Opinion
No. 56948
Filed: March 7, 2000
APPEAL FROM THE CIRCUIT COURT OF COLE COUNTY, HONORABLE BYRON L. KINDER, JUDGE.
Robert L. Ward, Kansas City, Missouri for appellant[s].
Rikki L. Jones, Assistant Attorney General, Jefferson City, Missouri for respondent[s].
Before James J. Smart, Jr., Presiding Judge, Joseph M. Ellis, Judge and Edwin H. Smith, Judge.
KV Pharmaceutical Company appeals from the decisions of the Administrative Hearing Commission (AHC) and the Missouri State Board of Pharmacy (the Board), as affirmed by the Circuit Court of Cole County, disciplining KV Pharmaceutical's Missouri wholesale drug distributor's license.
KV Pharmaceutical Company is an FDA-registered pharmaceutical manufacturer and wholesaler based in Missouri. From 1989 to 1992, KV manufactured Erythromycin Ethylsuccinate Oral Suspension (EES). In 1991, assays in two lots of EES in KV's shelf-life testing program measured below the 90% acceptable limit. The company did not act on the assays to conduct an investigation and did not report the results to the FDA in "Field Alert Reports" as required by 21 U.S.C. § 355(k)(1) and 21 C.F.R. § 314.81(b)(1)(ii). In 1992, after these out-of-specification results, KV shipped two new lots of EES, which, under federal law, were misbranded because KV could not adequately substantiate the expiration date on their label due to the previous uninvestigated failed assays. KV recalled all lots of EES and stopped manufacturing and selling the product in 1992.
On April 10, 1995, KV pled guilty to FDA charges of introducing misbranded drugs into interstate commerce in violation of 21 U.S.C. § 331(a) and 352(a). In a plea agreement upon stipulated facts, it was fined a total of $500,000 plus $100,000 in costs and placed on probation for four years.
During the probation period, a representative of the Department of Health and Human Services conducted an evaluation and inspection of KV's operation, and noted on December 20, 1995, that KV had "successfully improved its compliance with current good manufacturing practice regulations. The improvements are sufficient to consider KV to be in compliance."
On October 30, 1996, the Missouri Board of Pharmacy brought a complaint against KV for disciplinary action pursuant to § 338.055.2(2) (6), alleging that KV, as a drug wholesaler doing business in the State of Missouri, did not investigate or properly act upon two EES drug assays it conducted between 1989 and 1991. A hearing was held on March 24, 1997. The AHC issued its Findings of Fact and Conclusions of Law on October 21, 1997, finding that cause existed for the Board to take disciplinary action against KV. On April 16, 1998, the Board held a hearing to determine appropriate disciplinary action. On April 23, 1998, the Board placed KV's wholesale distributor license on probation for three years, effective May 3, 1998. KV filed a petition for review of the Board's action in the Circuit Court of Cole County on May 1, 1998. The trial court stayed the Board's order pending the outcome of the action. On January 22, 1999, the trial court issued its order affirming the decision of the AHC. KV appeals.
On appeal, we review the decision of the AHC, not the judgment of the Circuit Court or the underlying decision of the board. Hernandez v. State Board of Registration for the Healing Arts , 936 S.W.2d 894, 900 (Mo.App.W.D. 1997). The AHC's decision is presumed valid and the burden is on the challenging party to overcome that presumption. Id. The standard of review for this case is whether the AHC's decision is supported by competent and substantial evidence; whether the decision of the AHC was arbitrary, capricious, unreasonable or an abuse of discretion. Curtis v. Board of Police Commissioners of Kansas City , 841 S.W.2d 259, 261 (Mo.App.W.D. 1992). The AHC action is arbitrary and capricious only if there is no substantial evidence to support it. State ex rel. Baer v. Campbell , 794 S.W.2d 690, 691 (Mo.App.E.D. 1990). "Substantial" evidence is that evidence which supports the discretionary determination of the agency. Curtis , 841 S.W.2d at 261.
KV brings two points of error on appeal. In its first point, KV argues that the AHC erroneously affirmed the Board's action because (1) the statute relied on by the Board does not apply to wholesale distributors; (2) even if it did apply, the terms of the statute were not violated; and (3) no other state or federal law provides cause to discipline under the circumstances of this case. In its second point, KV contends that the AHC should not have upheld the Board's action since KV had already remedied the manufacturing practices which led to the original federal charges. We find the first point dispositive.
