Wedgewood Village Pharmacy v. Drug Enforcement Administration

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 10, 2007 Decided December 11, 2007

No. 06-1156

WEDGEWOOD VILLAGE PHARMACY,
PETITIONER

v.

DRUG ENFORCEMENT ADMINISTRATION,
RESPONDENT

Consolidated with
06-1196

On Petitions for Review of Orders of the
United States Drug Enforcement Agency

Derek L. Shaffer argued the cause for the petitioner.
Michael W. Kirk and Charles J. Cooper were on brief.
Lena D. Watkins, Attorney, United States Department of
Justice, argued the cause for the respondent. Teresa A.
Wallbaum and Stephen A. Sola, Attorneys, United States
Department of Justice, were on brief.
Before: HENDERSON, RANDOLPH and BROWN, Circuit
Judges.
Opinion for the court filed by Circuit Judge HENDERSON.
 2

KAREN LECRAFT HENDERSON, Circuit Judge: Wedgewood
Village Pharmacy (Wedgewood) challenges the decision of the
United States Drug Enforcement Administration (DEA) to
revoke its registration as a “practitioner” within the meaning of
21 U.S.C. § 823(f). Before the revocation of its registration,
Wedgewood’s business focused primarily on supplying equine
veterinarians with specially formulated medications. Following
an investigation of Wedgewood’s Sewell, New Jersey facility,
DEA determined that Wedgewood was operating outside the
scope of its registration. Specifically, DEA objected to
Wedgewood’s practice of preparing large amounts of
“compounded” controlled substances and then delivering the
medications to veterinarians and physicians instead of directly
to their patients. DEA viewed these practices as
“manufacturing” and “distributing” controlled substances as
defined by the Comprehensive Drug Abuse Prevention and
Control Act of 1970, Pub. L. No. 91-513, 84 Stat. 1236 (codified
as amended at 21 U.S.C. § 801 et seq.) (CSA or Act). Under
Wedgewood’s DEA registration as a “practitioner,” however, it
is authorized only to “compound” and “dispense” controlled
substances. For the reasons that follow, we vacate the
revocation of Wedgewood’s registration and remand to the
agency for further proceedings.
I.
A. Statutory/Regulatory Background
The Congress enacted the CSA in 1970 to reduce drug abuse
by preventing the diversion of controlled substances. See
Gonzales v. Oregon, 546 U.S. 243, 250 (2006) (discussing
legislative history of CSA). A central feature of the CSA is its
“closed system” of distribution in which all persons in the
“legitimate distribution chain” of controlled substances must
 3

register with DEA.1 H.R. Rep. No. 91-1444 (1970), as reprinted
in 1970 U.S.C.C.A.N. 4566, 4572. In its closed distribution
system, the CSA created three categories of registrants:
“manufacturer,” “distributor” and “practitioner”—each with
distinct requirements for registration. See 21 U.S.C. § 823(a)
(criteria for “manufacturer” registration), 823(b) (criteria for
“distributor” registration), 823(f) (criteria for “practitioner”
registration). A “manufacturer” is authorized to engage in “[t]he
production, preparation, propagation, compounding, or
processing of a drug.” Id. § 802(15) (emphasis added). A
“distributor” is authorized to “deliver (other than by
administering or dispensing) a controlled substance.” Id.
§ 802(11) (emphasis added). The CSA describes a
“practitioner” as a “physician, dentist, veterinarian, . . . [or]
pharmacy” registered to “distribute, dispense, . . . [or] administer
. . . a controlled substance in the course of professional
practice.” Id. § 802(21) (emphasis added). The CSA explains
that “dispens[ing],” as used in the definition of “practitioner,” is
the “deliver[y of] a controlled substance to an ultimate user . . . ,
including . . . compounding necessary to prepare the substance
for such delivery.” Id. § 802(10) (emphases added). “Delivery”
includes “the actual, constructive, or attempted transfer of a
controlled substance.” Id. § 802(8) (emphasis added). In
addition, the CSA specifies that “the preparation [or]
compounding . . . of a drug . . . by a practitioner as an incident
to his administration or dispensing of [the] drug” does not

1
The CSA requires manufacturers, distributors and dispensers to
register with the Attorney General, 21 U.S.C. § 822(b); the Attorney
General, in turn, has delegated the registration authority to DEA. See
28 C.F.R. § 0.100(b).
 4

constitute “manufacturing.”2 Id. § 802(15) (emphases added).
The CSA does not define “compounding.”
The scope of the terms “manufacture,” “compound,”
“distribute” and “dispense” as used in the CSA remains
unsettled. Beginning in the 1990s, the United States Food and
Drug Administration (FDA), along with other government
agencies, grew concerned that some pharmacies were using their
compounding authorization under 21 U.S.C. § 801(10) and (21)
to, in effect, manufacture controlled substances without FDA
approval. In response to their concern, the Congress enacted
the Food and Drug Administration Modernization Act of 1997
(FDAMA), Pub. L. No. 105-115, 111 Stat. 2296. According to
the legislative history of the FDAMA, its “intent [was] to ensure
continued availability of compounded drug products as a
component of individualized therapy, while limiting the scope
of compounding so as to prevent manufacturing under the guise
of compounding.” H.R. Conf. Rep. No. 105-399, at 94, as
reprinted in 1997 U.S.C.C.A.N. 2880, 2884.
The FDAMA contained a definition of “compounding” that
required a prescription therefor to be unsolicited by a retail
pharmacy and prohibited the pharmacy from advertising the

