Ferndale Laboratories, Inc. v. Cavendish

79 F.3d 488, 1996 WL 123127
Court of Appeals for the Sixth Circuit·Decided March 21, 1996·No. No. 94-4108·Published·Cited by 1 cases

Opinion

LIVELY, Circuit Judge.

This appeal presents the question whether an Ohio statute that requires wholesale distributors of pharmaceuticals to register with and pay a license fee to the State of Ohio violates the Commerce Clause of the United States Constitution when applied to an out-of-state wholesale drug distributor. The district court held that the statute, as applied to a Michigan wholesale distributor, does violate the Commerce Clause, and entered an injunction against the state body charged with enforcing the statute.

I.

A.

The plaintiff, Ferndale Laboratories, Inc. (Femdale), manufactures and distributes pharmaceuticals from its facilities in Michigan. It is licensed by the federal government and the State of Michigan as a manufacturer and wholesaler of prescription drugs. When the State of Ohio ordered one of Femdale’s Ohio customers to discontinue purchases from Femdale until Ferndale registered under the statute in question, Fern-dale applied for registration and paid the required fee ($100) under protest, then filed this action for declaratory and injunctive relief. The defendants are the members of the Ohio State Board of Pharmacy, the body that registers wholesale distributors of pharmaceuticals and other drugs, collects the registration fee, and administers the statute.

B.

The case was submitted to the district court on cross-motions for summary judgment, and the court granted summary judgment in favor of the plaintiff, Femdale. Neither party contends that the case involves issues of material fact, or that the district court relied on erroneous factual findings. Accordingly, we adopt the district court’s statement of the facts, as set forth in its unpublished opinion:

Plaintiff operates a wholesale pharmaceutical business based in Michigan whereby customers from across the country order prescription medications which are then shipped by plaintiff. Plaintiffs activities with regard to the State of Ohio include the distribution of samples to physicians and the sale of prescription drugs to wholesalers, hospitals, and some industrial entities. Plaintiff does not sell medication directly to consumers in Ohio. None of plaintiffs employees work in Ohio or travel to Ohio on plaintiffs behalf, nor does plaintiff own any tangible property in Ohio. Plaintiff is registered as a wholesale pharmaceutical distributor in Michigan and is therefore in compliance with Michigan and federal registration requirements. Defendant has not alleged that Michigan’s regulations are substantially different from Ohio’s.
Ohio Revised Code § 4729.51 provides, in pertinent part, that “[n]o person other than a registered wholesale distributor of dangerous drags shall possess for sale, sell, distribute, or deliver, at wholesale, dangerous drags.”1 The registration procedure is contained in Ohio Rev.Code § 4729.52. Section 4729.52 provides that out-of-state wholesalers may be licensed as well as in-state wholesalers. Since the adoption of Section 4729.51, the Board has required both in-state and out-of-state wholesale distributors to register and pay a registration fee. The record reflects that the fee charged is currently $100.00 per year. There is no allegation or evidence that there has ever been a disparity in the fee charged to resident as opposed to nonresident wholesale distributors.

[491]*491The instant ease arose when plaintiff elected to not pay the Ohio registration fee. Subsequently, defendants determined that one of the plaintiffs customers was purchasing dangerous drugs from plaintiff, an unlicensed wholesaler. Section 4729.51(D) requires that terminal distributors of dangerous drugs purchase drugs only from wholesalers who register with the Board. This provision provides economic leverage for the Board to require out-of-state wholesalers to register in Ohio. After the Board ordered a terminal distributor to stop buying drugs from plaintiff because of plaintiffs refusal to register, plaintiff paid the registration fee under protest and instituted the present action.

II.

The defendants make two arguments on appeal. First, the defendants contend that in enacting a statute specifically regulating the wholesale distribution of drugs in 1987, Congress delegated the responsibility for regulating the wholesale distribution of prescription drugs to the states. See the Prescription Drug Marketing Act of 1987 (the Act), Pub.L. No. 100-293, codified at 21 U.S.C. § 353 (1988). They rely particularly on 21 U.S.C. § 353(e)(2)(A), which provides:

No person may engage in the wholesale distribution in interstate commerce of drugs subject to subsection (b) of this section in a State unless such person is licensed by the State in accordance with the guidelines issued under subparagraph (B).

The defendants construe the words “unless such person is licensed by the State” to be a broad delegation to the states of the power to regulate the wholesale distribution of drugs along with the power to require compliance by such wholesalers with federal, state and local drug. laws.

Second, the defendants argue that in addition to the general delegation under the Act, Ohio has authority to regulate out-of-state wholesalers of dangerous drugs under its traditional police powers. As an activity that affects the general welfare of Ohio inhabitants, regulating the importation of dangerous drugs into the State is among those activities most clearly within a state’s police power, according to the defendants. They contend that because the Ohio statute treats in-state and out-of-state wholesalers evenhandedly and imposes only minimal burdens on interstate commerce when applied to out-of-state wholesale drug distributors, the statute passes constitutional muster.

Predictably, Ferndale disagrees with both of the defendants’ positions. Ferndale maintains that while the language of the Act is not entirely clear in its reference to “engage in the wholesale distribution in interstate commerce of drugs ... in a State,” the legislative history makes it clear that Congress did not delegate to the states the authority to license an out-of-state wholesaler whose only connection with a particular state is the shipment of pharmaceuticals to customers for resale within that state. Ferndale relies particularly on the statement in a Senate Report that the Act is

intended to ensure that any person or firm engaging in the wholesale distribution of pharmaceuticals to any person or firm for resale shall be licensed in the state in which it does business and that the state licensing requirements meet certain minimum standards. The mere shipment of pharmaceuticals into a state would not trigger the requirement that the distributor be licensed in that state. However, the operation of a facility from which a wholesaler makes shipments outside the state would trigger the licensing requirement with respect to the state in which the facility is located.

S.Rep. No. 100-303, 100th Cong.2d Sess. 7 (1988), reprinted in 1988 U.S.C.C.A.N. 57, 63 (emphasis added).

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Ferndale Laboratories, Inc. v. Cavendish, 79 F.3d 488, 1996 WL 123127 (6th Cir. 1996).

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Ferndale Laboratories, Inc. v. Cavendish
79 F.3d 488 (Sixth Circuit, 1996)