IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 94-20402
PROFESSIONALS and PATIENTS FOR CUSTOMIZED CARE,
Plaintiff-Appellant,
v.
DONNA SHALALA, ET AL.,
Defendants-Appellees.
Appeal from the United States District Court
For the Southern District of Texas
(June 15, 1995)
Before WISDOM, WIENER and PARKER, Circuit Judges.
WIENER, Circuit Judge:
In this challenge brought pursuant to the Administrative
Procedure Act (APA),1 Plaintiff-Appellant Professionals and
Patients for Customized Care (P2C2) contends that the district
court erred in concluding that Food & Drug Administration (FDA)
Compliance Policy Guide 7132.16 (CPG 7132.16) is not a substantive
rule and thus is not subject to the APA's notice-and-comment
requirement. Finding no reversible error, we affirm.
I
FACTS AND PROCEEDINGS
In 1992, the FDA promulgated CPG 7132.16 to address what the
agency perceived to be a burgeoning problem in the pharmaceutical
1
5 U.S.C. §§ 500-576 (1988).
industry))the manufacture of drugs by establishments with retail
pharmacy licenses. Pharmacies have long engaged in the practice of
traditional compounding, the process whereby a pharmacist combines
ingredients pursuant to a physician's prescription to create a
medication for an individual patient. This type of compounding is
commonly used to prepare medications that are not commercially
available, such as diluted doses for children and altered forms of
medications for easier consumption.
Pharmacies that practice traditional compounding are regulated
primarily by state law,2 and the drugs that they blend are exempt
from many federal misbranding provisions.3 Drug manufacturers and
their products, however, are subject to rigorous federal oversight.
By the 1990s, the FDA had become aware that many
establishments with retail pharmacy licenses were purchasing large
quantities of bulk drug substances; combining those substances into
specific drug products before ever receiving any valid
prescriptions; and then marketing those drug products to
practitioners and patients. The FDA suspected that establishments
2
"[P]harmacies" that dispense drugs "upon prescriptions of
practitioners" for their patients, "and which do not manufacture
. . . [or] compound . . . drugs . . . for sale other than in the
regular course of their business of dispensing or selling drugs"
are exempt from particular FDA registration requirements and
inspections. See 21 U.S.C. § 360(g)(1) (requiring drug
manufacturers to register with the FDA); id. § 374 (granting FDA
agents right to inspect certain facilities).
3
Id. § 353(b)(2). Although the Act does not expressly
exempt "pharmacies" or "compounded drugs" from the new drug,
adulteration, or misbranding provisions, the FDA as a matter of
policy has not historically brought enforcement actions against
pharmacies engaged in traditional compounding.
2
engaged in this large-scale speculative "compounding" were doing so
to circumvent those new drug, adulteration, and misbranding
provisions of the Food, Drug, and Cosmetic Act (Act)4 that regulate
the manufacture of drugs.
To combat this perceived problem, the FDA issued CPG 7132.16,
in an effort to establish the following "policy":
POLICY
FDA recognizes that a licensed pharmacist may compound
drugs extemporaneously after receipt of a valid
prescription for an individual patient . . . .
Pharmacies that do not otherwise engage in practices that
extend beyond the limits set forth in this CPG may
prepare drugs in very limited quantities before receiving
a valid prescription, provided they can document a
history of receiving valid prescriptions that have been
generated solely within an established professional
practitioner-patient-pharmacy relationship and provided
further that they maintain the prescription on file for
all such products dispensed at the pharmacy as required
by state law.
If a pharmacy compounds finished drugs from bulk active
ingredient materials considered to be unapproved new drug
substances, as defined in 21 CFR 310.3(g), such activity
must be covered by an FDA-sanctioned investigational new
drug application (IND) that is in effect in accordance
with 21 U.S.C. Section 355(i) and 21 CFR 312.
. . .
Pharmacies may not, without losing their status as retail
entities, compound, provide, and dispense drugs to third
parties for resale to individual patients.
FDA will generally continue to defer to state and local
officials (sic) regulation of the day-to-day practice of
retail pharmacy and related activities. . . .
FDA may, in the exercise of its enforcement discretion,
initiate federal enforcement actions against entities and
responsible persons when the scope and nature of a
4
21 U.S.C. §§ 301-392.
3
pharmacy's activity raises the kind of concerns normally
associated with a manufacturer and that results in
significant violations of the new drug, adulteration, or
misbranding provisions of the Act.
This CPG goes on to identify nine factors that the FDA "will
consider" in determining whether to initiate an enforcement action,
but explains that the "list of factors is not intended to be
exhaustive and other factors may be appropriate for consideration
in a particular case."
