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In re National Prescription Opiate Litigation

United States District Court, N.D. Ohio, Eastern Division

August 19, 2019

IN RE NATIONAL PRESCRIPTION OPIATE LITIGATION THIS DOCUMENT RELATES TO Track One Cases

          OPINION AND ORDER REGARDING PLAINTIFFS' SUMMARY JUDGMENT MOTIONS ADDRESSING THE CONTROLLED SUBSTANCES ACT

          DAN AARON POLSTER UNITED STATES DISTRICT JUDGE.

         Before the Court are two related summary judgment motions filed by Plaintiffs: (1) a Motion for Partial Summary Adjudication of Defendants' Duties Under the Controlled Substances Act (Doc. #: 1887); and (2) a Motion for Partial Summary Adjudication against Manufacturer and Distributor Defendants (Doc. #: 1910).

         With the first motion, Plaintiffs ask the Court to determine that, as a matter of law, the Controlled Substances Act (“CSA”), 21 U.S.C. §§ 801 et seq., and its implementing regulations, 21 C.F.R. §§ 1301 et seq., require defendants who are “registrants” to: (1) identify suspicious orders of controlled substances; (2) report to the Drug Enforcement Administration (“DEA”) suspicious orders when discovered; and (3) decline to ship a suspicious order unless and until, through due diligence, the registrant can determine the order is not likely to be diverted into illegal channels. For the reasons set forth below, the Court GRANTS Plaintiffs' first Motion (Doc. #: 1887).

         Plaintiffs' second Motion goes further and asks the Court to determine that, as a matter of law and undisputed fact, Defendants failed to comply with the three above-listed duties. Because there are material facts in dispute, the Court DENIES Plaintiffs' second Motion (Doc. #: 1910). The Court's reasoning and analysis is set forth below.

         I. Legal Standard.

         The parties have filed about 30 motions seeking summary judgment on various issues and claims. The Court sets out here, in it first summary judgment opinion, the legal standards it will apply when considering all of these motions. The Court will not repeat these legal standards in subsequent opinions, and instead incorporates them by reference in advance.

         Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In reviewing summary judgment motions, the Court must view evidence in the light most favorable to the non-moving party to determine whether a genuine issue of material fact exists. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970); CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6th Cir. 2008).

         A fact is “material” only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Daugherty v. Sajar Plastics, Inc., 544 F.3d 696, 702 (6th Cir. 2008). Determination of whether a factual issue is “genuine” requires consideration of the applicable evidentiary standards. Thus, in most civil cases, the Court will decide “whether reasonable jurors could find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict.” Anderson, 477 U.S. at 252. However, if the non-moving party faces a heightened burden of proof, such as clear and convincing evidence, it must show that it can produce evidence which, if believed, will meet the higher standard. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989).

         Upon filing a motion for summary judgment, the moving party has the initial burden of establishing there are no genuine issues of material fact as to an essential element of the claim or defense at issue. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80 & n.12 (6th Cir. 1989); Chappell v. City of Cleveland, 584 F.Supp.2d 974, 988 (N.D. Ohio 2008). The moving party, however, is not required to file affidavits or other similar materials negating a claim on which its opponent bears the burden of proof, so long as the moving party relies upon the absence of the essential element in the record. Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Chappell, 584 F.Supp.2d at 987.

         In response, the non-moving party may not rely merely on allegations or denials in its own pleading; rather, its response must set out specific facts showing a genuine issue for trial. See Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). In this regard, “Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment”; rather, “Rule 56 allocates that duty to the opponent of the motion, who is required to point out the evidence, albeit evidence that is already in the record, that creates an issue of fact.” Williamson v. Aetna Life Ins. Co., 481 F.3d 369, 379-80 (6th Cir. 2007) (citation omitted); see Fed. R. Civ. P. 56. Moreover, the non-moving party must show more than a scintilla of evidence to overcome summary judgment; it is not enough for the non-moving party to show that there is some metaphysical doubt as to material facts. Matsushita Elec. Indus. Co., 475 U.S. at 586-87; see also Barr v. Lafon, 538 F.3d 554, 574 (6th Cir. 2008).

         Accordingly, the ultimate inquiry is whether the record as a whole, when viewed in the light most favorable to the non-moving party, could lead a rational trier of fact to find in favor of the non-moving party. Matsushita Elec. Indus. Co., 475 U.S. at 586-87; see also Anderson, 477 U.S. at 252 (“The judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict - whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.”). If, after reviewing the record as a whole, a rational fact-finder could not find for the nonmoving party, summary judgment is appropriate since there is no genuine issue of material fact for determination at trial. On the other hand, if a reasonable jury could return a verdict for the nonmoving party, summary judgment for the moving party is inappropriate. Baynes v. Cleland, 799 F.3d 600, 606 (6th Cir. 2015) (citing Anderson, 477 U.S. at 248.

