*fn14,The opinion of the court was delivered by: Reggie B. Walton United States District Judge,CARDINAL HEALTH, INC., PLAINTIFF, v. ERIC H. HOLDER, JR., ET AL., DEFENDANTS." />

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Cardinal Health, Inc v. Eric H. Holder

March 7, 2012 *fn14


The opinion of the court was delivered by: Reggie B. Walton United States District Judge


Plaintiff Cardinal Health, Inc. ("Cardinal") brings this action under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551-706 (2006), challenging an Order to Show Cause and Immediate Suspension of Registration issued by the Drug Enforcement Administration ("DEA") on February 2, 2012, with respect to Cardinal's drug distribution facility in Lakeland, Florida. Complaint and Prayer for Declaratory and Injunctive Relief ("Compl.") ¶ 1. The case came before the Court on February 29, 2012, on Cardinal's motion for a preliminary injunction ("Cardinal's Mot."). Upon careful consideration of the parties' submissions and the arguments made by counsel at the first hearing on Cardinal's preliminary injunction motion on February 13, 2012, and the second hearing on February 29, 2012,*fn1 the Court, in accordance with the oral rulings issued at those hearings and for the reasons set forth below, concludes that Cardinal's motion for a preliminary injunction must be denied.


A. The Controlled Substances Act

The Controlled Substances Act ("CSA" or the "Act") and its implementing regulations create restrictions on the distribution of controlled substances. See 21 U.S.C. §§ 801-971 (2006);

21 C.F.R. §§ 1300-1321 (2009). The Act authorizes the DEA to establish a registration program for manufacturers, distributors, and dispensers of controlled substances designed to prevent the diversion of legally produced controlled substances into the illicit market. See 21 U.S.C. §§ 821, 822. Any entity that seeks to become involved in the production or chain of distribution of controlled substances must first register with the DEA. 21 U.S.C. § 822; 21 C.F.R. § 1301.11.

Distributors of Schedule I or Schedule II drugs-controlled substances with a "high potential for abuse," 21 U.S.C. §§ 812(b), 812(2)(A)-(C)-must maintain "effective control against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels," id. § 823(b)(1). In addition, distributors that supply controlled substances to pharmacies must "design and operate a system to disclose to the [distributor] suspicious orders of controlled substances" and, in turn, disclose those suspicious orders to the DEA. 21 C.F.R. § 1301.74(b). "Suspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency." Id.

The DEA has authority to revoke or suspend a party's registration for a variety of reasons, including that a registrant "has committed such acts as would render his registration . . . inconsistent with the public interest." 21 U.S.C. § 824(a)(4). Generally, before suspending or revoking a registration, the DEA must issue an order to show cause containing its basis for the proceedings and provide an administrative hearing within 30 days. See id. § 824(c). DEA regulations direct that an "order to show cause shall . . . contain a statement of the legal basis for such hearing and for the denial, revocation, or suspension of registration and a summary of the matters of fact and law asserted." 21 C.F.R. § 1301.37(c).

However, in cases where the DEA has reason to believe that a registrant's continued operation would pose "an imminent danger to the public health or safety," it can suspend that party's registration immediately, prior to an administrative hearing, by issuing an immediate suspension order ("ISO"). See 21 U.S.C. § 824(d) ("The Attorney General [and the DEA Administrator by designation] may, in his [or her] discretion, suspend any registration simultaneously with the institution of proceedings under this section, in cases where he [or she] finds that there is an imminent danger to the public health or safety."). DEA regulations direct that "an order of immediate suspension . . . shall contain a statement of [the Administrator's] findings regarding the danger to public health or safety." 21 C.F.R. § 1301.36(e). An immediate suspension order under § 824(d) remains "in effect until the conclusion of such proceedings, including judicial review thereof, unless sooner withdrawn by the Attorney General or dissolved by a court of competent jurisdiction." 21 U.S.C. § 824(d).

