United States v. Grand Laboratories, Inc., a South Dakota Corporation Duane C. Pankratz

174 F.3d 960, 1999 U.S. App. LEXIS 8452

• Court: Court of Appeals for the Eighth Circuit
• Decided: May 4, 1999
• Docket: 97-4157, 98-2525
• Status: Published

Opinions

BEAM, Circuit Judge.

The United States appeals the district court’s adverse rulings arising from claims that Grand Laboratories, Inc. and Dr. Duane C. Pankratz violated the Virus-Serum-Toxin Act (the VSTA) when Dr. Pan-kratz switched contaminated biological product with a bogus substitute and transported the contaminated material. The district court found that Dr. Pankratz violated the VSTA, but vindicated Grand Laboratories and denied any injunction to restrain future violations of the VSTA. The district court further found that the decision of the United States Department of Agriculture (the USDA), to deny reprocessing of the contaminated product, was arbitrary, capricious, and an abuse of discretion, and ordered reprocessing. We affirm in part and reverse in part.

I. BACKGROUND

Dr. Duane Pankratz, a doctor of veterinary medicine, is the president and owner of Grand Laboratories, Inc. (Grand Labs). Grand Labs manufactures veterinary biological products and holds a federal establishment license subjecting Grand Labs to regulation by the USDA. On June 23,1989, Grand Labs obtained a federal license to produce a biological product called Bovine Rhinotracheitis-Virus Diarrhea-Parain-fluenza 3-Respiratory Syncytial Virus Vaccine (trade name — Vira Shield 5).

Between June 22 and 25, 1990, employees of Grand Labs mixed the component parts of Vira Shield 5 to create a batch called serial 45-016. Serial 45-016 was then placed in 3,896 plastic bottles. Federal law requires that each serial of the licensed product be tested for viable bacteria and fungi. See 9 C.F.R. § 113.26. Initial testing showed that serial 45-016 was contaminated. Although the alleged cost of making the serial was $300,000, it was scheduled to be destroyed.

When informed of the test results and the serial’s impending destruction, Dr. Pankratz instructed that the product not be destroyed until he gave the okay. He then produced a worthless substitute solution, poured it into plastic bottles, packed the bottles in boxes, labeled the boxes as serial 45-016, and switched the real serial with the substitute concoction. He made the switch at about 3:00 a.m. and subsequently transported the contaminated serial. Dr. Pankratz then gave the go-ahead to destroy the bogus serial 45-016. But, after discovering that the material had been tampered with, an employee of Grand Labs contacted the USDA to inform them that a contaminated product was missing. The USDA inspected the facility and could not locate the original serial 45-016. Dr. Pankratz later led the USDA inspectors to serial 45-016, which by that time was located in a van in the parking lot. It had been left unrefrigerated for some period of time.

On October 15, 1990, in an effort to remove the contaminants and thereby allow the sale of serial 45-016, Dr. Pankratz and Grand Labs submitted a request for reprocessing to the USDA. The USDA outlined what would be required to permit reprocessing: identification of the contaminants and a proposal for removing the contaminants — including harmful metabolites or toxins. Dr. Pankratz submitted several subsequent tests of the serial and presented proposals for reprocessing. After almost two years of review and subsequent testing, the USDA denied the request to reprocess. Thus, serial 45-016 has remained under quarantine at Grand Labs since October 1990.

The United States filed civil charges against Dr. Pankratz and Grand Labs in November 1991 for violations of the VSTA. Dr. Pankratz, objecting to the USDA’s decision denying reprocessing, counterclaimed. under the Administrative Procedure Act. 5 U.S.C. §§ 551 et seq. After trial, the district court concluded, inter alia, that Dr. Pankratz was liable for shipping a contaminated biological product in violation of the VSTA, but that Grand Labs was not. The district refused to order a permanent injunction against either Dr. Pankratz or Grand Labs to prevent future violations of the VSTA. The court also concluded that serial 45-016 should not be destroyed, but instead ordered the USDA to allow reprocessing.

II. DISCUSSION

The parties have raised three primary issues on appeal: (1) the liability of Grand Labs for Dr. Pankratz’s actions; (2) the USDA’s denial of reprocessing; and (3) the issuance of an injunction against Dr. Pankratz and Grand Labs.¹ We consider each separately.