The FDA issued CPG 7132.16 without complying with APA notice-
and-comment procedures,5 as the agency considered CPG 7132.16 to be
for internal guidance. The FDA explains that CPG 7132.16 was
intended to be used within the agency, primarily by FDA district
offices, as an aid in identifying those pharmacies that manufacture
drugs under the guise of traditional compounding.6
P2C2, an organization comprising individuals and entities
engaged in the practice of pharmacy, interprets CPG 7132.16
differently. Soon after CPG 7132.16 issued, the FDA notified some
of the organization's members that their activities were more
consistent with drug manufacturing than with traditional
compounding, and that they and their products were thus subject to
the regulations applicable to drug manufacturers. On behalf of
those and other members, P2C2 filed suit in federal district court,
claiming that CPG 7132.16 is invalid because it is a substantive
rule issued in violation of the APA's notice-and-comment
5
See 5 U.S.C. § 553.
6
See Notice, 57 Fed. Reg. 10906 (1992).
4
requirement. The FDA responded that P2C2 lacked standing and that
its claim was not ripe, but the district court disagreed. Both
parties then filed cross motions for summary judgment, which the
trial court denied, finding that there remained genuine issues of
material fact. Following a two-day bench trial, the district court
made extensive findings of fact and conclusions of law, and ruled
that CPG 7132.16 is either an "interpretative rule" or "policy
statement," but it is not a "substantive rule." Consequently, held
the district court, the FDA was exempt from complying with the
APA's notice-and-comment requirements, and CPG 7132.16 was validly
promulgated.
P2C2 timely appealed, contending that the district court erred
in concluding that CPG 7132.16 was not a substantive rule. The FDA
responded that the district court had correctly held that CPG
7132.16 was not a substantive rule, and reurged its ripeness and
standing arguments.7
II
ANALYSIS
A. STANDARD OF REVIEW
We review for clear error the district court's findings of
fact. We consider de novo the court's conclusions of law,8 which
include the court's ruling that CPG 7132.16 is not a "substantive
7
P2C2 argues that the government "waived" its jurisdictional
arguments by failing to file a cross-appeal of that judgment.
We, of course, have an independent obligation to determine our
jurisdiction, with which in this case, we find we are vested.
8
FED. R. CIV. P. 52(a).
5
rule."9
B. THE PROPER CHARACTERIZATION OF CPG 7132.16
All parties agree that under the APA, CPG 7132.16 is a "rule,"
and its promulgation constituted "rulemaking."10 But the APA
exempts from notice-and-comment procedures "interpretative rules,
general statements of policy, [and] rules of agency organization,
procedure, or practice."11 In contrast, if a rule is
"substantive,"12 the exemption is inapplicable, and the full panoply
of notice-and-comment requirements must be adhered to scrupulously.
The "APA's notice and comment exemptions must be narrowly
construed."13
If CPG 7132.16 were a substantive rule it would be unlawful,
for it was promulgated without the requisite notice and comment.
The pivotal issue in this case, therefore, is whether CPG 7132.16
is a substantive rule. Although the APA itself does not define
"substantive rules," "interpretive rules," or "statements of
policy," courts over the years have developed a body of
jurisprudence that is helpful in drawing the necessary))but often
9
Phillips Petroleum Co. v. Johnson, 22 F.3d 616, 619 (5th
Cir.), modified on other grounds, No. 93-1377, 1994 WL 484506
(June 10, 1994), cert. denied, 115 S. Ct. 1816 and 115 S. Ct.
1817 (1995).
10
See 5 U.S.C. § 551(4); see Phillips Petroleum Co., 22 F.3d
at 619 n.2.
11
See 5 U.S.C. § 553(b)(3)(A), (d)(2).
12
Substantive rules are also referred to as "legislative
rules" or "regulations."
13
United States v. Picciotto, 875 F.2d 345, 347 (D.C. Cir.
1989).
6
illusory14))distinctions among the three types of rules. It is that
body of law, much of which comes from our colleagues of the
District of Columbia Circuit, to which we now turn.
In Community Nutrition Institute v. Young,15 the D.C. Circuit
reiterated two "criteria" to which courts have looked to
distinguish substantive rules from nonsubstantive rules:
First, courts have said that, unless a pronouncement acts
prospectively, it is a binding norm. Thus . . . a
statement of policy may not have a present effect: "a
`general statement of policy' is one that does not impose
any rights and obligations" . . . .
The second criterion is whether a purported policy
statement genuinely leaves the agency and its
decisionmakers free to exercise discretion.16
The court further explained that "binding effect, not the timing,
. . . is the essence of criterion one."17 In analyzing these
criteria, we are to give some deference, "albeit `not
overwhelming,'" to the agency's characterization of its own rule.18
While mindful but suspicious of the agency's own characterization,
14
See Community Nutrition Inst. v. Young, 818 F.2d 943, 946
(D.C. Cir. 1987) (recalling that courts and commentators have
described the distinction between substantive and interpretative
rules or policy statements as, inter alia, "tenuous," "fuzzy,"
"blurred," "baffling," and "enshrouded in considerable smog").
