Malladi Drugs & Pharmaceuticals, Ltd. v. Tandy

• Decision Date: 13 March 2008
• Docket Number: Civil Action No. 07-4069 (RMC).
• Citation: 538 F.Supp.2d 162
• Court: U.S. District Court — District of Columbia
• Parties: MALLADI DRUGS & PHARMACEUTICALS, LTD., et al., Plaintiffs, v. Karen TANDY, in her official capacity as Administrator, Drug Enforcement Administration, Defendant.

538 F.Supp.2d 162

MALLADI DRUGS & PHARMACEUTICALS, LTD., et al., Plaintiffs, v. Karen TANDY, in her official capacity as Administrator, Drug Enforcement Administration, Defendant.

Civil Action No. 07-4069 (RMC).

United States District Court, District of Columbia.

March 13, 2008.

Zachary John Harmon, King & Spalding, Washington, DC, for Plaintiffs.

Ronald James Wiltsie, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

ROSEMARY M. COLLYER, District Judge.

The Drug Enforcement Administration ("DEA") has quite a problem. It routinely seizes controlled substances, such as chemicals for manufacturing pharmaceuticals, when an imported shipment does not comply with the stringent regulatory scheme. An interested party can file a "claim" and require DEA to seek judicial forfeiture of any seizure worth less than $500,000. See 18 U.S.C. § 983(a)(2) & (3); compare 19 U.S.C. § 1607(a)(1) (goods valued at less than $500,000 maybe forfeited administratively)¹ Or an interested party can file a "petition" to ask the Administrator of DEA, Defendant Karen Tandy, to give the chemicals back as a matter of executive discretion. See 21 C.F.R. § 1316.80; see also 28 C.F.R. § 9.5. Both a "claim" and a "petition" basically require the same information and, although forms are available, forms are not required. How, then; is the DEA to know whether it is dealing with a claimant entitled to a judicial hearing or a petitioner who is not? In this case, the Plaintiffs filed multiple Petitions for Remission or Mitigation of Forfeiture after DEA seized certain chemicals because of regulatory improprieties. DEA denied all petitions and denied requests for reconsideration and administratively forfeited the chemicals. Plaintiffs now bring suit, asserting that DEA should have treated their papers as both "petitions" and "claims" and ensured that they received a hearing before a federal judge prior to forfeiture.

I. BACKGROUND FACTS

Malladi Drugs & Pharmaceuticals, Ltd. ("Malladi DPL") is a supplier of pharmaceutical raw materials based in India. Pl.'s First Am. Compl. ("Am. Compl.") ¶¶ 2, 8. Plaintiff NOVUS Fine Chemicals, L.L.C. ("Novus") is a United States corporation based in New Jersey and is a wholly owned subsidiary of Malladi DPL. Am. Compl. ¶ 2. Non-party Malladi, Inc., is a now-dormant subsidiary of Malladi DPL, formerly located in New Jersey. Id. ¶¶ 7, 14, 17. At the relevant time period in 2005, Malladi, Inc., was in the business of importing List 1 Chemicals from Malladi DPL and selling them in this country to, among others, Novus. Id. ¶¶ 13-15.

List 1 Chemicals are chemicals that are used in the manufacture of controlled substances. 21 U.S.C. § 802(34). Controlled substances, in general, are either illegal drugs or drugs that may be obtained only with a prescription.² To prevent the diversion of List I Chemicals to the illicit manufacture of controlled substances, these chemicals may be imported and possessed only by persons or entities with a valid DEA registration. 21 U.S.C. § 822; 21 C.F.R. § 1309.21. Once imported, List I Chemicals are subject to detailed reporting requirements to ensure that they are used solely for legitimate purposes. 21 C.F.R. Pt. 1304. DEA has the right to seize "[a]ll listed chemicals ... which have been imported, ... possessed, ... acquired, or intended to be ... acquired, [or] imported ... in violation of" these laws and regulations. 21 U.S.C. § 888(a)(9).

On April 6, 2005, DEA agents inspected Malladi, Inc.'s administrative procedures for keeping track of List 1 Chemicals ephedrine, psuedoephedrine, ephedrine hydrochloride and psuedoephedrine hydrochloride ("the Chemicals"). See Am. Compl. ¶ 14. The agents "expressed reservations about the organization of Malladi Inc.'s file room, its document retention system and the availability of documentation necessary to reconcile inventory." Id. ¶ 14.³ On April 8, 2005, DEA agents returned to Malladi, Inc., and seized 233 drums of the Chemicals valued at $241,500; these Chemicals were being held as inventory at corporate headquarters in Edison, New Jersey. Id. ¶ 17. Three days later, on April 11, 2005, "in a good faith effort to display cooperation that the DEA officials stated would be helpful, [Malladi Inc.] surrendered [its] import registration. Id. ¶ 19. As a result, Malladi [Inc.] [was and is] no long able to possess List I Chemicals." Id., Ex. 4 at 3.

