Arner Co. v. United States

• Decision Date: 04 May 1944
• Docket Number: No. 3928.,3928.
• Citation: 142 F.2d 730
• Parties: ARNER CO., Inc., et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — First Circuit

142 F.2d 730 (1944)

ARNER CO., Inc., et al. v. UNITED STATES.

No. 3928.

Circuit Court of Appeals, First Circuit.

May 4, 1944.

Herbert S. Avery and Hugh D. McLellan, both of Boston, Mass. (Clinton Robb, Washington, D. C., of counsel), for appellants.

Alfred G. Malagodi, Asst. U. S. Atty., of Boston, Mass. (Edmund J. Brandon, U. S. Atty., of Boston, Mass., of counsel), for appellee.

Before MAHONEY and WOODBURY, Circuit Judges, and PETERS, District Judge.

MAHONEY, Circuit Judge.

This is a libel for the condemnation of certain drugs alleged to have been misbranded in violation of the Act of Congress of June, 1938, c. 675, 52 Stat. 1040, 21 U.S.C.A. §§ 301-392, known as the Federal Food, Drug, and Cosmetic Act. The drugs were manufactured in Buffalo, New York, by The Arner Co., Inc., for Paul Case of Brockton, Massachusetts, under a special formula owned by Case and were shipped f.o.b. from Buffalo by Arner to Case in Brockton where they were seized on the premises of the latter while in the bulk package in which they had been shipped. The package, a drum of about 40,000 tablets, was labeled "Special Formula Tablets No. 2 — The product contained herein must be packaged and labeled at point of destination before sale." The drugs were to be repackaged by Case for the retail trade. The libel alleged that the drugs were misbranded in that the label did not contain the required names of the active ingredients of the preparation and contained no statement of warning and directions. The appellants denied that the drugs were misbranded and asserted that they were exempt from the labeling requirements of the Act as they were in bulk package, not retail packages and not intended for sale until repackaged and labeled. Paul Case, in his answer, asserts ownership of the goods. The Arner Company asserts that it shipped the goods as agent for Case and that at the time of shipment it had in its possession a duly executed guarantee from Case that the drugs shipped would be packaged and labeled to conform to the law before sale to the consumer. It is agreed that the composition of said Special Formula Tablets No. 2 is as follows: sugar coated tablets containing sodium citrate, sodium bicarbonate and extract of a plant drug, such as cascara sagrada. The Arner Company is not the operator of the establishment where the tablets were to be labeled or repackaged. The Arner Company and Paul Case here appeal from the decree of forfeiture. They contend (1) that "labeling" as defined in the statute does not apply to containers of bulk shipments; (2) that regulation (a) (2) of § 503(a), 21 U.S.C.A. § 353(a), is invalid because it exceeds the limitations of the statute; (3) that if said regulation is not invalid, it has been sufficiently complied with; (4) that the bulk package herein involved is especially exempted under regulation (a) (1) of § 503(a).

Section 301(a), 21 U.S.C.A. § 331(a), prohibits "the introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded". By § 502, 21 U.S.C.A. § 352, it is provided that a drug shall be deemed misbranded:

"(e) If it is a drug and is not designated solely by a name recognized in an official compendium unless its label bears (1) the common or usual name of the drug, if such there be; and (2), in case it is fabricated from two or more ingredients, the common or usual name of each active ingredient, including the quantity, kind, and proportion of any alcohol, and also including, whether active or not, the name and quantity or proportion of any bromides, ether, chloroform, acetanilid, acetphenetidin, amidopyrine, antipyrine, atropine, hyoscine, hyoscyamine, arsenic, digitalis, digitalis glucosides, mercury, ouabain, strophanthin, strychnine, thyroid, or any derivative or preparation of any such substances, contained therein. * * *"¹

Section 201(k), 21 U.S.C.A. § 321(k), in defining "label" provides:

"The term `label' means a display of written, printed, or graphic matter upon the immediate container of any article; and a requirement made by or under authority of this chapter that any word, statement, or other information appear on the label shall not be considered to be complied with unless such word, statement, or other information also appears on the outside container or wrapper, if any there be, of the retail package of such article, or is easily legible through the outside container or wrapper."