         When the movant requests the Court to make a purely legal determination, it need not delve into factual disputes. See, e.g., Chernin v. Welchans, 641 F.Supp. 1349, 1358 (N.D. Ohio 1986) (factual disputes are not “material” where determination of the constitutionality of a law on its face is a legal, not factual, determination).

         II. Analysis.

         The Court's analysis of Plaintiffs' Motions begins with the CSA itself and the DEA's implementing regulations. The Court then examines case law applying this statute and regulations. Because the parties cite them, the Court also reviews two letters issued by the DEA that discuss the CSA and the DEA's regulations; but the Court does not rely upon these letters to determine what duties the law imposes upon the defendants. The Court also re-adopts more fully Discovery Ruling No. 12 in this case, which examined earlier in this case (in a different context) the duties imposed upon Defendants under the CSA.

         Finally, at the end of this Order, the Court examines what the Defendants actually did compared to what the law requires.

         A. CSA Statutory and Regulatory Framework.

         The CSA requires all manufacturers and distributors of certain controlled substances to register with the DEA. See 21 U.S.C. §§ 822, 823. Under Section 823, the DEA shall register an applicant unless it determines that issuing the registration is “inconsistent with the public interest.” 21 U.S.C. §§ 823(b), (d), and I. In addition, the DEA may revoke a registration upon finding that the registrant has committed acts that would render its registration “inconsistent with the public interest.” 21 U.S.C. § 824(a)(4).

         In determining the public interest, the DEA Administrator considers the following factors:

(21) maintenance of effective control against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels;
(2) compliance with applicable State and local law;
(3) prior conviction record of applicant under Federal or State laws relating to the manufacture, distribution, or dispensing of such substances;
(4) past experience in the distribution of controlled substances; and
(5) such other factors as may be relevant to and consistent with the public health and safety.

21 U.S.C. §§ 823(b), (d), and (e).[1]

         The CSA authorizes the DEA “to promulgate rules and regulations . . . relating to the registration and control of the manufacture, distribution, and dispensing of controlled substances….”[2] 21 U.S.C. § 821. Pursuant to this authorization, the DEA has promulgated regulations that set forth security requirements for registered manufacturers, distributors, and dispensers of controlled substances. See 21 C.F.R. §§ 1301.71-77. Sections 1301.71 and 1301.74 apply to plaintiffs' arguments in this case.[3] Specifically, Section 1301.71(a) states as follows:

All applicants and registrants shall provide effective controls and procedures to guard against theft and diversion of controlled substances. In order to determine whether a registrant has provided effective controls against diversion, the Administrator shall use the security requirements set forth in §§ 1301.72 1301.76 as standards for the physical security controls and operating procedures necessary to prevent diversion. * * *

21 C.F.R. § 1301.71(a).[4]

         Section 1301.74(b) states as follows:

The registrant shall design and operate a system to disclose to the registrant suspicious orders of controlled substances. The registrant shall inform the Field Division Office of the Administration in his area of suspicious orders when discovered by the registrant. Suspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.

21 C.F.R. § 1301.74(b).

         B. Case Law.

         1. DEA ruling in Southwood Pharmaceuticals.

         In 2007, the DEA Deputy Administrator issued an administrative decision and final order revoking the registration of Southwood Pharmaceuticals, Inc. to manufacture controlled substances. See Southwood Pharmaceuticals, Inc., 72 Fed. Reg. 36487-01, 36498, 2007 WL 1886484 (DEA July 3, 2007). In December of 2005, Southwood had begun selling large quantities of hydrocodone to internet pharmacies, many of which were dispensing illegal prescriptions for controlled substances. Id. at 36488-36491. At the time, Southwood did not re-evaluate its criteria and procedures to determine whether these orders were suspicious; without inquiring into the nature of their internet businesses, Southwood sold its new customers large quantities of hydrocodone. Id. at 36496. Moreover, after learning substantial information which raised serious doubt as to the legality of their businesses, Southwood continued to supply extraordinarily large quantities of hydrocodone to these internet pharmacies. Id. at 36498-36500.

         The Deputy Administrator found that Southwood's due diligence efforts were “wholly deficient.” Id. at 36498. Specifically, the Deputy Administrator found that Southwood “failed miserably to conduct adequate due diligence” and “did not stop selling to any of its internet pharmacy customers while it investigated the legitimacy of their [business] activities.” Id. at 36500. Based on Southwood's inadequate due diligence measures and repeated failure to report suspicious orders, the Deputy Administrator concluded that to allow Southwood's registration to continue would be “inconsistent with the public interest.” Id. at 36500-36501 (quoting 21 U.S.C. § 824(a)(4)). The DEA revoked Southwood's registration to distribute controlled substances because its distribution was not, in fact, adequately “controlled.”