Unfortunately for Malladi DPL, it had three inbound shipments of the Chemicals that it had exported from India and shipped to Malladi, Inc., although the subsidiary corporation no longer had a right to receive or possess them. See Am. Compl. ¶¶ 20-22. On April 14, 2005, DEA seized 400 drums of Chemicals upon their arrival at the Port of Newark, New Jersey. Id. 1120. This seizure was valued at $464,000. Id. A third seizure occurred on April 27, when DEA seized 240 drums of Chemicals upon their arrival at the Port of Staten Island, New York. Id. ¶ 21. This seizure was valued at $250,500. Id. Lastly, DEA seized 400 drums of Chemicals when they arrived at the Port of Elizabeth, New Jersey, on May 2, 2005. Id. ¶ 22. This final seizure was valued at $464,000. Id. The aggregate value of all four seizures is $1,420,000. Id. ¶ 26.

The Plaintiffs received timely notice of each of the seizures and responded to DEA seeking their return. See Am. Compl., Exs. 1-4. On May 20, 2005, Novus filed a Petition for Remission or Mitigation of Forfeiture challenging the April 14 seizure at the Port of Newark and the May 2 seizure at the Port of Elizabeth. Id., Exs. 2a & 2b. Two months later, on July 12, Malladi DPL filed a separate Petition for Remission or Mitigation challenging the Staten Island seizure that had occurred on Aril 27. Id., Ex. 3. Finally, on October 21, 2005, Malladi DPL filed a Petition for Remission or Mitigation seeking the return of the inventory seized on April 8, 2005, from Malladi, Inc.'s corporate headquarters. Id., Ex. 4. Each of the Petitions was filed with the assistance of and by legal counsel. Id. ¶¶ 44-46. DEA forfeited all four seizures administratively and denied the Petitions and motions for reconsideration.

II. STATUTORY BACKGROUND

Civil forfeiture of inanimate objects used in criminal schemes has long been prevalent in the United States. It has its origins in the common law.

At common law the value of an inanimate object directly or indirectly causing the accidental death of a King's subject was forfeited to the Crown as a deodand.^* The origins of the deodand are traceable to Biblical and pre-Judeo-Christian practices, which reflected the view that the instrument of death was accused and that religious expiation was required. The value of the instrument was forfeited to the King, in the belief that the King would provide the money for Masses to be said for the good of the dead man's soul, or insure that the deodand was put to charitable uses. When application of the deodand to religious or eleemosynary purposes ceased, and the deodand became a source of Crown revenue, the institution was justified as a penalty for carelessness.

^* Deodand derives from the Latin Deo dandum, to be "given to God."

Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 680-81, 94 S.Ct. 2080, 40

L.Ed.2d 452 (1974) (citations omitted). In England, the use of civil forfeiture was expanded to those convicted of felonies and treason as well as "offending objects used in violation of the customs and revenue laws." Id. at 682, 94 S.Ct. 2080. These latter traditions were carried over into the United States, where "ships and cargoes involved in customs offenses were made subject to forfeiture under federal law." Id. at 683, 94 S.Ct. 2080. "[C]ontemporary federal and state forfeiture statutes reach virtually any type of property that might be used in the conduct of a criminal enterprise." Id.

In 1970, Congress passed the Comprehensive Drug Abuse Prevention and Control Act, 21 U.S.C. § 801 et seq. Part of that lengthy statute provided for forfeitures of controlled substances "manufactured, distributed, dispensed, or acquired in violation of this subchapter." 21 U.S.C. § 881. At that time, true to its lineage, the statute provided that seizure would be conducted pursuant to supplemental rules for admiralty and maritime claims. See id. 881(b). In addition, "[t]he provisions of law relating to the seizure [and] summary and judicial forfeiture ... for violation of the customs laws; the disposition of such property or the proceeds from the sale thereof; [and] the remission or mitigation of such forfeitures ..." applied as well to drug seizures. Id. § 881(d).

1. "Claims" Under CAFRA

Over time, the government's enthusiasm for civil forfeiture of objects arguably associated with criminal activity led to pressure for greater protection of citizens' due process rights. Congress adopted the Civil Asset Reform Act of 2000 ("CAFRA"), 18 U.S.C. § 983, to achieve the desired balance between governmental and private interests. CAFRA introduced a number of significant changes to civil forfeiture procedures. As relevant here, CAFRA introduced the concept of a post-seizure "claim" for seizures valued at less than $500,000, 18 U.S.C. 983(a)(2)(A),⁴ the filing of which requires DEA to seek a judicial forfeiture. See 18 U.S.C. 983(a)(3). "A claim shall — (i) identify the specific property being claimed; (ii) state the claimant's interest in such property; and (iii) be made under oath, subject to the penalty of perjury," but "need not be made in any particular form." 18 U.S.C. 983(a)(2)(C) & (D). "Not later than 90 days after a claim has been filed, the Government shall file a complaint for forfeiture ... or return the property...." 18 U.S.C. 983(a)(3)(A).

In addition, if a claimant follows the requirements of CAFRA, it is entitled to "immediate release" of seized property.

A claimant is entitled to "immediate release" of property the government has seized if:

(A) the claimant has a possessory...