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Patt v. Greer Laboratories, Inc.

United States District Court, W.D. North Carolina, Statesville Division

August 22, 2019

EDWARD PATT, LIUBOV SKIBO, Plaintiffs,
v.
GREER LABORATORIES, INC., Defendants.

          ORDER

          Kenneth D. Bell United States District Judge

         In this action under the False Claims Act (“FCA”), two former employees of Greer Laboratories - Plaintiffs (“Relators”) Liubov Skibo and Edward Patt - allege that Defendant Greer Laboratories, Inc. (“Greer”) violated the FCA by selling custom mix allergy products to physicians who then allegedly submitted “false claims” to the government when they sought payment for using those products in treating patients. Now before the Court is Greer's Motion for Summary Judgment (Doc. No. 95). The Court has carefully considered the Motion and the parties' extensive briefs and exhibits and heard oral argument from the parties' counsel during a lengthy hearing on the motion held July 25, 2019. For the reasons discussed below, the Court has determined that there is no genuine dispute as to any material fact and Greer is entitled to judgment as a matter of law. Therefore, the Court will GRANT Greer's motion and enter SUMMARY JUDGMENT in its favor.

         I. LEGAL STANDARD

         Summary judgment must be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. A factual dispute is considered genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact is material if it might affect the outcome of the suit under the governing law.” Vannoy v. Federal Reserve Bank of Richmond, 827 F.3d 296, 300 (4th Cir. 2016) (quoting Libertarian Party of Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013)).

         The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact through citations to the pleadings, depositions, answers to interrogatories, admissions or affidavits in the record. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003). “The burden on the moving party may be discharged by ‘showing' ... an absence of evidence to support the nonmoving party's case.” Celotex, 477 U.S. at 325. Once this initial burden is met, the burden shifts to the nonmoving party. The nonmoving party “must set forth specific facts showing that there is a genuine issue for trial, ” Id. at 322 n.3. The nonmoving party may not rely upon mere allegations or denials of allegations in his pleadings to defeat a motion for summary judgment. Id. at 324.

         When ruling on a summary judgment motion, a court must view the evidence and any inferences from the evidence in the light most favorable to the nonmoving party. Tolan v. Cotton, 572 U.S. 650, 657 (2014); see also Anderson, 477 U.S. at 255. “Summary judgment cannot be granted merely because the court believes that the movant will prevail if the action is tried on the merits.” Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568-69 (4th Cir. 2015) (quoting 10A Charles Alan Wright & Arthur R. Miller et al., Federal Practice & Procedure § 2728 (3d ed.1998)). “The court therefore cannot weigh the evidence or make credibility determinations.” Id. at 569 (citing Mercantile Peninsula Bank v. French (In re French), 499 F.3d 345, 352 (4th Cir. 2007)).

         However, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (internal citations omitted). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248. Also, the mere argued existence of a factual dispute does not defeat an otherwise properly supported motion. Id. If the evidence is merely colorable, or is not significantly probative, summary judgment is appropriate. Id. at 249-50.

         In the end, the question posed by a summary judgment motion is whether the evidence as applied to the governing legal rules “is so one-sided that one party must prevail as a matter of law.” Id. at 252.

         II. RELEVANT FACTS AND PROCEDURAL HISTORY[1]

         Greer manufactures allergy immunotherapy treatments, which include allergenic extracts. Immunotherapy involves the practice of introducing small amounts of an allergen such as pet dander or pollen into a patient in the hope that the patient develops an immunity to the allergen. Greer produces hundreds of different allergenic extracts under a single Biologics License in bulk in its manufacturing facility, which FDA regulates. Greer also compounds customized mixtures of its licensed allergenic extracts pursuant to prescriptions submitted by physicians for a single, identified patient ("named-patient prescriptions") in its pharmacy operation. Mixtures prepared in the pharmacy are not at issue in this case.

         A. Custom Mixes

         From the 1970s until 2015, Greer also produced "custom mixes" or “special mixes” of its licensed bulk allergenic extracts in response to orders submitted by physicians for multiple patients requiring the same mixture of extracts. For example, a doctor might order a mixture of pet dander, tree mold and other allergens in a specific formula. While custom mixes are made according to a doctor's orders, they are not made pursuant to an individual named-patient prescription because the doctor intends to use the same mixture for multiple patients. Although physicians can purchase the individual extracts and prepare the mixture themselves in their office, they requested custom mixes from Greer because it was more efficient and reduced the chance of error, as well as the cost and work of preparation. Greer produced its custom mixes in the manufacturing facility where it produced the bulk individual allergenic extracts, which are the components for the custom mixes. Greer's Regulatory Affairs group, including Relator Patt for several years, approved every custom mix specification sheet prior to the mix being produced.