15
818 F.2d 943 (D.C. Cir. 1987).
16
Id. at 946 (quoting American Bus Ass'n v. United States,
627 F.2d 525, 529 (D.C. Cir. 1980) (quoting Texaco v. FPC, 412
F.2d 740, 744 (3d Cir. 1969)); see Batterton v. Marshall, 648
F.2d 694, 702 (D.C. Cir. 1980).
17
Community Nutrition Inst., 818 F.2d at 946 n.4.
18
Id. at 946 (quoting Brock v. Cathedral Bluffs Shale Oil
Co., 796 F.2d 533, 537 (D.C. Cir. 1986) (stating that "there is
deference and there is deference))and the degree accorded to the
agency on a point such as this is not overwhelming").
7
we follow the D.C. Circuit's analysis in determining whether CPG
7132.16 is a substantive rule under the APA, focusing primarily on
whether the rule has binding effect on agency discretion19 or
severely restricts it.20 As we noted in Panhandle Producers &
Royalty Owners Ass'n v. Economic Regulatory Administration21:
"A properly adopted substantive rule establishes a standard of
conduct which has the force of law. In subsequent
administrative proceedings involving a substantive rule, the
issues are whether the adjudicated facts conform to the rule
and whether the rule should be waived or applied in that
particular instance. The underlying policy embodied in the
rule is not generally subject to challenge before the agency.
A general statement of policy, on the other hand, does not
establish a `binding norm.' It is not finally determinative
of the issues or rights to which it is addressed. The agency
cannot apply or rely upon a general statement of policy as law
because a general statement of policy only announces what the
agency seeks to establish as policy. A policy statement
announces the agency's tentative intentions for the future.
When the agency applies the policy in a particular situation,
it must be prepared to support the policy just as if the
policy statement had never been issued. An agency cannot
escape its responsibility to present evidence and reasoning
supporting its substantive rules by announcing binding
precedent in the form of a general statement of policy."22
1. Agency Deference: FDA's Characterization
In analyzing whether an agency pronouncement is a statement of
policy or a substantive rule, the starting point is "the agency's
19
See Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d
897, 908 (5th Cir. 1983) (stating that substantive rules, "grant
rights," "impose obligations," "produce other significant effects
on private interests," or "have substantial legal effect").
20
Id. (stating that substantive rules "narrowly constrict
the discretion of agency officials by largely determining the
issue addressed").
21
847 F.2d 1168 (5th Cir. 1988).
22
Id. at 1174-75 (5th Cir. 1988) (quoting Pacific Gas &
Elec. Co. v. FPC, 506 F.2d 33, 38-39 (footnotes omitted)).
8
characterization of the rule."23 It is undisputed that the FDA has
consistently classified the instant rule as a statement of policy.
The rule is self-described as "Policy," and it was promulgated as
a "compliance policy guide." In addition, the FDA has steadfastly
insisted, both before us and before the district court, that CPG
7132.16 was intended to propound policy.
Further, the FDA chose to promulgate the information contained
in this rule in the form of a compliance policy guide, which FDA
regulations classify as an "advisory opinion."24 An advisory
opinion "may be used in administrative or court proceedings to
illustrate acceptable and unacceptable procedures or standards, but
not as a legal requirement."25 Both of these factors))the
description as "policy" in the CPG itself and the fact that
compliance policy guides do not have binding effect))militate in
favor of a holding that CPG 7132.16 is not a substantive rule.
But as we observed in Brown Express, Inc. v. United States,26
"`[t]he label that the particular agency puts upon its given
exercise of administrative power is not, for our purposes,
conclusive; rather, it is what the agency does in fact.'"27 We
23
Metropolitan Sch. Dist. v. Davila, 969 F.2d 485, 489 (7th
Cir. 1992), cert. denied, 113 S. Ct. 1360 (1993).
24
See 21 C.F.R. § 10.85(d)(3) (1994).
25
Id. § 10.85(j).
26
607 F.2d 695 (5th Cir. 1979).
27
Id. at 700 (quoting Lewis-Mota v. Secretary of Labor, 469
F.2d 478, 481 (2d Cir. 1972)); accord Phillips Petroleum Co. v.
Johnson, 22 F.3d 616, 619 (5th Cir. 1994) ("`The label that the
particular agency puts upon its given exercise of administrative
9
therefore turn now to those matters of substance.
2. Binding Effect of CPG 7132.16
A touchstone of a substantive rule is that it establishes a
binding norm. As the Eleventh Circuit has observed:
The key inquiry . . . is the extent to which the challenged
policy leaves the agency free to exercise its discretion to
follow or not to follow that general policy in an individual
case, or on the other hand, whether the policy so fills out
the statutory scheme that upon application one need only
determine whether a given case is within the rule's criteria.