A. Grand Lab’s Liability

The complaint alleges that Dr. Pankratz, “acting on behalf of Grand Labs,” violated the VSTA, and seeks injunctive relief against both. The district court found that Dr. Pankratz violated the VSTA, but without discussion held that Grand Labs had not. The United States contends that this is error, citing basic agency principles. Grand Labs argues that the district court did not err because all the evidence “put on by the Government to support injunctive relief related to what Dr. Pankratz did and did not do.” We review this question of law de novo. See Long v. Nix, 86 F.3d 761, 764-65 (8th Cir.1996).

Dr. Pankratz, as president and owner of Grand Labs, violated the VSTA when he transported a contaminated biological product. “The general rule is that a corporation is liable for the torts and wrongful acts of its employees acting within the scope of their authority or the course of their employment.” United States v. United States Cartridge Co., 198 F.2d 456, 464 (8th Cir.1952). This general principle of vicarious liability demands that liability be imputed to Grand Labs. Thus, the district court erred with respect to Grand Labs’ liability.

B. Reprocessing-

After serial 45-016 tested positive for contamination, the USDA placed it under quarantine pending final resolution of this action. Dr. Pankratz and Grand Labs then sought to reprocess the serial to allow its sale. To support the reprocessing request, Grand Labs conducted several subsequent tests of the serial and alleged that the contamination shown by the initial test may have resulted from employee misconduct. However, the USDA denied the reprocessing request despite Grand Labs’ evidence. The gist of the USDA’s position is summarized in a letter to Dr. Pankratz that states:

The results of your latest testing do not negate the fact that the serial was found to be contaminated at the time of the initial sterility testing. Since the organism has not been identified, there is no way to determine what metabolites or toxins were produced by the contaminant.

You have not proposed an acceptable way to remove the contaminant from the serial, nor to test for possible harmful metabolites or toxins. I cannot grant an approval for your reprocessing request.

Appellant’s Appendix at 79.

Dr. Pankratz and Grand Labs successfully argued to the district court that the agency’s denial constituted arbitrary and capricious conduct. We, like the district court, review the agency’s decision to deny reprocessing to determine if the decision was “ ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ ” Wilkins v. Secretary of the Interior, 995 F.2d 850, 852-53 (8th Cir.1993) (quoting 5 U.S.C. § 706(2)(A)). This limited review dictates that we not substitute our judgment for that of the agency, but instead requires that we “give substantial deference to agency determinations.” Downer v. United States, 97 F.3d 999, 1002 (8th Cir.1996) (per curiam). Substantial deference is particularly appropriate where, as here, the agency’s decision concerns a subject within its unique area of expertise. See id.

The dissent states that “in the interest of justice there is little to lose and everything to gain by affirming the district court” on this issue. Post at 968. This is, of course, not the proper standard of review for agency determinations. Furthermore, deference to an agency determination is all the more compelling in a case such as this, where the district court itself concluded that “the testimony of the witnesses on both sides as to whether or not serial 45-016 was contaminated was very impressive.” United States v. Grand Lab., Inc., No. C 91-4113-DEO, mem. op. at 28 (N.D.Iowa Aug. 14, 1996). The district court’s statement highlights the very dilemma put before the USDA in its consideration of whether to allow reprocessing of serial 45-016 — to believe the evidence supporting contamination or the evidence suggesting no contamination.

The evidence supporting contamination rests on the first test conducted by Grand Labs. The USDA’s experts reviewed the test and test procedures and concluded that the results were accurate. It should also be remembered that based upon this initial test, the district court found Dr. Pankratz liable for shipment of a contaminated biological product, a point not challenged on appeal. In the nearly nine years since serial 45-016 was produced and over six years since the denial of reprocessing, Dr. Pankratz and Grand Labs have sought to undermine the validity of the initial test through subsequent testing and allegations of employee misconduct. Not all subsequent tests were in the administrative record, but contrary to the dissent’s position, there were tests showing no contamination which were considered by the USDA in its reprocessing decision. Additionally, the USDA had evidence before it that suggested employees of Grand Labs had somehow “set-up” Dr. Pankratz. The administrative record, although not as richly developed as the trial court record, provided sufficient evidence for the USDA to make a rational reprocessing decision.

