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Neil Laboratories, Inc. v. Ashcroft

August 29, 2002


The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document Nos.: 13, 15, 16




This agency-review matter is before the court on the plaintiff's and defendants' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56(c). Neil Laboratories ("Neil Labs" or "the plaintiff"), brought this suit alleging that John Ashcroft, acting in his official capacity as the U.S. Attorney General; the Department of Justice; Asa Hutchinson, acting in her official capacity as Administrator of the Drug Enforcement Agency; and the Drug Enforcement Agency (collectively, "the DEA" or "the defendants") wrongfully suspended Neil Labs' registration to sell List I chemicals under the Controlled Substances Act ("CSA"), 21 U.S.C. § 801 et seq. The plaintiff, in its motion for summary judgment, argues that the DEA's action violated the Administrative Procedure Act ("APA"), 5 U.S.C § 701 et. seq., the CSA, and the Fifth Amendment. For the reasons that follow, the court affirms the DEA's decision, grants the defendants' cross-motion for summary judgment, and denies the plaintiff's motion for summary judgment.


Neil Labs was a registered manufacturer and distributor of List I chemicals, including ephedrine and pseudoephedrine. Defs.' Material Facts ¶ 7. Between February 1999 and April 2001, the DEA issued 29 warning letters to Neil Labs identifying various instances in which pseudoephedrine tablets sold by Neil Labs had been diverted to illicit methamphetamine production.*fn2 Id. ¶ 14. During this period the DEA also reviewed Neil Labs' customer list and discovered that the DEA had taken enforcement action against 18 out of the 45 distributors that Neil Labs served across the nation.*fn3 Id. ¶ 18 (citing Suspension Order ¶¶ 8-12). Consequently, Neil Labs became a subject of the DEA's nationwide "Operation Mountain Express III," an investigation into the diversion of chemicals for the manufacture of methamphetamine. Id. ¶¶ 29, 32.

The DEA's investigation focused on Mantu Patel, a Neil Labs employee and the brother of Neil Labs' President and Chief Executive Officer, Bharat Patel. Id. ¶¶ 21, 32-41. In 2000, Neil Labs identified Mantu Patel as one of seven "key personnel." Id. ¶ 22.

He was one of the four original incorporators of Neil Labs in 1990, was the company's fourth largest shareholder, and served as Neil Labs' Plant Manager. Id. ¶¶ 23-25. Mantu Patel was also the second highest paid employee after Bharat Patel's wife. Id. ¶ 26.

In January 2001, the DEA developed a confidential source ("CS") who provided important intelligence regarding Neil Labs' distribution practices. Id. ¶ 32. Also, after negotiated with the CS, Mantu Patel shipped listed chemicals to the CS by secreting the listed chemical in two shipments of non-controlled substances. *fn4 Id. ¶ 37. Neil Labs does not dispute that Mantu Patel twice shipped listed chemicals to the CS in this manner. Pl.'s Resp. ¶ 37.

In July 2001, the DEA intercepted a shipment from Neil Labs, in which a bag containing about four kilograms of a listed chemical was labeled as a non-listed chemical and secreted within the non-listed chemicals. Suspension Order ¶ 19; Defs.' Material Facts ¶ 37.

Between May and November 2001, the DEA received four requests to import shipments of listed products from several foreign companies on behalf of Neil Labs. Defs.' Material Facts ¶¶ 54-57. The DEA alleges that it approved these requests and delayed issuing a suspension order against Neil Labs in an attempt to advance its criminal investigation by further monitoring Neil Labs' distribution practices. Id. ¶ 58.

In early September 2001, the CS informed Bharat Patel that he planned to sell List I products to Mexican drug dealers, though the exact nature of this conversation is a bit unclear. Id. ¶ 38. Two weeks after this conversation, the DEA renewed Neil Labs' registration to manufacture and distribute List I chemicals, including ephedrine and pseudoephedrine. Id. ¶ 43; Compl. ¶ 22. On January 7, 2002, the CS held a final conversation with Bharat Patel to discuss the sale of pseudoephedrine. Defs.' Material Facts ¶ 39. During this conversation, Bharat Patel informed the CS that Mantu Patel would not be involved in the negotiations. *fn5 Id. The DEA's investigation culminated on January 16, 2002 when the DEA issued an Order to Show Cause and Immediate Suspension of Registration ("Suspension Order"). Id. ¶ 59. The Suspension Order suspended Neil Labs' DEA registration to manufacture and distribute products containing ephedrine and pseudoephedrine, explaining that "Neil Labs' continued registration . . . would constitute an imminent danger to public health and safety because of the substantial likelihood that Neil Labs will continue distributing ephedrine and pseudoephedrine ultimately to purchasers who use these products in the illicit manufacture of methamphetamine." Suspension Order at 6.

Neil Labs filed its complaint in this case on March 6, 2002 and on the following day filed a motion for a preliminary injunction. Subsequently, however, the parties agreed to consolidate the merits with the preliminary injunction issue. Order dated Mar. 22, 2002; Defs.' Mot. for Summ. J. at n.1. Neil Labs now moves fo r summary judgment, asking the court to determine that in issuing the Suspension Order, the DEA violated the APA and the CSA. Pl.'s Opp'n at 10. The DEA filed a ...

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