As long as the agency remains free to consider the individual
facts in the various cases that arise, then the agency action
in question has not established a binding norm.28
P2C2 argues that CPG 7132.16 establishes a binding norm, as it
imposes on compounding pharmacists significant new obligations.
Most of these new obligations are manifested in the nine "factors,"
which, according to P2C2, are tantamount to binding norms. The
district court found that the nine factors merely provide guidance
to help FDA agents distinguish traditional compounding from drug
manufacturing, and that the factors are not finally determinative
of whether a particular pharmacy is violating the Act. According
power is not, for our purposes, conclusive . . . .'"), modified
on other grounds, No. 93-1377, 1994 WL 484506 (June 10, 1994),
cert. denied, 115 S. Ct. 1816 and 115 S. Ct. 1817 (1995). For
the same reason, the fact that we previously found another FDA
compliance policy guide to be a policy statement is not
dispositive whether CPG 7132.16 is a policy statement. See,
e.g., Southeastern Minerals, Inc. v. Harris, 622 F.2d 758, 766
(5th Cir. 1980) ("Because the FDA issued the [CPG] as a general
statement of agency policy, it was not required to comply with
the formal rulemaking requirements of the [APA].").
28
Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369,
1377 (11th Cir. 1983), cert. denied, 466 U.S. 927 (1984); see
also Vietnam Veterans of Am. v. Secretary of Navy, 843 F.2d 528,
537 (D.C. Cir. 1988) (stating that a valid policy statement can
"affect the agency's decisionmaking").
10
to the court, enforcement actions are brought only for violations
of the Act, and CPG 7132.16 merely restates a longstanding FDA
position regarding the traditional practice of pharmacy; it does
not represent a change in FDA policy and does not have a
significant effect on pharmacy practice or traditional compounding.
To ascertain whether CPG 7132.16 creates binding norms, we first
consider its plain language and then address the manner in which it
had been implemented by the FDA.
a. Plain Language of CPG 7132.16
CPG 7132.16 provides, in pertinent part, that:
FDA may, in the exercise of its enforcement discretion,
initiate federal enforcement actions against entities and
responsible persons when the scope and nature of a
pharmacy's activity raises the kind of concerns normally
associated with a manufacturer and that results in
significant violations of the new drug, adulteration, or
misbranding provisions of the Act. In determining
whether to initiate such an action, the agency will
consider whether the pharmacy engages in any of the
following acts:
1. Soliciting business . . . to compound specific drug
products . . . .
2. Compounding, regularly, or in inordinate amounts, drug
products that are commercially available in the marketplace
and that are essentially generic copies of commercially
available, FDA-approved drug products.
3. Receiving, storing, or using drug substances without
first obtaining written assurance from the supplier that each
lot of the drug substance has been made in an FDA-approved
facility.
4. Receiving, storing, or using drug components not
guaranteed or otherwise determined to meet official compendia
requirements.
5. Using commercial scale manufacturing or testing equipment
for compounding drug products.
6. Compounding inordinate amounts of drugs in anticipation
11
of receiving prescriptions in relation to the amounts of drugs
compounded after receiving valid prescriptions.
7. Offering compounded drug products at wholesale to other
state licensed persons or commercial entities for resale.
8. Distributing inordinate amounts of compounded products
out of state.
9. Failing to operate in conformance with applicable state
law regulating the practice of pharmacy.
The foregoing list of factors is not intended to be exhaustive and
other factors may be appropriate for consideration in a particular
case.
We observe initially the statement in CPG 7132.16 that the FDA
"will consider" the nine factors in determining whether to initiate
an enforcement action against a pharmacy. We also note that, even
though the mandatory tone of the factors is undoubtedly calculated
to encourage compliance, CPG 7132.16 affords an opportunity for
individualized determinations. It expressly provides that "[t]he
foregoing list of factors is not intended to be exhaustive,"
recognizes that "other factors may be appropriate for consideration
in a particular case," and states that, even if the factors are
present, the FDA retains discretion whether to bring an enforcement
action.29 In this regard, CPG 7132.16 is analogous to the rule
reviewed in Guardian Federal Savings & Loan Ass'n v. Federal
Savings & Loan Insurance Corp.,30 which the D.C. Circuit held to be
a statement of policy, exempt from APA notice-and-comment
29
CPG 7132.16 ("FDA, may, in the exercise of its enforcement
discretion, initiate federal enforcement actions . . . "
(emphasis added)).
