Amerisource Corp. v. U.S.

Decision Date01 May 2008
Docket NumberNo. 2007-5121.,2007-5121.
Citation525 F.3d 1149
PartiesAMERISOURCE CORPORATION, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

Ronald J. Mann, Mitts Milavec, LLC, of Philadelphia, PA, argued for plaintiff-appellant. With him on the brief was Maurice R. Mitts.

Robert E. Chandler, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Jeanne E. Davidson, Director, and Deborah A. Bynum, Assistant Director.

Before MAYER and SCHALL, Circuit Judges, and YOUNG, District Judge.*

YOUNG, District Judge.

This case requires us to determine whether the Fifth Amendment's Takings Clause applies when the government seizes an innocent third party's property for use in a criminal prosecution but never introduces the property in evidence, and it is rendered worthless over the course of the proceedings. We affirm the Court of Federal Claims' grant of summary judgment for the government on the ground that no compensable taking has occurred.

I. BACKGROUND

In early August 2000, AmeriSource Corporation ("AmeriSource"), a wholesale pharmaceutical distributor, contracted with Norfolk Pharmacy ("Norfolk") to sell it a large quantity of Viagra, Propecia, and Xenacil for $150,826.26. AmeriSource Corp. v. United States, 75 Fed.Cl. 743, 744 (2007). Although AmeriSource delivered the drugs to Norfolk's headquarters in Weirton, West Virginia, AmeriSource retained ownership at all times because Norfolk never finalized payment. See Aplt's App., at A25, A31-A34.

A few days before Norfolk entered into the agreement with AmeriSource, the United States Attorney for the Middle District of Alabama indicted the pharmacy's principals, Anton Pusztai and Anita Yates, on charges of "conspiracy, unlawful distribution of prescription pharmaceuticals, operating an unregistered drug facility, and conspiracy to commit money laundering." AmeriSource, 75 Fed.Cl. at 744. The United States Attorney seized a large number of pharmaceuticals from Norfolk's warehouse in connection with this investigation, including those that AmeriSource had recently delivered. Id. AmeriSource does not contest the legality of this seizure.

After the government rebuffed AmeriSource's initial requests for return of the drugs, AmeriSource filed a petition pursuant to Rule 41(e)1 of the Federal Rules of Criminal Procedure, which provides a remedy for owners whose property has been seized as part of a criminal proceeding. Id. The district court denied AmeriSource's request, and the government retained the drugs through a trial that resulted in Pusztai and Yates's convictions. Id. at 745. After the Eleventh Circuit overturned the convictions, the government retained the drugs until Pusztai and Yates pleaded guilty. Id. By that point, the drugs had passed their expiration date and become worthless. Id. Contrary to the government's representations, they were never introduced in evidence in any proceeding. Id.

A. PROCEEDINGS BELOW

AmeriSource sought to recover the drugs or their equivalent value in three different proceedings. First, in October 2000, AmeriSource filed the aforementioned Rule 41(e) petition, which the District Court for the Middle District of Alabama denied. AmeriSource, 75 Fed.Cl. at 744-45. In August 2002, AmeriSource filed a claim against Norfolk in the United States District Court for the District of West Virginia, and the court entered a default judgment against Norfolk in the amount of $208,070.12. AmeriSource, 75 Fed.Cl. at 746. That judgment remains unsatisfied. Id. Finally, AmeriSource filed the instant action in the Court of Federal Claims in 2004 seeking to recover the value of the seized drugs based upon the alleged Fifth Amendment taking. Id. at 744. The proceedings in the Middle District of Alabama and the Court of Federal Claims are outlined below.

On October 2, 2000, AmeriSource petitioned the District Court for the Middle District of Alabama to order a return of the seized drugs. Id. The court treated the request as a petition under Federal Rule of Criminal Procedure 41(e), which provides in full:

A person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property's return. The motion must be filed in the district where the property was seized. The court must receive evidence on any factual issue necessary to decide the motion. If it grants the motion, the court must return the property to the movant, but may impose reasonable conditions to protect access to the property and its use in later proceedings.2

AmeriSource argued for the return of its property on the ground that the "use by" date on the drugs would soon pass. Id. at 744. In addition, AmeriSource maintained that the government would suffer no hardship were it allowed to retain a sample of the confiscated drugs. Id. Assuring the court that it would give back the drugs before their expiration date, the government insisted that even a partial return was not possible because its "trial strategy was to present all of the property in question at trial, in order to establish the illicit nature of the criminal defendants' sales activity." Id. at 745. In addition, the government maintained that AmeriSource had failed to avail itself of alternative civil remedies against Norfolk. Id.

