Opinion
NO. CV-11-0167-EFS.
May 6, 2011
ORDER GRANTING TEMPORARY RESTRAINING ORDER AND SETTING PRELIMINARY INJUNCTION HEARING
A hearing occurred in the above-captioned matter on May 4, 2011, in Spokane, Washington. Jeffrey Bornstein, Leeanne Hartmann, and Todd Reuter appeared on Plaintiff Bates Drug Stores, Inc.'s ("Bates") behalf. Andrew Biviano and Larry P. Cote appeared on behalf of Defendants Eric H. Holder, Jr., Michelle M. Leonhart, and the Drug Enforcement Administration ("DEA"), who received notice of the lawsuit and instant motion. Before the Court was Plaintiff's Motion for Temporary Restraining Order (ECF No. 3 ), filed April 27, 2011. Bates seeks a temporary order preventing Defendants from enforcing a March 30, 2011 order ("Suspension Order") (ECF No. 1, Ex. 1) that immediately suspended Bates' registration to distribute controlled substances. The DEA opposes the motion. After reviewing the submitted material and relevant authority and hearing from counsel, the Court was informed and granted Bates' motion. This Order memorializes and supplements the Court's oral rulings.
A. Background
Bates is comprised of two small employee-owned pharmacies operating in Spokane, Washington: one pharmacy serves "retail" customers (such as individuals and physicians), while the other serves institutions such as long-term care facilities. Both are registered with the DEA to dispense controlled substances in Schedules II-IV of the Controlled Substances Act, 21 U.S.C. § 801 et seq. ("CSA"), and thus are subject to DEA regulation and oversight.
The CSA establishes controls on import, export, manufacture, and distribution of controlled substances. 21 U.S.C. § 801 et seq.; 21 U.S.C. § 951 et seq. The CSA requires all controlled substance distributors to register with the DEA. Id. § 822; see also 21 C.F.R. § 1301.11 (DEA regulations requiring registration). The DEA has the authority to revoke such registration if, for example, the registrant acts in a manner inconsistent with the public interest. 21 U.S.C. § 824(a) (articulating five grounds for revoking or suspending a registration). Before suspending or revoking the registration, the DEA must issue an order to show cause setting forth the DEA's basis for initiating proceedings and provide an administrative hearing not less than thirty days after the date the show-cause order was served. Id. § 824(c).
The DEA may, in its discretion, suspend any registration immediately (before any administrative hearing), if it finds that a registrant's continued registration would pose "an imminent danger to the public health or safety." Id. § 824(d). As with § 824(a) suspensions, the DEA must provide a basis for its suspension in the order to show cause. Id.; 21 C.F.R. § 1301.36(e). A § 824(d) suspension remains in effect until the DEA issues a final order unless the suspension is withdrawn by the Attorney General or dissolved by a court of competent jurisdiction. 21 U.S.C. § 824(d).
On November 15-18, 2010, the DEA investigated and audited Bates' pharmacies. On March 30, 2011, the DEA issued a Suspension Order, immediately suspending Bates' registrations based on the belief that Bates' continued registration constituted an imminent danger to the public health and safety. In response, Bates submitted a hearing request to the Office of Administrative Law Judges (ALJ) on April 11, 2011, for review of the DEA's suspension and issuance of a final order.
The ALJ granted Plaintiff's request and set hearings on April 27, 2011, and May 10, 2011. The parties anticipate the proceedings will conclude with the issuance of a final order in August 2011.
On April 27, 2011, Bates filed this action, challenging the Suspension Order as arbitrary, capricious, or inconsistent with law, and seeking to permanently enjoin the DEA from enforcing it. The instant motion was filed the same day.
B. Discussion
Bates asks the Court to issue a temporary restraining order to temporarily enjoin the DEA from enforcing the Suspension Order pending the outcome of a preliminary injunction hearing. A temporary restraining order may be issued to maintain the status quo if a plaintiff establishes he is "likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, 129 S. Ct. 365, 374 (2008). The Ninth Circuit uses a "sliding scale" under which the temporary restraining order may be issued if there are serious questions going to the merits and the balance of hardships tips sharply in the plaintiff's favor, along with satisfaction of the two other Winter factors. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011).
The Court finds, on the brief record before it, that this standard has been met. First, Bates is likely to suffer irreparable harm in the absence of a temporary injunction enjoining the DEA's enforcement of the Suspension Order. Plaintiff will likely suffer harm in the form of lost revenue, harm to reputation and goodwill, fees and costs to remedy DEA findings, inability to obtain financing, and loss of third-party insurance providers. This harm is not speculative: Plaintiff's revenue dropped twenty percent (20%) in the first twenty (20) days following the Suspension Order, which translates to approximately $70,000 loss in gross profits and $50,000 loss in net profits each month. (ECF No. 7, p. 2-3.) A third-party billing provider already exercised its right to terminate its contract with Bates based on its license suspension. (ECF No 9, Ex. D.) Bates' president and CEO Robert Cordier insists layoffs are imminent. (ECF No. 9, p. 10.) The evidence shows that the Suspension Order threatens Bates' very existence. Accordingly, irreparable harm is likely.