30
589 F.2d 658 (D.C. Cir. 1978).
12
requirements.31
The substantive content of the limits themselves also favors
a finding that CPG 7132.16 does not create binding norms. The rule
does not contain specifications of precise quantities or limits
that, once exceeded, trigger a mandatory FDA response. The factors
provide, for example, that only the compounding or distributing of
"inordinate amounts" of drugs is impermissible, but nowhere does
the rule further define "inordinate amounts." As such, CPG 7132.16
leaves to the sound discretion of the FDA the determination when a
particular quantity has exceeded the amount considered to be within
the bounds of traditional compounding. The fact that none of the
nine factors listed in CPG 7132.16 establish "fixed criteria to
control the agency's decisions" distinguishes CPG 7132.16 from
other FDA rules that have been held to be substantive.32
P2C2 relies primarily on two cases, Bellarno International
Ltd. v. FDA,33 and Community Nutrition Institute v. Young,34 but both
are easily distinguished.35 In those two cases, and unlike here,
31
Id. at 666-67 (noting that provision providing that FSLIC
examiner "may reject audit" afforded individualized determination
necessary to offset otherwise "mandatory tone of specifications
for audits and auditors").
32
Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d 897,
910 (5th Cir. 1983) (citing cases).
33
678 F. Supp. 410 (E.D.N.Y. 1988).
34
818 F.2d 943 (D.C. Cir. 1987).
35
P2C2 also refers us to Northwest Tissue Center v. Shalala,
1 F.3d 526 (7th Cir. 1993), but that case is completely
inapposite. In Northwest Tissue Center v. Shalala, the court had
previously found that the provision at issue was an
interpretative rule, not a regulation, and the only remaining
13
FDA rules were found to create binding norms, for they removed all
discretion from the agency by creating a statutory scheme that
reduced the agency's role to that of mechanically "determin[ing]
whether a given case is within the rule's criteria."36
At issue in Community Nutrition was an FDA "action level,"
which provided that "[a]ny food that contains aflatoxin in excess
of 20 [parts per billion (ppb)] is . . . considered by FDA to be
adulterated under section 402(a)(1) . . . and therefore may not be
shipped in interstate commerce."37 The action level established a
statutory scheme whereby once a precise level of aflatoxin was
detected, the FDA had no choice but to detain the food. The FDA
conceded at oral argument that it would be "daunting" to try to
convince a court that the agency could prosecute a producer for
shipping corn with less than 20 ppb, and the court noted that "this
type of cabining of an agency's prosecutorial discretion can in
fact rise to the level of a substantive . . . rule."38
The FDA's discretion was similarly restricted in Bellarno
International, which concerned a FDA "import alert" that ordered
the "automatic[]" detention of all pharmaceuticals classified by
issue was whether a particular provision in the Act))not the
APA))imposed notice-and-comment requirements.
36
Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369,
1377 (11th Cir. 1983), cert. denied, 466 U.S. 927 (1984).
37
Community Nutrition Inst., 818 F.2d at 946 n.4. Aflatoxin
is a by-product of certain common molds that grow on various
crops, including corn. Id. at 945 n.1.
38
Id. at 948 (citing Nader v. CAB, 657 F.2d 453 (D.C. Cir.
1981) and Guardian Fed. Sav. & Loan Ass'n v. FSLIC, 589 F.2d 658,
666-67 (D.C. Cir. 1978)).
14
tariff regulations as "American Goods Returned (AGR)," i.e.,
pharmaceuticals initially produced in the United States, exported
for distribution abroad, and subsequently returned for sale in the
United States. As in Community Nutrition, once a precisely defined
criterion was satisfied))in Community Nutrition, 20 ppb of
aflatoxin; in Bellarno International, that the pharmaceutical was
an AGR))then a prescribed FDA action automatically followed.
Consequently, the rule reduced the function of the FDA to that of
rote "determin[ation] whether a given case is within the rule's
criteria."39 When viewed in light of the rules in Community
Nutrition and Bellarno International, it is clear that the nine
factors identified in CPG 7132.16 are not the type of criteria that
courts have traditionally characterized as "binding norms."40
b. FDA's Enforcement of CPG 7132.16
P2C2 urges that, even if the plain language of the rule does
not create a binding norm, the agency has treated CPG 7132.16 as
though it establishes binding norms, and thus we should hold that
it does. P2C2 reminds us that the pertinent inquiry is not only
what CPG 7132.16 states that the agency will do, but also "what the
agency does in fact.'"41
P2C2 relies on numerous informal agency communications as
39
Ryder Truck Lines, Inc., 716 F.2d at 1377.
40
See also Avoyelles Sportsmen's League, Inc. v. Marsh, 715
F.2d 897, 910 (5th Cir. 1983) (listing cases in which "fixed
criteria" created binding norms).
