The U.S. Justice Department last year went to court in Florida in a civil case it billed as a no-frills application of long-established food and drug law. The government’s legal team asked a judge to shut down a pharmacy’s veterinary business.

On behalf of the Food and Drug Administration, DOJ sued Franck’s Lab Inc. a year after the pharmacy acknowledged a math error in a dosage killed nearly two dozen horses at a polo tournament. The mass deaths generated international press attention.

DOJ lawyers argued that Franck’s was flouting federal law by manufacturing and injecting untested, unapproved medication into the market. “It’s a simple case, as we will boil it down, that turns on a few facts that are not in dispute and a statement of law that is very clear,” John Claud, a Main Justice consumer litigation specialist, said in court.

But the civil enforcement action against Franck’s was far from simple, and the case, the first of its kind in the history of the FDA, hit one snag after another. Last month, a Jacksonville, Fla., federal trial judge shut down the case, ruling in favor of Franck’s in a sweeping opinion. The FDA’s regulatory reach, U.S. District Judge Timothy Corrigan said, is not unlimited.

The collapse of the closely watched case stung the FDA, which had never before tried to stop a state-licensed pharmacist from distributing animal medication mixed together from raw chemicals, a process called “compounding.” Allowing the FDA to proceed, the judge said, could have caused turmoil in the pharmacy industry.

For Franck’s, represented by a team of King & Spalding lawyers, the judge’s decision saved a big part of its business. But lawyers for the pharmacy, a national chain, said they expect the FDA to appeal.

“They just got skewered in an 83-page opinion,” said King & Spalding partner Mark Brown, a former associate chief counsel at the FDA. “One, they don’t like to lose, and two, they want to do everything in their power to maintain the maximum enforcement discretion they can exercise.”

Claud referred a request for comment to a Justice Department spokesman, who declined to discuss the case. The government has until Nov. 11 to decide to challenge the ruling.

COMPOUNDING PROBLEMS

Across the country, thousands of pharmacists compound medication for human and animal uses, mixing ingredients for a specific need when a commercial drug is not available or when the drug is not suitable for a particular reason. Franck’s, based in Ocala, Fla., about an hour northwest of Orlando, has been in the compounding business for more than 25 years.

The Justice Department sued the pharmacy in the U.S. District Court for the Middle District of Florida, seeking an injunction to prohibit Franck’s from compounding animal medication.

Paul Franck, the owner and chief operating officer of the pharmacy, said he laid off 20 employees, including pharmacists and technicians, after the DOJ filed suit. At the time, Franck’s agreed to a voluntary suspension of the company’s veterinary compounding practice.

Franck’s fills 37,000 animal prescriptions every year, court records show. The FDA did not seek to shut down the pharmacy’s human compounding business, which makes up 60% of the company’s annual sales of $8 million.

The Justice Department took a big-picture approach in the case, telling Corrigan that all animal compounding from bulk substances violates the federal Food, Drug, and Cosmetic Act of 1938, a central regulatory tool for the FDA. DOJ’s Claud urged Corrigan to look nowhere beyond the new drug provision of the statute itself. The animal medications that Franck’s created, Claud said, are “statutorily defined unsafe drugs.”

Franck’s was manufacturing adulterated medication that had not been subject to clinical review, Claud said at a hearing in August 2010. The distribution of a new drug requires an application, including reports on the drug’s safety and effectiveness.

DOJ painted Franck’s as a flagrant past violator of federal law, arguing that the pharmacy ignored earlier FDA warnings to stop compounding animal medicine. Still, Corrigan questioned Claud several times about why the FDA had chosen Franck’s to test the scope of the Food, Drug, and Cosmetic Act.

“So why here, why now?” the judge asked Claud, according to a transcript.

“It’s a great question,” Claud responded. “And the reason that we are here and now is because it’s a fair exercise of FDA’s enforcement discretion.”

Franck’s, Claud said, “recaptured” the attention of the FDA after the death of the horses. “If we’re going to inspect Franck’s these number of times and we’re going to warn the defendants to stop it and they refuse to do so, who’s a better candidate for this kind of enforcement [action]?” Claud asked.

But Corrigan didn’t seem impressed, noting that the death of the horses was not a result of compounding medication but rather an overdose. (The Florida state agency that regulates pharmacies reprimanded Franck’s but allowed it to continue its animal-medication compounding business.)

Ashley Parrish, the King & Spalding partner who argued for Franck’s at the injunction hearing, said in an interview the “government had a simple theory about why they had authority to regulate, but I don’t think it was a simple case at all.”

Parrish, who practices in appellate and administrative law, said Corrigan was troubled “there wasn’t any factual evidence the FDA was relying on. The horses were a terrible thing but that had nothing to do with compounding.”

DESTABILIZING A PROFESSION

Franck’s lawyers urged Corrigan to focus on the fact that the FDA had not gone through the notice-and-comment rulemaking process. “If the law is clear, and if there is a clearly defined rule that’s set out there for the world to know, then there is enforcement discretion, because at that point there’s nothing arbitrary about it,” Parrish said in court.

At least then, Parrish said, there would have been a process to allow industry experts to express their views.

Corrigan’s opinion was a lengthy criticism of the FDA in which he said the agency chose not to challenge arguments from Franck’s lawyers that bulk compounding of animal drugs is a key part of the veterinary business of hundreds of pharmacies.

The judge said the “undisputed” evidence in the case showed that letting the FDA stop Franck’s state-licensed bulk compounding practice “could destabilize the pharmacy profession and leave many animal patients without necessary medication.” State-licensed pharmacists, the judge said, have long held the right to compound drugs to fill an individual prescription.

Compounded medication, Corrigan said, is prepared for a single animal patient in response to a veterinary prescription. Congress, the judge said, had its eyes on the regulation of the manufacturing of drugs.

“Because Congress appeared to be focused on the fact that manufacturing — unlike the practice of pharmacy — was conducted by unlicensed, unregulated nonprofessionals, it seems unlikely that it would have intended to subject professionally dispensed drugs to the same regulatory scheme,” he said.

The judge chided the FDA for failing to go through with formal rulemaking that could have helped the agency determine whether a pharmacy such as Franck’s is involved in drug manufacturing or drug compounding.

Duane Morris Chicago partner Frederick Ball, vice chairman of the firm’s white-collar defense practice, said compounding pharmacies will closely monitor how the FDA responds in the coming weeks. Corrigan’s decision, Ball said, could lead to clarified regulations in the industry. “I think it’s an incredibly opaque and fluctuating landscape right now,” said Ball, who penned an alert to clients about Corrigan’s ruling. “The landscape of what’s legal and not legal is very unclear right now.”

James Czaban, chairman of Wiley Rein’s food and drug practice, said the FDA could have used the enforcement against Franck’s as a stepping stone for greater regulatory control of pharmacies. “Here’s a little guy doing animal drugs and this will be a much easier case for us,” Czaban said. “He won’t have the resources to fight. We have the bad facts of the horses dying. If we get a favorable decision, it may clear a path to take a more broad path in the future.”

Mike Scarcella can be contacted at mscarcella@alm.com.