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Morris & Dickson Co. v. Whitaker

United States District Court, W.D. Louisiana, Shreveport Division

December 28, 2018


          HORNSBY, MAGISTRATE Judge.



         Morris & Dickson Co. (“Morris & Dickson”) is a full-line pharmaceutical wholesaler, part of whose business consists of distributing controlled substances. [Record Document 1 at 6]. Concerned that Morris & Dickson had an insufficient program in place to prevent diversion of hydrocodone and oxycodone, the Drug Enforcement Administration (“DEA”) began proceedings to revoke Morris & Dickson's authorization to distribute controlled substances. [Id. at 8]. Morris & Dickson filed the instant action, seeking to enjoin further proceedings before the DEA's Administrative Law Judge (“ALJ”) on the grounds that he was unconstitutionally appointed and is unconstitutionally shielded from removal at will. [Id. at 13-16]. Because this Court lacks jurisdiction over Morris & Dickson's challenge to the ongoing administrative adjudication, this case is DISMISSED WITHOUT PREJUDICE.

         I. Background

         Morris & Dickson holds two DEA registrations that allow it to distribute controlled substances. [Id. at 5]. On May 2, 2018, the Acting Administrator of the DEA began the process of revoking these registrations by issuing an Order to Show Cause and an Immediate Suspension of Registration (“ISO”), which asserted that Morris & Dickson maintained an inadequate anti-diversion program. [Id. at 8]. In response, Morris & Dickson filed suit to enjoin enforcement of the ISO. [Id.]. Following a hearing before the undersigned, this Court temporarily restrained enforcement of the ISO, but allowed the revocation proceeding to go forward. [Id. at 9]. Before a hearing could be held on the motion for a preliminary injunction against the ISO, the DEA rescinded that order. [Id.]. This Court then dismissed the case. Morris & Dickson Co. v. Sessions, No. 5:18-cv-605 (W.D. La. May 22, 2018).

         The DEA ALJ, Charles Dorman, set the show-cause hearing on the DEA's allegations for November 13, 2018. [Record Document 1 at 11]. In order to prevent the hearing from going forward, Morris & Dickson filed this suit, which seeks an injunction and a declaratory judgment that further proceedings before Judge Dorman would violate the Constitution. [Record Documents 1 at 18 and 2 at 2-3].

         Under the Appointments Clause of Article II, inferior officers of the United States must be appointed by the President, the courts, or the heads of executive departments. Lucia v. SEC, 138 S.Ct. 2044, 2051 (2018) (citing U.S. Const. art. II, § 2, cl. 2). Morris & Dickson argues that DEA ALJs are inferior officers. [Record Document 1 at 11-13]. If they are, then they must be appointed by one of the three authorities listed in the Appointments Clause. See Lucia, 138 S.Ct. at 2051. The Controlled Substances Act (“CSA”) incorporates by reference provisions of the Administrative Procedure Act (“APA”) controlling ALJs' appointments and their employment protections. See 21 U.S.C. 824 (citing 5 U.S.C. 551-559).[1] In accordance with these provisions, Judge Dorman was appointed by the DEA Administrator. [Record Document 1 at 14]. Morris & Dickson contends the DEA is not an executive department for purposes of the Appointments Clause because the DEA resides within the Department of Justice (“DOJ”). [Id. at 14-15]. If that is true, then the department head with the appointing power is the Attorney General, not the DEA Administrator. See 28 U.S.C. § 503. From this, Morris & Dickson concludes that Judge Dorman was unconstitutionally appointed. [Record Document 1 at 15].[2]

         Morris & Dickson also alleges that the removal procedures for the DEA ALJs are unconstitutional. [Id. at 15-16]. The Constitution vests the President with the executive power, U.S. Const. art. II, § 1, cl. 1, and obligates him to “take Care that the Laws be faithfully executed, ” id. art. II, § 3. These provisions are violated when officers have more than one layer of protection against removal at will. Free Enter. Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477, 496 (2010). DEA ALJs, such as Judge Dorman, may be removed by the agency “only for good cause established and determined by the Merit Systems Protection Board.” 5 U.S.C. § 7521(a). Members of that board, in turn, “may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.” 5 U.S.C. § 1202(d). Morris & Dickson argues that this double layer of for-cause protection unconstitutionally interferes with the President's obligation to take care that the laws are faithfully executed. [Record Document 1 at 16].