2
DEA regulations governing each category of registrant vary
accordingly. For example, a manufacturer has strict storage and
security requirements. Compare 21 C.F.R. § 1301.72 (storage and
security requirements for “non-practitioner”) with 21 C.F.R. § 1301.75
(security requirements for practitioner). Similarly, both a
manufacturer and a distributor have more stringent record-keeping
requirements than a practitioner, compare id. § 1304.22(a) (record-
keeping requirements for manufacturer), and id. § 1304.22(b) (record-
keeping requirements for distributor) with id. § 1304.22(c) (record-
keeping requirements for “dispenser,” i.e., practitioner), and must
renew their registrations more often. Compare 21 U.S.C. § 822(a)(1)
(annual registration for manufacturer and distributor) with 21 U.S.C.
§ 822(a)(2) (registration for practitioner every one to three years).
 5

compounding of a particular drug. Pub. L. No. 105-115 § 127
(codified at 21 U.S.C. § 353a(a), (c)). Several pharmacies with
large compounding practices, including Wedgewood, challenged
these provisions as violative of the First Amendment. See
Thompson v. W. States Med. Ctr., 535 U.S. 357, 360 (2002).
The Supreme Court agreed, holding that the FDAMA
improperly restricted solicitation and advertising, both
legitimate forms of commercial speech. Id. Accordingly, its
holding invalidating the language left DEA—and
pharmacies—without a statutory definition of compounding.3
B. Agency Proceedings Against Wedgewood
In early 2003, DEA began investigating Wedgewood after
receiving reports that Wedgewood was ordering controlled
substances in unusually large quantities. See In re Wedgewood
Vill. Pharmacy, Docket No. 04-08, at 4–5 (Mar. 4, 2005) (JA
935–36) (ALJ Dec.) (describing reports). DEA obtained an
administrative inspection warrant to search Wedgewood’s
Sewell, New Jersey facility. DEA executed the warrant between
March 12–14, 2003 and collected evidence that it believed
demonstrated that Wedgewood was both “manufacturing” and
“distributing” controlled substances. See Order to Show Cause
1–5 (JA 67–71) (describing evidence). For example, according
to DEA and FDA investigators, Wedgewood had “large
quantities of bulk drug substances to manufacture large
quantities of unapproved drug products” as well as large scale
equipment, neither of which, they concluded, was “consistent

3
In Thompson, the Court described “compounding” as “a process
by which a pharmacist or doctor combines, mixes, or alters ingredients
to create a medication tailored to the needs of an individual patient.
Compounding is typically used to prepare medications that are not
commercially available.” Thompson, 535 U.S. at 361.
 6

with traditional retail pharmacy activities.”4 Report of
Investigation 2, 7 (JA 757, 762). The inspectors also examined
Wedgewood’s “Log of Scripts.” The Log, which contained a
record of all controlled substances sold by Wedgewood between
January 1, 2002 and December 31, 2002, indicated that
Wedgewood routinely delivered controlled substances to another
practitioner rather than directly to the ultimate user, using
“prescriptions” that listed the same person as both prescribing
“doctor” and “patient.”5 See Log of Scripts (JA 349–446); see
also Wedgewood Vill. Pharmacy; Revocation of Registration,
71 Fed. Reg. 16,593, 16,594 (DEA Apr. 3, 2006) (JA 976)
(“Over 95% of [Wedgewood’s] sales were to physicians or

4
For example, the investigation revealed that Wedgewood
received 131 kilograms of phenylpropanolamine (PPA) between
November 27, 2000 and October 29, 2002. See Report of
Investigation 13 (JA 768). DEA claimed that during this time
Wedgewood manufactured over 750,000 PPA tablets. Order to Show
Cause 3 (JA 69). PPA is often diverted to the illicit manufacture of
amphetamines. Id. According to DEA, “true compounding
pharmacies . . . received PPA in minimal quantities.” Id; see also ALJ
Dec. 37 (JA 968) (explaining that typical retail pharmacy is expected
to handle between 25 and 1,000 grams of PPA during same time
period). DEA charged that Wedgewood’s handling this volume of
PPA violated 21 C.F.R. § 1310.04 and other regulations. See Order
to Show Cause 3 (JA 69) (citing, e.g., 21 C.F.R. § 1310.04 (imposing
stricter record-keeping requirements on registrant with sales of more
than 2.5 kilograms of PPA per month)).
5
Wedgewood’s Log of Scripts referred to all entries as
“prescriptions” even though those listing the “doctor” and the
“patient” as the same person did not comply with DEA regulations
governing prescriptions. See 21 C.F.R. § 1306.05(a) (“All
prescriptions for controlled substances . . . shall bear the full name and
address of the patient, the drug name, strength, dosage form, quantity
prescribed, directions for use and the name, address and registration
number of the practitioner.”).
 7

