Federal drug authorities violated policy when they suspended a Walgreens drug distribution center from shipping certain controlled substances, a lawyer for the national pharmacy retailer told a federal appeals court in Washington.

The U.S. Drug Enforcement Administration last year issued an immediate suspension order against the Walgreen Co. distribution center in Jupiter, Fla., after concluding the facility posed an "imminent danger" to the public safety regarding the safe distribution of prescription drugs. The center, one of twelve in the country that Walgreens owns and operates, distributes controlled substances to more than 800 pharmacies in Florida and along the East Coast.

A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit at a hearing on March 21 began reviewing the DEA action to determine the scope of the authority of federal drug regulators to issue suspension orders. The assessment comes amid the DEA’s national crackdown on distributors of painkillers. Agency officials said the Jupiter facility was the single largest distributor of oxycodone products in Florida since 2009.

Arguing for Walgreens in the appeals court, Latham & Watkins partner Gregory Garre told the panel that the DEA suspension order was based on the flawed legal premise that distributors must investigate suspicious drug orders and stop any shipment until the completion of the inquiry. Agency regulations under the Controlled Substance Act, Garre said, require only a duty to report suspicious orders to the DEA.

The DEA, Garre said, was required, at least, to provide a reasoned explanation for the policy change. "The agency has never attempted that here," said Garre, a former DOJ solicitor general who now leads Latham’s Supreme Court and appellate practice group.

Garre described the suspension order as a "padlock" around a major distribution center. He argued there was no immediate danger at the time the DEA issued the suspension order.

A senior DEA official, Garre told the appeals court, said in testimony in a civil case that the investigate-and-halt obligation marked "a significant change in DEA policy, DEA guidance and interpretation." The DEA, Garre said, was obliged to provide the opportunity for pharmacies to provide comment before the adoption and implementation of the change.

Justice Department lawyer Samantha Chaifetz of the Civil Division argued the suspension order was justified based on what she described were "systematic shortcomings" at the Walgreens center in Jupiter. Chaifetz said Walgreens officials were not taking seriously their responsibility to thwart the diversion of drugs.

By September 2012, when the DEA issued the suspension order, the Jupiter center had not "instituted protocols and policies for completing pre-shipment due diligence on suspicious orders," Chaifetz said in a brief in the D.C. Circuit. The DEA concluded the Jupiter center failed to see "readily identifiable orders and ordering patterns" that showed "obvious signs of diversion."

Chaifetz in court disputed the notion that the DEA made any change in the regulations targeting pharmacies and drug diversion. The DEA, she said, had earlier provided guidance to pharmacies that "a distributor cannot claim to maintain effective controls against diversion if it fills suspicious orders without conducting due diligence."

The D.C. Circuit panel—Judges David Tatel and Judith Rogers, sitting with Senior Judge David Sentelle—didn’t immediately rule. Sentelle appeared concerned the DEA failed to show how, in 2012, the Jupiter facility posed an imminent danger to public health. The evidence, at that point, showed a drop in the distribution of certain drugs, the judge noted.

Contact Mike Scarcella at mscarcella@alm.com.