         After reviewing Morris & Dickson's complaint, this Court ordered briefing on the question of jurisdiction. [Record Document 15]. Two days later, Judge Dorman cancelled the show-cause hearing, thereby mooting Morris & Dickson's request for an interim order enjoining it. [Record Documents 22 at 3 and 23 at 1]. After this Court set a schedule for ruling on jurisdiction and, if necessary, on the merits, Judge Dorman stayed the enforcement proceeding pending this Court's resolution of Morris & Dickson's constitutional case. [Record Documents 27, 28, and 30].

         Defendants Matthew G. Whitaker (the Acting Attorney General), Uttam Dhillon (the Acting Administrator of the DEA), the DEA, the DOJ, and the United States (collectively, “Defendants”) argue that this Court lacks jurisdiction and that Morris & Dickson's claims are unripe. [Record Document 24 at 7-19]. They believe that Supreme Court precedent requires Morris & Dickson to complete the administrative process and obtain a final order from the DEA Administrator before pursuing its constitutional claims in an appeals court. [Id. at 9-14]. Morris & Dickson contends that this Court has jurisdiction to enjoin unconstitutional administrative proceedings at any time and that, if this Court declines to exercise jurisdiction, Morris & Dickson will face the irreparable harm of forced participation in such a proceeding. [Record Document 26 at 2-8].

         II. Law and Analysis

         “Federal courts are courts of limited jurisdiction . . . .” Quinn v. Guerrero, 863 F.3d 353, 358 (5th Cir. 2017) (citing Arbaugh v. Y&H Corp., 546 U.S. 500, 513 (2006)). As a result, they have a “duty to continually, and sua sponte, assess their jurisdiction.” USPPS, Ltd. v. Avery Dennison Corp., 647 F.3d 274, 284 (5th Cir. 2011). Thus, this Court must determine whether it has subject matter jurisdiction over Morris & Dickson's constitutional claims, which have been raised in response to the ongoing administrative adjudication before Judge Dorman.

         A. The Statutory Scheme

         The CSA grants the DEA the authority to regulate, among other things, the distribution of controlled substances “with the goal of creating a closed system of distribution.” Keysource Med. Inc. v. Holder, No. 1:11-cv-393, 2011 WL 3608097, at *1 (S.D. Ohio Aug. 16, 2011). Companies that distribute controlled substances, such as Morris & Dickson, must annually obtain a DEA registration. 21 U.S.C. § 822(a)(1); 21 C.F.R. § 1301.11(a). When evaluating a distributor's application, the DEA considers whether the registration is “inconsistent with the public interest” in light of the following factors:

(1) maintenance of effective control against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels;
(2) compliance with applicable State and local law;
(3) prior conviction record of applicant under Federal or State laws relating to the manufacture, distribution, or dispensing of such substances;
(4) past experience in the distribution of controlled substances; and
(5) such other factors as may be relevant to and consistent with the public health and safety.

21 U.S.C. § 823(b). In order to reduce the risk of diversion, a distributor

shall design and operate a system to disclose to the registrant suspicious orders of controlled substances. The registrant shall inform the Field Division Office of the Administration in his area of suspicious orders when discovered by the registrant. Suspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.