veterinarians documented by what the pharmacy called
prescriptions which contained the name of the physician or
veterinarian as the patient.”). Under DEA’s reading of the CSA,
a retail pharmacy may dispense controlled substances only to the
ultimate user and not to another practitioner. See id. at 16,596
(JA 979); see also 21 U.S.C. § 802(10) (“[D]ispense means to
deliver a controlled substance to an ultimate user . . . .”); id.
§ 802(27) (“[U]ltimate user means a person who has lawfully
obtained . . . a controlled substance for his own use . . . or for an
animal owned by him . . . .”).
Following the inspection, DEA informed Wedgewood by
letter that Wedgewood was “not configured as a typical retail
pharmacy, but [rather] as a drug manufacturing and distribution
facility,” and that Wedgewood was “operating in a manner . . .
outside the scope of [its] registration as a [practitioner].” DEA
Letter, Aug. 21, 2003, at 1 (JA 79). DEA ordered Wedgewood
to “immediately cease and desist manufacturing and distributing
activities outside the scope of its registration” or risk revocation
of its registration pursuant to 21 U.S.C. § 824.6 Id. Despite the
cease and desist order, Wedgewood continued to compound
controlled substances for approximately two months as
Wedgewood challenged DEA’s decision. Wedgewood Vill.
Pharmacy, 71 Fed. Reg. at 16,594 (JA 975). It eventually
ceased operation after it moved to a new facility in Swedesboro,
New Jersey and DEA declined to allow it to modify its
registration to reflect its new address pursuant to 21 C.F.R.
§ 1301.51. See ALJ Hr’g Tr. 35–41 (JA 12–18) (discussing
Wedgewood’s inability to handle controlled substances

6
21 U.S.C. § 824(a)(4) authorizes DEA to revoke a registration if
the registrant “has committed such acts as would render his
registration . . . inconsistent with the public interest.”
 8

following DEA’s denial of Wedgewood’s requested
modification). Id.7
On September 8, 2003, DEA began proceedings to revoke
Wedgewood’s registration as a retail pharmacy by issuing an
order to show cause (Order). See Order to Show Cause 1 (JA
67). The Order charged, inter alia, that Wedgewood was
“manufacturing” controlled substances in violation of
Wedgewood’s registration as a “retail pharmacy.” See id. at 1–2
(JA 67–68). The Order explained that “[a]ll compounding of
drugs must be patient specific, and dispensed only by the
compounder to that patient identified in the order.” Id. at 1
(emphasis added). By “compounding” multi-dosage batches of
controlled substances pursuant to orders which did not identify
a specific patient, Wedgewood exceeded its registration. See id.
at 4 (JA 70) (noting most of Wedgewood’s sales were made
pursuant to orders listing prescribing veterinarian or physician
as patient). The Order also explained that “[a] drug compound
prepared . . . for distribution to practitioners . . . is considered to
be a manufacturing activity under . . . the Controlled Substances
Act.” Id. at 1 (JA 67). Because Wedgewood delivered
controlled substances to other practitioners (i.e., veterinarians
and physicians), the controlled substances were “manufactured”
and not “compounded.” See id. at 4 (JA 70) (noting that
Wedgewood routinely distributed “office stock” to other
practitioners). Accordingly, DEA informed Wedgewood that it
intended to revoke Wedgewood’s registration if Wedgewood did
not request a hearing within thirty days. See id. at 1, 6 (JA 67,
72).

7
Wedgewood unsuccessfully sought a temporary restraining order
and a preliminary injunction to require DEA to approve the
modification. Wedgewood Vill. Pharmacy, Inc. v. Ashcroft, 293 F.
Supp. 2d 462, 477 (D. N.J. 2003).
 9

Wedgewood timely requested a hearing which was held
before a DEA Administrative Law Judge (ALJ) on January
26–28, 2004. Approximately one year after the hearing, the ALJ
issued her decision, concluding that Wedgewood had
“manufactured and distributed controlled substances . . . without
a valid DEA registration authorizing such activities.” ALJ Dec.
39 (JA 970). The ALJ further determined that Wedgewood’s
continued registration “would not be in the public’s interest.”
Id. As a framework for her analysis, the ALJ used the five-
factor “public interest” test set forth in 21 U.S.C. § 823(f). Id.
at 24–25 (JA 955–56).8 She determined that three of the five
factors weighed in favor of revoking Wedgewood’s
registration.9
First, regarding factor two—Wedgewood’s experience
dispensing controlled substances—the ALJ found that