B. Factual and Procedural Background*fn2

Cardinal is one of the nation's largest wholesale pharmaceutical drug distributors. Cardinal's Mot., Amended Declaration of Jon Giacomin ("Giacomin Decl.") ¶ 5. It was founded in 1971 and has been distributing pharmaceuticals since 1979. Id. At issue in this case is its distribution facility in Lakeland, Florida ("Cardinal Lakeland" or "Lakeland Facility"), which distributes Schedule II-V controlled substances. Id.

This is not the first time the DEA has taken enforcement action against Cardinal, or even against its Lakeland Facility. See Cardinal's Mot., Amended Declaration of Michael A. Mone ("Mone Decl.") ¶ 27. Between November 28, 2007, and December 7, 2007, DEA Administrator Michele Leonhart issued immediate suspension orders to three Cardinal facilities, one of which was the Lakeland Facility. Gov't's Suppl. Brief, Declaration of Michele M. Leonhart ("Leonhart Decl.") ¶ 13. Administrator Leonhart "concluded that the three facilities posed an imminent danger to public health or safety based on a DEA investigation revealing that Cardinal Lakeland failed to maintain effective controls against diversion." Id. (internal quotation marks and citation omitted). And on January 30, 2008, the DEA issued an order to show cause (but not an ISO) to revoke the registration of another Cardinal facility located in Stafford, Texas, again "based on the failure to maintain effective controls against diversion." Id. As a result of these allegations, Cardinal agreed to pay a civil fine of $34 million. Gov't's Opp'n at 9. Cardinal also entered into a Memorandum of Agreement with the DEA in which it agreed to "maintain a compliance program designed to detect and prevent [the] diversion of controlled substances as required under the CSA and applicable DEA regulations." Cardinal's Mot., Exhibit ("Ex.") 1 (Settlement and Release Agreement and Administrative Memorandum of Agreement ("MOA")) at 3.

As the backdrop of the action taken by the DEA that precipitated this case, the government asserts that the volume of oxycodone (a Schedule II drug) distributed to Cardinal Lakeland's top four retail customers-CVS Store 219, CVS Store 5195, Gulf Coast, and CareMed ("the four pharmacies")-has increased exponentially since the parties entered into the MOA in 2008. Gov't's Opp'n at 9. As a result, the government contends that the DEA repeatedly notified Cardinal of its need to exercise greater diligence at the Lakeland Facility to detect suspicious activity by its customers. Id. at 9-10. Cardinal then terminated distribution of controlled substances to Caremed on September 26, 2011, and Gulf Coast on October 5, 2011, but continued to distribute to the two CVS pharmacies. See Cardinal's Mot., Mone Decl. ¶¶ 42, 46.

On October 18, 2011, the DEA executed Administrative Inspection Warrants at the four pharmacies, after which both Gulf Coast and Caremed voluntarily surrendered for cause their DEA registrations. Gov't's Opp'n at 10. A few days later, on October 26, 2011, the DEA executed a warrant at Cardinal's Lakeland Facility to determine whether Cardinal "failed to report suspicious orders to the DEA." Id. On November 8, 2011, the DEA issued an administrative subpoena to Cardinal for information regarding its sales of oxycodone and other drugs as well as its compliance mechanisms. Id. Cardinal thereafter lowered its oxycodone distribution thresholds for CVS Store 219 on November 10, 2011, and CVS Store 5195 on December 16, 2011. Cardinal's Mot., Mone Decl. ¶ 46.

The government contends that "[t]he DEA's investigation of Cardinal and its top four retail customers revealed a staggeringly high and exponentially increasing rate of oxycodone distribution from the Lakeland facility." Gov't's Opp'n at 11. Based on these high volumes and information gleaned from its investigation of Cardinal and the four pharmacies, the DEA determined that "Cardinal failed to conduct meaningful due diligence to ensure that the controlled substances were not diverted into other than legitimate channels, including Cardinal's failure to conduct due diligence of its retail pharmacy chain customers." Id. Finding that this conduct violated Cardinal's obligations under the CSA and the 2008 MOA, and that Cardinal Lakeland's continued registration posed an "imminent danger to the public health and safety," the DEA issued an order to show cause and immediate suspension order to the Lakeland Facility on February 2, 2012. See Cardinal's Mot., Ex. A (Order to Show Cause and Immediate Suspension of Registration ("ISO")) ¶¶ 3-5.*fn3 After receiving the ISO on February 3, 2012, Cardinal temporarily suspended all sales (from any of its nationwide distribution centers) to the two CVS pharmacies. Cardinal's Mot., Mone Decl. ¶ 45.