41
Brown Express, Inc. v. United States, 607 F.2d 695, 700
(5th Cir. 1979) (quoting Lewis-Mota v. Secretary of Labor, 469
F.2d 478, 481 (2d Cir. 1972)).
15
evidence that the FDA has treated CPG 7132.16 as establishing a
binding norm. P2C2 cites in particular to evidence that, since CPG
7132.16's promulgation: (1) the FDA has used the nine factors
listed in CPG 7132.16 when inspecting pharmacies, and has relied on
those factors to determine whether federal enforcement actions were
warranted; (2) in numerous letters the FDA has warned pharmacists
that they were engaged in drug manufacturing, rather than
traditional compounding, because they were conducting some, or all,
of the activities listed in CPG 7132.16, and (3) the FDA has
furnished copies of CPG 7132.16 to pharmacists who inquired about
the legal restrictions on drug compounding. P2C2's reliance is
misplaced.
The fact that FDA inspectors refer to CPG 7132.16 to help
determine whether a pharmacy is engaged in traditional compounding
or drug manufacturing is not particularly probative whether the
rule is substantive. We would expect agency employees to consider
all sources of pertinent information in performing that task,
whether the information be contained in a substantive rule, an
interpretive rule, or a statement of policy. Indeed, what purpose
would an agency's statement of policy serve if agency employees
could not refer to it for guidance?
More probative of the nature of CPG 7132.16, however, is the
language used by the FDA in warning letters to pharmacies. In one
such letter, the FDA wrote that firms engaged in activities that
"exceed the limits of CPG 7132.16 are considered manufacturers and
are subject to all the provisions of the Act." We would not
16
dispute that if this statement were viewed in a vacuum, one could
be led to conclude that the FDA was in fact treating CPG 7132.16 as
a binding norm. But statements are not to be considered out of
context or in isolation, and in that very same letter the FDA
clearly stated that CPG 7132.16 was only used by the agency as
"internal guidance." Moreover, informal communications often
exhibit a lack of "precision of draftsmanship" and such internal
inconsistencies are not unexpected, which is why such documents are
generally entitled to limited weight.42 We cannot conclude, in
light of all of the other circumstances, that these warning letters
are sufficient to transform CPG 7132.16 into a substantive rule.
As with that use of CPG 7132.16, we do not find particularly
probative the fact that the FDA enclosed copies of CPG 7132.16 in
letters responding to some pharmacists' questions regarding the
legality of compounding activities. In that correspondence, the
agency pointed out that CPG 7132.16 is "policy" and explained
further that "[t]his document includes a list of factors which the
FDA feels differentiates [sic]" traditional compounding from drug
manufacturing. The FDA noted in particular that "[t]his list is
not intended to be exhaustive, and other situations or factors may
be considered in particular cases." By so doing, the letters made
clear that CPG 7132.16 was used for guidance, but that the FDA
retained discretion to conduct an individualized inquiry and to
consider other factors outside the list. CPG 7132.16, for example,
42
See Community Nutrition Inst. v. Young, 818 F.2d 943, 948
(D.C. Cir. 1987).
17
provides that pharmacies engaged in nontraditional compounding are
subject to certain provisions of the Act, and the FDA explains in
warning letters that a pharmacy's compounding may be subject to
regulation under the Act.
We cannot conclude that the FDA has treated the factors in CPG
7132.16 as binding norms. Rather, the agency has used CPG 7132.16
for guidance to help identify those pharmacies that might be
engaged in drug manufacturing activities under the guise of
compounding.
2. Degree of Enforcement Discretion Accorded FDA
Even if CPG 7132.16 does not create binding norms, argues
P2C2, the rule so narrowly constricts FDA enforcement discretion
that the CPG should be deemed to be a substantive rule.43 P2C2
contends that CPG 7132.16 acts essentially to identify those
pharmacies against which the FDA will bring enforcement actions,
thereby denying the agency any semblance of discretion. We
disagree.
True, the FDA had even greater discretion in bringing
enforcement actions before CPG 7132.16 issued; prior to that time
inspectors were apparently provided with no official guidance
whatsoever. In that sense, therefore, CPG 7132.16 has "channeled"
the FDA's enforcement discretion, providing direction))where once
there was none))by helping to determine whether a pharmacy is
engaged in traditional compounding or drug manufacturing. But all
43
The concept of constricted enforcement discretion is
closely related to that of "binding norms," as both reduce the
leeway with which the agency can perform its tasks.
18
statements of policy channel discretion to some degree))indeed,
that is their purpose. The more cogent question therefore is
whether CPG 7132.16 is so restrictive in defining which pharmacies
are engaged in drug manufacturing that it effectively removes most,
if not all, of the FDA's discretion in deciding against which
pharmacies it will bring an enforcement action. We cannot read CPG
7132.16 that restrictively.
