DOH v. Phil Pharma (G.R. No. 182358; February 20, 2013)


FACTS: On August 28, 2000, the DOH issued Memorandum No. 171-C which provided for a list and category of sanctions to be imposed on accredited government suppliers of pharmaceutical products in case of adverse findings regarding their products (e.g. substandard, fake, or misbranded) or violations committed by them during their accreditation.

In line with Memorandum No. 171-C, the DOH, through former Undersecretary Ma. Margarita M. Galon(Galon), issued Memorandum No. 209 series of 2000,inviting representatives of 24 accredited drug companies, including herein respondent Phil Pharmawealth, Inc. (PPI) to a meeting on October 27, 2000. During the meeting, Undersecretary Galon handed them copies of a document entitled "Report on Violative Products"issued by the Bureau of Food and Drugs (BFAD), which detailed violations or adverse findings relative to these accredited drug companies products. Specifically, the BFAD found that PPI products which were being sold to the public were unfit for human consumption.

During the October 27, 2000 meeting, the 24 drug companies were directed to submit within 10 days, or until November 6, 2000, their respective explanations on the adverse findings covering their respective products contained in the Report on Violative Products.

Instead of submitting its written explanation within the 10-day period as required, PPI belatedly sent a letter dated November 13, 2000 addressed to Undersecretary Galon, informing her that PPI has referred the Report on Violative Products to its lawyers with instructions to prepare the corresponding reply. However, PPI did not indicate when its reply would be submitted; nor did it seek an extension of the 10-day period, which had previously expired on November 6, 2000, much less offer any explanation for its failure to timely submit its reply.

In a letter-reply dated November 23, 2000 Undersecretary Galon found "untenable" PPI November 13, 2000 letter and therein informed PPI that, effective immediately, its accreditation has been suspended for two years pursuant to AO 10 and Memorandum No. 171-C.

In another December 14, 2000 letter addressed to Undersecretary Galon, PPI through counsel questioned the suspension of its accreditation, saying that the same was made pursuant to Section VII of AO 10 which it claimed was patently illegal and null and void because it arrogated unto the DOH Accreditation Committee powers and functions which were granted to the BFAD under Republic Act (RA) No. 3720 and Executive Order (EO) No. 175. PPI added that its accreditation was suspended without the benefit of notice and hearing, in violation of its right to substantive and administrative due process. It thus demanded that the DOH desist from implementing the suspension of its accreditation, under pain of legal redress.

On December 28, 2000, PPI filed before the Regional Trial Court of Pasig City a Complaint seeking to declare null and void certain DOH administrative issuances, with prayer for damages and injunction against the DOH, former Secretary Romualdez and DOH Undersecretary Galon.

In their Amended Answer,the DOH, former Secretary Romualdez, then Secretary Dayrit, and Undersecretary Galon sought the dismissal of the Complaint, stressing that PPI accreditation was suspended because most of the drugs it was importing and distributing/selling to the public were found by the BFAD to be substandard for human consumption. They added that the DOH is primarily responsible for the formulation, planning, implementation, and coordination of policies and programs in the field of health; it is vested with the comprehensive power to make essential health services and goods available to the people, including accreditation of drug suppliers and regulation of importation and distribution of basic medicines for the public.

In a January 8, 2001 Order, the trial court partially granted PPI prayer for a temporary restraining order, but only covering PPI products which were not included in the list of violative products or drugs as found by the BFAD.

In a Manifestation and Motion dated July 8, 2003, petitioners moved for the dismissal of Civil Case No. 68200, claiming that the case was one against the State; that the Complaint was improperly verified; and lack of authority of the corporate officer to commence the suit, as the requisite resolution of PPI board of directors granting to the commencing officer PPI Vice President for Legal and Administrative Affairs, Alan Alambra, the authority to file Civil Case No. 68200 was lacking. The trial court dismissed Civil Case No. 68200, declaring the case to be one instituted against the State, in which case the principle of state immunity from suit is applicable.

On appeal, the CA, in the herein assailed Decision, reversed the trial court ruling and ordered the remand of the case for the conduct of further proceedings. The CA concluded that it was premature for the trial court to have dismissed the Complaint. The CA further held that instead of dismissing the case, the trial court should have deferred the hearing and resolution of the motion to dismiss and proceeded to trial. It added that it was apparent from the Complaint that petitioners were being sued in their private and personal capacities for acts done beyond the scope of their official functions. Thus, the issue of whether the suit is against the State could best be threshed out during trial on the merits, rather than in proceedings covering a motion to dismiss.