8
The five factors are:
(1) The recommendation of the appropriate State
licensing board or professional disciplinary authority.
(2) The applicant’s experience in dispensing, or
conducting research with respect to controlled
substances.
(3) The applicant’s conviction record under Federal
or State laws relating to the manufacture, distribution,
or dispensing of controlled substances.
(4) Compliance with applicable State, Federal, or
local laws relating to controlled substances.
(5) Such other conduct which may threaten the public
health and safety.
21 U.S.C. § 823(f).
9
The ALJ acknowledged that factors (1) and (3) did not support
revocation. See ALJ Dec. 25–26, 30 (JA 956–57, 961).
 10

Wedgewood had violated two DEA regulations. Under 21
C.F.R. § 1306.04(b), “[a] prescription may not be issued in order
for [an] individual practitioner to obtain controlled substances
for supplying the individual practitioner [i.e., a veterinarian or
physician] for the purpose of general dispensing to patients.”
The ALJ noted the testimony of Wedgewood’s owner, George
Malmberg, before the New Jersey Pharmacy Board, to the effect
that the majority of the controlled substances dispensed by
Wedgewood “ ‘would be used by physicians and veterinarians
for office use in their practice, rather than by an individual
patient seeking medications . . . for [his] own ingestion.’ ”10 Id.
at 21 (JA 952). The ALJ also focused on the so-called “5%
Rule.” Id. at 28–29 (JA 959–60). Under 21 C.F.R. § 1307.11,
a practitioner “may dispense controlled substances to another
registered entity, provided the total number of dosage units thus
dispensed does not exceed 5% of the total number of controlled
substances dispensed by that registrant [during the calendar
year].” ALJ Dec. 28 (JA 959) (citing 21 C.F.R. § 1307.11(a)(4)).
Relying on the entries in Wedgewood’s Log of Scripts, the ALJ
determined that during the calendar year 2002, Wedgewood
“dispensed 7,445 prescriptions which accounted for a total of
1,083,154 dosage units of controlled substances. Of this number
1,017,392 dosage units were distributed pursuant to
prescriptions written by a physician, with the named patient also
being the physician.” ALJ Dec. 29 (JA 960). Based on the Log,
the ALJ concluded that Wedgewood had plainly violated the 5%
Rule. Id. at 29 (JA 960).

10
A physician or a veterinarian who uses a prescription to obtain
controlled substances “for the purpose of general dispensing . . . to . . .
patients” violates DEA regulations. See 21 C.F.R. § 1307.11(a)
(2005); see also DEA Pharmacist’s Manual 41 (JA 250) (use of “a
prescription written for office stock or ‘medical bag’ use” is
prohibited).
 11

Regarding factor four—compliance with state and federal
law—the ALJ considered, inter alia, whether Wedgewood was
“manufacturing” or “compounding” controlled substances. The
ALJ noted that, although the CSA defines “manufacturing,” it
does not define “compounding.” Id. at 31 (JA 962).
Consequently, the ALJ “look[ed] to” the FDA’s regulations for
guidance in defining “compounding.” Id. According to FDA
guidelines, “compounding” is the preparation of “a customized
medication for an individual patient in response to a licensed
practitioner’s prescription.” Id. (quoting FDA’s Compliance
Policy Guide) (emphases added). The ALJ concluded that
Wedgewood was routinely filling orders for veterinary
medicines in bulk rather than “pursuant to a prescription from a
licensed physician for a specifically identified patient’s use” and
therefore Wedgewood was manufacturing, not compounding,
controlled substances. Id. at 32 (JA 963).
Finally, with regard to factor five—other conduct that may
threaten the public health and safety—the ALJ noted that
Wedgewood “did not keep records of regulated transactions,” it
“had overages and shortages” of controlled substances, it had
been “untruthful” during the DEA investigation and that it had
“challenged the DEA’s authority to regulate [its] activities.” Id.
at 37–38 (JA 968–69). The ALJ concluded that “the
Government ha[d] clearly met its burden of proof” and
recommended revocation of Wedgewood’s registration as a
practitioner. Id. at 39 (JA 970).
On April 3, 2006, over one year after the ALJ’s decision,
DEA’s Deputy Administrator (DA) issued the agency’s final
decision, which adopted in full the ALJ’s findings and
recommendations. Wedgewood Vill. Pharmacy, 71 Fed. Reg.
at 16,593 (JA 975). The DA’s decision characterized the central
issue as whether Wedgewood “was compounding as an adjunct
to dispensing controlled substances in the course of retail
pharmacy practice or manufacturing and distributing controlled
 12