CPG 7132.16 makes clear that it was not intended to foreclose
the agency's exercise of its discretion in bringing an enforcement
action. In fact, the rule expressly refers to the discretionary
nature of bringing such actions:
[T]he agency may, in the exercise of its enforcement
discretion, initiate federal enforcement actions . . .
when the scope and nature of a pharmacy's activity raises
the kinds of concerns normally associated with a
manufacturer and that results in significant violations
of the new drug, adulteration, or misbranding provisions
of the Act.44
The D.C. Circuit has in some cases "given decisive weight to the
agency's choice between the words `may' and `will,'"45 but we need
not go so far today.
We further observe that the language of CPG 7132.16 that
purports to distinguish traditional compounding from drug
manufacturing is imprecise and discretionary))not exact and
certain. The rule, for example, states what action the FDA "may"
44
CPG 7132.16 (emphasis added).
45
Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 538 (D.C.
Cir. 1986); see Community Nutrition Inst., 818 F.2d at 947 & n.6
(stating that use of "mandatory" language "is a powerful, even
potentially dispositive, factor" that rule is substantive).
19
take in its "discretion" to address "significant violations"; it
does not mandate a particular agency response once precisely fixed
thresholds are exceeded.46 CPG 7132.16 also expresses that the list
of nine factors is neither dispositive nor exhaustive. Although
CPG 7132.16 may assist the FDA in identifying pharmacies engaged in
the manufacture of drugs, it clearly leaves to the sound discretion
of the agency in each case the ultimate decision whether to bring
an enforcement action.
Undaunted, P2C2 argues that CPG 7132.16 is analogous to the
parole board rules (the Rules) held to be substantive in Pickus v.
United States Board of Parole.47 But that analogy fails when we
recognize that the Rules considered in Pickus are quite different
from the nine factors of the instant case. The Rules in Pickus,
which purported to provide guidance whether a prisoner was entitled
to parole, were divided into nine general categories and then
further subdivided into thirty-two subcategories, going into
46
Compare CPG 7132.16 ("[T]he agency may, in the exercise of
its enforcement discretion, initiate federal enforcement actions
. . . when . . . a pharmacy's activity . . . results in
significant violations" of the Act (emphasis added)) and Guardian
Fed. Sav. & Loan Ass'n v. FSLIC, 589 F.2d 658, 666 (D.C. Cir.
1978) (holding FSLIC pronouncement regarding audits to be
statement of policy as violations "may" result in rejection of
audit) with Community Nutrition Inst., 818 F.2d at 947 ("[A]n
action level . . . define[s] the level of contamination at which
food will be deemed to be adulterated." (emphasis in original))
and American Bus Ass'n v. United States, 627 F.2d 525, 532 (D.C.
Cir. 1980) (finding ICC rule to be substantive where it "is
unequivocally `couched in terms of command . . . . It repeatedly
says and implies `the Commission will; it nowhere says or implies
`the Commission may.'" (emphasis in original) (citation
omitted)).
47
507 F.2d 1107 (D.C. Cir. 1974).
20
exacting detail as to how the Board was to determine whether an
applicant was entitled to parole. Because the Rules were so
minutely detailed, reasoned the D.C. Circuit, they "narrowed [the
decisionmaker's] field of vision, minimizing the influence of other
factors." As such, the court concluded that the Rules were
substantive and therefore subject to APA notice-and-comment.
Compared to the Rules in Pickus, however, the nine factors listed
in CPG 7132.16 are broad, general, elastic, and far less inclusive.
As a result, they do not have the same restrictive effect on agency
decisionmakers as do the Rules.
In sum, nowhere does CPG 7132.16 draw a "line in the sand"
that, once crossed, removes all discretion from the agency. We
cannot agree with P2C2, therefore, that CPG 7132.16 so
significantly restricts the discretionary role of the FDA in
determining whether to bring an enforcement action against a
pharmacy as to transform it into a substantive rule. In our view,
CPG 7132.16 merely identifies some indicia of drug manufacturing;
it neither compels the conclusion that a pharmacy is engaged in
drug manufacturing nor provokes an automatic or nondiscretionary
response from the agency. Rather, FDA inspectors are free to
consider in toto those nine factors, as well as others, and then,
based on that guidance and their own judgment, decide whether the
pharmacy in question is engaged in drug manufacturing. Such is the
nature of a discretionary rule, not of a substantive one.