Second, Bates demonstrated serious questions relating to whether the DEA's finding of an imminent danger in its Suspension Order is arbitrary, capricious, or inconsistent with law. Under the Administrative Procedure Act (APA), the Court may set aside agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." 5 U.S.C. § 706(2)(a). The Court must determine whether there is a rational connection between the underlying facts and the agency's decision. See Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962). As such, the Court's review of the facts is limited to the record before it at the time of the agency decision. Beno v. Shalala, 30 F.3d 1057, 1074 (9th Cir. 1994).
In reviewing agency action, the Court is not authorized to "substitute its judgment for that of the agency" but must "consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971).
Here, the Court cannot consider the administrative record because one does not exist. And while the Suspension Order identifies numerous CSA violations discovered by DEA investigators at the pharmacies, it lacks specific facts demonstrating how those alleged violations were committed. Yet investigative sources confirm that Bates regularly accepted returns of controlled substances from its customers and then re-dispensed the controlled substances to others. (ECF No. 33-1, Ex. A, ¶ 16-19.) They also advise that Bates maintains inaccurate records and does not notify the DEA when it destroys returned controlled substances. Id. ¶ 20. On one occasion, Bates delivered a controlled substance to a long-term care facility in order to help the facility account for a shortage of tablets. Id. ¶ 13. Several additional record-keeping and prescription irregularities were discovered during the course of the investigation.
These include accepting returns of controlled substances from long-term care facilities, dispensing controlled substances to patients via prescriptions that did not contain all essential elements, refilling prescriptions for Schedule II controlled substances, dispensing controlled substances before the prescription's issue date, repackaging and re-labeling controlled substances without being registered as a manufacturer, dispensing controlled substances to individual practitioners for their general office supply, failing to maintain prescriptions for controlled substances, failing to provide effective controls to guard against theft and diversion of controlled substances, and failing to maintain several required record keeping practices. (ECF No. 1, Ex. 1.)
The Court understands these practices can result in the illegal diversion, theft, tampering with, or unintended dispensing of dangerous and addictive controlled substances to the general public for improper use. Nothing in the record demonstrates that any of those dangerous consequences occurred here. Additionally, the Court has serious doubts that the alleged violations, which Bates has been diligently working to correct, pose an imminent danger to public health and safety. There is nothing in the record indicating that any Bates patient has been harmed or injured by the alleged violations. Nor is there any evidence that any controlled substance was dispensed to an improper individual, for an improper purpose, or in an improper dosage. Rather, the evidence shows that, despite these violations, the pharmacy acted with intent to provide quality care to its patients. On this record, the Court finds that serious questions exist as to whether the Suspension Order supports a finding that Bates' practices posed an imminent danger to the public health and safety. Accordingly, the Bates had demonstrated a likelihood of success on the merits.
After the November 2010 DEA audit, Bates hired an independent consultant and developed and implemented policies and procedures to remedy the DEA's concerns. (ECF No. 9, pp. 3-6.)
Third, the balance of equities tips sharply in Bates' favor. The public has an interest in the DEA's continued diligent regulation of controlled substances, particularly those narcotics with street value. However, the Suspension Order was not issued in the abstract: it impacts the lives of countless human beings. Bates' interest in providing continued care to its customers in need of medicine, employment to its employees, and support to patients in long-term care and assisted-living facilities tips the balance of equities in Bates' favor.
Fourth, a temporary restraining order is in the public interest. As discussed, Bates was acting in the public interest to provide medical support for its patients. The alleged violations, although serious, are nevertheless correctable and have not harmed any customer, patient, or member of the public. As recognized above, the health and livelihood of countless individuals — both employees and patients — depend on Bates. Continuation of the Suspension Order would have an irreparable effect on all those people and, thus, a temporary restraining order is in the public interest.
C. Conclusion
For the reasons set forth above, the Court grants Plaintiff's request for a temporary restraining order. Accordingly, IT IS HEREBY ORDERED:
1. Plaintiff's Motion for Temporary Restraining Order (ECF No. 3) is GRANTED.
2. Plaintiff shall immediately post a $1,000.00 bond with the Clerk's Office.
3. Defendants shall immediately return any registrations, licenses, or forms required to make this temporary restraining order effective.
4. Until the Court rules on the Motion for Preliminary Injunction or fourteen (14) days, whichever is earlier, Defendants are enjoined from enforcing the March 30, 2011 Suspension Order that immediately suspended Bates' registration to distribute controlled substances (ECF No. 1, Ex. 1).
5. A preliminary injunction hearing is SET for Wednesday, May 18, 2011, at 9:00 a.m. in SPOKANE.
6. NO LATER THAN Monday, May 9, 2011, at 12:00 p.m., the parties shall meet and confer and file a report setting forth any matters to be addressed before or at the May 18, 2011 hearing.
IT IS SO ORDERED. The District Court Executive is directed to file this Order and provide copies of this Order to counsel.