Cardinal maintains that it has implemented a "comprehensive compliance program" designed to detect and prevent improper diversion. Compl. ¶ 23. As a result of this program, Cardinal asserts that it has suspended shipments of controlled substances to more than 375 customers since December 1, 2007, based on its belief that those shipments posed an unreasonable risk of diversion. Id. ¶ 25. Cardinal adds that it has pledged to cease distributing drugs to any pharmacy alleged to engage in improper diversion and has repeatedly requested information about such pharmacies from the DEA. Id. ¶ 29. Despite these requests, Cardinal contends that as recently as December 2011, the DEA has declined Cardinal's requests for the information. Id.

Upon receiving the ISO on February 3, 2012, Cardinal filed its complaint and motion for a temporary restraining order with this Court. Cardinal's complaint challenges the immediate suspension order under the APA on the grounds that it (1) was issued without statutory authority (Count I), Compl. ¶¶ 46-52; (2) denied Cardinal of its constitutional right to due process of law (Count II), id. ¶¶ 53-58; (3) was arbitrary and capricious (Count III), id. ¶¶ 59-63; and (4) contained inadequate findings to justify an immediate suspension (Count IV), id. ¶¶ 64-69.

After holding a hearing on February 3, 2012 (which counsel for the government did not attend),*fn4 the Court granted Cardinal's motion for a temporary restraining order. See February 3, 2012 Order, Cardinal Health, Inc. v. Holder, Civil Action No. 12-185 (RBW) (D.D.C.). Cardinal thereafter moved for a preliminary injunction on February 6, 2012, seeking to enjoin enforcement of the ISO pending resolution of the administrative proceedings before the DEA. After holding a hearing on Cardinal's motion on February 13, 2012, the Court remanded this case to the DEA "for compilation of an administrative record and further explanation of the factual circumstances that were actually considered by the agency as support for the issuance of the immediate suspension order to Cardinal Health's Lakeland Facility on February 2, 2012." February 16, 2012 Order at 1, Cardinal Health v. Holder, Civil Action No. 12-185 (RBW) (D.D.C.). Following this remand and in accordance with the Court's instructions, the government submitted to the Court an administrative record and a declaration from DEA Administrator Michele Leonhart purporting to explain the circumstances considered by the agency as support for the issuance of the ISO. The parties appeared before the Court for another hearing on February 29, 2012, at the conclusion of which the Court denied Cardinal's motion for a preliminary injunction.*fn5 This memorandum opinion memorializes the oral rulings made by the Court at the hearings on February 13 and February 29, 2012, and explains further the reasons for the Court's remand to the DEA as well as its denial of Cardinal's motion for a preliminary injunction.


"'A plaintiff seeking a preliminary injunction must establish [1] that [it] is likely to succeed on the merits, [2] that [it] is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in [its] favor, and [4] that an injunction is in the public interest.'" Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011) (quoting Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)) (some alterations in original). Because it is "an extraordinary remedy," a preliminary injunction "should be granted only when the party seeking the relief, by a clear showing, carries the burden of persuasion." Cobell v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)).

The District of Columbia Circuit has applied a "sliding scale" approach in evaluating the preliminary injunction factors. Sherley, 644 F.3d at 392. Under this analysis,

[i]f the movant makes an unusually strong showing on one of the factors, then it does not necessarily have to make as strong a showing on another factor. For example, if the movant makes a very strong showing of irreparable harm and there is no substantial harm to the non-movant, then a correspondingly lower standard can be applied for likelihood of success. . . . Alternatively, if substantial harm to the non-movant is very high and the showing of irreparable harm to the movant very low, the movant must demonstrate a much greater likelihood of success. It is in this sense that all four factors must be balanced against each other.

Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1291-92 (D.C. Cir. 2009) (internal quotation marks and citations omitted).*fn6


A. Irreparable Injury

The Circuit "has set a high standard for irreparable injury." Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006). "First, the injury 'must be both certain and great; it must be actual and not theoretical.'" Id. (quoting Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985) (per curiam). To meet this standard, the injury must be "of such imminence that there is a 'clear and present' need for equitable relief to prevent irreparable harm." Id. (citation omitted). "Bare allegations of what is likely to occur are of no value since the court must decide whether the harm will in fact occur." Wisconsin Gas Co., 758 F.2d at 674 (emphasis in original). In addition, "the injury must be beyond remediation." Chaplaincy, 454 F.3d at 297. As the Circuit has explained:

The key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation weighs heavily against a claim of irreparable harm.

Id. (quoting Wisconsin Gas Co., 758 F.2d at 674).

Cardinal claims that without a preliminary injunction, it will suffer irreparable injury in the form of lost customers, reduced profits, costs associated with rerouting drug shipments from other facilities, and reputational harm, all of which it claims will be unrecoverable due to the government's sovereign immunity. See Cardinal's Mem. at 29-30; Cardinal's Reply at 20. For the reasons that follow, none of these purported harms pass the high bar for irreparable injury.

1. Economic Loss

"The loss of business opportunities, market share, and customer goodwill are typically considered to be economic harms." Air Transport Ass'n of America, Inc. v. Export-Import Bank of the U.S., __ F. Supp. 2d __, __, 2012 WL 119557, at *6 (D.D.C. 2012). And "the general rule" in this Circuit is "that economic harm does not constitute irreparable injury." Davis, 571

F.3d at 1295; see also Wisconsin Gas, 758 F.2d at 674 ("It is . . . well settled that economic loss does not, in and of itself, constitute irreparable harm."). Courts in this Circuit have, however, recognized that economic loss can constitute irreparable injury in at least two circumstances. First, where "monetary loss . . . threatens the very existence of the movant's business," it may qualify as irreparable injury. Wisconsin Gas, 758 F.2d at 674. Second, where the claimed economic loss is unrecoverable (e.g., when the defendant is entitled to sovereign immunity), this is "one factor the court must consider in assessing alleged irreparable harm." Nat'l Mining Ass'n v. Jackson, 768 F. Supp. 2d 34, 53 (D.D.C. 2011). But the "fact that economic losses may be unrecoverable does not, in and of itself, compel a finding of irreparable harm," for the harm must also be great, certain and imminent. Id.; see also Mylan Pharms., Inc. v. Shalala, 81 F. Supp. 2d 30, 42 (D.D.C. 2000) ("Because [plaintiff] is alleging a non-recoverable monetary loss, it must demonstrate that the injury [is] more than simply irretrievable; it must also be serious in terms of its effect on the plaintiff.") (internal quotations and citation omitted).

Cardinal has not come close to showing that the ISO "threaten[s] the very existence of [its] business." Wisconsin Gas, 758 F.2d at 674. Cardinal is a Fortune 20 company with annual revenues in 2011 exceeding $102 billion, profits exceeding $1.5 billion, and several distribution facilities nationwide that continue to hold DEA registrations. Gov't's Opp'n at 32. Because the ISO only affects the Lakeland Facility, Cardinal is free to ship from its other distribution facilities. In fact, the DEA previously issued ISOs to three Cardinal distribution facilities (one of which was the Lakeland Facility) in 2007, suspending distribution for roughly 10 months, see id. at 34, yet Cardinal's business thrives to this day.