21 C.F.R. § 1301.74(b).

         The DEA Administrator may suspend or revoke a license on various grounds, including a “finding that the registrant . . . has committed such acts as would render his registration under section 823 of this title inconsistent with the public interest as determined under such section.” 21 U.S.C. § 824(a)(4). Before revoking a registration, the DEA must issue a rule to show cause describing the grounds for revocation and conduct a hearing in accordance with the APA. Id. § 824(c); 21 C.F.R. § 1301.37(c). Following the hearing, the presiding ALJ issues a report recommending findings of fact and conclusions of law; the ALJ forwards this report and the administrative record to the DEA Administrator. Id. § 1316.65(a), (c). The Administrator, as the Attorney General's delegate, then issues a final order, supported by findings of fact and conclusions of law. Id. § 1316.67. A party “aggrieved by a final decision” of the DEA Administrator may then appeal to the Court of Appeals for the District of Columbia Circuit or for the circuit in which the party's principal place of business is located. 21 U.S.C. § 877.

         B. The Legal Framework

         Although district courts typically have jurisdiction over all questions arising under the Constitution, 28 U.S.C. § 1331, Congress may impliedly preclude that jurisdiction and route review of agency actions through other courts, see, e.g., Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 207 (1994). To determine whether jurisdiction is impliedly precluded, a court must first ask whether congressional intent to preclude jurisdiction is “fairly discernable” from the text, structure, and purpose of the statute establishing the agency review scheme. Elgin v. Dep't of Treasury, 567 U.S. 1, 10 (2012) (citing Thunder Basin, 510 U.S. at 207; United States v. Fausto, 484 U.S. 439, 443 (1988), superseded by statute on other grounds, Civil Service Due Process Amendments, Pub. L. No. 101-376, 104 Stat. 461 (1990)). If so, the court must turn to a second question: are “the claims at issue ‘ . . . of the type Congress intended to be reviewed within th[e] statutory structure?'” Free Enter. Fund, 561 U.S. at 489 (quoting Thunder Basin, 510 U.S. at 212). To answer this question, a court must apply the Thunder Basin factors: (1) whether “a finding of preclusion could foreclose all meaningful judicial review;” (2) whether the claims are “wholly ‘collateral' to a statute's review provisions;” and (3) whether the claims fall “outside the agency's expertise.” Thunder Basin, 510 U.S. at 212-13.

         This framework evolved through three Supreme Court decisions. As these decisions will control this Court's determination of its own jurisdiction, a somewhat detailed presentation of them is required. In the first, Thunder Basin Coal Co. v. Reich, miners at a non-union mine selected two non-employee union organizers to serve as their representatives during mine inspections. Id. at 204. Federal regulations require a mine operator to post information identifying the employees' representatives. Id. Thunder Basin argued to the Mine Safety and Health Administration (“MSHA”) that the miners' selection violated the company's right under the National Labor Relations Act (“NLRA”) to exclude union organizers from company property. Id. at 204-05. Thunder Basin further contended that requiring it to post the representatives' information would deny due process by forcing the company to choose between violating the Mine Act and incurring penalties or complying with the act and suffering irreparable harm. Id. The MSHA responded with a letter instructing Thunder Basin to post the required information. Id. at 204. Before receiving the letter, the company filed suit in district court seeking to enjoin any enforcement actions by the Secretary of Labor. Id. at 205.

         The Supreme Court held that the district court lacked jurisdiction over this challenge to a prospective agency determination. Id. at 216. A mine operator who objects to sanctions imposed by the Secretary of Labor for violations of the Mine Act may seek review before the Mine Safety and Health Review Commission (“Commission”), an independent agency, and then, if still aggrieved, before a court of appeals. Id. at 204 (citing 30 U.S.C. §§ 815-816, 823). The Court first concluded that the structure and legislative history of the Mine Act indicate congressional intent to channel review of all violations of the Mine Act through the Commission and the appeals courts. Id. at 208-09. In the Court's view, it was particularly significant that Congress created two exceptions to the statutory review process, both of which allow the Secretary (but not an aggrieved operator) to seek an injunction in district court. Id. at 209. The Court then held that Thunder Basin's statutory and constitutional claims could both receive meaningful judicial review. Id. at 213-215. Although the Commission has no particular expertise in applying the NLRA, the Court concluded that the Commission's familiarity with mine operations could helpfully inform any decision regarding the application of the NLRA. Id. at 214-15. When ...

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