In a report and recommendation ultimately adopted by the district court without challenge, a magistrate judge rejected AmeriSource's petition because AmeriSource could not identify with any reasonable degree of specificity the drugs it owned. Id. at 748. Apparently, the seized pharmaceuticals included drugs from a number of distributors, and they had all become commingled. See id. In addition, "[t]he magistrate found that AmeriSource had not demonstrated that it lacked an adequate remedy at law." Id.

In the proceeding that we have jurisdiction to review, the Court of Federal Claims granted summary judgment for the government. Id. at 752. The court ruled that the government had seized and retained the property pursuant to the police power, and, therefore, the Takings Clause did not apply.3 Id. at 751. The Court of Federal Claims reasoned that "[t]he ability of federal prosecutors to deprive property owners of certain items in order to secure justice and a fair trial for a criminal defendant is a legitimate and traditionally accepted exercise of the police power. Accordingly, it is by definition not a compensable taking." Id. The court emphasized that although the police power is expansive, the government still must exercise it in a reasonable manner. The court concluded, however, that "[a] judicial endorsement of the Government's retention of property as evidence demonstrate[d] that there has been a reasonable exercise of the Government's police power." Id. at 749.

We agree.

II. ANALYSIS

This court reviews de novo the decisions of the Court of Federal Claims to grant summary judgment. Jentoft v. United States, 450 F.3d 1342, 1346 (Fed. Cir.2006). We have jurisdiction to review the judgment of the Court of Federal Claims under 28 U.S.C. §§ 1295(a)(3) and 1491(a)(1), but we note that neither our Court nor the Court of Federal Claims has jurisdiction to review a district court's denial of relief under Rule 41(e). See Garcia Carranza v. United States, 67 Fed.Cl. 106, 112 (2005) ("[T]he United States Court of Federal Claims does not have jurisdiction to review final judgments of the United States District Court[s] . . . including [under] Fed.R.Crim.P. 41(g) . . . .").

A. THE GOVERNMENT'S DECISION TO RETAIN AMERISOURCE'S DRUGS BEYOND THE POINT OF EXPIRATION DOES NOT CONSTITUTE A TAKING

The Takings Clause provides in full: "nor shall private property be taken for public use without just compensation." U.S. Const. Amend. V. The clause does not entitle all aggrieved owners to recompense, only those whose property has been "taken for a public use." At first blush, the language appears to entitle vast numbers of citizens to seek relief via the Takings Clause. After all, in a "government of the people, by the people, and for the people," Abraham Lincoln, The Gettysburg Address (November 19, 1863), every government action is intended to benefit the public.

AmeriSource relies on this expansive reading of public use. Its argument that it is due "just compensation" is premised on the assumption that "public use" encompasses any government use of private property aimed at promoting the common good, including enforcement of the criminal laws. If we confined our reasoning to a literal reading of the text, AmeriSource's argument might have considerable force. The text does not qualify the term, nor does it specify particular types of public use that trigger the just compensation requirement. In the context of the Takings Clause, however, "public use" has a narrower meaning because courts have construed it in harmony with the police power.

1. The government's seizure of property to enforce criminal laws is a traditional exercise of the police power that does not constitute a "public use"

"[T]he police powers of a state . . . are nothing more or less than the powers of government inherent in every sovereignty to the extent of its dominions[.]" The License Cases, 46 U.S. 504, 584, 5 How. 504, 12 L.Ed. 256 (1847) (some internal alterations omitted). An axiomatic but amorphous aspect of sovereignty, "[t]he police power was always a flexible notion — so flexible, indeed, that some have quipped that the concept has little to commend it beyond alliteration." 1 Laurence H. Tribe, American Constitutional Law § 6-4 (3d. ed.2000). Although the precise contours of the principle are difficult to discern, it is clear that the police power encompasses the government's ability to seize and retain property to be used as evidence in a criminal prosecution. See Warden v. Hayden, 387 U.S. 294, 309-10, 87 S.Ct. 1642, 18...

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