With evidence on both sides, including expert testimony, the USDA was left with the difficult decision of whether to allow or deny reprocessing. If reprocessing were allowed and any remnants of an unidentified contaminate-dead bacteria, metabolites or toxins — were not discovered and removed (a possibility since the USDA knows no way to test and remove them, and Grand Labs provided no suitable suggestions), then there would be a green light to market the product. Serial 45-016 could then be administered to thousands of head of livestock.

The other alternative was to deny reprocessing based on the initial test showing contamination and thereby err on the side of public safety.² The USDA followed their experts and chose the path of public safety. An agency making determinations that are so wrapped-up with scientific judgments must be permitted to rely upon the “ ‘reasonable opinions of its own qualified experts.’ ” Downer, 97 F.3d at 1002 (quoting Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 378, 109 S.Ct. 1851, 104 L.Ed.2d 377 (1989)).

The USDA’s experts were concerned, as indicated, about unidentified contaminants in serial 45-016 as well as metabolites and toxins that the contamination may have produced. These concerns persisted throughout the reprocessing request and were not alleviated by Dr. Pankratz and Grand Labs. Thus, the reprocessing request was denied. “ ‘[E]ven if, as an original matter, a court might find contrary views more persuasive,’ ” the USDA’s determination is not arbitrary, capricious, or an abuse of discretion and must be given deference. Id. (quoting Marsh, 490 U.S. at 378, 109 S.Ct. 1851). Therefore, we uphold the USDA’s determination on reprocessing.

C. Injunction

As noted, the complaint seeks a permanent injunction restraining Grand Labs and Dr. Pankratz from “violating the VSTA and its implementing rules and regulations including, but not limited to: ... (3) shipping or delivering for shipment any worthless, contaminated ... product.” The United States argues that an injunction is necessary to protect the public health and safety and to prevent the likely recurrence of what was “not an isolated incident.” The United States essentially seeks two injunctions: one for restraining the shipment of serial 45-016 and another for any future violation of the law. The district court denied any injunctive relief, concluding that there is little or no possibility of future violations that ordinary enforcement would not adequately remedy. We review for abuse of discretion. See United States v. Green Acres Enter., Inc., 86 F.3d 130, 132 (8th Cir.1996).

Injunctive relief is generally appropriate when there is no adequate remedy at law. See Hockenberg Equip. Co. v. Hockenberg’s Equip. & Supply Co. of Des Moines, Inc., 510 N.W.2d 153, 158 (Iowa 1993). “Probably the most common method of demonstrating” that a legal remedy is inadequate is by showing that irreparable harm will result. 11A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2944, at 90 (2d ed.1995); see also Green Acres, 86 F.3d at 132-33.

We find that shipment of serial 45-016 presents an appropriate situation for in-junctive relief. Dr. Pankratz has demonstrated a willingness to circumvent established procedures and legal constraints to salvage a costly but contaminated biological product. If serial 45-016 is shipped and sold, tremendous damage could result. And since we have upheld the USDA’s decision to deny reprocessing, we conclude that an injunction should issue restraining Dr. Pankratz and Grand Labs from shipment of serial 45-016.

Injunctive relief for any future violations of the law, however, presents a different analysis. The district court noted that even counsel for the United States characterized this request as essentially “a situation where the Government is seeking an injunction from the Court to require Grand to follow the law.” Grand Lab., memorandum op. at 49. While there are scenarios “where Congress expressly provides for injunctive relief to prevent violations of a statute,” such is not the case here. Burlington N. R.R. Co. v. Bair, 957 F.2d 599, 601 (8th Cir.1992) (analyzing section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976). Ordinary enforcement of the VSTA, although not nearly as simple as a contempt proceeding that would result from a violation of an injunction, is an adequate legal remedy. An injunction should not ordinarily issue simply because a law has been violated.

III. CONCLUSION

For the foregoing reasons we affirm in part and reverse in part the district court’s judgment and remand for further proceedings consistent with this opinion.

1 . We have carefully reviewed the record and find no merit to arguments not discussed herein.

2 . The USDA no longer authorizes reprocessing to eliminate contamination in a product. See United States Department of Agriculture, Veterinary Service Memorandum No. 880.62 (December 10, 1997).