ISSUE: Should Civil Case No. 68200 be dismissed for being a suit against the State?

HELD: The basic postulate enshrined in the constitution that t)he State may not be sued without its consent reflects nothing less than a recognition of the sovereign character of the State and an express affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts. It is based on the very essence of sovereignty. x x x [A] sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the logical and practical ground that there can be no legal right as against the authority that makes the law on which the right depends. True, the doctrine, not too infrequently, is derisively called the royal prerogative of dishonesty because it grants the state the prerogative to defeat any legitimate claim against it by simply invoking its nonsuability. We have had occasion to explain in its defense, however, that a continued adherence to the doctrine of non-suability cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance of its multifarious functions would be far greater in severity than the inconvenience that may be caused private parties, if such fundamental principle is to be abandoned and the availability of judicial remedy is not to be accordingly restricted.The rule, in any case, is not really absolute for it does not say that the state may not be sued under any circumstance. On the contrary, as correctly phrased, the doctrine only conveys, the state may not be sued without its consent; it's clear import then is that the State may at times be sued. The State consent may be given either expressly or impliedly. Express consent may be made through a general law or a special law. x xx Implied consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a counterclaim or when it enters into a contract. In this situation, the government is deemed to have descended to the level of the other contracting party and to have divested itself of its sovereign immunity. This rule, x x x is not, however, without qualification. Not all contracts entered into by the government operate as a waiver of its non-suability; distinction must still be made between one which is executed in the exercise of its sovereign function and another which is done in its proprietary capacity.

As a general rule, a state may not be sued. However, if it consents, either expressly or impliedly, then it may be the subject of a suit. There is express consent when a law, either special or general, so provides. On the other hand, there is implied consent when the state "enters into a contract or it itself commences litigation." However, it must be clarified that when a state enters into a contract, it does not automatically mean that it has waived its non-suability. The State "will be deemed to have impliedly waived its non-suability [only] if it has entered into a contract in its proprietary or private capacity. [However,] when the contract involves its sovereign or governmental capacity[,] x x x no such waiver may be implied.""Statutory provisions waiving [s]tate immunity are construed in strictissimi juris. For, waiver of immunity is in derogation of sovereignty."

The DOH can validly invoke state immunity. The DOH is an unincorporated agency which performs sovereign or governmental functions because it has not consented, either expressly or impliedly, to be sued. Significantly, the DOH is an unincorporated agency which performs functions of governmental character.

As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary Galon, it must be stressed that the doctrine of state immunity extends its protective mantle also to complaints filed against state officials for acts done in the discharge and performance of their duties. "The suability of a government official depends on whether the official concerned was acting within his official or jurisdictional capacity, and whether the acts done in the performance of official functions will result in a charge or financial liability against the government." Otherwise stated, "public officials can be held personally accountable for acts claimed to have been performed in connection with official duties where they have acted ultra vires or where there is showing of bad faith."

It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as Undersecretary Galon, were done while in the performance and discharge of their official functions or in their official capacities, and not in their personal or individual capacities. Secretaries Romualdez and Dayrit were being charged with the issuance of the assailed orders. On the other hand, Undersecretary Galon was being charged with implementing the assailed issuances. By no stretch of imagination could the same be categorized as ultra vires simply because the said acts are well within the scope of their authority. Section 4 of RA 3720 specifically provides that the BFAD is an office under the Office of the Health Secretary. Also, the Health Secretary is authorized to issue rules and regulations as may be necessary to effectively enforce the provisions of RA 3720. As regards Undersecretary Galon, she is authorized by law to supervise the offices under the DOH authority, such as the BFAD. Moreover, there was also no showing of bad faith on their part. The assailed issuances were not directed only against PPI. The suspension of PPI accreditation only came about after it failed to submit its comment as directed by Undersecretary Galon. It is also beyond dispute that if found wanting, a financial charge will be imposed upon them which will require an appropriation from the state of the needed amount. Thus, based on the foregoing considerations, the Complaint against them should likewise be dismissed for being a suit against the state which absolutely did not give its consent to be sued. Based on the foregoing considerations, and regardless of the merits of PPI case, this case deserves a dismissal. Evidently, the very foundation of Civil Case No. 68200 has crumbled at this initial juncture.