Like pharmaceutical and medical device manufacturers, it is not surprising that compounding pharmacies facing personal injury/products liability litigation prefer the typically more defense-friendly federal arena over the often more challenging (to put it mildly) state court system.  But as today’s case demonstrates, that may not be the easiest path for compounders to follow.

The case is Cruz v. Preferred Homecare, 2014 U.S. Dist. LEXIS 132647 (D. Nev. Sep. 22, 2014) and it involves a horrific set of facts involving the death of a minor.  The decedent was born with a condition known as gastroschisis which required she be treated with Total Parental Nutrition (“TPN”).   Id. at *2.  TPN is used for patients who cannot get sufficient nutrition through eating.  It is a solution administered intravenously and contains a combination of sugar and carbohydrates, proteins, lipids, and electrolytes.  In this case, decedent’s physician would prescribe TPN by designating both an overall volume and a specific percentage of each substance.  Id.  It was the job of the compounding pharmacist to calculate the percentages into grams.  Id.   The complaint alleges that in 2011 decedent received an overdose of dextrose causing her glucose levels to rise so high that she went into fatal cardiac arrest.  Id. at *3.

In 2012, plaintiff sued both the compounding pharmacy and the individual pharmacists who were involved in some capacity with decedent’s TPN alleging negligence, breach of implied warranty and strict products liability.  Id. at *4.  The pharmacy removed the case to federal court alleging both federal question and diversity jurisdiction.

The dates above are important because the issue of federal question jurisdiction is wrapped up in the convoluted history of federal regulation of compounding pharmacies.  The FDA was first given regulatory power over compounding pharmacies in 1997 when Congress passed the Food and Drug Administration Modernization Act (“FDAMA”).  Id. at *6.  In 2001, certain provisions of FDAMA were held unconstitutional and because those provisions were not severable, the entire act was invalidated.  Id. at *6-7.  In 2002, FDA issued a guidance to the compounding industry regarding what types of compounding might be subject to FDA regulation.  Id. at *7 n.2.  But it wasn’t until 2013 that Congress passed legislation affirmatively creating federal regulatory power over compounding pharmacies.  Id. at *7.  To sum it up, that means that between 2002 and 2013 “there was no federal statute in effect that expressly provided for the FDA to regulate compounding pharmacies.”  Id.

To establish federal question jurisdiction, defendants need to satisfy the Grable factors (Grable & Sons Metal Prods., Inc. v. Darue Eng’g. & Mfg., 545 U.S. 308 (2005):  that the claim necessarily raises a federal issue, that is both actually disputed and substantial, and that is capable of resolution in federal court without disturbing Congress’s federal-state balance.  Id. at *5. Because it is undisputed that there was no statute conferring federal regulatory power over compounding pharmacies in either 2011 or 2012, defendant instead argued that “there is a substantial federal interest at stake because Congress and the FDA have repeatedly expressed their intent to monitor and oversee compounding pharmacies.”  Id. at *8.  The court found that at best, intent to regulate goes to whether the federal issue is substantial; which left unsatisfied the first Grable factor – that a federal issue is “necessarily raised.”  Id.

Simply because compounding pharmacies are subject to FDA regulation and legislation are not enough – but we know that from the pharmaceutical and device industry already.  The 10-year absence of statutory authority for compounders only makes this an even more difficult argument.

Unfortunately for compounding pharmacies, they also face more difficult obstacles in establishing diversity jurisdiction. One of the ways plaintiffs attempt to avoid removal is by naming local sales representatives as defendants.   But as we know, manufacturers have a fairly good track record of successfully arguing these defendants are fraudulently joined.  Why?  Because in the overwhelming majority of cases, there is no there there. That is there is no basis for potential liability against the sales representatives separate and apart from the manufacturer.   Just think about the role of the sales representative in most cases and the fraudulent joinder becomes obvious.  They are employees who market the product under strict corporate and federal guidelines.  The representative doesn’t actually sell or typically even handle the product that the plaintiffs had allegedly used. The representative likewise has no involvement in preparing the FDA-approved prescribing information and warnings that accompanies all prescription drugs/devices.  So, it is easy for courts to conclude that their presence in lawsuits is nothing more than a tactic to avoid diversity.

The role of pharmacists in compounding cases is actually quite different.  First, they are directly involved in preparing the product that is used by the plaintiff.  Second, they do sell the product to the plaintiff.  Presumably, they have direct interaction with the plaintiff.  In this particular case, the allegations were that the defendant-pharmacists 1) noted the problem with the TPN calculations shortly before it was administered but failed to take corrective action, 2) prepared the actual TPN that was administered, and 3) were responsible for monitoring the decedent’s blood glucose.  Id. at *3-4.  We aren’t saying that there isn’t an argument that plaintiff’s claims aren’t more properly brought against the compounding pharmacy rather than the pharmacist-employees – but the argument that there is no potentially viable claim isn’t nearly as strong as in the case of a sales representative.  Given that defendant bears the “heavy burden” of proving fraudulent joinder, the court’s decision to remand isn’t astounding.  Unfortunate, but not astounding.