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United States v. Undetermined Quantities of Boxes of Articles of Device

January 3, 2008

UNITED STATES OF AMERICA, PLAINTIFF,
v.
UNDETERMINED QUANTITIES OF BOXES OF ARTICLES OF DEVICE, LABELED IN PART, SHELHIGH NO-REACT VASCUPATCH HON. WILLIAM J. MARTINI SHELHIGH, INC., UNDETERMINED QUANTITIES OF BOXES OF ARTICLES OF DEVICE, EACH BOX CONTAINING ONE JAR, WHICH CONTAINS THE DEVICE LABELED IN PART: SHELHIGH PULMONIC VALVE CONDUIT NO-REACT THREATED MODEL NR-4000 SHELHIGH, INC., (JAR), SHELHIGH NO-REACT PULMONIC VALVE CONDUIT SHELHIGH, INC., AND ALL OTHER QUANTITIES OF ALL ARTICLES OF DEVICE, WITH ANY LOT NUMBER AND IN ANY SIZE OR TYPE CONTAINER THAT ARE LABELED OR UNLABELED, INCLUDING FINISHED PRODUCTS, IN-PROCESS MATERIALS, AND RAW MATERIALS USED IN THE MANUFACTURE OF SUCH FINISHED PRODUCTS, FUTURE MEDICAL DIAGNOSTICS MANUFACTURERS INC., 141 SOUTH AVENUE, SUITE 200-205, FANWOOD, NEW JERSEY, DEFENDANTS.



The opinion of the court was delivered by: William J. Martini, U.S.D.J.:

OPINION

Shelhigh has filed a motion for relief from a consent order that terminated this litigation. Shelhigh argues that this relief is justified because unexpected changes in the factual circumstances under which Shelhigh consented to the order make its continued enforcement inequitable. Shelhigh also requests an evidentiary hearing to establish the facts constituting its alleged changed circumstances. This Court finds that even under the facts as Shelhigh alleges them, Shelhigh is not entitled to the relief it seeks. Accordingly, Shelhigh's request for a hearing and underlying motion are DENIED.

I. FACTS AND PROCEEDINGS

This case centers around the federal government's seizure of illegally manufactured medical devices. Shelhigh, Inc., manufactures medical devices designed for implant into humans, including cardiovascular, neurological, and general surgery devices. (Compl. ¶ 8.) Shelhigh sells these devices to hospitals and surgeons throughout the world. (Mot. for Relief. at 2.) In 2007, the Federal Food and Drug Administration ("FDA") seized these devices, pursuant to a warrant from this Court. (Mot. at 2; Compl. ¶ 1.) The FDA alleged that the methods and facilities Shelhigh used in the manufacture, design, packing, storage, and installation of these devices made them unsuitable for domestic sales under the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder. (Mot. at 2; Compl. ¶ 6.) Specifically, the FDA's complaint alleged that the devices were "adulterated" as defined by 21 U.S.C. § 351(h) (2000) and were thus subject to seizure and condemnation. (Compl. ¶ 6.)

Shortly after the government seized the Shelhigh medical devices, Shelhigh filed a motion for an order to show cause why this Court shouldn't order the government to release these devices for export to Italy and Spain. (Mot. for Order to Show Cause at 1.) Shelhigh argued that even if its medical devices were adulterated under the Food, Drug and Cosmetic Act's manufacturing standards for domestic sales, the devices were not adulterated under that Act's standards for exports. (Mot. for Order to Show Cause at 1--2.) As part of this argument, Shelhigh asserted that Italy and Spain had already determined that Shelhigh's devices complied with the relevant health and safety regulations in those countries.*fn1 (Mot. for Order to Show Cause at 8.) After issuing the Order to Show Cause, this Court denied Shelhigh's request for an order to release the seized items, reasoning that it could not determine whether the devices were adulterated under the Act's standards for exports without an evidentiary hearing. (Order Denying Prelim. Inj. at 2--5.)