substances as those terms are defined in the Controlled
Substances Act.” Id. at 16,594–95 (JA 976–77). The DA
concluded that Wedgewood’s actions constituted
“manufacturing” and “distributing” for two reasons. First,
Wedgewood’s practice of “not preparing or compounding
medications . . . on an individualized patient basis” was
inconsistent with the traditional view of “compounding.” Id. at
16,955 (JA 978). Using the Supreme Court’s description of
“compounding” in Thompson v. Western States Medical Center,
see supra note 3, the DA explained that
to be exempt from the definition of manufacturer
under the CSA a DEA practitioner registrant
must be engaged in compounding controlled
substances on an individual patient basis. That
is, a pharmacy must receive a prescription for a
specific patient from a physician or other
individual practitioner . . . . Since the evidence
in this case clearly demonstrates that
[Wedgewood] is not preparing or compounding
medications containing controlled substances on
an individualized patient basis, [Wedgewood’s]
activities constitute manufacturing under the
CSA and it must be registered as a manufacturer
to conduct such activity.
Id. (emphases added). Second, the DA reasoned that under the
CSA definition of “dispensing,” a practitioner may deliver
controlled substances only to an “ultimate user.” Because “[a]
physician or [a veterinarian] who receives controlled
substances . . . is not the ultimate user, but another DEA
practitioner registrant,” Wedgewood’s practice of delivering
controlled substances to other practitioners for the latter’s
administering to their respective patients constituted
“distribution” and not “dispensing.” Id. Accordingly, the DA
 13

adopted the ALJ’s recommendation to revoke Wedgewood’s
registration.11
Wedgewood timely petitioned for reconsideration. Recons.
Letter, Apr. 18, 2006, at 1 (JA 989). In its request, Wedgewood
advanced the new argument that “standard procedures for
veterinary medicine practice (which is approximately 95% of
Wedgewood’s controlled substance sales) are different than the
protocol for human health care.” Id. Wedgewood explained
that “[u]nlike human health care physicians, equine veterinarians
usually do not treat animals on an individual basis.” Id. at 3 (JA
991). Instead, “[v]eterinarians, particularly those with an equine
practice, travel to their patients, examine and diagnose them, and
administer the appropriate medicines on site, a procedure that
requires them to have a variety of medicines at their immediate
disposal.” Id. According to Wedgewood, DEA’s interpretation
of dispensing threatened to “severely handicap[]” the practice of
equine veterinary medicine by making it difficult for a
veterinarian to administer controlled substances to horses at the
stables. Id. at 2 (JA 990). Furthermore, the requirement that a
“practitioner” must dispense controlled substances directly to
the “ultimate user” (i.e., the animal’s owner) runs counter to the
goal of the CSA because “it is a considerably more secure

11
In revoking Wedgewood’s registration, the DA specifically
referenced Wedgewood’s decision to continue operations “even when
advised by the agency in writing that its activities were in violation of
the [CSA].” Wedgewood Vill. Pharmacy, 71 Fed. Reg. at 16,597 (JA
980). The DA’s annoyance with Wedgewood’s decision to challenge
DEA’s interpretation of the CSA rings throughout the decision. See
id. at 16,596 (JA 978–980) (Wedgewood “appears to dispute [DEA’s]
reading of the CSA and has refused to comply with the August 21,
2003, letter from DEA advising that it is in violation of the statute.”);
id. (Wedgewood “has been on notice by both the FDA and DEA that
their [sic] activities were manufacturing and distribution, but has
chosen to contest the position of the agencies.”).
 14

procedure and provides better protection against drug diversion
for a licensed veterinarian to possess and be responsible for the
controlled substances rather than to send medications for each
animal to the farm or stable where any worker has access to
them.”12 Id. at 3 (JA 991).
On June 7, 2006 the DA denied Wedgewood’s request for
reconsideration, giving two reasons therefor. Recons. Letter
Jun. 7, 2006, at 1 (JA 994). The DA first noted that section
802(21) of the CSA makes no distinction among physicians,
veterinarians, dentists and researchers as practitioners. Id.
Second, the DA concluded that, in any event, a veterinary
exception was unnecessary because “the law and regulations
provide an adequate mechanism for any practitioner, including
a veterinarian, to obtain controlled substances for general office
use . . . [e.g.] obtaining controlled substances to be dispensed to
a herd or a large group of animals as opposed to a specific
animal.” Id. A practitioner, “including a veterinarian, may

12
In its request for reconsideration Wedgewood also argued that
DEA’s interpretation of the CSA was inconsistent with the Supreme
Court’s holding in Gonzales v. Oregon, 546 U.S. 243 (2006). In
Gonzales the Court considered a challenge to the Attorney General’s
interpretation of the CSA to prohibit the use of controlled substances
in physician-assisted suicide—a practice legal in Oregon under the
Oregon Death With Dignity Act. Id. at 249. The Court held that the
Attorney General’s reliance on the CSA was mistaken because the
CSA “manifests no intent to regulate the practice of medicine
generally.” Id. at 270. The DA distinguished Gonzales, concluding
that “DEA registration of Wedgewood Pharmacy does not involve the
regulation of the practice of medicine, veterinary or otherwise, but the
regulation of the manufacture, distribution and dispensing of
controlled substances. These matters are clearly within the purview
of the DEA and do not require deference to state law.” Recons. Letter
Jun. 7, 2006, at 2 (JA 995).
 15