3. Statement of Policy or Interpretative Rule?
The district court held that CPG 7132.16 is not a substantive
21
rule, finding it to be either a statement of policy or an
interpretative rule. Although our plenary determination that the
rule is not substantive is sufficient to affirm the district
court's judgment, we continue, albeit briefly, to explain how CPG
7132.16 fits into the narrow exemptions from the APA notice-and-
comment requirements.
a. Statement of Policy
As we recently explained, "[a] general statement of policy is
a statement by an administrative agency announcing motivating
factors the agency will consider, or tentative goals toward which
it will aim, in determining the resolution of a substantive
question of regulation."48 This definition fits CPG 7132.16 to a
tee, as in it the FDA announced some of the factors that it will
consider in resolving "a substantive question of regulation," i.e.,
whether a pharmacy is engaged in traditional compounding or drug
manufacturing.
b. Interpretative Rule
CPG 7132.16 could arguably be considered an interpretative
rule as well. As the Supreme Court recently observed,
interpretative rules "do not have the force and effect of law" and
are used to advise the public how an agency will apply its
regulations in certain circumstances.49 In the same vein, we have
48
Phillips Petroleum Co. v. Johnson, 22 F.3d 616, 620 (5th
Cir.), modified on other grounds, No. 93-1377, 1994 WL 484506
(June 10, 1994), cert. denied, 115 S. Ct. 1816 and 115 S. Ct.
1817 (1995).
49
Shalala v. Guernsey Memorial Hosp., 115 S. Ct. 1232, 1236-
37 (1995).
22
noted that:
Generally speaking, it seems to be established that
`regulations,' `substantive rules,' or `legislative rules' are
those which create law, usually implementary to an existing
law; whereas interpretative rules are statements as to what
the administrative officer thinks the statute or regulation
means.50
Interpretative rules thus "remind[] parties of existing statutory
duties, or `merely track[]' the statutory requirements and thus
`simply explain[] something the statute already require[s].'"51 We
are convinced that CPG 7132.16 could aptly be characterized as an
interpretative rule. It reminds parties of the existing
regulations that pertain to drug manufacturing and explains the
FDA's view of what distinguishes drug manufacturing from
traditional compounding. It clarifies, rather than creates, law.52
c. Substantive Change in Regulations
If an agency pronouncement is to be an interpretative rule or
a statement of policy, though, it cannot "effect[] a substantive
50
Brown Express, Inc. v. United States, 607 F.2d 695, 700
(5th Cir. 1979) (quoting Gibson Wine Co. v. Snyder, 194 F.2d 329,
331 (D.C. Cir. 1952)); Sekula v. FDIC, 39 F.3d 448, 457 (3d Cir.
1994) ("Interpretative rules are not intended to alter legal
rights, but to state the agency's view of what existing law
requires.").
51
National Family Planning v. Sullivan, 979 F.2d 227, 236-37
(5th Cir. 1992) (quotations omitted); see Chrysler Corp. v.
Brown, 441 U.S. 281, 302 n.31 (1979 (An "interpretative rule is
one "issued by an agency to advise the public of the agency's
construction of a statute and rules which it administers.").
52
Chrysler Corp., 441 U.S. at 303 ("The central question is
essentially whether an agency is exercising its rule-making power
to clarify an existing statute or regulation, or to create new
law, rights, or duties in what amounts to a legislative act.");
see id. at 302 n.31 (stating that an interpretative rules is one
"issued by an agency to advise the public of the agency's
construction of the statute and rules which it administers").
23
change in the regulations."53 P2C2 posits that CPG 7132.16 effects
such a substantive change, arguing that never before did the FDA
regulate compounding activities. But there is nothing new or
changed about the law that CPG 7132.16 clarifies.
The district court found that CPG 7132.16 does not plow new
legal ground, as the rule expressly states that "traditional
compounding activity is not the subject of this CPG 7132.16."
Moreover, the FDA introduced into evidence warning letters proving
that long before CPG 7132.16 issued the agency had instituted
enforcement actions against pharmacies engaged in drug
manufacturing under the guise of compounding.
In conclusion, we are satisfied that the district court did
not clearly err in finding that the rule announced in CPG 7132.16
does not effect a substantive change to already applicable
regulations, but that it merely provides guidance on an old
problem))unregulated drug manufacturing. As we agree, then, that
CPG 7132.16 is not a substantive rule, and thus is not subject to
APA notice-and-comment requirements, the district court's judgment
is, in all respects,
AFFIRMED.
53
Guernsey Memorial Hosp., 115 S. Ct. at 1236; National
Family Planning, 979 F.2d at 237 (stating that purported
interpretative rule or statement of policy may be deemed
substantive rule if it "`effects a change in existing law or
policy" (quoting Powderly v. Schweiker, 704 F.2d 1092, 1098 (9th
Cir. 1983)); see, e.g., Phillips Petroleum Co. v. Johnson, 22
F.3d 616, 620 (5th Cir. 1994) ("An announcement stating a change
in the method by which an agency will value [natural gas liquid
products] is not a `general statement of policy.'"), modified on
other grounds, 1994 WL 484506, cert. denied, 115 S. Ct. 1816 and
115 S. Ct. 1817 (1995).
24