Chapter 338 governs pharmacists and pharmacies, as well as regulation of wholesale drug distributors. The statute defines a "wholesale drug distributor" as:
All statutory references are to RSMo 1994 unless otherwise noted.
anyone engaged in the delivery or distribution of legend drugs from any location and who is involved in the actual, constructive or attempted transfer of a drug or drug related device in this state, other than to the ultimate consumer. This shall include, but not be limited to, drug wholesalers, repackagers and manufacturers which are engaged in the delivery or distribution of drugs in this state, with facilities located in this state or in any other state or jurisdiction. A wholesale drug distributor shall not include any common carrier or individual hired solely to transport legend drugs.
§ 338.330(3). The Board argues that §§ 338.330 and 338.353 function in concert, and relies on § 338.353 for its authority to discipline KV's wholesale distributor license. It states, in pertinent part:
The board of pharmacy is hereby authorized and empowered, when complaints, examinations or inspection of a wholesale drug distributor or pharmacy distributor disclose to the board that a wholesale drug distributorship or pharmacy distributorship is not being operated or conducted according to such legal rules and regulations and the laws of Missouri or any other state or the federal government with respect thereto, to cause a complaint to be filed before the administrative hearing commission pursuant to chapter 621, RSMo, charging the holder of a license to operate a drug distributorship or pharmacy wholesale operation constituting grounds for probation, suspensions or revocation of the distributor license.
§ 338.353.1. The Board cites § 338.055.2(2) and (6) as the bases for its charges against KV, which state:
The board may cause a complaint to be filed with the administrative hearing commission as provided by chapter 621, RSMo, against any holder of any certificate of registration or authority, permit or license required by this chapter or any person who has failed to renew or has surrendered his certificate of registration or authority, permit or license for any one or any combination of the following causes:
(2) The person has been finally adjudicated and found guilty, or entered a plea of guilty or nolo contendere, in a criminal prosecution under the laws of any state or of the United States, for any offense reasonably related to the qualifications, functions or duties of any profession licensed or regulated under this chapter, for any offense an essential element of which is fraud, dishonesty or an act of violence, or for any offense involving moral turpitude, whether or not sentence is imposed;
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(6) Violation of, or assisting or enabling any person to violate, any provision of this chapter, or of any lawful rule or regulation adopted pursuant to this chapter;
The misdemeanor information to which KV pled guilty consisted of a total of four counts. The charges were two counts of failing to file required reports in violation of 21 U.S.C. § 331(e), 333(a)(1) and 355(k)(1), and two counts of distributing misbranded drugs in interstate commerce, in violation of 21 U.S.C. § 331(a), 333(a)(1) and 352(a). The Board argues extensively about whether the violations incurred by KV related to its wholesale drug distributorship as regulated by Chapter 338. However, it ignores the second part of subsection (2) of § 338.055.2 which requires such violations to possess as an essential element "fraud, dishonesty or an act of violence," or "moral turpitude." § 338.055.2(2). There was no evidence whatsoever adduced at the hearing, nor does the AHC contend, that KV's failure to file required reports or the distribution of drugs after its failure to investigate failed assays involved fraud, dishonesty, violence or moral turpitude. Moreover, included in the stipulated facts was an acknowledgement by the Justice Department that it would not "contest KV's assertion that it did not act with intent to defraud or mislead." Therefore, there was absolutely no evidentiary basis for a finding that KV's conduct involved fraud, dishonesty, violence or moral turpitude, and accordingly, subsection (2) of § 338.055.2 is inapplicable to this case and does not constitute a valid rationale for discipline by the Board.
We turn our attention, then, to subsection (6), the other basis for the Board's action, which grants authority to the Board to bring a disciplinary action for violation of "any provision of [Chapter 338]." Chapter 338 is entitled "Pharmacists and Pharmacies," but includes three subsections: "Pharmacists," "Regulation of Pharmacies," and "Regulation of Wholesale Drug Distributors." Although KV maintains that the violations resulted from failures in its manufacturing operations rather than its wholesale distribution operations, it admittedly sells drugs to a subsidiary and to independent distributors for repackaging under their own labels, and therefore qualifies as a wholesale drug distributor under the statute. § 338.330(3). KV is therefore subject to subsection (6).
The provisions of Chapter 338 governing the regulation of wholesale drug distributorships are §§ 338.330 through 338.370. Those sections pertain to licensing, maintenance of licensing records, and the Board of Pharmacy's right to promulgate and enforce rules, suspend and revoke licenses, impose sanctions, and inspect premises of distributors within the state. §§ 338.330- 338.370. Federal reporting requirements of investigation of substandard drug assays, and the drug labeling requirements do not fall within the purview of §§ 338.330 to 338.370. Therefore, under subsection (6), none of the violations to which KV pled guilty are violations of Chapter 338.
Because we find that this issue is dispositive of KV's appeal, we do not reach its ancillary arguments or the issues raised in Point II of its brief. The circuit court's judgment affirming the decisions of the AHC and the Board is reversed.
All concur.