obtain controlled substances for general dispensing from any
properly registered manufacturer, distributor or pharmacy
[subject to the 5% Rule].” Id. Therefore, the DA concluded, no
exception was necessary to accommodate the needs of
veterinary practice.
Wedgewood timely petitioned this court for review of the
DA’s revocation decision (06-1156) as well as the denial of
Wedgewood’s petition for reconsideration (06-1196). We
consolidated the two petitions for briefing and argument. Order
Granting Mot. to Consolidate, June 13, 2006.
II.
We review the DA’s decisions, insofar as they interpret
statutes, under the standard articulated by the Supreme Court in
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984). Under Chevron, we do not set aside an
agency’s statutory interpretation unless the interpretation is
“arbitrary, capricious, or manifestly contrary to the statute.” Id.
at 844. “ ‘[A]n agency [decision is] arbitrary and capricious if
the agency . . . entirely failed to consider an important aspect of
the problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implausible
that it could not be ascribed to a difference in view or the
product of agency expertise.’ ” Morall v. DEA, 412 F.3d 165,
177 (D.C. Cir. 2005) (interpreting Administrative Procedure
Act, 5 U.S.C. § 706(2)(A) and quoting Motor Vehicle Mfrs.
Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983)) (alterations in original). Having
reviewed the DA’s decisions, we cannot help but conclude that
the DA’s decision “entirely failed to consider an important
aspect of the problem” before her. Id.
Wedgewood argues before us, as it did during the
administrative proceedings, that the CSA does not limit
dispensing to a “direct” transfer of controlled substances to a
 16

patient. Rather, Wedgewood argues, the CSA permits a
pharmacy to “constructively” dispense controlled substances to
a patient by delivering the controlled substances to an
intermediary such as a veterinarian. Wedgewood relies on the
express language of section 802 of the CSA. As noted earlier,
the CSA authorizes a practitioner like Wedgewood to
“distribute, dispense [or] administer . . . a controlled substance
in the course of professional practice.” 21 U.S.C. § 802(21)
(emphasis added). The CSA defines “dispensing” as the
“deliver[y of] a controlled substance to an ultimate user . . .
including . . . [any] compounding necessary to prepare the
substance for such delivery.” Id. § 802(10) (emphases added).
And “delivery” expressly includes “the actual, constructive, or
attempted transfer of a controlled substance.” Id. § 802(8)
(emphasis added).
According to Wedgewood, “constructive” in the definition
of “delivery” is critical. By allowing a “constructive” transfer,
the CSA recognizes that a pharmacy is not limited to dispensing
controlled substances directly to the ultimate user. Instead,
Wedgewood argues, dispensing controlled substances to a
veterinarian for later administration to his animal patients is a
“paradigmatic” example of a constructive transfer. See
Petitioner’s Reply Br. 5. Therefore, Wedgewood argues, DEA’s
conclusion that Wedgewood distributed controlled substances
because Wedgewood did not deliver them “ ‘directly to specific
patients’ ” is incorrect because DEA failed to consider delivery
by “constructive” transfer. See Petitioner’s Br. 32 (quoting
Recons. Letter Jun. 7, 2006, at 2 (JA 995)) (emphasis in
original).
Although neither the ALJ nor the DA addressed
Wedgewood’s “constructive transfer” argument, DEA now
posits that Wedgewood’s view of “constructive transfer” is too
broad. According to DEA, “constructive” must be defined
narrowly to maintain a meaningful distinction among the three
 17

classes of registrants recognized by the CSA. Wedgewood’s
interpretation of constructive transfer, DEA claims, would
“eviscerate[] the distinction between a distributor and a
dispenser [by] allow[ing] any practitioner to become a
distributor of controlled substances, under the guise that the
drugs were delivered ‘constructively’ to the ultimate user.”
Respondent’s Br. 30–31.
In addition—and despite its silence during its own
proceedings—DEA now offers its interpretation of this
language.13 According to DEA, a constructive transfer is limited
to circumstances in which no “actual” transfer of controlled
substances takes place. See id. at 31. Specifically, DEA claims
that other courts have
limited [constructive transfers] to situations in
which controlled substances were not actually
delivered, but rather were constructively
delivered by virtue of a person illegally
distributing prescriptions, which in turn could be
used by the recipient to obtain the controlled
drugs from a pharmacy.