         2. DEA ruling in Masters Pharmaceutical (“Masters I”).

         In 2015, the DEA Acting Administrator issued an administrative order revoking the registration of Masters Pharmaceutical, Inc. to distribute controlled substances. See Masters Pharmaceutical, Inc. (“Masters I”), 80 Fed. Reg. 55418-01, 2015 WL 5320504 (DEA Sept. 15, 2015). Over the course of several years, Masters had repeatedly ignored and failed to investigate or report hundreds of suspicious orders and continued to ship them anyway. See Id. at 55426-55472. Based on its “wholesale failure” to comply with the requirements of Section 1301.74(b), the Acting Administrator found that Masters had committed acts that rendered its registration “inconsistent with the public interest.” Masters I, 80 Fed. Reg. 55418-01, 55501 (quoting 21 U.S.C. § 824(a)(4)).

         The Acting Administrator found that, in Southwood, the DEA had made clear to registrants that to comply with the duty to maintain effective controls against diversion, a distributor must perform due diligence on its customers. Masters I, 80 Fed. Reg. 55418-01, 55477 (citing Southwood, 72 Fed. Reg. 36487-01, 36, 498). The Acting Administrator further found that, when a registrant has obtained information that an order is suspicious, but chooses to ignore that information and fails to report the order, it violates its duties under Section 1301.74. See Masters I, 80 Fed. Reg. 55418-01, 55478. And while a distributor may perform due diligence and properly conclude that an order initially flagged as suspicious is not suspicious after all, in order to render the order non-suspicious and exempt the distributor from the DEA's mandatory reporting and no-shipping requirements, “the investigation must dispel all red flags indicative that a customer is engaged in diversion.” Id. In other words, if, after investigating, the distributor has “any remaining basis to suspect that a customer is engaged in diversion, ” it must deem the order suspicious, inform the DEA, and decline to ship the order. Id.

         3. D.C. Circuit ruling in Masters Pharmaceutical (“Masters II”).

         Masters petitioned the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) to review the DEA's ruling. See Masters Pharmaceutical, Inc. v. DEA (“Masters II”) 861 F.3d 206 (D.C. Cir. 2017). Specifically, Masters asserted the Acting Administrator had effectively amended the CSA regulatory scheme by adding a new “ No-Shipping Requirement” to the list of security requirements in Sections 1301.71 to 1301.76. See Masters, 861 F.3d at 221-222. The D.C. Circuit disagreed. It found that in Southwood, the DEA had first articulated the No-Shipping Requirement, which “mandates that pharmaceutical companies exercise ‘due diligence' before shipping any suspicious order.” Id. at 221-22.

         In reviewing security requirements regarding the maintenance of effective controls against diversion, the D.C. Circuit found that a distributor must comply with two obligations. First, under Section 1301.71(a), it must: (a) “design and operate a system” to identify “suspicious orders of controlled substances” (known as a “Suspicious Order Monitoring System, ” or “SOMS”), and (b) report those orders to the DEA - this is the Reporting Requirement. See Masters II, 861 F.3d at 212. Second, once a distributor has reported a suspicious order, it must either: (1) decline to ship it; or (2) hold the order and conduct some “due diligence” - this is the No-Shipping Requirement. Id. If a distributor chooses the latter due diligence option, and it is able to determine the order is not likely to be diverted into illegal channels, it may then go ahead and ship the order. Id. at 212-213 (citing Southwood, 72 Fed. Reg. 36487-01, 36, 500). Conversely, if a distributor conducts due diligence but is unable to determine the order is not likely to be diverted into illegal channels, it must decline to ship the order. See id.

         C. DEA Letters.

         1. Letter dated September 27, 2006.

         On September 27, 2006, the DEA sent all registered distributors a letter “to reiterate the responsibilities of controlled substance distributors in view of the prescription drug abuse problem our nation currently faces.” Pls. MSJ on CSA Duties, Ex. B (Doc. #: 1887-4). The letter stressed the importance of distributors' responsibility to maintain appropriate safeguards against diversion. See Id. at 1-2. Specifically, it stated the requirement to report suspicious orders under Section 1301.74(b) was in addition to and not in lieu of the statutory requirement to maintain effective controls against diversion, which included a duty to “exercise due diligence to avoid filling suspicious orders that might be diverted.” Id. at 2.

         The letter further stated as follows:

It bears emphasis that the [regulatory] reporting requirement is in addition to, not in lieu of, the general requirement . . . that a distributor maintain ...

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