitable, commercially- manufactured drug is available; and

ù compounds "extemporaneously" [meaning] "upon the receipt of the physician's order or from a permissible inventory based on historical ordering patterns."

(Id. at 4-5, n.2-3 (emphasis in original)). Wedgewood maintains that these few facts are "likely uncontested" (Wedgewood Reply at 4); yet, these are precisely the facts that the administrative warrant attacks. Wedgewood supplies no documentary evidence supporting these assertions, relying only upon an affidavit by Mr. Malmberg which attests to the accuracy of the information contained within Wedgewood's motion and reply.

The essence of Wedgewood's motion is its belief that the FDA's application for a warrant is inappropriate because the FDA lacks jurisdiction over state licensed pharmacies under any circumstance. For example, Wedgewood maintains that "[t]here was no justification for applying for the Warrants ex parte, other than to prevent Wedgewood from appearing and informing the Court of the FDA's absolute lack of jurisdiction, because Wedgewood is a state-licensed pharmacy." (Wedgewood Br. at 3). In its reply, Wedgewood outlines its position succinctly: "Congress exempted state-licensed pharmacies from registration and inspection by the FDA; this was a fact well known to the FDA and Director Axelrad at the time the FDA applied for and commenced execution on the ex parte Warrant; compounding, a pharmacy-based activity, is defined by the states and regulated only by state pharmacy boards, not the FDA; the FDA regulates manufacturing by manufacturers; under the explicit language of the Food, Drug, and Cosmetic Act ("FDCA"), even manufacturing performed by pharmacies is exempted from the FDCA and FDA oversight; . . . and compounds, by statute and case law, are not - and are incapable of being - `new drugs.'" (Wedgewood Reply at 3-4).

Despite this and other unequivocal statements in its briefs that the FDA lacks any jurisdiction under any circumstances over pharmacies, during oral argument, counsel for Wedgewood conceded, though grudgingly, that the FDCA contains a limited statutory exemption for pharmacies and that if Wedgewood does not meet the elements of that statutory exemption, then it is subject to FDA regulation under the FDCA. (See Transcript of Oral Argument conducted before this court on May 22, 2003 at T38:19-39:4).

Wedgewood also concedes that the government generally has the right to seek a warrant ex parte. (Wedgewood Reply at 22). However, Wedgewood maintains that because the FDA knew that its application was not grounded in the law, the FDA acted in bad faith and so vitiated the ex parte administrative warrant. (Id. at 23-25 and Ex. 1). Finally, Wedgewood contends that the warrant was not based on probable cause. (See, e.g., Wedgewood Br. at 13-17).


A. Standard for Quashing Administrative Warrant Under the FDCA

The Supreme Court has long held that a warrant is required for a search to be considered reasonable under the Fourth Amendment, whether conducted in a home or a commercial establishment. See, e.g., See v. City of Seattle, 387 U.S. 541, 545 (1967). "An owner or operator of a business thus has an expectation of privacy in commercial property, which society is prepared to consider to be reasonable." United States v. Burger, 482 U.S. 691, 699 (1987) (internal citation omitted). Society's tolerance for searches of business establishments exists on a continuum. "An expectation of privacy in commercial premises . . . is different from, and indeed less than, a similar expectation in an individual's home." Id. at 700. In the business context, the Court has relaxed the warrant clause of the Fourth Amendment to account for the exigencies of administrative inspections "designed to enforce regulatory statutes." Id. at 700. The Court has gone so far as to hold that "[c]ertain industries have such a history of government oversight that no reasonable expectation of privacy . . . could exist for a proprietor over the stock of such an enterprise." Id. (quoting Marshall v. Barlow's, Inc., 436 U.S. 307, 313 (1978) (internal citations omitted)). "`When 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.'" Id. (quoting United States v. Biswell, 406 U.S. 311, 316 (1972)). So significant is the necessity for effective inspection that in such "pervasively regulated" industries, the Court has dispensed with the need for a warrant at all. United States v. Biswell, 406 U.S. 311, 316-17 (1972) (permitting warrantless inspection in the gun selling industry); see also United States v. Burger, 482 U.S. 691, 703-704 (1987) (same in vehicle-dismantling and automobile junkyard industry); Donovan v. Dewey, 452 U.S. 594, 602-05 (1981) (same in coal mines); Colonnade Catering Corp. v. United States, 397 U.S. 72, 76-77 (1970) (same in the liquor industry). The Court explained: "The greater latitude to conduct warrantless inspections of commercial property reflects the fact that the expectation of privacy that the owner of commercial property enjoys in such property differs significantly from the sanctity accorded an individual's home, and that his privacy interest may, in certain circumstances, be adequately protected by regulatory schemes authorizing warrantless inspections." Donovan, 452 U.S. at 598-99.

The Court has been vigilant at noting, however, that "`except in [such] carefully defined classes of cases, a search of private property without proper consent is "unreasonable" unless it has been authorized by a valid search warrant.'" Barlow's, 436 U.S. at 312 (quoting Camara v. Municipal Court, 387 U.S. 523, 528-29 (1967)).