13
Of course, its argument comes too late. “[A] reviewing court, in
dealing with a determination or judgment which an administrative
agency alone is authorized to make, must judge the propriety of such
action solely by the grounds invoked by the agency. If those grounds
are inadequate or improper, the court is powerless to affirm the
administrative action by substituting what it considers to be a more
adequate or proper basis.” SEC v. Chenery Corp., 332 U.S. 194, 196
(1947); see also Owner-Operator Indep. Drivers Ass’n, Inc. v. Fed.
Motor Carrier Safety Admin., 494 F.3d 188, 204 n.4 (D.C. Cir. 2007)
(“[W]e cannot affirm [the agency decision] on the basis of a post-hoc
explanation by agency counsel.”).
 18

Id. at 31–32 (citing United States v. Roya, 574 F.2d 386, 393
(7th Cir. 1978); United States v. Tighe, 551 F.2d 18, 20 (3d Cir.
1977)).14 DEA argues that its interpretation is reasonable
because it maintains a meaningful distinction among the three
categories of DEA registrants. See id. at 30. Nevertheless, the
definition of “constructive transfer” DEA now offers—namely,
the fact that at least one “actual” transfer of controlled
substances to another person or entity (be it a postal carrier,
authorized agent or other intermediary) has occurred necessarily
means there can be no “constructive” transfer—fails for at least
three reasons.
First, DEA’s interpretation does not tally with the ordinary
meaning of “constructive transfer.” Black’s Law Dictionary
defines “constructive transfer” as “[a] delivery of an item—esp.
a controlled substance—by someone other than the owner but at
the owner’s direction.” Black’s Law Dictionary 1503 (7th ed.
1999). Nothing in the definition precludes a “constructive”
transfer simply because an “actual” transfer has taken place.

14
United States v. Roya, 574 F.2d 386 (7th Cir. 1978), involved a
physician, Roya, who wrote prescriptions at the request of his
“patients” without asking any questions about the patients’ medical
histories or conducting any type of physical examination. The
government charged the physician with dispensing and attempted
dispensing of a Schedule II controlled substance in violation of 21
U.S.C. §§ 841(a)(1) and 846. Id. at 388–89. Roya argued that he did
not in fact dispense controlled substances. The court rejected this
argument, holding that “ ‘dispens[ing]’ includes constructive transfers
which encompass . . . issuing written prescriptions to patients entitling
them to purchase the substances from a pharmacist.” Id. at 393.
United States v. Tighe, 551 F.2d 18 (3d Cir. 1977), involved a
physician, Tighe, who gave an undercover DEA agent 18 prescriptions
for a Schedule II controlled substance. The government charged
Tighe with violating 21 U.S.C. § 841(a)(1). The court affirmed
Tighe’s conviction, holding that his transfer of invalid prescriptions
constituted “constructive” dispensing. Id. at 20.
 19

Second, DEA’s view is not supported by the statutory
definition. To repeat, the CSA defines “delivery” as the “actual,
constructive, or attempted transfer of a controlled substance or
a listed chemical, whether or not there exists an agency
relationship.” 21 U.S.C. § 802(8) (emphases added). The
definition of “delivery” includes an “attempted” transfer as a
distinct term, presumably to cover circumstances in which there
is no “actual” transfer. Moreover, the definition of “delivery”
expressly provides that delivery may, in some circumstances,
occur constructively through an agent. The CSA definition thus
appears to conflict with DEA’s assertion that “dispensing”
includes only the direct transfer of a controlled substance to the
ultimate user.
Finally, DEA’s narrow interpretation of “constructive
transfer” also appears to conflict with at least one of DEA’s
regulations interpreting the CSA. DEA’s regulation defining
“prescription” provides that a prescription is “an order for
medication which is dispensed to or for an ultimate user.” 21
C.F.R. § 1300.01(b)(35) (emphasis added). That a prescription
may be dispensed “for” the ultimate user suggests a definition
of “constructive” transfer broader than DEA set forth in its brief.
At oral argument, DEA retreated from the definition set out
in its brief. When asked to clarify her understanding of the term,
DEA counsel offered a new explanation—one in which an
“actual” transfer does not preclude a “constructive” transfer.
She explained that under the CSA’s constructive transfer
language, “the patient or even the ultimate user does not have to
be the person that actually picks up the prescription, but the
transfer requires that the pharmacy identify who that patient is.”
Recording of 9/10/07 Oral Argument at 30:50 (emphasis added).
DEA counsel’s amended definition of “constructive transfer”
suggests that DEA’s primary concern may not be with the
practice of dispensing controlled substances through an
intermediary but instead with the practice of “compounding”
 20

