On October 14, 2015, Masters Pharmaceutical, Inc. successfully persuaded the U.S. Circuit Court of Appeals for the District of Columbia to press pause on the Drug Enforcement Administration's (DEA) Order to revoke Masters’ Certificate of Registration. Almost exactly one month prior, on September 15, 2015, the DEA issued a sweeping decision that overturned the recommended decision of the agency's own Administrative Law Judge, and revoked Masters’ registration based in part on, what appear to be, new interpretations of what is required to be reported to the DEA as a suspicious order. But on the eve of the Final Order's effective date, the D.C. Circuit Court of Appeals granted Masters’ Emergency Motion for Stay Pending Review, thus stalling the effective date of the DEA’s Final Order and opening the door to the possibility that clarity from the Court is on the horizon.
In deciding stay motions, the court considers four factors: 1) whether the stay applicant has demonstrated a likelihood of success on the merits; 2) whether the applicant will be irreparably harmed in the absence of a stay; 3) whether the granting of a stay will substantially harm other interested parties; and 4) service to public interest. Masters’ articulation of its likelihood to succeed on the merits carries pertinent relevance for the broader distributor industry for two reasons: 1) it offers a discussion of duties that the DEA imposes on distributors which, according to Masters, exceed applicable regulations; and 2) it highlights the utility of releases from the DEA based on prior settlement agreements between a registrant and DEA.
As part of its four-part argument explaining why it was likely to succeed on the merits, Masters alleged that the DEA’s Final Order imposed duties on distributors that went beyond those outlined in applicable regulations. According to Masters, the Final Order held that “Masters had a duty to perform significant due diligence on its customers, avoid filing suspicious orders, and resolve (with documentation) all potential red flags of diversion at the pharmacy level.” This, Masters argued, stepped outside the scope of distributor compliance obligations under the Controlled Substances Act (CSA), which Masters recited to further bolster its claims.
The DEA is required to consider whether a distributor maintains effective controls against the diversion of controlled substances into illegitimate channels when deciding whether revocation is appropriate (21 U.S.C. § 823[b], [e]). In determining whether a registrant maintains effective controls against diversion, the DEA must consider the requirements imposed under 21 C.F.R. §§ 1301.72-1301.76, which delineate the appropriate standards for the physical security controls and operating procedures. But Masters argued the DEA administrator went a step too far in holding that the specific steps distributors must follow in order to comply with the effective controls requirement also include a requirement to verify the legitimacy of each order deemed suspicious and/or avoid filling those suspicious orders. Instead, Masters interpreted the CSA and applicable DEA regulatory requirements to obligate a distributor 1) make a “good faith inquiry” into the validity of a customer’s DEA and state registration; and 2) operate a system to identify suspicious orders and inform the DEA of such orders.
Another distinguishing factor Masters presented in its four-part argument explaining why it was likely to succeed on the merits related to the 2009 Agreement which, Masters alleged, served as a complete release of prior administrative claims and liability. This point is pivotal to Masters’ fundamental argument because it criticizes the DEA administrator for considering information received and conduct performed by Masters prior to the 2009 Agreement. The functional utility of this Agreement, according to Masters, was to relieve and release Masters from liability for conduct prior to 2009.
Quoting the language of the administrator’s Final Order, Masters highlights the DEA administrator’s finding that Masters failed to acknowledge information obtained prior to 2009 and consequently failed to report hundreds of suspicious orders placed at seven pharmacies. Masters characterized this rationale as a breach of the terms of its 2009 Agreement. By relying on due diligence information gathered prior to 2009, the DEA administrator based, at least in-part, his ultimate holding on conduct from which Masters believed it had been released by the DEA in the 2009 agreement.
With the D.C. Court granting Masters’ Emergency Stay Pending Review the day before the revocation was to take effect, Masters retains its DEA registration, which it claimed was critical to maintaining access to the line of credit on which, according to Masters, its operation is predicated.
If the granting of a stay is a harbinger of Masters’ ultimate success, how far will the D.C. Circuit Court of Appeals go in addressing the numerous issues in this case? Did the DEA violate the APA and impose requirements on registrants without notice and comment rulemaking? Standing alone, is a registrant's failure to accept responsibility when faced with allegations a sufficient basis for revocation of a registration? Is a failure to abide by SOPs which call for conduct not required by regulations a basis for revocation? How far can the administrator go in re-assessing the facts of the case and making credibility determinations which are contrary to the ALJ's findings?