During this period in litigation, Shelhigh made two general equitable arguments to this Court that the factual circumstances of this case mitigated against allowing the continued seizure of its medical devices. First, Shelhigh argued that the seizure of its goods was causing it severe and irreparable harm, including employee layoffs and possibly bankruptcy. (Decl. of Gabbay, Economic Harm to Shelhigh.) Second, Shelhigh argued that the seizure of its devices would prevent many hospital patients worldwide from receiving needed medical care, noting that its devices were the sole medical hope for many patients. (Decl. of Gabbay, Patients Need Shelhigh.)

Despite these gloomy predictions, Shelhigh eventually entered into a consent order with the FDA that settled this litigation. The consent order generally provides terms under which the FDA will release certain seized devices to Shelhigh for certain purposes. Also of note in the consent order, Shelhigh CEO Dr. Shlomo Gabbay and his wife, Lea Gabbay, appeared as defendants and "voluntarily consented to the entry of [the] Order without contest." (Consent Order at 2.) The consent order purports to make all defendants, including Dr. Gabbay and Lea Gabbay, liable to the United States for the costs of supervising compliance (Consent Order ¶ 27), for liquidated damages in the event of noncompliance (Consent Order ¶ 31), and for several other types of potential financial damages.

Shelhigh now moves under Rule 60(b) and pursuant to this Court's inherent judicial authority for relief from this consent order.*fn2 Shelhigh seeks modification of the consent order to allow it to export medical devices to European countries that have agreed to import them. (Mot. at 1.) Shelhigh also seeks modification of the consent order to allow it to sell devices as unfinished component devices, which Shelhigh claims do not violate FDA regulations. (Mot. at 21.)

Shelhigh makes several arguments that its current factual circumstances justify such relief. First, Shelhigh argues that the consent order imposes upon Shelhigh an onerous financial burden that will eventually force Shelhigh out of business. (Mot. at 1.) Shelhigh claims that compliance with the consent order is impossible and that noncompliance will result in liquidated damages under the order and possibly bankruptcy. (Mot. at 14--16, 18.) Second, Shelhigh argues that since entry of the consent order, several more European countries have determined that the seized devices comply with their health and safety regulation. (Mot. at 1, 5--11.) Shelhigh accordingly requests modification of the consent order to allow for export to these countries. (Mot. at 1.) Third, Shelhigh argues that hospital patients worldwide need the seized medical devices and that the seizure will force those patients to use substitute devices that may result in a lower quality of patient life and higher mortality rates. (Mot. at 11.) Fourth, Shelhigh argues that it is now seeking to manufacture only unfinished medical devices, and Shelhigh claims that this use of its seized devices would be legal under the Food, Drug and Cosmetic Act. (Mot. at 19--20.)

The Government replies that Shelhigh's circumstances have not changed since entry of the consent order and that any changes have been small and expected. (Opp'n to Mot. at 8--16.) The Government also argues that Shelhigh legally cannot export its devices or sell them domestically as unfinished component parts. (Opp'n at 16--24.)

In Shelhigh's reply brief, Shelhigh raises new arguments to support its request for relief. Primarily, Shelhigh argues that the FDA has not complied with the terms of the consent order. (Reply Br. at 3--13, 18.) Specifically, Shelhigh alleges that the FDA has failed to make good faith efforts to cooperate with Shelhigh in devising a plan to comply with the order. (Reply Br. at 3--13.) Shelhigh also argues that the consent order's imposition of liability upon Dr. Gabbay and Lea Gabbay is particularly harsh and deserving of relief.

II. DISCUSSION

A. Shelhigh's Request for an Evidentiary Hearing

Shelhigh has requested an evidentiary hearing to prove the material facts underlying its claim to relief (Mot. at 1), but this Court finds that an evidentiary hearing is not warranted. Shelhigh purportedly wishes to use such a hearing to establish its circumstances have changed since entry of the consent order. Specifically, Shelhigh seeks to establish that since entry of the consent order its financial status has worsened and that several more European countries have approved its devices for export. But the government does not challenge either of these types of material facts. The ...


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