medications without an individualized prescription.15 This
statement may accurately reflect the DA’s concerns about
general dispensing. See, e.g., Wedgewood Vill. Pharmacy, 71
Fed. Reg. at 16,595 (“[A] pharmacy must receive a prescription
for a specific patient . . . .”); id. at 16,596 (“[Wedgewood] is
rarely dispensing controlled substances to specific patients . . .,
and, in the majority of cases, has no documentation of the
identity of the patients to whom the controlled substances will
ultimately be dispensed or administered.”). It does not, however,
explain why the DA prohibited practitioners from acting as
intermediaries on behalf of “ultimate user[s].” See, e.g., id. at
16,595 (“Sending controlled substances to another DEA
practitioner for dispensing is distribution, not dispensing.”). We
note that requiring the identification of a specific patient for
delivery comports with the statutory scheme. See, e.g., 21
C.F.R. § 1306.04(b) (prohibiting using prescriptions “for the
purpose of general dispensing”); 21 C.F.R. § 1306.05 (“All
prescriptions . . . shall bear the full name . . . of the patient . . .
.”); 21 C.F.R. § 1307.11 (permitting practitioners to “distribute
(without being registered to distribute)” 5% of total dosage units
“for the purpose of general dispensing”). Moreover, requiring
individualized dispensing maintains the distinction between
“dispens[ing]” and “distribut[ing]” by preserving the “ultimate
user” requirement. See 21 U.S.C. § 802(10); § 802(27). When

15
In its January 3, 2006 settlement offer, Wedgewood proposed to
“dispense compounded medication pursuant to an individualized
lawful order issued by a licensed practitioner or veterinarian for a
clearly identified patient.” See Wedgewood Letter Jan. 3, 2005, at 2
(JA 982) (emphasis omitted). In her reconsideration denial letter, the
DA made note of the settlement offer but concluded that the matter
was better left to the Department of Justice lawyers representing DEA
in court. See Recons. Letter June 7, 2006, at 2 (JA 995) (“I have
reviewed your settlement proposal. Because a Notice of Appeal has
been filed, the matter is best left to the Department of Justice attorneys
who will be representing DEA on the petition for review.”).
 21

a pharmacy dispenses controlled substances without identifying
a specific patient, as Wedgewood apparently did here, it is
unclear who the “ultimate user” is. Nonetheless, this
requirement still fails to explain why the DA prohibited any
registrant-to-registrant transfer, even one pursuant to an
individualized prescription.
DEA also ignored an important aspect of Wedgewood’s
practice. In its request for reconsideration, Wedgewood argued
that DEA’s ruling that “ ‘[a] pharmacy must receive a
prescription for a specific patient . . . and must deliver or
dispense that medication to the patient’ ” was “unworkable for
veterinary practice.” Recons. Letter Apr. 19, 2006, at 3 (JA
991) (quoting Wedgewood Vill. Pharmacy, 71 Fed. Reg. at
16,595 (emphasis and ellipsis in original)). Wedgewood
explained that
[v]eterinarians, particularly those with an equine
practice, travel to their patients, examine and
diagnose them, and administer the appropriate
medicines on site, a procedure that requires them
to have a variety of medicines at their immediate
disposal. The veterinarian will not know the
name or names of an animal to be treated until
she examines the animal and makes a diagnosis
whether and which treatment is required.
Id. DEA knew from the beginning of its investigation that the
bulk of Wedgewood’s business was with veterinarians. In
addition, it had information before it indicating that animal
medicine operates differently from human medicine. See, e.g.,
ALJ Op. ¶ 59 (JA 948–49) (discussing FDA Compliance Policy
Guide No. 7125.40—Compounding of Drugs for Use in
Animals). DEA did not consider this difference in its original
decision and it failed to address the difference again when it
denied reconsideration. The DA explained that “[t]he CSA itself
makes no distinction between physicians, dentists, researchers,
 22

and veterinarians.” Recons. Letter Jun. 7, 2006, at 1 (JA 994).
Furthermore, the DA said that no distinction between veterinary
medicine and human medicine is required because, under the
existing law and regulations, a veterinarian has a means of
obtaining controlled substances to treat animals on-site by
ordering the controlled substances for “general office use”
through a manufacturer or distributor—or a pharmacy pursuant
to the 5% rule. Id.
We believe DEA’s analysis is inadequate. The scope of
activities allowed under “general office use” is unclear from the
DA’s letter. Apparently DEA believes that a veterinarian can
adequately treat animals on-site by ordering controlled
substances for “general office use” but it reached that conclusion
without defining what “general office use” encompasses.
Further, it appears that the term is not defined anywhere in DEA
regulations. DEA also failed to explain how a veterinarian
would be able to obtain enough compounded medicine for
general office use, using only the 5% a pharmacy can lawfully
provide.
For the foregoing reasons, we vacate DEA’s revocation of
Wedgewood’s registration and remand the case for further
proceedings consistent with this opinion. On remand, DEA
should address the scope of “constructive transfer” as that term
is used in 21 U.S.C. § 802(8). DEA should also clarify its
interpretation of “general office use,” “order” and “prescription”
as used in the CSA, the FDAMA and relevant regulations.
Finally, in reexamining these issues, DEA should explain how
 23

the difference, if any, between the practices of human and
veterinary medicine might affect its analysis.16
So ordered.

16
Because of our remand, we do not reach Wedgewood claims that
DEA’s interpretation of relevant CSA provisions intrudes on state
regulation of veterinary medicine, that DEA’s findings are not
supported by substantial evidence and that revocation constitutes
excessive punishment.