         Custom mixes comprised a relatively small portion of Greer's business; the mixes totaled less than 3% of Greer's total revenue during the period. In fact, Greer testified that it could have earned more revenue by selling the individual extracts but opted to provide custom mixes as a convenience to its customers.

         B. Greer's Preparation of Custom Mixes under FDA Regulations

         Greer did not have and did not seek separate licenses for each doctor ordered custom mix because it believed such mixes were within the scope of its license for the allergenic extracts that make up the custom mixes. The relevant FDA regulation, 21 C.F.R. § 610.17, was enacted in 1947. Section 610.17 states that "[l]icensed products may not be combined with other licensed products . . . except as a license is obtained for the combined product. Licensed products may not be combined with nonlicensable . . . substances except as a license is obtained for such combination." At the time the regulation was enacted, FDA issued product licenses (now referred to as BLAs) which defined the "product" by the category of biologic (e.g., "Allergenic Extracts"), not by the individual biologics within each category. All of Greer's allergens - the components of the custom mixes - were defined as the same "product" under the license issued by FDA; therefore, Greer believed that the combination of the individual allergens did not reflect a combination of different licensed products and did not require a separate FDA license.

         Consistent with its belief and understanding that each custom mix ordered by a physician fell within its existing BLA, Greer openly advertised its custom mix service. Over the course of twenty years, Greer provided FDA with copies of its product catalog which referenced the custom mix service and Greer posted the catalogs on its website. In reviewing Greer's catalogs, FDA did not raise concerns about Greer's custom mixes or express confusion over the distinction between Greer's custom mix and prescription services. Relator Skibo approved the product catalog language describing the custom mix service in her role as the head of Greer's regulatory group and did not raise concerns about the licensing of custom mixes or the potential "confusion" between Greer's custom mix service and its prescription service during her tenure at Greer.

         Greer's also made proactive disclosures regarding custom mixes in correspondence with FDA that reflects their openness about the practice. In a 1992 letter to Greer denying Greer's request for additional time to convert from using non-standardized to standardized cat hair extracts, the FDA appeared to recognize the difference between an individual patient prescription and a “special mixture”: "[Greer's] request to allow nonstandardized cat extracts that have already been incorporated into a prescription mixture for a specific patient or into a special mixture for use in a specific physician's practice to continue to be sold in interstate commerce after September 17, 1992, cannot be granted." Additional examples of Greer's affirmative disclosures regarding custom mixes include:

Date

Description

1981

In a letter to FDA regarding Antigen E, Greer wrote:

"A survey of our records shows that we have . . . the following . . . mixes in stock. A. Approximately 1193 sets (a set is 1x10 ml or 2x5 ml) of maintenance vials of patient prescription material. (Vials made up per doctor's orders for individual patients.)

B. Approximately 82 vials (of various sizes - mostly 30 and 50 ml) of doctor's special mixes. These are mixes prepared on a doctor's orders for his use in diagnosis and/or therapy of his patients.

C. Approximately 19 storage bottles of special mixes as in B (above) not yet vialed" (Ex. RR at GRLT-00104219) (emphasis added).

1982

Responding to FDA's request for a list of inventory containing short ragweed, Greer wrote: "[W]e have in stock numerous patient prescription vials and special mixes (prepared on a doctor's request) . . . ." (Ex. SS at GRLT-00002754) (emphasis added).

1988

In a letter to FDA regarding Antigen E, Greer wrote: "Even more problematic will be the impact on the very large percentage of custom mixes and individual patient prescriptions which contain Ragweed products" (Ex. TT at GRLT-00002760) (emphasis added).

1997

In a letter to FDA regarding the standardization of extracts, Greer wrote: "A majority of Greer . . . accounts purchase special physician mixes which they utilize to formulate prescription immunotherapy mixtures (build-up sets and maintenance vials) for their patients . . . . A minority of Greer . . . accounts utilize our services to compound prescription immunotherapy mixtures (build-up sets and maintenance vials) for patients" (Ex. UU at GRLT-00002752-53) (emphasis added).

         Between 1969 and 2013, FDA inspected Greer at least fifty-seven times. During inspections, Greer gave FDA full access to its facilities and provided FDA with requested documents, including Greer's catalog, production records, and Annual Product Reviews, which explicitly referenced custom mixes. Post-inspection correspondence confirms that FDA specifically reviewed custom mixes prior to 2013 and made observations relating to custom mixes but did not raise concerns about custom mixes not being separately licensed. Examples include:

Date

Description

1976

FDA reviewed "'special order' RX Grass Mix, PO865-X" and issued an observation because "no temperature record was available for the refrigerator" used to hold it. (Ex. YY at GRLT-00132300) (emphasis added).