Contrary to appellants' contention, this section does not indicate that the labeling requirement applies only to retail packages and not to bulk shipments. That could not be the proper interpretation in view of § 503(a) which directs the administrator to promulgate regulations exempting such shipments on certain conditions:

"The Administrator is hereby directed to promulgate regulations exempting from any labeling or packaging requirement of this chapter drugs and devices which are, in accordance with the practice of the trade, to be processed, labeled, or repacked in substantial quantities at establishments other than those where originally processed or packed, on condition that such drugs and devices are not adulterated or misbranded under the provisions of this chapter upon removal from such processing, labeling, or repacking establishment."

The first clause of § 201(k) — "The term `label' means a display of written, printed, or graphic matter upon the immediate container of any article" — thus must refer to an immediate container of an article shipped in bulk as well as the retail package and the second clause in referring specifically to retail packages must be an extension of labeling requirements and not a limitation. If § 201(k) were not intended to apply to bulk shipments, § 503(a) would be purposeless and meaningless. There would be no need to provide for the promulgation of regulations exempting bulk shipments from labeling requirements under designated conditions if the labeling requirement applied only to retail packages in the first place.

Appellants rely in large part on a case under the Food and Drugs Act of 1906, 34 Stat. 768, 21 U.S.C.A. § 1 et seq., United States v. Sixty-Five Casks Liquid Extracts, D.C.N.D.W.Va., 1909, 170 F. 449 affirmed on appeal by memorandum decision in United States v. Knowlton Danderine Co., 4 Cir., 1910, 175 F. 1022. They contend (1) that that case was cited with approval in Hipolite Egg Co. v. United States, 1911, 220 U.S. 45, 31 S.Ct. 364, 55 L.Ed. 364, and (2) that it is squarely in point with the case at bar. The Danderine case was unsuccessfully relied on by the plaintiff in error in the Hipolite Egg case. The Supreme Court set forth that case as follows, 220 U.S. at pages 52, 53, 31 S.Ct. at page 365, 55 L.Ed. 364:

"The articles involved in the first case were charged with having been misbranded, and consisted of drugs in casks, which were shipped from Detroit, Michigan, to Wheeling, West Virginia, there to be received by the Knowlton Danderine Company in bulk in car-load lots, and manufactured into danderine, of which no sale was to be made until the casks should be emptied and the contents placed in properly marked bottles.

"It was contended that the articles, not having been shipped in the casks for the purpose of sale thus in bulk, but shipped to the owner from one state to another, for the purpose of being bottled into small packages suitable for sale, and when so bottled to be labeled in compliance with the requirements of the act, were not transported for sale, and were therefore not subject to libel under § 10 of the act.

"The contention submitted to the court the construction of the statute. The court, however, based its decision upon the want of power in Congress to prohibit one from manufacturing a product in a state and removing it to another state `for the purpose of personal use and not sale, or for use in connection with the manufacture of other articles, to be legally branded when so manufactured;' and concluded independently, or as construing the statute, that the danderine company, being the owner of the property, shipped it to itself, and did not come within any of the prohibitions of the statute. The case was affirmed by the circuit court of appeals (99 C.C.A. 667, 175 F. 1022). The court, however, expressed no opinion as to the power of Congress. It decided that the facts did not exhibit a case within the purpose of the statute, saying: `No attempt to evade the law, either directly, indirectly or by subterfuge, has been shown, it appearing that the manufacturer had simply transferred from one point to another the product he was manufacturing, for the purpose of completing the preparation of the same for the market. Under the circumstances disclosed in this case, having in mind the object of the Congress in enacting the law involved, we do not think the liquid extracts proceeded against should be forfeited. In reaching this conclusion, we do not find it necessary to consider other questions discussed by counsel and referred to in the opinion of the court.'"

Additional facts not stated by the Supreme Court were that Parke, Davis & Co., under a contract with the Danderine Company, compounded the product in accordance with a formula, a trade secret owned by the Danderine Company, and caused it to be shipped to that company. Whether it was a part of the agreed statement of facts, or whether it was a conclusion from the terms of the contract, Parke, Davis & Co. were considered by the circuit court to be agents of the Danderine Company and not independent contractors in the manufacturing of the product. We cannot conclude the same, nor was it so argued to us at the hearing, as to the Arner Company here. In the facts before us, insofar as the manufacturing of the drug is concerned, Arner Company cannot be said to be mere agents. They compounded the drug as independent contractors and title passed at some time to Paul Case.

As was mentioned...