While the Supreme Court has never considered the exception, now referred to as the Colonnade-Biswell exception, Burger, 482 U.S. at 701, in the context of the FDCA, the United States Court of Appeals for the Eighth, Ninth, and Sixth Circuits have found the pharmaceutical industry to be so "pervasively regulated" that a warrantless search is permissible under the Fourth Amendment. See United States v. Jamieson-McKames Pharmaceuticals, Inc., 651 F.2d 532 (8th Cir. 1981) (holding drug manufacturing industry closely regulated in review of administrative inspection warrant issued to the FDA under FDCA); accord United States v. Argent Chemical Laboratories, Inc., 93 F.3d 572 (9th Cir. 1996) (finding pharmaceutical industry "closely regulated" in review of in rem warrant issued to FDA under 21 U.S.C. §334); United States v. Acklen, 690 F.2d 70, 75 (6th Cir. 1982) (in review of DEA search warrant under 21 U.S.C. §880, held pharmaceutical industry is "closely regulated" industry in context of Colonnade-Biswell exception).

The Colonnade-Biswell exception was qualified somewhat in Barlow's. There, the Court reviewed the propriety of a warrantless search without consent under section 8(a) of the Occupational Safety and Health Act of 1970, 29 U.S.C. §657(a). As the Court interpreted it, section 8(a) "empowers agents of the Secretary of Labor . . . to search the work area of any employment facility within the Act's jurisdiction. The purpose of the search is to inspect for safety hazards and violations of OSHA regulations. No warrant or other process is expressly required under the Act." Barlow's, 436 U.S. at 309. The Court discussed the decreased expectation of privacy in commercial property and the "continued vitality" of the Colonnade-Biswell doctrine, "but declined to find that warrantless inspections, made pursuant to [OSHA], of all businesses engaged in interstate commerce fell within the narrow focus of this doctrine." Burger, 482 U.S. at 701 (discussing the holding and import of Barlow's) (emphasis in original). While the Court's greatest concern was that the OSHA statute was not limited to one industry, it also expressed concern that the statute did not mention the authorized frequency of inspections. Barlow's, 436 U.S. at 316-17.

The Court emphasized that regulatory investigators operating under statutes failing the Colonnade-Biswell exception are not without recourse. Reconfirming the process established in Camara v. Municipal Court, 387 U.S. 523, 528-29 (1967), the Court directed that enforcement need not be curtailed as warrants may be obtained ex parte and executed without notice to the establishment being inspected. Barlow's, 436 U.S. at 316-320. Moreover, probable cause in the criminal law sense is not required to support the issuance of an administrative warrant. Barlow's, 436 U.S. at 320. See also U.S. v. Prendergast, 585 F.2d 69, 70 (3d Cir. 1978) (citing Barlow's). "For purposes of an administrative search such as this, probable cause justifying the issuance of a warrant may be based not only on specific evidence of an existing violation . . . but also on a showing that `reasonable legislative or administrative standards for conducting an . . . inspection are satisfied with respect to a particular [establishment].'" Id. at 320 (quoting Camara, 387 U.S. at 538) (footnote omitted).

This lesser standard of probable cause derives from the general recognition that the expectation of privacy of an owner or operator of a business establishment is tempered by the public interest duly recognized by the established regulatory scheme. The warrant must still fulfill the traditional tasks of "provid[ing] assurances from a neutral officer that the inspection is reasonable under the Constitution, is authorized by statute, and is pursuant to an administrative plan containing specific neutral criteria." Barlow's, 436 U.S. at 323. As the Court explained in Camara:

The warrant procedure is designed to guarantee that a decision to search private property is justified by a reasonable governmental interest. But reasonableness is still the ultimate standard. If a valid public interest justifies the intrusion contemplated, then there is probable cause to issue a suitably restricted search warrant. Such an approach neither endangers time-honored doctrines applicable to criminal investigations nor makes a nullity of the probable cause requirement in this area. It merely gives full recognition to the competing public and private interests here at stake and, in so doing, best fulfills the historic purpose behind the constitutional right to be free from unreasonable government invasions of privacy.

Camara, 387 U.S. at 539 (internal citations omitted).

"To apply this standard, it is . . . necessary first to focus upon the governmental interest which allegedly justifies official intrusion upon the constitutionally protected interests of the private citizen." Camara, 387 U.S. at 534-535. "In determining whether a particular inspection is reasonable - and thus in determining whether there is probable cause to issue a warrant for that inspection - the need for the inspection must be weighed in terms of the[] reasonable goals of code enforcement." Id. at 535. The relevant factors indicative of reasonableness include the government agency's experience of the need for inspection to protect the public health or safety and the nature of the search as compared to the need fulfilled. Id. at 538. Even passage of time without inspection alone can be sufficient to justify issuance of a warrant. Id. Once a court determines that the type of inspection is a "reasonable" search of private property within the meaning of the Fourth Amendment, a court must then consider whether "reasonable legislative or administrative standards for conducting [the particular inspection] are satisfied with respect to a particular dwelling." Id. This should be an individualized review based upon the specific enforcement scheme. Id.; Barlow's, 436 U.S. at 322-34. Thus, the power to conduct an administrative inspection as well as the manner in which that inspection may be initiated derive from the language of the governing statute and any relevant regulations and procedures as determined by a neutral officer upon review of the warrant. Barlow's, 320-21; Showers v. Spangler, 182 F.3d 165, 173 (3d Cir. 1999).

Because the FDA obtained an administrative inspection warrant, this court need not reach the question of whether the FDCA governs a "pervasively regulated" industry under the Colonnade-Biswell exception. *fn3 The question only thus before this ...

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