1979

FDA reviewed a custom mix during its inspection: "An exception was weed mix . . . . Ms. White stated this was a custom order and the stock mixture labels do specify components The weed mix order did not specify any details, but the order number corresponded to a detailed formula which was shown to us." (Ex. ZZ at GRLT-00134775-76) (emphasis added).

Greer's response to FDA's Form 483 states: "plans are underway to update all our mix cards, copies of which will be enclosed with all shipments of mixed extracts (excluding Greer Stock mixes) . These cards are taken from the original order of the doctor." (Ex. AAA at GRLT-00136507) (emphasis added).

2007

FDA reviewed lot history records (containing sample labels) for five custom mixes (PMG SJ 7 Tree Mix, Schultz Tree Mix #1, Shulhafer Weed Mix, PMG SJ 5 Weed Mix, and AASC Mold-4 Mix) and issued an observation relating to Greer's investigations. (Ex. HH GRLT-00048713-14, -18).

2011

FDA reviewed AASC Weed Mix (a custom mix) during the inspection. (Ex. TT at GRLT-00107709). FDA also questioned Greer's retention sample practices during this inspection and did so with specific reference to custom mixes. (Ex. M at 197:1-198:5); (Ex. BBB at GRLT-00031149).

         Other immunotherapy manufacturers also made "custom mixes" pursuant to doctors' orders (but not individual patient prescriptions) without obtaining a separate FDA license. See e.g., Amended Complaint, Doc. No. 10 at ¶¶ 93-96 (accusing several other manufacturers of similarly selling "unlicensed" custom mixes); infra, at II D. There is no evidence that the FDA was not aware of the long standing industry practice to market custom mixes that were not based upon named-patient prescriptions and were not separately licensed, or that § 610.17 was ever interpreted by the FDA to apply to immunotherapy custom mixes at any time during the over 65 years from 1947 until 2013.

         C. The FDA Raises Questions then Issues Guidance Regarding Custom Mixes

         In the course of a routine inspection of Greer's manufacturing facility in November 2013, an FDA inspector issued a Form 483 to Greer in which the FDA “observed” that each custom mix required a separate license. Greer was open with the FDA about the custom mixes during the inspection, explaining that custom mixes were “a mixture of licensed products prepared to a doctor's order” but different from individual prescriptions because prescriptions “are for named patients and custom mixes were for general use by the requesting practitioner.” See Greer November 14, 2013 FDA CBER Summary, Doc. No. 131-25, at p.12. Greer subsequently received a follow up Warning Letter stating FDA's view that a separate license was required for each custom mix, as such mixes were not within the scope of Greer's existing licenses. Neither the Form 483 Report or the FDA Warning Letter suggested that the FDA had previously been misled about Greer's manufacturing of custom mixes.

         The Form 483 report and the FDA Warning Letter did not reflect a final agency determination and did not commit the FDA to enforcement action. After receiving the Form 483 and Warning Letter and making written requests for clarification, Greer and its counsel met with FDA in June 2014. When Greer asked for guidance regarding custom mixes, FDA stated they were "not in a position to discuss custom mixes." FDA also said it could not answer Greer's question whether "the preparation of custom mixes was no longer an option," but said it hoped to address the issue that summer. FDA also told Greer that custom mixes were "an issue that is a focus industry wide and that the other manufacturers would be notified as well." Based on these conversations, Greer continued manufacturing custom mixes based on FDA's statements that it was still formulating its position.

         In 2015, the FDA issued formal “guidance” that custom mixes needed to be separately licensed under 610.17. Greer ceased manufacturing custom mixes as soon as FDA released draft guidance in February 2015. Once Greer stopped making custom mixes, physicians ordered the individual extracts and mixed them in their offices to make the custom mixes. There is no evidence that Greer has sought separate licenses for the custom mixes after the FDA's 2015 guidance.

         D. The Industry's Reaction to the FDA's 2015 Position Regarding Manufacturing Custom Mixes Without a Separate License.

         Like Greer, the Allergen Product Manufacturers' Association ("APMA") sought guidance from FDA on its apparent change in position regarding the licensure of custom mixes. In an April 2014 letter, the APMA wrote:

It has become apparent to the representative companies of the APMA that a focus during recent FDA inspections is the historical practice of manufacturing "Custom Mixes" . . . and whether or not this activity is within the scope of the manufacturer's licenses . . . . This practice of manufacturing Custom Mixes by each APMA member company has been documented in various correspondences with FDA, and includes recognition and acknowledgement of this practice, without objection, during facility inspections over the years. (Greer Ex. R (Doc. 98-16) at GRLT- 00044443).

         The APMA reiterated these statements in a July 2014 letter to FDA. ...


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