Cardinal thus seeks to show that it will suffer unrecoverable economic harm in the form of lost customers, reduced sales, and costs expended as a result of rerouting shipments. According to Cardinal, the ISO would seriously disrupt its supply chain in Florida, which would cause many customers to "redirect orders to other wholesale distributors, resulting in a serious and permanent loss of revenue and customers for the Lakeland facility[]. . . . All of these damages, moreover, would be unrecoverable in light of sovereign immunity." Cardinal's Reply at 20. Cardinal relies on the declarations of its President of Pharmaceutical Distribution, Jon Giacomin, who "anticipate[s] that some of Cardinal Health's Florida customers experiencing service delays will leave Cardinal Health for other distributors and . . . . [that] these customers will take their entire pharmaceutical business away from Cardinal Health." Cardinal's Mot., Giacomin Decl. ¶ 20. In support of this claim, Giacomin notes that shipping delays incurred by the 2007 ISO of the Lakeland Facility "caused some customers to leave Cardinal Health for other distributors," although he does not specify how many customers stopped purchasing from Cardinal. Cardinal's Reply, Supplemental Declaration of Jon Giacomin ("Suppl. Giacomin Decl.") ¶ 3; see also Cardinal's Mot., Giacomin Decl. ¶ 22 ("[I]t is anticipated that the[] [shipment] delays will cause some of Cardinal Health's customers to leave Cardinal Health permanently for other distributors, as occurred following the 2007 ISO of the Lakeland Facility."). He estimates that the 2007 suspension of the three Cardinal facilities caused the company to lose "roughly $1 billion of lost sales on an annualized basis." Cardinal's Reply, Suppl. Giacomin Decl. ¶ 3. And regarding losses at Cardinal Lakeland specifically, he notes that the suspension resulted in "depressed" sales, and that "just one portion of these losses- decreased sales to retain independent pharmacies that remained with Cardinal Health-amounted to approximately $100 million." Id. ¶ 4. Giacomin estimates that an ISO at this time would "likely . . . . have an even greater impact" on Cardinal's sales, because its competitors in Florida also faced disruptions in distribution in 2007, which is not the current situation. Id. ¶ 5.

Cardinal has not shown unrecoverable economic loss of the magnitude necessary to constitute irreparable harm. As noted, Cardinal had annual revenues in 2011 exceeding $102 billion. Gov't's Opp'n at 32. But when the DEA suspended three Cardinal facilities in 2007, Giacomin estimates that the company suffered $1 billion of lost sales, see Cardinal's Reply, Suppl. Giacomin Decl. ¶ 3, which is less than 1 percent of its current yearly revenues. Cardinal is hard-pressed to argue that the suspension of its Lakeland Facility alone would come anywhere close to this $1 billion loss. And, even assuming that it could, courts in this Circuit have consistently recognized that financial losses of less than 1 percent of total sales do not rise to the level of irreparable injury. See, e.g., Sandoz, Inc. v. FDA, 439 F. Supp. 2d 26, 32 (D.D.C. 2006) ("A loss of less than 1 percent total sales is not irreparable harm." (internal quotation marks and citation omitted)); Bristol-Myers Squibb Co. v. Shalala, 923 F. Supp. 212, 220-21 (D.D.C. 1996) (same); see also LG Elecs., USA, Inc. v. Dep't of Energy, 679 F. Supp. 2d 18, 35-36 (D.D.C. 2010) ("Even assuming [the plaintiff] will not be able to recover monetary damages from [the Department of Energy], the financial impact [the plaintiff] claims it will suffer does not rise to the level of irreparable harm" because that impact represents only "a minuscule portion of the company's worldwide revenues."). Agreeing with the position that has been taken by its colleagues, the Court finds that Cardinal has not established irretrievable economic loss that would be "serious in terms of its effects" on its business. See Mylan Pharms., Inc., 81 F. Supp. 2d at 42.

Nor has Cardinal shown economic harm in certain, non-speculative terms. To gauge its anticipated economic loss, Cardinal relies on losses incurred as a result of the 2007 suspensions of the three facilities, but it offers no concrete estimates regarding lost revenues, customers, or market share that it anticipates would result from a current suspension of just the Lakeland Facility. Even the losses that Cardinal allegedly incurred as a result of the 2007 suspensions are indeterminate, with Giacomin stating only that "some customers" left Cardinal due to delayed shipments, and providing no estimates regarding the total lost sales incurred by the Lakeland Facility in particular. See Cardinal's Reply, Suppl. Giacomin Decl. ΒΆΒΆ 3-4. Similarly, Giacomin's declaration states in vague terms that rerouting drug shipments from facilities outside of Florida would "require substantial effort and resources," ...

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